University of Toronto Scarborough

ECMA06 Introduction to Macroeconomics: A Mathematica A!!roach

"ina E#am$ %inter &0''
(ersion A
Professor: Iris Au
Date & Time: Tuesday, April 12, 2011, 2:00pm 5:00pm
Total Marks: 100
Total # of paes !i"#ludi" t$e #o%er pae&: 12
Tool allo'ed: (o")proramma*le #al#ulator o"ly
++ ,al#ulators t$at #a" *e stored i"formatio" 'ill *e #o"fis#ated- If t$e #o"fis#ated
#al#ulator is fou"d to #o"tai" "otes of a"y ki"d, a#ademi# #o"se.ue"#es 'ill e"sue-
Instructions !ease read carefuy
1& /" t$e scantron ans)er sheet, you must:
P0I(T your family "ame a"d first "ame-
1"ter your stude"t "um*er as t$e ide"tifi#atio" "um*er-
2I33 I( T41 5655317 u"der you "ame a"d stude"t "um*er-
2I33 I( T41 565531 A77/,IAT1D 8IT4 9/60 T17T :107I/( !(E*SI+, A-.
2& If you fail to #arry out all tasks i"di#ated i" part 1, & mar/s 'ill *e dedu#ted from your fi"al s#ore-
;& /" t$e a"s'er *ooklet, you must fill i" your "ame a"d stude"t "um*er- D/ (/T 01M/:1 T41
7TAP31 20/M T41 A(7810 5//<31T-
=& T$ere are ;5 multiple)#$oi#e .uestio"s !a"d a ;>
t$
.uestio" '$i#$ 'ill #o"firm your e?am %ersio"&-
2or ea#$ .uestio", #$oose t$e #orre#t a"s'er- If t'o multiple)#$oi#e a"s'ers *ot$ seem to *e
appro?imately #orre#t, #$oose t$e *est of t$e t'o a"s'ers- 0ut your ans)ers on the scantron
sheet !rovided by fiing in the a!!ro!riate bubbe. If ans)ers are not )ritten on the scantron
sheet$ there )i be no mar/s given for ans)ers. 1a#$ #orre#t a"s'er is 'ort$ 2 marks !e?#ept for
@uestio" ;>, '$ere t$e #orre#t a"s'er simply #o"firms your e?am %ersio"&A i"#orre#t a"s'ers
re#ei%e 0 mark !t$ere is "o dedu#tio" for 'ro" a"s'ers&-
5& 8$e" e"teri" your a"s'ers o" t$e s#a"tro" s$eet:
6se a medium !45& pe"#il a"d fill i" t$e *u**le "eatly a"d #ompletely-
1rase a"y #$a"es as #ompletely as possi*le-
5e %ery #areful to pla#e ea#$ a"s'er i" t$e #orre#t pla#e-
>& @uestio"s ;B ;C are s$ort)a"s'er .uestio"s a"d are to *e a"s'ered i" t$e A,S%E* 1++23ET-
Make sure you pro%ide suffi#ie"t e?pla"atio" i" order to re#ei%e #redit for t$ese .uestio"s-
1,MA0> 2i"al :ersio" A 8i"ter 2011 Pae 1 of 12
Good luck & have a great summer!
1,MA0> 2i"al :ersio" A 8i"ter 2011 Pae 2 of 12
T$is fi"al e?am #o"sists of ;5 multiple)#$oi#e .uestio"s !a ;>
t$
ide"tifier .uestio"& a"d ;
s$ort)a"s'er .uestio"s- 2or t$e multiple)#$oi#e .uestio"s, a"s'er ea#$ .uestio" *y
#$oosi" t$e *est alter"ati%e a"d i"di#ati" your #$oi#e i" t$e appropriate pla#e o" t$e
s#a"tro" s$eet pro%ided 'it$ t$is e?am- 2or t$e s$ort)a"s'er .uestio"s, put your a"s'er
i" t$e a"s'er *ooklet pro%ided-
At t$e e"d of t$e e?am, make sure you submit the scantron sheet and the ans)er
boo/et- 9ou may take t$e rest of t$e e?am a'ay 'it$ you, so you #a" use t$e fro"t a"d
*a#k of t$ese paes for your rou$ 'ork- If you 'is$ to keep a re#ord of your a"s'ers,
