Macro Economic Analysis Paper
Name: _________________________
(Last name, first name)
SID: _________________________
GSI: _________________________
Econ 100B
Macroeconomic Analysis
Professor Steven Wood
Fall 2012
Exam #1 ANSWERS
Please sign the following oath:
The answers on this exam are entirely my own work. I neither gave nor received any aid while taking this exam. I will not discuss the questions on this test until after 5:00 p.m. on September 27, 2012.
_______________________________________
Signature
Any exam turned in without a signature will be assigned a grade of zero.
Exam Instructions
1.
When drawing diagrams, clearly and accurately label all axes, lines, curves, and equilibrium points.
2.
Explanations should be written in pencil …show more content…
The real interest rate would increase but investment would decrease.
The real interest rate would decrease but investment would increase.
Suppose that consumers have perfect foresight about future taxes. Then, a reduction in taxes this year that is accompanied by an exactly offsetting increase in future taxes would cause:
a.
b.
c.
d.
e.
A leftward shift of both the desired saving function and the desired investment function.
A rightward shift of both the desired saving function and the desired investment function.
A leftward shift of the desired saving function but no shift of the desired investment function.
A rightward shift of the desired saving function but no shift of the desired investment function.
No shift of either the desired saving function or the desired investment function.
Exam #1 (Fall 2012)
2/10
6.
Two competing explanations for why poor countries remain poor are (1) the poor quality of their institutions and
(2) poor geography. The facts that Las Vegas is situated in a desert but has been one of the fastest growing cities in the U.S. and Argentina was once quite prosperous but now is poor suggests:
a.
b.
c. …show more content…
Thus, the increase in the global supply of loanable funds must be greater than the increase in the global demand for loanable funds. i.e., the rightward shift of China’s desired saving function from SD0 to
SD1 must be greater than the rightward shift of China’s desired investment function from ID0 to ID1.
At the world real interest rate rW0, the global supply of loanable funds now exceeds the global demand for loanable funds. This excess supply of loanable funds causes the equilibrium world real interest rate to decline from rW0 to rW1.
As a result of the decline in the equilibrium world real interest rate from rW0 to rW1 and the increase in China’s desired saving function from SD0 to SD1, desired saving has increased from S0 to
S1. As a result of the decline in the equilibrium world real interest rate from rW0 to rW1 and the increase in China’s desired investment function from ID0 to ID1, desired investment has increased from I0 to I1. Because desired saving has increased by more than desired investment, the net export balance (which is a surplus) has increased from NX0 to NX1, i.e., net foreign lending by China has
(Last name, first name)
SID: _________________________
GSI: _________________________
Econ 100B
Macroeconomic Analysis
Professor Steven Wood
Fall 2012
Exam #1 ANSWERS
Please sign the following oath:
The answers on this exam are entirely my own work. I neither gave nor received any aid while taking this exam. I will not discuss the questions on this test until after 5:00 p.m. on September 27, 2012.
_______________________________________
Signature
Any exam turned in without a signature will be assigned a grade of zero.
Exam Instructions
1.
When drawing diagrams, clearly and accurately label all axes, lines, curves, and equilibrium points.
2.
Explanations should be written in pencil …show more content…
The real interest rate would increase but investment would decrease.
The real interest rate would decrease but investment would increase.
Suppose that consumers have perfect foresight about future taxes. Then, a reduction in taxes this year that is accompanied by an exactly offsetting increase in future taxes would cause:
a.
b.
c.
d.
e.
A leftward shift of both the desired saving function and the desired investment function.
A rightward shift of both the desired saving function and the desired investment function.
A leftward shift of the desired saving function but no shift of the desired investment function.
A rightward shift of the desired saving function but no shift of the desired investment function.
No shift of either the desired saving function or the desired investment function.
Exam #1 (Fall 2012)
2/10
6.
Two competing explanations for why poor countries remain poor are (1) the poor quality of their institutions and
(2) poor geography. The facts that Las Vegas is situated in a desert but has been one of the fastest growing cities in the U.S. and Argentina was once quite prosperous but now is poor suggests:
a.
b.
c. …show more content…
Thus, the increase in the global supply of loanable funds must be greater than the increase in the global demand for loanable funds. i.e., the rightward shift of China’s desired saving function from SD0 to
SD1 must be greater than the rightward shift of China’s desired investment function from ID0 to ID1.
At the world real interest rate rW0, the global supply of loanable funds now exceeds the global demand for loanable funds. This excess supply of loanable funds causes the equilibrium world real interest rate to decline from rW0 to rW1.
As a result of the decline in the equilibrium world real interest rate from rW0 to rW1 and the increase in China’s desired saving function from SD0 to SD1, desired saving has increased from S0 to
S1. As a result of the decline in the equilibrium world real interest rate from rW0 to rW1 and the increase in China’s desired investment function from ID0 to ID1, desired investment has increased from I0 to I1. Because desired saving has increased by more than desired investment, the net export balance (which is a surplus) has increased from NX0 to NX1, i.e., net foreign lending by China has