Well, what a day!

We had macro finals at Haas today. The Anderson Hall was packed with Oski and Axe cohorts- I was a few minutes late (thanks to the early morning revision!) but found a good seating spot. 10 multiple choice (mc) questions worth 3 points each followed by 2 complex analytical questions each asking to assess several exogenous shocks to the economy and plotting the impacts on the AD-AS and foreign exchange demand/supply curves, worth 35 points each! Happy answering!

Macro started out relatively easy. There was an mc question on nominal exchange rate movements and another on fiscal policy regulation (think tax cuts or government spending). Things got interesting when questions started to appear on overvalued exchange rates and exchange rate pegging. Yes, this paper focused heavily on fiscal policy, financial crises and the foreign exchange market. It was expected since the midterm had covered the AD-AS model, IS, MP curves and business cycles. Then came the analytical questions that brought the rain!

The first analytical question asked us to plot the general equilibrium conditions in Germany and France before France pegged its currency on the German mark. Using the AD-AS model for each country, we plotted AD and AS movement in Germany with an appreciating mark, and its impact on the French economy. In the next part we were told that France decided to fix its currency to the German mark, and without any exogenous shock to the economy, what would be the impact to the aggregate demand and supply. The second analytical question asked us to model using foreign exchange demand and supply, an overvalued Thai baht pegged to the US dollar at an overvalued rate of 20 baht to 1 dollar in 1974, and asked to assess impact without any exogenous shocks for two years in a  row. Needless to say, it almost came to the point of flipping a coin to decided which way the curve shifted! Almost, that is.