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1)Equilibrium in the economy means A

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1)Equilibrium in the economy means

1. A. unemployment is zero
2. B. quantities demanded and supplied are equal in all markets
3. C. prices are not changing over time
4. D. tax revenues equal government spending, so the government has no budget deficit

 

 

2. When a person receives an increase in future income, what is likely to happen to consumption and saving?

1. Consumption increases and saving increases.
2. Consumption increases and saving decreases.
3. Consumption decreases and saving increases.
4. Consumption decreases and saving decreases.

 

 

3. Ricardian Equivalence suggest that if the government cuts taxes today, issuing debt today and repaying the debt plus interest next year, then a rational taxpayer will
   1. spend the full amount of the tax cut today and reduce consumption next year.
   2. increase consumption today, before taxes go up next year.
   3. increase saving today, leaving consumption unchanged.
   4. leave a smaller gross bequest to her or his heirs.

 

4. Suppose your company is in equilibrium, with its capital stock at its desired level. A permanent increase in the expected real interest rate now has what effect on your desired capital stock??
   1. Raises it, because the future marginal productivity of capital is higher?
   2. Lowers it, because the future marginal productivity of capital is lower?
   3. Raises it, because the user cost of capital is now lower?
   4. Lowers it, because the user cost of capital is now higher?

 

 

 

 

 

 

 

 

 

 

5. The risk premium is
   1. the amount by which the expected return on a risky asset exceeds the return on an otherwise comparable safe asset.
   2. a measure of the riskiness of the overall economy in a domestic country compared with a foreign country.
   3. the amount an investor must pay to insure his or her stock portfolio to protect against a fall in value.
   4. the amount an investment bank charges to guarantee an annuity that pays a fixed rate of return in the future.

 

 

6. If real money demand doubles while the nominal money supply is unchanged, what happens to the price level?
   1. The price level increases by a factor of four.
   2. The price level doubles.
   3. The price level is unchanged.
   4. The price level falls by one-half.

 

 

7. In the production function Y = AF(K, N), total factor productivity is
   1. Y/A.?
   2. A.?
   3. K/N.
   4. Y/N.

 

8. What is the unemployment rate if there are 170 million people employed, 25 million people unemployed, and 35 million not in the labor force??
   1. 14.7%
   2. 13.7%
   3. 12.8%?
   4. 10.9%?

 

 

9. A beneficial oil-price shock increases labor demand. What happens to current employment and the real wage rate??
   1. Both employment and the real wage rate would increase.?
   2. Both employment and the real wage rate would decrease.
   3. Employment would increase and the real wage would decrease.
   4. Employment would decrease and the real wage would increase.

 

 

 

 

 

10. The negative relationship between unemployment and inflation is known as the
    1. aggregate supply curve.?
    2. aggregate demand curve.?
    3. Phillips curve.
    4. efficiency wage line.?

 

11. The ease and quickness with which an asset can be exchanged for goods, services, or other assets is its?
    1. risk.?
    2. time to maturity.
    3. velocity.?
    4. liquidity.?

 

12. Suppose the intersection of the IS and LM curves is to the right of the FE line. What would most likely eliminate a disequilibrium among the asset, labor, and goods markets??

 

1. 1. A rise in the price level, shifting the LM curve up and to the left.?
   2. A fall in the price level, shifting the LM curve down and to the right.
   3. A rise in the price level, shifting the IS curve up and to the right.
   4. A fall in the price level, shifting the IS curve down and to the left.

 

13. Which of the factors listed below might cause the Ricardian equivalence proposition to be violated??
    1. There may be international capital inflows and outflows.
    2. Consumers may not understand that an increase in government borrowing today is likely to lead to higher future taxes.
    3. There may be constraints on the level of government spending.
    4. There may be constraints on the level of government taxation.

