MACROECONOMICS
11-
FIRST
EXAM
-November 17th,
2016
Na
me:
Part
1:
Multlole choice auestlons (choose the right answer, justifying your cholces by some
graphs
or
brief theoretical discussions) (5 polnts]
1 Questlon 1 1 1 2 1 3 1 4 1 5 1 6 1
Answer e e
[3
D e D
1.
Under the Natlonal Accounts framework assume
two
economies, A and B, with
commercial trade between them. Both economies have public deficit and economy A
has current account surplus. Then,
it
is true that:
A)
the prlvate sector
of
country A needs
to
be financed.
A
the
private sector
of
country B needs to be financed.
(_9)
residents
of
country B are financed by residents
of
country A.
D)
national saving
of
country
Bis
larger than private investment
2. Starting from an inltial equilibrium in the basic Goods
Market
model, assume
that
the
government lowers the level
of
taxes by an
amount
of
50
units. Taking into account
that
marginal propenslty
to
consume
is
c1 = 0,75:
A) income will decrease by
150
units.
B)
income will increase by
400
units.
(Ci)
natlonal saving will not change.
'-o)
private saving wlll decrease by
50
units.
3.
In
the
baslc goods
market
model for a closed economy with exogenous taxes, starting
from
an inltial equilibrlum situation, the government wants
to
keep
the
public deficit
unchanged.
To
this end,
it
increases both public expenditure and taxes by
the
same
amount
(dG = dT >
O)
. As a consequence
of
this combination
of
policies
~
Consumption
decreases.
ncome lncreases by the same amount as public expenditure.
) Saving lncreases.
D) Consumption decreases and saving remalns constant.
4. •
In
the
money market, starting from an initial equilibrium sltuation, there is shock
that
causes
the
price
of
bonds
to
decrease. This shock could be
A)
A reduction in
the
consumers' currency-to-deposits ratio.
B)
An
lncome reduction.
C)
A reductlon
of
the reserves-to-deposits ratio.
(5
A sale
of
bonds by
the
Central Bank in
the
open market.
5.
In
the
IS
-
LM
model, assume the reserves-to-deposits ratio increases and the
government cuts taxes
to
keep the level
of
income unchanged.
In
the new equilibrium,
we know
for
sure
that
A)
lnvestment and consumption decrease.
~
lncome and investment rema in unchanged.
The public
deficit
will increase and investment will decrease.
) lncome and public deficit will rema in unchanged.
6. In the extension
of
the
IS-LM
model where investment depends on the externa! finance
premium, assume
that
, starting from an initial equilibrium,
the
assets and capital
of
commercial banks' decrease ( VA8
).
In
the
final equilibrium:
A)
Commercial banks decrease
the
externa! finance premium
(x)
charged on loans
to
firms
B)
lncome has decreaséd whilst the effect on the demand for investment is
indeterminate
C)
The effect on the rate
at
which banks lend to firms (
p)
is indeterminate
~espite
the
decrease in
the
interest rate
of
risk-free assets
(/)
, the r
ate
at
which banks
lend
to
firms
(
p)
has increased
Part
11:
EssaV
Ouestlon
(5
polnts
out
of
10)
Flrst Questlon
(1
polnt): In
the
context
of
the Goods Market model, assume
that
the
propensity
to
save
of
consumers is s, = 0.2. Compute:
a. Under
the
assumption
of
exogenous taxes ( T = f ), by how much should
autonomous consumptlon change so
that
income decreas
es
by
500
units?
Compute the final effect
of
thls shock on Private Consumption, Private Saving and
Public Deficit
b.
Repeat previous computations under the assumption
of
taxes that depend on the
level
of
income ( T = t ·Y, with t = 0.
25
). Explain, using economic arguments, why
the results are different in a. and b.
Second Questlon
(2
polnts):
In
the context
of
the
IS-LM
model, assume
that
the
Central
Bank decreases the reserves requirement
to
Commercial Banks. Describe in detail the
adjustment process in the economy from the initial equilibrium
to
the final equilibrium,
paying special attention
to
the
interaction between markets. Support your discussion with
graphical analysis.
Thlrd Questlon
(2
polnts):
In
the context
of
the
IS-LM
mOdel for
the
closed economy,
starting
from
an initial equilibrium O ( Y
0
,i
0
).
assume
that
two shocks occur simultaneously:
a decrease in autonomous investment by firms and an increase in the currency
to
¡:leposits
ratio by the people:
1)
Describe the final effects resulting
from
the combination
of
both
shocks in terms
of
lncome, interest rate and the main aggregates (identify this equilibrium
by 1 (
Y,
,i,
))
.
11)
Describe a policy-mix (specifying the policy instruments used) able
to
restore both the levels
of
income and the interest rate
to
those previous
to
the shocks (
Y
0,i0) (identlfy thls equilibrium by 2 ( Y
2,i2
)).
Discuss
the
effects on
the
composition
of
aggregate demand and equilibrium conditions (by comparing equilibria O and 2). Support
your discussion on graphical and
mathematical
analysis.
