Examen de Introducció a la Macroeconomia UPF 2024 · Sample Exam 2024

Questions 1-10: Multiple choice part 1

Select the single correct alternative for each of the following questions:

1 Questions 1-10: Multiple choice part 1

Select the single correct alternative for each of the following questions:

a.

Which category of prices enters the Consumer Price Index (CPI) while being excluded from the GDP deflator?

b.

What does core (underlying) inflation measure?

c.

If an economy records positive real GDP growth in a specific year, what can be stated with certainty?

d.

Consider the assertion: "conventional GDP may not be a sufficient statistic for estimating the impact of the 'Internet Age'". Which argument supports this view?

Questions 1-10: Multiple choice part 1

Select the single correct alternative for each of the following questions:

e.

In the Keynesian goods market model, which statement is true?

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h.

Which statement regarding fiscal policy and macroeconomic management is correct?

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Questions 1-10: Multiple choice part 1

Select the single correct alternative for each of the following questions:

f.

Which monetary aggregate constitutes high-powered money (central bank money)?

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g.

Suppose an individual holds 25 € in currency, 2,000 € in 10-year German sovereign debt, 1,000 € in one-year maturity money market assets, and 800 € in immediately accessible demand deposits. What are their financial wealth and money demand?

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Questions 1-10: Multiple choice part 1

Select the single correct alternative for each of the following questions:

i.

Following the global financial crisis, how did quantitative easing (QE) affect the economy within the extended IS-LM model?

j.

Which borrowing rate is relevant for business firms deciding whether to undertake physical capital investment?

2 Questions 11-20: Multiple choice part 2

Select the single correct alternative for each of the following questions:

a. Which interest rate does a modern central bank determine directly?

2 Questions 11-20: Multiple choice part 2

Select the single correct alternative for each of the following questions:

b.

Which policy intervention succeeds in lowering the natural or structural rate of unemployment ($u_n$)?

c.

Consider a nation with the following demographic data: 48 million employed workers, 12 million unemployed jobseekers actively searching for employment, 25 million individuals aged under 16, 5 million working-age discouraged persons who have stopped searching, and 6 million full-time students aged over 16. What are the unemployment and participation rates?

2 Questions 11-20: Multiple choice part 2

Select the single correct alternative for each of the following questions:

d.

Which event produces a shift in the Phillips curve?

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g.

Regarding the historical Phillips curve, which statement is true?

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2 Questions 11-20: Multiple choice part 2

Select the single correct alternative for each of the following questions:

e.

Within the textbook IS-LM-PC model, which factor causes an increase in the natural level of output in the medium run?

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f.

Assume an economy sits in medium-run equilibrium ($Y = Y_n$). If public expenditure $G$ falls, how must the central bank adjust its real policy rate to return to medium-run equilibrium?

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h.

In an IS-LM-PC diagram where $Y_1$ denotes potential output and $Y_2$ is an arbitrary output level:

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2 Questions 11-20: Multiple choice part 2

Select the single correct alternative for each of the following questions:

i.

Assume two economies are identical in all structural parameters except that Country A has a higher saving rate than Country B. According to the Solow growth model, in the long run:

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j.

In the standard Solow growth model without technological progress, what is the growth rate of output per worker once the economy reaches the steady state?

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3 Section A: Short open questions (1.8 points)

Provide concise, mathematically and economically grounded answers to the following short questions (0.2 points each):

a)

In an official communication, the ECB stated: "Until January 2012, banks had to hold a minimum of 2% of certain liabilities, mainly customers' deposits, at their national central bank. Later, this ratio was lowered to 1%."

b)

Evaluate the following assertion: "Households' demand for money does not depend on the interest rate because only bonds yield an interest return." Is it correct? Justify your answer.

c)

Assume an economy where agents hold all their money exclusively as currency/cash. Commercial banks face a reserve-to-deposit requirement of 0.05. Nominal money demand is characterized by $M^d = \text{€}Y(0.25 - i)$, nominal GDP is $\text{€}Y = 1\,000\text{ €}$, and the monetary base issued by the central bank is $H = 200\text{ €}$. Compute the equilibrium interest rate.

