Econ 232
Spring 2006
Midterm 2
1)
(a) firms will be more resistant to wage
increases as the unemployment rate rises.
(b) the government can only set tax rates so
high before people will prefer not to work.
(c) unskilled workers will have a lower
turnover rate than skilled workers.
(d) workers will be paid much more than
their reservation wages if they are
unskilled.
(e) employers do not care about the happiness
of the workers.
2)
In the wage-setting relation, the nominal wage
increases when:
(a)
(b)
(c)
(d)
(e)
3)
the nominal wage will decrease by less
than 20%.
(e)
the real wage will decrease by less than
20%.
6)
7)
the price level rises.
unemployment benefits rise.
the minimum wage rise.
the unemployment rate falls.
all of the above
P
1
0
W
Given information is not enough.
Suppose workers and firms expect the overall
price level to decrease by 20%. Given this
information, we would expect that:
(a)
the nominal wage will increase by exactly
20%.
(b)
the nominal wage will decrease by exactly
20%.
(c)
the real wage will increase by 20%.
Assume product markets less competitive in
Turkey than in China. Given this information,
we would expect to observe which of the
following?
a higher unemployment rate in China.
a higher unemployment rate in Turkey.
a bigger labor force in China ceteris
paribus.
(d)
a bigger labor force in Turkey ceteris
paribus.
(e)
none of the above
8)
Suppose that the current price level is equal to
the expected price level. Given this
information, we know with certainty that:
(a)
(b)
(c)
(d)
(a)
(b)
5)
an upward shift in the WS curve.
a downward shift in the WS curve.
an upward shift in the PS curve.
a downward shift in the PS curve.
none of the above.
(a)
(b)
(c)
The natural level of unemployment will
decrease when which of the following occurs?
a rise in unemployment benefits .
a reduction in the actual unemployment
rate.
(c)
a reduction in the markup of prices over
costs.
(d)
all of the above
(e)
none of the above
An increase in unemployment insurance
benefits will tend to cause which of the
following?
(a)
(b)
(c)
(d)
(e)
For this question, assume there is only one
firm in each product market. Given this
information, we know that e (in the price
setting equation P = (1+e)w will equal:
(a)
(b)
(c)
(d)
(e)
4)
(d)
Efficiency wage theory suggests that:
(e)
9)
the output level is higher than natural rate
of output.
the output level is equal to the natural rate
of output.
the unemployment rate is zero.
both the price level and the expected price
level are equal to one.
none of the above
Which of the following will cause the
aggregate demand curve will shift to the right?
(a)
(b)
(c)
(d)
(e)
an increase in taxes.
an increase in consumer confidence
an increase in the money supply
an increase in price level
both (b) and (c) are correct.
Econ 232
Spring 2006
Midterm 2
10)
(a)
(b)
(c)
(d)
(e)
11)
the output.
the unemployment rate.
the interest rate.
all of the above
both (a) and (c) are correct.
Assume the economy is initially operating at
the natural level of output. Now suppose a
budget is passed that calls for a government
expenditure reduction. This will, in the
medium run, have no effect on which of the
following?
(a)
(b)
(c)
(d)
(e)
13)
(c)
(d)
(e)
15)
16)
a decrease in government spending
an increase in taxes
a decrease in the money supply
a rise in the competitiveness of the
industry.
(e)
none of the above
(b)
(c)
(d)
The aggregate supply curve (AS) presented in
the textbook has its particular shape because of
which of the following explanations?
(e)
17)
P > P e.
Y > Yn.
P = P e.
P < P e.
None of the above.
For this question, assume that the economy is
initially operating at the natural level of output.
A simultaneous rise in consumer confidence
and rise in the money supply will cause which
of the following?
(a)
Which of the following would cause a
reduction in the natural level of output in the
medium run?
an increase in the aggregate price level
causes an increase in nominal money
demand and an increase in the interest rate.
a reduction in output causes a reduction in
unemployment, a rise in the nominal wage
and a rise in the price level.
a rise in output causes a reduction in
unemployment, a rise in the nominal wage
and a rise in the price level.
a drop in the nominal wage causes an
increase in the amount of output that firms
are willing to produce.
a reduction in the aggregate price level
will cause a reduction in the interest rate and
an increase in output.
