Question 1

The firm will hire current labour until

Accepted Answer

A)  the marginal product of labour is less than the real interest rate.
B)  profits are maximized.
C)  total factor productivity is maximized.
D)  the marginal product of labour equals the wage rate.
E)  the marginal product of labour equals total employment. D

Question 2

A key determinant of investment is

Accepted Answer

A)  the level of government spending.
B)  the level of economic activity.
C)  the expected rate of future total factor productivity.
D)  the real interest rate.
E)  the potential for exports. D

Question 3

The marginal benefit from investment comes from

Accepted Answer

A)  increases in the prices of stocks.
B)  only increased production in the future period.
C)  having more capital in the current period.
D)  increased production and more undepreciated capital in the future period.
E)  only increased undepreciated capital in the future period. D

Question 4

A consumer may increase his or her saving by

Accepted Answer

A)  working more hours and consuming fewer goods in the present period.
B)  working more hours and consuming more goods in the present period.
C)  working fewer hours and consuming fewer goods in the present period.
D)  working fewer hours and consuming more goods in the present period.
E)  working more hours and paying less taxes in the present period.

Question 5

The assumption that current-period labour supply is positively related to the current-period real wage is justified as long as the

Accepted Answer

A)  substitution effect dominates the income effect in the short run.
B)  substitution effect equals the income effect in the long run.
C)  income effect dominates the substitution effect in the long run.
D)  income effect dominates the substitution effect in the short run.
E)  substitution effect dominates the income effect in the long run.

Question 6

How many of the following business cycle facts can be explained if the primary cause of business cycles is temporary changes in total factor productivity: procyclical consumption, procyclical
Investment, procyclical employment, and procyclical real wages?

Accepted Answer

A)  one
B)  two
C)  three
D)  four
E)  none

Question 7

The demand for current consumption, as plotted against current income, shifts to the right due

Accepted Answer

A)  an increase in future taxes.
B)  a decrease in interest rates.
C)  an increase in current income.
D)  a increase in current taxes.
E)  a decrease in future income.

Question 8

If a bubble occurs in the housing market, then

Accepted Answer

A)  Output falls.
B)  The real interest rate falls.
C)  Employment falls.
D)  The real wage falls.
E)  The output supply curve shifts to the right.

Question 9

An increase in government spending

Accepted Answer

A)  does not affect the present value of taxes, thus does not affect the lifetime wealth of consumers.
B)  increases taxes and increases the marginal propensity to consume.
C)  reduces taxes and reduces lifetime wealth of consumers.
D)  increases taxes and reduces lifetime wealth of consumers.
E)  increases taxes and reduces the marginal propensity to consume.

Question 10

If government spending increases then, given the real interest rate

Accepted Answer

A)  the demand for goods increases less than one-for-one.
B)  the demand for goods increases one-for-one.
C)  the demand for goods is unchanged, due to crowding out.
D)  the demand for goods doubles.
E)  the demand for goods increases more than one-for-one.

Question 11

When drawn against the real interest rate, the output demand curve shifts to the right when

Accepted Answer

A)  current total factor productivity z decreases.
B)  future total factor productivity z' decreases.
C)  future total factor productivity z' increases.
D)  current total factor productivity z increases.
E)  current and future total factor productivity z' decreases.

Question 12

The representative consumer's current labour supply curve slopes upward under the assumption that

Accepted Answer

A)  the substitution effect of an increase in the real wage is less than the income effect.
B)  the substitution effect of an increase in the current labour supply outweighs the income effect.
C)  there is an indirect relationship between the current real wage and current labour supply.
D)  the substitution effect of an increase in the real wage outweighs the income effect.
E)  the substitution effect of an increase in the current labour supply is less than the income effect.

Question 13

Optimal investment is

Accepted Answer

A)  negatively related with the real interest rate.
B)  unrelated to the real interest rate.
C)  determined by current stock prices.
D)  positively related with the real interest rate.
E)  positively related with the depreciation rate.

