Macroeconomics 3080 Final

If the GDP deflator in 2009 equals 1.25 and nominal GDP in 2009 equals $15 trillion, what is the value of real GDP in 2009?

$12 trillion

If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the monetary base equals:

$150 billion

Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in 2002 and $1.50 in 2009. If 4 apples were produced in 2002 and 5 in 2009, whereas 3 oranges were produced in 2002 and 4 in 2009, then real GDP (in 2002 prices) in 2009 was:

$6.50

If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the money supply equals:

$600 billion

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:

$800 billion

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 income is 4,800, consumption is 3,500, government purchases is 1,000, and taxes minus transfers are 800, public saving is:

-200

If the nominal interest rate is 1 percent and the inflation rate is 5 percent, the real interest rate is:

-4 percent.

If the consumption function is given by C = 150 + 0.85Y and Y increases by 1 unit, then Cincreases by:

0.85 units

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6(Y - T). Taxes (T) are equal to 1,000. Government spending is 600. In this case, equilibrium investment is:

1,500

If the quantity of real money balances is kY, where k is a constant, then velocity is:

1/k

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6(Y - T). Taxes (T) are equal to 600. Government spending is equal to 1,000. Investment is given by the equation I = 2,160 - 100r, where r is the real interest rate, in percent. In this case, the equilibrium real interest rate is:

13 percent

If the unemployment rate is 6 percent and the number of employed is 188 million, then the labor force equals ______ million.

200

If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be ______ percent.

3

If the consumption function is given by the equation C = 500 + 0.5Y, the production function is Y = 50K^(0.5)L^(0.5), where K = 100 and L = 100, then C equals:

3,000

If MPC = 0.6 (and there are no income taxes but only lump-sum taxes) when T decreases by 200, then the IS curve for any given interest rate shifts to the right by:

300

If disposable income is 4,000, consumption is 3,500, government purchases is 1,000, and taxes minus transfers are 800, national saving is equal to:

300

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 7 million workers are unemployed, 143 million workers are employed, and the adult population equals 200 million, then the unemployment rate equals approximately ______ percent.

4.7

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6Y. Investment (I) is given by the equation I = 2,000 - 100r, where r is the real interest rate, in percent. In addition, assume that G=0. In this case, the equilibrium real interest rate is:

5 percent

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

Suppose that over the course of a year 100 people are unemployed for 4 weeks each (the short-term unemployed), while 10 people are unemployed for 52 weeks each (the long-term unemployed). Approximately what percentage of the total weeks of unemployment were attributable to the long-term unemployed?

56.5 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

Exhibit: Supply Shock Assume that the economy is at point E. With no further shocks or policy moves, the economy in the long run will be at point:

A

Exhibit: Steady-State Consumption II The Golden Rule level of steady-state investment per worker is:

BC

Exhibit: Saving, Investment, and the Interest Rate 2 The economy begins in equilibrium at point E, representing the real interest rate r1 at which saving S1 equals desired investment I1. What will be the new equilibrium combination of real interest rate, saving, and investment if there is a tax law change that makes investment projects less profitable and decreases the demand for investment goods (but does not change the amount of taxes collected in the economy)?

point A

If domestic saving exceeds domestic investment, then net exports are ______ and net capital outflows are ______.

positive; positive

In a closed economy with fixed output, when government spending increases:

public saving decreases

Exhibit: IS-LM Monetary Policy Based on the graph, starting from equilibrium at interest rate r1 and income Y1, an increase in the money supply would generate the new equilibrium combination of interest rate and income:

r3, Y3

In a small open economy, if the government adopts a policy that lowers imports, then that policy:

raises the real exchange rate and does not change net exports.

Monetary neutrality, the irrelevance of the money supply in determining values of _____ variables, is generally thought to be a property of the economy in the long run.

real

According to the theory of Ricardian equivalence, tax cuts combined with no plans to reduce government spending ______ public saving and ______ private saving.

reduce; increase

An increase in the interest rate:

reduces planned investment because the interest rate is the cost of borrowing to finance investment projects.

In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply:

remains the same.

If the Fed reduces the money supply by 5 percent, then the real interest rate will:

rise in the short run but return to its original equilibrium level in the long run.

