final-10107a - Name _ Student ID _ Mark on your scantron:...

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1 Name ______________________ Student ID ________________________ Mark on your scantron: Test from A Final Exam - Economics 101 (Fall 2007) You will have 120 minutes to complete this exam. There are 6 pages and 155 points. Section 1 : (30 points total, 3 points each) Record the best answer on your scantron. MC#1: If U.S. money supply growth is 1% and output growth is 2 %, and the real interest rate is 2%, then according to the Quantity Theory of money (where velocity is constant), inflation should be a) -1% b) 1% c) 2% d) 3% MC#2: In the problem above, according to the Fisher relation, the nominal interest rate should be a) -1% b) 1% c) 2% d) 3% MC#3: Which of the following might lower the natural rate of unemployment in the U.S.? a) a rise in unemployment benefits b) a rise in money supply c) a cut in the minimum wage d) a cut in government purchases MC#4: Which of the following can generate continued long run growth in real wages and consumption levels per person in the US economy? a) a high saving rate b) a high rate of technological progress c) a high population growth rate d) all of the above MC#5: According to the Neoclassical model, the long-run effect of a cut in government spending is to ___ output and ___ investment. a) lower, raise b) lower, not change c) not change, lower d) not change, raise e) not change, not change MC#6 : If money demand is not very responsive to interest rates (the coefficient on interest rates in the money demand equation is small), this will make the a) LM curve steeper b) LM curve flatter c) IS curve steeper d) IS curve flatter MC#7 : If expectations are rational in the Phillips Curve, then when the Federal Reserve tries to reduce inflation, this will imply that a) unemployment falls b) output falls c) the sacrifice ratio is zero d) Okun’s law fails to hold MC#8 : Which of the following is a weakness of the “sticky wage” model of aggregate supply: it implies that… a) the SRAS curve is flat b) the SRAS cure slopes upward. c) the real wage is fixed. d) the real wage is countercyclical. MC#9: In the Keynesian Cross model, if government spending is cut by $1 million, income must a) fall by $1 million. b) fall by less than $1 million. c) fall by more than $1 million. d) fall, but it is not clear how much MC#10: In the Keynesian Cross model, if taxes are cut by $1 million, income must a) rise by $1 million. b) rise by less than $1 million. c) rise by more than $1 million. d) rise, but it is not clear how much
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2 Problem 1: Neoclassical Model (30 points total) Suppose the real side of the U.S. macroeconomy is characterized as follows: Production: Y = 10 K 1/2 L 1/2 Factor supply: K = 100 L = 100 Government: G = 200 T = 200 Consumer behavior: C = 100 + 0.5(Y-T) Investment behavior: I = 400 - 1000r Suppose the nominal side of the economy is characterized by the following:
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final-10107a - Name _ Student ID _ Mark on your scantron:...

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