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BS2549

Macroeconomic Theory

Autumn 2020/21

SECTION A

1. Pamela's bakery produces 500 loaves of bread in a given year. Pamela pays $100 for flour and yeast, pays $600 in wages, pays $50 in interest on an existing loan, and pays $100 in taxes to the government. One of Pamela's bread slicing machines, which cost $75 each, wears out over the course of the year and must be scrapped. Pamela's profit for the year equals $75. Pamela's bread, therefore, sells for

A) $0.50 per loaf

B) $1.00 per loaf

C) $2.00 per loaf

D) cannot tell, insufficient information

(5 marks)

2. Suppose we have the following information about a plumber: wages $30,000, repair sales $200,000, taxes $5,000, loan interest $15,000, plumbing materials $20,000. What is the contribution to GDP of this plumber using the product approach?

A) $200,000.

B) $180,000.

C) $50,000.

D) $30,000.

(5 marks)

3. Average labour productivity tends to be

A) procyclical and less variable than real GDP.

B) procyclical and more variable than real GDP.

C) countercyclical and less variable than real GDP.

D) countercyclical and more variable than real GDP.

(5 marks)

4. The marginal rate of substitution measures

A) the willingness of a consumer to exchange a good with another consumer.

B) the willingness of a consumer to pay the form for a good.

C) the value in dollars of the last unit of good obtained by the consumer.

D) the rate at which a consumer is willing to exchange one good for another.

(5 marks)

5. Fiscal policy encompasses all of the following except

A) expenditures by the government..

B) monetary injection by the government.

C) taxation by the government.

D) borrowing by the government

(5 marks)

6. A pure positive income shock leads to

A) an increase in leisure and consumption.

B) an increase in leisure and work.

C) an increase in work and consumption.

D) an increase in leisure and taxes.

(5 marks)

7. In the Diamond-Mortensen-Pissarides model

A) the firm threatens the worker with separation and takes all the surplus from the match.

B) the firm's surplus from a match is equal to a constant fraction of total surplus.

C) the firm earns zero profits in a match.

D) when a match occurs, the firm is indifferent between continuing with the match and letting the worker go.

(5 marks)

8. In the Diamond-Mortensen-Pissarides model, an increase in productivity does not

A) reduce the unemployment rate.

B) increase the vacancy rate.

C) increase labor market tightness.

D) increase the size of the labor force.

(5 marks)

9. In the Diamond-Mortensen-Pissarides model, a decrease in the unemployment insurance benefit

A) increases the unemployment rate.

B) reduces labor market tightness.

C) reduces the unemployment rate.

D) reduces the vacancy rate.

(5 marks)

10. In the dynamic model, an increase in first-period income results in

A) an increase in first-period consumption, an increase in second-period consumption, and an increase in saving.

B) an increase in first-period consumption, a decrease in second-period consumption, and an increase in saving.

C) a decrease in first-period consumption, an increase in second-period consumption, and an increase in saving.

D) an increase in first-period consumption, an increase in second-period consumption, and a decrease in saving.

(5 marks)

11. In the dynamic model, a temporary increase in income today leads to

A) a small increase in current consumption.

B) a large increase in current consumption.

C) a small decrease in future consumption.

D) a large decrease in future consumption.

(5 marks)

12. In the dynamic model, an increase in the real interest rate

A) increases savings for both borrowers and lenders.

B) increases savings for borrowers, but has an uncertain effect on the savings of lenders.

C) increases savings for lenders, but has an uncertain effect on the savings of borrowers.

D) has an uncertain effect on the savings of both borrowers and lenders.

(5 marks)