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YORK UNIVERSITY

ATKINSON FACULTY OF LIBERAL & PROFESSIONAL STUDIES

DEPARTMENT OF ECONOMICS

ECONOMICS\2400 3.0B: INTERMEDIATE MACRO ECONOMICS I

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MIDTERM EXAMINATION
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Course Director: Dr. John Paschakis

TOTAL WORTH: 40%

STUDENT NAME: . . . . . . . . . . . . . . . . . . . . . . . . . . . .

STUDENT NUMBER: . . . . . . . . . . . . . . . .

INSTRUCTIONS:
l. This examination consists of thirty five (35) multiple choice questions. There
is only one correct answer. No penalty for wrong answers.

2. Please answer all questions by marking the appropriate spaces on the computerized
answer sheet. Use HB pencil only.
3. Time allowed: 120 minutes.

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MULTIPLE-CHOICE TEST QUESTIONS: Choose the one alternative that best

completes the statement or answer the question.

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I. The most important aspect of macroeconomic policy is

A) the government's growth policy.

B) the government's stabilization policy.

C)
the government's interest rate policy.

D) the government's foreign policy.

E)
none of the above.

2. Since 1995, the rate of growth of output per worker has increased, albeit by a small
amount. The increase is mostly because
A) of improvements in production methods due to the adoption of computers.
B)
of the signing of the North American Free Trade Agreement.
C) baby-boomers are, on average, more educated and now more experienced
than workers from the previous generation.

D) of large-scale downsizing on the part of many firms.

E)
none of the above.

3. The 1970s was a decade of generally

A) low output growth, increasing unemployment, and increasing inflation.
B)
high output growth, increasing unemployment, and decreasing inflation.
C)
low output growth, increasing unemployment, and decreasing inflation.
D) high output growth, decreasing unemployment, and decreasing inflation.

E)
none of the above.

4. Real GDP
A) is the principal measure of material well-being and economic productivity.
B)
is the principal measure of how far production is falling short of potential
output.

C)
is the proportional rate of change of the price level.

D) is the principal determinant of the level of investment, and a principal

determinant of future economic growth.
E) none of the above.
5. The real long-term interest rate
A)
is the principal measure of material well-being and economic productivity.
is the principal measure of how far production is falling short of potential
B)
output.
C)
is the proportional rate of change of the price level.
D) is the principal determinant of the level of investment, and a principal
determinant of future economic growth.
E)
none of the above.

6. The real exchange rate is

A) the rate which banks charge the least risky businesses.
B)
the rate which the Bank of Canada charges for advances to members of the
Canadian Payments Association.
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C)
the rate at which the goods and services produced in different countries can
L--be exchanged one for another.
D) the rate at which the monies of different countries can be exchanged one for
another.
E)
none of the above.

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7. If the
A)
B)
C)
D)
E)

real interest rate decreases, we would initially expect

the price of stocks to decrease.

the price of bonds to decrease.

the price of stocks to increase.

the exchange rate to decrease.

none of the above.

8. If investors become more pessimistic and expect that long-term earnings will
decrease at the same time that the real rate of interest increases,
A) we would initially expect the price of stocks to increase.
B)
we would initially expect the price of bonds to increase.
C)
we would initially expect the price of stocks to decrease.
D) we would be unable to determine the impact on the price of stocks unless
we knew the relative magnitudes of the changes.
E)
none 0 f the above.
9. The CPI, which is a Laspeyres index, suffers from what economists call
the rate of inflation.
substitution bias. Thus, it tends to
A) overstate
B)
understate
C)
not affect
0) all of the above
E)
none of the above

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10. The GOP deflator, which is a Paasche index, tends to

A) overstate
B)
understate
C)
not affect
0) all of the above
E)
none of the above

the rate of inflation.

