This exam consists of THREE sections. Answer ALL questions in Section A, ONE from Section B, and ALL from Section C.

Instructions:

Section A

Each question is worth 3 marks.

Provide a definition for each of the following:

  1. Inflation
  2. Exchange rate
  3. Employment level
  4. Total factor productivity
  5. Quantitative easing
  6. Money illusion
  7. Interest rate
  8. Comparative advantage
  9. Capital
  10. Money multiplier

Section B

Each question is worth 35 marks

Choose one question

  1. Growth and Total Factor Productivity:
    1. What is total factor productivity (TFP) and how does it affect economic growth?
    2. What is the Golden Rule, and does it seem plausible?
    3. “TFP is just a residual and hence should be ignored.” Do you agree with this statement?
  2. Monetary policy:
    1. What is monetary policy, and how is it carried out in the UK?
    2. What are the transmission mechanisms that monetary policy relies on?
    3. Should the UK government consider changing the monetary policy regime?
  3. Debt and Soveriegn Default:
    1. What is the budget deficit, and what is the national debt? Do either really matter?
    2. How do we determine whether a level of debt is sustainable for a country?
    3. “We should forgive all poor countries their debts to us.” Explain and discuss.

Section C

This question is worth 35 marks

  1. Exchange rates:
    1. What are exchange rates, and what are currency crises? [15]
    2. Do first and second generation models of currency crises adequately explain all observed currency crises? [10]
    3. “Any form of exchange rate intervention is doomed to failure.” Do you agree with this statement? [10]