Fall 2003 Macroeconomic Final Exam
Name:
Spell out all labels for your graphs.
Please answer the questions in order.
Questions off of the study guide together count 80 percent of the points.
1.
2.
3.
4.
5.
6.
7.
8.
a. Use a Keynesian cross to illustrate an economy with an equilibrium level of GDP below its potential.
b. In Keynesian terms, list and explain three possibilities that may have caused this performance, other than
fiscal or monetary policies.
c. Explain the appropriate fiscal policy responses according to the Keynesians.
d. Name and define the three tools of the Fed and explain how each is used to enhance GDP.
Define productivity.
a. What does the acronym NAIRU stand for?
b. Explain the trade-off in the Keynesian model, and relate it to NAIRU.
a. Define Gross Domestic Product.
b. Name and briefly explain the two methods the Department of Commerce uses to measure GDP.
a. Interpret each of the following CPI values.
1990: base period
1993 – 130
1994 – 133
2002 – 152
2003 - 152
b. Provide all inflation rates that can be derived from this data. Show your work.
Briefly explain two policies intended to promote long run growth.
a. Based on Affluenza, critique the macroeconomic goal of increasing GDP in the United States.
b. Do you support this goal? Why, or why not?
Place an X in the spaces if the theory is associated with the statement on the right. If the statement applies to
both theories, then place an X in both columns. If the statement applies to neither theory, place no X (25).
Demandside
economics
Supplyside
economics
Uses government spending as a policy tool
Uses government taxation as a policy tool
Focuses on longrun improvements in the economy
Offers a theoretical solution to stagflation
Was used to support passage of the Employment Act of 1946
Is today’s orthodoxy
Was implemented and then was associated with an actual increase
in the government’s deficit
Is explained and defended in The General Theory of Employment,
Interest and Money
Is defended on the basis of actual implementation in the US
Can be represented using the model of AS/AD
Was used to “fine tune” the economy in the 1970s
Considers investment to be important
Which ONE is most laissez faire? (Indicate only one.)
Grades will not be available from me prior to when they are mailed to you; sorry.
Have a joy filled break!
Macroeconomic Final Exam, Fall 2002
Name:
Spell out all labels for your graphs.
Please answer the questions in order.
Questions off of the study guide together count 80 percent of the points.
1.
Graph a recessionary gap. QUESTIONS 2-5 REFER TO THIS TYPE OF GAP.
2.
In Keynesian terms, list and explain two possible causes of the gap.
3.
Explain the appropriate policy response according to the Classical economists.
4.
Explain the appropriate policy response according to the Keynesians.
5.
Name and define the three tools of the Fed and explain how each is used to
diminish a recessionary gap.
6.
a. If the desired change in output is $30 billion and the MPC is 0.75, how big a
change in autonomous spending is needed to obtain the desired equilibrium income
level? Show your work.
b. Graphically illustrate.
7.
a. Based on Affluenza, critique the macroeconomic goal of increasing GDP.
b. Do you support this goal? Why, or why not?
8.
a. What does the acronym NAIRU stand for?
b. Explain the trade-off in the Keynesian model, and relate it to NAIRU.
1.
9.
a. Define Gross Domestic Product.
b. Name and briefly explain the two methods the Department of Commerce uses to
measure GDP.
10. What all counts as reserves for banks?
11. Define “potential output.”
Honor code:
Grades will not be available from me prior to when they are mailed to you.
Sorry.
Have a great break!
And, if applicable,
A Wonderful Holiday!!
Fall 2003 Macroeconomics - Study guide for final exam
Eighty percent of your final exam will be based on this list. (We may edit
it as we go over the answers together in class.) Spell out all labels for
your graphs. For the remainder of the exam, review your study questions,
previous exams, and material since the last test.
2.
Define/explain: inflation rate, unemployment rate (including what it means to be unemployed), phases of the
business cycle, GDP, productivity, fiscal policy, monetary policy, potential output.
