Download Week 10 Practice Quiz b

QUIZ 6: Fall 2016
Name: ______________________
Section Registered (circle one):
Friday a.m. Friday p.m.
Mail Folder (circle one):
Campus Gleacher
Saturday
Quiz assumptions (READ!): Use the models developed in class with our standard assumptions.
In particular, assume:

Standard assumptions: All consumers are non-liquidity constrained, non-Ricardian PIH (as
developed in class), we start at Y*, NX = 0, expected inflation has no effect on money
demand, all other exogenous variables are held fixed unless I tell you otherwise, etc.

No monetary or fiscal policy takes place unless I tell you otherwise
Question 1 (10 points – 2 point each)
Which of the following are unambiguously true about a permanent decline in labor income
taxes (tn)? Assume the self correcting mechanism returns the economy to its potential level.
Finally, assume the income effect on labor supply is greater than the substitution effect on labor
supply. Circle all true answers.
a. The labor supply curve (Ns) will shift left (on net) between the initial condition and the long
run.
b. The absolute value change in investment (I) between the initial condition and the long run
will exceed the absolute value change in consumption (C) between the initial condition and
the long run.
c. The money demand curve (Md) will shift right between the initial condition and the short run.
d. The labor demand curve (Nd) will shift right between the initial condition and the short run.
e. Before tax real wages (W/P) will rise between the initial condition and the short run.
Question 2 (8 points – 2 point each)
Given the model developed in class and the following assumptions, which of the following are
unambiguously true about a permanent decline in oil prices? Circle all the true statements.
Throughout, for simplicity, assume there are no income effects on labor supply. To anchor
our answers, assume that the decline in oil prices results in a short run increase in prices.
Finally, assume that the self -correcting mechanism returns the economy to its long run
equilibrium. All other quiz assumptions also hold.
a. Output will increase between the initial condition and the long run.
b. Output will increase between the initial condition and the short run.
c. Prices will increase between the initial condition and the long run.
d. Interest rates will increase between the initial condition and the short run.
Question 3 (5 points)
The only response to the following question is yes or leaving it blank.
Please respond
accurately (or the entire quiz will be invalidated).
If you are attending your regularly
scheduled section, you will receive an additional 5 points. This makes the quiz out of 23 (so, it
is possible to receive bonus points for attending the correct section this week).
Are you attending your regularly scheduled section?