make a "ote of t$em o" t$e e?am-
0A*T I MU3TI03E C4+ICE 5UESTI+,S 670 MA*2S-
5uestion '
8$i#$ of t$e follo'i" stateme"ts are trueD
I& <are" re#ei%es pe"sio" payme"t of EB00 per mo"t$ i" 200C- If t$e pe"sio" payme"t is fully
i"de?ed !adFusted& to i"flatio", a"d if t$e ,PI i"#reases from 112 i" 200C to 11B-> i" 2010,
<are"Gs mo"t$ly payme"t 'ill i"#rease *y E;5-
II& <are" puts E1000 i" a sa%i" a##ou"t t$at pays a" a""ual i"terest rate of 5H- 5y t$e e"d of
t$e year, t$e ,PI $as i"#reased from 112 to 11B->- T$e pur#$asi" po'er of <are"Gs *a"k
a##ou"t remai"s u"#$a"ed-
III& 8$e" t$e ,PI i"#reases, t$e a%erae family $as to spe"d more to mai"tai" t$eir sta"dard of
li%i"-
A& /"ly I 5& /"ly II ,& /"ly III D& I & II 1& I & III
2& II & III I& I, II, & III 4& (o"e of t$e a*o%e-
5uestion &
T$e e#o"omy i" .uestio" $as a" adult populatio" of 2=5 millio"s- ,urre"tly, 20H of t$e adult
populatio" is "ot i" t$e la*our for#e a"d 1=-21 millio" 'orkers are u"employed- 5ased o" t$e
i"formatio" i%e", t$e u"employme"t rate a"d t$e employme"t rate are:
Ans)er Unem!oyment rate$ 8 Em!oyment rate$ 8
A 5-J0 B=-20
1 5-J0 J0-00
C 5-J0 C=-20
9 B-25 B=-20
E B-25 J0-00
" B-25 C2-B5
: B-J2 B=-20
4 B-J2 J0-00
I B-J2 C2-1J
; ,a""ot tell ,a""ot tell
1,MA0> 2i"al :ersio" A 8i"ter 2011 Pae ; of 12
5uestion < 5uestion =: Ma#rola"d #o"sumes = oods !apples, pe"s, D:D, a"d *read&- 4ouse$olds
pur#$ases all apples a"d *read, o"e)t$ird !K& of pe"s a"d $alf !50H& of t$e D:D- T$e remai"i"
!#o"sumptio" of& pe"s a"d D:D are e.ually split *et'ee" firms a"d t$e o%er"me"t- I" additio", $alf
of t$e *read is imported from forei" #ou"tries, '$ile t$e remai"i" oods are produ#ed lo#ally-
T$e follo'i" ta*le s$o's t$e .ua"tities of oods #o"sumed a"d t$eir pri#es- T$e 7tatisti#s Departme"t
of Ma#rola"d #$ooses 2010 as t$e *ase year-
&00> &0'0
:ood 5uantity 0rice 5uantity 0rice
A!!es 1B5 E; 200 E2
0ens 150 E= 150 E=-5
9(9 50 E;5 >0 E=0
1read 10 EJ 10 E10
5uestion <
8$at is t$e IDP deflator i" 200C !rou"ded to 2 de#imal pla#es&D
A& JB-2; 5& C=-5> ,& C=-J0 D& C5-0= 1& C5-1B
2& CC-B5 I& 100 4& 100-2> I& 105-=C L& 11=->;
5uestion ?
2i"d t$e #o"sumer pri#e i"de? i" 200C !rou"ded to 2 de#imal pla#es&-
A& 1;> 5& 11;-BC ,& 100-J0 D& 100-2> 1& 100
2& CC-B= I& CC-B0 4& C=-J0 I& C=-B5 L& C=-5>
5uestion =
5ased o" your a"s'er i" @uestio"s ; & =, t$e IDP deflator a"d t$e ,PI i" Ma#rola"d are differe"t i"
200C *e#ause:
I& T$e *asket used i" #omputi" t$e IDP deflator a"d t$e ,PI are differe"t-
II& T$e set of pri#es used to #ompute t$e IDP deflator a"d t$e ,PI are differe"t-
III& T$e effe#t of a #$a"e i" pri#e of *read $as a larer impa#t o" t$e ,PI t$a" t$e IDP deflator-
A& /"ly I 5& /"ly II ,& /"ly III D& I & II 1& I & III
2& II & III I& I, II, & III 4& (o"e of t$e a*o%e-
