Exam of INTRODUCTION TO MACROECONOMICS June 5th 2012

1 Which of the following is correct ?

	The government provides goods and services to society because even if the initial allocation of resources is optimal, it is never equitable.
	The redistribution function of the government is entirely based on positive criterions (not nor­ mative).
	When using its stabilization function, the government can sometimes aim at slowing down economie activity.
	The only role of the government is to ensure internai and external security (policy and military, respectively), as well as ensuring justice by applying existing laws.

2 Which of the following is wrong ?

	Keynesians believe that economie policies should be used to stabilize an economy.
	Monetarists believe that for an economie policy to be effective, it needs to be anticipated.
	According to real business cycle economists, government interventions lead to important econo­ mie distortions.
	Keynesians believe that government intervention can help break a vicious circle started by a wave of pessimism.

3 In a two country world, where the two countries trade with each other :

We also know that in country A Net Factor Income Abroad is equal to Indirect Taxes minus Subsidies. Which of the following is correct ?

	In country A Capital Depreciation equals 20. In country B GDP at market priees equals 220.
	In country A Capital Depreciation equals Net Factor Income Abroad. In country B GNP at factor priees equals GDP at market priees.
	In country A GNP at market priees equals 340. In country B GNP at factor priees equals National Income.
	None of the above is correct.

4 Real GDP fell by 2% between 2010 and 2011. The GDP defiator increased from 200 to 204 during the same period. We can then conclude that :

	Nominal GDP increased by around 6% between 2010 and 2011.
	Nominal GDP increased by around 4% between 2010 and 2011.
	Nominal GDP increased by around 2% between 2010 and 2011.
	Nominal GDP was unchanged between 2010 and 2011.

5 The following table provides partial 2011 priee indices for four aggregates (with base = 100 in 2010) as well as the shares spent on each item by different types of consumers in 2010. Which of the following is correct? (CPI = Consumer Priee Index)

	The CPI equals 440 in 2011.
	Students' CPI equals 110 in 2011.
	Students were affected by a stronger level of inflation than retirees between 2010 and 2011.
	None of the above is correct.

6 One of the main problems with the Consumer Price Index (CPI) is that :

	Intertemporal comparisons are unreliable as the CPI is based on a representative consumption basket that changes every year.
	It is systematically higher than the GDP deflator
	It underestimates increases in the cost of living as it does not take into account changes in the composition of society.
	It overestimates increases in the cost of living as it do es not take into account the substitutability between consumption goods.

7 Country A is rich and country B is poor. What can we say based on the theoretical predictions of Solow's growth model ?

	Thanks to development aid, country B will experience faster growth in GDP per capita than country A. Thus, in the long-run both countries will have identical levels of GDP per capita.
	Due to the decreasing productivity of physical and human capital, GDP per capita growth in country A (which has already accumulated a lot of capital) is weaker than in country B. Thus, everything else equal, growth rates will be identical in the long-run.
	Due to the increasing productivity of capital, GDP per capita growth in country B increases as it accumulates capital, resulting in a level of GDP per capita above the level of country A.
	Country B will not be able to catch up with country A. Its growth rate will always be smaller than the growth rate of country A.

8 A government that wants to reduce frictional unemployment should :

	increase the efficiency of government-run employment agencies.
	lower the minimum wage.
	get rid of labor unions from wage negotiations.
	increase government spending.

9 Population is 250 million. Employed workers are 150 million. What is the unemployment rate ?

	10%.
	40%.
	60%.
	It is not possible to answer the question with the information that is available.

10 Let us assume a closed economy that does not trade with the rest of the world. GDP is Y = 8000 and private consumption is given by the following function : C= 1000 + 0.5 (Y- T) - 300 r, where Tare taxes and r is the interest rate in %.Investment depends negatively on the interest rate and is given by the following function : 1 = 3000 - 200 r. The government budget is balanced, and government expenditure equals 2000. The interest rate, private savings (Sp), and public savings (Sg) are given by :

	r = 2%, Sp = 2600, Sg = 0.
	r =2%, Sp =2600, Sg= 2600.
	r = 4%, Sp =2800, Sg= 0.
	r = 4%, Sp = 0, Sg = 2000.

