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ECOS2002, Semester II, 2011 Page 1 of 7
CONFIDENTIAL Surname : ____________________________________________________________________
First Names : _________________________________________________________________
Student ID No. : _______________________________________________________________
Seat No. : ____________________________________________________________________ THE UNIVERSITY OF SYDNEY
SHOOL OF ECONOMICS
FACULTY OF ARTS AND SOCIAL SCIENCES ECOS 2002
Intermediate Macroeconomics Mid-semester Examination: Semester 2, 2011 8 September 2011 Time allowed: 1.5 hours + 10 minutes reading time Instructions
1. This examination consists of 30 multiple choice questions and is worth 30% of the final grade in
this course.
2. Answer all 30 multiple choice questions by marking the computer cards provided. Unanswered,
incorrect or multiple answers are given a mark of zero.
3. A non-programmable calculator may be used.
4. This paper may NOT be retained by the candidate. ECOS2002, Semester II, 2011 Page 2 of 7 Use the following data to answer questions 1 and 2
Suppose the population of a country is 100 million people, of whom 50 million are working age. Of
these 50 million, 20 million have jobs. Of the remainder: 10 million are actively searching for jobs;
10 million would like jobs but are not searching; and 10 million are discouraged workers.
1. The labour force participation rate is
a.
b.
c.
d. 0.6
0.3
0.8
0.4 2. The official unemployment rate is
a.
b.
c.
d. 0.10
0.20
0.33
0.40 3. Suppose that the face value of a one year bond is $1000. How much would an investor
demanding 5.3% interest rate pay for the bond?
a.
b.
c.
d. $750
$850
$950
$800 4. In terms of the analysis involved in the derivation of the Aggregate Demand (AD) curve in the
AS-AD model, if the price level rises it follows that:
b.
c.
d. a. LM curve shifts up and real GDP increases.
LM curve shifts up and real GDP decreases
IS curve shifts up and real GDP increases.
IS curve shifts down and real GDP decreases
5. In the AS-AD model
X: an increase in the price of oil will shift the Aggregate Supply (AS) curve leftwards;
and
Y an open market sale by the central bank will shift the Aggregate Demand (AD) curve to
the right.
a.
X is true and Y is true
b. X is false and Y is false
c. X is false and Y is true
d.
X is true and Y is false ECOS2002, Semester II, 2011 Page 3 of 7 6. In the IS-LM model,
a. an expansionary monetary policy first causes the LM curve to shift leftward, then shifts the
IS curve to the right in the medium run
b. an expansionary monetary policy first causes the LM curve to shift leftward, then shifts the
IS curve to the left in the medium run
c. an expansionary monetary policy first causes the LM curve to shift rightward, then shift the
IS curve to the left in the medium run
d. an expansionary monetary policy first causes the LM curve to shift rightward, then shift the
IS curve to the right in the medium run.
e. None of the above
7. Suppose the demand for money is given by Md = Y(0.25-i); where Y = 100. If the financial
market is in equilibrium and the money supply is 15, then the interest rate (i) is
a.
b.
c.
d. 20%
15%
5%
10% 8. If nominal GDP increased from $8000 billion in the base year to $8400 billion in the following
year and real GDP stayed the same, which would be true?
a.
b.
c.
d. The GDP deflator increased from 100 to 110.
The GDP deflator increased from 80 to 100.
Prices increased on average by 5 percent.
The GDP deflator increased from 100 to 120.
i
LM
A
B IS
Figure 1 Y 9. In figure 1, as the economy adjusts from point A towards the point B, there will be
a.
b.
c.
d. a decline in interest rate and government expenditure
a decline in interest rate and investment
a decline in money supply and interest rate
a decline in interest rate and output ECOS2002, Semester II, 2011 Page 4 of 7 10. An increase in the marginal propensity to consume from .5 to .7 will cause the expenditure line
(ZZ line)
a. to become steeper and a given change in government spending (G) to have a larger
effect on output
b. to become steeper and a given change in government spending (G) to have a smaller effect
on output
c. to become flatter and a given change in government spending (G) to have a smaller effect on
output
d. to become flatter and a given change in government spending (G) to have a larger effect on
output
11. When the central bank targets the price level, with its target price level unchanged, a decline in
oil prices will tend to cause which of the following in medium run?
a.
b.
c.
d. a reduction in the natural rate of unemployment
an reduction in the price level
an reduction in the interest rate
both “a” and “c” 12. A permanent decrease in government expenditure will in the medium run lead to
a.
b.
c.
d.
e. no effect on output
a lower interest rate
higher real investment
an improvement in the government’s fiscal position
all of the above 13. Suppose there is a policy mix of expansionary monetary policy and contractionary fiscal policy.
