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Ollscoil na hÉireann, Gaillimh GX_____
National University of Ireland, Galway
AUTUMN Examinations 2007 / 2008
Exam Code(s) 1EM1, 1OA1, 2BC1, 2BC2, 2BC3, 2BC4, 2BC5, 4BFI, 1DB1, 3CL1, 4CL Exam(s) Erasmus, Occasional, 2nd^ Comm., 2nd^ Comm. (Int’l), 4th^ B.Sc. (BIS), Dip.Bus.St., B.Corp.Law Module Code(s) EC Module(s) Macroeconomics Paper No. Repeat Paper REPEAT External Examiner(s) Professor Cillian Ryan Internal Examiner(s) Mr. Brendan Kennelly Dr. Ashley Piggins Dr. Alan Ahearne
Instructions: Please follow instructions carefully
Duration 3 hours.
No. of Pages 3
Department(s) ECONOMICS Course Co-ordinator(s) A. Ahearne & A. Piggins Requirements : MCQ Handout Statistical Tables Graph Paper Log Graph Paper Other Material
ECO 213 – Macroeconomics Please answer any THREE of the following FOUR questions. Each question carries equal marks. Time allowed: THREE hours. 1. (a). According to the neoclassical model, what determines the national income of a closed economy in the long-run? [1 0 marks] (b). Using an appropriate diagram, explain what adjusts in this model to ensure that the demand for goods and services equals the supply? [20 marks] (c). Imagine that the government decides to increase taxes in an effort to reduce consumer spending and investment. In this model, will this plan succeed in accomplishing both goals? Use a diagram to illustrate your answer. [30 marks] (d). Imagine that the Central Bank increases the rate of money growth. In this model, what will happen to output, inflation and the nominal interest rate? [20 marks] (e). In this model, how do we reconcile the existence of unemployment with the assumption of market clearing? [20 marks] 2. (a). Describe fully, using appropriate diagrams, Solow’s model of economic growth. [70 marks] (b). Imagine two countries, A and B, for which the Solow growth model describes behaviour. The rate of growth of the population in A is identical to that of B, and both countries are in steady-state equilibrium. Now let there be a war between A and B in which A destroys a large amount of B’s capital stock, whereas B’s efforts have no effect on A’s capital stock but reduce the size of A’s population. Describe the behaviour of the growth rate and of other relevant variables in the post-war situation. [30 marks]. 3. (a). Explain why the IS curve slopes downward and the LM curve slopes upward. [ marks] (b). What do we mean when we say that an increase in government spending “crowds-out” investment spending in the IS/LM model? Can the Central Bank eliminate the problem of “crowding-out”? [20 marks] (c). Use the IS-LM model to identify the short-run effects of the following changes on national income, the interest rate, the price level, consumption, investment, and real money balances. (i) An increase in the money supply.
