Macroeconomics Answers

If autonomous consumption is 6.264, and the marginal propensity to save is 0.061, then the change in total spending is???

If the marginal propensity to consume is 0.917 what is the consumption multiplier?

Under Keynesian economics, the horizontal portion of the aggregate supply curve is the which range

QUESTION 29

If oligopolies could sustain cooperation with each other on output and pricing:

1. They could rule the world.
2. They could earn profits as if they existed in a perfectly competitive market.
3. They could earn profits as if they existed in a monopolistically competitive market.
4. They could earn profits as if they were a single monopoly.
5. There would be no need for antitrust laws.

QUESTION 30

Oligopolies are often buffered by significant barriers to entry, which enable oligopolists to:

1. Advertise their products.
2. Earn sustained profits over short periods of time.
3. Earn sustained profits over long periods of time.
4. Earn substantial losses over short periods of time.
5. Behave in a way that is beneficial to society.

QUESTION 26

High monopoly profits are possible.

1. In a perfectly competitive market.
2. If each of the oligopolists cooperates in holding down output.
3. If each of the oligopolists lower their price.
4. If each of the oligopolists increase their output.
5. All of the above.  

QUESTION 27

The way out of a prisoner’s dilemma is to find:

1. Somebody to step in for you.
2. A way to penalize those who do not cooperate.
3. A way to penalize those who do cooperate.
4. A way to reward those who do not cooperate.
5. A needle in a haystack.

QUESTION 28

Oligopolists may choose to act in a way that generates:

1. Equal profits for all competitors.
2. The largest surplus for consumers.
3. Pressure on each firm to stick to its agreed quantity of output.
4. All of the above.
5. None of the above.

QUESTION 22

Oligopoly arises when a small number of large firms:

1. Exit the market.
2. Enter the market.
3. Have most of the sales in an industry.
4. Have only a minority of the sales in an industry.
5. All of the above.

QUESTION 23

We typically characterize oligopolies by:

1. Mutual independence.
2. Mutual interdependence.
3. Mutual exclusivity.
4. Independent decision-making.
5. All of the above.

QUESTION 24

By acting together, oligopolistic firms can:

1. Charge a higher price.
2. Hold down industry output.
3. Divide the profit among themselves.
4. All of the above.
5. None of the above.

QUESTION 25

Because cartel agreements provide evidence of collusion:

1. Firms frequently present them in court to prove the existence of a contract.
2. Firms frequently use them.
3. They are rare in the U.S.
4. They are common in the U.S.
5. They only can exist in California.

QUESTION 19

Critics of market-oriented economies argue that society does not really need:

1. Food to survive.
2. Dozens of different automobiles.
3. Any more automobiles.
4. Decision-makers.
5. All of the above.

QUESTION 20

Advertising causes a firm’s perceived demand curve to become:

1. Perfectly inelastic.
2. More inelastic.
3. Engrossed.
4. More elastic.
5. Perfectly elastic.

QUESTION 21

Advertising causes the:

1. Demand for the firm’s product to increase.
2. Demand for the firm’s product to decrease.
3. Supply of a firm’s product to increase.
4. Supply of a firm’s product to decrease.
5. Death of all humankind.

what does the exchange rate affect?

Consider two risky securities A and B, as well as a risk-free bond. Their average returns and standard deviations are presented in the table below. The correlation between the Securities A and B is 0.3.

Average Return Standard Deviation

Security A 8% 12%

Security B 13% 20%

Risk-free bond 5% 0%

a) What is the average return and standard deviation of an equally-weighted portfolio in A and B?

b) Assume that the portfolio from a) is the efficient market portfolio M. If the covariance between Security A and the efficient market portfolio M is Cov (A,M) =

0.0108, and the covariance between Security B and the efficient market portfolio M Cov (B, M) is 0.0236, what is the expected return of Securities A and B, according to the CAPM?

c) What are the Jensen’s alphas of the two securities? Based on the alphas, how can

investors improve their portfolio performance?

Consider a Multi-Index Model (MIM) specification for the portfolio return:

𝑟𝑝𝑡 = 𝛼𝑝+𝛽𝑝1𝐹1𝑡 + 𝛽𝑝2𝐹2𝑡 + 𝜀𝑝𝑡

a) Derive the functional form for the variance of 𝑟𝑝𝑡, denoted as 𝜎𝑝2.

b) In deriving 𝜎𝑝2, what are the key assumptions you made under the MIM?

c) If you estimate the above MIM as a regression, and you find that the variance of the residual return 𝜀𝑝𝑡 represents a substantial portion of 𝜎𝑝2 i.e. low 𝑅2 , how

would you interpret this finding? [Hint: More than 1 reason.]