Practice Problems for Econ 305 Final
代考加拿大经济 In the medium run workers have perfect foresight and therefore, πt= πte, so that all wages are set as a function of actual inflation.
1.If we observe that the GDP deflator remains constant for two consecutive periods, this is indicates that:
a) The prices of the goods used to calculate the cost of a consumer goods basket have remained constant.
b) The prices of goods in the economy could have had variations between the first and second period, but the increases in some prices were compensated by the fall in other prices.
c) The prices of all goods in the economy have had variations in the same proportion.
d) The prices of most goods in the economy have remained constant.
2.In the medium run workers have perfect foresight and therefore, πt= πte, so that all wages are set as a function of actual inflation. This implies that:
a) The relationship between the inflation rate and the unemployment rate represented by the Phillips curve disappears completely in the medium run.
b) Anticipated changes in the inflation rate have a larger negative effect on unemployment in the medium run. 代考加拿大经济
c) The Phillips curve relationship between the inflation rate and the unemployment rate is the same in both the short and the medium run.
d) The unemployment rate and the inflation rate are positively related in the medium run.
3.Based on the IS-LM-PC model for a closed economy studied in class, which of the following statements is correct?
a) In the medium run monetary policy can only be used to control inflation, but it will not affect production.
b) In the medium run, fiscal policy can only help to increase or decrease interest rates, but it will not affect production.
c) Both monetary and fiscal policy can’t be effectively used to increase production in the short run.
d) All of the above.
4.Consider the following data: 代考加拿大经济
| Month | Price Level (P) | % change |
| Dec 2010 | 100 | 1.1 |
| Jan 2011 | 100.41 | 0.41 |
| Feb 2011 | 101.97 | 1.55 |
| March 2011 | 98.5 | -3.40 |
If a given basket of goods for the price index above cost $12,000 in December 2010, this same basket would have cost _____ in March 2011. Additionally, calculate the inflation rate from January to March 2011.
a) $12,180 9%
b) $13,800 3%
c) $11,820 –9%
d) $11,652 –15%
5.An investor in Argentina is considering buying a domestic one-year bond that has a face value of 10,000 and sells for a price of 9,800 or a Brazilian bond that has a face value of 10,000 and sells for a price of 9,700. Under what condition would she buy the Argentine bond? 代考加拿大经济
a)She always prefers Brazilian bonds.
b)If the expected depreciation of the Argentine currency was more than 1%.
c)If the expected depreciation of the Brazilian currency was more than 1%.
d)If the expected depreciation of the Brazilian currency was less than 1%.
6.The recent sharp decline in oil prices will cause in the medium run?
a) An increase in output and prices in the short run, but a decrease in output in the medium run.
b) A decrease in output and prices in the short run, but an increase in output in the medium run.
c) An increase in the natural unemployment rate and an increase in the real wage in the medium run.
d) A decline in the natural unemployment rate and an increase in the real wage in the medium run.
7.Consider the IS-LM-PC model for a closed economy and suppose that the economy is at its natural output level initially. 代考加拿大经济
If the government increases its expenditures and expectations of inflation are based on last period’s inflation, in the medium run we would observe that:
a) Both the price level and output would increase.
b) Nothing happens, the economy returns to its initial equilibrium over time.
c) The inflation rate increases while production returns to its natural level.
d) There is an increase in production and the price level remains constant.
8.In the goods market model for a closed economy, suppose that starting from an initial equilibrium the government decides to change autonomous taxes to increase GDP by $500 million. The marginal propensity to consume (c) is 80%. What would be the change in taxes needed to achieve the increase in GDP?
a) $ 125 million
b) $ 100 million
c) $ – 100 million
d) $ –125 million
9.Consider two economies, Mexico (foreign) and U.S.A. (domestic) that trade freely. Suppose that the dollar has depreciated with respect to the peso by 2%, but there has been no change in the real exchange rate. What implications does this information have?
a) The inflation rate in the U.S.A is 2% greater than the inflation rate in Mexico.
b) Interest rates in Mexico rose 2% more than interest rates in the U.S.A.
c) The inflation rate in the U.S.A is 2% less than the inflation rate in Mexico.
d) Interest rates in Mexico rose 2% less than interest rates in the U.S.A.
10.Consider the money market model for a closed economy we studied in class.
