ECON 252 Midterm 2 - Spring 2010

ECON 252 Midterm 2 - Spring 2010 - 1. In an open economy:...

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1. In an open economy: a) S = I + NCO c) Y = C + I + G b) S + T – G = NX d) None of the above are correct. 2. Consider a country with a population of 2.7 million people. Its adult population is 1.6 million. The labor force participation rate is 72% and the unemployment rate is 6%. How many people are employed in this country? a) 0.07 million b) 1.08 million c) 1.15 million d) 1.83 million 3. The U.S. government has recently increased unemployment insurance benefits. This action serves to: a) increase both frictional unemployment and the natural rate of unemployment. b) increase both structural unemployment and the natural rate of unemployment. c) increase frictional unemployment, but leave the natural rate of unemployment unchanged. d) increase structural unemployment, but leave the natural rate of unemployment unchanged. 4. The prevailing interest rate is 6% per year. Which one of the following payoffs has the highest present value? a) $3000 received today c) $3200 received one year from now b) $3300 received two years from now d) $3500 received three years from now 5. AT&T is considering buying new equipment to build a factory. If the interest rate rises, the present value of future profits due to the new factory will ____, and AT&T will be ____likely to build the factory. a) fall; less b) rise; less c) rise; more d) fall; more 6. A soup manufacturer unexpectedly announces that it has hired a new manager. It is widely believed that this manager will raise the profitability of the corporation. At the same time interest rates unexpectedly rise. Which of the above would tend to make the price of stock in this company to rise? a) the announcement and the rise in interest rates b) the announcement but not the rise in interest rates c) the rise in interest rates, but not the announcement d) neither the announcement nor the rise in interest rates 7. The Efficient Markets Hypothesis implies the following: a) Portfolio managers should use fundamental analysis to pick stocks. b) Actively managed portfolios on average should outperform index funds. c) Future stock prices are random, but are predictable. d) Stock prices reflect all available information about value of the assets. 8. Assume that the inflation rate is 5% per year. A treasury bill with par or face value of 10,000 due at maturity one year from now is sold for $8771.90. The marginal tax rate is 40%. What is the after-tax real interest rate? a) 3.4% b) 5.4% c) 8.4% d) 14%
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9. Due to rising costs of medical care, insurance companies have increased the insurance premiums people must pay to buy insurance. Fewer people now buy health insurance, but the percentage of people who buy insurance who make claims (because they are sick) has increased. This is the _____ problem confronting insurers. a)
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ECON 252 Midterm 2 - Spring 2010 - 1. In an open economy:...

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