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Exam Code: 555
Department of Economics
Intermediate Macroeconomics I
Economics 152a – 001
Midterm Exam 2
MAKE-UP EXAM
Student ID: ___________________________________
Name:
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EXAM CODE: 555
TIME: 2 hours
INSTRUCTIONS:
1. Make sure that the exam code indicated above matches the one on your
scantron sheet.
2. Make sure to fill in the blanks at the top of the Scantron sheet: your
NAME, your SIGNATURE, you STUDENT NUMBER, your
INSTRUCTOR’S NAME (Chiu), your COURSE NUMBER (Ec152a), your
SECTION (001).
3. The exam consists of 40 multiple choice questions, 10 true/false
questions.
4. Please record all your answers to the multiple choice and true/false
questions on the Scantron sheet. Please use PENCIL only to fill in the
Scantron answer sheet provided.
5. Programmable, graphing and cell phone calculators as well as translation
dictionaries are NOT allowed.
6. GOOD LUCK!
NOTE: QUESTIONS CONTINUE ON THE BACK OF EACH PAGE
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Exam Code: 555
(A) Multiple Choice Questions (80%)
Please read each question carefully and choose the ONE best answer.
(1) Which component of the output demand (yd) is affected by current income?
a. Investment
b. Government spending
c. Consumption
d. Export
(2) Consider the consumption-saving choice. Suppose an agent is a lender, then
a. Saving is negative
b. Current endowment plus current consumption is smaller than current lump
sum tax
c. Current endowment minus current taxation is bigger than current
consumption
d. Current endowment plus current taxation is bigger than current consumption
(3) Consider the consumption-saving choice. Suppose an agent has a convex
indifference curve and is neither a lender nor a borrower, which of the followings
is true
a. When r increases, future consumption drops
b. When r increases, the agent becomes a borrower
c. When r decreases, future consumption drops
d. When r decreases, the agent saves a positive amount
(4) Consider the employment choice of a firm. What is the effect of a rise in wage
rate on the production function?
a. A parallel upward shift
b. A parallel downward shift
c. A higher slope
d. No effect
(5) Consider the consumption-saving choice of a borrower. What is the effect of a
rise in future income?
a. Lower current consumption due to income effect.
b. Higher current consumption due to substitution effect.
c. Higher future consumption due to income effect.
d. Lower future consumption due to substitution effect.
NOTE: QUESTIONS CONTINUE ON THE BACK OF EACH PAGE
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Exam Code: 555
(6) When drawn against the real interest rate, the investment demand schedule
shifts to the left if
a. current total factor productivity z increases.
b. current total factor productivity z decreases.
c. depreciation rate increases.
d. future total factor productivity z’ increases.
(7) Consider a two period model. If the government sells zero amount of bonds,
then
a. Current government spending is bigger than current taxation.
b. Future government spending is bigger than future taxation.
c. Future government spending equals future taxation.
d. Current government spending equals future taxation.
(8) Consider a two period model. Other things being equal, suppose the
government reduces current tax with an equal and opposite change in the
present value of future taxes. Which of the followings is false?
a. Current consumption unchanged
b. Future consumption unchanged
c. Saving decreases
d. Saving increases
(9) Consider the investment choice of a firm. Other things being equal, which of
the followings can induce higher investment?
a. Higher wage rate
b. Higher lump sum tax
c. Higher current profit 
d. Higher future productivity z’
(10) Consider the leisure(l)-consumption(c) choice of a consumer. If the total time
endowment (h) goes down,
a. consumption and leisure stay the same.
b. consumption will not increase and leisure will not decrease.
c. consumption increases and leisure increases.
d. consumption decreases and leisure decreases.
