econ 4353 exam 2

Which of these statements is NOT true about the steady state of the basic Solow model? -The investment per worker is always equal to the depreciation per worker. -The capital per worker and output per worker are constant. -The marginal product of capital always is equal to the depreciation rate. -The saving and consumption per worker are constant.

The marginal product of capital always is equal to the depreciation rate.

If Y = K0.3L0.7, then the per-worker production function is: -Y / L = (K / L)0.7. -Y / L = (K / L)0.5. -Y / L = (K / L)0.3. -Y = F(K / L).

Y / L = (K / L)0.3.

The U.S. dollar exchange rate (units of foreign currency per U.S. dollar) for currencies of countries with high inflation rates relative to the United States has tended to _____, and the U.S. dollar exchange rate (units of foreign currency per U.S. dollar) for currencies of countries with low inflation rates relative to the United States has tended to _____. -appreciate; depreciate -appreciate; appreciate -depreciate; depreciate -depreciate; appreciate

depreciate; appreciate

In the case of unions, the conflict of interest between different groups of workers results in insiders wanting _____, while outsiders want _____. -high wages; more hirings -high wages; fewer hirings -fewer hirings; high wages -more hirings; high wages

high wages; more hirings

When exports exceed imports, all of these are true EXCEPT: -domestic investment exceeds domestic saving. -net exports are positive. -domestic output exceeds domestic spending. -net capital outflows are positive.

domestic investment exceeds domestic saving.

When exports exceed imports, all of these are true EXCEPT: -domestic output exceeds domestic spending. -domestic investment exceeds domestic saving. -net exports are positive. -net capital outflows are positive.

domestic investment exceeds domestic saving.

When the real exchange rate rises: -imports will decrease but exports will be unaffected. -exports will decrease and imports will increase. -exports will increase and imports will decrease. -exports will decrease but imports will be unaffected.

exports will decrease and imports will increase.

In a small open economy, if consumer confidence falls and consumers decide to save more, then the real exchange rate: -and net exports both fall. -falls, and net exports rise. -and net exports both rise. -rises, and net exports fall.

falls, and net exports rise.

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. -more; larger -less; larger -less; smaller -more; smaller

less; smaller

The characteristic of the classical model that the money supply does not affect real variables is called: -monetary policy. -the monetary basis. -the quantity theory of money. -monetary nuetrality

monetary nuetrality

If an economy has a steady state MPK of 0.15 and a depreciation rate of 0.10, then the economy has _____ capital than the golden rule level and a(n) _____ in saving rate will lead to an increase in the consumption per worker in the long run. -more; increase -more; decrease -less; increase -less; decrease

more; decrease

The generosity of unemployment insurance benefits is measured by the: -median wage and the unemployment rate. -job-finding rate and the job-separation rate. -price level and duration of unemployment. -replacement rate and the duration of benefits.

replacement rate and the duration of benefits.

Given that M/P = kY, when the demand for money parameter, k, is large, the velocity of money is _____, and money is changing hands _____. -small; infrequently -large; frequently -large; infrequently -small; frequently

small; infrequently

The natural rate of unemployment is: -the average rate of unemployment around which the economy fluctuates. -a rate that never changes. -about 10 percent of the labor force. -the transition of individuals between employment and unemployment.

the average rate of unemployment around which the economy fluctuates.

The theoretical separation of real and monetary variables is called: -monetary neutrality. -the quantity theory of money. -the Fisher effect. -the classical dichotomy.

the classical dichotomy

If domestic saving exceeds domestic investment, then net exports are _____ and net capital outflows are _____. -negative; negative -negative; positive -positive; negative -positive; positive

positive; positive

According to the quantity equation, 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 remain constant. -number of transactions must remain constant. -price of the average transaction multiplied by the number of transactions must double. -price of the average transaction must double.

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

The definition of the transactions velocity of money is: -money divided by prices multiplied by transactions. -transactions divided by prices multiplied by money. -prices multiplied by transactions divided by money. -money multiplied by prices divided by transactions.

prices multiplied by transactions divided by money.

Efficiency-wage theories suggest that a firm may pay workers more than the market-clearing wage for all of these reasons EXCEPT to: -reduce labor turnover. -improve the quality of the firm's labor force. -reduce the firm's wage bill. -increase worker effort.

reduce the firm's wage bill.

Any policy aimed at lowering the natural rate of unemployment must either _____ the rate of job separation or _____ the rate of job finding. -reduce; reduce -increase; increase -reduce; increase -increase; reduce

reduce; increase

In the Solow growth model, investment equals: -the marginal product of capital. -saving. -output. -consumption.

saving

If the average price of goods and services in the economy equals $10 and the quantity of money in the economy equals $200,000, then real balances in the economy equal: -2,000,000. -20,000. -10. -200,000.

