EKON 102
SPRING 2007 2ND MIDTERM
1.
2.
3.
4.
For this question, assume that there are
decreasing returns to capital and decreasing
returns to labor. An increase in the capital
stock will cause which of the following?
a) not change in output
b) an increase in output per capita
(output per worker)
c) a reduction in output
d) decrease the capital-labor ratio
e) none of the above
Efficiency wage theory suggests that:
a) the government can only set tax
rates so high before people will
prefer not to work.
b) unskilled workers will have a lower
turnover rate than skilled workers.
c) workers will be paid less than their
reservation wage.
d) productivity might rise if the wage
rate is too low.
e) turnover rate would be higher if
the wage is too low
Suppose the aggregate production function is
given by the following: Y = N. Given this
information, we know that labor productivity
is represented by the following:
a) 1/N.
b) N/Y.
c) 1.
d) N.
e) 0
For this question, assume that the economy
is initially operating at the natural level of
output. A simultaneous increase in taxes and
reduction in the money supply will cause
which of the following?
a) a reduction in the interest rate in
the medium run
b) a reduction in output and a
reduction in the nominal wage in
the short run
c) an increase in output and an
increase in the aggregate price level
in the short run
d) an increase in the aggregate price
level, no change in output, and no
change in the interest rate in the
medium run
e) a reduction in investment in the
medium run
5.
When inflation has been persistent, low
unemployment rates will likely be associated
with:
a) high but stable rates of inflation.
b) reductions in the inflation rate.
c) low but stable rates of inflation.
d) high natural rates of
unemployment.
e) low natural rates of
unemployment.
6.
Which of the following would allow the
policy makers to maintain the
unemployment rate 1% above the natural
rate?
a) nominal money growth that is 1%
greater than the inflation rate
b) nominal money growth that is 1%
less than the sum of the inflation
rate and the normal output growth
rate
c) nominal money growth that is 1%
greater than the normal growth rate
of output
d) nominal money growth of 1%
e) none of the above
7.
Which of the following would be most likely
to cause a change in the natural rate of
unemployment?
a) changes in monetary policy
b) changes in the rate of inflation
c) significant foreign direct
investment into country
d) changes in fiscal policy
e) changes in the percentage of labor
contracts that are indexed
8.
Suppose there is an announced reduction in
money growth. If this announcement is not
completely convincing; this announced
reduction in money growth will:
a) have no effect on ut.
b) have no effect on gyt.
c) increase ut
d) increase gyt
e) all of the above
9.
Which of the following represents the
medium-run effect of a reduction in the
money supply?
a) an increase in the interest rate
b) a decrease in the price level
c) a decline in output
d) all of the above
e) none of the above
10. A disinflation refers to a situation where:
a) the unemployment rate is falling.
b) both inflation and the
unemployment rate are increasing.
c) the inflation rate is negative.
d) the inflation rate is constant.
e) the inflation rate is declining
11. For this question, assume that the normal
output growth rate is 3%, nominal money
growth is 5%, and the unemployment rate is
1% above the natural rate. Given this
information, we know that output growth
will be equal to: (assume α and β equal to 1)
a) -1%.
b) 1%.
c) 2%.
d) 3%
e) None of the above
12. A permanent reduction in nominal money
growth will, in the medium run, cause which
of the following?
a) an increase in the actual growth rate
of output
b) an increase in the normal growth
rate of output
c) a reduction in capital per worker
d) a reduction in the inflation rate
e) all of the above
13. Which of the following will cause the
aggregate demand curve to shift to the left?
a) a rise in the price level
b) a decrease in the price level
c) a reduction in taxes
d) an increase in consumer confidence
e) none of the above
14. Suppose the Central Bank implements
expansionary monetary policy(increase the
money supply). Which of the following will
occur in the short run?
a) a decrease in the price level
b) a decrease in output
c) a decrease in the interest rate
d) all of the above
e) none of the above
15. As product markets become more
competitive and the markup declines, we
would expect which of the following to
occur?
a) a reduction in the real wage in the
medium run
b) no change in the real wage in the
medium run
c) an increase in the aggregate price
level as output increases
d) a rise in output in the medium
run
e) no change in output in the medium
run
16. Suppose, due to the effects of a military
conflict that has ended, that a country
experiences a large reduction in its capital
stock. Assume no other effects of this event
on the economy. Which of the following will
tend to occur as the economy adjusts to this
situation?
a) zero growth for some time,
followed by a gradually increasing
growth rate
b) a relative high growth rate for
some time
c) a relatively low growth rate for
some time
d) positive growth, followed by
negative growth, and then zero
growth
e) none of the above
17. The natural level of unemployment will
decrease when which of the following
occurs?
