Name of Candidate: _______________________

Student ID: _________________________

Signature: __________________________


THE UNIVERSITY OF NEW SOUTH WALES
School of Economics

SEMESTER 2 2013

ECON 2102
Midterm Examination

1. Time allowed - 40 hours

2. Reading time - 10 minutes

3. Total available marks 20

4. Questions are of equal value.

5. The exam consists of 20 multiple choice questions and it is worth 20 marks.

6. Answers to multiple choice questions must be coded in pencil.

7. Candidates may bring a non-programmable calculator to the exam.

8. Print your student number and name on top right hand corner and sign.

9. This paper may not be retained by candidate.



Please answer the following 20 MULTIPLE CHOICE QUESTIONS. Each question is
worth 1 mark for a total of 20 marks.


1. If per capita GDP in 2003 was $900, in 2004 was $1,000, and in 2005 was $1,200, the growth
rate of per capita GDP between 2003 and 2005 was:
a. 25 percent.
b. about 11 percent.
c. 20 percent.
d. about 133 percent.
e. about 33 percent.


ANS: E PTS: 1 REF: Section 3.3 TOP: Conceptual




2. According to the constant growth rate rule, if a variable starts at some initial value at t =
0 and grows at at a constant rate g , then the value of the variable in three
periods is given by:
a.
.
b.
.
c.
.
d.
.
e.
.


ANS: C PTS: 1 REF: Section 3.3 TOP: Applied





3. Suppose k, l, and A grow at constant rates given by , , and .What is the growth rate
of y if , ?
a.

b.

c.

d.

e.



ANS: D PTS: 1 REF: Section 3.5 TOP: Conceptual



4. In the Cobb-Douglas production function , if we assume that markets are
perfectly competitive and a = 1/4, then:
a. capitals share of GDP is one-fourth.
b. labors share of GDP is three-fourths.
c. capitals share of GDP is three-fourths.
d. labors share of income is one-fourth.
e. Both a and b are correct.



ANS: E PTS: 1 REF: Section 4.2 TOP: Applied






5. Consider Table 4.1, which compares the model to actual statistical data on per
capita GDP. You observe:
a. The model consistently underestimates the level of per capita GDP.
b. The model consistently overestimates the level of per capita GDP.
c. The model does a really good job of estimating the level of per capita GDP.
d. The model clearly contains all factors that affect per capita GDP.
e. none of the above


ANS: B PTS: 1 REF: Section 4.3 TOP: Conceptual






6. To decompose what explains the difference in per capita GDP between any two countries,
say, 1 and 2, we would use:
a.

b.

c.

d.

e.



ANS: A PTS: 1 REF: Section 4.3 TOP: Applied






7. In Figure 5.1, if the economy begins with the initial capital stock at K3, the capital stock
__________ and the economy __________.
a. will increase; grow
b. will decrease; shrink
c. stay constant; is in its steady state
d. will decrease; is in its steady state
e. will stay constant; shrink


ANS: B PTS: 1 REF: Section 5.4 TOP: Applied




8. In Figure 5.1, suppose that the saving rate rises. The new steady state of this economy will be
affected because _____________ and during the transitional dynamics ________________

a. It will be at the left of the old steady state; capital per person will drop
b. It will be at the right of the old steady state; capital per person will rise
c. Output will rise; savings will drop
d. Output will rise; savings will stay constant
e. All variable except k will stay constant; capital shrinks


ANS: B PTS: 1 REF: Section 5.4 TOP: Applied




9. In the Solow model, defining as the saving rate, Yt as output, and as investment,
consumption is given by:
a.
.
b.
.
c.
.
d.
.
e.
.


ANS: C PTS: 1 REF: Section 5.2 TOP: Applied



10. If we define the saving rate as , output as , and the depreciation rate as , and if
, the economy is:
a. contracting.
b. growing.
c. at the steady state.
d. in its short-run equilibrium.
e. none of the above


ANS: C PTS: 1 REF: Section 5.4 TOP: Applied




11. If we define the saving rate as , output as , and the depreciation rate as , and if
, the economy is:
a. contracting.
b. at the steady state.
c. growing.
d. in its short-run equilibrium.
e. none of the above


ANS: C PTS: 1 REF: Section 5.4 TOP: Conceptual




12. In the Romer model, the production function , where is knowledge and
is the amount of labor in the output sector,
a. exhibits constant returns to labor and increasing returns to labor and knowledge.
b. exhibits constant returns to labor and increasing returns to knowledge.
c. exhibits increasing returns to labor and constant returns to labor and knowledge.
d. exhibits decreasing returns to labor and constant returns to labor and knowledge.
e. exhibits increasing returns to labor and increasing returns to labor and knowledge.


ANS: A PTS: 1 REF: Section 6.3 TOP: Applied




13. In the Romer model, the more labor you dedicate to generating ideas __________ but
__________.
a. the faster you accumulate knowledge; at a loss to current output in the
consumption sector
b. the faster you accumulate knowledge; at a gain to current output in the
consumption sector
c. the slower you accumulate knowledge; at a loss to current output in the
consumption sector
d. you do not accumulate knowledge; at a gain to current output in the consumption
sector
e. The more knowledge you lose; at a gain to current output in the consumption
sector


ANS: A PTS: 1 REF: Section 6.3 TOP: Applied



14. In the Romer model in Figure 6.2, at time t0, a change in the shape of the production function
can be explained by:
a. an increase in the population.
b. an increase in the research share.
c. an increase in the ideas efficiency parameter.
d. an increase in the saving rate.
e. a and b


ANS: B PTS: 1 REF: Section 6.3 TOP: Conceptual






15. Consider Table 7.1. In December 2006, the unemployment rate was:
a. about 3.0 percent.
b. about 4.5 percent.
c. about 33.8 percent.
d. about 63.4 percent.
e. about 4.7 percent.


ANS: B REF: Section 7.2 TOP: Applied




16. The labor demand curve slopes downward because:
a. wages are inflexible.
b. wages are higher when demand falls.
c. of the diminishing marginal product of labor.
d. of the income effect.
e. None of the above is correct.


ANS: C REF: Section 7.3 TOP: Applied




17. According to the quantity theory of money, the price level can be written as:
a.
.
b.
.
c.
.
d.
.
e.
.


ANS: C PTS: 1 REF: Section 8.2 TOP: Applied




18. Using the quantity theory of money, we can calculate inflation using __________, under the
assumption that __________.
a.
; velocity is constant
b.
; velocity always equals one
c.
; velocity is constant
d.
; velocity is variable
e. ; velocity is constant


ANS: C PTS: 1 REF: Section 8.2 TOP: Applied




19. If the real GDP growth is 6 percent per year, the money growth rate is 4 percent, and velocity
is constant, using the quantity theory, the inflation rate is:
a. 4 percent.
b. 2 percent.
c. 2 percent.
d. 6 percent.
e. 4 percent.


ANS: B PTS: 1 REF: Section 8.2 TOP: Conceptual


20. If the inflation rate is larger than the nominal interest rate,
a. unemployment rises.
b. the real interest rate is zero.
c. the real interest rate is negative.
d. the real interest rate is larger than the nominal interest rate.
e. Not enough information is given.


ANS: C PTS: 1 REF: Section 8.3 TOP: Applied