3.
Explain the CPI. Assume the following values:
1892-1984: base period
1993 – 144.5
1994 – 148.2
1995 – 152.4
2002 – 178.9
Oct 2002 – 181.3
Aug 2003 – 184.6
Sep 2003 – 185.2
Oct 2003 – 185.0
Interpret these CPI values.
Provide all monthly and yearly
inflation rates that can be
derived from this data.
4.
Illustrate with a Keynesian cross an economy operating at its potential.
5.
a. Use a Keynesian cross to illustrate an economy with a level of GDP below its potential.
b. In Keynesian terms, list and explain what may have caused this performance, other than fiscal or monetary
policies.
c. Explain the appropriate fiscal policy responses according to the Keynesians.
d. Name and define the three tools of the Fed and explain how each is used
to enhance GDP.
6. Repeat question 4 for an economy operating above its potential.
7. Explain how the multiplier works.
Illustrate with a Keynesian cross.
8. Explain the trade-off in the Keynesian model.
9. Briefly explain four policies intended to promote long run growth.
10. Based on Affluenza, critique the macroeconomic goal of increasing GDP.
(Include chapter themes from Part I of the book, and chapter 29; prepare
a full discussion.)
Questions on material since the last exam:
1.
2.
3.
4.
5.
What are the three functions of money?
Define: M1, reserves
Who creates money? How?
In what way in the Federal Reserve Bank a private institution? How is it a public institution?
What is the basis for the independence of the Board of Governors? Why, according to some, is this
independence a good idea? What is the criticism of it?
6. Illustrate the relationship between bond values and interest rates.
7. How do interest rates affect the economy?
8. Define: deficit, debt, crowding out
9. Why is the debt a problem?
Interest > 12 percent of federal budget
Foreigners hold about 20 percent of the debt
Page 359:
2002 -1.5
2003 -3.7
2004 -4.3
Page 367
2002 34.2%
2003 37.1%
2004 39.5 %
Debt held by public
$3.54 trillion
$3.99 trillion
$4.44 trillion
Interest
$171 billion
$157 billion
$155 billion
Answer the multiple choice questions based on your McEachern text. Pick the best answer and
indicate your answer here:
1.
a
b
c
d
e
11.
a
b
c
d
e
2.
a
b
c
d
e
12.
a
b
c
d
e
3.
a
b
c
d
e
13.
a
b
c
d
e
4.
a
b
c
d
e
5.
a
b
c
d
e
6.
a
b
c
d
e
7.
a
b
c
d
e
8.
a
b
c
d
e
9.
a
b
c
d
e
10.
a
b
c
d
e
Honor code:
Macroeconomics – Test Three
Name:
1.
It is the goal of government policy to have some unemployment! What type? Fully discuss. (15)
2.
What does the level of investment depend upon? Graph and explain. (10)
3.
What can make investment decrease? Simply list; no graph is required. (6)
4.
Graph the Keynesian cross. Fully label your graph, and indicate the equilibrium. (10)
5.
Graph the Keynesian cross. Indicate a point that is below the equilibrium. Use the graph to help you explain the
adjustment process. (10)
6.
Graph the Keynesian cross and indicate the equilibrium. Graphically show what we expect to occur if foreign
incomes rise. In a sentence or two, explain. (7)
7.
If a $25,000 car was produced in 2000 and sold in 2001, will it be counted in 2001 GDP? Why or why not? (6)
8.
Name three different groups who care about how whether the CPI overstates inflation. Explain the basis of their
concern. (7)
9.
Why has it become increasingly difficult to the federal government to monitor economic activity in the United
States? (7)
10. In the “Growth Consensus Unravels,” Rowe discusses what he calls “compulsory” consumption. What does he
mean by that? Provide an example to illustrate. (6)
11. In a sentence, provide one way in which the GDP differs from the GPI. (3)
over
The following is related to your previous study guide:
Nominal interest rate = rate stated on loan agreement
Assume I loan you $100 at a rate of 6 percent, and that the inflation rate is
6 percent. How much of an increase in purchasing power do I obtain when you
pay me back? Consequently, what is the real rate of interest on this loan?
