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Hey I need helps answering Question 2 part B of this exam 




ECON7020: Macroeconomics for Business ? Mid-Semester Examination, Semester 1, 2011

 


 

Part A ? Multiple Choice Questions

 

Answer ALL 15 Questions in Part A on the MCQ Answer Sheet provided

 

Part A is worth 15 marks

 

Choose the best answer for each of the following questions:

 


 

The inflation rate is a measure of how fast:

 

A)

 

B)

 

C)

 

D)

 


 

2.

 


 

the total income of the economy is growing.

 

unemployment in the economy is increasing.

 

prices in the economy are rising.

 

the number of jobs in the economy is expanding.

 


 

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1.

 


 

Real GDP is a better measure of economic well-being than nominal GDP, because

 

real GDP:

 

A) excludes the value of goods and services exported abroad.

 

B) includes the value of government transfer payments.

 

C) measures changes in the quantity of goods and services produced by holding

 

prices constant.

 

D) adjusts the value of goods and services produced for changes in the foreign

 

exchange rate.

 


 

3.

 


 

If GDP (measured in billions of current dollars) is $5,465, consumption is $3,657,

 

investment is $741, and government purchases are $1,098, then net exports are:

 


 

4.

 


 

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A) $131.

 

B) -$131.

 

C) $31.

 

D) -$31.

 


 

The property of diminishing marginal product means that, after a point, when

 

additional quantities of:

 

A)

 

B)

 

C)

 

D)

 


 

a factor are added, output diminishes.

 

both labour and capital are added, output diminishes.

 

both labour and capital are added, the marginal product of labour diminishes.

 

a factor is added when another factor remains fixed, the marginal product of that

 

factor diminishes.

 


 

https://www.coursehero.com/file/11402598/Past-semester-exam3/

 


 

Page 1 of 6

 


 

ECON7020: Macroeconomics for Business ? Mid-Semester Examination, Semester 1, 2011

 


 

According to the neoclassical theory of distribution, in an economy described by a

 

Cobb-Douglas production function, workers should experience high rates of real

 

wage growth when:

 

A)

 

B)

 

C)

 

D)

 


 

6.

 


 

real interest rates are high.

 

real interest rates are low.

 

average labour productivity is growing rapidly.

 

capital?s share of income is growing rapidly.

 


 

In the Solow-Swan growth model, if two countries are otherwise identical (with the

 

same production function, same saving rate, same depreciation rate, and same rate

 

of population growth) except that Country Large has a population of one billion

 

workers and Country Small has a population of ten million workers, then the steadystate level of output per worker will be ______ and the steady-state growth rate of

 

output per worker will be_________.

 

A)

 

B)

 

C)

 

D)

 


 

the same in both countries; the same in both countries

 

higher in Country Large; higher in Country Large

 

higher in Country Small; higher in Country Small

 

higher in Country Large; higher in Country Small

 


 

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7.

 


 

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5.

 


 

In this graph, capital-labour ratio k 2 is not the steady-state capital-labour ratio

 

because:

 

A)

 

B)

 

C)

 

D)

 


 

the saving rate is too high.

 

the investment ratio is too high.

 

gross investment is greater than depreciation.

 

depreciation is greater than gross investment.

 


 

https://www.coursehero.com/file/11402598/Past-semester-exam3/

 


 

Page 2 of 6

 


 

ECON7020: Macroeconomics for Business ? Mid-Semester Examination, Semester 1, 2011

 


 

The Solow-Swan growth model of an economy with population growth but no

 

technological progress can explain:

 

A)

 

B)

 

C)

 

D)

 


 

9.

 


 

persistent growth in output per worker.

 

persistent growth in total output.

 

persistent growth in consumption per worker.

 

persistent growth in the saving rate.

 


 

If a war destroys a large proportion of a country?s capital stock but the saving rate is

 

unchanged, the Solow-Swan model predicts output will grow and that the new steady

 

state will approach:

 

A)

 

B)

 

C)

 

D)

 


 

a higher output level than before.

 

the same output level as before.

 

a lower output level than before.

 

the Golden Rule output level.

 


 

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8.

 


 

10.

 


 

In the Solow-Swan growth model with population growth and technological change,

 

the steady-state growth rate of income per person depends on:

 

A) the rate of population growth.

 

B) the saving rate.

 

C) the rate of technological progress.

 

D) the rate of population growth plus the rate of technological progress.

 


 

11.

 


 

In the Solow-Swan growth model, capital exhibits _____________ returns.

 

In a basic endogenous growth model, capital exhibits _____________ returns.

 

A)

 

B)

 

C)

 

D)

 


 

When a pizza maker lists the price of a pizza as $10, this is an example of using

 

money as a:

 


 

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12.

 


 

constant; diminishing

 

constant; constant

 

diminishing; constant

 

diminishing; diminishing

 


 

A)

 

B)

 

C)

 

D)

 


 

store of value.