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Exam Code: 555
(11) Which of the following is an assumption about the production function?
a. Marginal productivity of labor is negative
b. Marginal productivity of capital is increasing in labor
c. Marginal productivity of labor is increasing in labor
d. Marginal productivity of labor is increasing in capital
(12) Suppose U  min[C, al ] . What is the effect of a reduction in “a” on the PPF?
a. Upward parallel shift
b. Downward parallel shift
c. Change the slope
d. No change
(13) When drawn against the interest rate, which of the following will lead to an
upward shift of the output demand curve?
a. lower interest rate
b. higher interest rate
c. lower future productivity
d. lower current capital stock
(14) Consider the model of consumption-saving choice:
Suppose y-t=5, y’-t’=9, r=2 and Utility=min[C, (1/3) C’]. Then the optimal choice
of current consumption C is given by
a. 3
b. 4
c. 6
d. 9
(15) Consider the employment choice of a firm, which of the following variables is
exogenous?
a. dividend
b. capital stock
c. labor employment
d. output
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Exam Code: 555
(16). Consider a one period endowment economy. Which of the followings is true
in a competitive equilibrium?
a. Y = T + G
b. C = zF(K,h-l) – w
c. C = wh +  - T
d. C + G = w(h- l) + 
(17) Consider the consumption-saving choice. Which of the following statements
is false?
a. A borrower has lower endowment than a lender.
b. At the endowment point, MRS of a borrower is higher than 1+r.
c. A borrower has current consumption higher than current disposable income.
d. A lender has current disposable income higher than current consumption.
(18) Consider a one period economy, reduction in government spending implies
a. higher output
b. lower consumption
c. Lower wage rate
d. Lower employment
(19) Which of the following will lead to a downward shift of output supply curve?
a. lower current productivity
b. higher interest rate
c. higher current lump sum tax
d. lower current capital stock
(20) Consider the model of consumption-saving choice:
Suppose wealth=we, interest=r and Utility=min[aC,C’]. Then the optimal choice of
current consumption C is given by
we(1  r )
a.
1 r  a
we(1  r )
b.
1 r  a
we
c.
1 r  a
we(1  r )
d.
1 r  a
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Exam Code: 555
(21) Consider the one period economy with h=10 and G=0 and the following
features:
Y=zKN where K=1 and z=1; U  min[C, al ]
What is the change in equilibrium consumption when “a” increases from 1 to 3?
a. +2
b. +2.5
c. -0.5
d. -2
(22) Consider the consumption-leisure choice. Suppose U(c, l) = min {c, al},
h=10, =0,T=0, w=1. What value of “a” will imply that optimal leisure l=5?
a. 1
b. 2
c. 3
d. 4
(23) Consider the consumption-leisure choice. Suppose U(c, l) = min {c, l}, h=10,
=3,T=3, and suppose the wage rate w reduces from 2 to 1, then the
consumption is decreased by
a. 5
b. 10
c. 0.667
d. 1.667
(24) Consider the consumption-leisure choice. Suppose h=8, when will l=10 be
NOT feasible?
a. =2,T=0
b. =2,T=1
c. =1,T=2
d. All of the above
(25) Consider the model of a two period economy. Which of the following is NOT
an endogenous variable?
a. Consumption
b. Investment
c. Productivity
d. Leisure
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Exam Code: 555
Use the information below to answer the following two questions.
Consider a two-period endowment economy with 1000 consumers and
government. Current individual endowment (y) is 10 and future individual
endowment (y’) is 12. Interest rate is r = 0.05. Current government spending (G)
is 2500 and future government spending (G’) is 2000.
(26) Suppose current lump sum tax (t) is 2, the future lump sum tax (t’) is
a. 2.4
b. 2.5
c. 2.525
d. 2.625
(27) Suppose current tax rate is 1, the future consumption is
a. 14
b. 12
c. 10
d. 8
(28) Which of the following changes has no effect on the output supply curve?
a. reduction in current productivity.
b. reduction in future productivity.
c. reduction in current capital stock.
d. increase in current government spending.
(29) Consider the consumption-saving choice. Suppose y=4,y’=2, t=1,t’=0, r=1.
