An economic student has estimated the following growth accounting equation from historical data based on the Solow growth model: Growth in potential GDP = 2.2 + 0.7 x growth in labor + 0.3 x growth in capital. What is the growth rate of total factor productivity?

• A.2.2
• B.It cannot be determined by the above equation.
• C.It cannot be determined by the above equation.

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Expansionary aggregate demand policy includes all of the following except:

• A.increasing government spending and autonomous expenditures.
• B.increasing imports.
• C.decreasing taxes.

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Which of the following statements is (are) true with respect to the usage of the various forms of duration and convexity measures?
I). Holding everything constant, Modified duration will always be higher than Macaulay duration.
II). Both modified duration and Macaulay duration assume that the cash flows from a bond will not be affected by changes in interest rates.
III). If interest rates are low enough, effective duration and modified duration will yield the same results for a callable bond.
IV). When there is increasing likelihood that the issuer will call the bonds, effective convexity should be used as opposed to modified convexity.

• A.II and IV.
• B.I and II.
• C.III and IV.

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Of the following statements:
I). The level of significance of a hypothesis test is the probability of rejecting the null hypothesis when it is actually true.
II). Type II error is failing to reject the null hypothesis when it is actually false.

• A.Only I is true
• B.Only II is true
• C.I and II are true

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You invest $100 in a risky asset with an expected rate of return of 12% and a standard deviation of
1 5% and a T-bill with a rate of return of 5%. A portfolio that has an expected outcome of $115 is formed by:

• A.investing $80 in the risky asset and $20 in the risk-free asset.
• B.borrowing $43 at the risk-free rate and investing the total amount ($143) in the riskyasset.
• C.investing $43 in the risky asset and $57 in the riskless asset.

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