ECON303 Intermediate Macroeconomics Practice Exam 2 Spring 2016 PART I Multiple Choice Questions 1 A positive relationship between nominal interest rates and inflation in the United States is obvious in A both recent data and nineteenth century data B recent data but not nineteenth century data C nineteenth century data but not recent data D neither nineteenth century data nor recent data 2 If there are 100 transactions in a year and the average value of each transaction is 10 then if there is 200 of money in the economy transactions velocity is times per year A 0 2 B 2 C 5 D 10 3 The definition of the transactions velocity of money is A money multiplied by prices divided by transactions B transactions divided by prices multiplied by money C money divided by prices multiplied by transactions D prices multiplied by transactions divided by money 4 If the rate of separation is 0 02 and the rate of job finding is 0 08 but the current unemployment rate is 0 10 then the current unemployment rate is the equilibrium rate and in the next period it will move the equilibrium rate A above toward B above away from C below toward D below away from Page 1 5 The natural rate of unemployment in the United States since 1950 has averaged between and percent A 0 1 B 1 3 C 5 6 D 10 15 6 Discouraged workers are individuals who A have jobs that do not match their skills e g a Ph D driving a taxi cab B have been unemployed for more than 26 weeks C call themselves unemployed but are not seriously looking for a job D want a job but have given up looking for one 7 Data on unemployment in the United States show that A most spells of unemployment are long B most weeks of unemployment are attributable to the long term unemployed C members of the labor force over age 55 have the highest unemployment rates D the duration of unemployment falls during recessions 8 Which of the following is not a proposed explanation for that fact that Americans on average work 20 percent more hours than the typical resident of western Europe A Europeans have more taste for leisure than Americans B Americans have a lower unionization rate than Europeans C Europeans face higher tax rates than Americans D The underground economy is larger in America than in Europe 9 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 10 Compared with an employed white teenage male an employed middle aged white male is likely to become unemployed and once unemployed is likely to find a job A less more B less just as C more less D just as more Page 2 11 Two economies are identical except that the level of capital per worker is higher in Highland than in Lowland The production functions in both economies exhibit diminishing marginal product of capital An extra unit of capital per worker increases output per worker A more in Highland B more in Lowland C by the same amount in Highland and Lowland D in Highland but not in Lowland 12 In the Solow model it is assumed that a n fraction of capital wears out as the capital labor ratio increases A smaller B larger C constant D increasing 13 In the Solow growth model of Chapter 8 the economy ends up with a steady state level of capital A only if it starts from a level of capital below the steady state level B only if it starts from a level of capital above the steady state level C only if it starts from a steady state level of capital D regardless of the starting level of capital 14 If the per worker production function is given by y k1 2 the saving rate s is 0 2 and the depreciation rate is 0 1 then the steady state ratio of capital to labor is A 1 B 2 C 4 D 9 15 Assume two economies are identical in every way except that one has a higher saving rate According to the Solow growth model in the steady state the country with the higher saving rate will have level of output per person and rate of growth of output per worker as than the country with the lower saving rate A the same the same B the same a higher C a higher the same D a higher a higher 16 In an economy with no population growth and no technological change steady state consumption is at its greatest possible level when the marginal product of A labor equals the marginal product of capital B labor equals the depreciation rate C capital equals the depreciation rate D capital equals zero Page 3 17 With a per worker production function y k1 2 the steady state capital stock per worker k as a function of the saving rate s is given by A k s 2 B k s 2 C k s D k s 18 If an economy is in a steady state with no population growth or technological change and the capital stock is above the Golden Rule level and the saving rate falls A output consumption investment and depreciation will all decrease B output and investment will decrease and consumption and depreciation will increase C output and investment will decrease and consumption and depreciation will increase and then decrease but finally approach levels above their initial state D output investment and depreciation will decrease and consumption will increase and then decrease but finally approach a level above its initial state 19 In the Solow growth model of an economy with population growth but no technological change if population grows at rate n then capital grows at rate and output grows at rate A n n B n 0 C 0 0 D 0 n 20 The Solow growth model with population growth but no technological progress can explain A persistent growth in output per worker B persistent growth in total output C persistent growth in consumption per worker D persistent growth in the saving rate 21 Assume that a war reduces a country s labor force but does not directly affect its capital stock If the economy was in a steady state before the war and the saving rate does not change after the war then over time capital per worker will and output per worker will as it returns to the steady state A decline increase B increase increase C decline decrease D increase decrease Page 4 22 If a larger share of national output is devoted to investment then living standards will A always decline in the short run but rise in the long run B always rise in both the short and long runs C decline in the short run and may not rise in the long run D rise in the short run but may not rise in the long run …