 

 

14. Suppose your company is in equilibrium, with its capital stock at its desired level. A permanent increase in the depreciation rate now has what effect on your desired capital stock?
    1. Raises it, because the future marginal productivity of capital is higher
    2. Lowers it, because the future marginal productivity of capital is lower
    3. Raises it, because the user cost of capital is now lower
    4. Lowers it, because the user cost of capital is now higher

 

15. If the nominal money supply doubles while real money demand is unchanged, what happens to the price level??

 

1. 1. The price level increases by a factor of four.?
   2. The price level doubles.
   3. The price level is unchanged.?
   4. The price level falls by one-half.

 

16. An increase in expected future output while holding today's output constant would
    1. increase today's desired consumption and increase desired national saving
    2. increase today's desired consumption and decrease desired national saving
    3. decrease today's desired consumption and increase desired national saving
    4. decrease today's desired consumption and decrease desired national saving
17. The Ricardian equivalence proposition suggests that a government deficit caused by a tax cut
    1. causes inflation.?
    2. causes a current account deficit.
    3. raises interest rates.
    4. doesn't affect consumption.
18. A mathematical expression relating the amount of output produced to quantities of capital and labor utilized is the

 

18. 1. real interest rate.?
    2. productivity relation.
    3. production function.
    4. marginal product.
19. What is the participation rate if there are 125 million people in the labor force, 100 million people employed, and 25 million not in the labor force?

 

19. 1. 83%
    2. 80%
    3. 75%
    4. 67%
20. Suppose the intersection of the IS and LM curves is to the right of the FE line. What would most likely eliminate a disequilibrium among the asset, labor, and goods markets?

 

1. 1. A rise in the price level, shifting the LM curve up and to the left.?
   2. A fall in the price level, shifting the LM curve down and to the right.
   3. A rise in the price level, shifting the IS curve up and to the right.
   4. A fall in the price level, shifting the IS curve down and to the left.

 

 

21. Desired national saving equals

 

A) Y - C_d - G.?

B) C_d + I_d + G.?

C) I_d + G.

D) Y - I_d - G.?

 

 

22. Because of diminishing marginal productivity

 

A) the labor supply curve is not vertical.

B) nominal wages are sticky in a downward direction.

C) the labor demand curve is negatively sloped.

D) households save only a small share of their income.

 

 

23. With no inflation and a nominal interest rate (i) of .03, a person can trade off one unit of current consumption for ________ units of future consumption.

A) 0.97

B) 1.03

C) .03

D) -.03

 

24. With a nominal interest rate of 4%, an expected inflation rate of 1%, and interest income taxed at a rate of 25%, what is the expected real after-tax interest rate?

A) 3%

B) 2%

C) 1%

D) 0%

 

25. The two main characteristics of the production function are

 

A) it slopes downward from left to right, and the slope becomes flatter as the input increases.

B) it slopes upward from left to right, and the slope becomes steeper as the input increases.

C) it slopes upward from left to right, and the slope becomes flatter as the input increases.

D) it slopes downward from left to right, and the slope becomes steeper as the input increases.

 

26. The equilibrium level of employment, achieved after the complete adjustment of wages and prices, is known as the

A) zero-unemployment level of employment.

B) natural state.

C) invisible handshake.

D) full-employment level of employment.

 

 

27. In economics, money refers to

A) income.

B) wealth.

C) assets used and accepted as payment.

D) currency.

 

28. Time to maturity refers to the amount of time until

A) an asset repays the principal to an investor.

B) an asset pays interest for the first time.?

C) a bond can be sold on the secondary market.

D) the yield curve shows an upward slope.

 

 

29. An increase in the money supply would cause the IS curve to

 

A) shift up and to the right.?

B) shift down and to the left.?

C) remain unchanged.

D) shift up and to the right only if people face borrowing constraints. ?

 

 

30. The Phillips curve is a negative empirical relationship between

A) bond prices and interest rates.?

B) unemployment and output.?

C) inflation and the real interest rate.

D) unemployment and inflation.

?

 

31. An increase in the real interest rate would cause an increase in the real demand for money

A) no matter what the change in expected inflation.?

B) if expected inflation fell by less than the rise in the real interest rate.?

