1. (4 points) A woman marries her butler. Before they were married, she paid him
$60,000 per year. He continues to wait on her as before (but as a husband rather than
as a wage earner). She earns $1,000,000 per year both before and after her marriage.
The marriage:
A. does not change GDP.
B. decreases GDP by $60,000.
C. increases GDP by $60,000.
D. increases GDP by more than $60,000.
2. (4 points) Which statement below is correct?
A. The purchase of ¥50,000 worth domestically produced raw oil increases the
nominal GDP by ¥50,000.
B. The nominal GDP is a stock variable.
C. The GDP deflator excludes the price changes in domestically produced iron ores.
D. The GDP deflator is better than the CPI for measuring the typical living cost of
a standard household.
3. (4 points) The economy A has a production function
, while the
economy B produces with the production function
( is the
constant capital stock and is the constant labor input). Based on the assumptions
in the classical (long-run) theory, which statement below is correct?
A. The capital income share in the economy A is 0.5.
B. The labor income share in the economy B is 0.3.
C. The capital income share in the economy A is larger than that of the economy B.
D. The labor income share in the economy A is smaller than that of the economy B.
4. (4 points) If the Central Bank wishes to increase the money supply, it should:
A. decrease the discount rate.
B. increase interest paid on reserves.
C. sell government bonds.
D. decrease the monetary base.
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5. (4 points) During 2007-2009 recession, the housing sector in the United States shrinks
substantially, which results in higher ________ unemployment. Meanwhile, the
negative housing shock spreads to and harms other sectors with downward rigidity
of wages, which leads to higher __________ unemployment.
A. frictional; frictional
B. structural; frictional
C. structural; structural
D. frictional; structural.
6. (4 points) Assume that an increase in consumer confidence raises consumers'
expectations of future income and thus the amount they want to consume today for any
given income. This shift, in a neoclassical economy, will:
A. raise investment and lower the interest rate.
B. lower investment and raise the interest rate.
C. lower both investment and the interest rate.
D. raise both investment and the interest rate.
7. (4 points) Assume that a country experiences a reduction in productivity that lowers
the marginal product of labor for any given level of labor. If the real wage were rigid, this
would lead to:
A. a decrease in the real wage.
B. no change in the real wage and no change in unemployment.
C. no change in the real wage and a fall in unemployment.
D. no change in the real wage and a rise in unemployment.
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8. (4 points) Consider the Solow model with population growth and labor-augmenting
technology. Suppose the economy is in the steady state, the associated marginal
product of capital (MPK) equals 2, depreciation rate is 7%, and the total investment
grows at 3%. If the saving rate is increased, then in the new steady state, MPK is
______ and consumption per effective worker is ________ compared to the initial
steady state.
A. larger; larger
B. smaller; larger
C. smaller; uncertain
D. uncertain; smaller
9. (4 points) Consider the Solow model with population growth and labor-augmenting
technology. Which of the following statements about the balanced growth path
(BGP) is TRUE?
A. Variables that have no steady states will grow at the same rate on the BGP.
B. The growth rates of capital-output ratio and consumption per worker are the
same on the BGP.
C. The marginal product of labor is a constant on the BGP.
D. Investment in R&D will increase the growth rate of total output on the BGP.
10. (4 points) In the two-sector endogenous growth model, the final goods production
function Y = F(K,(1 – u) EL). Define k = K/EL as capital per effective labor, y=Y/EL as
output per effective labor. If the fraction of labor in universities (u) is higher and all else
are the same, the immediate effect of this change is that the output per effective labor
______. In the new steady state, the capital per effective labor_____.
A. falls; falls.
B. falls; rises.
C. rises; falls.
D. rises; rises