In the short run, this combination of policies must cause:
a.
b.
c.
d.
e. an increase in the interest rate (i)
a reduction in i
an increase in output (Y)
a reduction in Y
unpredictable effect on the interest rate (i). 14. According to the model of the labour market based on the wage-setting and price-setting
relations, a decrease in the bargaining power of workers and unions would lead to, other things
being equal,
a.
b.
c.
d.
e. an increase in real wage.
an increase in the natural rate of unemployment.
a decrease in the natural rate of unemployment.
an increase in real wage and the natural rate of unemployment.
a decrease in real wage and the natural rate of unemployment. ECOS2002, Semester II, 2011 Page 5 of 7 15. Which of the following changes will not shift the aggregate supply curve in the short run?
a.
b.
c.
d. a change in the price expectation
a more generous unemployment insurance scheme
an increase in the price level target
a decrease in the price competition in the economy 16. In the medium run, a decrease in the budget deficit will
a.
b.
c.
d. increase output
decrease the price level
decrease the interest rate
decrease investment 17. If investment depends on sales as well as the interest rate, monetary policy will
a.
b.
c.
d. have a weaker effect on output
have a stronger effect on output
have the same effect on output
have less effect than fiscal policy 18. Suppose firms in the Australian economy have market power and, therefore, set prices P equal
to the wage rate W plus a mark-up μ on W (i.e. P = (1 + μ)W. Then an increase in the mark up μ,
assuming everything else remaining constant, will cause:
a.
b.
c.
d. the RBA will raise the interest rate
natural rate of unemployment will decrease
investment will increase
none of the above 19. If discouraged job seekers re-enter the labour force but do not find work, they will:
a.
b.
c.
d. increase the measured unemployment rate
increase the measured participation rate
both (a) and (b)
none of the above 20. X: In the AS-AD model a decrease in money supply will shift the Aggregate Demand (AD)
curve rightwards;
Y: The velocity of money in the economy would increase if more people shift from using credit
cards to ATMs
a.
b.
c.
d. X is true and Y is true
X is false and Y is false
X is false and Y is true
X is true and Y is false ECOS2002, Semester II, 2011 Page 6 of 7 21. Which of the following would cause the natural rate of unemployment to increase?
a. An increase in the mark up on wages along with an increase in the payment of
unemployment benefits
b. A decline in the mark up on wages by 10% along with no change in the payment of
unemployment benefits
c. A decline in the mark up on wages by 10% along with a decline in the payment of
unemployment benefits by 10%
d. none of the above
22. When the central bank conducts monetary policy by setting the interest rates, a fall in the central
bank’s price target will cause which of the following in short run?
a.
b.
c.
d.
e. the LM curve to shift upward
the IS curve to shift towards left
the price setting and the wage setting curves to shift downwards
the price setting and the wage setting curves to shift upward
none of the above 23. Consider the multiplier model for the ‘goods market’ of a closed economy with a linear aggregate
demand function of the form, Z = I + G + c o + c1 (Y – T), where I = 200, G = 300, T = 240, c o = 150 and c1 =
0.75. The equilibrium level of income will be equal to a.
b.
c.
d.
e. 2600
1640
1880
410
none of the above 24. In the Blanchard and Sheen AS-AD model the aggregate supply curve will shift leftward when
a.
b.
c.
d.
e. there is an increase in unemployment benefits
there is a reduction in the expected price level
the central banks adopts a restrictive monetary policy
there is an increase in labour productivity
none of the above 25. Let us suppose the central bank sets the level of the interest rate, i, based on the monetary policy
rule, i = in + a(P – PT), where in is the medium-run interest rate, P is the price level and PT is the
price target. On this basis the central bank will
a.
b.
c.
d.
e. conduct an expansionary monetary policy when there is a reduction in PT
conduct a more restrictive monetary policy when P decreases
conduct an expansionary monetary policy when P increases
conduct a more restrictive monetary policy when there is an increase in PT
none of the above 26. An unemployed person is likely to turn down a job offer if the wage offered is below their
a. efficiency wage
b. reservation wage
c. the equilibrium real wage predicted by the price and wage setting model ECOS2002, Semester II, 2011 Page 7 of 7 d. none of the above
27. Suppose the economy is described by the following behavioural equations.
C = c0 + c1(Y –T)
Consumption
I = I0 + b1Y – b2i
Investment
M/P = kY – hi
LM curve
G = G0
Exogenous government purchases
T = T0
Exogenous Taxes
c1 = 0.8
b1 = 0.1
b2 = 0.3
k = 0.5
h = 0.2
The multiplier is ----, and change in government purchase by $1 will shift the is curve horizontally
by -----a. 2; $2
b. 10; $10
c. 5; $10
d. 1.18; $10
e. 5; $5
28. Suppose the economy is described by the following behavioural equations:
Consumption C = 160+0.6YD, where YD = disposable income
Investment I = 150
Government G = 150
Taxes T = 100
Equilibrium GDP and consumption are ---, and an increase in T by 10 would cause equilibrium
income to decrease by --a.
b.
c.
d.
e. 1000; 540; 25
1000; 700; 25
1150; 540; 15
1150; 700; 15
1000; 700; 15 29. If the central bank decreases the price target and government purchases increase, then we know
that in the short run:
a. output rises; interest rate decreases
b. interest rate rises; effect on output is ambiguous
c. output rises; effect on interest rates is ambiguous
d. interest rate rises; output decreases
30. X: The aggregate supply curve slopes upwards because an increase in output leads to higher
wages
Y: Money demand decreases and bond demand increases when the interest rate increases.
a. X is true; Y is true
b. X is true; Y is false
c. X is false; Y is false ECOS2002, Semester II, 2011
d. X is false; Y is true Page 8 of 7