M 0304 Sva Pitanja

SVI ISPITI IZ KOLSKE GODINE 0304
Ivo Biani
Full professor Faculty of Economics, University of Zagreb
Recurrent visiting professor Central European University, Budapest
Jurica imurina
assistent, Faculty of Economics, University of Zagreb
MACROECONOMICS 2003-2004
(ENGLISH TEACHING PROGRAM):
FINAL EXAM, 6/7/2004
Exam structure
First part: Test. THE TEST HAS BEEN LEFT OUT FOR THIS GENERATION The test
has 120 questions divided into five kinds of questions (multiple choice,
yes/no, graph analysis and numerical problems). The answers are written
into a separate sheet which is handed in on completion. The time is 60
minutes (30 seconds per question).
Second part: closed book essay: In this part of the exam the student
answers three types of questions: 'short' answers, 'long' answers and
definitions. The time allowed for this part of the exam is 160 minutes (15
minutes for each long question, 10 minutes for each short one and 5 for
each definition.
Third part: take home essay: The student is oferred four groups of
questions with two questions in each group. He takes the questions home
andf hands in the answers next day. Each answer is worth a maximum of 20
points so the highest score in this part of the exam is 80 points..
Fourth part of the exam: oral exam: As a rule there will be no oral exam
but is the grades in the three written sections vary a lot then the
examiner resderves the right to call the student for an oral exam. If the
student cosniders he has been badly marked he can demand an oral exam.
Grading
Each part of the written exam is independently graded by Ivo Biani and
Jurica imurina and the grades are later discussed.
Test grading
Each correct answer is worth 1 pojnt and each incorrect, except the first
four, is worth -0.25 points, blank answers are worht 0 points. Grades: 2:
70-85 points, 3: 86-99 points, 4: 100-111 points and 5: 112-120 points.
Second part: closed book essay
To pass the student must get at least half the points in every group of
answers, i.e. must provide at least a positive answer in every group. Two
half answers in a group do not count since points are given only for
individual answers. If two answeres are oferred in one group the examiner
grades only one. A maximum in this part is 180 points (eight short answers
10 points each and maximum of 80 points, four long answrs 20 points each a
maximum of 80 points and four definitions 5 points each and a maximum of 20
points). Grading: 2: 100-129 points, 3: 130-149 points, 4: 150-164 points
and 5: 165-180 points,
Take home essay
grades only one. A maximum in this part is 80 points (20 points each a
maximum of 80 points. Grading: 2: 45-54 points, 3: 55-64 points, 4: 65.71
points and 5: 72-80 points.
Final grade
The aggregate grade is derived as a weighted average of the three written
parts with the weight given as follows: closed book essay: 0.6 and take
home essays 0.4. In case of an oral exam the final grade is determined
after the oral exam.
FIRST PART: TEST: THE TEST HAS BEEN LEFT OUT FOR THIS GENERATION
SECOND PART: CLOSED BOOK ESSAY TYPE QUESTIONS
In this
'short'
part of
minutes
part of the exam the student answers three types of questions:

answers, 'long' answers and definitions. The time allowed for this
the exam is 160 minutes (15 minutes for each long question, 10
for each short one and 5 for each definition.
SHORT ANSWERS
The first type requires short answers of up to half a page. There are eight
grups of questions with two questions in each group. The student chooses
one question from each group (in case two are oferred the examiner grades
only one), each answer is worth up to 10 points sop a maximum of 80 points
can be awarded in this groups. Four groups are set by Ivo Biani and four
by Jurica imurina.
Group 1 (Questions set by Jurica imurina)
The IS-LM, AD-AS curves, closed and open economy, with expectations
1. D.
2. W
Group 2 (Questions set by Ivo Biani)
The Phillips curve, with expectations
3. Why equating the expeceted rate of inflation to last periods rate of
inflation does not imply rational expectations.
4. Explain how a shift in the AD curve leads to ashioft in the AS curve.
The macro general equilibrium, open economy, with expectations
5. E
6. C.
The long run
7. Using graphs explain under what assumtiopns the 'Ludists' could be
right.
8. Explain the medium and ong term effects on the griowqth rate of a rise
in the rate of savings.
Expectations
9. E
10. W
The open economy