The government raises lump-sum taxes on income by $100 billion, and the neoclassical economy adjusts so that output does not change. If the marginal propensity to consume is 0.6, public saving:

rises by $100 billion

The government raises lump-sum taxes on income by $100 billion, and the neoclassical economy adjusts so that output does not change. If the marginal propensity to consume is 0.6, national saving:

rises by $60 billion.

If Central Bank A cares only about keeping the price level stable and Central Bank B cares only about keeping output at its natural level, then in response to an exogenous increase in the price of oil:

Central Bank A should decrease the quantity of money, whereas Central Bank B should increase it.

To maintain a fixed-exchange-rate system, if the exchange rate (foreign currency/local currency) moves below the fixed-exchange-rate level, then the central bank must:

sell foreign currency from reserves

The Mundell-Fleming model is a ______ model for a ______ open economy.

short-run; small

Disposable personal income is defined as income after the payment of all:

taxes

The rate of labor-augmenting technological progress (g) is the growth rate of:

the efficiency of labor

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 the classical model with fixed income, if households want to save more than firms want to invest, then:

the interest rate falls

If saving exceeds investment demand and consumption is not a function of the interest rate:

the interest rate will fall

Which of the following is an example of a demand shock?

the introduction and greater availability of credit cards

When f (k) is drawn on a graph with increases in k noted along the horizontal axis, the slope of the curve denotes:

the marginal product of capital

The vertical long-run aggregate supply curve satisfies the classical dichotomy because the natural rate of output does not depend on:

the money supply

Along an aggregate demand curve, which of the following are held constant?

the money supply and velocity

If the ratio of reserves to deposits (rr) increases, while the ratio of currency to deposits (cr) is constant and the monetary base (B) is constant, then:

the money supply decreases.

According to the imperfect-information model, in countries in which there is a great deal of variability of prices:

the response of output to unexpected changes in prices will be relatively small

Ricardian equivalence refers to the same impact of financing government:

whether by debt or taxes

If an increasing proportion of the adult population is retired, then the labor-force participation rate:

will decrease

If Y is output, K is capital, u is the fraction of the labor force in universities, L is labor, and Eis the stock of knowledge, and the production Y = F (K,(1 - u) EL) exhibits constant returns to scale, then output (Y) will double if:

K and E are doubled.

Exhibit: Saving and Investment in a Small Open Economy In a small open economy, if the world interest rate is r3, then the economy has:

a trade deficit

In a small open economy, if domestic saving equals $50 billion and domestic investment equals $50 billion, then there is ______, and net capital outflow equals ______.

balanced trade; $0

All of the following are arguments against Ricardian equivalence except:

consumers are rational and forward-looking in consumption decision-making.

According to the model developed in Chapter 3, when taxes decrease without a change ingovernment spending:

consumption increases and investment decreases

According to the quantity equation, if the velocity of money and the supply of money are fixed, and the price level increases, then the quantity of goods and services purchased:

decreases

If the consumption function is given by C = 150 + 0.85(Y - T) and T increases by 1 unit, then saving

decreases by 0.15 units

An increase in the rate of population growth with no change in the saving rate:

decreases the steady-state level of capital per worker

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; negative

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, and capital for new effective workers.

Exhibit: Capital per Worker and the Steady State In this graph, capital-labor ratio k2 is not the steady-state because:

depreciation is greater than gross investment

In a small, open economy if net exports are negative, then:

domestic spending is greater than output

When an aggregate demand curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, if the money supply is decreased, then the aggregate demand curve will shift:

downward and to the left

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

g

An increase in the elderly population of a country affects fiscal policy most directly because:

governments provide pensions and health care for the elderly.

In the classical model with fixed income, if the interest rate is too low, then investment is too ______, and the demand for output ______ the supply.

high; exceeds

The government-purchases multiplier indicates how much ______ change(s) in response to a $1 change in government purchases.

income

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

Exhibit: Output, Consumption, and Investment In this graph, when the capital stock per worker is OA, AB represents:

investment per worker, and BC represents consumption per worker.

