ECON_200_past_exams_Fall_2007

ECON_200_past_exams_Fall_2007 - Economics 200 Midterm...

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Economics 200 Midterm Examination Tuesday, February 22, 2005 Write your name on your bluebook now. Do not begin writing in your bluebook until told to do so. You have one hour and 10 minutes to complete this exam. Each question carries the number of points indicated for a total of 70 points. Think of it as 1 point = 1 minute. NB: I prefer brief, precise, correct answers to long-winded, waffling responses that mistake quantity for quality. Good luck! ó. 1 . Letting , , and denote the quantities of output, capital, and labor respectively, (5 points) ]O P consider the (slightly generalized) Sato production function , viz., 1 OP O P ±² ) )) 99 #" where and are positive constants and . Show that this production function exhibits )  " constant returns to scale. 2 . Why does a large fall in the fraction of US national income paid to labor constitute (5 points) evidence against the claim that the US aggregate production function is Cobb-Douglas with constant returns to scale? 3 . (5 points) Why does the labor demand curve slope downward? 4 . (10 points) Efficiency wage models of the labor market have the feature that worker productivity increases with wages. Give three examples of the mechanisms used to produce this feature and, for each, give a explanation of the mechanism, being sure to explain why it brief suggests that worker productivity increases with wages. 5 . (10 points) Analyze and explain the long-run effects of a rise in the world interest rate on net exports, saving, investment, and the real exchange rate in a small open economy. 6 . (10 points) While relaxing in the Economics Lounge, you pick up a copy of the Economist and among the letters to the editor notice an item criticizing a recent report on the closed economy of Ferme in which it was claimed that investment as a fraction of GDP rose from 10% during the 1970s to 15% during the 1980s while the real interest rate rose from 2.5% to 4%. The writer of the letter states that this claim “is obviously absurd as everybody knows that investment falls when the real interest rate rises”. What is your view? 1 Sato, R., [1964], “Diminishing Returns and Linear Homogeneity: Comment,” American Economic Review , 54:744-5.
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7 . (10 points) The following chart plots decade average inflation rates in the United States for the 1870s through the 1990s against the corresponding money supply growth rates. Describe the phenomenon displayed in the chart and use a model to explain it. 8 . Suppose that increased political instability overseas increases overseas resident's (15 points) desire to extend loans to US residents resulting in a fall in net capital outflow from the US for every level of the US interest rate. Analyze the long run effects of this fall on the US GDP, real interest rate, net exports, and real exchange rate.
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Economics 2 0 !
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This note was uploaded on 04/26/2010 for the course ECON 101 taught by Professor Staff during the Spring '08 term at Vassar.

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ECON_200_past_exams_Fall_2007 - Economics 200 Midterm...

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