Econ 2315 Quiz #2 Ch 4+5+6

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Which policy would decrease national​ saving? A. exchanging sales taxes for higher taxes on interest and dividends B. reducing deficit spending C. increasing allowable contributions to​ tax-free retirement accounts D. replacing income taxation with​ consumption-based taxation

A. exchanging sales taxes for higher taxes on interest and dividends

Two countries are IDENTICAL in every way except that one has a much higher​ capital-labor ratio than the other. According to the Solow​ model, which​ country's total output will grow more​ quickly? A. the country with the lower​ capital-labor ratio B. the country with the higher​ capital-labor ratio C. both countries will grow at the same rate D. not enough information to answer the question Does your answer depend on whether one country or the other is in a steady​ state? A. Yes. The country in the steady state will grow more quickly. B. Yes. The country in the steady state will grow more slowly. C. No. The country with the lower​ capital-labor ratio will always grow faster. D. No. The country with the higher​ capital-labor ratio will always grow faster. In general​ terms, how will your answer be affected if the two countries are allowed to trade with each​ other? A. the country with the lower​ capital-labor ratio will grow even​ faster, and the other will grow the same or slower B. the country with the higher​ capital-labor ratio will grow even​ faster, and the other will grow the same or slower C. both countries will grow even faster D. both countries will grow even slower E. there will be no change in growth speed

A. the country with the lower​ capital-labor ratio C. No. The country with the lower​ capital-labor ratio will always grow faster. C. both countries will grow even faster

What are the two components of the user cost of​ capital? A. The real interest rate and salvage cost. B. The real interest rate and the rate of depreciation. C. The rate of depreciation and salvage cost. D. The price of a unit of capital and the rate of inflation

B. The real interest rate and the rate of depreciation.

Give two equivalent ways of describing equilibrium in the goods market. A. Y = Cd + Id + G - T and Sd = Id - G B. Y = Cd + Id + G and Sd = Id C. Y = Cd + Sd + G and Sd = Id + (G - T) D. Y = Cd + Id and Sd = Y - Id

B. Y = Cd + Id + G and Sd = Id

In a world with two large open​ economies, in​ equilibrium, desired international lending by one country must equal desired international​ _____ by the other country. The equilibrium real world interest rate is determined by the point at which the current account balance of one country equals the​ _____ balance of the other country. A. borrowing; current account B. borrowing; financial account C. lending; financial account D. lending; current account

B. borrowing; financial account

What is the effect on the​ steady-state of an increase in h​? What is the effect on the​ steady-state value of​ per-worker capital? A. per-worker capital increases B. per-worker capital decreases C. per-worker capital remains the same D. not enough information to answer this question What is the effect on the​ steady-state value of​ per-worker output? A. per-worker output increases B. per-worker output decreases C. per-worker output remains the same D. not enough information to answer this question What is the effect on the steady state of​ per-worker consumption? A. per-worker consumption increases B. per-worker consumption decreases C. per-worker output remains the same D. not enough information to answer this question

B. per-worker capital decreases B. per-worker output decreases B. per-worker consumption decreases

Consider a large open economy​ (the home​ country) that currently has a zero current account balance. Suppose that the country now runs a government budget deficit that affects desired national saving. In the new​ equilibrium, the world real interest rate​ _____ and investment in the home country​ _____. A. rises; rises B. ​rises; declines C. declines; declines D. declines; rises In the new​ equilibrium, in the foreign​ country, investment​ _____ and the current account balance​ _____. A. rises; rises B. declines; declines C. rises; declines D. declines; rises

B. ​rises; declines D. declines; rises

You just read that forecasters predict the United States will run a current account surplus in 2025. From this you would infer that the United States will also A. run a financial account surplus in 2025. B. run a balance of payments surplus in 2025. C. increase its net foreign assets in 2025. D. decrease its official reserve assets in 2025.

