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Keynesian Income Determination Model - Introduction to Macroeconomics - Exam, Exams of Introduction to Macroeconomics

Keynesian Income Determination Model, Mundell-Fleming Model, Endogenous Variables, Balanced Budget Multiplier, Budget Surplus, Exogenous Variable, Measuring Economic Activity. Above mentioned are some points from questions of Introduction to Macroeconomics. Enjoy past exam.

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2011/2012

Uploaded on 11/29/2012

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Ollscoil na hÉireann, Gaillimh
GX_____
National University of Ireland, Galway
Semester II Examinations, 2007/2008
Exam Code(s)
2BA1, 2BA6, 2F M1, 1EK2, 1OA1 , 1EM1
Exam(s)
2nd Arts, 2nd Arts (Public & Soc ial Policy),
2nd B.Sc. in Financial Mathematics and Economics
Higher Diploma in Economic Science
Occasional
Eramus
Module Code(s)
EC217
Module(s)
Macroeconomics
Paper No.
1
Repeat Paper
Special Paper
External Examiner(s)
Professor Cillian Ryan
Internal Examiner(s)
Mr. Brendan Kennelly
Dr. Gerard Turley
Instructions:
There are three se ctions to be answ ered. Please answ er any two
questions from Sec tion A (20 marks), all ten questions from Section B
(20 marks) and any two questions from Section C (30 marks). All
questions within e ach section carry equal marks.
Duration
3 hrs.
No. of Answer books
minimum of 1
Requirements:
Handout
MCQ
Statistical Tables
Graph Paper
Log Graph Paper
Other Material
No. of Pages
5
Department(s)
Economics
pf3
pf4
pf5

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Download Keynesian Income Determination Model - Introduction to Macroeconomics - Exam and more Exams Introduction to Macroeconomics in PDF only on Docsity!

Ollscoil na hÉireann, Gaillimh GX_____

National University of Ireland, Galway

Semester II Examinations, 2007/

Exam Code(s) 2BA1, 2BA6, 2FM1, 1EK2, 1OA1, 1EM Exam(s) 2 nd^ Arts, 2nd^ Arts (Public & Social Policy), 2 nd^ B.Sc. in Financial Mathematics and Economics Higher Diploma in Economic Science Occasional Eramus Module Code(s) EC Module(s) Macroeconomics Paper No. 1 Repeat Paper Special Paper External Examiner(s) Professor Cillian Ryan Internal Examiner(s) Mr. Brendan Kennelly Dr. Gerard Turley

Instructions: There are three sections^ to be answered. Please answer^ any^ two

questions from Section A (20 marks), all ten questions from Section B (20 marks) and any two questions from Section C (30 marks). All questions within each section carry equal marks. Duration 3 hrs. No. of Answer books minimum of 1 Requirements : Handout MCQ Statistical Tables Graph Paper Log Graph Paper Other Material No. of Pages 5 Department(s) Economics

Section A (20 marks) Answer any 2 (and only 2 ) Questions

  1. (a) A simple Keynesian income determination model of a closed economy is described by the following equation AE = C + I + G where

C = C + cYd

Yd = Y + TR – T

TR = TR

T = T

I = I

G = G

i. Derive, from first principles, the equilibrium level of income. ( 3 ) ii. What is the equilibrium condition in the Keynesian model? What is the mechanism that brings about equilibrium? ( 2 ) iii. Define the Keynesian expenditure multiplier. (1) AND (b) Now consider a simple Keynesian model of the economy with the following equations: C = 280 + 0.6Y

I = 500

G = 220

TR = 100

T = 200

M = 0.1Y

X = 340

i. Calculate the equilibrium income level. (2) ii. If transfer payments are cut by 20 , what is the new equilibrium level of income? (1) iii. Sketch the equilibrium positions as in i and ii above. Use two separate diagrams. (1) [All calculations to one decimal point]

Section B (20 marks) Answer all 10 Questions

  1. In the Irish National Accounts what are the two methods of measuring economic activity?
  2. What is an exogenous variable? What is an endogenous variable?
  3. What is investment expenditure in the Keynesian model of income determination and how is it specified in this model?
  4. If C + S = Y, what will MPC + MPS be equal to?
  5. Explain what is meant by a monetary accommodation of fiscal expansion.
  6. In the context of the IS/LM model, identify the parameters that determine the effectiveness of fiscal policy.
  7. What does the BP line represent in the Mundell-Fleming model?
  8. What is meant by imperfect capital mobility?
  9. What factors determine the level of potential GDP in the AD/AS model?
  10. List the three effects that explain the negative relationship between the aggregate price level and the level of national output demanded.

Section C (30 marks) Answer any 2 (and only 2 ) Questions

  1. (a) What is the purpose of the IS/LM model? How does the model differ from the simple Keynesian income-spending model? ( 3 ) (b) Use the IS/LM model to illustrate the effect on interest rates and income levels of i. a fall in government expenditure; ii. an increase in the supply of money; iii. a cut in tax. ( 9 ) (c) Using the IS and LM (and their respective slopes), explain the differences between Keynesians and monetarists with respect to fiscal and monetary policy. ( 3 )
  2. (a) Explain and illustrate, using the IS/LM model, the effects of a monetary policy contraction. ( 4 ) (b) Explain and illustrate, using the IS/LM/BP model, the effects of a monetary policy contraction under a flexible exchange rate regime. ( 8 ) (c) In terms of macro policy effectiveness, what are the conclusions of the Mundell-Fleming model? (3)
  3. (a) What is aggregate supply? Explain the differences between the alternative AS curves. ( 3 ) (b) Explain what is meant by supply-side policies. Explain and illustrate, using the AD/AS model, the effect of a positive supply-side shock on output and price levels. ( 5 ) (c) Using the AD/AS model, explain the short-run effects of contractionary demand management on prices and output. Use an appropriate diagram. ( 4 ) (d) What is the Phillips Curve? How is the Phillips Curve related to the AD/AS model? ( 3 )