Jimma University
College of Business and Economics
Department of Economics
`Macroeconomics II (Econ 2032) Model Examination
choose the best answer from alternatives given.
1. Which of following statements is true?
A. In the Solow growth model with positive population growth rate n, output per
worker grows forever at the rate n in the steady state.
B. In both Solow and endogenous growth models, the higher the saving rate, the
higher the growth rate of output.
C. In the endogenous growth model, output grows forever.
D. None of the statements are true.
2. The alternative consumption function in which consumption mainly depends upon
permanent income and saving is generally a residual is hypothesis of:
A. Irvin Fischer’s
B. Modigliani lifecycle’s
C. Dusenberry’s
D. Friedman's
3. Which one of the following is not true about investment?
A. Investment is much greater than consumption
B. Investment is the most volatile component of aggregate demand
C. Investment is an inherently dynamic process
D. None.
4. The relationship between the change in output and the level of investment is:
A. Marginal efficiency of capital
B. Capital stock
C. The flexible accelerator
D. Tobin marginal Q
5. If the quantity of money increases 100%, other things remaining constant, value of
money changes by:
A. Increases by 100 %
B. Decreases by 100 %
C. Decreases by 200%
1
D. Does not change
6. Workers are operating on the backward-bending portion of labor supply curve if:
A. The income effect is larger than the substitution effect
B. The substitution effect is larger than the income effect
C. At relatively high wages, individuals respond to an increase in the wage by working
additional hours
D. Wage becomes sufficiently low; individuals will begin to work less in response to a
higher wage rate
7. The Lucas critique has profound implications for the formulation of macro-
economic policy:
A. Since policy makers can predict the effects of new and different economic policies on
the parameters of their models
B. Simulations using existing models cannot be used to predict the consequences of
alternative policy regimes
C. The treatment of expectations as a major defect of the standard small-scale
macroeconomic mode
D. Parameters of large scale macro econometric models may remain constant in the face
of policy changes
8. Which one is not true for the applicability of conventional theories to African
Economies?
A) Oligopoly is more prevalent in the product markets
B) Labor markets are notoriously imperfect
C) Heavily dependent on imported raw materials and intermediate inputs
D) Nominal wages tend to be flexible accompanied by an excess supply of labor
9. In the Solow growth model, if we start from a steady state and there is no change
in saving/investment, then what will result from permanent increases in the rate of
depreciation?
A) Output growth will rise permanently and the new steady state level of GDP will be
higher than the old one
B) Output growth will rise temporarily and the new steady state level of GDP will be
lower than the old one
C) Output growth will rise temporarily and the new steady state level of GDP will be
higher than the old one
D) Output growth will fall temporarily and the new steady state level of GDP will be
lower than the old one.
