- August 8, 2020
Page 1 of 3 Econ1102 Macroeconomics 1 Final Exam Example Questions 2020 T2 The following two questions are examples of the type of question that are on the final exam. • Questions may comprise a series of short-answer questions across a range of topics. • Questions may comprise a series of short-answer questions on a particular topic. One example of both types of question is provided below. A feature of the final exam questions is use of the words “Explain” and “Discuss”. You should write answers to the questions in your own words. Where a diagram is used to support your argument, it should be your own work; either hand-drawn or drawn using the drawing tools in Word. No marks will be awarded for diagrams, figures or any other information that is simply “copied and pasted” into you answer. Page 2 of 3 Question (10 marks) (i) Suppose the national accounts for an economy indicate real GDP for some period is $1 trillion. Discuss whether it is possible to say if the economy is in short-run equilibrium? (2 marks) The following equations describe the country of OZ. (Notation is consistent with what is used in Macro 1). C = 95 + 0.75(Y – T) T = 20 + 0.2Y G = 60 IP = 200 Y* = 950 (ii) Explain the current macroeconomic situation in OZ with regard to the aggregate production, unemployment and the budget balance. (3 marks) Consider the following statement about the Australian fiscal stimulus package that was implemented by the Australian Government in response to the Global Financial Crisis. “For Australia, the evidence suggests that, without the discretionary fiscal action, the economy would have contracted not only in the December quarter 2008 (which it did) but also in the March and June quarters 2009, and that unemployment would have risen significantly more than it is now projected to do.” (David Gruen) (iii) With the aid a simple model explain what David Gruen means by “discretionary fiscal action”. Explain what other type of fiscal action is possible? (2 marks) (iv) Explain the concept of a fiscal policy rule. Discuss why might a government adopt such a rule? What costs is it seeking to avoid? (3 marks) Page 3 of 3 Question (10 marks) Answer all five parts of this question. Each part is worth 2 marks. Use models and diagrams to aid you exposition where appropriate. (i) Explain the velocity of circulation. Discuss how the concept can be used to develop a theory of the aggregate price level and the rate of inflation. (ii) Given the information in the following table, explain how you would estimate multifactor productivity growth for 2019. 2018 2019 Real GDP 450 472.5 Capital Stock 250 257.5 Employment 63 65.52 Nominal Wage 5 5.68 Price Level 1.0 1.125 Population 25 30 (iii) Explain the various factors that will influence a firm’s decision to purchase a new piece of capital equipment. What condition would need to be satisfied for the firm to be willing to invest in the new capital? (iv) The country of Utopia has experienced a series of technological innovations that have increased its level of potential output. Use the AD-AS model to explain the macroeconomic implications for Utopia. (v) In response to Covid-19 the Reserve Bank of Australia reduced its target value for the Cash rate to 0.25 percent. Other things equal, discuss the likely implications of this change to monetary policy for the value of the Australian dollar.