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Ollscoil na hÉireann, Gaillimh GX_____
National University of Ireland, Galway
Semester 2 Examinations 2009/
Exam Code(s) 1CDE1‐7, 1OC Exam(s) Diploma in Management Module Code(s) EC253. Module(s) Macroeconomics Paper No. Yes Repeat Paper External Examiner(s) Professor Robert Wright Internal Examiner(s) Professor John McHale Dr. Ashley Piggins Instructions: Duration 2 hrs. No. of Pages 4 pages in total Department(s) Economics Course Co ordinator(s) A. Piggins Requirements : MCQ Handout Statistical Tables Graph Paper Log Graph Paper Other Material
EC253.2, Macroeconomics.
This is a 2 hr paper.
Section A (40%)
Provide a brief answer to any four of the following seven questions. Each question is worth 10 marks. A1. Use the neoclassical analysis of factor markets to predict the impact on the real wage and the real rental price of capital of a technological advance which improves the production function. [10] A2. When economists say that a factor of production exhibits a “positive, yet diminishing marginal product”, what do they mean? Use a diagram to illustrate your answer. [10] A 3. State the Fisher Equation, defining each of its components. If inflation rises from 6% to 8%, what, according to the Fisher Equation, will happen to real and nominal interest rates? [10] A 4. Assume the ‘separation rate’ in an economy is 5 percent and the ‘rate of job finding’ is 7 percent. If this economy has 500 workers in the labour force, calculate the steady state unemployment rate and the unemployment level. If the separation rate falls to 3 percent, what happens to the steady state unemployment rate and the level of unemployment? [10] A5. What are the functions of money? [10] A6. Use the IS/LM model to explain why the aggregate demand curve slopes downward. [10] A7. How is the Philips Curve related to Aggregate Supply? [10]
B 2.
(i) Explain why the IS curve slopes downward and the LM curve slopes upward. [10] (ii) Use the standard IS-LM model to identify the short-run effects of the following changes on national income, the interest rate, the price level, consumption, investment, and real money balances: a. A decrease in the money supply. [4] b. An increase in government spending. [3] c. An increase in taxes. [3] (iii) Describe either the ‘sticky wage’ or ‘sticky price’ model of aggregate supply. Explain how a short-run aggregate supply equation emerges from your chosen model. [10] B3. (i) Explain how the IS curve and LM curve are derived in the Mundell Fleming model of the open economy. [10] (ii) In the Mundell-Fleming model assume that we operate in a fixed exchange rate regime. Explain how (a) expansionary fiscal policy, (b) expansionary monetary policy, and (c) protectionism affect national income and the exchange rate. [10] (iii) How do your answers to (ii) change if the exchange rate floats? [10]
