ECON1102-Macroeconomics 1 - T1/2025
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where r is the real cash rate (interest rate, policy rate set by the Central Bank of country D), Y is output, Y* is potential output and π is the rate of inflation.
According
to this Taylor rule, if the output of country D is at its potential level and inflation is 1%, what will
be the value of the real cash rate, r?
Suppose that primary budget balance always equals zero. What is the level of public debt at the end of year 3? The real interest rate r=0.05 and the initial stock of debt equals 100.
Time | Dt |
0 | 100 |
1 |
|
2 |
|
3 | ? |
Which of the following is most likely to lead to a decrease in inflationary expectations?
If the Reserve Bank sells $2 million worth of government securities via Open Market Operations, the money supply (as measured by M1) will ultimately:
Which of the following would lead a declining level of debt to GDP ratio, other things remaining constant?
The following table provides data for 2023 for country A. All data are in real or constant price terms.
Component
|
$ Billion
|
Component
|
$ Billion
|
GDP
|
18,000
|
Public Debt (31 Dec 2022)
|
3,000
|
Indirect Taxes
|
150
|
Government Transfers
|
190
|
Subsidies
|
30
|
Government Purchases
|
300
|
Direct Taxes
|
250
|
Government Interest Payments
|
60
|
What is the size of
the budget balance as a share of GDP? Choose the closest option.
The following table provides data for country B. All data are in real or constant price terms. (Note, some data are for 2022, and some are for 2023).
Component | $ Billion | Component | $ Billion |
GDP (31 Dec 2022) | 36,000 | Public Debt (31 Dec 2022) | 6000 |
Indirect Taxes (31 Dec 2023) | 300 | Government Transfers (31 Dec 2023) | 380 |
Subsidies (31 Dec 2023) | 60 | Government Purchases (31 Dec 2023) | 600 |
Direct Taxes (31 Dec 2023) | 500 | Government Interest Payments (31 Dec 2023) | 120 |
Alex wishes to borrow money for 3 years. She can take out a 3-year loan or three consecutive 1-year loans.
The current annual interest rate on a 3-year loan is 5%. If she took out three 1-year loans the current interest rate on a 1-year loan starting today is 4%, the expected interest rate on the second 1-year loan starting next year is 4.5%. If the expectation hypothesis was to hold what would be the expected interested rate on the third 1-year loan?
Assume that principle and interest are repaid at the end of the loans.
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