Practice First Exam - A Intermediate Macroeconomics

1. In the fifth century AD, the Huns sacked Rome, libraries and books were destroyed, and many educated leaders were executed. This was followed by the Dark Ages, a period of almost 1000 years in which 'knowledge' was actually lost and/or forgotten (hence the name "Dark Ages"). Using the classical model, show and explain how such a “negative” shock to technology would affect output and employment.

2. Using the labor/leisure tradeoff model of utility maximization, show and explain how an increase in the price level would affect the labor supply curve when the income effect dominates the substitution effect.

3. The Federal Reserve has been pushing up interest rates over the last year by reducing the money stock in an effort to reduce inflation. Posing as a classical economist, evaluate the potential success or failure of this policy action? [Show and explain your answer.]

4. During the 1970s, women entered the labor force in large numbers as did the baby boom generation. Using the classical model, show and explain how this would affect real output, real wages and employment.