11 Which of the following is not compatible with the presence of financial bubbles :

	Financial markets are inefficient.
	Investors decisions are based on observed prices.
	Investors are irrational.
	Asset prices reflect firms' fundamentals.

12 Reserve requirements, r, are equal to 50% and the share of liquidity that household decide to keep in their pockets, c, is around 50%. Which of the following is correct ? (rc=O by assumption)

	Money supply (Ml) is equal to the monetary base (Mo).
	The money multiplier equals 10.
	The monetary base corresponds to 50% of the money supply.
	Commercial banks are creating half of the money supply.

13 According to the quantitative theory of money and assuming that the velocity of money is constant, we can assert that :

	When the Central Bank doubles money supply, priees double if there is no real growth.
	If money supply increases by 3%, nominal GDP falls by 3%.
	If money supply increases by 2%, real income necessarily increases by 2%.
	None of the above is correct.

14 Regarding seignoriage (printing money to finance a budget deficit), which of the following is wrong ?

	It has the same impact as a tax levied on aIl citizens.
	It allows the government to finance part of its deficit.
	It is undertaken by the government and it results in inflation.
	When inflation is perfectly anticipated, it created distortions between private borrowers and private savers.

15 According the Purchasing Power Parity (PPP) model of exchange rates, if prices in Switzerland increase by 2%, while they increase by 5% in the euro zone, we can expect :

	a 7% depreciation of the CHF relatively to the Euro
	a 7% appreciation of the CHF relatively to the Euro
	a 3% depreciation of the CHF relatively to the Euro
	a 3% appreciation of the CHF relatively to the Euro

16 Which of the following cannot be the counterpart in the balanee of payments of Swiss exports of Rivella to the United States ?

	A cheque by an American distribution company to Rivella headquarters in Switzerland.
	A foreign direct investment by an American company in Switzerland.
	The payment in US dollars to Rivella.
	Imports of Coca Cola by a distributor in Switzerland.

17 What is the impact on net exports and the real exchange rate in the domestic economy of an increase in rest-of-the world interest rates ?

	In the domestic economy net exports fall and the domestic currency appreciates.
	In the domestic economy net exports increase and the domestic currency appreciates.
	In the domestic economy net exports fall and the domestic currency depreciates.
	In the domestic economy net exports increase and the domestic currency depreciates.

18 Which of the following is consistent with an appreciation of the Swiss Franc ?

	An increase in the international demand for watches made in Switzerland.
	An increase in the Swiss demand for oranges produced in Spain and Italy.
	An increase in net capital outflows from Switzerland to the United States.
	A reduction in the government deficit in Switzerland.

19 An increase in net capital outflows in country A has the following consequences :

	A fall in the demand for loanable funds in country A.
	A fall in the interest rate in country A.
	An appreciation of country A's currency and a de cline of its trade surplus.
	None of the above is correct.

20 A lobbying campaign results in an increase in the consumption of domestically produeed goods and serviees. Using the IS-LM model, what would be its impact on the interest rate and real income of a small open economy.

	The interest rate falls and real income increases.
	The interest rate falls and real income decreases.
	The interest rate rises and real income increases.
	The interest rate rises and real income decreases.

21 According to the IS-LM model, which of the following is correct ?

	An increase in government spending causes a shift of the IS curve to the right, while an increase in money supply causes a shift of the LM curve to the left.
	An increase in government spending accompanied by a fall in exports always causes a shift of the IS curve to the right.
	A decrease in government spending accompanied by an increase in money supply always causes a fall in the interest rate.
	A fall in exports accompanied by a fall in money supply can cause an increase or decrease of real income, depending on the level of government spending.

22 According to the theory of liquidity preferences, which of the following is correct ?

	An increase in real income is not consistent with an increase in the interest rate.
	A change in the level of priees would have no impact on the interest rate.
	The impact of a change in real income on the demand for liquidity explains the positive slope of the LM curve.
	An increase in money supply will lead to a fall in the demand for liquidity in equilibrium.

