Econ 100C Final

a

Consider a variation of the Mortensen-Pissarides where labor force, L is growing at a constant rate n, with entrants starting off unemployed. In the steady state equilibrium for this model, the unemployment rate, u satisfies A. s+n/s+f B. s/s+f+n C. s/s+f D. f/s+f+n

b

Consider the IS model where the marginal propensity to consume out of transitory income is x = 0.5. What is the increase in output resulting from a $10 billion increase in government purchases? A. $33.3 billion B. $20 billion C. $10 billion D. $66.6 billion

a

The wage setting curve is a ___ relationship between ___ and ___ A. increasing; market tightness (θ), real wage rate (w) B. decreasing; market tightness (θ), real wage rate (w) C. increasing; market tightness (θ), unemployment rate (u) D. decreasing; market tightness (θ), unemployment rate (u)

c

If s is the separation rate and f the job finding rate, then in a steady state equilibrium, the unemployment rate, u satisfies A. s/f B. f/s+f C. s/s+f D. s/s+1

b

If the number of employed workers equals 200 million and the number of unemployed workers equals 20 million, the unemployment rate equals ______ percent (rounded to the nearest percent). A) 0 B) 9 C) 10 D) 20

c

In the IS model discussed in class, consumption is a function of A. current income and real interest rate B. long-run income income and nominal interest rates C. a combination of current and permanent income D. wage and stock prices

d

In the IS model, a reduction in the aggregate demand shock parameter causes: A. A upward movement along the IS curve B. A downward movement along the IS curve C. a rightward shift of the IS curve D. a leftward shift of the IS curve

b

In the Keynesian-cross model, if the MPC equals 0.75, then a $1 billion decrease in taxes increases planned expenditures by ______ and increases the equilibrium level of income by ______. A) $1 billion; more than $1 billion B) $0.75 billion; more than $0.75 billion C) $0.75 billion; $0.75 billion D) $1 billion; $1 billion

c

In the Mortensen-Pissarides model of unemployment equilibrium wage rate is determined by the A. intersection of the labor demand and labor supply curves B. Beveridge curve C. intersection of vacancy supply and wage setting curve D. marginal product of labor

d

In the model of the steady-state unemployment rate with a fixed labor force, the rate of job finding equals the percentage of the ______ who find a job each month, while the rate of job separation equals the percentage of the ______ who lose their job each month. A) labor force; labor force B) labor force; unemployed C) employed; labor force D) unemployed; employed

c

In the search model of unemployment, suppose the government imposes a tax τ on filled jobs, and the wage is fixed at w. This causes a ___ in θ and a ___ in u. A. increase; increase B. increase; decrease C. decrease; increase D. decrease; decrease

d

In the search-matching model of unemployment, an increase in unemployment benefits shifts the wage-setting curve to the ___, leading to ___ wages and ___ unemployment. A. left; higher; lower B. right; lower; higher C. left; lower; lower D. right; higher; higher

a

In the search-matching model of unemployment, an increase in workers' bargaining power leads to ___ wages, ___ market tightness, and ___ unemployment. A. higher; lower; higher B. higher; higher; higher C. lower; higher; higher D. lower; higher; lower

b

In the steady state of Mortensen-Pissarides model of unemployment: A. no hiring or firings are occurring. B. the number of people finding jobs equals the number of people losing jobs. C. the number of people finding jobs exceeds the number of people losing jobs. D. the number of people losing jobs exceeds the number of people finding jobs.

c

In the two-period model of consumption, an increase in income in period two: A) increases consumption in period one only. B) increases consumption in period two only. C) increases consumption in both periods. D) does not increase consumption in either period.

b

In the two-period model of consumption, the consumer achieves his or her optimum combination of current and future consumption by selecting: A) any combination on his or her highest indifference curve. B) the combination on his or her highest indifference curve that is tangent to his or her budget constraint. C) any combination on his or her budget constraint. D) the combination on his or her budget constraint where period-one consumption equals period-one income and period-two consumption equals period-two income.

b

Suppose that at the time a job is terminated the firm must pay a one-time tax called the firing tax, F The equation for the vacancy-supply condition of the search-matching model of unemployment becomes: A. k = q (y − w/s − F) B. k = q (y − w/s− F)

d

The Beveridge curve is a ___ relationship between ___ and ___ A. increasing; market tightness (θ), real wage rate (w) B. decreasing; market tightness (θ), real wage rate (w) C. increasing; market tightness (θ), unemployment rate (u) D. decreasing; market tightness (θ), unemployment rate (u)

c

The Fisher equation gives the following relationship between nominal interest rate, i, the real interest rate, R, and the inflation rate, π. A. 1 + i = (1 + R)/(1 + π) B. i = Rπ C. 1 + i = (1 + R)(1 + π) D. i = R/π

c

If s is the rate of job separation, f is the rate of job finding, and both rates are constant, then the unemployment rate is approximately: A) f/(f + s). B) (f + s)/f. C) s/(s + f). D) (s + f)/s.

b

According to the BLS, in October 2015 the overall unemployment rate was A. 4.5% B. 5.0% C. 5.5% D. 6.0% *it is 4.1% today.

b

According to the IS-LM model, if Congress raises taxes but the Fed wants to hold the interest rate constant, then the Fed must ______ the money supply. A) increase B) decrease C) first increase and then decrease D) first decrease and then increase

a

According to the theory of liquidity preference, the supply of nominal money balances: A) is chosen by the central bank. B) depends on the interest rate. C) varies with the price level. D) changes as the level of income changes.

