Intermediate Macroeconomics I: Foundations of Aggregate Income Determination — DU B.A. (Hons.) Economics Previous Year Question Papers

1. (i) More stringent antitrust laws in the wage-setting/price-setting model are likely to lead to: (A) Higher mark-ups, higher prices, and lower employment. (B) Lower mark-ups, lower prices, and higher employment. (C) No change in mark-ups, prices, or employment. (D) Higher mark-ups, lower prices, and higher employment. (ii) A negative supply shock will lead to (A) Increase in output and lowering of the price level (B) Reduction in output, increase in price and unemployment (C) Reduction in output and rise in price with no impact on unemployment (D) Increase in output and prices with lower unemployment (iii) According to Tobin's q theory, a firm is more likely to invest in new capital when: (A) The market value of existing capital is lower than its replacement cost. (B) The market value of existing capital equals its replacement cost. (C) The market value of existing capital is higher than its replacement cost. (D) Interest rates are at zero. (iv) Ifpolicymakers attempt to reduce unemployment below the naturar rate using expansionary policy, rational expectations theory predicts: (A) A permanent full in unemployment @) A temporary boom without inflation (C) Rising inflation without lasting unemploynent gains (D) A srable phillips Curve relationship (v) which of the following can increase the short-term cost of disinflation t (B) Credible Central Bank (C) Rapid decrease in growth rate of Money suppiy (D) Supply side policies aimed to increase productivity (vi) Suppose inflation expectations are anchored due to a credible monetary policy. The sacrifice ratio for reducing inflation will likely be: (D) Unrelated to expectations (vii) In the AD-AS model, a one-time permanent increase in money supply wiii lead to (A) Decrease in unemployment rate both in the short run and medium @) Increase in unemploymeot rate in the short run but not in ihe medium nm I (C) Decrease in unemployment rate in the short run but flot in the medium nm (D) Increase in inflation rate in the short nin but not in the medium nm I and is 5oh, what is the maximum possible consumption 'in pdriod 2? (ix) How does indexation of wages to inflation impact the short-run Phillips Curve: (A) Becomes steeper (B) Becomes flatter (C) Shifts to the left (D) Becomes v:ertieal (x) How does Life cycle hypothesis treat wealth accumulation (A) Wealth is irrelevant to consumption decisions (B) Wealth is accumulated during working years and decumulated during retirement (C) Wealth is evenly distributed throughout life D) Wealth is only accumulated in anticipation of large expenses (xi) In the IS-LM framework, an open market purchase of government securities shifts the: (A) IS curve to the right, increasing output and interest rates (B) LM curve to the right, lowering interest rates and raising output (C) LM curve to the left, increasing interest rates (D) IS curve to the left, reducing income and output (x) In the Permanent Income Hypothesis, a lottery win (one-time income gain) will: