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# Macroeconomía 1 First Midterm - 2012 VERSIÓN A Ñame Grado de

NIF Grade INSTRUCTIONS - The exam is divided in two sections. Part I contains 16 múltiple ch oice questions (80 points). Part II contains two numerical exercises (20 points). At the end of Part I, there is a table where you should introduce your response to the múltiple choice questions. You can ONLY use this table to provide your answers. You will obtain 5 points per correct answer and 1 point will be deducted per incorrect answer. The máximum number of points in the exam is 100. The exam should not be unstapled. You can use the backside of the p ages in the booklet to do scratch work. The examination time is 1 hour and 15 minutes Part I - Múltiple Choice Questions 1 - The aggregate production function Y = 10íí0'8L0'2 + 2L°>2K°>8 exhibits: a) constant returns to scale b) increasing returns to scale c) decreasing returns to scale d) none of the above 2 - Let Y = K°'8L0'2 be the aggregate production function of a closed economy. Let K/L = 8 (to say, you have 8 units of capital per worker). In the long run, W/R (where W is the nominal wage and R is the nominal rental rate), is: a) W/R = 4 b) W/R = 1/4 c) W/R = 8 d) W/R =2 3 - Consider an economy in which both taxes and government expenditure increase by 1 unit. Then, a) The real rental rate increases and investment in the economy increases. Mor eover with a marginal propensity to consume (MPC) cióse to 1 the increase in r is greater than with a MPC cióse to 0. b) The real rental rate decreases and investment in the economy increases. Mor eover with a marginal propensity to consume (MPC) cióse to 1 the decrease in r is greater than with a MPC cióse to 0. c) The real rental rate increases and investment in the economy decreases. Mor eover with a marginal propensity to consume (MPC) cióse to 1 the increase in r is less than wit h a MPC cióse to 0. d) The real rental rate decreases and investment in the economy increases. Mor eover with a marginal propensity to consume (MPC) cióse to 1 the decrease in r is less than with a MPC cióse to 0. 4 - Let C = 0,75(Y Ð T) be the consumption function in an economy whose government is running a budget déficit of 20 units. The government is asked to elimínate such a budget déficit. In order to do that the government can either change the taxes (T) or reduce the government expenditure (G). The effects of th ese policy changes in the long run are: a) If the only policy change is to increase T, then: AS = 15 and AC = Ð15 b) If the only policy change is to decrease G, then: AS = 20 and AC = 0 c) If the only policy change is to increase T, then: ASprivate = Ð5 and AC = Ð15

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Suppose that the aggregate production of a country can be represented as Y = K^H^L^ where K is the physical capital (number of equipments).05. A r = 2 %. Ar = -2%. 8 . 11 . Then: a) The demand for real money balances does not depend on the velocity of money . b) The rate of inflation will be ir = 1 % during this year and next year it wi ll decrease. If the steady-state capital per eflicient unit of labor is k* = 4.In one economy the supply of loanable funds decreased by 100 units since the consumers became more confident about their future. d) AI = 100.d) Answers a. If the investment function is I(r) = 500-50r (r is the real interest rate expressed in percentage terms). population grows at a rate n = 0.03.The velocity of money is defined as a) (PM)/Y b) (PY)/M c) M/(PY) d) MPY 10 . c) AI = -100.02.07.Consider the production function Y = AK°'4L0'6. then: a) The saving rate in this economy is higher than the one that maximizes consu mption per capita b) The saving rate in this economy is less than the one that maximizes consump tion per capita.The demand for real money balances in the economy is (M/P)d = 0. then in the long run we can expect that a) AI = -100.03 and economic efnciency grows at a rate g = 0. suppose that there is a migration of qualified workers out of the country. Ar= -2%. The production function has the form Y = Kl/2L1/2. c) The rate of inflation will be ir = 1 % during this year and next year it wi ll increase. Then in this economy we have that: a) The rate of inflation will be ir = 4 % during this year and next year it wi ll decrease. In this economy. In this economy. Ar = 2%. Because of a technological cha nge A increases. H is the quantity of human capital and L is the number of workers.AY. d) The velocity of money is constant 9 . b) AI = 100.03. The growth rate of money is constant ¡j. and the depreciation rate is <5 = 0. . Then: a) The marginal product of capital and labour do not change because of the con stant returns to scale in the production function b) The real wage increases c) There is an increase in the share of output that goes to the labour factor d) The marginal product of labour decreases 6 .Consider an economy in steady state. population grows at a rate n = 0. Now. d) The rate of inflation will be more than 1 % during this year and next year it will be equal to 2 %. Then: a) The real rental rate increases b) The rent from human capital decreases c) The real wage of the not qualified (unskilled) workers increases d) The real wage of the not qualified (unskilled) workers decreases 7 . = 0. economic efnciency grows at a rate g = 0. b) The nominal interest rate is constant c) The inflation rate is zero. b and c are correct 5 . It is e xpected that next year the population growth rate will decrease permanently.Consider an economy in steady state.

