Beruflich Dokumente
Kultur Dokumente
LSE 2008/Ec102
Page 1 of 22
Section A: Easy multiple choice (24 questions, each worth 1 point). Choose the one alternative that best completes the statement or answers the question. Write the letter of this alternative in the blank space at the top of the question.
LSE 2008/Ec102
Page 2 of 22
Section A: Easy multiple choice (24 questions, each worth 1 point). Choose the one alternative that best completes the statement or answers the question. Write the letter of this alternative in the blank space at the top of the question.
Figure 1
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LSE 2008/Ec102
Page 3 of 22
Section A: Easy multiple choice (24 questions, each worth 1 point). Choose the one alternative that best completes the statement or answers the question. Write the letter of this alternative in the blank space at the top of the question.
LSE 2008/Ec102
Page 4 of 22
Section A: Easy multiple choice (24 questions, each worth 1 point). Choose the one alternative that best completes the statement or answers the question. Write the letter of this alternative in the blank space at the top of the question.
LSE 2008/Ec102
Page 5 of 22
Section A: Easy multiple choice (24 questions, each worth 1 point). Choose the one alternative that best completes the statement or answers the question. Write the letter of this alternative in the blank space at the top of the question.
LSE 2008/Ec102
Page 6 of 22
Section A: Easy multiple choice (24 questions, each worth 1 point). Choose the one alternative that best completes the statement or answers the question. Write the letter of this alternative in the blank space at the top of the question.
LSE 2008/Ec102
Page 7 of 22
Section A: Easy multiple choice (24 questions, each worth 1 point). Choose the one alternative that best completes the statement or answers the question. Write the letter of this alternative in the blank space at the top of the question.
LSE 2008/Ec102
Page 8 of 22
Section B: Harder multiple choice (12 questions, each worth 3 points). Choose the one alternative that best completes the statement or answers the question. Write the letter of this alternative in the blank space at the top of the question.
LSE 2008/Ec102
Page 9 of 22
Section B: Harder multiple choice (12 questions, each worth 3 points). Choose the one alternative that best completes the statement or answers the question. Write the letter of this alternative in the blank space at the top of the question.
LSE 2008/Ec102
Page 10 of 22
Section B: Harder multiple choice (12 questions, each worth 3 points). Choose the one alternative that best completes the statement or answers the question. Write the letter of this alternative in the blank space at the top of the question.
Box B2 continued. To simplify the problem, we assume that investors have a conscience, in the following sense: (1) If investors can borrow and make a positive ( 0) return on a safe project, they will do so, even if the risky project yields a higher average return. In this case, they will not invest in the risky project. (2) If investors cannot borrow and make a positive ( 0) return on the safe project, they will invest in the risky project if it yields a positive ( 0) average return. In this case, they will not invest in the safe project. (3) If both the safe and risky projects yield negative (i.e. < 0) average returns, the investors do not borrow or invest in any project.
LSE 2008/Ec102
Page 11 of 22
Section B: Harder multiple choice (12 questions, each worth 3 points). Choose the one alternative that best completes the statement or answers the question. Write the letter of this alternative in the blank space at the top of the question.
LSE 2008/Ec102
Page 12 of 22
Section C: Short answer (10 questions, each worth 4 points). Write your answer to each question in the question box. You do not necessarily have to fill the entire box.
1. If marginal cost is always zero, monopoly profit maximization equals revenue maximization. True or false. Explain.
LSE 2008/Ec102
Page 13 of 22
Section C: Short answer (10 questions, each worth 4 points). Write your answer to each question in the question box. You do not necessarily have to fill the entire box.
2. Why does AVC reach its minimum before (i.e. at a lower level of output) ATC reaches its minimum?
LSE 2008/Ec102
Page 14 of 22
Section C: Short answer (10 questions, each worth 4 points). Write your answer to each question in the question box. You do not necessarily have to fill the entire box.
3. Assume that preferences satisfy the standard assumptions (transitivity, nonsatiation, convexity and completeness). If the price consumption curve for shoes is a horizontal line, the income elasticity of demand for the composite of all other goods must be negative. True or false. Explain. (Hint: Draw the price consumption curve for shoes, with the composite of other goods on the vertical axis. Think about the substitution & income effects for shoes and what that tells you about the income elasticity of demand for the composite).