Nominal money demand is given by Md=$Y(0.3-i), nominal output ($Y) is $3,600 and nominal money supply (M) is equal to $900. What is the equilibrium interest rate? If the face value of a one-year bond is $100, what is its price today?
a) 6%, 3
b) 5%, 2
c) 10% 9
d) 7% 5
11.Consider two countries, one is a closed economy and the other trades with the rest of the world and has a flexible exchange rate. All other factors are the same in both economies. The governments of both economies decide to cut taxes to boost demand. Which of the following statements is correct?
a) In the closed economy there is a smaller increase in output than in the open economy. In the open economy the trade balance improves.
b) In the closed economy there is a larger increase in output than in the open economy. In the open economy the trade balance deteriorates. 代考加拿大经济
c) We cannot determine where the increase in output will be larger.
d) The increase in output in both economies is equal. In the open economy the trade balance deteriorates
12.Suppose that the interest rate in Spain is 12% and the interest rate in the UK is 5%. If today’s exchange rate is Et=.06 (euro/pound), what is the expected exchange rate next period if uncovered interest parity holds?
a) Et+1= 0.0558
b) Et+1= 0.0523
c) Et+1= 0.0683
d) Et+1= 0.0642
13.In the IS-LM-PC model for a closed economy, in the short run, an increase in the price of oil will cause:
a)a reduction in the price level
b)An increase in the inflation rate
c)An increase in output
d)A fall in the unemployment rate
e)All of the above
14.Assume that the nominal exchange rate decreases by 4%. If prices (both domestic and foreign do not change, we know that: 代考加拿大经济
a)Foreign goods are now relatively cheaper
b)Foreign goods are now relatively more expensive
c)Domestic goods are now relatively more expensive
d)Both A and C are correct.
15.Which of the following events will cause the largest real depreciation for the domestic economy?
a)A 6% reduction in E and a 6% reduction in P*
b)A 2% increase in E and a 2% increase in P
c)A 6% reduction in E and a 6% increase in P*
d)A 6% increase in P and a 6% reduction in P*
e)A 3% increase in E
16.For this question, assume that uncovered interest parity holds. If the domestic interest rate on one-year bonds is 9% and the foreign interest rate on one-year bonds is 5%, we would expect that:
a)Individuals will hold only domestic bonds
b)The domestic currency is expected to appreciate by 4%
c)The domestic currency is expected to depreciate by 4%
d)Individuals will only hold foreign bonds.
17.Assume the uncovered interest parity condition holds and that individuals expect the dollar to appreciate by 5% during the coming year. Given this information, we know that:
a)i<i*
b)the interest rate differential between the two countries is less than 5%
c)individuals will only hold foreign bonds
d)i=i*
e)none of the above
18.Suppose a closed economy is characterized by the following behavioral equations:
C = 300 + 0.5YD Md = 0.5Y-560i
I = 100 + 0.1Y – 100i M/P = 510
G = 100
T = 150
What is the IS curve for this system of equations? 代考加拿大经济
a)Y=1.67(500-100i)
b)Y=2(425-100i)
c)Y=2.5(425-100i)
d)Y=1.11(575-100i)
e)Y =2.5(575-100i)
19. What is the LM for this system of equations?
a)Y=2(510 + 560i)
b)Y=2(1000 -560i)
c)Y=2.5(510-560i)
d)Y=0.5(510+560i)
20.What are the equilibrium interest rate (i), level of output (Y) and private savings (Sp) for this economy?
(round your answers to the nearest integer)? (note: round any intermediate calculations to 2 decimals)
a) Y = 1054 i= 3% Sp = 152
b) Y = 1032 i= 3% Sp = 227
c) Y = 1200 i= 4% Sp = 184
d) Y = 1015 i= 2% Sp = 122
Other types of practice: 代考加拿大经济
- Consider a closed economy IS-LM model where investment depends on the real interest rate. Suppose that starting from an equilibrium where Y=Yn, the government decides to embark on a deficit reduction program by reducing government spending.
IS: Y = C(Y-T) + I (Y, i- πe ) + G
LM: M/P = YL(i)
a)Using the IS-LM model, graphically illustrate and explainthe effects of this policy on output, the nominal interest rate, the real interest rate, consumption and investment in the short run. Assume that the expected inflation rate remains constant in the short run.
b)Explain the effects of this policy on output, the nominal interest rate, the real interest rate, consumption and investment in the medium run.
Another problem to practice: (answers are given separately)
- Consider the following IS-LM model for a closed economy.
C= 600 + 0.5 YD Md = 0.11Y – 1,200i
T= 500 i = 20% (that is 0.2)
I= 2,000 – 1,500 i
G = 500.
c)Calculate the equilibrium level of output (Y) 代考加拿大经济
d)Calculate the money supply for this economy (M).
e)If the money supply increases by $90. What is the new level of equilibrium income and interest rate? Graph this situation in the IS-LM model.
f)Graphically demonstrate what the government would have to do to keep income constant at the initial equilibrium level in a). Explain what type of policies the government could carry out to achieve such a result. What should happen to the interest rate in this scenario?
