2006W - Solution to Test 3 - ECO209 - March 22, 2007

2006W - Solution to Test 3 - ECO209 - March 22, 2007 -...

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Page 1 of 10 Department of Economics Prof. Gustavo Indart University of Toronto March 22, 2007 ECO 209Y MACROECONOMIC THEORY Term Test #3 LAST NAME FIRST NAME STUDENT NUMBER Circle your section of the course : L0101 L0201 L0401 L5101 MW – 10-11 MW – 1-2 MW – 2-3 W – 6-8 INSTRUCTIONS : 1. The total time for this test is 1 hour and 50 minutes. 2. This exam consists of three parts. 3. This question booklet has 10 (ten) pages. 4. Aids allowed: a simple calculator. 5. Use pen instead of pencil . DO NOT WRITE IN THIS SPACE Part I /21 Part II 1. /10 2. /10 3. /10 4. /10 Part III /19 TOTAL /80 SOLUTION
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Page 2 of 10 PART I (21 marks) Instructions : Record your answer to each question in the table below. Only answers recorded in the table will be graded. Each question is worth 3.5 marks. No deductions will be made for incorrect answers. 1 2 3 4 5 6 C D C A E C 1. If this year’s expected inflation rate is 5%, this year’s expectations-augmented price Phillips curve will A) be the same as this year’s simple price Phillips curve. B) be the same as the long-run price Phillips curve. C) intersect the long-run price Phillips curve at the natural rate of unemployment, when the rate of inflation is 5%. D) will be horizontal at an expected rate of inflation of 5%. E) be higher than last-year’s expectations-augmented price Phillips curve. 2. If the expected inflation rate is unchanged, a rise in the natural rate of unemployment would A) shift the expectations-augmented price Phillips curve to the right. B) not affect the position of the expectations-augmented price Phillips curve. C) shift the expectations-augmented price Phillips curve to the left. D) shift both the expectations-augmented price Phillips curve and the long-run Phillips curve to the right. E) shift the expectations-augmented price Phillips curve to the left and shift the long-run Phillips curve to the right. 3. Which of the following conditions is satisfied when the economy is in long-run equilibrium? A) There is cyclical unemployment. B) Both frictional and structural unemployment are zero. C) The labour market is in equilibrium with full employment. D) AD shocks change the level of GDP but not its composition. E) Real wage rates might be rising or falling. 4. In the long-run Classical model, the parameter ε , which measures the speed with which wages adjust to changes in the level of employment, A) equals infinity, and the AS curve is vertical B) equals zero, and the AS curve is horizontal C) is positive but less than infinity, and the AS curve is vertical D) equals infinity, and the AS curve is horizontal E) equals zero, and the AS curve is vertical
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Page 3 of 10 5. The Classical model of the economy includes each of the following assumptions except A) wages and prices are fully flexible B) firms do not suffer from money illusion C) the labour market is always in equilibrium with full employment D) shocks to aggregate demand change the composition but not the level of GDP E)
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2006W - Solution to Test 3 - ECO209 - March 22, 2007 -...

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