5uestion 6
T$e IDP deflator de#reased from 11> to 10> *et'ee" 2000 a"d 2010A '$ile t$e !"omi"al& i"#ome
de#reased from E;CB50 to E;1150 duri" t$e same time period- T$e a%erae a""ual rate of #$a"e i"
real i"#ome i" t$e 10 years *et'ee" 2000 a"d 2010 'as !rou"ded to 1 de#imal pla#e&:
A& M 0-JH 5& M 0-CH ,& M 1-5H D& M 2-2H 1& M 2-=H
2& 0-JH I& 0-CH 4& 1-5H I& 2-2H L& 2-=H
1,MA0> 2i"al :ersio" A 8i"ter 2011 Pae = of 12
5uestion 7 5uestion '': T$e e#o"omy i" .uestio" $as fle?i*le pri#es a"d #a" *e des#ri*ed *y t$e
AD)A7 model- I"itially, t$e e#o"omy is i" its lo")ru" e.uili*rium, a"d t$e e.uili*rium pri#e le%el is
C;-B5 '$ile t$e e.uili*rium 'ae is 150-
Areate e?pe"diture: A1 N 12B5 M 0-=!1000 5P& M 0-159
Areate dema"d: P N J;B-5 0-=259
Areate supply !A7&: P N ! 25>-25 M 0-29&

150
'
, '$ere ' N 'ae rate
2ull)employme"t le%el of output: 921 N 1B50
5uestions 7 > 7uppose auto"omous e?pe"diture !A10& rises *y 10H !i-e-, "e' A10 N 1-1 O i"itial
A10&-
5uestion 7
T$e s$ort)ru" e.uili*rium le%el of output 'ould i"#rease *y !rou"ded to t$e "earest u"it&:
A& J50 5& B0C ,& 5;J D& 2CJ 1& 2=5
2& 210 I& 1BC 4& 150 I& 1;= L& 102
5uestion @
4o' mu#$ t$e s$ort)ru" e.uili*rium pri#e i"#rease after t$e #$a"e i" auto"omous e?pe"diture
!rou"ded to 2 de#imal pla#es&D
A& 1B0 5& =C1-J ,& 10B-> D& 5C->J 1& =J-C=
2& =2-1= I& 2>-J0 4& ;0 I& 20-= L& 2B-C2
5uestion >
If 'e let t$e "atural adFustme"t 'orks, '$at are t$e lo")ru" e.uili*rium %alues of 'ae rate a"d pri#e
!rou"ded to 2 de#imal pla#es&D
Ans)er %age 0rice Ans)er %age 0rice
A 252 15B-5 " 1BB-5 2J=
1 15B-5 252 : 150 15B-5
C 150 C;-B5 4 15B-B 150
9 C;-B5 150 I 252 150
E 2J= 1BB-5 ; 252 221-25
1,MA0> 2i"al :ersio" A 8i"ter 2011 Pae 5 of 12
5uestions '0 '': 0etur" to t$e i"itial model prior to t$e #$a"e i" A10- 7uppose t$e e#o"omy $its *y
a supply side s$o#k su#$ t$at t$e A7 #ur%e *e#omes:
P N ! ;00 M 0-29&

150
'
5uestion '0
8$i#$ of t$e follo'i" stateme"t!s& is!are& trueD
A& A7 #ur%e s$ifts $oriPo"tally to t$e left *y =;-B5-
5& A7 #ur%e s$ifts $oriPo"tally to t$e left *y 21J-B5-
,& A7 #ur%e s$ifts $oriPo"tally to t$e ri$t *y =;-B5-
D& A7 #ur%e s$ifts $oriPo"tally to t$e ri$t *y 21J-B5-
1& 7$ort)ru" e.uili*rium pri#e rises *y 2C-B5 '$ile e.uili*rium output falls *y B0-
2& 7$ort)ru" e.uili*rium pri#e falls *y 2C-B5 '$ile e.uili*rium output rises *y B0-
I& A & 1 are true-
4& 5 & 1 are true-
I& , & 2 are true-
L& D & 2 are true-
5uestion ''
7uppose t$e o%er"me"t fi"ds t$e #$a"e i" s$ort)ru" le%el of output !i-e-, t$e output le%el i" @uestio"
10& u"desira*le a"d de#ides to use fis#al poli#y to *ri" it *a#k to full)employme"t le%el i" t$e s$ort
ru"- 8$i#$ of t$e follo'i" stateme"t!s& is!are& #orre#t after t$e #$a"e i" fis#al poli#yD
I& T$ere 'ill *e "o #$a"e i" pri#e a"d output-
