Download (2) Consider the consumption

Exam Code: 111
Department of Economics
Intermediate Macroeconomics I
Economics 152a – 001
Final Exam
Student ID: ___________________________________
Name:
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SAMPLE
(A) Multiple Choice Questions (80%)
Please read each question carefully and choose the ONE best answer.
(1) A monetary and static model is
a. a multi-period model without money
b. a single-period model with money
c. a multi-period model with money
d. a single-period model without money
(2) Suppose an economy produces only one final good X. If the same quantity of
X is produced in year 1 and year 2. Which of the followings implies that nominal
GDP in year 2 is higher than in year 1?
a. Other things being equal, price of X lower in year 2.
b. Other things being equal, price of X higher in year 2.
c. Other things being equal, population size is higher in year 1.
d. Other things being equal, population size is lower in year 1.
[Remark: Nominal GDP1 = P1X1, Nominal GDP2 = P2X2]
(3) When price level is constant over time, then
a. nominal GDP is constant overtime.
b. nominal GDP per capita is constant overtime
c. implicit price deflator equals CPI
d. implicit price deflator is constant but CPI is not.
[Remark:
NOTE: QUESTIONS CONTINUE ON THE BACK OF EACH PAGE
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Exam Code: 111
Price deflator = Nominal GDP/ Real GDPx100=100
CPI = Current Cost of purchasing a basket/ Past Cost of purchasing a
basket GDPx100=100]
(4) Consider the consumption-leisure choice. For perfect substitutes, the
marginal rate of substitution
a. is equal to the wage rate
b. is equal to one
c. is equal to a constant
d. is equal to 1+r
[Remark: I-curve is linear]
(5) In the competitive equilibrium model,
a. wage rate is an exogenous variable
b. leisure choice is an exogenous variable
c. government spending is an endogenous variable
d. dividend income is an endogenous variable
[Remark: =Y-wN is determined by the model]
(6) Suppose U(c, l) = c+l, h=10, w=1, =2,T=2, then optimal leisure is
a. any l between 0 and h
b. l=5
c. l=10
d. l=0
[Remark: slope of I-curve = 1 = slope of budget line]
(7) Suppose the utility function is given by U(C, C’) = min {C, aC’}. A rise in
parameter “a” leads to
a. higher C and lower C’
b. higher C and higher C’
c. lower C and higher C’
d. lower C and lower C’
NOTE: QUESTIONS CONTINUE ON THE BACK OF EACH PAGE
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Exam Code: 111
(8) Which one of the following U.S. business cycle facts is NOT correct?
a. Employment is lagging and less volatile than GDP.
b. Investment is coincident and more volatile than GDP.
c. Price level is coincident and pro-cyclical.
d. Consumption is coincident and pro-cyclical.
(9) Consider the Solow growth model with production function Y  zK  N 1 .
Suppose z=6, s=1/3, n = 1, d = 1,  = 0.5, what is the steady state output per
worker y*?
a. 1
b. 2
c. 4
d. 6
1
1
 sz  1  2  1
[Remark: k *  
 
 1 y*=zf(k)=6]

nd
 2
(10) Consider the Solow growth model with production function Y  zK  N 1 .
Which of the followings can imply a steady state per capita consumption=8?
a. z=6, s=1/3, n = 1, d = 1,  = 0.5
b. z=3, s=1/3, n = 1, d = 1,  = 0.5
c. z=8, s=1/2, n = 1, d = 1,  = 0.5
d. z=8, s=1/3, n = 1, d = 1,  = 0.3
1
2
 sz  1  4 
[Remark: k *  
    4, c*  (1  s) z( k *)   0.5(8)(4) 0.5  8 ]

nd
 2
(11) Consider the Solow growth model with production function Y  zK  N 1 .
Suppose z=4, n = 1, d = 0,  = 0.75, what is the change in steady state capital
per worker k* as “s” increases from ¼ to ½ ?
a. +15
b. +10
c. - 10
d. – 15
1
 sz  1
4
[Remark: k *  
  4 s , k *increases from1to 16 ]