11. Economists care about the real value of stocks because

A)
stock market prices tend to be a good forecaster of future investment
spending.
students
are interested in the stock market.
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B)
1('\ C) stock market prices are a reflection of the prices of goods and services.
D) stock market prices are a good predictor of beef prices.
none of the above.
E)

C,

12. An example of a stock variable would be

A) Investment expenditures

B)
Capital

C)
The government budget deficit

D)
Savings

E) none of the above

13. An example of a flow variable would be

A)
Wealth

B)
Capital

C)
The government budget deficit

D)
Government debt

E)
none of the above

14. Gross National Product (GNP) is defined as

A)
Gross Domestic Product (GDP) + Income from abroad
B)
Gross Domestic Product (GDP) - Income paid to foreigners
C)
Gross Domestic Product (GDP) + Net income from abroad
D)
Gross Domestic Product (GDP) - Net income from abroad
E)
none of the above

15. Which of the following measures would you use if you were interested in
measuring the value of output produced by a country?
A)
Gross Domestic Product (GOP) at market prices
B)
Net National Product (NNP) at market prices
C)
Gross National Product (GNP) at factor cost
D)
All of the above
E)
None of the above

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16. Capital intensity refers to

A) the brightness of capital goods.
B)
the amount of capital available to the average worker.
C)
the ability of capital goods to concentrate on the job at hand.
D) the ability oflabour to concentrate on the capital goods available.
E)
none of the above.
17. Which of the following equations corresponds to the method suggested by Solow
to measure the growth of multi-factor productivity?
A)
M, /A, = tlY,fY, - [a x (tlK,IK,) + (\ - a) x tlL. /L,l
B)

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M, /A, = tlY,fY, - [a x (tlK,IK,)-(1 - a) x tlLtlL.l

C)

M, =tlY, -[axtlK,-(I-a)xtlL.]

D)

tlY,fY,

E)

none of the above.

= M,/A, -

[a x (tlK,IK,) + (J - a) x

tlLtlL.].

18. Suppose that for a given period, the average annual rate of growth of output,
capital and labour are respectively 5%, 4% and 2%, and that the average share of
total income eamed by capital is 0.4. Given this information the average annual
rate of growth of multi-factor productivity lies
A)
between 1% and 2%
B)
between 2% and 3%
C)
between 4% and 5%
D)
between 5% and 6%
E)
none of the above
19. If an
A)
B)
C)
D)
E)

economy is very productive

the value of capital per worker is high.
the value ofE in the Cobb-Douglas production function has a small value.
more output per worker can be produced for each possible value of the
capital stock per worker.
not even large amounts of capital per worker will boost output per worker
to achieve what we would think of as prosperity.
none of the above.

20. If s is the proportion of capital stock saved and invested per year and d is the
capital stock depreciation rate, then capital stock (K) will change according to
which of the following fo=ulas?
A)
K'+l=K,+(sxK,)-(dxK,)
B)
K'+l = K, + (s x Y,) + (d x K,)
C)
K'+l = K, + (s x K,) + (d x K,)
D)
K'+l = K, + (s x Y,) - (d x K,)
E)
none of the above.
21. The following equation is from the neoclassical growth model, il.(K, I L,) = (s x
Y, I L,) - ((n + d) x K, I L,), where K = capital stock, Y = output, L, = labour, s =
savings rate, n = population growth rate, and d = depreciation. Which of the
following would best measure total gross investment per worker needed in year t
in order to maintain capital per worker at a constant level?
A)
(s x Y, I L,)
B)
d x K, I L,
C)
nxK, / L,
D)
(n + d) x K, I L,
E)
none of the above.

22. The following equation is from the neoclassical growth model, il.(K, I L,) = (s X
Y, I L,) - ((n + d) x K, I L,), where K = capital stock, Y = output, L, = labour, s =
savings rate, n = population growth rate, and d = depreciation. Which of the
following would best measure total savings per worker in year t?
A)
s x Y, I L,
B)
s x Y,
C)
s/L,
D)
(s + d) x K,
E)
none of the above.
23. In a steady-state balanced growth equilibrium,
A)
the levels of the key variables are equal.
B)
the rates of growth of the key variables are constant.
C)
the levels of the key variables are equal to the rate of the growth of the key
variables.

D)
all of the above.

E)
none of the above.

