ECON2020-II&III : Intermediate Macroeconomics
Spring, 2019
Midterm Exam
1 True or False Questions
1. The money multiplier might fall if the Fed increases the reserve require- ment for Banks, holding other things constant.
2. The personal consumption deflator (PCE) is a better price index than CPI because the basket of PCE varies over time and hence allows for substitution effect.
3. According to the quantity theory of money, the inflation rate equals the percentage change in money supply.
4. A tenant buys the house he has been renting, then GDP remains un- changed because there is no change in consumption, investment, govern-ment expenditure and net export.
5. For a closed economy with constant return to scale production function, national income equals to the sum of labor income and capital income.
6. In an open economy, since a country can always borrow from overseas, its trade balance might not necessarily equal net capital outflow.
7. Money is neutral in long run, but in short run it does affect real output.
8. Net export of a country will fall as its nominal exchange rate rises provided the ratio of domestic price and foreign price remains constant.
9. If the separation rate is 20% and the rate of finding a job is 40%, then the natural rate of unemployment is 3/1.
10. A fallin the capital-labor ratio results in a fallin the capital output ratio, holding other things constant.
2 Multiple Choice Questions
1. Discouraged workers are counted as:
(a) part of the labor force
(b) out of the labor force
(c) employed
(d) unemployed
2. If the adult population equals 250 million, of which 145 million are em- ployed and 5million are unemployed, the labor force participation rate equals
(a) 50%
(b) 58%
(c) 60%
(d) 96.67%
3. A competitive, profit-maximizing firm hires labor until the:
(a) marginal product of labor equals the nominal wage
(b) price of output multiplied by the marginal product of labor equals the nominal wage.
(c) real wage equals the real rental price of capital.
(d) wage equals the rental price of capital.
4. All of the following are causes of structural unemployment except:
(a) minimum-wage laws
(b) the monopoly power of unions
(c) unemployment insurance.
(d) efficiency wages
5. If the rate of separation (s) is 0.02 and the rate of job finding (f) is 0.08 but the current unemployment rate is 0.10, then the current unemployment rate is the equilibrium rate, and in the next period it will move the equilibrium rate.
(a) above; toward
(b) above; away from
(c) below; toward
(d) below; away from
6. In a small open economy, when the government reduces national saving, the equilibrium real exchange rate:
(a) rises and net exports fall.
(b) rises and net exports rise.
(c) falls and net exports fall..
(d) falls and net exports rise.
7. If there are 100 transactions in a year and the average value of each trans- action is $10, then if there is $200 of money in the economy, transactions velocity is times per year.
(a) 0.2
(b) 2
(c) 5
(d) 10
8. The ex ante real interest rate is based on inflation, while the ex post real interest rate is based on inflation.
(a) expected; actual.
(b) core; actual.
(c) actual; expected..
(d) expected; core..
9. If the real exchange rate is high, foreign goods:
(a) and domestic goods are both relatively expensive
(b) and domestic goods are both relatively cheap.
(c) are relatively expensive and domestic goods are relatively cheap..
(d) are relatively cheap and domestic goods are relatively expensive.
10. In a steady state:
(a) no hiring or firings are occurring
(b) the number of people finding jobs equals the number of people losing jobs..
(c) the number of people finding jobs exceeds the number of people losing jobs
(d) the number of people losing jobs exceeds the number of people finding jobs
11. A competitive, profit-maximizing firm hires labor until the:
(a) marginal product of labor equals the nominal wage
(b) price of output multiplied by the marginal product of labor equals the nominal wage.
(c) real wage equals the real rental price of capital.
(d) wage equals the rental price of capital.
12. Use the graph above to answer the question. In a small open economy, if the world interest rate is r1 , then the economy has
(a) a trade surplus
(b) balanced trade.
(c) a trade deficit
(d) negative capital outflows
13. Suppose the money supply in Canada grows more slowly than the money supply in the USA, holding other things constant. We would expect that?
(a) The Canadian dollar should appreciate relative to the US dollar.
(b) The Canadian dollar should depreciate relative to the US dollar.
(c) The Canadian dollar should maintain a constant exchange rate with the US dollar because of purchasing power parity.
(d) None of the above
14. A small open country recently passed a law to increasing military spend- ing. Then
(a) Its normal exchange rate increases and net export falls.
(b) Its real exchange rate falls and net export increases
(c) Its real exchange rate increases and net export falls
(d) Its real exchange rate increases and net export remains the same
15. Suppose k = 4y , δk = 0.2y and MP K × k = 0.4y, the economy’s real GDP grows an average of 5% per year
(a) The economy is below the golden rule steady state
(b) The economy is above the golden rule steady state .
(c) The economy is just at the golden rule steady state.
(d) Can not determine because of insufficient information.