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Final Intermediate

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35 views2 pages

Final Intermediate

Uploaded by

Vir Sethi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Midterm Mock Exam Econ UH 2030: Intermediate Macroeconomics

NYUAD, Spring, 2024

Instructions: No books or notes of any kind are allowed, you are not allowed to have a
mobile phone not a calculator with you during the exam. Answer the questions of the exam
sequentially as per the question numbering. Use a black or blue pen to write your answers.
Scratch paper will not be graded. Write your name at the top of every page of your answer sheet.

Question 1: IS-LM
Consider the following numerical example of the IS-LM model:
• C = 300 + 0.6Y D
• I = 270 + 0.2Y − 400i
• G = 320
• T = 220
• ī = 0.05.
Part 1.1 Derive the IS relation and solve for equilibrium Y

Part 1.2 Using the value of Y you just found, derive the equilibrium values of C and I.

Part 1.3 Suppose that government spending increases to G = 400. Solve for Y, I, and C.
Describe in words the effects of this expansionary fiscal policy.

Medium Run

Part 1.4 Assume the economy above is in a recession (Y is below potential). Illustrate and
explain the policy mix that can be used to increase output.

Question 2: The Labor Market


Assume the economy of Hobbit Town has 850 inhabitants. The numbers below gives a break-
down of the inhabitants:
• 180 Children under the age of 18
• 115 Retired (45 are still physically able to help out at the local community center)
• 70 Have their own business (40 of these business owners have their spouse working in the
business)
• 35 Have lost their job when the local plastic factory shut down (10 have given up all hope
of finding a job)
• The remainder of the inhabitants are employed at the local mine
Part 2.1 Calculate the labor-force participation rate.

Part 2.2 Illustrate and briefly explain what would happen to natural rate of unemployment in
Hobbit Town if unemployment benefits were to increase in the country.

Question 3: IS-LM-PC

Part 3.1 Derive the equation defining the Phillips Curve from the wage setting and the price-
setting equation.

1
Part 3.2 Explain how the relation between inflation and unemployment depends on how agents
form expectations of inflation.

Part 3.3 Assume that the economy starts at Y < Yn , define the short-run equilibrium, then
the medium-run equilibrium.

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