301/501 Midterm Examination Summer 2002
Selected Questions

DIRECTIONS:
This exam has two (2) sections; be sure to follow the directions for each section. Allocate your time carefully.

1. Short Essay Questions (15 points each)

DIRECTIONS:
M.A. students must do the first question. Every student must do a total of two (2) short answer questions. If a question has multiple parts, indicate exactly where you answer each part.

  1. An economy has a representative consumer with preferences U=Y-L2/2 and budget constraint Y=π+ωL. The representative firm wants to maximize its profits π = Y-ωL subject to its production technology Y=3L1/3. Set up and solve the consumer and producer optimization problems, explaining each step. What is the real wage in competitive equilibrium?
    Here U is utility, Y is real income, and L is the labor supplied, and ω is the real wage.
  2. Provide a detailed explanatory comment for each line of the following EViews program. (The file macro1.wf1 contains the series unrate (unemployment as a percent), gdpc1 (real gdp in billions of 1996 dollars), and pop (population in thousands).) Be sure to explain all commands, options, and calculations. 
    open g:\macro1.wf1
save g:\macro1_hw
graph unrate_f.line unrate
show unrate_f
unrate_f.addtext(0,-0.75) Name: date.
unrate_f.addtext(0,-0.5) Data Source
series rgdp_pc
rgdp_pc=1000000*gdpc1/pop
rgdp_pc.displayname Real GDP per capita
graph yu.line(x) rgdp_pc unrate
  3. etc.

2. Multiple Choice Questions (1 point each)

DIRECTIONS:
Answer all multiple choice questions. Pick a single answer for each question: there is one best answer.

  1. The US household saving rate fell below zero in 2000. The Economic Report of the President 2001 says we should conclude that

    1. households saving is dangerously low.
    2. the lack of household saving will depress US growth.
    3. government saving is much more important.
    4. business saving is much more important.
    5. the national income accounts neglect household saving in the form of capital gains.
  2. The Economic Report of the President (2001) estimated the current account deficit for 2000 at $360B. It describes this situation as
    1. benignly reflectly strengths of the US economy.
    2. a crisis in the making.
    3. due to very weak export growth.
    4. a consequence of US fiscal profligacy.
    5. none of the above.
  3. Suppose xt=0.9 xt-1.
    1. The steady state value of x is 0.
    2. The steady state is stable.
    3. The difference equation describes a random walk.
    4. a. and b.
    5. all of the above.
  4. Which of the following years saw the biggest US federal debt?

    1. 1946
    2. 1960
    3. 1973
    4. 1979
    5. 1992
  5. According to the ERP (2001), the ``upward bias'' in the CPI
    1. is not important for the federal budget.
    2. has profound effect on every aspect of federal budget planning.
    3. tends to raise real federal outlays and reduce real federal revenues due to indexing.
    4. is not found in recent data.
    5. none of the above.
  6. Which of the following shift the aggregate supply curve?
    1. technological change
    2. change in preferences for leisure
    3. change in the money supply
    4. a. and b.
    5. all of the above
  7. Since 1960, the rate of growth of per capita income in India, the United Kingdom, and the United States have been about
    1. 1%, 2%, 3%
    2. 2%, 2%, 3%
    3. 2%, 2%, 2%
    4. 3%, 2%, 1%
    5. 0%, 1%, 2%
  8. Which of the following are important habits when you are working with empirical data?
    1. Keep your raw data in a separate file from your generated data.
    2. Document all of your data transformations in a fully commented program file.
    3. Maintain the production of all your final results as a fully commented program file.
    4. a. and b.
    5. all of the above
  9. Suppose you have two unrelated time series that are non-stationary (e.g., random walks). If you regress one on the other, they will probably look

    1. negatively correlated
    2. positively correlated
    3. strongly correlated
    4. uncorrelated
    5. none of the above
  10. etc.