II& 8ae remai"s u"#$a"ed at 150-
III& 1.uili*rium pri#e falls-
A& /"ly I 5& /"ly II ,& /"ly III D& I & II 1& I & III
2& II & III I& I, II, & III 4& (o"e of t$e a*o%e-
5uestion '&
A *o"d maturi" i" ; years $as a fa#e %alue of E1000A a"d it pays =H i" #oupo"- If t$e #urre"t i"terest
rate is >H, $o' mu#$ 'ould you pay if you 'a"t to *uy t$is *o"d "o' !rou"ded to 2 de#imal pla#es&D
A& E1120 5& E105>-> ,& E1055-5 D& E100;-;= 1& E1000
2& EC=>-5= I& EC=0-5= 4& EC12-C5 I& EJB;-2 L& EJ;C->;
5uestion '<
7uppose you *uy a 2)year *o"d t$at $as a fa#e %alue of E1000 a"d a #oupo" rate of ;-5H- If you *uy it
for ECJ2-B5 today, '$at is t$e yield !retur"& of $oldi" t$is *o"d !rou"ded to 2 de#imal pla#es&D
A& 5-C=H 5& =-==H ,& =-=2H D& =-=0H 1& =-;CH
2& ;-C1H I& ;-5H 4& 2->2H I& 1-25H L& 0-J>H
1,MA0> 2i"al :ersio" A 8i"ter 2011 Pae > of 12
5uestion '? 5uestion '7: Alp$a $as a %ery simple *a"ki" system, i" '$i#$ t$ere is o"ly o"e
#$artered *a"k !t$e 3ast 5a"k of Alp$a&- T$e #ou"try $as a mi"imum re.uired reser%e ratio of JH- I"
additio", i"di%iduals i" Alp$a $old a fi?ed amou"t of #as$ for t$eir daily tra"sa#tio"s, a"d deposit a"y
ot$er mo"ey i"to t$eir *a"k a##ou"ts- T$e i"itial *ala"#e s$eet of t$e 3ast 5a"k of Alp$a is as follo':
Assets 3iabiities
0eser%es E220 Dema"d deposits E2500
3oa"s E2;J0 7$are$older e.uity E100
,ote: 6"less ot$er'ise stated, t$e 3ast 5a"k of Alp$a 'ill $old t$e e?#ess reser%es fi?ed at t$e #urre"t
le%el as s$o'" i" t$e i"itial *ala"#e s$eet a"d 'ill le"d out a"y surplus of reser%es *eyo"d t$is-
5uestion '?
7uppose t$e #e"tral *a"k of Alp$a #o"du#ts a" ope" market pur#$ase of E100- 8$e" e.uili*rium $as
*ee" restored, t$e o%erall #$a"e i" M7 is:
A& E1;50 5& E1250 ,& E1150 D& E1050 1& E125
2& M E1;50 I& M E1250 4& M E1150 I& M E1050 L& M E125
5uestions '= '6: 0etur" to t$e i"itial situatio"- 7uppose t$e o%er"me"t of Alp$a pro%ides deposit
i"sura"#e to its #itiPe"s- <"o'i" t$at t$eir deposits are prote#ted, people of Alp$a redu#e t$eir #as$
$oldi"s *y EB5 *y depositi" t$e #as$ i" t$eir *a"k a##ou"ts-
5uestion '=
8$e" t$e *a"ki" system is *a#k to e.uili*rium, t$e ultimate #$a"e i" t$e loa"s made *y t$e 3ast
5a"k of Alp$a is:
A& E1012-5 5& EC;B-5 ,& EJ>2-5 D& EBJB-5 1& EB5
2& M E1012-5 I& M EC;B-5 4& M EJ>2-5 I& M EBJB-5 L& M EB5
5uestion '6
T$e o%erall #$a"e i" mo"ey supply is:
A& E1012-5 5& EC;B-5 ,& EJ>2-5 D& EBJB-5 1& EB5
2& M E1012-5 I& M EC;B-5 4& M EJ>2-5 I& M EBJB-5 L& M EB5
1,MA0> 2i"al :ersio" A 8i"ter 2011 Pae B of 12
5uestion '7
0etur" to t$e i"itial situatio"- 5ased o" t$e i"formatio" i%e" i" t$e i"itial *ala"#e s$eet, '$i#$ of t$e
follo'i" stateme"t!s& is!are& trueD
I& T$e 3ast 5a"k of Alp$a $olds e?#ess reser%es of E20-
II& If t$e 3ast 5a"k of Alp$a loa"s out all t$e e?#ess reser%es, '$e" t$e *a"ki" system is *a#k
