PART B : Multiple choice questions (5 points each, total 30 points) 1) Cyclical unemployment occurs when: (a) workers and firms take time to find suitable matches of workers to jobs. (b) there is a persistent mismatch between the job skills or attributes of workers and the requirements of jobs. (c) workers temporarily lose jobs during recessions. (d) both a and c. 2) An increase in income shifts your intertemporal budgetary constraint outwards in the diagram (C2, C1) and knowing that consumption is a normal good and that the interest rate remains stable, you can conclude that: (a) C1 will increase only for borrowing households. (b) lifetime consumption will increase for all households. (c) C2 will increase only for saving households. (d) lifetime consumption will increase only for saving households. 3) The average propensity to consume represents: (a) the change in consumption caused by a one-unit change in disposable income. (b) the level of consumption that occurs if disposable income is zero. (c) the ratio of total disposable income to average consumption. (d) none of the above.

4) Suppose that the unemployment rate in the United States at the beginning of the year was 3 percent. According to the Okun s law, which of the following statements is true: (a) if the average unemployment rate in the US for that year rises to 5 percent, real GDP is expected to fall by 2 percent in that year. (b) If the unemployment rate does not change during the year, we would expect real GDP growth to be around 2%. (c) if the average unemployment rate in the US for that year decreases to 2 percent, real GDP is expected to increase by 5 percent in that year. (d) if the average unemployment rate in the US for that year is 5 percent, real GDP remains constant in that year. 5) Suppose that the economy has not been performing well for some time and as a result there is an increase in the number of discouraged workers, holding everything else constant, which of the following statements is correct (a) The unemployment rate will increase (b) The unemployment rate will stay constant (c) Labor force participation rate will increase (d) Labor force participation rate will decrease 6) According to the permanent income hypothesis (PIH): (a) The marginal propensity to consume out of current income is constant. (b) Current consumption is not significantly affected by a temporary change in income. (c) Increases in current income always lead to large increases in current consumption. (d) Consumers are impatient and tend to not save enough.