Principles of Macroeconomics Midterm 1 Make Up Exam Name Recitation 3 pts Exam Version 15 S M1MU Time Limit 60 minutes Guidelines READ THEM Exams written in pencil will not be regraded You must write in ink to be eligible to request a regrade Illegible answers will receive no credit You must stay seated for the last 10 minutes of the exam Each page may have its own directions Follow directions carefully For full credit answers must be clearly justified Graphs must be completely LABELED and math work shown Do not write too much One sentence per point is a good estimate but is NOT a rule i e do not complain if you write one sentence for a one point question and do not get full marks There are no partial marks given for multiple choice The following table may be used as a reference Fraction 1 2 1 3 1 4 1 5 1 6 1 7 1 8 1 9 1 10 Decimal 0 50 0 33 0 25 0 20 0 167 0 14 0 125 0 111 0 10 The following WILL BE CONSIDERED CHEATING Having any calculator out NO CALCULATORS ALLOWED Having your cell phone out Having any notes out Collaborating with other students This exam is 8 pages not including this front page numbered 1 8 Good luck Exam Record Part1 30 points Part2 20 points Incorrect Section 3 points Total 50 points Principles of Macroeconomics Spring 2015 Midterm 1 Make Up Exam Name Part I 30 points Answer all questions in this part 1pt 1 What do we call the amount that the bond is worth at maturity a b c d 1pt 2 Imagine an economy where consumers only have the option of consuming or saving their output if consumers save 30 of their income what does this imply about consumption a b c d 1pt 80 60 40 20 6 Which of the following is true about growth a b c d 1pt Pete sells his car to his neighbor Phil Kathy volunteers at a local soup kitchen and helps feed the homeless While traveling in Chicago Frank buys a new tube of toothpaste and a toothbrush Tim a U S citizen works for a U S biomedical company in Ireland for a year 5 About what percentage of the world s population lives under the world average real GDP per capita a b c d 1pt 1 4 1 2 2 4 4 Which of the following is included in GDP a b c d 1pt They save 30 They spend 70 They spend 70 None of the above 3 In the Solow growth model suppose Y K Suppose also that the depreciation rate of a country changes from to 2 Then the steady state level of capital of the country will change by a factor of a b c d 1pt Rate of Return Face Value Zero Coupon Present Value Accumulation of physical capital alone is sufficient to ensure the long run growth of an economy Accumulation of human capital alone is sufficient to ensure the long run growth of an economy Better ideas are the key to long run economic growth Skills education level and experience are all considered physical capital 7 If the annual growth in real GDP per capita is 10 and the annual growth in real GDP 4 then the annual growth rate in population is a b c d 6 0 4 6 14 E1 1102 Spring2015 M1MU 1pt 50 times 100 times 150 times 200 times 11 Which of the following is true for a country whose level of capital exceeds the steady state level of capital a b c d 1pt Shadow Banking Traditional Banking Securitization Leveraging 10 Argentina faced average yearly inflation of around 700 from 1975 1990 Roughly how many times did prices double in Argentina during this time period according to the Rule of 70 Side Note This is a terrible approximation The Rule of 70 only holds for small growth rates You are actually able to calculate the true number of doubles to see how bad this approximation is but it requires a little more math knowledge a b c d 1pt US Brazil Germany UK 9 Bundling loans together and selling bundles as financial assets is called a b c d 1pt Name 8 Which of the following economies is experiencing catch up growth a b c d 1pt Page 2 of 8 Depreciation exceeds investment Depreciation equals investment Depreciation is less than investment Output is in steady state 12 The life cycle theory of savings says that a Individuals will save when they are young and old and borrow when they are in their working years b Individuals will borrow when they are young and dissave when they are in their working years and when they retire c Individuals will borrow when they are young save during their working years and dissave when they retire d Individuals will try to consume more when they are young compared to their working years and when they retire 1pt 13 The existence of many monopolies in a country is evidence to which of the following a b c d 1pt Lack Lack Lack Lack of of of of political stability a dependable legal system property rights competitive and open markets 14 Consumption C 1000 and Investment I 400 Then which one of the following is consistent a b c d GDP GDP GDP GDP 1550 1850 1850 1350 G G G G 50 X 200 M 100 50 X 200 M 200 400 X 0 M 50 0 X 200 M 150 E1 1102 Spring2015 M1MU 1pt 15 Y a b c d 1pt Prices increased during 2012 Prices fell during 2012 Prices did not change during 2012 None of the above GDP Deflator does not tell us anything about prices The The The The increase increase increase increase in in in in output output capital output caused caused caused caused by by by by the addition of one more unit of capital better institutions the addition of one more unit of output the addition of one extra worker House prices do not affect my capacity to borrow in this case I can ask for a bigger loan if the house prices are expected to rise Banks do not accept houses as collateral all they check is my credit record None of the above 20 In an economy the equilibrium price is 4 and the government puts a price ceiling of 6 What is the price level in this economy a b c d 1pt Lower equilibrium interest rate and lower savings Lower equilibrium interest rate and higher savings Higher equilibrium interest rate and lower savings Higher equilibrium interest rate and higher savings 19 If I want to use my house as collateral in order to ask the bank for a loan then a b c d 1pt 25 40 50 80 18 The marginal product of capital is a b c d 1pt K Steady state output is 4 and 51 What is the savings rate 17 If the GDP Deflator is 100 in 2012 for the …