If all prices are stuck at a predetermined level, then when a short-run aggregate supply curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, this curve:

is horizontal

If an economy with no population growth or technological change has a steady-state MPK of 0.125, a depreciation rate of 0.1, and a saving rate of 0.225, then the steady-state capital stock:

is less than the Golden Rule level

When firms experience unplanned inventory accumulation, they typically:

lay off workers and reduce production

In the two-sector endogenous growth model, the saving rate (s) affects the steady-state:

level of income

In the two-sector endogenous growth model, the fraction of labor in universities (u) affects the steady-state:

level of income, growth rate of income, and growth rate of the stock of knowledge

If the short-run aggregate supply curve is horizontal, then changes in aggregate demand affect:

level of output but not prices

In a fractional-reserve banking system, banks create money when they:

make loans

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

n + g

In a closed economy, Y - C - G equals:

national saving

With population growth at rate n and labor-augmenting technological progress at rate g, the Golden Rule steady state requires that the marginal product of capital (MPK):

net of depreciation be equal to n + g.

The concept of monetary neutrality in the classical model means that an increase in the money supply growth rate will increase:

nominal interest rates

In the Solow growth model the demand for goods equals investment:

plus consumption

Exhibit: Saving and Investment in a Small Open Economy In a small open economy, if the world interest rate is r1, then the economy has:

a trade surplus

The production function for an economy can be expressed as Y = F(K,L), where Y is real GDP, K is the quantity of capital in the economy, and L is the quantity of labor in the economy. a. If F( ) = 100 + 3K + 9L, what is real GDP if the quantity of capital is 200 and the quantity of labor is 500? b. What is/are the endogenous variable(s) in this model? c. What is/are the exogenous variable(s) in this model?

a. F( ) = 5,200. b. Endogenous variable: Real GDP, Y = F( ) . c. Exogenous variables: capital and labor, K, L .

City A has a total population of 10 million, of which 70 percent are adults. Assume that 20 percent of the adult population is not looking for a job and 60 percent of the remaining adult population is employed. Compute the following: a. Labor-force participation rate b. Unemployment rate

a. LFPR: (5.6 million/7 million)*100 = 80% b. Unemployment Rate: 25% (given by 1.4 million/5.6 million)*100)

Assume that the demand for real money balance (M / P) is M / P = 0.6Y - 100i, where Y is national income, and i is the nominal interest rate (in percent). The real interest rate r is fixed at 3 percent by the investment and saving functions. The expected inflation rate equals the rate of nominal money growth. a. If Y is 1,000, M is 100, and the growth rate of nominal money is 1 percent, what must iand P be? b. If Y is 1,000, M is 100, and the growth rate of nominal money is 2 percent, what must iand P be?

a. i = 4% and P = 0.50. b. i = 5% and P = 1.

The labor-force participation rate is the percentage of the:

adult population that is in the labor force

In the aggregate demand-aggregate supply model, short-run equilibrium occurs at the combination of output and prices where:

aggregate demand equals short-run aggregate supply

In a small open economy, starting from a position of balanced trade, if the government increases domestic government purchases, this produces a tendency toward a trade ______ and ______ net capital outflow.

deficit; negative

The assumption of constant velocity in the quantity equation is the equivalent of the assumption of a constant:

demand for real balances per unit of output.

The marginal propensity to consume is:

expected to be between zero and one

Starting from a small open economy with balanced trade, if large foreign countries increase their domestic government purchases, this policy will tend to increase:

exports by the small open economy

Purchasing-power parity theory:

provides a reason to expect that movements in the real exchange rate will typically be small or temporary.

In a steady-state economy with a saving rate s, population growth n, depreciation rate δ, and labor-augmenting technological progress g, the formula for the steady-state ratio of capital per effective worker (k*), in terms of output per effective worker (f (k*)), is

sf (k) / (δ + n + g)

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

All of the following are causes of structural unemployment except:

unemployment insurance.

If the monetary base is denoted by B, rr is the ratio of reserves to deposits, and cr is the ratio of currency to deposits, then the money supply is equal to ______ multiplied by B.

