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University of New South Wales *

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5101

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Economics

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Jun 26, 2024

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Q1. Which of the following best describes the operation of automatic stabilisers? Select one: A. When saving increases, investment increases B. When consumption falls, exports increase. C. Some components of government spending automatically increases when output falls. D. When consumption falls, investment increases E. The economy always tends toward full employment Q2. Suppose that there is an increase in oil price. Which of the following is true? Select one: A. All the listed answers are correct. B. This will lead to a downward shift of the price-setting curve where prices will rise, real wages will fall C. This is a supply shock and it will shift the Phillips curve D. This will result in a positive bargaining gap. E. This will result in higher inflation. Q3. An increase in the policy rate reduces aggregate demand because, Select one: A. lt depresses asset prices and makes people feel less wealthy. B. lt reduces the size of the multiplier. C. lt lowers the value of the domestic currency in terms of overseas currencies, encouraging an increasein net exports. D None of the listed answers is correct. E. lt increases the income earned by savers Q4. Assume that the central bank has an inflation target of 2% per year but inflation is currently running at 4%. The nominal policy (interest) rate is currently 5%. The central bank needs to create a negative bargaining gap and estimates that the real policy rate required to achieve this is 3%. Consequently it needs to set the nominal policy rate at: Select one:

A. 7%. B. None of the answers listed is correct C. 6% D. 8% E. 4% Q5.

Q6. Q7. Suppose that some of the immigrants to the country decide to set up businesses, rather than become employees. in this scenario we expect the

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number of firms in the economy would increase and this would raise the level of competition. The mark up, which depends on the level of competition, would ____.This will shift the price-setting curve ____and ____ the equilibrium real wage. Select one: a. decrease, up decrease b. decrease, down, decrease c. increase, up, decrease d. decrease up, increase e. increase, down, increase Q8. A fatter aggregate consumption function, if plotted on a graph with output on the horizontal axis and aggregate consumption on the vertical axis, would indicate which of the following. Select one. A. A larger marginal propensity to consume and a smaller multiplier! B .A smaller marginal propensity to consume and a smaller multiplier. C. A larger marginal propensity to consume and a larger multiplier D .None of the listed answers is correct E. A smaller marginal propensity to consume and a larger multiplier Q9. Which one of the following is correct? Select one: A. In the recession, the best thing the government can do is to reduce the government expenditure in order to keep the balance B. Government expenditure does not induce a multiplier effect because it's independent to the rest of the economy C. Focusing on the demand side, there is some way to maintain the government balance while stimulating economy D. None of the listed statements is correct E. The debt-GDP ratio should be kept 0 in order to keep the government's credibility Q10. A worker's best response function depicts effort per hour (e) as a function of hourly wage (w). lf we plot e in the vertical axis and w in the horizontal axis

respectively, we are likely to find that e _____as w increases. When unemployment increases in the economy we are likely to find that w is ___value of each value of e. Select one: A. decreases, higher B. decreases, lower C. increases, higher D. does not change, the same E. increases, lower Q11. Which of the following statements is correct? Select one: A. Your material wealth is the largest amount that you can consume without borrowing, which includes the value of your house, car financial savings, and human capital B. Depreciation is the loss in your financial savings due to unfavorable movements in the market C. Net income is the maximum amount that you can consume and leave your wealth unchanged D. None of the answers listed is correct. x E. In economics, investment means saving in financial assets such as stocks and bonds Q12. Bridgman is a candy maker who uses machines that generate noise and vibration. Sturges is a doctor next-door whose consulting room is on the boundary of Bridgman's property and so is affected by the noise and vibration, The court has granted the doctor an injunction that prevents Bridgman from using his machinery Assume that the transaction costs required for Bridgman and Sturges to get together and bargain are negligible. Based on this information, which of the following statements is correct? Select one: A. The court's role was to establish the initial property rights of the two parties. B. Bridgman will have to close down his firm C. None of the listed answers is correct D. . lf the court ruled that Bridgman had the right to produce candies, then Sturges would have had to close his surgery.