C. increase its net foreign assets in 2025.

Which of the following is a policy with a reasonable chance of increasing productivity​ growth? A. increasing population B. increasing the labor force C. increasing taxes on investment income D. increasing the number of grants for scientific research

D. increasing the number of grants for scientific research

We distinguish between small open economies and large open economies based​ on: A. rates of inflation. B. whether they are net lenders or net borrowers to the world economy. C. GDP or output measures. D. their influence on the world interest rate.

D. their influence on the world interest rate.

Of the three sources of growth identified by growth​ accounting, which one is primarily responsible for the slowdown in U.S. economic growth after​ 1973? growth in productivity What are some of the reasons given for this decline in U.S.​ productivity? A. Inaccuracies in the measurement of​ output, such as changes in the quality of output B. A​ "learning curve" effect from the exploding IT​ (information technology) revolution C. Higher oil​ prices, causing firms in all industrialized nations to conserve energy D. Changes in the legal and human​ environment, such as growing emphasis placed on protecting the environment and worker safety E. All of the above have been offered as reasons for the decline in U.S. productivity beginning in 1973.

E. All of the above have been offered as reasons for the decline in U.S. productivity beginning in 1973.

A government wishes to maximize​ long-run economic growth. Assume this government consistently runs a small deficit. Which of the following policies would be most​ effective? A. Increase taxes to fund investments in​ infrastructure, research, and human capital. B. Reduce spending on investments in​ infrastructure, research, and human capital to reduce the deficit. C. Increase taxes to reduce the​ deficit, but do not change spending on investments in​ infrastructure, research, and human capital. D. Decrease taxes on the returns to saving. E. Not enough information to answer this question. Which would be more effective at increasing living​ standards: a policy which doubles the savings​ rate, or one which doubles the productivity of​ capital? A. a policy which doubles the savings rate B. a policy which doubles the productivity of capital C. both would have equal effectiveness D. not enough information is available to answer this question.

E. Not enough information to answer this question. B. a policy which doubles the productivity of capital

1.) Which of the following is true about the availability of balance of payments information for the United​ States? A. Full information on the balance of payments is available​ quarterly, but some aspects are available monthly. B. Full information on the balance of payments is available monthly. C. Full information on the balance of payments is available​ annually, but some aspects are available quarterly. D. Full information on the balance of payments is available​ quarterly, with none made available monthly. ​ 2.) The sum of the current account plus the capital and financial account should sum to zero. If the sum is not the amount you identified​ above, this is due to A. statistical discrepancy. B. negative externalities. C. incentives to lie about figures. D. measurement bias.

A. Full information on the balance of payments is available​ quarterly, but some aspects are available monthly. A. statistical discrepancy.

The diagram to the right shows the current account balance as a percentage of nominal GDP for the U.S. from 1959 to 2004. Which of the following is not a plausible explanation for the trend in this​ data? A. Greater demand for U.S. exports. B. The growth in U.S. budget deficits. C. Increased saving activity by foreign households. D. Increased opportunities for international investment.

A. Greater demand for U.S. exports.

1.) Productivity growth in the United States has averaged about 1 percent per year since 1929. This growth in productivity has been erratic with the lowest growth rate occurring between 1973-1982. ​ 2.) Which of the following could explain why productivity growth appears to arrive in waves over​ time? A. Since there are many years between transformational​ innovations, their positive impacts on productivity growth will appear in waves. B. Since oil prices only increase substantially about once per​ decade, its positive impact on productivity growth will appear in waves. C. The United States government only takes measurements of productivity growth every five​ years, this makes all productivity growth appear to come in waves. D. All of the above are true. ​ 3.) Which of the following are likely true of future innovations such as artificial​ intelligence, self-driving​ cars, and robotics as they relates to jobs in the​ economy? ​(Select all that​ apply) A. Large scale innovations tends to suppress wages causing them to fall dramatically. B. There would likely be an increase in wages across the economy. C. These new technologies can directly replace jobs currently done by​ people, resulting in at least some displacement of jobs. D. These innovations can be complementary to existing jobs and therefore increase the marginal product of labor.

