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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