# 武汉大学2009-2010学年第二学期宏观经济学期末考试

Principles of Macroeconomics (Paper A)
Instructions: You have two hours to complete the test. Full marks are 100 points. Write your answers on the answer sheet. You can answer your questions either in English or Chinese. Read the questions carefully before answering them. Be precise and to the point. Good luck!
（1） The government expenditures on the Social Security benefit to the elderly and the salary of government employees should be included in the “government purchase” component of the GDP.
（2） The long-run economic growth depends on the quantity of labor force, the stock of physical and human capital, the level of technology, natural resources, fiscal policy and monetary policy.
（3） An economy contains 2000 \$1 bills. If people hold equal amounts of currency and demand deposits and banks maintain a reserve ratio of 10 percent, the quantity of money is \$11000.
（4） People worry always about the inflation in the long run because it lowers the purchase power of money, so that a fall in purchase power is the important cost of inflation.
（5） The purchasing-power parity theory is one of the most important long-run theories of exchange rate. it is based on the law of one price. The law tells us that a good must sell for the same price in all locations eventually.
2. （10 points）In an open economy, suppose GDP is \$10 trillion, taxes are \$2.5 trillion, private saving is \$1.5 trillion, and public saving is \$0.5 trillion, net capital outflow is \$1.1 trillion. Calculate consumption, government purchase, national saving, investment and net export. (Hint: there is no transfer payment; the balance of payment is always zero)
3. (15 points) Suppose that the residents of a country spend all of their income on A, B, and C. In 2009, they buy 100 pieces of A for \$300, 50 pieces of B for \$100, and 20 pieces of C for \$80. In 2010, they buy 150 pieces of A for \$600, 40 pieces of B for \$200, and 12 pieces of C for \$120.
(1) If the base year is 2009, what is the CPI in both years?
(2) What is the inflation rate in 2010?
(3) If the Fed wants to reduce inflation rate, which tools it can choose to use theoretically? How to use the tools specifically?
(4) Use a graph of the money market to illustrate the effect of monetary policy of (3). Show the resulting change in the interest rate.
4. (10 points) The Bureau of Labor Statistics announced that in May 2009, of all adult Americans, 140,570,000 were employed, 14,511,000 were unemployed, and 80,371,000 were not in the labor force.
(1) What was the labor force, the labor-force participation rate and the unemployment rate?
(2) Between April and May in 2009, total U.S. employment declined by 437,000 workers, but the numbers of unemployed workers increased by 787,000. How are the two numbers consistent with each other? Why?
(3) Whether the unemployment rate may be zero in long run? Why?
5. (10 points) Suppose that this year’s money supply is \$500 billion, nominal GDP is \$12 trillion, and real GDP is \$6 trillion.
(1) What is the price level? What is the velocity of money?
(2) Suppose that velocity is constant and the economy’s total output of goods and services rises by 5 percent each year. What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant?
(3) What money supply should the Fed set next year of it wants inflation of 3 percent?
(4) What is the fundamental cause of inflation? Does continuing increase in fiscal spending create inflation holding money stock fixed?
6. (15 points) Suppose that U.S. mutual funds decide to invest more in China because of the sub-prime mortgage crisis.
(1) Use three-panel diagram discussed in textbook for an open economy to analyze the impact of the change on China’s economy. What happens to net capital outflow, national saving, and domestic investment in China?
(2) What are the long-run effects on China’s capital stock and economic growth?
(3) What happens to the real exchange rate of RMB to USD?
(4) What are the influences on China’s export, import, net export, and foreign direct investment?
7. (15 points) Suppose the government reduces taxes by \$30 billion, that there is no crowding out, and the MPC (marginal propensity to consumer) is 2/5. Answer the following questions.
(1) What is the initial effect of the tax reduction?
(2) What additional effects follow this initial effect? What is the total effect of the tax cut?
(3) How does the total effect of this \$30 billion tax cut compare to the total effect of a \$30 billion increasing in government purchases? Why?

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8. (15 points)Suppose the extreme weather increases the cost of producing
food products.
(1) Show the impact of such a change in both the AD-AS diagram and in the
Phillips-curve diagram. What happens to inflation and unemployment in the
short-run?
(2) Do the effects of this event mean there is no short-run tradeoff between
inflation and unemployment? Why or why not?
(3) Suppose the Fed pursues expansionary monetary policy to response to the
weather change. Use the Phillips curve to show the short-run and long-run
effects of this policy.
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