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UIUC ECON 103 - Macro501 Problem Set 3

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Name ____________________________________ Score: ___/100Macroeconomics Problem Set 3Due Sunday March 15 by 11:00 pmPlease type your answers to multiple choice questions in the following table. For the short-answer questions, please type the answers in the spaces provided below each question. Save the file with the name "aaa bbb – PS3. doc", where aaa is your first name and bbb is your last name.Submit the file by emailing it to [email protected] include “Problem Set 3” in the subject line of your email.Late submissions will lose all points for the problem set.CurrenciesThe weak shall inherit the earthNew government priorities and an enthusiasm for unconventional monetary policy are changing the way the currency markets workName ____________________________________ Score: ___/100 Macroeconomics Problem Set 3Due Sunday March 15 by 11:00 pm Please type your answers to multiple choice questions in the following table. For the short-answerquestions, please type the answers in the spaces provided below each question. Save the file with thename "aaa bbb – PS3. doc", where aaa is your first name and bbb is your last name. Submit the file by emailing it to [email protected]. Please include “Problem Set 3” in the subject line of your email.Late submissions will lose all points for the problem set.Answer Form for Multiple Choice QuestionsQuestion: 1 2 3 4 5 6 7 8 9 10 1112 1314 15Answer:Part A. Multiple Choice Questions: Choose only one, most satisfactory answer for each question (4points each).1. The aggregate preferred expenditure curve, D, shifts down when a) the nominal interest rate declines.a) the domestic aggregate price level declines.b) the foreign aggregate price level declines. c) net taxes collected by the government declines.d) all of the above. 2. You are an IT management specialist and three jobs in three different companies have been offered toyou. You find the salaries and work environments of all three positions equally attractive. However,you are concerned about job stability, which depends on the profitability of the company. You preferthe job that is more likely to be maintained in the coming year. The first company produces a product that is mainly for export (e.g., an international MBA programthat holds classes in other countries, but it is based in the U.S. and staffed by U.S. faculty). Thesecond one offers products that are used only in investment projects (e.g., a construction company).The third company operates only in the domestic market for non-durable consumer products (e.g., adomestic restaurant chain). If things were to continue as in the past year, all three companies would be equally profitable nextyear and offer you the same job security. However, you expect some changes. In particular, youbelieve that the government is likely to increase its expenditures next year. You examine the Fed'spolicies and conclude that it will reduce the money supply and, thus, raise the interest rates, with thenet effect of the two policies keeping the aggregate real income of the economy constant. Under thisscenario, given other things remain the same, which job is likely to become relatively more securenext year?Macroeconomics, Problem Set 3 1a) The consumer good company job. e) The export company job.f) The investment good company job. g) Both the jobs in the export and investment goods companies will definitely be relatively moresecure than the consumer good company job.h) Both the jobs in the export and consumer goods companies will definitely be relatively moresecure than the investment good company job.3. The Korean economy experienced a high rate of growth in 2006. The economists working for theopposition politicians want to know out what factors may have contributed to that income increase.They know that the LM curve did not shift during that year and that the markets for money and forgoods and services were both in equilibrium at all times. Which one of the following factors couldhave caused the increase in income in this situation?a) An increase in the expected rate of inflation. i) A temporary increase in the domestic price level. j) A temporary decrease in the domestic nominal interest rate.k) A temporary increase in net taxes received by the government. l) All of the above.4. Your company has a subsidiary in Malaysia and is contemplating an expansion of its operations there,but the company is concerned about the macroeconomic conditions in the country. The managerslearn that a couple of the Central Bank of Malaysia has decided to lower its discount rate temporarilyto help out some banks that are experiencing difficulties. In the short-run when prices are sticky butthe exchange rate is allowed to vary in a flexible way, this policy willa) raise the equilibrium aggregate real income in Malaysia.m) cause a depreciation of the nominal exchange rate in Malaysia.n) cause a decline in the interest rates in Malaysia.o) all of the above. p) only a and c. 5. In the short run, when prices are sticky and the goods market is in equilibrium, income rises as theinterest rate declines becausea) investment expenditure rises.q) imports decline.r) exports rise.s) all of the above. t) none of the above.6. Which of the following factors shifts the IS curve to the left?a) An increase in government expenditureu) An increase in the real income of the rest of the worldv) An increase in the aggregate price level w) An increase in the expected rate of inflationMacroeconomics, Problem Set 3 2x) None of the above 7. China is a major export market for Brazil. Recently, news media reported that the Chinese economyhas slowed down. What impact this event must have had on the IS curve of the Brazilian economy?a) The IS curve could not have been affected.y) The IS curve must have shifted to the left. z) The IS curve must have shifted to the right.aa) The impact on the IS curve cannot be predicted.The following six questions are based on the article, “Currencies: The weak shall inherit the earth”published by The Economist on October 6, 2012. It can be viewed through UIUC Library OnlineResources. For your convenience, these articles are copied below. 8. According to the article, “Currencies: The weak shall inherit the earth,” in recent years manycountries have come to prefer having weaker currencies becausea) weak and unstable currencies are in fashion.bb) a weak


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UIUC ECON 103 - Macro501 Problem Set 3

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