Master Economics & Business Understanding the World Economy. Sample Multiple choice

Transcription

1 Master Economics & Business Understanding the World Economy Sample Multiple choice It is a multiple choice questionnaire. You have to select at LEAST one answer from the four proposed answers. You have to select ALL the correct answers, AND ONLY the correct answers to get the maimum number of points. 1. GDP in the US in 1981 was $2.96 trillion. It grew to $3.07 trillion in 1982, yet the quantity of output actually decreased. This is because: a. Prices increased b. Nominal GDP is not the same as Real GDP c. Statistical discrepancies caused in error in the 1981 reading d. Double counting occurred in GDP is equal to a. the sum of value added at each stage of the production process b. savings minus investment c. Gross National Income if the current account is zero d. the profit of all the firms of the economy 3. Imagine that a US investor gets dividends out of her Italian stock holdings and buys US Treasuries with those dividends. This is the sole international transaction for the US and for Italy. There is no other international transaction in the world. a. US GDP eceeds US GNI. b. Italian GDP eceeds Italian GNI c. Italian GDP is lower that Italian GNI d. US GNI includes the capital gains or losses on US Treasuries 4. Under diminishing marginal product of capital, a. the return to capital decreases as population grows. b. in steady state, each country will consume according to its golden rule. c. net investment is larger for the countries far away from their own steady state. d. the increase of output associated with a unit increase of capital is getting smaller as the capital stock increases 5. In the Solow neoclassical growth model, technological progress a. decreases capital accumulation b. creates inflation c. shifts the production frontier upwards d. increases the steady state level of output 6. The Human Development Inde (HDI) a. is not correlated with the level of total factor productivity across countries b. includes income per capita, life epectancy and the inflation rate c. is strongly positively correlated with GDP per capita across countries d. measures sustainable growth

2 7. According to the Solow neoclassical growth model, output per capita is epected to grow faster in Italy than in France over the net decade (assume Italy and France share the same steady state and there is no TFP growth) if the following is true : a. Italy is further from the steady state than France b. Italy has higher inflation than France c. French education is better than Italian education d. France and Italy share a common monetary policy 8. If the number of unemployed is 5 million, the number of employed is 20 million, and the population between 16 and 65 years of age that is not retired or institutionalized is 50 million, then the unemployment rate is: a. 25 percent b. 20 percent c. 10 percent d. 7.1 percent 9. In Happyworld, on average 2% of the employed people lose their job each month and the probability that an unemployed finds a job within a month is 38%. According to the job flow model, the steady-state unemployment rate in Happyworld is: a. 2% b. 5% c. 5.26% d. 38% 10. Happyworld decides to set up a ta for employers when they fire a worker. You epect a. the percentage of employed loosing their job each month to decrease b. the average tenure to increase c. people to stay unemployed longer d. the percentage of unemployed finding a job each month to decrease 11. Which of the following statement about the real effect of changes in the overall price inde is true? a. inflation distorts the relative price of two different goods b. unepected deflation is a redistribution of wealth from borrowers to lenders. c. inflation is harmless when wages are fully indeed. d. unanticipated inflation is more costly than anticipated inflation. 12. According the quantity theory of money, a. An increase in the supply of money makes citizens richer and happier. b. A 10% increase in the money supply leads to a 10% increase in the level of prices. c. A 10% increase in the money supply leads to a permanent 10% increase in the rate inflation. d. A 10% increase in the money supply leads to a 10% increase in GDP. 13. When the Federal Reserve tightens its monetary policy a. M3 usually goes up b. mortgage rates usually go down c. inflation usually goes down d. investment usually goes up

