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(ECON112)[2010](f)final~1406^_10220.pdf
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1. In the absence of technological progress, an increase in the saving rate will cause which of the following?
a. increase temporarily the growth of output per worker.
b. increase the steady state growth of output per worker.
c. decrease temporarily the growth of output per worker.
d. decrease the steady state growth of output per worker.
e. have an ambiguous effect on the growth of output per worker.

2. Suppose a country switches from a fixed to a flexible exchange rate. Which of the following will occur as a result of this change?
a. monetary policy will become a less effective tool for changing output.
b. a given change in government spending will now have a greater effect on output.
c. both fiscal and monetary policy will become more effective in changing GDP.
d. both fiscal and monetary policy will become completely ineffective in changing GDP.
e. none of the above.

3. Which of the following statement about the effect of fiscal expansion on investment is true?
a. A fiscal expansion reduces investment in the short run but not in the medium run.
b. A fiscal expansion reduces investment in the medium run but the effect is ambiguous in the short run.
c. A fiscal expansion increases investment in the short run but not in the medium run.
d. A fiscal expansion increases investment in the medium run but not in the short run.
e. A fiscal expansion has ambiguous effect on investment in short run and medium run.

4. For this question, assume that the economy is initially operating at the natural level of output. A simultaneous reduction in taxes and reduction in the money supply will cause which of the following?
a. an increase in output and an increase in the aggregate price level in the short run
b. a reduction in output and a reduction in the nominal wage in the short run
c. a reduction in investment in the medium run
d. a reduction in the interest rate in the medium run
e. an increase in the aggregate price level, no change in output, and no change in the interest rate in the medium run

5. Suppose that workers in the Republic of Communia are highly unionized, while workers in the Republic of Individuela are not. In all other respects, the two countries are exactly the same. Which statement is true?
a. Communia is likely to have a higher natural level of output than Individuela.
b. Communia is likely to have a higher natural rate of unemployment than Individuela.
c. Wages are probably lower in Communia than in Individuela.
d. In the short-run, the price level is always lower in Communia than in Individuela.
e. In the short-run, output is always higher in Communia than in Individuela.

6. Consider the wage-setting and price-setting equations we studied in class. Suppose the markup, , equals 0.25, and F(u,z) = 1-u. What is the natural rate of unemployment in this economy?
a. 0.2
b. 0
c. 0.25
d. 0.1
e. 0.5

7. Suppose the US dol