9. The problem with the Gordon stock pricing formula is that a) the dividend growth is assumed to be constant. b) the interest rate is assumed to be greater than the growth rate of dividend. c) the observed stock prices are too volatile. d) there is no bubble e) All of the above. 12. Which of the following statements is not a well-documented empirical observation on asset returns? a) Macroeconomic fundamentals are not good predictors of asset returns. b) Standard theories cannot explain the observed equity risk premium. c) The aggregate stock prices are too volatile to be justified by standard theories. d) Dividend growth is a good predictor of future stock returns. e) None of the above. 13. Which of the following statements is accurate about the standard CAPM? a) The higher the systematic risk, the lower the excess returns. b) Assets with the same volatility have the same covariance with the market portfolio. as captured by the market 'beta'. c) Non-systematic risk is not rewarded in terms of higher excess returns. d) The expected excess return is highly correlated with the macroeconomic risk. e) There are multiple sources of risk factors in the model.14. According to the consumption based CAPM {i.e. C-CAPM}. a) an eicieut investment portfolio is to minimize risk for a given return In) an asset's price is the discounted payoff where the discount factor is the risk'ee rate. c} an asset with high payoffs in good states and low payoffs in bad states conunand low prices. d} an asset's price is the present discounted value of expected future dividend payments. e} None ofthc above Assume that the aggregate labour market is such that the labour demand curve is upward sloping and steeper than the labour supply curve. If pessimistic expectations are wide spread among workers in an economy with this type of labour market, real wages will fall while agmegate output will increase. aggregate output will fall while employment will increase. it is possible to have an equilibrium of high real interest rate and low aggregate output real wages will fall while aggregate output does not change. Political business cycles are most likely to arise in an economy in which policymakers have adaptive expectations while economic agents form expectations rationally policymakers are rational while economic agents have adaptive expectations policymakers are targeting the natural rate ot'unemploymcnt for any given ination policymakers are not opportunistic and conduct policy by rules rather than discretion. 9. Incorporating the habit formation in the C-CAPM will help resolve the equity premium puzzle because a) the habit formation will switch people from risk averse to risk loving investors, and hence demanding higher risk premiums. b) the habit formation increases the constant parameter 'gamma' in the utility function to an extremely high value. c) the relative risk aversion coefficient becomes time-varying and makes the stochastic discount factor volatile. d) the riskfree rate is pushed down to a negative value, making excess returns very large. 10. Which of the following statements about various theories and evidence of the business cycle is the most accurate? a) The real business cycle theory implies that minimum wage legislation can help stabilize the level of unemployment when a technology shock hits the economy. b) According to the political business cycle theory and evidence, politicians can always cause fluctuations in output for electoral gains. c) Monetary business cycle hypothesis implies that business cycles cause variations in the growth rate of money. d) The new Keynesian theory explains output fluctuation as arising due to frictions and coordination failures. 6. Intertemporal efficiency in consumption is unlikely to hold when a) An individual has to borrow against her future income to smooth out her consumption b) An individual takes account of expected future consumption streams c) An individual's consumption is not allowed to be greater than her income d) An individual's marginal utility remains constant over time after adjusting for her time preference and the real interest rate