11. How does the inclusion of trade influence the steepness of the IS
curve?
12. Explain the constraints impossed by perfect capital moblity on the
interest rate.
Pathologies
13.)
14. A
Policy making
15. Why can the rate of inflation be interpreted as a tax rate?
16. Why should the Governor of the Central bank be conservative in the
sense of, on average, being more inflation averse than the rest of the
population?
LONG ANSWERS
The second type requires longer answers of up to one page. There are four
groups of questions with two questions in each group. The student chooses
one question from each group (in case two are offered the examiner grades
can be awarded in this groups. Two groups are set by Ivo Biani and four
by Jurica imurina.
IS-LM, AS-AD, Labour market, open economy and expectations
17. E
18. D
General macro equilibrium and comparative statics, policy
19. Why should the Governor of the Central bank race about unemployment?
20. Discuss the neutrality of money and its importance for policy makers?
The long run
21. E.
22. D
The open economy and expectations
23. Derive and explain the conditions under which a restrictive fiscal
policy need not lead to a recession in the short run and an expansion in th
elong run?
24. Discuss the importance of the 'three deficits' as a policy constraint.

DEFINITIONS
The third type are definitions requiring a maximum 5 lines. Four groups of
three terms are given and the student chooses to provide the definition of
one term from each group. Each definition is worth at most 5 points so a
maximum of 20 points can be given for this type of questions. Two sets of
definitions are set by Ivo Biania and two by Jurica imurina.
GROUP 1
a) high powerred money
b) velocity of money
c) monetary base
d) reserve ratio
GROUP 2
e) structural change
f) creative destruction
g) skill-based technological progress
h) steady state
GROUP 3
i)
j)
k)
l)
GROUP 4
m)
n)
o)
p)
THIRD PART: TAKE HOME ESSAY

The student is offered four groups of questions with two questions in each
group. He takes the questions home and hands in the answers next day. Each
answer is worth a maximum of 20 points so the highest score in this part of
the exam is 80 points. Answers to the take home essay must be handed in by
Tuesday, 30/3/2004 by 16 hours at the reception in the mailbox of Jurica
imurina.
GROUP 1 (Questions set by Ivo Biani)
1. In terms of the Keynesian cross, IS-LM, AD-AS and price&wage setting
curves in an open economy with expectations design a policy package aimed
at reducing the natural level of unemplyoment and discuss the credibility
implications of your policy design.
2. Explain the implications for an open economy when it
fixed to a floating exchange rate regime.
changes from a
GROUP 2 (Questions set by Jurica imurina)

3. H
3. D
curves in an open economy with expectations explain the implications and
sustainability of an external disequilibrium and internal equilibrium
characterized by a large governement deficit and the medium term dynamic if
no policy package is implemented.
6. How would you analize the economic effects of EU membership in terms of
the Keynesian cross, IS-LM, AD-AS and price&wage setting curves in an open
economy with expectations for an economy with a high natural rate of
unemployment, large trade and governement deficit..

7. D
8. E
Ivo Biani
Jurica imurina
Exam structure
each definition.
Grading
Test grading
Take home essay
Final grade
In this
'short'
part of
minutes

SHORT ANSWERS
by Jurica imurina.
1. D.
2. W
3. Explain the advantages of using rational expectation and why they are
not used in deriving the Phillips curve..
4. Explain the meaning of the technology parameter 'A' used in deriving the
price deterninastion curve and what additionla assumpions are made in
deriving the curve..
5.
6. C.
The long run
7. Why the increase in production cannot rely only on the accumulation of
the factors of production (especially capital)?
8. Explain the main features of the endogenous growth approach to growth
models and understanding growth.
Expectations
9. E
10. W
The open economy
11. What are the determinants of the long run exchange rate?
12. Derive the interest parity condition and discuss the assumpionts used
in deriving this relationship.
Pathologies
13.)
14. A
Policy making
15. List the costs of inflation and briefly discuss one of your choice.
16. Explain the policy implications of seignorage.
LONG ANSWERS
by Jurica imurina.
17. E
18. D
19. Explain how a restrictive fiscal policy can lead to growth (i.e. an
increase in GDP, i.e. have an expansionary effect) and discuss the
credibilityx of the necessary assumptions.
20. Discuss comparative statics of a one period increase of the money
supply and under what conditions this need can lead to inflation.
The long run
21. E.
22. D