Develop an equation that contains the real rate of interest, the nominal rate
of interest, and the rate of inflation.
Problems of inflation:
When unexpected, inflation hurts (borrowers or lenders). In this way
unanticipated inflation redistributes real income from whom to whom?
Inflation makes business planning more difficult.
Inflation hurts those on fixed incomes.
_____________________________________
Tradeoff between inflation and unemployment:
To reduce inflation, government can enact policy to reduce aggregate demand.
But with less spending in the economy, output is expected to drop and
unemployment is expected to rise.
To reduce unemployment and increase output, government can enact policy to
increase aggregate demand. But with more spending, there will be upward
pressure on prices.
So, the NAIRU policy objective is to adjust the level of aggregate demand in
order to lower unemployment as much as possible without causing inflation to
take off.
Implication: It is the goal of government policy to have some cyclical
unemployment! (Explain.)
__________________________________
Fiscal policy = Use of G spending and taxing levels to stabilize the economy
Monetary policy = Changing size of money supply to stabilize the economy
_________________________________
Expenditure model = Keynesian cross
Macroeconomics
Refer to your book just to help you clarify what we did in class.
Chapter 9:
1.
2.
3.
4.
Expenditure model for the determination of … what? What does the AD/ AS
model determine?
Graph the consumption function. MPC: what the letters stand for, define
the concept, mathematical expression, relate to the consumption function.
Movement along the C function? Shift of the C function?
Investment function: autonomous means what? What does I level depend
upon? Graph and explain. Graph the investment function. What can make
investment increase? Decrease? Illustrate graphically.
5.
6.
7.
Government spending function: Graph. What makes it shift up or down?
Graph our simplified net export function. What makes it shift up or down?
Graph C, I, G, and net exports. Graph C + I + G + net exports.
Chapter 10:
8. Graph the Keynesian cross, and explain your graph.
9. Explain the adjustment if output exceeds the equilibrium. Repeat for
below the equilibrium. Include the inventory adjustment mechanism.
10. Use the circular flow model and our chart to explain the multiplier
effect.
11. What makes the size of the multiplier larger? Explain or illustrate.
---------------------------------------------------------------------------The following is related to your previous study guide:
Nominal interest rate = rate stated on loan agreement
Assume I loan you $100 at a rate of 6 percent, and that the inflation rate is
6 percent. How much of an increase in purchasing power do I obtain when you
pay me back? Consequently, what is the real rate of interest on this loan?
Develop an equation that contains the real rate of interest, the nominal rate
of interest, and the rate of inflation.
Problems of inflation:
When unexpected, inflation hurts (borrowers or lenders). In this way
unanticipated inflation redistributes real income from whom to whom?
Inflation makes business planning more difficult.
Inflation hurts those on fixed incomes.
www.bls.gov/cpi
General overview
Consumer Price Index- all urban consumers
US All items
Scroll down
Retrieve data
2002 Sep = _________; what does this number tell you?
2003 Sep = _________
How much inflation over that 12 months?
McEachern Chapter 7
1. Explain the two ways to measure GDP.
2. In the expenditure approach to measuring GDP, why are imports subtracted? What type of
government spending is included, and what type is not? Why? What are the types of investment?
Why are inventories included in investment?
3. Distinguish between nominal and real. Also: current dollars, constant dollars, base year dollars.
4. Provide the equations for the CPI and for the GDP price index. Be able to do the math and interpret,
as we did in class.
5. Explain three problems with the CPI. (See McEachern’s discussion to help you understand.)
According to the economists who studied it, by how much does the CPI overstate inflation? Why does
this difference matter?