(cr + 1)/ (cr + rr)

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

0

If the steady-state rate of unemployment equals 0.125 and the fraction of unemployed workers who find jobs each month (the rate of job findings) is 0.56, then the fraction of employed workers who lose their jobs each month (the rate of job separations) must be:

0.08

Consider the money demand function that takes the form (M / P)d = Y / (4i), where M is the quantity of money, P is the price level, Y is real output, and i is the nominal interest rate. What is the average velocity of money in this economy?

1 / (4i)

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6Y. In addition, assume G=0. In this case, equilibrium investment is:

1,500

According to the quantity theory of money and the Fisher equation, if the money growth increases by 3 percent and the real interest rate equals 2 percent, then the nominal interest rate will increase:

5 percent

If the adult population equals 250 million, of which 145 million are employed and 5 million are unemployed, the labor-force participation rate equals ______ percent.

60

Consider the money demand function that takes the form M / P = 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?

7 percent

If the number of employed workers equals 200 million and the number of unemployed workers equals 20 million, the unemployment rate equals ______ percent (rounded to the nearest percent).

9

Suppose that over the course of a year 100 people are unemployed for 4 weeks each (the short-term unemployed), while 10 people are unemployed for 52 weeks each (the long-term unemployed). Approximately what percentage of the total spells of unemployment were attributable to the long-term unemployed?

9 percent

Suppose that GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.5(Y - T). Investment (I) is given by the equation I = 2,000 - 100r, where r is the real interest rate, in percent. Government spending (G) is 1,000, and taxes (T) is also 1,000. When a technological innovation changes the investment function to I = 3,000 - 100r:

I is unchanged and r rises by 10 percentage points

An increase in consumer saving for any given level of income will shift the:

IS curve downward and to the left

Percentage change in P is approximately equal to the percentage change in:

M minus the percentage change in Y plus the percentage change in velocity

John withdraws $100 from his checking account and deposits it in his saving account. What will be the effect of this transaction on different measures of money, such as C, M1, and M2?

No effect on C & M2, but M1 declines by $100.

In the aggregate demand-aggregate supply model, long-run equilibrium occurs at the combination of output and prices where:

aggregate demand equals short-run and long-run aggregate supply

In the long run, the level of output is determined by the:

amounts of capital and labor and the available technology

If bread is produced 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.

Which of the following will shift the aggregate supply curve up to the left?

an increase in the expected price level

If the rate of separation is 0.02 and the rate of job finding is 0.08 but the current unemployment rate is 0.10, then the current unemployment rate is ______ the equilibrium rate, and in the next period it will move ______ the equilibrium rate.

below; toward

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 IS-LM model, changes in taxes initially affect planned expenditures through:

consumption

According to the model developed in Chapter 3, when government spending increases and taxes increase by an equal amount:

consumption and investment both decrease

Starting from the natural level of output, an unexpected monetary contraction will cause output and the price level to ______ in the short run; and in the long run the expected price level will ______, causing the level of output to return to the natural level.

decrease; decrease

If the money supply is held constant, then an increase in the nominal interest rate will ______ the demand for money and ______ the price level.

decrease; increase

A consumption function shows the relationship between consumption and:

disposable income

If a graph is drawn with net exports on the horizontal axis and the real exchange rate on the vertical axis, then the real exchange rate is determined by the intersection of the ______ net-exports schedule and the ______ line representing saving minus investment.

downward-sloping; vertical

In a fractional-reserve banking system, banks create money because:

each dollar of reserves generates many dollars of demand deposits

Paying efficiency wages helps firms reduce the problem of moral hazard by:

encouraging unsupervised workers to maintain a high level of productivity.

The equilibrium of the Keynesian cross shows:

equality of planned expenditure and income in the short run

The percentage change in the nominal exchange rate equals the percentage change in the real exchange rate plus the:

foreign inflation rate minus the domestic inflation rate

According to the quantity theory of money, when velocity is constant, if output is higher, ______ real balances are required, and for fixed M this means ______ P.

higher; lower

Government tax policy can affect aggregate supply as well as aggregate demand because changes in taxes change the:

incentives to work and invest

If wage rigidity holds the real wage above the equilibrium level, an increase in the supply of labor will ______ the number unemployed.

