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Final Practice SS 2022 - Inclsolutions

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27 views5 pages

Final Practice SS 2022 - Inclsolutions

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learnwithrenata
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© © All Rights Reserved
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MACROECONOMICS – FINAL EXAM PRACTICE

There is only one correct answer per question.

1. Which of the following is not a cost of inflation?

a) Inflation drives up the real interest rate, which lowers investment and consumption.
b) Tax systems are usually defined in nominal terms and do not react to inflation.
c) Inflation decreases the value of cash holdings.
d) Businesses face menu costs when adjusting their prices.
e) If prices changes are staggered, relative prices might be distorted.

2. Which of the following statements about money is false?

a) M2 includes less liquid forms of money than M0.


b) It is natural to assume that the velocity of money increases if interest rates are higher.
c) If some money leaves the country, the multiplier will fall.
d) If households hold less cash, the money multiplier will fall.
e) If banks hold excess reserves, the multiplier will fall.

3. Which of the following is not a way to conduct monetary policy?

a) Inflation targeting
b) Money supply targeting
c) Fiscal deficit targeting
d) Exchange rate targeting
e) Inflation targeting while also supporting full employment and growth

4. After introducing the Blockchain for processing payments, assume that the velocity of circulation
decreases by 10%. GDP grows by 5%. According to the quantity equation, which of the following
statements is false?

a) To achieve stable prices, the central banks has to grow the amount of money by 15%.
b) If the central bank keeps the amount of money constant, inflation should be 15%.
c) If inflation turned out to be 5% in that period, money growth must have been 20%.
d) Money growth below 15% will result in deflation.
e) If money supply grows by 5%, deflation will be 10%.

5. Assume that last year the output gap was -5% and inflation was 4%. The inflation target is 2% and
the equilibrium nominal interest rate is 1%. Further, assume that the Central Bank follows a Tailor
Rule where α is the reaction to excess inflation and λ is the reaction to the output gap. It set last
year’s nominal interest rate to 3%. Which of the following is true?

a) The question cannot be answered unambiguously.


b) α = 1.5 and λ = 0.2 is the only possible solution.
c) α = 2 and λ = 0.4 is the only possible solution.
d) α = 1.75 and λ = 0.6 is the only possible solution.
e) α = 1.5 and λ = 0.5 is the only possible solution.

6. Consider the following labor supply for different tax rates:

Tax Rate 0% 10% 30% 40% 50% 75% 100%


Hours Worked 60 55 40 35 24 12 0

The before-tax hourly wage is 10 €/h. Which of the following statements is false?

a) This is an example of the Laffer Curve.


b) Among the tax rates in the table, 40% maximizes tax revenues for the government.
c) Tax revenue at a tax rate of 30% and 50% are equal.
d) Tax revenue at a tax rate of 0% and 100% are equal.
e) Higher tax rates create higher tax revenue for the government.

7. Which of the following statements is false?

a) Market failures create a role for government.


b) There is clear evidence, that bigger government (i.e. higher spending and higher taxes) is
associated with higher growth.
c) Social desire for reallocation creates a role for government.
d) Most taxation creates distortions.
e) Government debt can increase equity (=fairness) and/or efficiency

8. Which of the following statements about investment is false?

a) Investment is pro-cyclical
b) Investment is more volatile than GDP
c) Unsold output (inventories) are counted as investment
d) An increase in interest rates tends to lead to more investment, because it becomes more
attractive to save
e) An increase in interest rates tends to lead to less investment, because the cost of capital
rises

9. Consider the AS-AD model with short-run AS curve (not vertical, but upward sloping). In this
model, a negative supply shock

a) … may reflect, for instance, a sudden increase in oil prices


b) … leads to a drop in prices and output
c) … leads to a drop in prices but a rise in output
d) … can be fully offset (that is, no price and output response) by monetary policy by changing
the money supply appropriately
e) None of the other options is correct.
10. Which of the following would be an appropriate stabilization policy in response to a
negative demand shock?

a) An income tax increase


b) A reduction in government purchases
c) A reduction in transfer payments
d) A reduction in interest rates
e) A reduction in the money supply

11. Consider the IS-LM, AS-AD model (short run AS curve: not vertical, but upward sloping) in the face
of a sudden reduction in net exports due to a recession overseas. Which of the following would
the model not predict:

a) A left-ward shift in the IS curve


b) A left-ward shift in the AD curve
c) The AS curve does not shift.
d) A decline in the price level and output, but a rise in interest rates
e) A decline in the price level, output and interest rates

12. The empirical relationship between the output gap and unemployment is known as

a) … the short-run aggregate supply curve


b) … the Phillips curve
c) … Ricardian equivalence
d) … the Laffer curve
e) … Okun’s law

13. Crowding out refers to

a) … the negative effect of government budget deficits on private demand


b) … excess demand of a good for which there is a shortage
c) … consumers saving tax cuts in anticipation of future tax increases
d) … the implementation lag associated with fiscal policy
e) … the fact that policies may not be effective if they are not credible

14. Consider the Phillips curve π = π(e) + 2*( u(n) – u ), where π is inflation, π(e) is inflation expected
by the public, u(n) is natural unemployment and u is actual unemployment. Initially, u=u(n)=5%
and π=π(e)=2%. Assume a policy maker wants to reduce unemployment to 4% by creating
inflation. Which of the following statements is false?

a) If inflation expectations do not change, inflation must rise by 2%.


b) If inflation expectations rise by 2%, inflation must rise by 4%.
c) If inflation expectations rise by 4%, inflation must rise by 6%.
d) The policy maker should reduce unemployment simply by credibly announcing a lower
unemployment rate.
e) If the public’s inflation expectations always coincide with actual inflation, the policy maker
cannot reduce unemployment to 4% by creating inflation.

15. Which of the following statements about the costs of Business Cycles is true?

a) High-skilled workers suffer most during recessions.


b) Robert Lucas argues that Business Cycles are very costly.
c) The effect of Business Cycles is very heterogeneous: some people are barely hurt; some
people are badly hurt.
d) There is clear empirical evidence that larger Business Cycles decrease growth.
e) There is clear empirical evidence that larger Business Cycles increase growth.
Solutions at the bottom of this page

Q1 – 15: adcbaebdaddeadc

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