6. Distinguish between “inflation” and “inflation rate.”
7. Pages 150-1: #1, 2, 7, 8, 9, 10, 12, 19
8. In the “Growth Consensus Unravels,” Rowe distinguishes among categories of consumption. Some is
addictive, some compulsory, and some “arises from the need to deal with the offshoots and
implications of growth.” Explain each category and provide one of his illustrations of each.
Distinguish between the GDP and the GPI.
McEachern Chapter 8
Costs of unemployment
Personal
Loss of goods and services
Measuring unemployment
BLS
Adult = civilian, non-institutionalized, 16+
Labor force
Unemployed
Unemployment rate
Outside labor force
Discouraged workers
1/3 part-time prefer to work full time
Labor force participation rate, of women, of men
Types of unemployment
Frictional
Structural
Seasonal
Cyclical
Stabilization policy goal
Inflation
Inflation rate
Demand-pull inflation
NAIRU
Tradeoff between:
Interpreting Exhibit 6 (p. 169)
Nominal interest rate
Real interest rate
Problems of inflation: Redistributes income
Makes business planning more difficult
Hurts those on fixed incomes
Recent inflation levels
MACROECONOMICS
EXAM 2
NAME:
Please answer the questions in order.
1. Korten reports on the history of corporations in the post-Civil War years.
a. Briefly explain two changes made then that are still in effect today.
b. Briefly explain two changes made then that are no longer in effect today (12).
2. What does “Santa Clara County v. Southern Pacific Railroad” refer to? Identify as fully as we did in
class (5).
3. a. Graph AD.
b. What does it depict?
c. We discussed two bases for its slope. Explain each (14).
4. Explain two possibilities that would shift AS to the right (6).
5. a. Define productivity.
b. We discussed four determinants of productivity. Explain each, including how each could cause
productivity to grow.
c. For each, illustrate the increase in productivity with a graph of the production function (18).
6. Place an X in the spaces if the theory is associated with the statement on the right. If the statement
applies to both theories, then place an X in both columns. If the statement applies to neither theory,
place no X (25).
Demandside
economics
Supplyside
economics
Uses government spending as a policy tool
Uses government taxation as a policy tool
Focuses on longrun improvements in the economy
Offers a theoretical solution to stagflation
Was used to support passage of the Employment Act of 1946
Is today’s orthodoxy
Was implemented and then was associated with an actual increase
in the government’s deficit
Is explained and defended in The General Theory of Employment,
Interest and Money
Is defended on the basis of actual implementation in the US
Can be represented using the model of AS/AD
Was used to “fine tune” the economy in the 1970s
Considers investment to be important
Which ONE is most laissez faire? (Indicate only one.)
Study questions for second exam, Wednesday, October 22
Korten questions from last study guide plus notes from classroom discussion
McEachern page 107, 4-16
McEachern pages 129-30, 1-14, 17
Know the vocabulary that McEachern uses in his study questions.
1. AD curve:
What does it depict?
Why is it downward sloping?
Interpret/explain (as we did in class) what is measured on the axes.
When does an increase in wealth prompt movement along a curve and when does it shift the
curve?
Why movement along AD and why a shift in AD?
Who purchases domestic GDP, and how do economists name their spending?
2. Stock versus bond; the two ways that people make money through stocks; impacts of falling
stock prices.
3. AS curve:
What does it depict?
Why is it upward sloping?
Why move along? Why does it shift?
4. Use AD/AS model to illustrate the 1929-1933 and 1973-1975. Explain your graphs.
What was Keynes’ solution to the Great Depression? Graphically illustrate. How did this
differ from the conventional wisdom of the day?
5. Name Keynes’ book. What were the three major innovations of the book?
6. What is demand-side policy and what is supply-side policy? Graph each, and describe the
outcomes. According to their advocates, how is each supposed to work?
7. Fine-tuning? Stagflation?
8. What is a production function? Graph ours and explain its shape. What causes movement
along? What makes it rotate?
