1 14.02 PRINCIPLES OF MACROECONOMICS Spring 2002- QUIZ ONE STOP!! READ INSTRUCTIONS FIRST. Read all questions carefully and completely before beginning the exam. There are 10 pages, and 4 sections of the quiz – make sure you do them all. Show your work on all questions in order to receive partial credit. If your answer includes a graph, label all curves and axes clearly; if we can’t read the graph, you will lose points on your answer. The quiz is worth a total of 84 points. No notes, calculators, or books may be used during the quiz. You will have 2 hours to complete the quiz. No blue books; use the blanket in this sheet. Please, check your recitation: Samer 09 Tobias Adrian 11 Samer 10 Jonathan Zinman 13 Samer 11 Jonathan Zinman 14 Samer 12 Manuel Amador 15 Name March 14, 2002 First Name Last Name MIT ID# Signature Date Good luck!Good luck!Good luck!Good luck!2PART I: TRUE OR FALSE? (3 points per question, 30 points total) Answer True/False and explain briefly why true or false. (2 points for correct T or F answer plus 1 added point for reasonable, brief, one sentence explanation of why True or False, or for a directional (“greater” or “lower”) correction if a magnitude is discussed) 1. The natural rate of unemployment is the rate consistent with stable inflation, including satisfying labor market equilibrium conditions such as that the actual rate of inflation is equal to the expected rate of inflation. Answer: ________________________________________________________________ ________________________________________________________________ 2. The Aggregate Supply curve (AS) slopes up from left to right in space (P,Y). Answer: ________________________________________________________________ ________________________________________________________________ 3. The Aggregate Demand curve (AD) shifts down/to the left (“South-West “) when money supply is expanded. Answer: ________________________________________________________________ ________________________________________________________________ 4. Standard econometric equations are usually designed to find the coefficients that minimize the simple sum of the residuals. Answer: ________________________________________________________________ ________________________________________________________________ 5. If a new federal budget raises government purchases by $100 per person and pays for this with a new per capita tax also equal to $100 per person so that the government deficit is unchanged, and the central bank holds interest rates unchanged, then GDP will also be unchanged. Answer: ________________________________________________________________ ________________________________________________________________36. “Exogenous” variables of a macroeconomic model would include policy variables such as government defense purchases. Answer: ________________________________________________________________ ________________________________________________________________ 7. According to modern inflation theory, the central bank can achieve a stable, lower inflation rate by pursuing an unemployment rate above 6%. Answer: ________________________________________________________________ ________________________________________________________________ 8. Productivity growth in the United States has typically averaged approximately 5%-6% per year in the past three decades. Answer: ________________________________________________________________ ________________________________________________________________ 9. A country that has fewer workers and fewer machines than another country cannot produce more output. Answer: ________________________________________________________________ ________________________________________________________________ 10. A high R-squared for an econometric relationship combined with a statistically significant coefficient for the independent or explanatory variable proves that this explanatory variable causes the movements in the dependent variable. Answer: ________________________________________________________________ ________________________________________________________________4PART II: MULTIPLE CHOICE (4 points per question, 24 points total) Clearly indicate the letter of your answer, and explain your choice in a few sentences. 1. Which of the following is NOT a method for calculating GDP? A. Sum of transactions in the economy B. Sum of value added in the economy C. Value of final goods and services produced D. Sum of incomes E. None of the above Answer: ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ 2. To measure the economic growth of living standards for a region, economists should focus on the behavior of A. The rate of growth of real GDP. B. The rate of growth of nominal GDP. C. The rate of growth of real GDP per capita. D. The rate of growth of nominal GDP per capita. Answer: ________________________________________________________________ ________________________________________________________________ ________________________________________________________________53. The AD curve is the combination of _____ and _____ such that the _____ market and the ____ market are in equilibrium. A. P, Y, money, goods B. i, Y, money, labor C. P, Y, labor, goods D. i, M, money, goods E. P, W, labor, goods Answer: ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ 4. When nominal supplied money increases by 10%, then: A. GDP, investment and consumption decreases B. GDP, investment and consumption increase C. Interest rate decreases, while the change in investment and consumption is ambiguous D. GDP and government deficit increase E. None of the above Answer: ________________________________________________________________ ________________________________________________________________ ________________________________________________________________65. Changes in which of the following causes a shift in the IS-curve: A. Changes in the government spending B. Imposing new direct taxes C. The Fed’s monetary policy (open market transactions) D. A and B. E.
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