DEPARTMENT OF ECONOMICS
SAN JOSE STATE UNIVERSITY
MASTER’S COMPREHENSIVE EXAMINATION
MAY 4, 2012
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) Answer either a or b but not both:
a. Discuss the business cycle. Is it really a regular cycle? What typically happens to
employment, output, prices, real wages, and the Solow residual over the cycle? Make sure you
define depressions (or recessions) and mention what characterizes them. How long do
depressions (or recessions) usually last? Then discuss stagflation (an inflationary recession).
What is it, how does it differ from a typical recession, and why might it arise? Why does
reducing unemployment below its natural rate (or NAIRU) require accelerating inflation? Be sure
to relate your answer to the shape of the short-rate aggregate supply curve and the role of
expectations in shifting that curve.
b. Discuss and graph the Solow growth model. What are its underlying assumptions and
its conclusions? How consistent with empirical reality is the model, and how would Austrian
capital theory critique it? Then briefly explain endogenous growth theories. What variable do
they make endogenous and how do they relate to the Solow model?
(over)
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DEPARTMENT OF ECONOMICS
SAN JOSE STATE UNIVERSITY
MASTER’S COMPREHENSIVE EXAMINATION
MAY 4, 2012
6:00 P.M. TO 9:30 P.M.
PROCTOR: J. HUMMEL
2B. (Econ 235) Analyze the impact of changes in the money stock on interest rates. Does the
Federal Reserve actually set interest rates? Explain in detail why the effects in the short term
differ from those in the long term, and what are the implications for a monetary policy that
targets interest rates? Give a formula for the Taylor Rule and describe how it deals with these
implications? You may use diagrams if you wish.
2C. (Econ 203) Consider the following results from a sample semi-log wage regression:
-----------------------------------------------------------------------------ln(hourly wage)
Coef.
-------------+---------------------------------------------------------------yrs of education
0.10
educ * female
0.02
yrs of experience
0.01
female = 1
-0.50
white = 1
0.08
married = 1
0.08
married * white = 1
0.05
union = 1
0.16
lives in west region = 1
0.001
lives in metro area = 1
0.13
constant
0.45
-----------------------------------------------------------------------------a. What are the necessary assumptions for the error term to estimate the coefficients using
ordinary least squares?
b. Provide an interpretation of education coefficient and the education * female interaction term
based on the semi-log form. Do the same for the married and married*white coefficient.
c. Describe the base group in interpreting the dummy variables. Provide the wage differentials for
the four groups of married and white.
d. Estimate the log wage for a recent college graduate (educ = 16) with no work experience who is
a non-white married female living in a metropolitan area in the west and does not belong to a union.
e. Demonstrate and explain one way to test the hypothesis that the return from education is the
same for males and females.
f. Draw a graph using residuals that would suggest heteroskedasticity with respect to the union
variable. State and explain the steps of a test for determining heteroskedasticity.
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