Which of the following change will make the agent better off?
a. t increases to 1.5 and t’ increases to 0.5.
b. t decreases to 0 and y decreases to 3.
c. t decreases to 0 and t’ increases to 1.
d. t increases to 2 and y’ increases to 3.
(30) Consider the consumption-saving choice. Which of the following change will
make the agent worse off?
a. Increase in r for a lender
b. Decrease in r for a borrower
c. Increase in r for a borrower
d. Increase in y’ for a lender
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Exam Code: 555
Consider the model of a two-period economy and answer the following 2
questions:
Labor Supply:
Ns=w+r
Labor Demand:
Nd=2-w
Production Function:
Y=2N
Consumption Demand:
Cd=(Y-r)/3
Investment Demand:
Id=0
Government Spending:
G=2
(31) What is the equilibrium interest rate r*?
a. 0
b. ½
c. 3/2
d. 2/3
(32) Consider a one period endowment economy. Which of the following is not a
result of productivity reduction?
a. Lower output
b. Lower consumption
c. Lower leisure when substitution effect dominates
d. Lower wage rate
(33) Consider the consumption-saving choice of a borrower. What is the effect of
a fall in future income?
a. Lower saving.
b. Higher saving.
c. Higher current consumption due to income effect.
d. Lower current consumption due to substitution effect.
NOTE: QUESTIONS CONTINUE ON THE BACK OF EACH PAGE
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Exam Code: 555
(34) Consider the model of consumption-saving choice:
Suppose Y=2, Y’=6, t=t’=0.
If r reduces from 2 to 0, what is the substitution effect of this change on current
consumption C?
a. –1
b. 0
c. –1
d. +2.5
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Exam Code: 555
Consider a one period economy. Use the indifference map shown below and
information to answer the following two questions:
F(K,N)=zKN where z=2, K=0.5
G=3
h=15
(35) What is the equilibrium leisure and output?
a. 3 and 15
b. 4 and 8
c. 4 and 11
d. 6 and 10
(36) What is the marginal rate of transformation?
a. -1
b. 0
c. 1
d. 2
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Exam Code: 555
The following 3 questions consider the employment decision of a firm.
(37) What is the profit level of the firm?
a. Distance BF
b. Distance FH
c. Distance BH
d. Distance CG
(38) Which of the followings indicates a reduction in MPN and an increase in ?
a. From D to C
b. From C to B
c. From A to B
d. From A to D
(39) If w goes up, 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 
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Exam Code: 555
(40) Consider a one period economy with the PPF plotted below. Suppose the
4
utility function is U  min[C, al ] where a  and G=6. What is the equilibrium
3
output Y*?
a.
b.
c.
d.
8
12
14
18
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Exam Code: 555
(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) At the optimal consumption point of a lender, MRS>1+r.
(42) Any increase in the present value of taxes for the consumer implies
an increase in lifetime wealth and an increase in current labor supply.
(43) An increase in wage rate will lead to a downward shift of labor demand.
(44) The marginal benefit from investment for the firm is equal to
(MPK’+1-d)/(1+r)
(45) Consider a lender who thinks C and C’ are perfect complements. As r goes
up, income effect on C is positive and substitution effect on C is zero.
(46) If current and future government spending are held constant, then a change
in current taxes with an equal and opposite change in the present value of future
taxes leaves the equilibrium real interest rate, consumptions and savings of
individuals unchanged.
(47) Consider the one period consumption-leisure choice. Suppose the real wage
rate goes down and the income effect dominates the substitution effect, then the
labor supply of a worker increases. This is a movement along the labor demand
curve.
(48) An increase in real interest rate will lead to rightward shifts of the labor
supply curve (Ns) and the output supply curve (Ys).
(49) An increase in current total factor productivity (z) will lead to a lower interest
rate, higher current output, higher wage rate and lower investment.
(50) Consider the two period consumption choice of a lender. Suppose the real
interest rate goes up, then the current consumption must rise.
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Exam Code: 555
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