Econ 102 Alan DeardorffWinter Term 1998 Midterm #2Page 1 of 11Name:Section No.:SSN:GSI:Economics 102Introduction to MacroeconomicsProf. Alan DeardorffMidterm Exam 2Form 1March 23, 1998Instructions1. Please do not open the exam book until you are told to do so.2. Place your name, student id, section number and form number on the exam AND on thescantron sheet. This is worth 2 points on the exam.3. This exam has 100 points and is 50 minutes long, although you will have 75-80 minutesto complete it. Multiple choice questions are 3 points each. Choose the best answer fromthose given. There is no penalty for guessing. The point values of all other questions areshown in parentheses.4. Answers to the multiple choice questions in Part I should be marked on the scantronsheet. Answers to Part II should be written on this exam book.5. Good luck!GSI SectionsAxel #209 - Thu 1-2:30Chul #208 - Thu 1-2:30 #212 - Thu 2:30-4Kishen #206 - Thu 10-11:30 #210 - Thu 8:30-10Lucie #202 - Thu 10-11:30 #203 - Thu 11:30-1Reuel #204 - Thu 1-2:30 #211 - Thu 2:30-4Ufuk #205 - Thu 2:30-4 #207 - Thu 11:30-1Econ 102 Alan DeardorffWinter Term 1998 Midterm #2Page 2 of 11Name, Student Id, Section Number, Form Number on BOTH scantron and exambook (2 pts)Part 1: Multiple Choice (60 points, 3 each)Select the best answer of those given.1. If the rate of unemployment falls, which of the following must be true?a. The labor force goes upb. The number of employed goes upc. The number of discouraged workers fallsd. The number of unemployed workers fallse. None of the above2. The rate of unemployment tends to be a. about the same across all sectors of the population.b. similar between white females (ages 16 and over) and black females (ages 16 and over). c. lower among teenagers (ages 16-19) because they enter and leave the labor force so often. d. substantially higher for white females (ages 16 and over) than for black males (ages 16 and over). e. similar between white males (ages 16 and over)and white females (ages 16 and over).Econ 102 Alan DeardorffWinter Term 1998 Midterm #2Page 3 of 113. According to Mankiw’s theories of the natural rate of unemployment, which of thefollowing is true?a. The natural rate of unemployment is a constant, since changes in such things as minimum wage laws or the extent of unionization in an economy only have temporary effects on employment.b. The natural rate of unemployment fluctuates year-to-year due to the short run fluctuations in output.c. The introduction and consequent widespread use of efficiency wages both increased worker effort and reduced the natural rate of unemployment.d. Government policies that help reduce the time it takes to match workers with firms will reduce the natural rate of unemploymente. Unemployment insurance lowers the natural rate by allowing unemployed workersmore time to find a new job.4. Assume the required reserve ratio is 20% while banks do not hold excess reserves andhouseholds do not hold cash. Suppose that the Fed now reduces this required ratio to10% but banks now hold 10% in excess reserves. What is true of the moneymultiplier?a. It is unchanged at 5b. It is unchanged at 20c. It has risen from 5 to 10d. All of the abovee. None of the above5. To be useful as a money, a commodity shoulda. Be widely wantedb. Be durablec. Have a high ratio of value to weightd. All of the abovee. None of the aboveEcon 102 Alan DeardorffWinter Term 1998 Midterm #2Page 4 of 116. All of the following are costs of high expected inflation except:a. shoeleather costsb. redistribution of wealth between creditors and lendersc. increased variability of relative pricesd. distortions in the tax systeme. menu costs7. When the Fed buys bonds through open market operations, the money supply will_____ and the price level will _____ in the long run.a. increase; riseb. increase; fallc. decrease; rised. decrease; falle. none of the above8. Suppose that there is an increase in real incomes in the US. If the Fed takes no action(that is, it makes no use of its tools of monetary control), then in the long run therewill be a(n) _____ in the price level and _____ in the nominal money supply.a. increase: an increaseb. increase: a decreasec. increase; no changed. decrease; decreasee. decrease; no changeEcon 102 Alan DeardorffWinter Term 1998 Midterm #2Page 5 of 119. According to the Fisher Effecta. If a country’s rate of inflation is higher than inflation in the rest of the world, itscurrency will depreciate.b. The nominal interest rate increases one-for-one with increases in the rate ofinflation.c. Growth in the physical capital stock, holding the labor force constant, yieldsdiminishing returns in terms of extra output.d. Net exports must equal net foreign investment.e. An increase in the money supply has no effect on real variables in the long run.10. Consider two countries, Japan and the US. Assume that the inflation rates year afteryear are: −1% in Japan and +1% in the US. According to the Purchasing PowerParity Theory, one would expect the bilateral nominal US exchange rate (Yen perUS$) to:a. Appreciateb. Depreciatec. Appreciate initially then depreciated. Depreciate initially then appreciatee. None of the above11. In 1997, Americans bought a total of $100b worth of foreign goods and services, andacquired $30b of foreign assets. Foreigners acquired $45b worth of American assets.How much were total US exports?a. $115bb. $85bc. $70bd. $15be. cannot be determined from the given information.Econ 102 Alan DeardorffWinter Term 1998 Midterm #2Page 6 of 1112. Suppose the US dollar appreciates relative to the Japanese yen and depreciatesrelative to the German mark. Suppose also that price levels stay the same in all threecountries. Which of the following is correct?a. The yen appreciated with respect to the mark.b. American goods became more expensive relative to German goods.c. The German mark became cheaper for US citizens.d. These changes are favorable for Japanese exporters.e. None of the above.13. If other things do not change, then Net Foreign Investment will rise ifa. The foreign interest rate fallsb. The domestic interest rate risesc. Foreign assets become more riskyd. Domestic assets become more attractivee. The domestic government restricts foreign holders of domestic assets14. If the government imposes a tariff on imports then (ignoring the effects of the tariff onthe government’s