24. In a steady-state balanced growth equilibrium,

A)
the levels of the key variables are equal.
B)
the levels of the key variables are equal to the rate of the growth of the key
variables.

C)
the capital-output ratio is constant over time.

D)
the capital-output ratio is growing over time.

E)
none of the above.

25. According to the neoclassical growth model, different economies with identical
rates of
and technology will tend to converge over time to the same
steady-state level of _ _ __
A)
saving; GDP.
B)
saving; per capita income.
C)
saving and population growth; GDP.
D)
saving and population growth; per capita income.
E)
none of the above.

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26. According to the neoclassical growth model, the new steady-state equilibrium
resulting from an increase in the saving rate will be characterized by
A)
a higher capital-labour ratio only.
B)
a higher level of output per worker only.
C)
a higher capital-labour ratio and a higher level of output per worker.
D)
a higher growth rate and level of output per worker, and a higher capital
labour ratio.
E)
none of the above.
27. The "golden rule" with regards to consumption is defined as
A)
any level of consumption per worker that lies above the subsistence level of
consumption per worker.
B)
the labour to output ratio that will maximize the steady-state level of
consumption per worker.
C)
the steady state level of savings per worker that will maximise the steady
state level of consumption per worker.
D)
the savings rate that will maximise the steady-state level of consumption
per worker.
E)
none of the above.
28. The "golden rule" with regards to capital is defined as
A)
any level of capital per worker that provides a level of consumption to
workers that lies above the subsistence level of consumption.
B)
the labour to output ratio that will maximize the steady-state level of
consumption per worker.
C)
the steady-state level of capital per worker that will maximize the steady
state level of consumption per worker.
D) the steady state growth rate of capital that will maximize the steady-state
level of consumption per worker.
E)
none of the above.

29. The condition that guarantees the "golden rule" for a given level of technology is
that the
A)
marginal product of capital as a function of capital per worker must equal
the population level plus total annual depreciation.
B)
marginal product of capital as a function of capital per worker must equal
the population growth rate.
C)
marginal product of capital as a function of output per worker must equal
the population growth rate plus the depreciation rate.
D) marginal product of capital as a function of output per worker must equal
the population growth rate plus total annual depreciation.
E)
none of the above.
30. In the neoclassical growth model, a once and for all improvement in technology
A)
causes the production function to shift downward.
B)
causes the production function to shift upward.
C)
causes the production function to move either downward or upward
depending on how fast capital is growing compared to the growth rate of
the population.

D) does not affect the production function.

E)
none of the above.

31. In the neoclassical growth model, a once and for all improvement in technology
will initiate an adjustment process where
A) output per worker is growing at a positive rate.
B)
output per worker is growing at a negative rate.
C)
output per worker is not changing.
D) output per worker will be lower once the adjustment process is complete.
E)
none of the above.
32. Which of the following is an empirical regularity that contradicts the predictions
of the neoclassical growth model?
A)
Poor countries have living standards that are consistently lower than those
of rich countries.
B)
Freer trade in the last 20 years or so has fostered faster economic growth for
participating countries.
C)
the growth rate of output per worker will gradually decline to its original
level in its new steady state.
D)
Endogenous factors have contributed to generate ongoing growth in the
economy.
E)
none of the above.

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33. In Romer's growth model,

A)
capital per worker will grow only for richer countries.
B)
capital per worker will grow regardless of how rich the country is.
C)
capital per worker will grow faster for rich countries.
D) capital per worker will grow faster for poor countries.
E)
none of the above.

34. According to Barro's growth model,

A) government expenditures are usually wasteful and thus reduces overall
country productivity.
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B)
government expenditures are considered a factor of production and thus
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stimulates private sector productivity.
C)
more government expenditures mean higher taxes, which reduce work
incentives and thus reduce productivity.
D) government expenditures have no effect on a country's productivity.
E)
none of the above.
35. The
A)
B)
C)
D)
E)

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endogenous growth model will in general predict

conditional convergence.

absolute convergence.
conditional and absolute convergence.
divergence.
none of the above.