c

An explanation for the slope of the LM curve is that as: A) the interest rate increases, income becomes higher. B) the interest rate increases, income becomes lower. C) income rises, money demand rises, and a higher interest rate is required. D) income rises, money demand rises, and a lower interest rate is required

c

An increase in the efficiency of the matching process shifts the Beveridge curve to the -- --- and the vacancy supply curve ------. A) Right / Downward B) Right / Upward C) Left / Upward D) Left / Downward

c

Any policy aimed at lowering the rate of unemployment must either ______ the rate of job separation or ______ the rate of job finding. A) reduce; reduce B) increase; increase C) reduce; increase D) increase; reduce

c

Any policy aimed at lowering the steady-state rate of unemployment must either ___ the rate of job separation or ___ the rate of job finding A. reduce; reduce B. increase; increase C. reduce; increase D. increase; reduce

d

As the economy grows and occupations become more specialized, matching between workers and firms becomes less efficient. This affects the parameter ____, which graphically leads to a shift in ____ A. k; vacancy supply curve and wage setting curve B. k; vacancy supply curve C. A; Beveridge curve D. A; Beveridge curve and vacancy supply curve

b

At some point in time, you notice that real interest, R is not equal to the marginal product of capital. What could the reason be? A. A dysfunctional production function B. Installing capital to equate R and MPK takes time. C. R cannot equal MPK as capital is always depreciating. D. Banks prefer not to set R = MPK

b

Based on the Keynesian model, one reason to support spending increases over tax cuts as measures to increase output is that: A) government spending increases the MPC more than tax cuts. B) the government-spending multiplier is larger than the tax multiplier. C) government-spending increases do not lead to unplanned changes in inventories, but tax cuts do. D) increases in government spending increase planned spending, but tax cuts reduce planned spending.

b

Consider the search-matching model of unemployment with efficiency-wage considerations. In such a model worker's productivity depends on the wage. For example, to a certain degree better pay might make workers more loyal to their employer, reduce absenteeism and improve their productivity. The labor productivity is expressed as a function of the real wage in equation y(w). The profit-maximizing value of w is: A. w∗ = 1 + y B. w∗ = y C. w∗ = 2y D. w∗ = 0

d

Henry Ford decided to double the wages of Ford Motor Company workers to $5.00 a day in 1914. Following the wage increase, A. Job turnover and layoffs increased B. Job turnover increased, but layoffs decreased C. Job turnover decreased, but layoffs increased D. Job turnovers and layoffs decreased

c

If A represents the efficiency of the matching process, U is the number of unemployed, and V is the number of vacancies, then which of the following matching functions is NOT constant returns to scale? A. H(U, V ) = A min(U, V ) (Leontief) B. H(U, V ) = AUV/U+V C. H(U, V ) = AUV (Quadratic) D. H(U, V ) = A√UV (Cobb Douglas)

a

If Congress passed a tax increase at the request of the president to reduce the budget deficit, but the Fed held the money supply constant, then the two policies together would generally lead to ______ income and a ______ interest rate. A) lower; lower B) lower; higher C) no change in; lower D) no change in; higher

d

If MPC = 0.75 (and there are no income taxes) when G increases by 100, then the IS curve for any given interest rate shifts to the right by: A) 100. B) 200. C) 300. D) 400.

d

Money supply is growing at a rate of 5% while real GDP is growing at 2%. If we are to maintain a real interest rate of 2%, then what must be the nominal interest rate? A. 9% B. 2% C. 3% D. 5%

c

One efficiency-wage theory implies that firms pay high wages because: A) this practice increases the problem of moral hazard. B) in wealthy countries, it is important to pay workers high wages to improve their health. C) the more a firm pays its workers, the greater their incentive to stay with the firm. D) paying high wages promotes adverse selection.

a

Suppose L denotes the size of the labor force, U the number of unemployed people, s denotes the separation rate and f denotes the job finding rate. The change in the number of unemployed over time, ∆U, is equal to A. s(L − U) − fU B. f(L − U) − sU C. fU − s(L − U) D. sU − f(L − U)

a

Suppose at some point, real interest rate, R is smaller than the marginal product of capital, MPK, i.e. R < MPK. It means economic agents should A. borrow in order to accumulate more capital B. uninstall capital in order to repay debt C. hire more workers D. fire workers

c

The Fisher equation implies that A. The nominal interest rate is equal to the real interest rate minus depreciation B. The change in the nominal interest rate is equal to changes in money supply minus changes in the price level C. The nominal interest rate can be approximated by the sum of the real interest rate and the rate of inflation D. The real interest rate is equal to the marginal product of capital minus the rate of inflation

c

The IS and LM curves together generally determine: A) income only. B) the interest rate only. C) both income and the interest rate. D) income, the interest rate, and the price level.

c

The life-cycle model assumes that consumers use saving and borrowing to ______ consumption over their life cycle. A) increase B) decrease C) smooth D) vary

c

The two-period model of consumption shows that current consumption depends on: A) only current income. B) only future income. C) current income, future income, and the interest rate.

b

The vacancy supply curve is a ___ relationship between ___ and ___ A. increasing; market tightness (θ), real wage rate (w) B. decreasing; market tightness (θ), real wage rate (w) C. increasing; market tightness (θ), unemployment rate (u) D. decreasing; market tightness (θ), unemployment rate (u)

b

The variable that links the market for goods and services and the market for real money balances in the IS-LM model is the: A) consumption function. B) interest rate. C) price level. D) nominal money supply.

d

Using the Keynesian-cross analysis, assume that the consumption function is given by C = 100 + 0.6(Y - T). If planned investment is 100 and T is 100, then the level of G needed to make equilibrium Y equal 1,000 is: A) 200. B) 240. C) 250. D) 260.

b

What is the government purchases multiplier? A. 1/x B. 1/(1 − x) C. (1 + x)

c

Which of the following shifts the Beveridge curve? A. Cost of opening a vacancy, k B. Worker's productivity, y C. Separation rate, s D. Worker's bargaining power, β