# Answers to first exam_version1-2 - People will have tended...

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Answers to first exam, version 1 1. A 2. C 3. D 4. 1 point: C goes up and I (inventories) goes down by the same amount; no change in GDP 5. D 6. B 7. A 8. 1 point per definition (3 total): The unemployed are people of working age that are without jobs and are actively looking for work (don’t deduct for not saying of working age). The unemployment rate is the fraction of unemployed relative to the sum of employed+unemployed, which is defined as the labor force. The labor force participation rate is the percentage of the population over 16 years of age that is in the labor force. 9. C 10. C 11. (2 points, 1 point per reason) Answer: Price indices that use a base year overstate the actual price inflation experienced by economic agents because quality improvements are difficult to measure. For example, the price of computers may stay the same but one can get more computing power for one's money; thus while the price has remained constant, in some sense it has really fallen, but this is difficult to measure. Another reason has to do with substitution bias:

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Unformatted text preview: People will have tended to buy less of the goods whose prices have increased since the base year, which means that the base year weight on inflationary goods is higher than in the real world, thus making the cost of living increase estimate bigger than in the real world. 12. B 13. Answer: nominal wage = p*mpl is the marginal condition equating marginal cost to the marginal benefit to the firm of an additional unit of labor (1/2 point). Dividing through both sides by P, we get w/p=mpl (1/2 point). Under the assumption of diminishing returns, mpl falls (w/p falls) as L rises, thus Labor demand rises as L falls. (1 point) 14. Answer: Initial graph labeled correctly, slopes correct (1 point). Employment tax reduces marginal benefit of workers so Ld shifts down (1/2 point), real wages and L fall (1/2 point) (or could equivalently argue that workers demand a higher w/p at any L so Ls shifts up). 15. B 16. A 17. A 18. C 19. A 20. C...
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## Answers to first exam_version1-2 - People will have tended...

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