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© Dongwon Lee 2023
ECON 103 Intermediate Macroeconomics
Practice Final Exam
Multiple choice questions
Identify the choice that best corresponds to the question.
1. For this question, assume that the Phillips curve is represented by the following equation:
t t 1 (m z) aut
Given this information, the natural rate of unemployment will be equal to:
a. (𝑚 + 𝑧)
b. (𝑚 + 𝑧 − 𝑎)
c. 𝑎(𝑚 + 𝑧)
d. 0
e. none of the above
2. Which of the following explains why the original Phillips curve relation disappeared or, as some
economists have remarked, “broke down” in the 1970s?
a. individuals assumed the expected price level for the current year would be equal to the actual
price level from the previous year.
b. individuals assumed that expected inflation would be zero.
c. individuals changed the way they formed expectations of inflation.
d. monetary policy became contractionary.
e. more labor contracts became indexed to changes in inflation.
3. The aggregate supply curve will shift south-east when which of the following occurs?
a. an increase in the money supply
b. a reduction in z
c. a rise in the expected price level
d. a decline in unemployment rate
e. none of the above
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This content is protected and may not be shared, uploaded, or distributed. © Dongwon Lee 2023
4. Which of the following would cause a decrease in the natural level of output?
a. a decrease in government spending
b. a decrease in the money supply
c. an increase in taxes
d. an increase in the price of oil
5. Based on the wage setting-price setting model, we know that a decrease in the unemployment
benefits will cause:
a. a reduction in the equilibrium real wage.
b. an increase in the equilibrium real wage.
c. no shift of the WS (wage setting) curve.
d. no change in the equilibrium real wage.
6. A reduction in money supply will cause:
a. a proportionate drop in the price level in the medium run
b. a reduction in interest rates in the short run
c. an increase in investment in the medium run
d. a reduction in the real wage in the medium run
7. Suppose that the Phillips curve is given by
𝜋𝑡 − 𝜋𝑡−1 = 0.1 − 1.4𝑢𝑡
and inflation in year t – 1 is 2%. In year t, the authorities decide to keep the unemployment
rate at 5% forever. Given this information, what is the rate of inflation for year t + 1?
a. 2% b. 4% c. 5% d. 6% e. 8%
8. Suppose the current one-year interest rate is 4%, and financial markets expect the one-year
interest rate next year to be 8%. Given this information, the yield to maturity on a two-year bond
will be approximately
a. 4%.
b. 6%.
c. 8%.
d. 12%.
e. none of the above