23 According to the short-run model of aggregate demand and supply, what is the impact on inflation and unemployment of an increase in net exports ?

	Inflation and unemployment increase.
	Inflation and unemployment decrease.
	Inflation increases and unemployment decreases.
	Inflation decreases and unemployment increases.

24 According to the aggregate demand and supply model, what would happen if capital is permanently destroyed by war ?

	In the short-run prices increase, but we cannot say with certainty what happens to real income.
	Prices increase in the short and long-run, but the price increase in the short-run is larger than in the long-run.
	In the long-run prices increase and real income falls.
	Real income falls, but only in the short-run.

25 According to the aggregate demand and supply model, which of the following is correct ?

	If households become pessimistic regarding future economie conditions and decide to consume less, real income will fall in the long-run.
	When prices are ab ove expected prices, aggregate supply in the short-run is above the level of aggregate supply in the long-run.
	The positive slope of the long- run aggregate supply curve can be explained by the theory of rigid prices.
	Technological progress will help shift the long-run aggregate supply curve, but it will not shift the short-run aggregate supply curve.

26 Dans le cadre des politiques de stabilisation, dans quel cas la politique monétaire perd-elle nécessai­rement toute son efficacité ?

	Une situation de trappe à liquidité.
	Une situation où l'équivalence ricardienne est vérifiée.
	Une situation où il y a un "crowding out" total.
	Une situation où les impôts sont proportionnels au revenu et jouent le rôle de stabilisateurs automatiques.

27 Des quatre propositions suivantes :

1. Une politique monétaire expansive entraîne un déplacement de la demande agrégée de long terme vers la droite et, de ce fait, une augmentation du revenu.
2. Si la propension marginale à consommer est de 0.6 et que le pays n'importe pas, une augmentation des dépenses publiques de 1000 entraîne une augmentation du revenu de 2500.
3. Si la propension marginale à consommer est de 0.6 et la propension marginale à importer est de 0.1, une augmentation des dépenses publiques de 1000 entraîne une augmentation du revenu de 2000.
4. Les politiques monétaires et fiscales font partie de ce qu'on appelle les stabilisateurs économiques, parce qu'elles sont utilisées pour stimuler la demande agrégée quand l'économie rentre dans une période de récession.

laquelle ou lesquelles sont correctes ?

	Seule la proposition 1 est correcte.
	Les propositions 1, 2 et 3 sont correctes et 4 est fausse.
	Les propositions 2 et 3 sont correctes et 1 et 4 sont fausses.
	Seule la proposition 4 est correcte.

28 Qu'est-ce que le NAIRU?

	Le taux de chômage compatible avec une baisse progressive de l'inflation.
	Le taux de chômage résultant d'un taux d'inflation réalisé supérieur au taux d'inflation anticipé.
	Le taux de chômage nécessaire pour maintenir le taux de croissance du PIB constant.
	Le taux de chômage résultant d'un taux d'inflation réalisé égal au taux d'inflation anticipé.

29 Laquelle des proposition ci-dessous est vraie :

	Une amélioration de la productivité du travail (choc d'offre positif) fait déplacer la courbe de Phillips vers la gauche.
	Une politique monétaire expansive fait que l'on se déplace vers la droite le long de la courbe de Phillips de court terme (augmentation du chômage).
	Une inflation attendue plus élevée provoque un déplacement de la courbe de Phillips vers la gauche.
	La courbe de Phillips représente la relation de court terme entre le taux d'intérêt et le chômage.

30 Dans le contexte de la crise de la dette grecque, laquelle des propositions suivantes n'est pas une option possible pour la Grèce à l'heure actuelle ?

	La Grèce pourrait sortir de la zone euro.
	La Grèce pourrait vendre sa dette sous forme d'obligations d'Etat.
	La Grèce pourrait dévaluer sa monnaie en intervenant dans le marché des changes.
	La Grèce pourrait faire défaut sur sa dette.