Intermediate Macro Final

If the capital stock is fixed and something happens to raise the marginal product of capital (MPK) for any given quantity of capital, then the real rental price of capital will:

rise

Examination of data from households shows that households with high current income ______ than do households with low current income.

save a larger fraction of current income

The Solow model shows that a key determinant of the steady-state ratio of capital to labor is the:

saving rate.

In the Solow growth model of Chapter 8, investment equals:

saving.

Investment per worker (i) as a function of the saving ratio (s) and output per worker (f(k)) may be expressed as:

sf(k).

The life-cycle model assumes that consumers use saving and borrowing to ______ consumption over their life cycle.

smooth

The value of net exports is also the value of:

the excess of national saving over domestic investment.

In a small open economy with a floating exchange rate, if the government adopts an expansionary fiscal policy, in the new short-run equilibrium:

the exchange rate will rise, but income will remain unchanged.

In a Cobb-Douglas production function the marginal product of labor will increase if:

the quantity of labor increases

If net capital outflow is positive, then:

the trade balance must be positive.

In the two-period model, if the consumer is initially a saver and the interest rate and first-period consumption increase, then we can conclude that the income effect:

was greater than the substitution effect.

The change in capital stock per worker (Δk) may be expressed as a function of s = the saving ratio, f(k) = output per worker, k = capital per worker, and δ = the depreciation rate, by the equation:

Δk = sf(k) - δk.

According to the Keynesian-cross analysis, if the marginal propensity to consume is 0.75, and government expenditures and autonomous taxes are both increased by 200, equilibrium income will rise by:

200

The marginal product of capital is:

additional output produced when one additional unit of capital is added.

The marginal propensity to consume is the:

amount consumed out of an additional dollar of income.

If bread is produced by using a constant returns to scale production function, then if the

amounts of equipment and workers are both doubled, twice as much bread will be produced.

In an economy with no population growth and no technological change, steady-state consumption is at its greatest possible level when the marginal product of:

capital equals the depreciation rate.

The Solow growth model describes:

how saving, population growth, and technological change affect output over time.

An explanation for the slope of the LM curve is that as:

income rises, money demand rises, and a higher interest rate is required.

An increase in the saving rate starting from a steady state with less capital than the Golden Rule causes investment to ______ in the transition to the new steady state.

increase

If the production function describing an economy is Y = 100 K.25L.75, then the share of output going to labor:

is 75 percent

The real exchange rate:

is equal to the nominal exchange rate multiplied by the domestic price level divided by the foreign price level.

With a Cobb-Douglas production function, the share of output going to labor:

is independent of the amount of labor.

In the Keynesian-cross model with a given MPC, the government-expenditure multiplier ______ the tax multiplier.

is larger than

A higher saving rate leads to a:

larger capital stock and a higher level of output in the long run.

Every indifference curve shows combinations of first-period and second-period consumption that:

make the consumer equally happy.

In the Solow growth model, an economy in the steady state with a population growth rate of n but no technological growth will exhibit a growth rate of total output at rate:

n.

Net capital outflow is equal to:

national saving minus domestic investment.

If domestic saving is less than domestic investment, then net exports are ______ and net capital outflows are ______.

negative; negative

The investment spending component of GDP includes all of the following except:

net foreign investment.

When an economy begins below the Golden Rule, reaching the Golden Rule:

requires initially reducing consumption to increase consumption in the future.

The two most important factors of production are:

capital and labor

In the Solow growth model of Chapter 8, 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

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:

-$10 billion.

If the capital stock equals 200 units in year 1 and the depreciation rate is 5 percent per year, then in year 2, assuming no new or replacement investment, the capital stock would equal _____ units.

190

If 5 Swiss francs trade for $1, the U.S. price level equals $1 per good, and the Swiss price level equals 2 francs per good, then the real exchange rate between Swiss goods and U.S. goods is ______ Swiss good(s) per U.S. good.

2.5

In the two-period consumption model, if Y1 = 20,000, Y2 = 15,000, and the interest rate r is 0.50 (50 percent), then the maximum possible consumption in period one is:

30,000.

In the two-period consumption model, if Y1 = 20,000, Y2 = 15,000, and the interest rate r is 0.50 (50 percent), then the maximum possible consumption in period two is:

45,000.

