Eco 3203 final multiple choice pt 1 (CH 5, 7, 8, 9)

In the Solow growth model with population growth but no technological progress, the steady-state amount of investment can be thought of as a break-even amount of investment because the quantity of investment just equals the amount of:

capital needed to replace depreciated capital and to equip new workers.

In the Solow growth model, if investment exceeds depreciation, the capital stock will ______, and output will ______ until the steady state is attained.

increase; increase

In the Solow growth model, increases in capital ______ output and ______ the amount of output used to replace depreciating capital.

increase; increase

More frequent holidays for workers in Europe than in the United States contribute to:

fewer hours worked per year by the average employed person in Europe than the average employed person in the United States.

When people want to hold ____ money, the income velocity of money increases, and the money demand parameter K ____.

less; decreases

According to the classical theory of money, reducing inflation will not make workers richer because firms will increase product prices ______ each year and give workers ______ raises.

less; smaller

Much of the difference in unemployment rates across Europe is attributable to differences in:

long-term unemployment.

In the Solow growth model of an economy with population growth but no technological change, if population grows at rate n, then capital in the steady state grows at rate ______, and output grows at rate ______ in the steady state.

n; n

in the solow growth model of an economy with population growth but no technological change, if population grows at rate n, then capital in the steady state grows at rate _____, and output grows at rate _____ in the steady state

n;n

A possible externality associated with the process of accumulating new capital is that:

new production processes may be devised.

One explanation for greater economic development in moderate versus tropical climates is that institutions established by colonial settlers in moderate climates ______, while institutions established by colonists in tropical climates ______.

protected property rights; were extractive and authoritarian

Paying efficiency wages helps firms reduce the problem of adverse selection by:

providing an incentive for the best-qualified workers to remain with the firm.

The inconvenience associated with reducing money holdings to avoid the inflation tax is called:

shoeleather costs.

Unemployment insurance increases the amount of frictional unemployment by:

softening the economic hardship of unemployment.

The unemployment resulting when real wages are held above equilibrium is called ______ unemployment, while the unemployment that occurs as workers search for a job that best suits their skills is called ______ unemployment.

structural; frictional

According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by:

the Federal Reserve.

The costs of unexpected inflation, but not of expected inflation, are:

the arbitrary redistribution of wealth between debtors and creditors.

in the solow model with technological progress, the steady state growth rate of total output is

n+g

Capital per effective worker in the steady-state growth rate

0

In the Solow model with technological progress, the steady-state growth rate of output per effective worker is:

0

in the solow model with technological progress, the steady state growth rate of output per effective worker is

0

output per effective worker in the steady-state growth rate

0

All of the following are reasons for frictional unemployment except:All of the following are reasons for frictional unemployment except: 1)unemployed workers accept the first job offer that they receive. 2)geographic mobility takes time. 3)the flow of information is imperfect. 4)workers have different preferences and abilities.

1) unemployed workers accept the first job offer that they receive.

Which of the following would most likely be called a hyperinflation? 1) A stock market index rose by 1,000 points over a year. 2) The inflation rate was 10 percent per year. 3) Price increases averaged 300 percent per year. 4) Real GDP grew at a rate of 12 percent over a year.

3) Price increases averaged 300 percent per year.

all of the following are causes of structural unemployment except: 1) Minimum wage laws, 2) the monopoly power of unions, 3) unemployment insurance, 4) efficiency wages

3) unemployment insurance

If the per-worker production function is given by y = k1/2, the saving rate (s) is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is:

4

If the labor force is growing at a 3 percent rate and the efficiency of a unit of labor is growing at a 2 percent rate, then the number of effective workers is growing approximately at a rate of:

5 Percent

According to the quantity theory of money, a 5 percent increase in money growth increases inflation by ___ percent. According to the Fisher equation, a 5 percent increase in the rate of inflation increases the nominal interest rate by ____ percent.

5; 5

assume two economies are identical in every way except that one has a higher saving rate. According to the solow growth model, in the steady-state the country with the higher savings rate will have blank level of output per person and blank rate of growth of output per worker compared to the country with the lower saving rate.

A higher; The same

short term unemployment is most likely to be____ unemployment, while long term unemployment is most likely to be_____ unemployment.

Fictional; Structural

increase.

In this graph, starting from capital-labor ratio k1, the capital-labor ratio will:

investment per worker, and BC represents consumption per worker.

In this graph, when the capital stock per worker is OA, AB represents:

Assume that two economies are identical in every way except that one has a higher saving rate. According to the Solow growth model, in the steady state the country with the higher saving rate will have ______ level of output per person and ______ rate of growth of output per worker compared to the country with the lower saving rate.

a higher; the same

the ex post real interest rate will be less than the ex ante real interest rate when the

actual rate of inflation it is greater than the expected rate of inflation

If nominal wages cannot be cut, then the only way to reduce real wages is by:

adjustments via inflation.