9. What is productivity? What enhances productivity? Why does productivity matter?
Study questions for first Macroeconomics test on Monday, 9/22
1.
2.
3.
4.
5.
6.
Distinguish between microeconomics and macroeconomics. What are the traditional
emphases of macro?
McEachern: pp. 66-7, 1-20 except 17c.
Explain (as we did in class) the orthodox theory of the 1930s and how it was
inadequate.
Do markets ration? Explain. Do markets coordinate? Explain.
Who does the economy serve? Explain our different answers. Which answer is the
answer of orthodox economics? Which answer do you prefer? Comment.
Describe the evolution from feudalism to capitalism. (This requires a long answer.)
Explain how Adam Smith fits in the history. What was his over-riding argument?
Adam Smith:
7. What was the point of his observations of the pin factory?
8. Explain his complaint with each of four Mercantilist policies.
9. What are the bases for each of his three roles of government?
10. What is the invisible hand to what does it direct people? Briefly explain.
Korten:
11. What does the modern corporation have in common with the “great merchant
companies of fifteenth- and sixteenth-century England and Holland”? How are they
different?
12. How did the US Constitution treat corporations?
13. What were the restrictions put on corporations until the mid 1800s?
14. How were corporations strengthened in the post-Civil War years? How did this
come about? What were the indications and the consequences of their strength?
15. How did corporate behavior evolve in the opening decades of the 20th century?
16. What does Korten take as evidence of the ascent of pluralism?
17. How does he describe the reversal of pluralism?
Northrop:
18. Provide an alternative value judgment for each of the ones commonly implied by
introductory texts.
19. McEachern: pp. 86-7, 4-8.
Corrections to the syllabus:
Your paper will be due on Wednesday, 11/12
Third exam is on Wednesday, 11/19
Thanksgiving break is Wednesday, 11/26
Name:
Macroeconomics - First Test
Please answer the questions in order.
Be sure to answer all parts.
1.
Simply list the four traditional emphases of macroeconomics. (8 pts.)
2.
a. List the four mercantilist policies and indicate how each one advanced the interests of
royalty.
b. What was Smith’s general complaint with mercantilist policies? (18)
3.
a. Discuss what is meant by “the invisible hand,” and what Smith asserted its usefulness to
be.
b. According to Smith can society always rely on the invisible hand? Explain his
perspective. (18)
4.
a. Construct a graph of the labor market that illustrates it in equilibrium. Fully label the
graph.
b. Redraw your graph from (a).
c. Assume that laborsaving technologies are developed and that firms need fewer workers.
Clearly illustrate the expected consequences of this assumption on your graph in (b).
d. As related to this graph, state what (all) early economists would have expected to happen
as a consequence of the assumption in (c).
e. Name the first person of note to argue against this model as a way of understanding the
labor market? (18)
5.
Explain the differences between “consumer sovereignty” and “producer sovereignty.” (12)
6.
a. Based on the Northrop article, pick any one of the implicit biases common in
introductory texts. Explain what that bias is and explain an alternative bias.
b. Why does Northrop care about the biases that show up in the introductory texts? (10)
OVER
Answer the multiple choice questions based on your McEachern text. Pick the best answer and
indicate your answer here:
1.
a
b
c
d
e
11.
a
b
c
d
e
2.
a
b
c
d
e
12.
a
b
c
d
e
3.
a
b
c
d
e
13.
a
b
c
d
e
4.
a
b
c
d
e
14.
a
b
c
d
e
5.
a
b
c
d
e
15.
a
b
c
d
e
6.
a
b
c
d
e
16.
a
b
c
d
e
7.
a
b
c
d
e
17.
a
b
c
d
e
8.
a
b
c
d
e
18.
a
b
c
d
e
9.
a
b
c
d
e
19.
a
b
c
d
e
10.
a
b
c
d
e
Honor code: