2nd In-Class-Quiz 2019S vA w Solutions
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Western University *
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Course
4505
Subject
Management
Date
Apr 3, 2024
Type
Pages
7
Uploaded by MinisterSalmon1652
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Midterm Exam 2019-SPRING-QUIZ 2 – version A The Global Economy (MGMT 406) NAME: ________________________________________________ •
You have 40 minutes for the exam, 4.10pm-4.50pm •
Midterm is out of 30 points: 8 MC questions for 16 points, plus 14 points for short non-MC questions •
Please read ALL the information provided in the questions. •
The exam is closed everything – just you, your brain and some paper! •
Good luck!
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PART I: Multiple Choice [16 points, 2 points for each of 8 questions] 1.
Are workers in low RTI occupations fully protected from automation? A. Yes, because a low RTI means high routine task intensity and therefore those are tasks that are easy to automate B. No, because a low RTI means low routine task intensity and therefore those are tasks that are hard to automate C. It depends on the level of skills of the occupations because a high or low RTI is not all that informative about how easily replaceable a worker is by another worker 2.
An accumulation of inventories might be an indicator of: A. An upcoming expansion B. An upcoming recession C. It is not informative about the economic environment 3. What is true about income inequality? A. Cross-country inequality is today at its peak since 1800 B. Within-country inequality in most countries is today higher than in 1992 C. Cross-country inequality was at its peak before 1800 D. Within-country inequality in most countries is today lower than in 1992 4. Why was the observed/estimated MPC out of a federal tax rebate program in 2001 different from the observed/estimated MPC out of a federal tax rebate program in 2008? A. The 2001 dot-com crisis hit the median household hard B. The MPC of both rebates was similar, because according the permanent income hypothesis a temporary increase in income has a small effect on spending C. The 2008 housing-bubble burst did not hit the median household D. The median household felt quite optimistic about the future during the 2001 dot-com crisis but not so much during the 2008 financial crisis 5. What of the following is not a conventional central banking tool? A. OMOs B. Reserve requirements C. Paying interest on excess reserves D. Discount rates
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6. What are the 3 core objectives of any central bank? A. Stable prices, low inflation, and a healthy banking system B. Low unemployment, high employment and no bank failures C. Stable prices, low unemployment, and a healthy banking system D. No bank runs, no bank failures and high reserves 7. The collective balance sheet of FED, BoJ, ECB, SNB, BoE, and BoC (in U.S.$) was _____ in 2002 and ____ in 2016 was: A. 3 trillion, 18 trillion B. 5 trillion, 6 trillion C. 3 trillion, 12 trillion D. 5 trillion, 18 trillion 8. How are the fluctuations of output around the economy’s potential called? A. Recessions B. Expansions C. Exuberance and panics D. Business cycle
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PART II: Short Essay Questions [14 Points Total] QUESTION 1: In less than 30 words, how does money growth stimulate the economy in the Keynesian framework? [5points] In the Keynesian model, an increase in the monetary base decreases the interest rates, which in turn stimulates investment and raises GDP.
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QUESTION 2: In late 2008, both the money multiplier and base money changed drastically. Explain briefly what each of these two are and explain their sudden change. [5points] Because of the financial crisis, banks stopped lending and as result the multiplier plummeted. The Fed reacted increasing the monetary base to keep M1 stable. Monetary is the money printed by the Fed. The money multiplier is ratio between M1 and the monetary base.
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QUESTION 3: In a 2007 interview, the Nobel prize laureate Eugene Fama stated “the word ‘bubble’ drives me nuts. Housing markets are less liquid, but people are very careful when they buy houses. Its typically the biggest investment they are going to make, so they look around very carefully and they compare prices. The bidding process is very detailed." Argue why he was unable to see the housing bubble, using the terms “rational expectations”, “sincere beliefs”, “higher-order beliefs” and “rational bubble” in your argumentation. [4points] Fama failed to acknowledge that bubbles might arise if home buyers believe there are other buyers out there willing to pay more for the house in the future.
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BONUS QUESTION Draw the visual basis of a Gini coefficient. Label areas in the graph and be explicit about what areas or what ratio of areas is the Gini coefficient. [2points] Refer to class slides.
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