Mock Exam

Question 1

Consider the misallocation model seen in class, where workers have to choose between working in occupations A and B, and the utility of working in each occupation i is log(wi − κi), where wi is the occupation-specific wage and κi is an occupation-specific barrier. Workers received Gumbel shocks to their utility of working in each occupation before making theirchoices. Which of the following statements must be true?
1. If occupation A is chosen more often than B, that means that κB > κA.
2. If occupation B is chosen more often than A, that means that wB > wA.
3. If occupations are chosen each with 50% probability, then wages and barriers are identical across occupations.
4. None of the above.

Answer 1

4. None of the above.

Question 2

Consider the Heterogeneous Agents Incomplete Markets model seen in class. If you observe a household that enters period t with zero assets at, what can you infer?
1. The household was on its Euler equation in t − 1.
2. The household’s borrowing constraint is binding.
3. The household expects income to rise tomorrow.
4. The household’s borrowing constraint was binding in t-1.

Answer 2

4. The household’s borrowing constraint was binding in t − 1.

Question 3

Which of the following statements on fiscal policy is incorrect?
1. Carbon taxes are Pigouvian taxes.
2. Inheritance taxes can be optimal.
3. The government deficit falls mechanically when interest rates ongovernment debt fall.
4. According to Chamley and Judd, capital should not be taxed.

Answer 3

3. The government deficit falls mechanically when interest rates ongovernment debt fall.

Question 4

Consider the New Keynesian model seen in class. Suppose that a shift to online shopping means that now firms change prices more frequently.
What is going to happen?
1. Inflation, on average, will be less persistent.
2. Inflation, on average, will fall.
3. Markups will rise.
4. None of the above.

Answer 4

1. Inflation, on average, will be less persistent.

Question 5

Consider the Real Business Cycle model seen in class. Suppose that β = 0.99 but a sudden shift in preferences causes β to drop to exactly zero. What do you expect to happen?
1. Households will immediately stop working.
2. Households will immediately stop saving.
3. Firms will not hire production factors.
4. Households will immediately stop consuming.

Answer 5

2. Households will immediately stop saving.

Question 6

According to RBC theory, Business Cycles are driven by
1. Agents decisions to save more
2. Taxes
3. Interest rate surprises
4. Positive technology innovations

Answer 6

4. Positive technology innovations

Question 7

The main implication of Atomistic Consumers in the RBC and NK frameworks is
1. Agents cannot affect wages
2. Firms affect technology
3. Firms cannot exert monopolistic power through prices
4. Technology shocks are idiosyncratic to the individual

Answer 7

1. Agents cannot affect wages

Question 8

Perfect competition in the macro models we have studied DOES NOT imply that [TYPO HERE!!!]
1 Wages are equal to marginal productivity of capital
2 Capital is accumulated until its marginal productivity equals the depreciation rate
3 Profits of the firm are zero
4 The Capital Share in Income is equal to one minus the capital share of labor

Answer 8

1. Wages are equal to marginal productivity of capital X
2. Capital is accumulated until its marginal productivity equals the depreciation rate