David Levine
BA E201B
Macroeconomics

Fun Midterm

The figure in [brackets] indicates the points and the suggested time for that
question.  The exam is designed to take 70 minutes, but you have 80 minutes to
complete it. (To be honest, 50 minutes should suffice.) PLEASE KEEP WITHIN THE
TIME LIMIT. Be sure to write the starting and ending times on the exam you 
turn
in.

The exam is closed book.  If you are turning in a written copy, please write 
on
only one side of a page, and if your handwriting is as bad as mine, please 
skip
lines.  Label all diagrams clearly.  If you are writing on a PC, feel free to
place diagrams on a separate paper.


I) False, or Uncertain, and Why?  The grade you receive depends solely on the
quality of your explanation.  If you are not sure of what the question 
assumes,
simply state your own assumptions clearly, and answer based on these
assumptions.  Most of the answers should be fairly brief.  When in doubt, 
state
your assumptions (classical vs. Keynesian, long- vs. short-run,...). Answers 
in
this section should typically be two paragraphs, or one paragraph and some
bullet points.  Avoid one-word answers or bullets.

1.      [10] The government should promote a higher rate of saving to increase
output in the long run.

2.      [10] Productivity has risen in recent years in the United States
because
many new workers have joined the labor force to take advantage of the booming
economy.

3.      [10] An unexpected fall in inflation hurts lenders since the nominal
value of the payments they receive is reduced.


II)  Longer answers

4. [20] Illustrate the effects of the recent decision by the European Central
Bank to alter its monetary policy using the ISLM diagram.  If European output
is currently below the level associated with NAIRU, is their decision correct?
Explain.

5. [20] Suggest a cost-effective government policy to increase the human
capital in the country. How (if at all) would your answer differ for Brazil 
vs.
Germany?


David I. Levine                 Associate professor
Haas School of Business    ph: 510/642-1697
University of California    fax: 510/643-1420
Berkeley CA  94720-1900                            email:
levine@haas.berkeley.edu
http://web.haas.berkeley.edu/www/levine/