Final Examination                                                  Summer 2007 
Macroeconomics                                                     Page Total = 17 

1. Short Essay Questions (20 points each) 
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DIRECTIONS: Answer the first question and one more for a total of two (2) of
the following questions. 

1. 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. Give a detailed analysis of the effects of monetary and fiscal policy in our
short-run ``Keynesian'' IS-LM model. Explain what these imply for the ability
of monetary and fiscal policy to affect income on our short-run ``Keynesian''
AS-AD model. 

3. 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
Classical aggregate demand curve, slope downward? According to the quantity
theory, what is the predicted relationship between the money supply and the
price level? (Show this algebraicallly and graphically.) According to the
quantity theory, what is the predicted relationship between the money supply
and the inflation rate? (Show this algebraically.) Empirically, how well are
these predictions realized? (Do not refer only to the U.S. experience.) 

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. In the Classical Model, doubling the money supply will 
(a) double the price level. 
(b) double nominal income. 
(c) increase real income 
(d) lower the interest rate. 
(e) a. and b. 

...

88. The aggregate-level production function in neoclassical growth theory is characterized by 
(a) constant returns to scale in capital and labor 
(b) diminishing marginal product of capital 
(c) diminishing marginal product of labor 
(d) a. and b. 
(e) all of the above 

89. The firm-level production function in our AK endogenous growth model is characterized by 
(a) constant returns to scale in capital and labor 
(b) diminishing marginal product of capital 
(c) diminishing marginal product of labor 
(d) a. and b. 
(e) all of the above 

90. The aggregate-level production function in our AK endogenous growth model is characterized by 
(a) constant returns to scale in capital and labor 
(b) diminishing marginal product of capital 
(c) diminishing marginal product of labor 
(d) a. and b. 
(e) none of the above 

91. The aggregate production function Y = KL^(1/2) is characterized by 
(a) constant returns to scale in capital and labor 
(b) diminishing marginal product of capital 
(c) diminishing marginal product of labor 
(d) a. and b. 
(e) none of the above 

92. Which are important determinants of the long-run growth rate of the material standard of living in 
the neoclassical growth model? 
(a) the saving rate 
(b) the population growth rate 
(c) exogenous technical progress 
(d) a. and b. 
(e) all of the above 

93. Which are important determinants of the long-run growth rate of the material standard of living in 
our AK endogenous growth model? 
(a) the saving rate 
(b) the population growth rate 
(c) exogenous technical progress 
(d) a. and b. 
(e) all of the above 

94. Stable debt dynamics are characterized by 
(a) a declining real value of the federal deficit. 
(b) a declining real value of the federal debt. 
(c) a growth rate of nominal GDP that exceeds the rate of interest at which the government can 
borrow. 
(d) a growth rate of nominal GDP that exceeds the rate of inflation. 
(e) all of the above. 

95. Which of the following years saw the biggest US federal debt? 
(a) 1946 
(b) 1973 
(c) 1979 
(d) 1992 
(e) 2003 

96. Which of the following years saw the biggest US federal debt-to-GDP ratio? 
(a) 1946 
(b) 1973 
(c) 1979 
(d) 1992 
(e) 2003