DEPARTMENT OF ECONOMICS
SAN JOSE STATE UNIVERSITY
MASTER’S COMPREHENSIVE EXAMINATION
MAY 2, 2014
6:00 P.M. TO 9:30 P.M.
PROCTOR: J. HUMMEL
INSTRUCTIONS:
1.
Answer ONLY the specified number of questions from the options provided in each
section. Do not answer more than the required number of questions. Each section takes
one hour.
2.
Your answers must be on the paper provided. No more than one answer per page. Do not
answer two questions on the same sheet of paper.
3.
If you use more than one sheet of paper for a question, write “Page 1 of 2” and
“Page 2 of 2.”
4.
Write ONLY on one side of each sheet. Use only pen. Answers in pencil will be
disqualified.
5.
Write ------ END ----- at the end of each answer.
6.
Write your exam identification number in the upper right-hand corner of each sheet of
paper.
7.
Write the question number in the upper right-hand corner of each sheet of paper.
Section 2: Macroeconomics, Monetary Theory, and Econometrics—Answer One Question.
2A. (Econ 202) Examine unemployment by answering all of the following questions.
a. How is unemployment measured, and why are the U.S. government’s unemployment figures
inevitably imprecise? Identify at least one factor that makes the measured rate too high and one that
makes the measured rate too low.
b. Why is unemployment not necessarily undesirable from the standpoint of economic efficiency
in a world of positive transaction costs?
c. Consider the various sources of unemployment and identify which of them is the peculiar
concern of macroeconomics.
d. Compare and contrast alternative macroeconomic explanations for such unemployment.
e. Discuss the efficiency-wage hypothesis, explaining why it alone cannot explain business cycles
and yet is essential to New Keynesian theories of depression (i.e., of the upward sloping short-run
aggregate supply curve).
(over)
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DEPARTMENT OF ECONOMICS
SAN JOSE STATE UNIVERSITY
MASTER’S COMPREHENSIVE EXAMINATION
MAY 2, 2014
6:00 P.M. TO 9:30 P.M.
PROCTOR: J. HUMMEL
2B. (Econ 235) Answer all of the following:
a. Would you like to wake up to find that your house or apartment was twice as large as it
was before you went to sleep? If other people were as lucky, would that significantly change how
you felt?
b. What if you wake up and find you have twice as much money? Now does it make any
difference if other people also have this lucky experience?
c. What do your answers reveal about the net welfare gains from changing the money stock,
and about how money compares with other goods and services?
d. Use the hypothetical cases in part b to illustrate (1) real cash balances, (2) seigniorage,
and (3) any other distribution effects of inflation.
e. What do economists mean when they say a change in the money stock is neutral? In which
case in part b will the increase in the money stock be approximately neutral?
2C. (Econ 203) Consider the following results from a linear probability model (LPM) regressing labor
force participation by a wife in the labor market:
-----------------------------------------------------------------------------lfp (=1 of wife participated in labor market, 0 otherwise)
Coef.
T-stat
-------------+---------------------------------------------------------------yrs of education
0.026
3.45
age in years
-0.018
-7.44
yrs of experience
0.022
10.56
# of kids < 6 yrs
-0.250
-7.47
# of kids 6-18 yrs
0.021
1.60
husband hourly wage
-0.028
-5.18
marginal tax rate of HH
-1.590
-5.52
city unemployment
0.0005
0.09
constant
2.083
7.30
-----------------------------------------------------------------------------a. How would you interpret the impact of another year of education on the probability of
participating in the labor force?
b. Provide an interpretation of the impact of # of kids less than 6 years old. Can you explain why
the sign of kids between 6-18 years old is opposite the sign of kids < 6 years old?
c. Demonstrate and explain one way to test whether the impact of education and experience on
LFP are the same.
d. Suppose you were concerned that years of education was endogenous and correlated with the
error term. What two properties would be important in determining a likely candidate(s) for instrumental
variables?
e. Explain the impact of the husband’s hourly wage on the wife’s decision to participate in the
labor force.
f. Plot hypothetical data points showing the relationship between LFP and education assuming
that the sample means are 0.50 and 12.0 respectively. Draw the SRF line. What are the potential issues
from using OLS rather than a Logit model?
g. State and explain the steps of a possible test for determining heteroskedasticity.
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