代做SESS2006 European Macroeconomics BA EXAMINATION 2017代做留学生SQL语言程序

Module: SESS2006 European Macroeconomics

BA EXAMINATION 2017

Section A: Multiple choice

Choose the most appropriate (i.e. ONLY ONE) answer to each question. No explanation is required.

(4 points for each question, 32 points in total)

1.   The demand for investment

A.  depends negatively on output.

B.  depends positively on the nominal interest rate.

C.  depends primarily on the nominal interest rate.

D.  depends primarily on the real interest rate.

2.   Assume that the debt/GDP ratio of country A has reached 200%, the GDP growth rate is stabilized at 2% and the inflation is 2%, what is the government bond nominal interest rate level that is likely to allow the government to reduce its debt GDP ratio?

A.  5%

B.  4%

C.  3%

D.  None, the debt level is already very high, therefore the debt is simply not sustainable. The only option for the government is to reduce its spending or increase taxes so that the debt level can be reduced.

3.   The introduction of expectations in the goods market model makes the IS curve:

A. flatter, although it is still downward sloping.

B. flatter and it becomes upward sloping.

C. steeper, although it is still downward sloping.

D. Nothing will change on the IS curve.

4.   Assume the economy is in a liquidity trap, which of the following statements is correct?

A. Fiscal stimulus policy is effective while expansionary monetary policy is not effective.

B. Expansionary monetary policy is effective while fiscal stimulus policy is not effective.

C. Neither monetary policy nor fiscal policy is effective.

D. Both expansionary monetary policy and fiscal stimulus policy are effective, however, both should be used with caution to avoid excessive inflation.

5.   According to the Taylor rule, a central bank should always set interest rates

A.  in response to changes in the inflation rate.

B.  in response to changes in the unemployment rate gap.

C.  in response to changes in both the unemployment rate gap and the inflation rate.

D.  at 2% in real terms.

6.   The balance sheet of a European commercial bank is shown as follows. Which of the following statement is not correct?

A. The equity ratio is 0.15

B. The leverage ratio of the bank excluding all safe assets from the denominator is 3

C. If the bank is hit by a financial crisis, and its mortgage loan declines in value, this will reduce the equity ratio of the bank and the equity ratio of the bank could become negative.

D.  If the European Central Bank conducts an expansionary monetary policy,  i.e. buying government bonds, we may see the government bond in the assets side of the commercial bank decline and the cash increase.

Table 1. Balance Sheet of Commercial Bank XXX

Assets Liabilities

Cash:                      £250 million Deposits: £350 million

Mortgage Loans:    £250 million Interbank loan: £500 million

Stock:                     £250 million

Government bond: £250 million Equity: £150 million

7.   Solow Growth Model:

Suppose that the economy’s production function is

Y = K0.5 (AN)0.5

where output Y depends on both capital and labour, K and N, and on the state of technology, A. Suppose that the saving rate, s, is equal to 16%, and that the rate of depreciation, δ, is equal to 10%. Suppose further that the number of workers grows at 2% per year and that the rate of technological progress is 8% per year. What is the steady-state value of the capital stock per effective worker?

A.  0.64

B.  0.8

C.  1.6

D.  2.56

8.   Using the same conditions shown in question 7, what is the growth rate of output per worker at the steady-state?

A.  0

B.  2%

C.  8%

D.  10%

Section B

Answer ALL the questions. Marks are only awarded for brief justification (argument, algebra, graphs etc.) that you provide.

(Points for each question are indicated below, 68 points in total)

1.   Consider an economy with the following Phillips curve:

πt  − πt(e) = 0.08 + 0. 1μt  − 2ut

where πt  is the actual inflation, πt(e) is the expected inflation, μt  is the mark-up of prices over

wages and ut  is the unemployment rate.

(1.1)      Suppose that the economy has been affected by a sharp increase in oil prices, do you

expect the mark-up μt  to increase or decrease? (4 points)

(1.2)      Assume that mark-up is μt   = 0.4. What is the natural rate of unemployment as a result

of an oil price increase in this economy? (4 points)

(1.3)      Maintain the assumption in question 2). The central bank has had a long-standing

target inflation rate of 2%. Assume that people believe the central bank always

commits to its inflation target. This year in order to achieve an unemployment rate of 4%, what will be the actual inflation rate that the central bank implements? (8 points)

(1.4)      Following question 3), do you agree with the statement that “when a central bank

announces a target inflation rate, it has an incentive to deviate from its target”? Please discuss your view briefly using the Barro-Gordon model. (12 points)

2.   The president of the European Central Bank (ECB) announced in September 2014 that the

central bank plans to engage in a form of quantitative easing (QE) through the purchase of private sector credit, including asset-backed securities and covered bonds, in addition to a new cut in interest rates. In March 2015, the ECB started the QE programme. The monthly development of 10-year government bond yield (%) of the Euro area and of Italy is shown in Figure 1.

Analyze the effects of QE on government bond markets.

(2.1)      What is the effect of the QE programme on the long-term Euro area government bond

market in March 2015? Why do you see an earlier effect on the yield prior to March 2015? Explain briefly. (6 points)

(2.2)      Assume that, in March 2015, the Italian government decided to issue 10-year

government discount bonds and the face value of the bond is 100. What is the market price of the Italian government bond? Hint: according to Figure 1, the yield to maturity of the government bond at the time is 1.29%. (10 points)

(2.3)      Compare the effect of the QE programme with that of the conventional monetary

policy of the European Central Bank. (10 points)

Analyze the effects of the QE on the real economy.

In Figure 2, we see the monthly development of both money base and money stock (M3)

index in the Eurozone. Prior to the financial crises in 2007-2008, the money base and the M3 index increased at the same speed. Since then, this proportional relationship has collapsed.

(2.4)      Explain briefly why the effort of the ECB to provide liquidity in the economy by

expanding its money base has not yet worked to increase the money stock proportionally? (8 points)

(2.5)      Using the information in Figure 2, what do you think of the inflation level in the Euro

area in 2015 and in the near future? Explain briefly. (6 points)