E. Sturges will pay Bridgman to reduce the production level of candies Q13. In the event of a financial crisis,____ is usually less flexible because of the need to obtain agreement for changes. Therefore, ____ may be quicker to react to shocks. ____ may be problematic especially where there is the danger of sovereign credit risk (sovereign debt crisis), which may____ a country’s ability to finance increased spending or tax cuts by issuing new bonds (ie. by borrowing). Select one: A: Monetary policy, Fiscal policy, Monetary policy, increase B. Fiscal policy, Monetary policy, Fiscal policy, increase C. Fiscal policy, Monetary policy Monetary policy, increase D. Fiscal policy, Monetary policy, Fiscal policy, decrease E. Monetary policy Fiscal policy, Monetary policy, decrease Q14. A flatter aggregate consumption function, if plotted on a graph with output on the horizontal axis an aggregate consumption on the vertical axis, would indicate which of the following Select one: A. A smaller marginal propensity to consume and a larger multiplier B. A smaller marginal propensity to consume and a smaller multiplier. C. A larger marginal propensity to consume and a smaller multiplier D. None of the listed answers is correct. E. A larger marginal propensity to consume and a larger multiplier Q15. Which one of the following statements is most appropriate? Select one: A. There are more than one correct answers B. Continuous inflation is driven by interactions between expectation and bargaining gap * C. Fisher's equation exhibits equivalence of expanding government debt and expanding liquidity. D. Policy target for inflation should be set to reflect trade offs between inflation and unemployment. E. Philips curve asserts a positive correlation between inflation target and

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unemployment rate Q16. A factory is situated next to a dormitory for nurses who work night shifts. The factory produces 100humanoid robots a day. The production process is rather noisy, and the nurses often complain that their series disturbed Based on this information, which of the following statements is correct? Select one: A. The marginal external cost is the cost to the factory, plus the noise cost incurred by the nurses, when an additional robot is produced.. B. The total external cost per day is the total costs per day imposed on the nurses by the factory’s production C. The marginal social cost is the noise cost incurred by the nurses from production of an additional robot. D. None of the listed answers is correct E. The marginal private cost is the factory's total cost of producing 100 robots a day Q17. Banks plays the following roles EXCEPT Select one: A. Creating high-power money B. Creating liquidity out of nothing C. More than one of these statements D. Matching maturities E. Facilitate borrow and lending Q18. The fraction of income that households do not consume (savings) can be expressed as a fraction of the total income. This is known as the 'savings ratio" and fluctuates from year to year, Choose one most appropriate statement from the following. Select one: A. A fall in household wealth. B. A tightening of credit-constraints. C. Official forecasts of possible deflation in future D: All of the listed answers. E. A major event which causes an increase in uncertainty

Q19. Adeline has an income of $100 in period 2 but no income in period 1. However, she can borrow in period 1 at10% interest rate to consume a positive amount in period 1. Let cl and c2 denote Adeline 's consumption in period 1 and period 2 respectively, Adeline's utility from consumption in two periods is given by c1 + c2.Among all bundles that Adeline could afford, the one that gives highest utility to Adeline is Select one: A c1=91, c2=50 B: c1= 50,c2 = 50 B. c1=100.c2 =0 D. c1=0 c2=100 E: c1 =45 5, c2 = 45.5 Q21 Which of the following statements about the wage-setting curve is correct? Select one: A. At each point (U, w) on the wage setting curve, the workers are choosing their best response effort level given the real wage (w) and unemployment rate (U). B. An exodus of European workers due to Brexit would, ceteris paribus, result in a downward shift of the UK's wage-setting curve. C. Wage-setting curve is a horizontal line at a real wage w. D. None of the listed answers is correct. E. A lower unemployment rate shifts the wage-setting curve to the left Q22. Which one of the following about the multiplier model is most appropriate? Select one: A. Fiscal policy has no effect on financial markets B. In a recession, monetary policy is usually more responsive, and the central bank should keep the interest rate low to stimulate investment C. In a recession, government should reduce expenditure to keep the balance sheet stable D, More than one of these statements are correct E. Equilibrium consumption will be unaffected if the government expenditure increases Q22. Which statement is correct about the categories (C, l, G, NX) of the national

income accounting identity? Select one: A. Consumption is most volatile among the four B. None of the answers listed is correct.* C. Credit constraint will reduce fluctuation in consumption D. Expanding government expenditure may increase investment cost E. The net export can be completely controlled by domestic production

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