Q1) A country in Europe in 1900 had a 6% natural rate of unemployment. The potential output of this country grew 2% per year. Moreover, it was estimated that the unemployment rate was 7%. When the production in this country increased 5% from 1900 to 1901, the unemployment rate in 1901 was A) 2.5% b) 6.5% c) None of the answers are correct d) 4.5% e) 3.5% Q2) Assume that the economy is currently in a liquidity trap and the public is convinced by the central bank that there will be more inflation in the future, then a) both the AE curve and the Phillips curves shift down b) the AE curve shifts down and the Phillips curves shift up c) None of the answers are correct d) the AE curve shifts up and the Phillips curves shift down e) both the AE curve and the Phillips curves shift up Q3) Because of the threat of civil war, a country's A) None of the answers are correct b) net capital outflows increases and equilibrium real exchange rate falls c) net capital outflows decreases and equilibrium real exchange rate increases d) net capital outflows and equilibrium real exchange rate increase e) net exports increases and equilibrium real exchange rate falls Q4) Bora purchases a 30 year annual coupon bond in the primary market for $1,000. The bond has a yield to maturity that reflects a risk free rate of 4% and a risk premium of 6%. Immediately before his 4th coupon payment, Bora decides to sell the bond. At the time of sale, the economy is in a recession. The risk free rate has fallen to 2% and the risk premium has fallen to 1%. a) What is the competitive market value of the bond in the secondary market? a) Around $2,051 b) None of the answers are correct c) Around $2,751 d) Around $1,551 e) Around $2,351

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Q1) A country in Europe in 1900 had a 6% natural rate of unemployment. The potential output of this country grew 2% per year. Moreover, it was estimated that the unemployment rate was 7%. When the production in this country increased 5% from 1900 to 1901, the unemployment rate in 1901 was A) 2.5% b) 6.5% c) None of the answers are correct d) 4.5% e) 3.5% Q2) Assume that the economy is currently in a liquidity trap and the public is convinced by the central bank that there will be more inflation in the future, then a) both the AE curve and the Phillips curves shift down b) the AE curve shifts down and the Phillips curves shift up c) None of the answers are correct d) the AE curve shifts up and the Phillips curves shift down e) both the AE curve and the Phillips curves shift up Q3) Because of the threat of civil war, a country's A) None of the answers are correct b) net capital outflows increases and equilibrium real exchange rate falls c) net capital outflows decreases and equilibrium real exchange rate increases d) net capital outflows and equilibrium real exchange rate increase e) net exports increases and equilibrium real exchange rate falls Q4) Bora purchases a 30 year annual coupon bond in the primary market for $1,000. The bond has a yield to maturity that reflects a risk free rate of 4% and a risk premium of 6%. Immediately before his 4th coupon payment, Bora decides to sell the bond. At the time of sale, the economy is in a recession. The risk free rate has fallen to 2% and the risk premium has fallen to 1%. a) What is the competitive market value of the bond in the secondary market? a) Around $2,051 b) None of the answers are correct c) Around $2,751 d) Around $1,551 e) Around $2,351

Definition Definition Relationship between the rate of unemployment and the rate of inflation that shows that the lower the initial rate of unemployment, the greater the rise in wage rate corresponding to a given rise in the rate of unemployment. The Phillips curve assumes that the ratio between prices and nominal wage rates is constant in the short run. Presented graphically, the Phillips curve shows an inverse relationship between the rate of unemployment and the rate of inflation.

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