a) a reduction in unemployment
benefits
b) an increase in inflation rate
c) a reduction in inflation rate
d) an increase in the markup of prices
over costs
e) none of the above
18. Suppose two countries are identical in every
way with the following exception. Economy
A has a greater quantity of human capital
than economy B. Given this information, we
know with certainty that:
a) steady state consumption in A and
in B are equal.
b) steady state growth of output per
worker is higher in B than in A.
c) steady state consumption in A is
higher than in B.
d) steady state consumption in A is
lower than in B.
e) none of the above
19. Assume the economy is initially operating at
the natural level of output. Now suppose that
individuals decide to reduce their desire to
save. We know with certainty that which of
the following will occur in the medium run
as a result of decreased desire to save?
a) no change in the economy at all
b) less investment
c) a reduction in the nominal wage
d) greater investment
e) higher output and lower investment
20. In the medium run, we know that inflation
will equal:
a) y.
b) gmt - πt.
c)
gm + g y
d) gm - g y
e) none of the above
21. When a worker's nominal wage is indexed,
the nominal wage is usually automatically
adjusted based on movements in which of
the following variables?
a) the price level
b) the price of the firm's product
c) the average wage in the country
d) productivity
e) the average wage in the industry
22. Suppose money growth in period t is 6% and
that inflation in period t is 1%. Given only
this information, we know with certainty
that:
a) output growth is 5% in period t.
b) ut > un.
c) ut < un.
d) the inflation rate will decrease in
the next period.
e) the inflation rate will increase in the
next period.
23. Suppose the following situation exists for an
economy: Kt+1/N > Kt/N. Given this
information, we know that:
a) saving per worker is less than
depreciation per worker in period t.
b) the saving rate fell in period t.
c) saving per worker equals
depreciation per worker in period t.
d) saving per worker is greater than
depreciation per worker in period
t.
e) none of the above
24. Assume the economy is initially operating at
the natural level of output. Now suppose a
budget is passed that calls for a tax cut. This
fiscal expansion will cause a decline in:
a) the nominal wage.
b) the investment.
c) the interest rate.
d) all of the above
e) none of the above
25. Assume the economy is initially operating at
the natural level of output. Now suppose a
budget is passed that calls for a tax cut. This
fiscal expansion will, in the medium run,
have no effect on which of the following?
a) the price level
b) the interest rate
c) investment
d) consumption
e) none of the above
26. If ut < un, we know with certainty that:
a) Pt > Pe.
b) Yt > Yn.
c) ut > ut-1
d) all of the above
e) both (a) and (b)
27. Which of the following will cause a
reduction in output per worker in the long
run run?
a) capital accumulation
b) capital accumulation or
technological progress
c) an increase in the number of
workers (leaving capital amount
constant)
d) expansionary monetary policy
e) none of the above
28. Which of the following situations will result
in a reduction in the capital-labor ratio?
a) Investment per worker equals
saving per worker.
b) Investment per worker exceeds
depreciation per worker.
c) Investment per worker is less
than depreciation per worker.
d) Output per worker exceeds capital
per worker.
e) Saving per worker equals
depreciation per worker.
29. For this question, assume there is only one
supplier firm in the product market
(monopoly). Given this assumption, we
know that µ (in the price setting equation P =
(1+µ)W will equal:
a) P.
b) 1.
c) 0.
d) W.
e) None of the above
30. The natural rate of unemployment is the rate
of unemployment:
a) that occurs when the money market
is in equilibrium.
b) that occurs when expected price
level equals the price level
c) that occurs when inflation rate is
zero
d) that occurs when the markup of
prices over costs is zero.
e) the unemployment rate is zero.
31. Suppose the Phillips curve is represented by
the following equation: πt - πt-1 = 20 - ut.
Given this information, we know that the
natural rate of unemployment in this
economy is:
a) 20%.
b) 10%
c) 5%.
d) 10%.
e) none of the above
32. Suppose workers and firms expect the
overall price level to increase by 4%. Given
this information, we would expect that:
a) the nominal wage will increase by
exactly 4%.
b) the real wage will increase by 4%.
c) the nominal wage will increase by
more than 4%.
d) the nominal wage will increase by
less than 4%.
e) the real wage will increase by less
than 4%.
33. Which of the following will cause a
reduction in the current inflation rate?
a) a reduction in the expected inflation
rate
b) a reduction in the markup, µ
c) an increase in the unemployment
rate
d) all of the above
e) none of the above
34. For this question, assume that the Phillips
curve equation is represented by the
following: πt - πt-1 = -(ut - un). Given this
information, which of the following will
increase the inflation rate by 4 percentage
points?
a) a 2 percentage point reduction in
unemployment for 2 years
b) a 1 percentage point reduction in
unemployment for 4 years
c) a 4 percentage point reduction in
unemployment for one year
d) all of the above
e) none of the above