Economics 100b Wood Midterm 1

Topics: Macroeconomics, Economics, Balance of payments Pages: 12 (2817 words) Published: September 1, 2013
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Econ 100B Macroeconomic Analysis
Professor Steven Wood
Spring 2010

Exam #1 ANSWERS
Please sign the following oath: The answers on this test are entirely my own work. I neither gave nor received any aid while taking this test. I will not discuss the questions on this test until after 5:00 p.m. on February 23, 2010. ______________________ Signature Any test turned in without a signature indicating that you have taken this oath will be assigned a grade of zero. Exam Instructions 1. 2. 3. When drawing diagrams, clearly and accurately label all axis, lines, curves, and equilibrium points. Explanations should be written in pencil or black. Legibility is a virtue; practice good penmanship. Explanations should be succinct and to the point; you may use bullet points and commonly used mnemonics.

Do NOT open this test until instructed to do so. Good Luck!

Spring 2010 (Exam #1)

Econ 100B

1 of 11

A. Multiple Choice Questions (30 points). Circle the letter corresponding to the best answer. (3 points each.) 1.

Your boss wants to know if the company should lay off any workers. You answer that they should lay off workers only if the: a. b. c. d. Marginal product of labor is less than the real wage rate. Marginal product of labor is greater than the real wage rate. Marginal product of labor is less than the nominal wage rate. Marginal revenue product of labor is greater than the nominal wage rate.

2.

Originally an unskilled worker, Judy attends the University of California, Berkeley where she acquires new skills that give her access to a job with a higher hourly wage. Assuming that her preferences about leisure are not affected by the change in jobs, how would this affect her supply of labor? a. b. c. d. Judy will supply more labor due to both income and substitution effects. Judy will supply less labor because her decision is based only on the income effect. Judy will supply more labor because her decision is based only on the income effect. The effect on Judy’s labor supply is ambiguous because the income and substitution effects work in opposite directions.

3.

Okun’s law states that the gap between actual output and full-employment output increases by 2 percentage points for each 1 percentage point increase in the unemployment rate. Why does an increase in unemployment lead to twice as large an effect on output? a. b. c. d. According to Okun’s law, every worker produces two units of output. If firms are employing fewer workers, they must also be choosing to producer less output. With fewer workers, the marginal product of labor declines and so output falls by even more. When unemployment rises, the labor force and work hours tend to decline, further reducing output.

4.

An invention that increases the future marginal product of capital would cause an increase in desired investment, which would cause the investment curve to shift to the _____ and would cause the real interest rate to _____. a. b. c. d. Left; increase. Left; decrease. Right; increase. Right; decrease.

5.

Your friend claims that the United States is a net international debtor. The best way of testing this claim is to see whether: a. b. c. d. U.S. foreign liabilities exceed U.S. foreign income. U.S. official reserve assets were positive or negative. The U.S. ran a balance of a payments surplus or deficit in the last year. Foreign payments to U.S. owners of foreign assets exceed U.S. payments to foreign owners of U.S. assets. Econ 100B 2 of 11

Spring 2010 (Exam #1)

6.

In goods market equilibrium in an open economy: The desired amount of exports must equal the desired amount of imports. The desired amount of exports must equal the desired amount of imports minus the current account balance. c. The desired amount of national saving must equal the desired amount of domestic investment. d. The desired amount of...
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