07:12 1 EC2065 ZB exam paper - May 20... SECTION A Answer ALL FIVE questions in this section (8 marks each). 1. Between 1980 and 2010, the wage premium earned by workers with a university education increased significantly at the same time as a rise in the proportion of university-educated workers. Explain one way it is possible to reconcile the rising skill premium with the increased supply of skilled labour. 2. Suppose that a pay-as-you-go public pension system is introduced. At each point in time, N old people receive benefits p paid for by N' young people, who each make contributions t, hence pNtN'. The population growth rate is n, hence N' (1+n)N. Write down the life-time budget constraint of a young person after the system is introduced and explain what is needed for all genera- tions to benefit from the pay-as-you-go pension system. 3. Suppose that disruption from the Covid pandemic has increased mismatch be- tween job vacancies and people who became unemployed. Interpreting this as a deterioration in matching efficiency in the equilibrium search model, analyse the effects on wages, unemployment, and vacancies using the diagrams of the model. 4. During 2022, the yield curve in the United States became 'inverted' (downward sloping). Use the expectations theory of long-term interest rates to explain why an inverted yield curve often seen as a signal that a recession is imminent. 5. Suppose there is a temporary increase in government expenditure G in a small open economy. Using the international real dynamic model with flexible prices, find the effects on GDP, Y, and the current account, CA. Explain whether the im- pact on GDP is larger or smaller than in a closed economy with the same fiscal policy change. Page 2 of 6 64 Bitti
07:12 1 EC2065 ZB exam paper - May 20... SECTION A Answer ALL FIVE questions in this section (8 marks each). 1. Between 1980 and 2010, the wage premium earned by workers with a university education increased significantly at the same time as a rise in the proportion of university-educated workers. Explain one way it is possible to reconcile the rising skill premium with the increased supply of skilled labour. 2. Suppose that a pay-as-you-go public pension system is introduced. At each point in time, N old people receive benefits p paid for by N' young people, who each make contributions t, hence pNtN'. The population growth rate is n, hence N' (1+n)N. Write down the life-time budget constraint of a young person after the system is introduced and explain what is needed for all genera- tions to benefit from the pay-as-you-go pension system. 3. Suppose that disruption from the Covid pandemic has increased mismatch be- tween job vacancies and people who became unemployed. Interpreting this as a deterioration in matching efficiency in the equilibrium search model, analyse the effects on wages, unemployment, and vacancies using the diagrams of the model. 4. During 2022, the yield curve in the United States became 'inverted' (downward sloping). Use the expectations theory of long-term interest rates to explain why an inverted yield curve often seen as a signal that a recession is imminent. 5. Suppose there is a temporary increase in government expenditure G in a small open economy. Using the international real dynamic model with flexible prices, find the effects on GDP, Y, and the current account, CA. Explain whether the im- pact on GDP is larger or smaller than in a closed economy with the same fiscal policy change. Page 2 of 6 64 Bitti
Chapter1: Making Economics Decisions
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Transcribed Image Text:07:12 1
EC2065 ZB exam paper - May 20...
SECTION A
Answer ALL FIVE questions in this section (8 marks each).
1. Between 1980 and 2010, the wage premium earned by workers with a university
education increased significantly at the same time as a rise in the proportion
of university-educated workers. Explain one way it is possible to reconcile the
rising skill premium with the increased supply of skilled labour.
2. Suppose that a pay-as-you-go public pension system is introduced. At each
point in time, N old people receive benefits p paid for by N' young people, who
each make contributions t, hence pNtN'. The population growth rate is n,
hence N' (1+n)N. Write down the life-time budget constraint of a young
person after the system is introduced and explain what is needed for all genera-
tions to benefit from the pay-as-you-go pension system.
3. Suppose that disruption from the Covid pandemic has increased mismatch be-
tween job vacancies and people who became unemployed. Interpreting this as
a deterioration in matching efficiency in the equilibrium search model, analyse
the effects on wages, unemployment, and vacancies using the diagrams of the
model.
4. During 2022, the yield curve in the United States became 'inverted' (downward
sloping). Use the expectations theory of long-term interest rates to explain why
an inverted yield curve often seen as a signal that a recession is imminent.
5. Suppose there is a temporary increase in government expenditure G in a small
open economy. Using the international real dynamic model with flexible prices,
find the effects on GDP, Y, and the current account, CA. Explain whether the im-
pact on GDP is larger or smaller than in a closed economy with the same fiscal
policy change.
Page 2 of 6
64
Bitti
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