NAME You have 1 hour 30 minutes. Good luck! Exam 1. (10 points) Those economists
ID: 1153079 • Letter: N
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NAME You have 1 hour 30 minutes. Good luck! Exam 1. (10 points) Those economists who believe that moeetary policy is more potent than flocal polley Macroeconomics, semester 2, spring 2018 Multiple choice questions (seloct only one answer) argue that ther (a) IS curve is nearly vertical (b) LM curve is nearly horizontal. (c) responsiveness of money demand to the interest rate is large. (d) respossiveness of money demand to the interest rate is small. 2 (10 points) In the Mundell-Fleming model, if the price level falls, then the equilsbeium income (a) rises and the real exchange rate depreciates. (b) rises and the real exchange rate appreciates. (e) falls and the real exchange rate depreciates (d) falls and the real exchange rate appreciates. 3" (10 points) which of the following would be evidence that a country with-lixed exchange rate has an undervalued eurrency? (a) The government has a budget surplus. (b) The government has a budget deficit. (c) The central bank's foreign-currency reserves are increasing (d) The central bank's foreign-currency reserves are decreasing. 4. (10 points) The Great Depression in the United States (a) probably cannot be considered to have started because of a leftward shift in the LM curve because real balances did not fall between 1929 and 1931 (b) probably was caused by a leftward shift in the LM curve because interest rates remained high between 1929 and 1933 (e) was lEkely cansed by a fall in the money supply because it fell by 25 percent from 1929 to 1933. (d) cannot be attributed to a fall in the money supply because the money supply did not fall. 5. (10 points) Both models of aggregate supply discussed in Chapter 13 imply that if the price level natural rate of output. is lower than expected, then output (a) exceeds the (b) equals the (c) falls below the (d) moves to a different Moscow School of Economics, Lomonosov Mosoow State University, Page 1 of 2 June 9, 2018Explanation / Answer
1. Those economists who believe that monetary policy is more potent than fiscal policy argue that the responsiveness of money demand to the interest rate is large. This means that for every small cut in interest rates, there is a large increase in money demand. Hence the correct answer is (C).
2. When the price levels, the equilibrium income falls and the real exchange rate appreciates. Hence, the correct answer is (D).
3. The correct answer is (C) i.e the Central Bank's foreign currency reserves are increasing.
4. The correct answer is (A) i.e the great depression cannot be considered to have started because of a leftward shift in the LM curve because real balances did not fall between 1929 and 1931.
5. If the price level is lower than expected, then output exceeds the natural rate of output. The correct answer is (A).
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