23. Derive, analize and discuss the policy implications of the relationship
between the 'three deficits'.
24. Derive and explain the implications of a falling yield curve and
construct a chasnge which could reverse the slope of the yield curve.
DEFINITIONS
definitions are set by Ivo Biani and two by Jurica imurina.
GROUP 1
a)
b)
c)
d)
GROUP 2
e)
f)
g)
h)
GROUP 3
i)
j)
k)
l)
GROUP 4
m)
n)
o)
p)

Wednesday, 8/9/2004 by 16 hours at the reception in the mailbox of Jurica
imurina.
at reducing the trade deficit and discuss the probable consequences of your
policy design on the rate of unemployment..
2. Explain the implications for an open economy when it continues running a
large fiscal deficit over a long period.
3. H
3. D
5. Why is the general equilibrium IS-LM of an open economy with
expectations derived in the textbook a rational expectations model, why
cannot 'naive' expectations be used in the model and discuss its advantages
of this models over those without expecations.

unemployment, large trade and governement deficit.
7. D
8. E
Ivo Biani
Jurica imurina
Exam structure
each definition.
Grading
Test grading
Take home essay
Final grade
In this
'short'
part of
minutes

SHORT ANSWERS
by Jurica imurina.
1. Derive the shift of the IS curve from shifts in the Keynesian cross.
2. Why is the LM curve in a closed and open economy the same
3. The Philips curve implies that when unemployment is high, inflation is
low and vice versa. Therefore, we may experience either high inflation or
high unemployment, but we will never experience both together. Discuss.
4. What are the effects of indexation of wages?
5. How does a change in expected inflation influence the current
macroeconomic equilibrium?
6. Compare the equilibriums generated in a open economy with fixed and
flexible exchange rates after a the introduction of a restrictive fiscal
policy.
The long run
7. On a log scale, a variable that increases at 5% a year will move along
an upward sloping line, with a slope of 0.05. If true explain why, if false
explain why.
8. How do the appropriability and fertility of research affect the amount

of R&D spending?
Expectations
9. Explain the meaning and justify the use of 'adaptive' expectations.
10. What are the implications of a falling yield curve?
The open economy
11. If financial investors expect the dollar to depreciate vis-a-vis the
yen over the coming year, explain what will happen with one-year interest
rates?
12. Explain the hard peg and dollarization.
Pathologies
13. Explain how an increase in primary money (expansive monetary policy)
can lead to a fall in the money supply (the case of the Detression)
14. Define seigniorage and explain why there is a maximum level of
seigniorage.
Policy making
15. Explain the problem of "time consistency".
16. How would target ranges for money growth affect usefulness of monetary
policy?
LONG ANSWERS
by Jurica imurina.
17. Explain the difference of the multiplier in the Keynesian cross and ISLM model and discuss the importance and policy implications of 'crowding
out'.
18. Discuss why the expectations augmented IS-LM model presented in the
textbook in chapter 17 can be considered an rational expectations
macroeconomic general equilibrium model and this extension influences the
usage value of the model
19. Explain the effect of long-term unemployment on inflation.

20. What needs to be done to end hyperinflation?
The long run
21. Explain why the natural rate of unemployment is not influenced by
technological progress and discuss what consequences it can have.
22. Discuss the importance of 'well behaved production functions' for
steady state growth.
23. Using the IS-LM model, determine the impact of an unexpected
expansionary monetary policy with no change in fiscal policy on stock
prices. (If the effect is ambiguous, explain what additional information
would be needed to reach the conclusion).
24. Consider two economies, one foreign one domestic. Construct the balance
of payments for each country given the following list of transactions: 1.
The domestic country purchased $100 in oil from the foreign country; 2.
Foreign tourists spent $50 on the domestic coast; 3. Domestic residents
purchased $20 in illegal substances from foreigners; 4. Foreign investors
were paid $25 in dividends from their holdings of domestic equities; 5.
Domestic residents gave $35 to foreign charities; 6. Foreign investors
purchased $20 in domestic junk bonds.
DEFINITIONS
GROUP 1
a) Tanzi-Olivera effect
b) Laffer curve
c) Taylor's rule
d) Ricardian equivalence
GROUP 2
e)
f) Gross
g) Gross
h)
GROUP 3
i) rational expectations
j) adaptive expectations
k) animal spirits
l) backloading
GROUP 4
m) tradeable goods
n) real appreciation
o) trade-weighted real exchange rate
p) capital controls
Net National Product (NNP)

National Product (GNP)
Domestic product (GDP)
Gross Netional Income (GNI)

imurina.

