Macroeconomics Exam

1.) Below you see the equilibrium line between aggregate expenditure and Real GDP (45°-line).

a) Mark an equilibrium point of 10 trillion $!

b) Draw the expenditure line with a Marginal Propensite to Consume (MPC) of 0.5!

c) Draw another expenditure line for the same MPC, assuming the government ordered new motorways for 0.3 trillion $.

d) Show graphically the long-term effect of the government purchase on the GDP!

2.) Considering the fiscal policy of a government:

a) What is the difference between an automatic stabilizer and a discretionary policy?

b) Give an example for an automatic stabilizer and for a discretionary policy!

3.) Considering the federal budget of a nation:

a) What are the two components of the government's outlays?

b) Explain the crowding out effect!

c) Explain the twin deficit effect!

4.) Money has a long tradition.

a) Give three characteristics of the ideal money!

b) What is Fiat-Money?

c) After disconnecting the value of the dollar from the value of the gold in a nation's treasury in the beginning of the 19th century, which are the main factors for people to accept money?

5.) Banking is one of the oldest business in the human history.

a) Explain the difference between Money 1 (M1) and Money 2 (M2)!

b) Is the money paid with a credit card considered as M1 or M2?

c) What are the two main operations of a bank to make profit?

d) What is the reserve ratio?

e) Calculate the expected total increase of money with the "Money Multiplier" equation, for an increase of money done by the federal bank by 1,000 trillion $ and a reserve ratio of 10%!

f) What are the three tools of a federal bank?

g) Assume the federal bank increases the amount of money in an economy. Explain the effects on the interest rate, the investment, the aggregate demand and the GDP in your own words!