If the demand for real money balances is proportional to real income, velocity will:

be constant.

The inflation tax is paid:

by all holders of money.

in the Solow growth model with population growth and labor augmenting technological change, the break even level of investment must cover:

depreciating capital, capital for new workers, capital for new effective workers

The earned income tax credit:

does not raise labor costs.

if the saving rate increases, the

economy will grow at a faster rate until a new, higher, steady state capital labor ratio is reached

Most hyperinflations end with _____ reforms that eliminate the need for _____.

fiscal; seigniorage

output per worker in the steady-state growth rate

g

The majority of empirical evidence supports the hypothesis that economies that are open to trade _____ than comparable closed economies.

grow more rapidly

Using average rates of money growth and inflation in the United States over many decades, Friedman and Schwartz found that decades of high money growth tended to have ______ rates of inflation and decades of low money growth tended to have ______ rates of inflation.

high; low

In the solow growth model, with a given production function, depreciation rate, and no technological change, higher rates of population growth produce

higher steady state growth rates of total output

In the Solow growth model, with a given production function, depreciation rate, saving rate, and no technological change, higher rates of population growth produce:

higher steady-state growth rates of total output.

The demand for real money balances is generally assumed to:

increase as real income increases.

a permanent increase in the money supply will

increase output in the short run but not in the long run

starting from a steady state situation, if the saving rate increases, capital per worker will

increase until the new steady state is reached

According to the quantity theory of money, if money is growing at a 10 percent rate and real output is growing at a 3 percent rate, but velocity is growing at increasingly faster rates over time as a result of financial innovation, the rate of inflation must be:

increasing.

If the real interest rate and real national income are constant, according to the quantity theory and the Fisher effect, a 1 percent increase in money growth will lead to rises in:

inflation of 1 percent and the nominal interest rate of 1 percent.

The classical dichotomy:

is said to hold when the values of real variables can be determined without any reference to nominal variables or the existence of money.

the classical dichotomy

it is said to hold when the values of real variables can be determined without any reference to nominal variables or the existence of money

Assume that a country experiences a reduction in productivity that lowers the marginal product of labor for any given level of labor. In this case, the:

labor demand curve shifts downward and to the left.

total output in the steady-state growth rate

n + g

If an economy moves from a steady state with positive population growth to a zero population growth rate, then in the new steady state, total output growth will be ______, and growth of output per person will be ______.

lower; the same as it was before

Government policies directed at reducing frictional unemployment include:

making unemployment insurance 100 percent experience rated.

Two economies are identical except that the level of capital per worker is higher in Highland than in Lowland. The production functions in both economies exhibit diminishing marginal product of capital. An extra unit of capital per worker increases output per worker:

more in Lowland.

Data on unemployment in the United States show that:

most weeks of unemployment are attributable to the long-term unemployed.

When insiders have a much greater impact on the wage-bargaining process than do outsiders, the negotiated wage is likely to be ______ the equilibrium wage.

much greater than

Assume that a country experiences a reduction in productivity that shifts the labor demand curve downward and to the left. If the real wage were rigid, this would lead to:

no change in the real wage and a rise in unemployment.

Variables expressed in terms of money are called ______ variables.

nominal

In its most general formulation, the demand function for real balances depends on the level of income and the:

nominal interest rate.

The opportunity cost of holding money is the:

nominal interest rate.

If the transactions velocity of money remains constant while the quantity of money doubles, the:

price of the average transaction multiplied by the number of transactions must double.

the belief that new technology that enables the production of the same amount of output with fewer workers will result in an economy with fewer workers is known as

the luddite fallacy

If velocity is constant and, in addition, the factors of production and the production function determine real GDP, then:

the price level is proportional to the money supply.

Assume that a war reduces a country's labor force but does not directly affect its capital stock. Then the immediate impact will be that:

total output will fall, but output per worker will rise.

Examples of "active" labor-market policies include all of the following except:

unemployment insurance

The macroeconomic problem that affects individuals most directly and severely is:

unemployment.

Workers unemployed as a result of wage rigidity are:

waiting for a job to become available.

If two economies are identical (with the same population growth rates and rates of technological progress), but one economy has a lower saving rate, then the steady-state level of income per worker in the economy with the lower saving rate:

will be at a lower level than in the steady state of the high-saving economy.

If two economies are identical (including having the same saving rates, population growth rates, and efficiency of labor), but one economy has a smaller capital stock, then the steady-state level of income per worker in the economy with the smaller capital stock:

will be at the same level as in the steady state of the high capital economy.

Spells of unemployment end when the unemployed person finds a job or:

withdraws from the labor force.