# exam1 by babbian

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```									Economics 316, Macroeconomic Analysis
Exam #1, Spring 2012
Dr. Stonebraker                                   Name ______________________________________

1. (24%) True-False. Explain each answer. The explanation is more important than the true-false choice.

T   F   Base-weighted price indexes probably overstate the true change in the cost of living.

T   F   An increase in taxes will cause an increase in national saving.

T   F   If Y is less than (C + I + G) in a closed economy, then the rate of interest will fall.

T   F   According to the Solow growth model with technological change, K/Y will rise in the long run.

2. (6%) Indicate how, if at all, the following would appear in the expenditure approach of the GDP
accounts.
a. purchase of 100 acres of farmland:

b. purchase of a new computer by Google:

3. (7%) Calculate the value-added in the Hot Dog Stand below. Show your work.

Sales revenue:                         \$7,000

Raw hot dogs purchased:                \$1,200
Cooking equipment purchased:              800
Wages:                                  3,000
Depreciation:                             200
Interest:                                 500
Profit:                                 1,100
4. (4%) Even though we do not measure GDP accurately, why might it might be good to make the same
mistakes every year?

5. (8%) If: Y = C + I + G, Y = 6000, G = 1200, T = 1000, C = 150 + 0.8(Y-T), and I = 900 - 50r

a. Calculate private saving, public saving and national saving.

b. Calculate the equilibrium interest rate (r).

6. (3%) What is the Law of Diminishing Marginal Returns?

7. (5%) If the U.S. dollar appreciates, who in the U.S. will benefit and who will lose? Explain briefly.

8. (12%) Using the Solow growth model with technological change, draw an appropriate graph to
illustrate the impact of a decrease in the rate of population growth. Label everything clearly. How
does it affect the steady-state level of income? How does it affect the steady-state rate of growth of
income?
9. (3%) Suppose you are told that the GDP Deflator or GDP Price Index is 182. What does that mean?

10. (14%) Clearly explain the impacts of a decrease in government spending in a small open economy.
What happens to saving, investment, the rate of interest, the exchange rate and net exports?

11. (6%) If an economy is operating with less than the Golden Rule level of capital, why might a policy
maker choose not to pursue the Golden Rule level?

12. (8%) Use the Solow model with technological change to show what will happen to the share of GDP
going to labor relative to capital over time.

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