20,000

When f (k) is drawn on a graph with increases in k noted along the horizontal axis, the slope of the curve denotes: -output per unit of capital. -the marginal product of capital. -output per worker. -the marginal product of labor.

the marginal product of capital.

When the unemployment rate is at a steady state: -the number of people finding jobs exceeds the number of people losing jobs. -the number of people finding jobs equals the number of people losing jobs. -no hiring or firings are occurring. -the number of people losing jobs exceeds the number of people finding jobs.

the number of people finding jobs equals the number of people losing jobs.

If velocity is constant and, in addition, the factors of production and the production function determine real gross domestic product (GDP), then: -the price level is fixed. -real GDP is proportional to the money supply. -nominal GDP is fixed. -the price level is proportional to the money supply

the price level is proportional to the money supply

If a war destroys a large portion of a country's capital stock but the saving rate is unchanged, the Solow model predicts that output will grow and that the new steady state will approach: -a higher level of output per person than before. -a lower level of output per person than before. -the Golden Rule level of output per person. -the same level of output per person as before.

the same level of output per person as before.

Which of these policies adopted by the government is NOT aimed at reducing the natural rate of unemployment? -the Illinois bonus program for unemployment insurance claimants who found jobs quickly -public retraining programs -government employment agencies -unemployment insurance

unemployment insurance

In the long run, according to the quantity theory of money and classical macroeconomic theory, if velocity is constant, then _____ determines real gross domestic product (GDP) and _____ determines nominal GDP. -velocity; the money supply -the productive capability of the economy; the money supply -the money supply; the productive capability of the economy -the money supply; velocity

velocity; the money supply

A policy that decreases the job separation rate _____ the natural rate of unemployment. -will increase -will decrease -could either increase or decrease -will not change

will decrease

A policy that increases the job-finding rate _____ the natural rate of unemployment. -will not change -will decrease -could either increase or decrease -will increase

will decrease

Consider the money demand function that takes the form (M/P)d = kY, where M is the quantity of money, P is the price level, k is a constant, and Y is real output. If the money supply is growing at a 10 percent rate, real output is growing at a 3 percent rate, and k is constant, what is the average inflation rate in this economy? -3% -10% -7% -13%

7%

"Inflation tax" means that: -as the price level rises, the real value of money held by the public decreases. -as the price level rises, taxpayers are pushed into higher tax brackets. -in a hyperinflation, the chief source of tax revenue is the ability of the government to create money. -as taxes increase, the rate of inflation also increases.

as the price level rises, the real value of money held by the public decreases.

If a U.S. corporation sells a product to Canada and uses the proceeds to purchase a product manufactured in Canada, then U.S. net exports _____, and net capital outflows _____. -do not change; do not change -decrease; decrease -do not change; increase -increase; increase

do not change; do not change

In a small, open economy, if net exports are negative, then: -domestic spending is greater than output. -net capital outflows are positive. -imports are less than exports. -saving is greater than investment.

domestic spending is greater than output.

Starting from a steady-state situation, if the saving rate increases, capital per worker will: -decrease and continue to decrease unabated. -decrease until the new steady state is reached. -increase and continue to increase unabated. -increase until the new steady state is reached.

increase until the new steady state is reached.

One reason for unemployment is that: -the labor market is always in equilibrium. -a laid-off worker can immediately find a new job at the market wage. -it takes time to match workers and jobs. -all jobs are identical.

it takes time to match workers and jobs.

Economists call the changes in the composition of demand among industries and regions: -sectoral shifts. -moral hazard. -adverse selection. -insider-outsider conflicts.

sectoral shifts.

The value of net exports is also the value of: -net saving. -net investment. -the difference of national saving and domestic investment. -national saving.

the difference of national saving and domestic investment.

All of these are reasons for frictional unemployment EXCEPT: -the flow of information is imperfect. -workers have different preferences and abilities. -geographic mobility takes time. -unemployed workers accept the first job offer that they receive.

unemployed workers accept the first job offer that they receive.

In the Solow growth model, where s is the saving rate, y is output per worker, and i is investment per worker, consumption per worker (c) equals: -(1 - s) y - i. -(1 - s) y. -(1 + s) y. -sy.

(1 - s) y.

In a small open economy, if exports equal $20 billion, imports equal $30 billion, and domestic national saving equals $25 billion, then net capital outflow equals: - −$25 billion. - $25 billion. - $10 billion. - -$10 billion

-$10 billion

If the nominal interest rate is 1 percent and the inflation rate is 5 percent, the real interest rate is: - -4% - -5% - 1% - 6%

-4%

_____ cause(s) the capital stock to rise, while _____ cause(s) the capital stock to fall. -International trade; depressions -Inflation; deflation -Investment; depreciation -Interest rates; the discount rate

Investment; depreciation

Which of these is the BEST example of structural unemployment? -Vickie lost her job as a graphic artist at a movie studio because she did not have training in computer-generated animation. -Fatima lost her job at a packing plant but has not looked very intensively for a new job because she still has two months of unemployment insurance benefits left. -Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available. -Tim is looking for a job with flexible hours but has not been offered one yet.

Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available.

Which of these would be called a hyperinflation? -Real gross domestic product (GDP) grew at a rate of 12 percent over a year. -The inflation rate was 10 percent per year. -Price increases averaged 1% percent per day. -A stock market index rose by 1,000 points over a year.

Price increases averaged 1% percent per day.

The inflation tax is paid: -by all holders of money. -equally by every household. -only by the central bank. -only by government bond holders.

by all holders of money

The Golden Rule level of capital accumulation is the steady state with the highest level of: -capital per worker. -consumption per worker. -output per worker. -savings per worker.

consumption per worker.

If a U.S. corporation sells a product in Europe and uses the proceeds to purchase shares in a European corporation, then U.S. net exports _____, and net capital outflows _____. -increase; increase -decrease; increase -decrease; decrease -increase; decrease

decrease; increase

In a small open economy, if exports equal $5 billion and imports equal $7 billion, then there is a trade _____ and _____ net capital outflow. -deficit; positive -surplus; positive -surplus; negative -deficit; negative

deficit; negative

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: -both inflation and the nominal interest rate of less than 1 percent. -inflation of 1 percent and the nominal interest rate of less than 1 percent. -inflation of 1 percent and the nominal interest rate of 1 percent. -inflation of 1 percent and the nominal interest rate of more than 1 percent.

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

Hyperinflations ultimately are the result of excessive growth rates of the money supply; the underlying motive for the excessive money growth rates is frequently a government's: -need to generate revenue to pay for spending. -desire to increase prices throughout the economy. -responsibility to increase nominal interest rates by increasing expected inflation. -inability to buy government securities through open-market operations.

need to generate revenue to pay for spending.

The opportunity cost of holding money is the:` -nominal interest rate. -real interest rate. -prevailing Treasury bill rate. -federal funds rate.

nominal interest rate

The nominal exchange rate between the U.S. dollar and the Japanese yen (measured in $/yen) is the: -price of U.S. goods divided by the price of Japanese goods. -number of yen you can get for one dollar. -price of Japanese goods divided by the price of U.S. goods. -number of yen you can get for lending one dollar in Japan for one year.

number of yen you can get for one dollar.

The production function y = f (k) means: -the production function exhibits increasing returns to scale. -output per worker is a function of capital per worker. -labor is not a factor of production. -output per worker is a function of labor productivity.

output per worker is a function of capital per worker.

In the labor market, the term replacement rate refers to the: -average amount of time it takes firms to replace workers who quit their job voluntarily. -percentage of previous wages replaced by government benefits in case of unemployment. -fraction of employed individuals who leave or lose their jobs every month. -fraction of unemployed individuals who find a job every month.

percentage of previous wages replaced by government benefits in case of unemployment.

In the Solow growth model, for any given capital stock, the _____ determines how much output the economy produces, and the _____ determines the allocation of output between consumption and investment. -population growth rate; saving rate -production function; saving rate -depreciation rate; population growth rate -saving rate; production function

production function; saving rate

If the Fed announces that it will raise the money supply in the future but does not change the money supply today, -the nominal interest rate will decrease and the current price level will increase. -the nominal interest rate will increase and the current price level will decrease. -both the nominal interest rate and the current price level will increase. -both the nominal interest rate and the current price level will decrease.

both the nominal interest rate and the current price level will increase.

Suppose the economy is originally at a steady state where the marginal product of capital is less than the depreciation rate. If the saving rate of the economy changes to a rate consistent with the golden rule level of capital, then at the new steady state -output per worker will be higher compared to the original steady state. -capital per worker will be higher compared to the original steady state. -consumption per worker will be higher compared to the original steady state. -investment per worker will be higher compared to the original steady state.

consumption per worker will be higher compared to the original steady state.

Suppose the economy is originally at a steady state where the marginal product of capital is equal to the depreciation rate. If the saving rate of the economy increases, then at the new steady state: -capital per worker will be lower compared to the original steady state. -consumption per worker will be lower compared to the original steady state. -investment per worker will be lower compared to the original steady state. -output per worker will be lower compared to the original steady state.

consumption per worker will be lower compared to the original steady state.

In the case of an unanticipated increase in inflation: -debtors with an unindexed contract do not gain because they pay exactly what they contracted for in nominal terms. -creditors with an unindexed contract are hurt because they get less than they expected in real terms. -debtors with an indexed contract are hurt because they pay more than they contracted for in nominal terms. -creditors with an indexed contract gain because they get more than they contracted for in nominal terms.

creditors with an unindexed contract are hurt because they get less than they expected in real terms.