Macro Midterm Exam #1
1 List the two key differences between microeconomics and macroeconomics.
2 List the two key characteristics of the scientific method.
3 List the three differences between GDP deflator and CPI.
4 Why neither CPI nor GDP deflator measures the changes in the cost of living accurately?
5 Write a Cobb−Douglas production function for which capital earns 1/3 of total income, and show its profit in a competitive market.
6 Show in a diagram to explain what ...view middle of the document...
7 Suppose the productivity of farmer increases faster than the productivity of barber does, and suppose workers can move freely between being farmers and being barbers. What does this mobility imply for the price of haircuts relative to the price of food?
8 Why might a banking crisis lead to a decrease in the money multiplier?
9 Suppose the velocity of money in an economy is growing steadily because of financial innovation, how would that affect the inflation rate? Explain it with the quantity equation.
10 Explain the connection between the nominal exchange rate and the real exchange rate.
11 What will happen to the trade balance and the real exchange rate of a small open economy when government purchases increase? Show them in diagrams.
12 Suppose that in scenario A the Fed cares only about keeping the price level stable and in scenario B the Fed cares only about keeping output and employment at their natural levels. Now suppose an introduction of automatic tell machine, explain how in each scenario the Fed would respond to it.
13 Draw the diagram of the theory of liquidity preference, and tell which variable is endogenous, which variables are fixed?
14 List the three corners of the impossible trinity.
15 There are two theories of aggregate supply. What do the two theories have in common?