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(ECON215)5bf082 - PracticeFinalExam.pdf
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Practice Final Exam
Economics 215
Intermediate Macroeconomics
Assigned: Thursday, May 12, 2005

Multiple Choice (4 points each)

1.
A small economy in Africa, Ghana, is one of the worlds major growers of cocoa beans. When temporary bad weather in Thailand destroys a major cocoa crop sending the price cocoa beans dramatically higher and suddenly increases the income of Ghanian farmers. If cocoa farmers set consumption according to the permanent income hypothesis, we should expect to see,




a.
a rise in Ghanas national savings and an increase in Ghanas capital account.


b.
a rise in Ghanas national savings and a decrease in Ghanas capital account.


c.
a fall in Ghanas national savings and an increase in Ghanas capital account.


d.
a fall in Ghanas national savings and a decrease in Ghanas capital account.



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2.
Hong Kong has a monetary policy that sets a certain exchange rate with the United States dollar. Thailand has a monetary policy that selects a certain domestic interest rate. U.S. dollar interest rates rise temporarily. Assume that uncovered interest parity holds, we should see that:


a.
the Thai currency should appreciate relative to the U.S. dollar and the velocity of money in Hong Kong should rise.


b.
the Thai currency should appreciate relative to the U.S. dollar and the velocity of money in Hong Kong should fall.


c.
the Thai currency should depreciate relative to the U.S. dollar and the velocity of money in Hong Kong should rise.


d.
the Thai currency should depreciate relative to the U.S. dollar and the velocity of money in Hong Kong should fall.






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3.
Income does not increase today, but households expect it to increase in the future. Under the permanent income hypothesis, this will imply:


a.
Consumption will rise and Savings will rise.


b.
Consumption will rise and Savings will fall.


c.
Consumption will fall and Savings will rise.


d.
Consumption will fall and Savings will fall.



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4.
We observe a pattern that developing economies experience real exchange rate appreciations as they grow. Assuming uncovered interest parity is true in the long run, we should see that for developing economies with fixed exchange rates:


a.
PPP-converted GDP grows faster than exchange rate-converted GDP and inflation will be higher than in the US.


b.
PPP-converted GDP grows faster than exchange rate-converted GDP and inflation will be lower than in the US.


c.
PPP-converted GDP grows slower than exchange rate-converted GDP and inflation will be higher than in the US.


d.
PPP-converted GDP grows slower than exchange rate-converted GDP and inflation will be higher than in the US..






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5.
Assume that Korea and Hong Kong are open to international capital flows. Korea