to e.uili*rium *ot$ t$e #$artered *a"kGs loa"s a"d t$e mo"ey supply i"#rease *y E250 ea#$-
III& If t$e 3ast 5a"k of Alp$a loa"s out all t$e e?#ess reser%es, '$e" t$e *a"ki" system is *a#k
to e.uili*rium t$e #$artered *a"kGs loa"s i"#reases *y E2;0 a"d t$e mo"ey supply i"#reases
*y E250-
A& I, II, & III 5& I & II ,& I & III D& II & III 1& /"ly I
2& /"ly II I& /"ly III 4& (o"e of t$e a*o%e-
5uestion '@ 5uestion &6: A" e#o"omy 'it$ fi?ed pri#es #a" *e des#ri*ed *y t$e follo'i"
e.uatio"s-
,o"sumptio": , N ;00 M 0->DIA '$ere DI N disposa*le i"#ome
I"%estme"t: I N ==5 500!r 0-0=&
Io%er"me"t spe"di": I N ;B5
Ta?es: T N 0-19 50
Tra"sfers: T0 N 2B5 0-159
1?ports: Q N 210 500!1 2&A 1 N # of forei" #urre"#y per domesti# #urre"#y
Imports: IM N 1B5 M 0-29 M 1000!1 2&
,+TE: 6"less ot$er'ise stated, r is $eld #o"sta"t at 0-0= !=H& a"d 1 is $eld #o"sta"t at 2-
5uestion '@
2i"d t$e e.uili*rium le%el of output !rou"ded to 1 de#imal pla#e&-
A& 12J0 5& 1;>0 ,& 1B0>R D& 1B20 1& 1J00
2& 1C25 I& 2BB2-B 4& ;;B5 I& ;J>B-1 L& 5=00
5uestion '>
8$at are t$e e.uili*rium le%els of *udet *ala"#e a"d trade *ala"#eD
Ans)er 1udget baance Trade baance Ans)er 1udget baance Trade baance
A >50 10=5 " ;B5 ;50
1 >50 10=5 : 250 ;25
C ;B5 ;50 4 250 ;25
9 ;B5 ;50 I 250 ;25
E ;B5 ;50 ; 250 ;25
1,MA0> 2i"al :ersio" A 8i"ter 2011 Pae J of 12
5uestions &0 &&: I" attempt to et reele#ted, t$e o%er"me"t i"#reases its spe"di" !I& *y =H !i-e-,
t$e "e' le%el of o%er"me"t spe"di" N ;C0&-
5uestion &0
After t$e e#o"omy rea#$es its "e' e.uili*rium, t$e o%erall effe#t of t$is i"#rease i" o%er"me"t
spe"di" 'ill redu#e t$e *udet surplus or i"#rease t$e *udet defi#it *y:
A& 0 5& 5 ,& > D& J 1& 10
2& 15 I& 1J 4& 20 I& 25 L& >0
5uestion &'
4o' mu#$ 'ould t$e trade *ala"#e #$a"e as a result of t$is i"#rease i" o%er"me"t spe"di"D
A& ; 5& = ,& 10 D& 12 1& 0
2& M ; I& M = 4& M 10 I& M 12 L& (o"e of t$e a*o%e
5uestion &&
(o', i"stead of i"#reasi" o%er"me"t spe"di", t$e o%er"me"t pro%ides a lump)sum ta? #ut !i-e-,
#$a"i" t$e %alue of auto"omous ta?es '$ile keepi" t$e ta? rate #o"sta"t&- T$e lump)sum ta? #ut t$at
'ill $a%e t$e same effe#t o" output !as o%er"me"t spe"di" i"#rease *y =H& is:
A& 15 5& 25 ,& ;;K D& 50 1& >0
2& B5 I& 100 4& 125 I& 150 L& (o"e of t$e a*o%e
5uestions &< &6: 0etur" to t$e i"itial e.uili*rium prior to t$e #$a"e i" o%er"me"t spe"di" !i-e-,
retur" t$e i"itial situatio" dealt 'it$ i" @uestio"s 1J & 1C&- (o', suppose $ouse$olds de#ide to sa%e
less for a"y i%e" le%el of disposa*le i"#ome- As a result, auto"omous #o"sumptio" i"#reases *y 20H-
5uestion &<
T$e i"#rease i" e.uili*rium i"#ome !9& after t$is #$a"e i" auto"omous #o"sumptio" is !rou"ded to t$e
"earest u"it&:
A& J 5& 15 ,& 1B D& 2= 1& 2J
2& J0 I& 100 4& 150 I& 2=0 L& ;C>
5uestion &?
