Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit

ECOS2002

INTERMEDIATE MACROECONOMICS

SESSION 1, 2021

Final Exam Questions

Instruction:   Choose One (1) out of the two questions to answer.  Only submit solutions to one of the questions. Clearly indicate which question you are answering. If you submit answers to both, then only the first submitted answer will be marked.

1. Figure 1 shows a scatter plot of the output gap and inflation as a deviation from the RBA’s inflation target.  Using the IS-MP-AS model given below, answer the following questions about the graph.

Figure 1: Q1 Scatter Plot

 

IS:	y  =  − (Ry − )
MP:	(Ry − ) = (πy − )
AS:	πy  = πy − 1 + y +

 

(a) Based on Figure 1, does it appear that the economy during this period experienced negative or positive shocks?  In other words, does it appear that change in  and  were on average less than zero or greater than zero if one uses the model to try to explain the data. Provide a graph to justify your answer.  (14 points)

(b) Based on your answer in (a) and Figure 1, does the model predict that interest rates would be higher on average or lower on average relative to  during this period?  (8 points)

(c) What is predicted by the model for output and inflation if there is a negative shock to ? Is this type of shock consistent with the data shown in 1? Provide a graph to illustrate your answer.  (8 points)

2.  Growth in the Basic Romer Model:  Consider the following model

Parameters: ,  , γ , 0

Suppose there exists a country that has been separated from the rest of the world for the last 30 years due to a dictatorial government. However, the country has recently opened its borders and allowed its people to interact with the rest of the world. The opening of the economy has allowed the stock of knowledge to increase greatly.

(a) What is the effect of a one-time increase in the stock of ideas (Ay ) on GDP per capita.  (9 points)

(b)  Graph the effect of the change in the stock of ideas on GDP per capita using a log or ratio scale graph.  (9 points)

(c) Now suppose that as part of the opening of this economy that citizens were allowed to leave the country for the first time. Assume that many citizens decided to leave the day the borders were open.  This led to a permanent decrease in .  What is the effect of this loss of labour on the balanced growth path of GDP per capita.

(12 points)