If Y = AK0.5L0.5 and A, K, and L are all 100, the marginal product of capital is:

50

If the per-worker production function is given by y = k1/2, the saving rate (s) is 0.3, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is:

9

A consumer's budget constraint for two periods with positive interest rate r may be represented by the equation:

C1 + C2/(1 + r) = Y1 + Y2/(1 + r).

______ cause(s) the capital stock to rise, while ______ cause(s) the capital stock to fall.

Investment; depreciation

The property of diminishing marginal product means that, after a point, when additional quantities of:

a factor is added when another factor remains fixed, the marginal product of that factor diminishes.

An appreciation of the real exchange rate in a small open economy could be the result of:

an increase in government spending.

An increase in the trade deficit of a small open economy could be the result of:

an increase in government spending.

An increase in the trade surplus of a small open economy could be the result of:

an increase in the world interest rate.

If the real exchange rate is high, foreign goods:

are relatively cheap and domestic goods are relatively expensive.

The theory of liquidity preference implies that:

as the interest rate rises, the demand for money will fall.

In a small open economy with perfect capital mobility, if the domestic interest rate were to rise above the world interest rate, then ______ would drive the domestic interest rate back to the level of the world interest rate.

capital inflow

In the Solow growth model, the steady-state occurs when:

capital per worker is constant.

In the Keynesian-cross model, fiscal policy has a multiplied effect on income because fiscal policy:

changes income, which changes consumption, which further changes income.

The consumption function in the Solow model assumes that society saves a:

constant proportion of income.

If output described by the production function Y=AK 0.2 L 0.8, then the production function has:

constant returns to scale

The two-period model shows that current consumption depends on:

current income, future income, and the interest rate.

According to the life-cycle model, when wealth is constant in the short run, the average propensity to consume ______ as income increases.

decrease

If the Federal Reserve increases money supply, the interest rate will:

decrease.

According to the theory of investment, when the real interest rate increases, business fixed investment ______ because the ______ of capital increases.

decreases; cost

An explanation for the slope of the IS curve is that as the interest rate increases, the quantity of investment ______, and this shifts the expenditure function ______, thereby decreasing income.

decreases; downward

In the IS-LM model, which two variables are influenced by the interest rate?

demand for real money balances and investment spending

A "small" economy is one in which the:

domestic interest rate equals the world interest rate.

When exports exceed imports, all of the following are true except:

domestic investment exceeds domestic saving.

An increase in taxes shifts the IS curve, drawn with income along the horizontal axis and the interest rate along the vertical axis:

downward and to the left.

In the two-period model, if the consumer is initially saving in period one and the real interest rate rises, then first-period consumption will:

either rise or fall.

A capital rental firm makes a profit if the ______ is ______ the cost of capital.

equilibrium marginal product of capital; greater than

Business fixed investment includes:

equipment and structures that businesses buy to use in production.

When the real exchange rate rises:

exports will decrease and imports will increase.

Empirical evidence finds that the average propensity to consume is constant:

for only the long-run.

Empirical evidence finds that the average propensity to consume is falling:

for only the short-run.

The production function feature called "constant returns of scale" means that if we:

increase capital and labor by 10 percent each, we increase output by 10 percent.

In a small open economy with a fixed exchange rate, an effective policy to increase equilibrium output is to:

increase government spending.

If a great wave of immigration increased employment in the United States, this wave would:

increase the marginal productivity of capital in the United States.

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

In a small open economy, if the world interest rate falls, then domestic investment will _____ and the real exchange rate will _____, holding all else constant.

increase; increase

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 a small open economy with perfect capital mobility, a reduction in the government's budget deficit ______ net exports and the real exchange rate ______.

increases; depreciates

In the Solow growth model the saving rate determines the allocation of output between:

investment and consumption.

The nominal exchange rate between the U.S. dollar and the Japanese yen is the:

number of yen you can get for one dollar.

An economy's factors of production and its production function determine the economy's

output of goods and services

A competitive, profit-maximizing firm hires labor until the:

price of output multiplied by the marginal product of labor equals the wage.

The average propensity to consume is the:

ratio of consumption to income

In a small open economy, if the world real interest rate is above the domestic interest rate, then there will be a trade ______ and ______ net capital outflow.

surplus; positive

The marginal product of labor is

the change in output from hiring one additional unit of labor