1. Discuss the importance of backloading and design a fiscal-monetary
policy mix with backloading starting from a closed economy with
expectations, an unsustainable deficit and level of unemployment above the
natural rate.
2. Discuss the possible consequences for an economy facing an external
disequilibrium and large budget deficit, which refuses to devalue its
currency and remains with a fixed exchange rate.
3. How does the credibility of a policy play a role in outcomes of policy
decisions?
3. Discuss the effects of devaluation for a country with a high trade
deficit and a high foreign debt.
5. Explain the reasons why the growth model developed in chapters 10-12
generates optimistic expectations about the future for economies which
initially are not in on the steady state growth path.
6. Discuss the institutional framework and policy requirements, which would
be conducive to a lasting increase in the rate of growth of per capita
income on the steady state growth path.
7. Discuss the institutional framework and policy requirements, which would
be conducive to a lasting increase in the rate of growth of per capita
income on the steady state growth path.
8. Explain pros and cons of setting explicit inflation targets by a central
bank without any regard for unemployment.
Ivo Biani
Jurica imurina
Exam structure
each definition.
Grading
Test grading
Take home essay
Final grade
In this
'short'
part of
minutes

SHORT ANSWERS
by Jurica imurina.
1. D.
2. W
3. Explain the role of expectations in derivign the Philips curve.
4. What enters into the determination of the mark-up?
5.
6. C.
The long run
7. Derive the Golden rule of capita accumulation and explain its
importance.
8. Design and explain a technlogy shoft which reduces the level of
employment.
Expectations
9. E
10. W
The open economy
11. Why is the level of the nonimal exchange rate irrelevant for the level
of net exports?
12. Derive the relationaship of the domestic and foreign real interest rate
under conditons of a floating exchange ratre.
Pathologies
13.)
14. A
Policy making
15. List the benefits of inflation and briefly discuss one of your choice.
16. Explain the implications and requirements of a debt stabilization
policy target.
LONG ANSWERS
by Jurica imurina.
17. E
18. D
19. Explain how sterilizationn is achieved, why an economy would pursue
such a policy goal and the importance of sterilization.
20. Discuss comparative statics of a one period increase of the money
supply and why this need not lead to inflation.
The long run
21. E.
22. D
23. Derive, analize and discuss the policy implications of the MarshallLerner conditons.
24. Explain how a discrepancy between an internal and external equilibrium
can emerge and persist and what are the possible long term implications..
DEFINITIONS
GROUP 1
a)
b)
c)
d)
GROUP 2
e)
f)
g)
h)
GROUP 3
i)
j)
k)
l)
GROUP 4
m)
n)
o)
p)

imurina.
at reducing the natural level of unemplyoment and discuss the credibility
implications of your policy design.
2. Explain the implications for an open economy when it
fixed to a floating exchange rate regime.
changes from a

3. H
3. D
curves in an open economy with expectations explain the implications and
sustainability of an external disequilibrium and internal equilibrium
characterized by a large governement deficit and the medium term dynamic if
no policy package is implemented.
unemployment, large trade and governement deficit..
7. D
8. E
Ivo Biani
REZULTATI ISPITA IZ MAKROEKONOMIKE
ODRANOG 15/6/2004
Ocjena
Pismeni ispit
'Take home' esej
Matulovi Katica
1
1
nije predala
Vlai Sanja
3
3
2-3
5
12

M 0304 Sva Pitanja

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SVI ISPITI IZ KOLSKE GODINE 0304

part of the exam the student answers three types of questions:

The open economy

24. Discuss the importance of the 'three deficits' as a policy constraint.

THIRD PART: TAKE HOME ESSAY

GROUP 2 (Questions set by Jurica imurina)

GROUP 4 (Questions set by Jurica imurina)

part of the exam the student answers three types of questions:

Group 12 (Questions set by Ivo Biani)

THIRD PART: TAKE HOME ESSAY

6. How would you analize the economic effects of EU membership in terms of

part of the exam the student answers three types of questions:

8. How do the appropriability and fertility of research affect the amount

19. Explain the effect of long-term unemployment on inflation.

Net National Product (NNP)

THIRD PART: TAKE HOME ESSAY

GROUP 1 (Questions set by Ivo Biani)

part of the exam the student answers three types of questions:

THIRD PART: TAKE HOME ESSAY

GROUP 2 (Questions set by Jurica imurina)

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