Principles of Macroeconomics 2013 Fall Midterm 2 Name Recitation 2 pts Exam Version T2MU 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 According to economists who believe in real business cycles what is the cause 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 Fiat Money b 2 pts Open market operations c 2 pts Contractionary Fiscal Policy d 2 pts Economic investment e 2 pts Consumer Price Index 4pts 3 Answer both parts of this question Macro 2013 Fall Midterm 2 Page 3 of 10 Name a 2 pts What is crowding out b 2 pts How is crowding out caused by expansionary fiscal policy 6pts 4 What is money Define any terms that you use Give an example of money and an example of nonmoney 2pts 5 Which of the following is a financial investment but not an economic investment a b c d 2pts 6 Tax on savings is a policy that decreases the incentive to save If it is implemented it has the following impacts a b c d e 2pts A new bridge A new factory Stocks in Target 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 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 1 AD AS Equilibrium Draw an AD AS diagram that shows an economy in a expansion producing over capacity 10pts 2 Using the money market loanable fund and AD AS diagram show the effects of Central Bank buying government bonds from public 5pts 3 There are studies that claim internet increased the velocity of money What happens if velocity of money increases assuming Money Supply and Real Gross Domestic Product stay constant Make sure to explain your answer using the appropriate theory and or equations Macro 2013 Fall Midterm 2 Page 5 of 10 3pts 4 Give one advantage of commodity money 5pts 5 Answer both parts of this question Name a 2 pts What is an automatic stabilizer b 3 pts Would a balanced budget proposition act as an automatic stabilizer fiscal policy or not Explain Macro 2013 Fall Midterm 2 Page 6 of 10 Name Part III 25 points Answer all questions in this part 2pts 1 Who suffers from unexpected inflation Note being unaffected is not suffering a b c d 3pts 2 Inflation last year was 4 people expect the Fed to target inflation at 2 Which inflation rate s will lead to lower unemployment this year A B C D 10pts Fixed income receivers Flexible income receivers Creditors Debtors 1 2 3 4 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 8 c 3 pts Buy 100 of stocks in Google There is a 20 chance that Google stock will crash and he will lose all his money There is a 40 chance that Google stock will decline and he will get a 20 nominal return There is a 40 chance that Google stock will go up and he will get a 100 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 Answers with no work will be worth at most 1 point 2pts 1 The economy is in a A B C D 3pts and the government or central bank should conduct policy recession contractionary recession expansionary boom contractionary boom expansionary 2 How much does Initial Spending in the Output Market need to change to return Econia to equilibrium Fiscal Policy 2pts 3 If the government changed government spending but kept taxes constant what should the new level of government expenditures be to close the GDP gap 3pts 4 Suppose parliament couldn t agree on changing government spending but would be willing to change taxes What should the new level of taxes be to close the GDP gap Monetary Policy 2pts 5 What is the original money supply MS of Econia …
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