Sample Questions Duration 60 Minutes

1. Considering following Exhibit, answer following questions (20 Points):

a. Which type of undesirable macroeconomic equilibrium does this

economy face? Support your idea with specific reasons.
b. Employ all fiscal policy tools and discuss bringing this economy to the
desirable macroeconomic equilibrium. Which type of fiscal policy will
you apply? Express it explicitly.
c. Employ all monetary tools policy and discuss bringing this economy to
the desirable macroeconomic equilibrium. Which type of monetary
policy will you apply? Express it explicitly.

1
 d. Can you show a macroeconomic equilibrium, where the unemployment
rate is 38 percent? Support your idea with specific reasons. Please show
it on the exhibit and explain your reasons.

2. April 28, 2017 12:00 p.m. ET: Friday’s gross domestic product report
didn’t look good. The Commerce Department reported that the economy grew at a
0.7% annual rate in the first quarter, marking its weakest showing in three years. It
probably isn’t the kind of report President Donald Trump wanted to see as he rounds
out his first 100 days in office. But the worrisome thing about the GDP report is where
the weakness was. Consumer spending grew at just a 0.3% annual rate—its slowest
showing since the fourth quarter of 2009. The number is more worrisome because
consumer spending accounts for about two-thirds of the economy. Still, those theories
don’t entirely explain why consumer spending on durable goods, such as cars and
refrigerators, fell by the most in nearly six years.

Concerns are building in the car industry, where a seven-year run in sales growth
appears to be petering out. Car sales likely declined for the fourth straight month in
April, despite discounts and incentives increasingly pitched by car makers, industry data
show. Car dealers were sitting on a 72-day supply of vehicles on average in March, up
from 66 days a year earlier, according to researcher WardsAuto.com. Vehicles are piling
up despite bigger discounts.

Perhaps the most encouraging sign from Friday’s report is a pickup in business
investment. Throughout most of the recovery, companies have largely put off building
new factories and purchasing equipment. Those are the kinds of projects that make
companies more efficient, boost worker productivity and, over the long haul, lift
economic growth.

Such spending grew at a 9.4% rate last quarter, the fastest since late 2013. That
coincides with surveys showing surging confidence among businesses following Mr.
Trump’s November election victory. Investment picked up broadly, but the biggest
factor was a pickup in mining-related structures, reflecting a rebound in the energy
industry that has led to renewed drilling and exploration projects.

What is the main reason for the US relatively lower GDP growth rate in the
first three months of 2017? Support your idea with specific reason(s). Which
components of aggregate demand are mentioned in the above given text (20
Points).

3. Write down the following definitions (20 Points):

2
 a. Marginal propensity to consume. What kind of purpose, we could employ this
indicator? Explain.
b. Fill in the Blanks

 ……………………………………… is the practice of using corporate profits for capital

investment rather than dividend payouts. ………………………….... refer to stocks
and bonds.
 When the real interest rate rises as a result of the government budget deficit,
it causes a decrease in private investment, known as the
………………………………………….
 Long-run aggregate supply (LRAS) is a period long enough for the …………….
of outputs and all inputs to fully adjust to changes in the economy

4. Imagine that, you have authority over the economy, which provides you
power to apply fiscal and monetary policies. You observe that in your country, inflation
rate is very high. What kind of policies, would you apply? Support your idea with
plausible reasons.

5. In his political campaign, a political party leader tells the voters that, main
problem in the country is budget deficit. He also mentions that, if he and his party come
to power their first step will be about elimination of the budget deficit. When the
election is over, this leader and his party lose elections and so that they are not able to
take the government administration. Which reasons could lie in the behind of this
result? Support your idea with your macroeconomics intelligence.

Good Luck …
Dr. Sarvar Gurbanov
2018 ©