LSE 2008/Ec102
Page 15 of 22
Section C: Short answer (10 questions, each worth 4 points). Write your answer to each question in the question box. You do not necessarily have to fill the entire box.
4. I take my children to a carnival and find that they have an offer where our first two rides are free. Is it possible for the carnival to actually SELL more tickets using this offer (i.e. the number of tickets I buy and pay for with the offer is greater than the number I would have bought without it)? Explain. (Hint: think about this question using a diagram with quantity of rides on the x-axis and expenditure on all other goods on the y-axis; draw indifference curves and budget constraints).
LSE 2008/Ec102
Page 16 of 22
Section C: Short answer (10 questions, each worth 4 points). Write your answer to each question in the question box. You do not necessarily have to fill the entire box.
5. I consume two goods, Ice Cream and Biscuits. I shop once a week, spending 100, at either Sainsbury or Tesco. Interestingly, Ive noticed that the bundle I purchase when I visit Tesco costs more at Sainsbury. Similarly, the bundle I purchase when I visit Sainsbury costs more at Tesco. And yet, I find that I get the same utility from shopping at either store (i.e. the Sainsbury shopping bundle gives me the same utility as the Tesco shopping bundle). Explain how it is possible for all of these statements to be true. (Hint: draw a single indifference curve and have me maximize utility given a 100 budget and different prices in the two stores).
LSE 2008/Ec102
Page 17 of 22
Section C: Short answer (10 questions, each worth 4 points). Write your answer to each question in the question box. You do not necessarily have to fill the entire box.
6. I recently read a newspaper article that pointed out that the United States, by itself, accounts for all of the net international lending in the world (i.e. the net international borrowing of the US is equal to the net international lending of the rest of the world). The article suggested that this was quite unusual for a net international borrower and reflected the USs extraordinary demand for loans. Comment on both sentences (you do not need any knowledge of the US to answer this question).
LSE 2008/Ec102
Page 18 of 22
Section C: Short answer (10 questions, each worth 4 points). Write your answer to each question in the question box. You do not necessarily have to fill the entire box.
7. Evaluate the impact of the introduction of taxes paid by producers on the sale of all goods and services on the long run price level (including the taxes) in an economy where nothing else changes (among other things being constant, think of output remaining at full employment, and assume no distortionary effects of the taxes). (Hint: Think about the equations determining the aggregate price level in an economy, holding everything else constant. This is a macro question, not a micro question.)
LSE 2008/Ec102
Page 19 of 22
Section C: Short answer (10 questions, each worth 4 points). Write your answer to each question in the question box. You do not necessarily have to fill the entire box.
8. Central Bank A wants to stabilize the price level (i.e. keep it at its initial level). Central Bank B wants to keep output near full employment (i.e. without waiting for the economys own long run adjustment). Compare their response to an exogenous increase in money demand for each level of i & Y in an economy which is initially at full employment with an upward sloping short run AS curve. Inflation expectations are not a part of the problem, i.e. just take them as being 0.
LSE 2008/Ec102
Page 20 of 22
Section C: Short answer (10 questions, each worth 4 points). Write your answer to each question in the question box. You do not necessarily have to fill the entire box.
9. Consider two economies, Dry and Wet. The capital depreciation rate is higher in Wet, because of the higher levels of rainfall. Otherwise, the two economies have the same rate of population (and labour force) growth and the same Cobb-Douglas production function (i.e. with the same, constant, A & parameters). Statement: The Golden-Rule investment/savings rate is lower in Wet. Is this statement true or false? Explain.
LSE 2008/Ec102
Page 21 of 22
Section C: Short answer (10 questions, each worth 4 points). Write your answer to each question in the question box. You do not necessarily have to fill the entire box.
10. Consider two economies, Dry and Wet. The capital depreciation rate is higher in Wet, because of the higher levels of rainfall. Otherwise, the two economies have the same rate of population (and labour force) growth and the same Cobb-Douglas production function (i.e. with the same, constant, A & parameters). Statement: The Golden-Rule capital/labour ratio is lower in Wet. Is this statement true or false? Explain. (Hint: Draw a Solow Y/L Golden Rule diagram for the two economies; see if anything differs between them).
LSE 2008/Ec102
Page 22 of 22