The International College of Economic and Finance

MACROECONOMICS

Mock Exam – 2 May, 6, 2006

Name ______________________________ group __________________

SECTION 1

Time – 70 minutes

1. Which of the following is most likely to cause an immediate rise in domestic nominal interest rates?

(A) Announcement of a favorable trade balance

(B) News that creates anticipation of increased inflation

(C) A central-bank purchase of government securities

4. A decrease in bank-reserve requirements

5. A decrease in demand for new housing

2. If a central bank sells government securities to other banks, the immediate result is

(A) a decrease in the level of short-term interest rates

(B) a decrease in bank reserves

(C) an increase in the national debt

4. an increase in the amount of currency held by the nonbank public

5. all of the above

Questions 3-4 relate to a country that is in the midst of a recession brought about by a shortfall of private-sector aggregate demand. The country main­tains a fixed exchange rate, and balances of payments on both current and capital accounts are in deficit.

3. If the country attempted to end the recession by an increase in the level of government spending financed by a sale of government bonds to the public, how would the balance-of-payments deficit be affected?

(A) The overall balance-of-payments deficit would definitely be reduced.

(B) The overall balance-of-payments deficit would not be affected.

(C) The overall balance-of-payments deficit would definitely be increased.

(D) The current-account deficit would become larger and the capital-account deficit would become smaller.

(E) The current-account deficit would become smaller and the capital-account deficit would become larger.

4. If the country attempted to end the recession by increasing the supply of money, how would the balance-of-payments deficit be affected?

(A) It would definitely be reduced.

(B) It would not be affected.

(C) It would definitely be increased.

(D) The current-account deficit would become larger and the capital-account deficit would become smaller.

(E) The current-account deficit would become smaller and the capital-account deficit would become larger.

5. Under a system of fixed exchange rates, which of the following would be most likely to result in an increase in the deficit in a country's balance of payments?

(A) A period of domestic price deflation

(B) An expansionary domestic monetary policy

(C) A recession at home with prosperity abroad

4. A reduction in the level of government spending

5. An increase in personal and business income-tax rates

6. If Japan currently is pegging the yen in the foreign-exchange market and has an overall balance-of-payments deficit, which of the following is true?

(A) Japan is selling more commodities, services, and securities to foreigners than for­eigners are selling to Japan.

(B) Japanese official reserves are rising.

(C) The Japanese central bank is buying yen on the foreign-exchange market.

(D) The current dollar price of yen would be higher if Japan were on floating exchange rates.

(E) The demand for yen exceeds the supply of yen on the foreign exchange market.

7. Suppose that real GDP is $20 trillion and the unemployment rate is 5.5%. If, over the next year, potential output grows by 2.5 percent and the unemployment rate increases by 1 percentage point to 6.5%, real GDP will increase to

(A) $20.5 trillion. (B) $20.2 trillion. (C) $21 trillion. (D) $21.4 trillion. (E) $22 trillion.

8. Which of the following would not increase labor's productivity?

(A) technological progress

2. more natural resources

3. an increase in the capital/labor ratio

4. an increase in the population growth rate

5. all of the above will increase labor's productivity

9. Which of the following is a stock variable?

1. capital services

2. rate of unemployment

3. saving

4. depreciation

5. public deficit

10. If government spending increases, the aggregate supply (AS) curve will

1. shift in

2. remain constant

3. shift out

4. change slope and become flatter

5. change slope and become steeper

11. In the long run an increase in government spending will