By NEAS - 8/15/2018 5:25:20 PM
Macro Module 19 Household savings practice exam questions
(The attached PDF file has better formatting.)
All cash flows occur on December 31. Values for years t and t-1 are
Item Year t Year t-1
Real Government Spending 547 563
Real Government Transfers 311 389
Real Taxes 754 787
Price Level 138 138
Nominal Government Bonds at year-end ? 659
Nominal Interest Rate 4.39% 4.39%
Private Consumption 959 953
Private Capital 651 630
Utilization Rate of Capital 82.86% 84.98%
Depreciation Rate 8.73% 8.36%
The government owns no capital but purchases all goods and services from the private sector.
● The price level does not change from year t-1 to year t.
● The money stock does not change from year t-1 to year t, so (Mt – Mt-1) = 0.
● Inflation is zero, so the nominal interest rate equals the real interest rate.
Question 19.1: Nominal interest paid
What is the interest paid by the government in year t on its outstanding bonds?
Answer 19.1: 659 × 4.39% = 28.93
(bonds outstanding at end of previous year × nominal interest rate on those bonds)
Question 19.2: Real interest paid
What is the real value of interest paid by the government in year t on its outstanding bonds?
Answer 19.2: 659 × 4.39% / (138 / 100) = 20.96
(bonds outstanding at end of previous year × nominal interest rate on those bonds)
Question 19.3: Net cash expenditures
What are the net cash expenditures (in real terms) by the government in year t?
Answer 19.3: 547 + 311 – 754 + 20.96 = 124.96
(net cash expenditures in real terms = government spending + government transfers – taxes + interest paid)
Question 19.4: Government debt
What is Bgt, nominal government bonds in year t?
Answer 19.4: 659 + 124.96 × (138 / 100) = 831.44
(bonds values are in nominal terms, so bonds in year t = bonds in year t-1 + real net government expenditures in year t × the price level)
Question 19.5: Household savings
What is real household savings in year t?
Answer 19.5: (651 – 630) + 831.44 / (138 / 100) – 659 / (138 / 100) = 145.96
(real household savings = increase in capital + increase in real value of bonds)
|
|