(o' take t$e #$a"e i" i"terest rate i"to #o"sideratio"- 7uppose t$e i"#rease i" auto"omous
#o"sumptio" #auses t$e i"terest rate, r, to rise *y 1-5 per#e"tae poi"ts !i-e-, r rises *y 0-015&-
,ompare to t$e e.uili*rium prior to a"y #$a"e !i-e-, t$e e.uili*rium as s$o'" i" @uestio" 1J&, t$e
e.uili*rium le%el of output 'ill rise *y !rou"ded to t$e "earest u"it&:
A& 2 5& 10 ,& B0 D& 110 1& 210
2& B-5 I& 1J 4& C0 I& 11= L& ;J=
1,MA0> 2i"al :ersio" A 8i"ter 2011 Pae C of 12
5uestion &=
(o' take t$e #$a"es i" *ot$ i"terest rate a"d e?#$a"e rate i"to #o"sideratio"- 7uppose t$e i"#rease i"
auto"omous #o"sumptio" "ot o"ly #auses t$e i"terest rate, r, to rise *y 1-5 per#e"tae poi"ts, it also
#auses domesti# #urre"#y to appre#iate *y 0-0;5 u"it !i-e-, 1 N 2-0;5&-
,ompare to t$e e.uili*rium prior to a"y #$a"e !i-e-, t$e e.uili*rium as s$o'" i" @uestio" 1J&, t$e
#$a"e i" t$e e.uili*rium le%el of output is:
A& 0 5& M 10 ,& M 20 D& M ;0 1& M ;05
2& 2;K I& =>R 4& 52-5 I& B0 L& J0
5uestion &6
,o"ti"ued from @uestio" 25- ,ompare to t$e e.uili*rium prior to a"y #$a"e !i-e-, t$e e.uili*rium as
s$o'" i" @uestio" 1J&, t$e e.uili*rium le%el of "et e?ports #$a"es *y:
A& 5J-5 5& 5>-5 ,& 5=-5 D& 52-5 1& ;J-5
2& ;>-5 I& ;=-5 4& ;2-5 I& 2C L& 1B-5
5uestion &7 5uestion &> 7uppose t$e *ala"#e of payme"ts a##ou"ts for ,a"ada #a" *e summariPed
*y t$e follo'i" e.uatio"s !assume t$ere are "ot ot$er i"ter"atio"al tra"sa#tio"s&:
1?ports of oods a"d ser%i#es N 0-0>967 ;001, '$ere 1 N # of 67E per ,E
Imports of oods a"d ser%i#es N 0-259, M 2001
Pur#$ases of forei" assets *y ,a"adia"s N 100 1J00!r, r67&
Pur#$ases of ,a"adia" assets *y forei"ers N B0 M 2200!r, r67&
'$ere 967 N t$e 6-7- IDP, 9, N ,a"adaGs IDP, r, N I"terest rate i" ,a"ada, r67 N i"terest rate i"
t$e 6-7- Also, i"terest rate is e?pressed i" de#imal poi"ts !i-e-, if r N 0-05, t$e" r N 5H&-
5uestion &7
I"itially, 967 N 10500, 9, N 1200, r, N 0-0> !>H&, r67 N 0-0= !=H&- 2i"d t$e e.uili*rium e?#$a"e rate-
A& 2-0J 5& 1-C> ,& 1-B> D& 1->= 1& 0-JJ
2& 0-J> I& 0-B> 4& 0->> I& 0-5> L& 0-==
5uestions &@ &> 7uppose t$e 6-7- o%er"me"t ru"s e?pa"sio"ary fis#al poli#y- As a result, t$e 6-7-
i"terest rate i"#reases *y 2 per#e"tae poi"ts to >H-
5uestion &@
,ompare to your a"s'er i" @uestio" 2B, t$e e.uili*rium e?#$a"e rate 'ill #$a"e *y:
A& M 0-01> 5& M 0-0J ,& M 0-12 D& M 0-1> 1& M 0-2
2& 0-01> I& 0-0J 4& 0-12 I& 0-1> L& 0-2
1,MA0> 2i"al :ersio" A 8i"ter 2011 Pae 10 of 12
5uestion &>
,ompare to your a"s'er i" @uestio" 2B, t$is #$a"e i" t$e 6-7- i"terest rate 'ill $a%e t$e follo'i"
effe#ts o" ,a"adaGs #apital a##ou"t:
A& ,a"ada e?perie"#es #apital i"flo's, a"d t$e ,a"adia" #apital a##ou"t rises *y 10-
5& ,a"ada e?perie"#es #apital i"flo's, a"d t$e ,a"adia" #apital a##ou"t rises *y 20-
,& ,a"ada e?perie"#es #apital i"flo's, a"d t$e ,a"adia" #apital a##ou"t rises *y ;0-
D& ,a"ada e?perie"#es #apital i"flo's, a"d t$e ,a"adia" #apital a##ou"t rises *y 50-
1& ,a"ada e?perie"#es #apital i"flo's, a"d t$e ,a"adia" #apital a##ou"t rises *y J0-
