ECN 302 Quizzes
Real investment tends to be
procyclical and more variable than real GDP
If public goods can be produced more efficiently, then
public goods increase, and private goods may increase or decrease
The intertemporal substitution of leisure effect is used to justify the assumption that current labor supply increases when the
real interest rate increases
In the real intertemporal model, an adverse sectoral shock acts to
reduce real output and increase the real interest rate
An increase in government spending
reduces consumption, increases hours worked, and reduces the real wage
For a borrower, an increase in the real interest rate
reduces current consumption and has an uncertain effect on future consumption
A government deficit occurs when
the government spends more than what it gets in taxes
The opportunity cost of money is
the nominal interest rate
The real wage denotes
the number of units of consumption goods that can be exchanged for one unit of labor time
The participation rate was higher in 2012 than in 1948 because
the participation rate of women rose between 1948 to 2012
Lifetime wealth is
the present value of disposable income
The supply market curve for credit card services is an increasing function of
the price of credit card services
At the optimal consumption bundle, the marginal rate of substitution of leisure for the consumption is equal to
the real wage and the budget line is tangent to an indifferent curve
An increase in energy prices is a likely cause of
the recession of 1973-1975
In response to an increase in total factor productivity
the substitution effect suggests that hours worked should increase, while the income effect suggests that hours worked should decrease
When the representative firm maximizes profits
the wage equals marginal labor productivity
When we compare poor and rich countries in the world
there is much greater dispersion in growth rates in per capita income for the poor countries than for the rich countries
Financial intermediaries
transform assets, borrow from one group of people and lend to another, and include life insurance companies
For the study of economic growth, it is most helpful to examine movements in ____________; for the study of business cycles, it is most helpful to examine movements in __________
trend GNP; deviations from trend in GNP
An increase in total factor productivity shifts the PPF
upward, and also changes its slope
The concept of Pareto optimality is a
useful concept because it defines economic efficiency
If (we) represents a two-period consumer's lifetime wealth and r denotes the real rate of interest, the horizontal (current consumption) intercept of the consumer's budget line is equal to
we
Circulating private bank notes
were widely used in the Free Banking Era
The Ricardian Equivalence says
whatever the timing of taxes, consumption is the same
A consumer is said to be indifferent between two consumption bundles
when the two bundles provide equal amounts of utility
Which characteristic does money currently not have?
It is not backed by gold
According to Solow's exogenous growth theory, what happens to a country at steady state that suffered extensive capital destruction due to a war or climate event?
It will get back to its original status
Which of the following is not a reason for the Ricardian equivalence theorem to fail to hold?
People can borrow from the government
Fisher relation
Refers to the difference between real and nominal interest rates
If N is the working-age population, Q is the labor force, and U is the number of unemployed, then the unemployment rate is measured as
U/Q
What is the key feature that differentiates business cycle theories?
Whether the theory is Keynesian or non-Keynesian
A permanent increase in income leads to
a large increase in current consumption
All of the following increase total factor productivity except
a.) more capital ← b.) new management techniques c.) favorable changes in gov't regulations d.) new inventions
Convergence means that
all countries tend towards the same per capita income
The income-expenditure identity is best paraphrased as
all spending, generates income
An open-market operation refers to
an exchange of money for interest-bearing debt by the monetary authority
When the wage increases, the income effect on the household's choices leads to
an increase in consumption and leisure
If an epidemic hits a Malthusian economy, the immediate consequence is
an increase in the standard of living
The appropriate monetary policy response to a situation with deficient financial liquidity is
an open market sale of government bonds
Real GDP values current production at
base year prices
The real business cycle model replicates the key business cycle regularites
both quantitatively and quantitatively
The utility function captures
how an individual consumer ranks consumption bundles
In the DMP model, an increase in the unemployment insurance benefit does not, under any circumstances
increase the vacancy rate
In the endogenous growth model, an increase in a worker's level of human capital
increases both the amount of additional human capital she can produce and the amount of output she can produce
An increase in total factor productivity
increases consumption, increases output, and increases the real wage
In a model with money neutrality, a 10% increase in the money supply leads to an increase of prices by
10%
The average unemployment rate was lowest during what period?
1950-1970
Which of the following, if implemented in the Solow growth model, would not lead to a steady state?
A constant marginal product of capital
What is the appropriate monetary policy response to a situation with deficient financial liquidity, when there is a liquidity trap?
An increase in the interest rate on reserves
The gold standard is an example of
commodity-backed paper currency
Additions to inventory are
counted as a component of investment spending
If the current income increases as much as future income decreases
current consumption increases
The current demand for money increases when
current real income increases
In the DMP model, an increase in productivity does not
decrease the size of the labor force
As the quantity of capital increases, the marginal product of capital
decreases
If the interest rate increases, lifetime wealth (we)
decreases
In an economic model, an exogenous variable is
determined outside the model
The endogenous growth model predicts that
differences in per capital incomes across countries persist forever
A lump-sum tax is a tax that
does not depend on the actions of the economic agent being taxed
In the DMP model
each consumer decides between searching for work and home production
The behavior of the Solow residual suggests that when current total factor productivity increases
future total factor productivity is also likely to increase
In the long run, inflation is caused by
growth in the money supply
If future total factor productivity increases
investment demanded increases
Seasonal adjustment
is a common characteristic of macroeconomic time series in wide use
In a one-period economy, real consumption
is exactly equal to disposable income
Before the Industrial Revolution, standards of living differed
little over time and across countries
An important critique of real business cycle theory is the belief that cyclical movements in total factor productivtity
may, in part, be an artifact of measurement error
The most distinguishing economic feature of money is its
medium of exchange role
Labor demand depends on the interest rate because
of Ricardian equivalence
In the two-period model, the nature of the asymmetric information is that
only borrowers know whether they are bad or not
In Solow's model of economic growth, suppose that s represents the savings rate, z represents total factor productivity, k represents the level of capital per worker, and f(k) represents the per-worker production function. Also suppose that n represents the population growth rate and d represents the depreciation rate of capital. The equilibrium level of capital per worker, k*, will satisfy the equation
szf(k*)=(n+d)k*
The Laffer curve is a curve showing
tax revenue as a function of the tax rate
The quantity of money in circulation in the US is managed by
the Federal Reserve System
The production function is concave in labor because
the contribution to production of each additional unit of labor decreases
In Solow's exogenous growth model, the principal obstacle to continuous growth in output per capital is due to
the declining marginal product of capital
An interest rate spread is
the difference between lending and borrowing interest rates