nd
Consider the Solow growth model with production function Y  zK  N 1 .
Use the information below to answer the following 4 questions: z=2, n = 1,
d = 1,  = 1, s=0.5.
(12) Suppose at the beginning of period 0, initial capital is k0=1. What is the
capital stock at the beginning of period 2, k2?
a. 0
b. 1
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Exam Code: 111
c. ½
d. ¼
szk   (1  d ) k k
[Remark: k ' 
 ]
1 n
2
(13) Suppose at the beginning of period 0, initial capital is k0=10 and initial
population is N0=10. What is the aggregate output in period 1, Y1?
a. 5
b. 10
c. 100
d. 4000
Correct Answer: 200
[Remark: k1=10/2 =5  Y1= N1 y1= 10(1+1) (2)5 = 200]
(14) What value does the capital per capita of this economy converge to?
a. 10
b. 1
c. 0
d. -1
[Remark: k’=k/2 eventually goes to 0]
(15) Suppose  = 0.8. What is the steady state capital per capita?
a. ½
b. ¼
c. 1/32
d. 1/64
1
5
 sz  1  1 
[Remark: k *  
  ]

nd
 2
NOTE: QUESTIONS CONTINUE ON THE BACK OF EACH PAGE
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Exam Code: 111
(16) Consider the consumption-saving choice. Which of the followings will
definitely make an agent better off?
a. t increases and t’ decreases.
b. y decreases and r increases.
c. y decreases and t’ increases.
d. y’ increases and t decreases.
(17) Consider the model of consumption-saving choice:
Suppose wealth=we, interest=r and Utility=min[C,C’]. Then the optimal choice of
current consumption C is given by
we(1  r )
a.
r
we(1  r )
b.
2r
we
c.
1 r
we
d.
2r
[Remark: Solving (1) we=C+C’/(1+r) & (2) C=C’]
(18) Consider the consumption-saving choice. Which of the following change will
make the agent better off?
a. Increase in t’ for a lender
b. Increase in r for a borrower
c. Decrease in r for a borrower
d. Decrease in y’ for a lender
(19) Consider the employment choice of a firm, which of the following variables is
endogenous?
a. capital stock
b. wage rate
c. tax
d. output
[Remark: output Y=zF(K,N) is determined by the model]
(20) Consider a two period economy. Suppose B=0 and r=0, then
a. T’=G’
b. T=0
c. T=B
d. T’=B
[Remark: T’=G’+B(1+r)]
NOTE: QUESTIONS CONTINUE ON THE BACK OF EACH PAGE
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Exam Code: 111
(21) Consider a 1 period economy: Y=zKN; U=min[C,al] and K=2, z=1, G=2,
h=10, a=1. What is the PPF and the MRT?
a. C=18-2l and 2
b. C=18-2l and 1
c. C=20-l and 2
d. C=20-l and 1
(22) Consider the production function Y  zK  N 1 . Suppose z=1, K=16, N=4,
=0.5, what is the marginal product of capital (MPN)?
a. 1
b. 2
c. 3
d. 4
[Remark: MPN= Y  z(1   ) K  N  ]
Consider the information of the growth accounting and answer the following two
questions:
Production function: Y  zK  N 1
Output growth rate: 10%
Capital stock growth rate: 8%
Employment growth rate: 4%
(23) Suppose =0.5. What is the total factor productivity growth rate?
a. 0.04
b. 0.05
c. 0.06
d. 0.10
[Remark: g y  g z  g K  (1   ) g N  g z  g y  g K  (1   ) g N ]
(24) Suppose the total factor productivity growth rate is 2%, what is the value of
?
a. 0.3
b. 0.5
c. 1
d. 1.2
[Remark: g y  g z  g K  (1   ) g N  01
.  0.02   0.08  (1   )0.04 ]
(25) Consider an economy with a production function Y  zK  N 1 with  = 0.5.
Y
K
N
1990
2
3
1
1991
2
3.2
1
g
0
0.06
0
The growth rate of total factor productivity is approximately
a. –3.2%
b. 3.2%
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Exam Code: 111
c. 6.4%
d. 0%
. (0.064)  05
. (0) ]
[Remark: g y  g z  g K  (1   ) g N  0  g z  05
(26) In a steady state, which of the following variable is growing at rate n?
a. Output per capita
b. Output per worker
c. Capital stock per worker
d. Aggregate saving
(27) Which of the following is NOT a Cobb-Douglas production function?
a. Y  zK 0.1 N 0.9
b. Y  zK 1.1 N 0.1
c. Y  zK
d. Y  zN
[Remark:  can not be bigger than one]
(28) Which of the following function is NOT constant returns to scale?
a. Y  zK
b. Y  zK 0.1 N 0.9
c. Y  ( K  N )
2
d. Y 
2
1
2
K
N 1
(29) Buying an item with cash would be an example of money’s role as a
a. Median of exchange
b. Store of value
c. Unit of account
d. None of the above
(30) If the inflation rate is 0%, real interest rate is 0.1, then the nominal interest
rate is
a. 0.1
b. –0.1
c. 0.3
d. 0.12
[Remark: Nominal interest rate = Real interest rate + inflation rate]
NOTE: QUESTIONS CONTINUE ON THE BACK OF EACH PAGE
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Exam Code: 111
(31) “Retail money market mutual fund ” is
a. part of M0
b. part of M1
c. part of M2
d. All of the above
(32) Which of the followings is a feature of the production function Y  zK  N 1 .?
a. Constant labor share of national income
b. Constant capital share of national income
c. Constant returns to scale
d. All of the above
(33) Suppose Y  zK  N 1 , which of the followings is NOT correct?
a. z  Y / (K (1   ) N )
b. log Y  log z   log K  (1   ) log N
c.  log Y   log z   log K  (1   )  log N
d. %  log Y  %  log z   %  log K  (1   )%  log N
The following 2 questions consider the employment decision of a firm.
(34)
What is the profit level of the firm?
a. AE
b. BF
c. CG
d. DI
(35) If K goes down, what is the effect on the firm’s output (Y) and profit ()?
a. Higher Y and higher 
b. Higher Y and lower 
c. Lower Y and higher 
d. Lower Y and Lower 
[Remark: K goes down, MPN goes down, N goes down, thus Y and  go
down]
NOTE: QUESTIONS CONTINUE ON THE BACK OF EACH PAGE
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Exam Code: 111
Use the following information to answer the following two questions
Year 1999
Country
Saving rate
Population
Growth rate
Japan
30.03%
0.2%
US
17.53%
0.85%
Canada
18.98%
1.06%
China
41.8%
0.77%
India
24.60%
1.68%
Singapore
54%
1.15%
(36) According to the Solow growth model, which country will have the highest
growth rate of aggregate output in the steady state?
a. China
b. US
c. India
d. Singapore
[Remark: Highest population growth rate]
(37) Suppose all countries have the same production function. Suppose z=1 and
d=0. According to the Solow growth model, which country will have the highest
output per capita in the steady state?
a. Japan
b. US
c. Canada
d. India
1
1
 sz  1  s  1

