INTERMEDIATE MACROECONOMICS (ECON 302) 1ST TRIMESTER 2012 Latest Verified Review 2023 Practice Questions and Answers for Exam Preparation, 100% Correct with Explanations, Highly Recommended, Download to Score A+

INTERMEDIATE MACROECONOMICS (ECON 302) 1ST TRIMESTER 2012 Latest Verified Review 2023 Practice Questions and Answers for Exam Preparation, 100% Correct with Explanations, Highly Recommended, Download to Score A+ Question One • Assume two good economy which produces good A and B. 2006 2007 2008 P Q P Q P Q Good A 30 900 31 1000 36 1050 Good B 100 192 102 200 100 205 NB: Prices in US dollars. Required: • Compute nominal GDP in each year. (3 Marks) • Compute real GDP in each year using 2006 as the base year (3 Marks) • Compute the GDP deflator in each year. (4 Marks) • Compute inflation rate from 2006 to 2007 and from 2007 to 2008. (4 Marks) • Assume Country X with a consumer basket which contain 20 Pizzas and 10 compact Pizzas CDs 2002 $10 15 2003 $11 15 2004 $12 16 2005 $113 15 Using the above information: • Compute the Consumer Price Index (CPI) using 2002 as the base year. (6 Marks) • Inflation rate from the proceeding year. (4 Marks) • Briefly discuss the key rules to be considered when computing GDP. (6 Marks) SECTION B (40 Marks) Question Two Using the IS – LM model of a closed economy: • Explain why the aggregate DD curve slope downwards. (7 Marks) • What are the capital outflows and trade balance? Explain how they are related. (7 Marks) • Explain the difference between the demand pull and cost pull inflation. (6 Marks) Question Three • Briefly explain the concept of velocity of money. (6 Marks) • Briefly explain the distinction between nominal exchange rates and real exchange rate. (5 Marks) • "The Fisher equation implies that the best predictor of inflation is nominal interest rate. Do you agree? Why or why not. (4 marks) • With reference to a macro economic model, explain what happens in labour market if there is a negative shock to demand that leads to a fall in prices. How does the real wage behave? (5 Marks) Question Four • What is meant by the term "time inconsistency" of economic policy? Why might policy makers be tempted to renege on an announcement they made earlier? In this situation, what is the advantage of a policy rule? (6 Marks) • Using the theory of liquidity preference, explain why an increase in money demand causes the LM curve to shift to the left. (7 Marks) • Describe how automatic stabilizers can help to pull an economy out of recession. (7 Marks)