increase

If the reserve-deposit ratio is less than one, and the monetary base increases by $1 million, then the money supply will:

increase by more than $1 million

An effective policy to reduce a trade deficit in a small open economy would be to:

increase taxes

If the real exchange rate depreciates from 1 Japanese good per U.S. good to 0.5 Japanese good per U.S. good, then U.S. exports ______, and U.S. imports ______.

increase; decrease

Starting from a trade balance, if the world interest rate falls, then, holding other factors constant, in a small open economy the amount of domestic investment will _____, and net exports will _____.

increase; decrease

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

If nominal GDP increased by 5 percent and the GDP deflator increased by 3 percent, then real GDP ______ by ______ percent.

increased; 2

If the real interest rate declines by 1 percent and the inflation rate increases by 2 percent, the nominal interest rate implied by the Fisher equation:

increases by 1 percent

If short-run equilibrium in the Mundell-Fleming model is represented by a graph with Yalong the horizontal axis and the exchange rate along the vertical axis, then the LM* curve:

is vertical because the exchange rate does not enter into the LM* equation

Exhibit: Steady-State Capital-Labor Ratio In this graph, the steady-state capital-labor ratio is:

k2

By paying efficiency wages, firms contribute to higher unemployment because they:

keep the wage above the equilibrium level

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

In the classical model with fixed income, if the interest rate is too high, then investment is too ______, and the demand for output ______ the supply.

low; falls short of

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

If a country has a high rate of inflation relative to the United States (holding the real exchange rate fixed), the dollar will buy:

more of the foreign currency over time

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

n; 0

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

If the short-run aggregate supply curve is horizontal and the Fed increases the money supply, then:

output and employment will increase in the short run

Assume that the economy starts from long-run equilibrium. If the Federal Reserve increases the money supply, then ______ increase(s) in the short run, and ______ increase(s) in the long run.

output; prices

The rate of growth of labor productivity (Y / L) may be expressed as the rate of growth of total factor productivity:

plus the capital share multiplied by the rate of growth of the capital-labor ratio

Exhibit: Saving, Investment, and the Interest Rate 1 The economy begins in equilibrium at point E, representing the real interest rate r1 at which saving S1 equals desired investment I1. What will be the new equilibrium combination of real interest rate, saving, and investment if the government raises taxes, holding other factors constant?

point B

Exhibit: Saving, Investment, and the Interest Rate 2 The economy begins in equilibrium at point E, representing the real interest rate r1 at which saving S1 equals desired investment I1. What will be the new equilibrium combination of real interest rate, saving, and investment if there is a technological innovation that increases the demand for investment goods?

point B

According to the sticky-price model, deviations of output from the natural level are _____ deviations of the price level from the expected price level.

positively associated with

Exhibit: IS-LM Fiscal Policy Based on the graph, starting from equilibrium at interest rate r1 and income Y1, an increase in government spending would generate the new equilibrium combination of interest rate and income:

r2, Y3

If s is the rate of job separation, f is the rate of job finding, and both rates are constant, then the steady state unemployment rate is approximately:

s / (s + f)

In the Solow growth model, investment equals:

saving

If short-run equilibrium in the Mundell-Fleming model is represented by a graph with Yalong the horizontal axis and the exchange rate along the vertical axis, then the IS* curve:

slopes downward and to the right because the higher the exchange rate, the lower the level of net exports and, therefore, of short-run equilibrium income in the goods market.

Unemployment insurance increases the amount of frictional unemployment by:

softening the economic hardship of unemployment

If an economy is in a steady state with no population growth or technological change and the marginal product of capital is less than the depreciation rate:

steady-state consumption per worker would be higher in a steady state with a lower saving rate.

An assumption of _______ is more plausible for studying the short-run behavior of the economy, while an assumption of ______ is more plausible for studying the long-run, equilibrium behavior of the economy.

sticky prices; flexible prices

In the short run, if the price level is greater than the expected price level, then in the long run the aggregate:

supply curve will shift upward

In a small open economy, starting from a position of balanced trade, if the government increases the income tax, this produces a tendency toward a trade ______ and ______ net capital outflow.

surplus; positive

In the Solow growth model with population growth but no technological progress, when the economy finds itself at the Golden Rule steady state, the marginal product of capital minus the rate of depreciation will equal:

the population growth rate

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

the quantity of capital increases.