Question 14

Investment tends to be more variable over the business cycle than

Accepted Answer

A)  aggregate output.
B)  real interest rates.
C)  government spending.
D)  consumer income.
E)  savings.

Question 15

The decrease in lifetime wealth affects consumption demand by

Accepted Answer

A)    −MPC(G2−G1) - \mathrm { MPC } \left( \mathrm { G } _ { 2 } - \mathrm { G } _ { 1 } \right) −MPC(G2​−G1​)  .
B)    MPC⁡(G2−G1) \operatorname { MPC } \left( \mathrm { G } _ { 2 } - \mathrm { G } _ { 1 } \right) MPC(G2​−G1​)  .
C)    (1−MP
C)  (G2−G1) ( 1 - \mathrm { MPC } )  \left( \mathrm { G } _ { 2 } - \mathrm { G } _ { 1 } \right) (1−MP
C)  (G2​−G1​)  .
D)    r(G2−G1) r \left( \mathrm { G } _ { 2 } - \mathrm { G } 1 \right) r(G2​−G1)  .
E)   does not affect it.

Question 16

Next period's capital is equal to current-period investment

Accepted Answer

A)  minus the amount of current period depreciation.
B)  plus the amount of current period depreciation.
C)  plus the amount of current capital left over after depreciation.
D)  minus the amount of current capital left over after depreciation.
E)  plus the amount of current capital left over.

Question 17

If firm-level asymmetric information becomes more severe, then

Accepted Answer

A)  investment demand increases.
B)  investment demand decreases.
C)  investment demand does not change.
D)  there is an unambiguous effect on investment demand.
E)  investment demand decreases if the substitution effect dominates, increases if the income effect dominates.

Question 18

When drawn against the real interest rate, the output demand curve shifts to the right when

Accepted Answer

A)  current capital stock decreases.
B)  real wage rate increases.
C)  current capital stock increases.
D)  real wage rate decreases.
E)  current capital stock and real wage rate increases.

Question 19

The equilibrium effects of a temporary increase in government spending include

Accepted Answer

A)  a decrease in the real wage and an increase in the real interest rate.
B)  an increase in the real wage and a decrease in the real interest rate.
C)  a decrease in the real wage and a decrease in the real interest rate.
D)  real wages and the real interest rate remaining unchanged.
E)  an increase in the real wage and an increase in the real interest rate.

Question 20

The output demand curve shows the

Accepted Answer

A)  positive relationship between total factor productivity and current aggregate output.
B)  positive relationship between the real interest rate and current aggregate output.
C)  negative relationship between the real interest rate and current aggregate output.
D)  negative relationship between the wage rate and current aggregate output.
E)  positive relationship between the wage rate and current aggregate output.

Exam 11: A Real Intertemporal Model With Investment

The firm will hire current labour until

A key determinant of investment is

The marginal benefit from investment comes from

A consumer may increase his or her saving by

The assumption that current-period labour supply is positively related to the current-period real wage is justified as long as the

How many of the following business cycle facts can be explained if the primary cause of business cycles is temporary changes in total factor productivity: procyclical consumption, procyclical Investment, procyclical employment, and procyclical real wages?

The demand for current consumption, as plotted against current income, shifts to the right due

If a bubble occurs in the housing market, then

An increase in government spending

If government spending increases then, given the real interest rate

When drawn against the real interest rate, the output demand curve shifts to the right when

The representative consumer's current labour supply curve slopes upward under the assumption that

Optimal investment is

Investment tends to be more variable over the business cycle than

The decrease in lifetime wealth affects consumption demand by

Next period's capital is equal to current-period investment

If firm-level asymmetric information becomes more severe, then

When drawn against the real interest rate, the output demand curve shifts to the right when

The equilibrium effects of a temporary increase in government spending include

The output demand curve shows the