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Samuelson Model - Advanced Topics in Macroeconomics - Past Exam, Exams of Macroeconomics

Guru Angad Dev Veterinary and Animal Sciences UniversityMacroeconomics

Samuelson Model, Purchasing Power Parity, Sticky Price Model, Equilibrium Value, Model of Exchange, Portfolio Balance, Sterilised Foreign Exchange Operation, Involuntary Unemployment, Keynesian Model, Macroeconomic Analysis. Exam paper for economics students.

Typology: Exams

2011/2012

Uploaded on 12/06/2012

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ARHOLIADAU EXAMINATIONS
Mai / Mehefin 2010 May / June 2010
EC31120 ADVANCED TOPICS IN MACROECONOMICS
Time Allowed: THREE HOURS
Answer THREE Questions.
You Must Choose at Least ONE Question from SECTIONS A and B.
SECTION A
Question 1
Critically appraise the Purchasing Power Parity (PPP) theory with respect to its
underlying assumptions. Discuss how the Balassa-Samuelson model can explain the poor
empirical support for the PPP theory.
Question 2
Critically assess the main assumptions of the Dornbusch sticky price model. Suppose the
monetary authorities increase money supply unexpectedly by 15 percent. Using this
model, give a detailed explanation of the process by which the exchange rate ‘overshoots’
its long-run equilibrium value. Use appropriate diagrams to support your arguments.
Question 3
Using the Portfolio Balance model of exchange rate determination, analyse the differing
impacts of the following operations on the exchange rate and the interest rate: (i) an open
market operation (OMO); (ii) a non-sterilised foreign exchange operation (FXO); and
(iii) a sterilised foreign exchange operation (SFXO). Support your arguments with
appropriate diagrams.
Question 4
Explain what is meant by ‘involuntary unemployment’ in the Keynesian model of
macroeconomic analysis. Discuss under what condition(s) the underemployment
equilibrium may persist even after allowing for flexible adjustment of prices and wages
in this framework. Use appropriate diagrams to support your arguments.
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ARHOLIADAU EXAMINATIONS

Mai / Mehefin 2010 May / June 2010

EC31120 ADVANCED TOPICS IN MACROECONOMICS

Time Allowed: THREE HOURS

Answer THREE Questions.

You Must Choose at Least ONE Question from SECTIONS A and B.

SECTION A

Question 1

Critically appraise the Purchasing Power Parity (PPP) theory with respect to its underlying assumptions. Discuss how the Balassa-Samuelson model can explain the poor empirical support for the PPP theory.

Question 2

Critically assess the main assumptions of the Dornbusch sticky price model. Suppose the monetary authorities increase money supply unexpectedly by 15 percent. Using this model, give a detailed explanation of the process by which the exchange rate ‘overshoots’ its long-run equilibrium value. Use appropriate diagrams to support your arguments.

Question 3

Using the Portfolio Balance model of exchange rate determination, analyse the differing impacts of the following operations on the exchange rate and the interest rate: (i) an open market operation (OMO); (ii) a non-sterilised foreign exchange operation (FXO); and (iii) a sterilised foreign exchange operation (SFXO). Support your arguments with appropriate diagrams.

Question 4

Explain what is meant by ‘involuntary unemployment’ in the Keynesian model of macroeconomic analysis. Discuss under what condition(s) the underemployment equilibrium may persist even after allowing for flexible adjustment of prices and wages in this framework. Use appropriate diagrams to support your arguments.

Turn Over

SECTION B

Question 5

Discuss the concept of efficiency wages. Using the Shapiro-Stiglitz model show how the inability of the employer to observe the employee’s on-the-job effort explains involuntary unemployment as an equilibrium phenomenon.

Question 6

Give the underlying reasons for sticky prices in markets. Why do Keynesians believe that allowing for price stickiness in macroeconomic analysis is important? In light of the explanation by Mankiw critically examine how sticky prices can be both privately efficient and socially inefficient.

Question 7

Discuss the relationship between inflation and unemployment. Can policy makers exploit the Phillips curve relationship by trading more inflation for less unemployment? How does the augmented Phillips curve differ from the traditional Phillips curve?

Question 8

What are the key features of real business cycle models? How do technology shocks produce real business cycles? To what extent does the real business cycle theory explain economic fluctuations?

END OF PAPER