Question

1)

In the long run, income and substitution effects of changes in wages have approximately equal strength. What does it mean for labor supply curve?

Select one:

a. Labor supply curve is approximately horizontal in the long run

b. Labor supply curve is downward-sloping in the long run

c. Labor supply curve is approximately vertical in the long run

d. Labor supply curve is upward-sloping in the long run

2)

Suppose that due to new developments in the financial system, the central bank expects the value of the money multiplier to increase. If the central bank wants to maintain stable price level, and it expects no other changes, how should it respond?

Select one:

a. Introduce regulations to decrease money demand

b. Increase monetary base

c. Decrease the required reserve ratio

d. Decrease monetary base

3)

Consider the standard money market model with constant money supply. What should happen with the price level after an increase in real interest rates?

Select one:

a. It depends on the relative strength of income and substitution effects

b. Decrease

c. Remain unchanged

d. Increase

4)

he condition stating that the discounted value of lifetime consumption equals the discounted value of lifetime income is known as:

Select one:

a. Firm’s optimality condition

b. Budget constraint

c. Market-clearing condition

d. Consumer's optimality condition

5)

Suppose that a part of the population experienced a sharp, temporary decrease in income, and they have no access to credit and financial market whatsoever. Nothing else changes. In this situation:

Select one:

a. The affected consumers will not change their consumption allocations

b. Changing the timing of taxation can be welfare-improving

c. First welfare theorem holds in this economy, so changing the timing of taxation can only reduce welfare

d. Changing the timing of taxation will have no impact on allocations

Answer 1

Answer
1. labor supply curve is approximately vertical in the long run
As in the long run, we see that the labor supply curve is vertical. it is due to restrictions in prefernces.

2.Decrease monetary base
This will lower the supply of money in circulation and will hinder lower the growth rate of economy.

3It depends on the relative strength of income and substitution effects
depending upon the changes in the above effects can be understand the change in price level.

4 consumer's optimality condition
It isi the consumer's optimality condition where, the discounted value of lifetime consumptiton , is equal to discounted value of life time income

5 Changing the timing of taxation can be welfare-improving
delaying tax payments will help the popluation get back out of the recession.

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