Econ 375: Intermediate Macroeconomics

April 2, 2002

Exam 3

 

Name: _________________________________

 

Part One: Circle the best answer for 2 points.

 

1.      As the number of discouraged workers increases, all else fixed, we would expect:

 

a.       an increase in the unemployment rate

b.      a reduction in the unemployment rate

c.       no change in the unemployment rate

d.      an ambiguous effect on the unemployment rate

 

2.      Structural unemployment refers to:

 

a.       that portion of labor force consisting of individuals who qualify for employment  but who are temporarily out of work

b.      that portion of labor force consisting of individuals who are unemployed because of business-cycle fluctuations

c.       that portion of labor force consisting of individuals who would like to work but who lack skills and other attributes needed to obtain work

d.      the natural unemployment rate

 

3.      The income identity indicates that real income (y) equals:

 

a.       c + s + t

b.      c + s + t + im

c.       y - t

d.      c + s + t + x

 

4.      Suppose the MPC = 0.75.  Given this information, we know that the MPS equals:

 

a.       0.25

b.      0.15

c.       0.10

d.      more information is needed to answer this question

 

5.      If disposable income equals zero (i.e., yd = 0), we know that:

 

a.       saving will be positive

b.      saving will be negative

c.       saving will be zero

d.      saving will equal consumption

 

6.      Based on the model presented in class, an increase in income will likely to have an effect on which of the following variables?

 

a.       exports

b.      taxes

c.       government spending

d.      saving

 

7.      If domestic currency depreciates, we would expect:

 

a.       an increase in exports

b.      a reduction in exports

c.       an increase in imports

d.      both b and c

 

8.      A reduction in capital will tend to cause:

 

a.       an increase in the marginal product of capital

b.      a reduction in the marginal product of capital

c.       no change in the marginal product of capital

d.      an increase in economic growth

 

9.      Based on  our understanding of the laonable funds model and of the determinants of  growth, we know that an increase in the size of the budget surplus will tend to cause:

 

a.       an increase in the real interest rate and an increase in per capita output

b.      a reduction in the real interest rate and an increase in per capita output

c.       an increase in the real interest rate and a reduction in per capita output

d.      a reduction in the real interest rate and a reduction in per capita out put

 

10.  Suppose the U.S. economy experiences a simultaneous increase in labor force participation and reduction in labor productivity.  Given this information, we know with certainty that:

 

a.       per-capita real GDP falls

b.      the real wage falls

c.       employment falls

d.      economic growth falls

 

 

 

 

 

 

 

11.  Suppose the current nominal wage is $20 and the marginal product of labor at the firm's current output level is 5 (i.e., MPN = 5).  Given this information, we know that the:

 

a.       marginal cost of producing output is $100

b.      marginal cost of producing output is $20

c.       marginal cost of producing output is $4

d.      marginal cost of producing out put is $5

 

12.  If Y=y, we know with certainty that:

 

a.       P>1

b.      P=1

c.       P<1

d.      P=0

 

13.  We know that the current accounts balance:

 

a.       will always be positive

b.      will always be negative

c.       will always be zero

d.      will be positive, negative or zero

 

14.  Under what condition will gross investment be greater than net investment?

 

a.       when net export spending is zero

b.      when depreciation is zero

c.       when inventory investment is positive

d.      when depreciation is positive

 

15.  Suppose employment grows faster than the production of goods and services.  Given this information, we know that:

 

a.       the typical worker has become more productive

b.      the typical worker has become less productive

c.       the productivity of the typical worker has not changed

d.      per-worker production of goods and services has increased

 

 

Part Two: Answer TWO of the following THREE questions for 10 pints each.  Write your answers in the examination book.

 

16.  Distinguish between the substitution effect and the income effect of a change in real wages.  Suppose that the income effect outweighs the substitution effect.  Draw the labor supply curve.

 

17.  Discuss what is meant by velocity in the classical theory.  Also explain what effect, if any, an increase in velocity will have on the aggregate demand curve.

 

18.  Briefly explain what effect a decline in economic activity will have on cyclical unemployment and frictional unemployment.

 

 

Part three: Answer the following two questions for 15 points each.  Write your answers int e examination book.

 

19.  Suppose there is a reduction in the marginal product of capital.  Discuss what effect this will have on investment, the demand for loanable funds, the interest rate and economic growth.  Draw all of the relevant graphs.

 

20.  Suppose that the consumption function is c = 200 + 0.5 yd; the import function is im= 30 + 0.2 yd; the autonomous exports, investment, government spending and taxes are -5, 10, 100 and 80 respectively.

 

a.       Calculate the intercept and the slope of the aggregate expenditures curve.  Show your work.  (5 points)

b.      Calculate the equilibrium level of real income.  Show your work. (5 points)

c.       Calculate the real saving, the real consumption, and the real imports at the equilibrium level of income. (5 points)