Final Examination Summer 2004                       Macroeconomics Page Total = 19

1. Short Essay Questions (20 points each)

DIRECTIONS: Answer one (1) of the following questions.

1. Derive the Keynesian "aggregate demand" curve. (Be sure to give a detailed
discussion a graphical derivation, with extensive reference to the IS-LM
model.) Intutively, why does this aggregate demand curve slope downward? What
does Keynesian AS-AD theory predict as effect of an increase in the money
supply?

2. Describe the simple Classical (quantity) theory of price determination
verbally and algebraically. In what sense does the quantity theory provide an
"aggregate demand" curve for the classical theory. Intutively, why does this
aggregate demand curve, according to the quantity theory, slope downward?
According to the quantity theory, what is the predicted relationship between
the money supply and the in°ation rate? (Show this algebraically.) Empirically,
how well is this prediction realized? (You may restrict your discussion of this
to the US economy.)

3. What are the key determinants of growth in the neoclassical growth model?
What are the predicted short-run and long-run effects of an increase in the
saving rate in this model? (Illustrate graphically and discuss.) Does
endogenous growth theory offer a different prediction for the effects of an
increase in the saving rate? (Illustrate graphically and discuss.) Comment:
every graph deserves a full and detailed explanation.

2. Multiple Choice Questions (1 point each)

DIRECTIONS: Answer all multiple choice questions. Pick a single answer for each
question: there is one best answer.

1. During the 1930s prices and output were
(a) unusually high.
(b) positively correlated.
(c) negatively correlated.
(d) uncorrelated
(e) none of the above.

2. During the 1980s prices and output were
(a) unusually high.
(b) positively correlated.
(c) negatively correlated.
(d) uncorrelated
(e) none of the above.

3. Neoclassical growth theory was designed to explain
(a) trend growth
(b) constant saving rate
(c) constant labor share
(d) a. and b.
(e) all of the above

Final Examination|Page 1 of 19