Macroeconomics Numericals

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ECON 4020
Spring 2008

Midterm exam 1

Name __________________________________________

This is a closed book exam.

Exam is out of 100 points.

Answer all the questions.

Show all your calculations.

Explain your answers in the essay type questions.

You have 50 minutes to finish this exam.

Academic Integrity: In cases of a violation of academic integrity it is the policy of the Department of Economics to impose the most severe penalties that are most consistent with University guidelines.

GOOD LUCK!
1. (4 points) Average labor productivity is the
(a)amount of workers per machine.
(b)amount of machines per worker.
(c)ratio of employed to unemployed workers.
(d)amount of output per worker.
Answer:D

2. (4 points) A country has a trade deficit when
(a)imports exceed exports.
(b)imports equal exports.
(c)exports exceed imports.
(d)export is zero.
Answer:A

3. (4 points) Classical economists argue that
(a)the government should have an active role in the economy. (b)government policies will be ineffective and counterproductive. (c)the government should actively intervene in the economy to eliminate business cycles. (d)wages and prices don’t adjust quickly, so the economy is slow to return to equilibrium. Answer:B

4. (4 points) The country of Old Jersey produces milk and butter, and it has published the following macroeconomic data, where quantities are in gallons and prices are dollars per gallon.

| |2003 | |2004 | |Good |Quantity |Price | |Quantity |Price | |Milk | 500 |$2 | | 900 |$3 | |Butter |2000 |$1 | |3000 |$2 |

Between 2003 and 2004, nominal GDP grew by
(a)60.0%.
(b)65.5%.
(c)83.3%.
(d)190.0%.
Answer:D

5. (4 points) The expected real interest rate (r) is equal to (a)nominal interest rate minus inflation rate.
(b)nominal interest rate minus expected inflation rate. (c)expected nominal interest rate minus inflation rate. (d)nominal interest rate plus expected inflation rate.
Answer:B

6. (4 points) Your boss wants to know if you should lay off any workers. You answer that you should lay off workers if the (a)marginal revenue product of labor is greater than the nominal wage rate. (b)marginal product of labor is greater than or equal to the real wage rate. (c)marginal revenue product of labor is equal to the nominal wage rate. (d)marginal product of labor is less than the real wage rate. Answer:D

7. (4 points) An adverse oil-price shock reduces labor demand. What happens to current employment and the real wage rate? (a)Both employment and the real wage rate would increase. (b)Both employment and the real wage rate would decrease. (c)Employment would increase and the real wage would decrease. (d)Employment would decrease and the real wage would increase. Answer:B

8. (4 points) A temporary decrease in government purchases would cause (a)a rightward shift in the saving curve and a leftward shift in the investment curve. (b)a rightward shift in the saving curve and a rightward shift in the investment curve. (c)a rightward shift in the saving curve, but no shift in the investment curve. (d)no shift in the saving curve, but a leftward shift in the investment curve. Answer:C

9. (4 points) The user cost of capital is given by the following formula, where pK is the real price of capital goods, d is the depreciation rate, and r is the expected real interest rate. (a)uc ’ (r + d)/pK

(b)uc ’ pK/(r + d)
(c)uc ’ d pK/r
(d)uc ’ (r + d)pK
Answer:D...
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