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

the quantity of labor increases

When the real wage is above the level that equilibrates supply and demand:

the quantity of labor supplied exceeds the quantity demanded.

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:

the same level of output per person as before

In the model of the steady-state unemployment rate with a fixed labor force, the rate of job finding equals the percentage of the ______ who find a job each month, while the rate of job separation equals the percentage of the ______ who lose their job each month.

unemployed; employed

Assume that an economy is described by a Cobb-Douglas production function. If average labor productivity is growing rapidly:

workers will experience high rates of real wage growth

If the real exchange rate between the United States and Japan remains unchanged, and the inflation rate in the United States is 6 percent and the inflation rate in Japan is 3 percent, the:

yen will appreciate by 3 percent against the dollar

In the Solow growth model, the steady-state growth rate of output per effective worker is ______, and the steady-state growth rate of output per actual worker is ______.

zero; the rate of technological progress

In 2015, John buys a factory built in 2009 and constructs a new storage house within the premises. The transaction of buying the factory is not counted in the GDP, but the construction of the storage house in the same factory is counted in GDP. Why?

That is because the factory was built in 2009 and included in that year's GDP. By contrast, the construction of the new storage house is new construction in 2015, which should be accounted for in investments, I.

Bob bought $5,000 worth of Adobe Systems stock. This transaction was brokered by John, who received $50 for his help. I think the $5,000 should be included in GDP, and the $50 should not be included in GDP. State whether I am right or wrong and provide an explanation for your answer.

The $5,000 for the stock purchase should not be included in GDP since financial investment in equity are not part of I (or other components of GDP). But the $50 should be included in C as part of "brokerage services."

Exhibit: Keynesian Cross In this graph, the equilibrium levels of income and expenditure are:

Y2 and PE2

Assume that a series of inflation rates is 1 percent, 2 percent, and 4 percent, while nominal interest rates in the same three periods are 5 percent, 5 percent, and 6 percent, respectively. a. What are the ex post real interest rates in the same three periods? b. If the expected inflation rate in each period is the realized inflation rate in the previousperiod, what are the ex ante real interest rates in periods 2 and 3? c. If someone lends in period 2, based on the ex ante inflation expectation in part b, will he or she be pleasantly or unpleasantly surprised in period 3 when the loan is repaid?

a. 4, 3, 2 . b. 4 and 4 . c. Expected an r = 4 but got r = 2. Unpleasant surprise.

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

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

0

If nominal GDP in 2009 equals $14 trillion and real GDP in 2009 equals $11 trillion, what is the value of the GDP deflator?

1.27

Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in 2002 and $1.50 in 2009. If 4 apples were produced in 2002 and 5 in 2009, whereas 3 oranges were produced in 2002 and 5 in 2009, then the GDP deflator in 2009, using a base year of 2002, was approximately:

1.7

If the fraction of employed workers who lose their jobs each month (the rate of job separation) is 0.01 and the fraction of the unemployed who find a job each month is 0.09 (the rate of job findings), then the natural rate of unemployment is:

10 percent

Assume that a firm wants to build a factory that will cost $5 million. It believes that it can get a return of $600,000 in one year and then can sell the used factory for its original cost. The rate of return on this investment would be:

12 percent

Assume that the consumption function is given by C = 200 + 0.7(Y - T), the tax function is given by T = 100 + t1Y, and Y = 50K0.5L0.5, where K = 100 and L = 100. If t1 increases from 0.2 to 0.25, then consumption decreases by:

175

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 nominal GDP grew by 5 percent and real GDP grew by 3 percent, then the GDP deflator grew by approximately ______ percent.

2

If the consumption function is given by C = 500 + 0.5(Y - T), and Y is 6,000 and T is given by T = 200 + 0.2Y, then C equals:

2,800

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

2.5

If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals:

2.5

Exhibit: Supply Shock In this graph, assume that the economy starts at point A, and there is a favorable supply shock that does not last forever. In this situation, point ______ represents short-run equilibrium, and point ______ represents long-run equilibrium.

E; A