c) The saving rate in this economy is exactly the one that maximizes consumpti on per capita.Consider an economy with the production technology Y = Ka (E x L) ~a. The production function of the economy is given by y = K^L^.Consider an economy with no population growth and with a constant returns t o scale production function. L) = K°'5L0'5.04. b) Is higher than the savings rate of the Golden Rule.01 and AE/E = 0. where Y represents aggregate output. Then. consumption per worker will: a) initially fall below the original level but will eventually rise above it b) continuously rise above the original level until it reaches a new steady sta te valué c) initially rise above the original level and then gradually fall back toward it d) continuously fall below the original level until it reaches a new lower ste ady state valué 16 . . 4 b) s = 0.Consider an economy without population growth and technological change. 2 d) none of the above 13 . the capital share of national income is 33%. Both economies have a capital per worker below th e steady state level of capital. The rate of growth of mone y is AM/M = 0. The depreciation rate is «5 = 0. how much is the inflation rate? a) 7r = 5 b) 7T = 4 C) 7T = 3 d) none of the above 14 . and E represents the emcienc y of workers.If the current steady-state level of capital is higher than the Golden Rule level and the government implements policies that increase the saving rate. d) With the information provided in the question. a) s = O.3 c) s = O. Then a) the rate of growth of output per worker during the current period is higher in Ameria than in Bamiria b) the rate of growth of output per worker during the current period is lower i n Ameria than in Bamiria c) the rate of growth of output per worker during the current period is the sam e in both countries. it is not possible to determi ne if the actual saving rate is higher. L is the number of workers. Calcúlate the saving rate t hat corresponds to the steady-state level of output per worker y = 2. We know that AL/L = 0. d) we cannot tell with the available data 15 . and the annual rate of growth of GDP is 10%.10.In Ameria and Bamiria the production technology combines capital and labor according to Y = F(K.1. c) Is equal to the savings rate of the Golden Rule. the depreciation rate of capital is 8 %. Assume that the economy is in steady state. d) There is not enough information to answer the question. the savings rate of the economy: a) Is below the savings rate of the Golden Rule. Assume that Ameria and Bamiria are identical economies except for the fa ct that capital per worker is higher in Ameria than Bamiria. K is the capital stock. If the money velocity is constant. lower or equal to the one that maximizes consumption per capita 12 . The economy is in steady state. th e capital stock is four times real annual GDP.

The rate of growth of aggregate GDP is g = 2 %. 15. and L is the quantity of labor. 5.03 and the rate of technological progress is A E/E = g = 0.1 y). In Krakataria there is no population growth (population is constant) and the economy is in steady state. sk ' = (8 + g) k. 2. G = T). 3.02. Y = yL = Ax 250= 1. The Baratarían Government runs a b alanced budget (that is. . calcúlate the real interest rate that clears the loanable funds market. 9. so that s= (S + g)k0'5 and k= (f)5^ = (^)2 = 16. 8. 16. Obtain the rate of growth of aggregate outpu t in Krakataria. 14.Exercises 1. We also know that L = 250 and that people in Kraka taria save 20 % of their income. 6. If the long run level of output is Y = 1000 and the investment function is given by 400 Ð 20r. Calcúlate aggregate output Y. 12. In steady sta te. 4. The government in Barataria coll ects 10 cents of taxes per euro earned by the Baratarians (that is. 13. 11. they save a fraction s = 2/9 of their disposable income). (10 points) Answer: The real interest rate is 10%. Henee.Respuestas (marca con una cruz la correcta) 1. 10.000. 2. Assume that the inhabitants of Barataria consume 7 euros out of 9 euros of af ter-tax earnings (that is. T = 0. 7. Then. where Y represents aggrega te output. (10 puntos) Answer: The law of motion oí k is Ak = sy Ð (8 + g) k = sk ' Ð («5 + g) k. K is the capital stock. a) b) c) d) Part II . y = 4. The rate of depreciation of capital is «5 = 0. The economy's production function is given by Y = K°'5L0'5.