If u < un, we know with certainty that:
(a)
(b)
(c)
(d)
(e)
investment
the interest rate
output
all of the above
none of the above
(a)
(b)
(c)
(d)
14)
(b)
purchase of bonds by Central Bank.
an increase in unemployment benefits.
an increase in price level.
all of the above
none of the above
Assume the economy is initially operating at
the natural level of output. Now suppose a
budget is passed that calls for a government
expenditure reduction. This will, in the short
run, cause a decline in:
(a)
(b)
(c)
(d)
(e)
12)
(a)
Assume the economy is initially operating at
the natural level of output. Which of the
following events will initially cause a shift of
the aggregate demand curve?
a reduction in the interest rate in the
medium run.
a rise in output in the short run.
an increase in output and a reduction in
the aggregate price level in the short run .
an increase in the aggregate price level, no
change in output, and no change in the
interest rate in the medium run.
a rise in investment in the medium run.
For this question, assume that the Phillips
curve equation is represented by the following
equation: πt - πt-1 = (e + z) - αut. An increase in
the unemployment rate will cause:
(a)
(b)
(c)
an increase in the markup over labor costs.
an increase in the inflation rate over time.
a reduction in the markup over labor costs
(i.e., a reduction in e).
(d)
a decrease in the inflation rate over time.
(e)
none of the above
Econ 232
Spring 2006
Midterm 2
18)
For this question, assume that the expected rate
of inflation is a function of past year's
inflation. Also assume that the unemployment
rate has been higher than the natural rate of
unemployment for a number of years. Given
this information, we know that:
(a)
(b)
(c)
(d)
(e)
19)
23)
(b)
(c)
(d)
(e)
24)
(b)
(c)
(d)
(e)
the unemployment rate will be relatively
high.
the unemployment rate will be relatively
low.
the inflation rate will be relatively high.
a given change in the unemployment rate
will cause a larger change in the inflation
rate.
none of the above
Suppose the Phillips curve is represented by
the following equation: πt - πt-1 = - 2ut + 0,12
Given this information, we know that the
natural rate of unemployment in this economy
is:
(a)
(b)
(c)
(d)
(e)
20%
5%
6%
10%
none of the above
the Phillips curve illustrates the
relationship between the level of inflation
rate and the level of the unemployment rate.
a reduction in the unemployment rate will
increase inflation on this period.
a reduction in the unemployment rate will
increase inflation on the last period.
all of the above.
Both (a) and (b) are correct.
The original Phillips curve implied or assumed
that:
(a)
(b)
(c)
(d)
(e)
25)
the rate of inflation will be constant.
the rate of inflation will tend to decrease.
the rate of inflation will tend to increase.
none of the above
given information is not enough.
Assume that expected inflation is based on the
following: πet = θπt-1. If θ = 0, we know that:
(a)
Which of the following will tend to occur
when only a small proportion of a country's
workers have indexed wages?
(a)
21)
e+z
α(e + z)
0
(e + z)/ α
none of the above
Suppose the Phillips curve is represented by
the following equation: πt - πt-1 = - 2ut + 0,12.
Given this information, which of the following
is most likely to occur if the actual
unemployment in any period is equal to 8%?
(a)
(b)
(c)
(d)
(e)
For this question, assume that the Phillips
curve equation is represented by the following
equation: πt - πt-1 = (e + z) - αut. Given this
information, the natural rate of unemployment
will be equal to:
(a)
(b)
(c)
(d)
(e)
20)
the rate of inflation should neither increase
nor decrease.
the rate of inflation will approximately be
equal to zero.
the rate of inflation should steadily
increase over time.
the rate of inflation should steadily
decrease.
the inflation rate will be approximately
equal to the natural rate of unemployment.
22)
the actual and expected rates of inflation
would always be equal.
the expected rate of inflation would be
zero.
the markup over labor costs was zero.
all of the above
none of the above
Suppose that the current price level is equal to
the expected price level. Given this
information, we know with certainty that:
(a)
(b)
the inflation rate is zero.
the unemployment rate is equal to the
natural rate of unemployment.
(c)
the unemployment rate is zero.
(d)
both the price level and the expected price
level are equal to one.
(e)
none of the above