1) Which of the following is true about the discount rate?

a) It is, by definition, always equal to the Federal Funds rate.

b) It is the rate at which the FED lends or borrows money (in transactions with

commercial banks).

c) It is one of the FED's policy instruments. d) (b) and (c) are both correct.

e) None of the above is correct

2)Consider a labor market with aggregate demand given byLD= 20010w(wis the wage) and aggregate supply given byLS= 40 + 10w. Assume that the government enforces a minimum wage law an the minimum wage is set atw = 10. Which of the following is correct?

a) The unemployment is 20.5 percent.

b) The unemployment is 25.5 percent.

c) The unemployment is 28.5 percent.

d) Unemployment is zero.

3) Consider a coupon bond with maturity date n = 2, coupon of 10, interest rate of 5 percent, and face value of 50. What is the price of this coupon bond?

a) $71.25 b) $63.95 c) $67.15 d) $54.85

4)The college premium in the United States has the .

over time, and the main reason is

a) increased; skilled-biased technological change

b) increased; increase in the supply of college graduates c) increased; adverse selection in labor markets

d) decreased; increase in the supply of college graduates

5)Which of the following leads to a steeper Aggregate Demand curve?

a) Firms' price setting behavior becomes more sensitive to changes in short-run output b) Firms' investment decisions become less sensitive to changes in the real interest rate c) Firms' investment decisions become more sensitive to changes in the real interest

rate

d) The monetary policy rule becomes more sensitive to changes in inflation

6)Consider two types of Treasury bonds with a common face value of $1,000. The first type of bonds have maturityn= 1 and trade at pricep1= 970; the second type have maturityn= 2 and trade at pricep2= 950. Which of the following is true?

a) The first type of bonds has a lower yield to maturity

b) The first type of bonds has a higher yield to maturity

c) The two types of bonds have the same yield to maturity since they promise an equal

payment of $1,000 on their perspective maturity date

d) It is impossible to calculate the yield to maturity with the given information