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d)

Analyze what happens in the money market and to the equilibrium interest rate if nominal GDP falls. Illustrate the adjustment graphically and explain the mechanism.

e)

Suppose public confidence in the banking system increases significantly. How will this alter economic agents' portfolio choice between currency and deposits? What impact will this change exert on the money multiplier?

f)

Provide the mathematical expression for the money multiplier and define each variable.

3 Section A: Short open questions (1.8 points)

Provide concise, mathematically and economically grounded answers to the following short questions (0.2 points each):

g)

Using the IS-LM framework, illustrate graphically and compare the impact of an expansionary monetary policy under the following two alternative assumptions, starting from identical initial equilibria:

1. Investment spending by firms is highly sensitive to variations in the interest rate.

2. Investment spending is largely insensitive to interest rate variations.

3 Section A: Short open questions (1.8 points)

Provide concise, mathematically and economically grounded answers to the following short questions (0.2 points each):

h)

In mid-2017, Spain registered an increase in the total number of employed persons alongside a drop in the unemployment rate. Conversely, in December 2019, employment also increased, but the unemployment rate failed to decline. Provide an economic explanation for this divergence.

4. Section B: IS-LM-PC model [2 points]

Consider an economy within the Eurozone that is initially in medium-run equilibrium at period $t$, operating at its natural rate of unemployment and potential output, with inflation steady at $2\%$. The aggregate production function is $Y_t = N_t$ (labor productivity $A = 1$). The European Central Bank maintains the real interest rate at a fixed target value $\bar{r}$.

a)

(0.4 points) Illustrate graphically the initial equilibrium across the three relevant diagrams: the labor market (wage setting and price setting), the goods and financial markets (IS-LM), and the Phillips curve space (inflation vs. output). Clearly label all axes and curves.

b)

(0.4 points) Write the generic mathematical equations represented in each of the three diagrams of part a.

c)

(0.4 points) Suppose that in period $t+1$ the economy experiences two adverse supply shocks: (a) severe supply chain bottlenecks and (b) a major increase in the import price of energy. Model these events as an increase in the firm markup $m$. Show graphically the resulting changes in the three diagrams and explain their economic mechanisms.

d)

(0.2 points) If the central bank keeps the real interest rate unchanged at $t+1$, describe the new short-run equilibrium across all markets. What occurs with inflation? Is the economy in a medium-run equilibrium?

e)

(0.4 points) Suppose agents form inflation expectations adaptively according to $\pi_t^e = \pi_{t-1}$. The resulting positive output gap drives inflation up by 3 percentage points per period. The central bank leaves its policy rate unchanged during $t+1$ and $t+2$, causing inflation to reach $8\%$. At $t+3$, the ECB initiates a contractionary monetary policy to rein in inflation.

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f)

(0.2 points) Now assume instead that inflation expectations are firmly anchored at $2\%$ ($\pi_t^e = 2\%$). What will the inflation rate be in period $t+3$ if the ECB applies the same policy bringing output to its new potential level? Contrast this result with that of question e.

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5 Section C: The Solow growth model (1.2 points)

Consider the long-run Solow growth model where the behavior of capital accumulation and output per worker is represented in the standard diagram with capital per worker ($K/N$) on the horizontal axis and output/investment per worker on the vertical axis (0.24 points each):

a.

Identify and label the three typical curves shown in the standard Solow diagram (the straight ray from the origin and both concave curves).

b.

Suppose the economy starts with an initial capital stock per worker $K_0/N$ below the steady-state value. Should we expect the capital stock per worker to increase or decrease over time? Explain in terms of the curves.

c.

Let the aggregate production function be given by $Y = K^{2/3} N^{1/3}$. The national saving rate is $s = 0.2$ and the capital depreciation rate is $\delta = 0.1$. Compute the exact steady-state capital stock per worker, $(K/N)^*$.

d.

Suppose the saving rate increases to $s' = 0.3$. Describe and illustrate how this change affects the curves and the steady-state capital stock per worker.

e.

Does consumption per worker increase or decrease in the long run as a result of this increase in the saving rate? Provide a rigorous economic and mathematical justification based on the Golden Rule.