Economics 324
Intermediate Macro: Old Exams and Review Questions

1.  Milton Friedman has said: "Inflation is always and everywhere
    a monetary phenomenon."  Do you agree or disagree.  Suppose
    he had said that inflation is always caused by the printing
    press?  Suppose he had said inflation is always accompanied
    by money printing?

2.  Does an increase in the money supply raise or lower interest 
    rates?  Why is it important to distinguish nominal from real
    interest rates?

3.  Suggest 3 specific government policies that would lower
    unemployment while raising inflation in the short run.

4.  Explain why unemployment and inflation usually move in
    opposite directions in the short-run.  Explain why they
    might move in the same direction.

5.  What is the distinction between the long-run and short-run
    phillips curve?  What is the policy implication of this
    distinction?

6.  If expectations are formed adaptively, explain how the 
    government might engineer a permanent decrease in the
    rate of inflation.

7.  What are the social costs of unemployment? What are the
    social costs of inflation? Is it possible to say which is
    more costly?

8.  In a Solow-type growth model, analyze the effect of a
    decrease in the rate of population growth on the steady-
    state values of k (K/L) and y (Y/L).  

9.  Why is it important to distinguish the short-run from the
    long-run in analyzing the effect of an increase in the
    saving rate on the rate of economic growth?

10. Empirically you find that high saving rate countries have
    high growth rates and low saving rate countries low growth
    rates.  Can the Solow model explain this relationship? If
    yes, how?  If no, then how would you explain it?

11. Suppose output per capita (Y/L) equals 2 times the square root
    of the capital labor ratio (K/L).  Assume the saving rate is
    10% and depreciation is 5%.  Derive a relationship between
    the steady-state level of output per capita and the rate
    of population growth.

12. In a Solow-type growth model with technological progress but zero
    population growth, in the steady state, what is the growth rate
    of real GDP? of GDP per capita? of the capital-labor ratio? of
    the capital-output ratio?  

13. In a Solow-type growth model with technological progress and
    population growth, suppose the marginal product of capital is
    12%, depreciation is 4%, population growth is 2% and technology
    grows at 1%.  Why might it be said that this economy saves too
    little?  How might the government increase the saving rate? 

14. In the literature of economic growth, explain what is meant by
    convergence?  How do you explain convergence in the Solow
    growth model? 

15. Using the leakage and injection approach to equilibrium GDP,
    explain why a country that runs a budget deficit is also more
    likely to run a current account deficit.

16. Explain the theory of purchasing power parity.  Suppose one
    country maintains 5% inflation per year while its neighbor
    has 10% inflation per year.  What does this imply happens to
    nominal exchange rates? to real exchange rates?

17. Explain why the BP curve for a small country is horizontal 
    while the BP curve for a large country is upward sloping.

18. True or false:  Points above a BP curve represent a balance
    of payments surplus.  Explain.

19. For a small country with flexible exchange rates, show that 
    monetary policy is more effective than fiscal policy for boosting
    domestic output.

20. For a small country with fixed exchange rates, show that fiscal
    policy is more effective than monetary policy for boosting
    domestic output.