MACROECONOMICS

Second call: June 13, 2017

1. Having defined the money supply, discuss if the Central Bank can effectively control it.

2. What are the variables that determine the short term nominal exchange rate?

3. Having duly defined the formula for the Phillips Curve, discuss its meaning and relevance.

4. Assume an economy described by the following equations:

C = 100 + 0.6*Yd

T = 20 +0.2Y

G = 50

I = 150 + 0.3*Y

XN = 120 – 0.1*Y

a. Compute the government surplus or deficit. (225)

b. Compute the equilibrium income produced by this economic system. (1275)

c. Compute the trade balance in equilibrium. (-7.5)

d. Check the condition according which in equilibrium the investment must be equal to the level of aggregate saving. ( I= 532.5)(Sh= 300, Sg = 225, Sx= 7.5)

e. Compute tax and government expenditure multipliers. Explain the concept of multiplier. (-1.875, 3.125) Explain…

f. Compute the effect of a tax decrease of 20 (Change in y = 37.5)

g. Compute the effect of contemporaneous decrease of taxes and government expenditure of 20. (Change in y = -25)

h. What is the effect of an increase in the propensity to import? (reduction in income and multipliers)

• Candidates are advised to consider that they are allowed two hours to answer these questions.

• Please, make sure to separate in different sheets the first three answers from the last one.

• Go to the web-page to see when exam paper reviews will take place.