 

unit of account.

 

medium of exchange.

 

flow of value.

 


 

https://www.coursehero.com/file/11402598/Past-semester-exam3/

 


 

Page 3 of 6

 


 

ECON7020: Macroeconomics for Business ? Mid-Semester Examination, Semester 1, 2011

 


 

If the money supply increases 12 percent, velocity decrease 4 percent, and the price

 

level increases 5 percent, then the change in real GDP must be ___________

 

percent.

 

A)

 

B)

 

C)

 

D)

 


 

14.

 


 

To increase the money supply, the Central Bank:

 

A)

 

B)

 

C)

 

D)

 


 

15.

 


 

3

 

4

 

9

 

11

 


 

buys government bonds.

 

sells government bonds.

 

buys corporate stocks.

 

sells corporate stocks.

 


 

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13.

 


 

A variable rate of interest is undesirable because:

 


 

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A) debtors and creditors cannot protect themselves by indexing contracts.

 

B) shoe leather costs are greater under variable inflation than under constant

 

inflation.

 

C) menu costs are greater under variable inflation than under constant inflation.

 

D) variable inflation leads to greater uncertainty and risk than under constant

 

inflation.

 


 

https://www.coursehero.com/file/11402598/Past-semester-exam3/

 


 

Page 4 of 6

 


 

ECON7020: Macroeconomics for Business ? Mid-Semester Examination, Semester 1, 2011

 


 

Part B ? Short Answer Questions

 

Answer ALL PARTS of BOTH of the Questions below

 

Marks are allocated as indicated

 

Part B is worth 20 marks in total

 

Q1.

 


 

Consider the following closed economy without government:

 

Sector

 

Agriculture

 


 

$ billion

 

Total sales

 

Capital goods purchases

 

Manufacturing inputs purchased

 

Wages

 

Operating surplus (accounting profit)

 


 

70

 

20

 

15

 

35

 

20

 


 

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Manufacturing

 


 

Sales of manufactured capital goods

 

Sales of other manufactured goods

 

Capital goods purchases

 

Agricultural inputs purchased

 

Wages

 

Operating surplus (accounting profit)

 


 

50

 

130

 

30

 

40

 

85

 

55

 


 

Use the data provided above to calculate GDP via:

 

(i)

 


 

The income method

 


 

(2 marks)

 


 

(ii)

 


 

The production (value added) method

 


 

(2 marks)

 


 

(iii)

 


 

The expenditure method

 


 

(3 marks)

 


 

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Explain your calculations.

 


 

https://www.coursehero.com/file/11402598/Past-semester-exam3/

 


 

Page 5 of 6

 


 

ECON7020: Macroeconomics for Business ? Mid-Semester Examination, Semester 1, 2011

 


 

Q2.

 


 

In answering the following questions, use the Solow-Swan model of a closed

 

economy without government, described below. The economy has clearing factor

 

markets (prices adjust to ensure that quantities demanded equal quantities supplied).

 


 

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Output:

 

Y K L1

 

Labour supply:

 

Ls 10

 

Y CI

 

Expenditure on GDP:

 

C (1 s)Y

 

Consumption:

 

S sY Y C

 

Savings:

 

where s is the average saving rate ( S Y ) and it is constant

 

I S

 

Investment:

 

K

 

Depreciation:

 

where the parameter values are:

 

0.5

 

Production function:

 

Initial capital stock:

 

K0 40

 

0.05

 

Depreciation rate:

 


 

(i) Express the production function as a relationship between output per worker, y ,

 

and capital per worker, k , and calculate the saving rate that would make the

 

initial capital stock a steady state. Use a diagram to explain your answer.

 

(3 marks)

 


 

(ii) If the starting saving rate had been 15% (or 0.15), calculate the initial steady

 

state levels of K , Y , C , and I . The saving rate now rises to 25% (or 0.25). Write

 

the equation of motion of capital per worker and use it to calculate the first year

 

values of Y and K in the transition to the new steady state.

 

(3 marks)

 


 

(iii) Explain, using a diagram, the nature of the ?Golden Rule? steady state and

 

calculate the saving rate at which this occurs in the model given above.

 

(3 marks)

 


 

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(iv) Assume that the current saving rate is 25% (or 0.25). The government adopts

 

policies to alter saving rate to accord with the ?Golden Rule? level. Calculate

 

consumption per worker in these two steady states and compare them. Without

 

calculating the transition, describe and explain the immediate change that takes

 

place in consumption per worker and the subsequent changes. Sketch what you

 

think the path of consumption per worker in the transition to the ?Golden Rule?

 

steady state. Comment on any policy dilemma implied.

 

(4 marks)

 


 

END OF PAPER

 


 

https://www.coursehero.com/file/11402598/Past-semester-exam3/

 


 

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