3 14. In the data a. private and public savings are negatively correlated b. annual average growth in health ependiture is higher than GDP growth c. there is a negative relation between size of government and growth on a cross-country basis d. there is a positive relation between size of government and inflation on a cross-country basis 15. Ricardian equivalence may not hold in practice if a. agents are not rational b. some agents face borrowing constraints c. agents do not care about the future d. the central bank is independent 16. The following statements are true a. total fiscal deficit is primary deficit plus net interest payments b. automatic stabilisers decrease the real value of debt through inflation c. discretionary fiscal policy is an off balance sheet commitment of the Central Bank d. Crowding out says that higher public deficits leads to a higher interest rate and lower private investment 17. A positive Keynesian fiscal multiplier a. rationalizes the use of discretionary fiscal policy to stimulate aggregate demand b. rationalizes why Central Banks should be made independent c. eplains why there is crowding out d. rationalizes why government should increase government investment rather than government consumption. 18. The following statements are true a. The output gap is the trend level of output minus consumption b. The output gap appears in the Taylor rule c. Most sectors of the economy tend to co-move with the business cycle d. The ependiture variable that is the most sensitive to the business cycle is aggregate consumption. 19. What kind of shock(s) can eplain a fall in aggregate output but no change in the price level? a. a fall in government consumption b. an increase in the bargaining power of unions together with a cut in taes c. a positive technology shock together with a fall in government spending. d. a burst of a housing bubble together with an increase in oil prices 20. A shortfall in domestic savings to finance domestic investment will lead to a. a current account deficit b. a current account surplus c. a depreciation of the domestic currency d. (net) capital inflows 21. Which of the following statements are true a. if there is a Laffer curve, one can increase ta revenues by decreasing taes b. the sustainability of public debt depends on the debt to GDP ratio and the current account deficit c. US total government spendings are higher than the OECD average d. debt levels above 50% of GDP are unsustainable

4 22. A country with a debt to GDP ratio of 100% at the beginning of the year, a total fiscal deficit of 9% of GDP during the year and net interest payment of 6% of GDP during the year a. has a primary fiscal deficit of 3% b. has a primary fiscal surplus of 3% c. pays an average interest rate on its debt of 6% d. will have a debt to GDP ratio of 109% at the end of the year if the GDP is constant 23. The Bigstate faces the following fiscal situation. Debt-to-GDP ratio = 100%; Real interest rate = 3%; Real growth rate = 5% a. Bigstate needs a primary surplus of 2% of GDP or above for the debt to be sustainable b. Bigstate needs a primary deficit of 2% of GDP or less for the debt to be sustainable c. If Bigstate runs a primary deficit of 4% of GDP, the debt to GDP ratio will decrease (keeping real interest rate and growth rate constant) d. If Bigstate wants to reduce its debt-to-gdp ratio below 50%, the country must run permanently a primary deficit of 1% of GDP or less (keeping real interest rate and growth rate constant) 24. Suppose that three months nominal interest rates in the UK and the Euro zone are 3% and 6% respectively (on an annual basis). According to UIP, we should epect a. a convergence in the two interest rates b. a differential of inflation of 3% across the two countries c. the pound to depreciate by 3% against the euro over the net quarter (on an annual basis) d. the pound to appreciate by 3% against the euro over the net quarter (on an annual basis) 25. Big Mac Prices and (spot) nominal echange rates with respect to the US dollar and GDP per capita in USD are presented in the table below for few countries (source: The Economist). We focus on Purchasing Power Parity (PPP) based on Big Mac prices. Country Big Mac Price in local currency Spot nominal echange rate (mid-quotes) with respect to the USD (Foreign currency units/usd) USA 3.2 USD - Switzerland 6.30 SWF 1.25 Russia 50 RBL 25 Taiwan 75 TWD 32.9 Thailand 62 THB 34.7 a. According to PPP, the Swiss Franc is undervalued with respect to the US dollar b. PPP would be verified if a Big Mac in Taiwan would cost approimately 105 Taiwan Dollars. c. The echange rate implied by PPP for Russia is close to 15.5 RBL/USD. d. According to PPP, the Russian rouble is undervalued with respect to the US dollar.

5 Correction A B C D Question 1 Question 2 Question 3 Question 4 Question 5 Question 6 Question 7 Question 8 Question 9 Question 10 Question 11 Question 12 Question 13 Question 14 Question 15 Question 16 Question 17 Question 18 Question 19 Question 20 Question 21 Question 22 Question 23 Question 24 Question 25