[Remark: k *  
   , and y*   k * , so the country with the highest

nd
 n
s/n ratio has the highest y*]
NOTE: QUESTIONS CONTINUE ON THE BACK OF EACH PAGE
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Exam Code: 111
a. Consider the Solow growth model and use the diagram below to answer
the following 3 questions:
Suppose n=0 and d=1
(38) What is the steady state capital per worker?
a. 0
b. 6
c. 16
d. 17.5
(39) Suppose n=0. At the beginning of period 0, the capital stock per capita is
k0=6 and the population is N0=10. What is the aggregate capital after 1 period
K1?
a. 6
b. 14
c. 60
d. 140
[Remark: k1=14 and K1= 10x14=140]
(40) Suppose capital stock per worker (k) is 2 and the output per worker (y) is 16,
what is the saving rate (s)?
a. 1
b. 0.8
c. 0.5
d. 0.1
[Remark: k’=szf(k)=8  s=8/(16) =0.5]
NOTE: QUESTIONS CONTINUE ON THE BACK OF EACH PAGE
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Exam Code: 111
(B) True/false Questions (20%): Determine whether the following
statements are true or false. If the statement is “true”, answer “A” on the
scantron. If the statement is “false”, answer “B” on the scantron.
(41) If Y=N, the MRT of the PPF is always 1. (T)
(42) Solow residual is a measure of the total factor productivity. (T)
(43) Outside money is identical to the monetary base. (T)
(44) Production function Y  zKN exhibits constant returns to scale. (F)
(45) In the steady state, output per capita is constant. (T)
(46) Solow growth model is an exogenous growth model because the choice of
saving rate (s) is exogenous. (F)
(47) M0 is part of M3. (T)
(48) The sum of nominal interest rate and inflation equals real interest rate. (F)
(49) Consider the consumption-saving choice. A lender has MRS<(1+r) at the
consumption point. (F)
(50) The slope of an indifference curve is the relative price between labor and
leisure. (F)
*** END ***
NOTE: QUESTIONS CONTINUE ON THE BACK OF EACH PAGE
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