Principles of Macroeconomics 2013 Fall Midterm 2 Name Recitation 2 pts Exam Version T2A Time Limit 60 minutes Guidelines READ THEM Exams written in pencil will not be regraded You must write in ink if you might want a regrade in the future Illegible answers will receive no credit You are allowed to detach and keep the last page We will not grade the last page so do not put any workings answers on it You must stay seated for the last 10 minutes of the exam Each page may have its own directions Follow directions carefully Where required clearly indicate which question you are answering 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 For questions with choice if you answer more than the required number clearly indicate which questions you want graded Otherwise the answers will be graded in order up to the required number You will not get the grades from the best answers Partial marks for multiple choice are possible The following WILL BE CONSIDERED CHEATING Having a programmable calculator e g TI 83 out Having your cell phone out Having any notes out Collaborating with other students This exam is 10 pages not including this front page numbered 1 10 Good luck Exam Record Part1 23 points Part2 25 points Part3 25 points Part4 25 points Correct Section 2 points Total 100 points Principles of Macroeconomics Spring 2013 2013 Fall Midterm 2 Name All Instructors THIS PAGE INTENTIONALLY BLANK Macro 2013 Fall Midterm 2 Page 2 of 10 Name Part I 23 points Answer all questions in this part 3pts 1 Give a definition of business cycles What is meant by a recession in the context of business cycles 4pts 2 Define exactly two of the following five terms Note You will not get extra points for defining additional terms a 2 pts Contractionary monetary policy b 2 pts Financial investment c 2 pts Diversification d 2 pts National savings e 2 pts Commodity money 4pts 3 Answer both parts of this question a 2 pts What is monetary neutrality Macro 2013 Fall Midterm 2 Page 3 of 10 Name b 2 pts What does the Phillips curve show 6pts 4 Name any two tools of monetary policy and explain how they work in the case of contractionary monetary policy 2pts 5 Which of the following is both financial investment and economic investment a b c d 2pts 6 Tax on investment is a policy that decreases the incentive to invest If it is implemented it has the following impacts a b c d e 2pts Stocks in Coca cola A new factory A new bridge All of the above Interest rates go down and the quantity of loanable funds traded go down Interest rates go up and quantity of loanable funds traded go up Interest rates go up and quantity of loanable funds traded go down Interest rates go down and quantity of loanable funds traded go up None of the above 7 Which of the following are not functions performed by the Fed Circle all that apply a b c d Setting income tax rates Setting the reserve ratio Deciding government expenditure Lending money to banks Macro 2013 Fall Midterm 2 Page 4 of 10 Name Part II 25 points Answer all questions in this part 2pts 10pts 1 AD AS Equilibrium Draw an AD AS diagram that shows an economy in a recession 2 For the following questions show how AD or SRAS would shift Draw a new graph for each part and show the original and new state a 2 pts Assume you start in long run equilibrium A virus in corn US is exporting to other countries has been discovered to be harmful for livestock and people There is an export ban for US b 2 pts Assume you start in long run equilibrium Unions start a strike c 2 pts Assume you start in long run equilibrium House prices collapse along with consumer wealth d 2 pts Show how the economy in part C would come back to long run equilibrium using fiscal policy Macro 2013 Fall Midterm 2 Page 5 of 10 Name e 2 pts Show how the economy in part C would come back to long run equilibrium using monetary policy 5pts 3 Answer both parts of this question a 2 pts Define the quantity theory of money b 3 pts There are studies that show the velocity of money went down during the Great Depression Did this make the deflation problem better or worse In other words assuming at the start of the Depression velocity was constant would this contribute to decline of prices or would it counteract the fall in prices and help raise them 3pts 4 Give one advantage of commodity money 5pts 5 Answer both parts of this question a 2 pts What is an automatic stabilizer b 3 pts Give an example of an automatic stabilizer Explain how that particular stabilizer works Macro 2013 Fall Midterm 2 Page 6 of 10 Name Part III 25 points Answer all questions in this part 2pts 1 Who benefits from unexpected inflation Note being unaffected is not benefitting a b c d 3pts 2 Inflation last year was 5 people expect the Fed to target inflation at 3 Which inflation rate s will lead to lower unemployment this year A B C D 10pts Fixed income receivers Flexible income receivers Creditors Debtors 2 4 6 8 3 Bob has 100 to spend today Calculate the nominal value after 1 year for the following options a 3 pts Put 100 under his mattress b 3 pts Buy a 100 TBill which would give him a yearly nominal rate of return of 4 c 3 pts Buy 100 of stocks in Google There is a 10 chance that Google stock will crash and he will lose all his money There is a 50 chance that Google stock will decline and he will get a 10 nominal return There is a 40 chance that Google stock will go up and he will get a 40 nominal return d 1 pt Now indicate which option gives him highest nominal return Macro 2013 Fall Midterm 2 Page 7 of 10 Name 4pts 4 Using Table 1 of your data sheet calculate CPI inflation from 2009 to 2010 in Econia Round to nearest whole number 3pts 5 Suppose I have 245 in 2009 and 300 in 2010 Given inflation in Econia am I richer or poorer in 2010 3pts 6 Given a nominal interest rate of 20 and inflation from 2009 to 2010 in Econia what is the real interest rate in Econia in 2009 Real interest rates can be negative Macro 2013 Fall Midterm 2 Page 8 of 10 Name Part IV Fiscal Monetary Policy 25 points Answer all questions in this part Use Table 2 of the data sheet SHOW WORK …
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