C) if expected inflation fell by the same amount as the rise in the real interest rate.

D) if expected inflation fell by more than the rise in the real interest rate.

 

32. Velocity is defined as

 

A) nominal money stock/nominal GDP.

B) nominal GDP/nominal money stock.

C) real money stock/real GDP.

D) mc2.

 

 

33. The LM curve illustrates that when income increases, the

 

A) price level must increase to clear the asset market.

B) real interest rate on nonmonetary assets must increase to clear the asset market.

C) price level must increase to clear the goods market.

D) real interest rate on nonmonetary assets must increase to clear the goods market.

 

34. When the money supply declines by 10%, in the long run, output ________ and the price

level _______.

 

A) is unchanged; is unchanged

B) declines; falls

C) is unchanged; falls

D) declines; is unchanged

 

 

35.  Suppose the real money demand function is M^d/P = 2400 + 0.2Y - 10,000 (r + π^e).

Assume M = 4000, P = 2.0, π^e = .03, and Y = 5000.

The real interest rate, r that clears the asset market is?

 

A) 3%.?

B) 6%.

C) 11%.?

D) 14%.?

 

36. Suppose the economy's production function is Y = AK^0.3 N^0.7. If K = 2000, N = 100, and A = 1, then Y = 246. If K and N both rise by 20%, and A is unchanged, by how much does Y increase?

A) 5%?

B) 10%?

C) 15%?

D) 20%?

 

37. Last year, Linus earned a salary of $25,000 and he spent $24,000, thus saving $1000. At the end of the year, he received a bonus of $1000 and he spent $500 of it, saving the other $500. What was his marginal propensity to consume?

A) .96

B) .50?

C) .04?

D) .02?

 

38. You have just read that Australia has suffered a drought, destroying its wheat crop for this

year. The effect of this adverse supply shock on Australia would probably be

 

A) an increase in prices and an increase in real interest rates.

B) an increase in prices, an increase in nominal interest rates, but a decrease in real interest rates.

C) a decrease in prices and a decrease in real interest rates.

D) a decrease in prices, a decrease in nominal interest rates, but an increase in real interest rates.

 

39. Suppose the marginal product of labor is

MPN = 200 - 0.5N

where N is aggregate employment. The aggregate quantity of labor supplied is 300 + 8w, where w is the real wage. What is the equilibrium real wage?

 

A) 5

B) 10

C) 15

D) 20

 

40. How many people are employed if the labor force participation rate is 60%, there are 3 million people unemployed, and there are 30 million people not in the labor force?

 

A) 54 million

B) 48 million

C) 42 million

D) 30 million

 

Section B.  5 Multiple choice questions (1 mark each, 5 marks total)

 

1. If real income rises 5%, prices rise 3%, and nominal money demand rises 7%, what is the income elasticity of real money demand??

 

1. 1. 3/4?
   2. 4/5
   3. 5/6?
   4. 6/7?

 

 

2. Suppose the intersection of the IS and LM curves is to the left of the FE line. What would most likely eliminate a disequilibrium among the asset, labor, and goods markets??

 

1. 1. A rise in the price level, shifting the LM curve up and to the left?
   2. A fall in the price level, shifting the LM curve down and to the right
   3. A rise in the price level, shifting the IS curve up and to the right
   4. A fall in the price level, shifting the IS curve down and to the left

 

 

3. If real money demand increases 5% and real money supply increases 10%, by about how much does the price level change??

 

1. 1. Falls by 5%?
   2. Unchanged
   3. Rises by 2%
   4. Rises by 5%

 

 

4. What is the participation rate if there are 125 million people in the labor force, 100 million people employed, and 25 million not in the labor force?

 

1. 83%
2. 80%
3. 75%
4. 67%

 

5. If the interest elasticity of money demand is -0.1, by what percent does money demand change if the nominal interest rate rises from 2% to 3%??

 

1. 1. -0.1%
   2. 5%
   3. 0.1%
   4. -5%