2& ,a"ada e?perie"#es #apital outflo's, a"d t$e ,a"adia" #apital a##ou"t falls *y 10-
I& ,a"ada e?perie"#es #apital outflo's, a"d t$e ,a"adia" #apital a##ou"t falls *y 20-
4& ,a"ada e?perie"#es #apital outflo's, a"d t$e ,a"adia" #apital a##ou"t falls *y ;0-
I& ,a"ada e?perie"#es #apital outflo's, a"d t$e ,a"adia" #apital a##ou"t falls *y 50-
L& ,a"ada e?perie"#es #apital outflo's, a"d t$e ,a"adia" #apital a##ou"t falls *y J0-
5uestion <0
8$i#$ of t$e follo'i" stateme"t!s& is!are& true a*out t$e 5a"k of ,a"adaD
I& T$e 5a"k of ,a"ada #a" i"#rease t$e pri#e le%el *y de#reasi" t$e o%er"i$t rate-
II& T$e 5a"k of ,a"ada $as #omplete !or full& #o"trol o%er t$e le%el of mo"ey supply i" ,a"ada-
III& T$e 5a"k of ,a"ada #a" i"#rease mo"ey supply *y s'it#$i" !federal& o%er"me"t deposit
from t$e #$artered *a"k to o%er"me"t deposit at t$e 5a"k of ,a"ada-
A& /"ly I 5& /"ly II ,& /"ly III D& I & II 1& I & III
2& II & III I& I, II, & III 4& (o"e of t$e a*o%e-
5uestion <'
8$i#$ of t$e follo'i" stateme"t!s& is!are& trueD
I& If t$e #oupo" rate is 2H a"d t$e market i"terest rate is 1-B5H, you 'ill re#ei%e a pri#e $i$er
t$a" t$e fa#e %alue '$e" selli" t$e *o"ds-
II& If t$e market i"terest rate a"d t$e #oupo" rate are t$e same, you 'ould prefer *uyi" "e'ly
issued *o"ds to e?isti" *o"ds *e#ause t$e "e'ly issued *o"ds offer $i$er retur"-
III& 4oldi" all else #o"sta"t, a" i"#rease i" i"terest rate 'ould lo'er t$e prese"t dis#ou"t %alue
of t$e stream of i"#ome re#ei%ed from !e?isti"& *o"ds-
A& /"ly I 5& /"ly II ,& /"ly III D& I & II 1& I & III
2& II & III I& I, II, & III 4& (o"e of t$e a*o%e-
1,MA0> 2i"al :ersio" A 8i"ter 2011 Pae 11 of 12
5uestion <&
I"itially, a #losed e#o"omy 'it$ fle?i*le pri#es is i" its lo")ru" e.uili*rium, a"d it #a" *e des#ri*ed *y
t$e A7)AD model- Due to t$e politi#al u"rest i" t$e #ou"try, t$e pri#e of oil i"#reases *y 10H- T$e rise
i" oil pri#e 'ould $a%e t$e follo'i" effe#t!s& o" t$e e#o"omy:
I& T$e rise i" oil pri#e may pus$ t$e e#o"omy i"to staflatio"-
II& T$e e#o"omy may suffer from a lo" a"d pai"ful adFustme"t pro#ess if it lets t$e "atural
adFustme"t me#$a"ism 'orks-
III& If poli#y makers ru" #ou"ter)#y#li#al poli#ies, t$e e#o"omy 'ould e?perie"#e $i$er pri#es-
A& /"ly I 5& /"ly II ,& /"ly III D& I & II 1& I & III
2& II & III I& I, II, & III 4& (o"e of t$e a*o%e-
5uestion <<
8$i#$ of t$e follo'i" stateme"t!s& is!are& true for a #losed e#o"omyD
I& T$ere 'ill *e a larer #$a"e i" output '$e" t$e o%er"me"t ru"s #o"tra#tio"ary fis#al
poli#y *e#ause t$e !su*se.ue"t& #$a"e i" i"terest rate 'ill lead to a larer #$a"e i" output-
II& If t$e elimi"atio" of *udet defi#it is a#$ie%ed *y redu#i" spe"di" i" areas like post)
se#o"dary edu#atio" a"d $ealt$ #are, t$e" t$e e#o"omy may $a%e lo'er lo")term e#o"omi#
ro't$ a"d sta"dard of li%i"-
III& 4oldi" all else #o"sta"t, a fall i" auto"omous #o"sumptio" 'ould $a%e a larer impa#t o"
t$e s$ort)ru" le%el of output '$e" t$e o%er"me"t is small-
A& /"ly I 5& /"ly II ,& /"ly III D& I & II 1& I & III
2& II & III I& I, II, & III 4& (o"e of t$e a*o%e-
5uestion <?
