Mid-term exam: Econ F243: Macroeconomics 2nd March 2020
BITS PILANI K. K. BIRLA GOA CAMPUS
COURSE NO. ECON F243 COURSE TITLE: MACROECONOMICS
02/03/2020 Time: 90 minutes Total Marks: 30
In the classical system, discuss the supply-side effects of a cut in marginal income tax rate on
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output (use properly constructed diagram(s) to support your arguments)
2 In the classical model, the level of business investment was a function of:
A. only the expected profitability of investment projects ||| B. only the real interest rate|||
C. both the expected profitability of investment projects and the real interest rate |||
D. only the nominal interest rate ||| E. None of the above
3 According to the classical system, saving is a function of: A. income ||| B. the real interest
rate ||| C. the real wage ||| D. the profitability of firms ||| E. all of the above
4 According to the classical model, money influences: A. only price level but not nominal
wage rates ||| B. nominal and real variables in both the long and short-run ||| C. both
nominal and real variables but only in the short-run ||| D. only nominal variables
One factor which did not influence the levels of real output and employment in the classical
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system was the: A. stock of capital ||| B. level of technology ||| C. Money supply ||| D. size
of the labor force ||| E. Tax cut
6 According to the mercantilist propositions:
A. state action was necessary to direct the capitalist system ||| B. money had no intrinsic
value ||| C. output was completely supply-determined ||| D. the wealth of a nation was
closely linked to the country’s stock of precious metals ||| E. Both A and D
In the simple Keynesian model, assume a model of the expenditure sector with no
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government or foreign sector. If the savings function is defined as S = - 300 + (0.1)Y and
autonomous investment increases by 200, by how much will consumption increase?
A. 180 ||| B. 200 ||| C. 1,800 ||| D. 2,000 ||| E. 2,100
In the simple Keynesian model, if the savings function is S = - 400 + (0.25)YD, the
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marginal income tax rate is t = 0.2, and the equilibrium level of income increases by
1,000, by how much will consumption change? A. 250 ||| B. 400 ||| C. 700 ||| D.
750 ||| E. None of the above
9 In the simple Keynesian model, the equation for the balanced budget multiplier can be
written as:
A. (1/1 – b) – (b/1 – b) ||| B. (1/1 + b) + (− b/1 – b) ||| C. (1/1 – b) + (b/1 + b) ||| D. (1/1 +
b) – (b/1 + b)
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Mid-term exam: Econ F243: Macroeconomics 2nd March 2020
10 In the simple Keynesian model, assume that equilibrium output falls short of potential
output by 300 units and the MPC = 0.8. The size of the tax cut needed to reach full
employment is
A. 30 ||| B. 60 ||| C. 75 ||| D. 300 ||| E. 525.
11 In the simple Keynesian model, assuming that C + Ir + G > C + I + G, then
A. there is an unintended inventory shortfall||| B. there is an unintended inventory
accumulation ||| C. aggregate demand is less than output. |||D. Both B and C
12 Income has risen in the simple Keynesian model. This could be the result of:
A. an equal increase in government spending and taxes ||| B. an increase in unplanned
investment. ||| C. an increase in taxes ||| D. a decrease in autonomous consumption ||| E.
none of the above
13 According to the Keynesian model of the money market, the supply of money:
A. depends on the interest rate ||| B. is chosen by the central bank ||| C. varies with the
price level ||| D. varies with income.
14 In the simple Keynesian model, let C = 200 + 0.8(Y-T), planned investment equals 150,
and T equals 200. If the equilibrium level of income is 2,000, then the level of
government spending needed to make this true is (show the steps involved in getting the
final answer):
15 In the simple Keynesian model, if the consumption function is given by C = 100 + .6(Y-
T) and planned investment is 150, government spending is 50, and T is 100, then
equilibrium income is (show the steps involved in getting the final answer):
16 In the simple Keynesian model, if the marginal propensity to consume is 0.8 and if
government spending (G) rises by 50 while investment (I) falls by 20, by how much will
equilibrium income rise? (show the steps involved in getting the final answer)
17 Explain how a sudden increase in the liquidity preference (that is, an increase in money
demand function) will affect the position of the LM curve [2 Marks].
Assume that an economy is experiencing recession, and caught in a liquidity trap. Using
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the simple Keynesian framework, discuss the effectiveness of monetary policy to revive
the economy. Your answer must be supported with proper economic reasoning [3
Marks].
Assume that in a particular economy at particular period, output (Y)=500 units, money
19.1
supply (M)= Rs. 200, and k= 20%. As per Fisherian version of quantity theory of money,
what is the equilibrium price level? [2 Marks].
What are the differences between the Fisherian and Cambridge versions of the quantity
19.2
theory of money? [3 Marks].
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