8$i#$ of t$e follo'i" stateme"t!s& a*out fis#al poli#y is!are& e"erally trueD
I& ,ro'di" out 'ill "ot redu#e t$e effe#ti%e"ess of usi" fis#al poli#y to smoot$ out *usi"ess
#y#les !assume t$e e#o"omy is a #losed e#o"omy&-
II& I" a #losed e#o"omy, if 'e assume t$ere is "o #ro'di" out effe#t, a" i"#rease i" o%er"me"t
spe"di" of E10 *illio" 'ill s$ift t$e areate dema"d #ur%e to t$e ri$t *y 10 *illio"-
III& 6"der a fle?i*le e?#$a"e rate, a #o"tra#tio"ary fis#al poli#y #auses t$e !domesti#& i"terest
rate to rise, '$i#$ i" tur" #auses t$e dollar to appre#iate a"d #auses t$e "et e?ports to
de#rease-
A& /"ly I 5& /"ly II ,& /"ly III D& I & II 1& I & III
2& II & III I& I, II, & III 4& (o"e of t$e a*o%e-
1,MA0> 2i"al :ersio" A 8i"ter 2011 Pae 12 of 12
5uestion <=
7uppose t$e #e"tral *a"k ru"s #o"tra#tio"ary mo"etary poli#y- ,o"sider t$e #$a"e i" s$ort)ru" output
u"der differe"t ma#ro setti"s:
I& ,losed e#o"omy-
II& /pe" e#o"omy 'it$ fi?ed e?#$a"e rate-
III& /pe" e#o"omy 'it$ fle?i*le e?#$a"e rate-
0a"k t$e de#rease i" t$e s$ort)ru" le%el of output from t$e smallest to t$e larest-
A& I, II, III-
5& I, III, II-
,& II, I, III-
D& II, III, I-
1& III, I, II-
2& III, II, I-
5uestion <6 6no mar/-
8$at is t$e %ersio" of t$e e?am '$i#$ you $a%e Fust 'ritte"D 4i"t: ,orre#t a"s'er is A-
A& :ersio" A 5& :ersio" 5 ,& :ersio" , D& :ersio" D
0A*T II S4+*TAA,S%E* 5UESTI+,S 6<0 MA*2S-
5uestions <7 6'0 mar/s-
A #losed e#o"omy 'it$ fle?i*le pri#es is #urre"tly i" its lo")ru" e.uili*rium- 6se )ords and the
in/ed diagram to des#ri*e a"d illustrate '$at $appe"s to t$e e#o"omy i" *ot$ s$ort)ru" a"d lo")ru"
'$e" t$ere is a rise i" auto"omous i"%estme"t !assume t$ere is "o #ro'di" out effe#t&-
5e sure to e?plai" '$y t$e #ur%es s$ift a"d to '$i#$ dire#tio", a"d des#ri*e $o' t$e e#o"omy ets *a#k
to e.uili*rium- 9ou #a" 'rite your 'ritte" e?pla"atio" *eside !a"d *elo' if "e#essary& t$e diaram-
5uestion <@ 6'0 !oints-
a& A #losed e#o"omy, 'it$ fle?i*le pri#es, is #urre"tly i" a deflatio"ary ap- 1?plai", i" )ords and
the ASAA9 diagram$ $o' t$e e#o"omy 'ould !"aturally& adFust *a#k to its lo")ru" e.uili*rium-
5e sure to e?plai" '$y t$e #ur%es s$ift, to '$i#$ dire#tio", a"d $o' t$e e#o"omy retur"s to
e.uili*rium- !5 poi"ts&
*& 1?plai", in '= )ords or ess, '$y t$e adFustme"t pro#ess i" part !a& #a" take a lo" time- !; poi"ts&
#& 1?plai", in &= )ords or ess, $o' deposit i"sura"#e #ould make t$e *a"ki" system more sta*le- !2
poi"ts&
5uestion <> 6'0 !oints-
,a"ada $as a fle?i*le e?#$a"e rate- 7uppose t$e 5a"k of ,a"ada #o"du#ts a" ope" market sale-
a& 5riefly e?plai" !i" 'ords o"ly& $o' t$is #$a"e i" mo"ey supply 'ould affe#t A1 a"d output- !>
marks&
*& Does t$e fle?i*le e?#$a"e rate rei"for#e t$e effe#t of t$is #$a"e i" mo"etary poli#y o" outputD
9esS(o, e?plai"- Also, '$at $appe"s to ,a"adaGs trade *ala"#eD 1?plai"- != poi"ts&-
1,MA0> 2i"al :ersio" A 8i"ter 2011 Pae 1; of 12