A. Since there are many years between transformational​ innovations, their positive impacts on productivity growth will appear in waves. B. There would likely be an increase in wages across the economy. + C. These new technologies can directly replace jobs currently done by​ people, resulting in at least some displacement of jobs. + D. These innovations can be complementary to existing jobs and therefore increase the marginal product of labor.

Why does desired investment fall as the real interest rate​ rises? A. The user cost of capital​ increases, resulting in a smaller desired capital stock. B. A higher interest rate makes capital less​ productive, resulting in a smaller desired capital stock. C. A higher interest rate results in less existing capital that needs to be replaced.

A. The user cost of capital​ increases, resulting in a smaller desired capital stock.

1. The U.S. government sells​ F-16 fighter planes to a foreign government. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts​ is: A. U.S. citizens buy cars from the foreign​ country, which is a negative entry in the current account. B. No transaction needed. C. A foreign bank buys U.S. government​ bonds, which is a negative entry in the financial account. D. Kuwait pays for the services of Red​ Adair's U.S. team of oil fire​ fighters, which is a positive entry in the current account. 2. A London bank sells yen​ to, and buys dollars​ from, a Swiss bank. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts​ is: A. Kuwait pays for the services of Red​ Adair's U.S. team of oil fire​ fighters, which is a positive entry in the current account. B. A U.S. bank buys U.K. government​ bonds, which is a negative entry in the financial account. C. U.S. citizens buy cars from the foreign​ country, which is a negative entry in the current account. D. No transaction needed. 3. The Federal Reserve sells yen​ to, and buys dollars​ from, a Swiss bank. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts​ is: A. U.S. citizens buy cars from the foreign​ country, which is a negative entry in the current account. B. The Federal Reserve sells dollars​ to, and buys euros​ from, the European Central​ Bank, which is a negative entry in the financial account. C. No transaction needed. D. The IRS sells a bankrupt​ singer's home to an Egyptian​ citizen, which is a positive entry in the financial account. 4. A New York bank receives the interest on its loans to Brazil. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts​ is: A. Kuwait pays for the services of Red​ Adair's U.S. team of oil fire​ fighters, which is a positive entry in the current account. B. A U.S. bank buys U.K. government​ bonds, which is a negative entry in the financial account. C. No transaction needed. D. Brazilian citizens receive interest on U.S. Treasury bonds they​ own, which is a negative entry in the current account. 5. A U.S. collector buys some ancient artifacts from a collection in Egypt. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts​ is: A. Kuwait pays for the services of Red​ Adair's U.S. team of oil fire​ fighters, which is a positive entry in the current account. B. A U.S. bank buys U.K. government​ bonds, which is a negative entry in the financial account. C. No transaction needed. D. The IRS sells a bankrupt​ singer's home to an Egyptian​ citizen, which is a positive entry in the financial account. 6. A U.S. oil company buys insurance from a Canadian insurance company to insure its oil rigs in the Gulf of Mexico. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts​ is: A. Kuwait pays for the services of Red​ Adair's U.S. team of oil fire​ fighters, which is a positive entry in the current account. B. U.S. citizens buy cars from the foreign​ country, which is a negative entry in the current account. C. No transaction needed. D. The IRS sells a bankrupt​ singer's home to an Egyptian​ citizen, which is a positive entry in the financial account. 7. A U.S. company borrows from a British bank. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts​ is: A. No transaction needed. B. The IRS sells a bankrupt​ singer's home to an Egyptian​ citizen, which is a positive entry in the financial account. C. U.S. citizens buy cars from the foreign​ country, which is a negative entry in the current account. D. A U.S. bank buys U.K. government​ bonds, which is a negative entry in the financial account.

A. U.S. citizens buy cars from the foreign​ country, which is a negative entry in the current account. D. No transaction needed. B. The Federal Reserve sells dollars​ to, and buys euros​ from, the European Central​ Bank, which is a negative entry in the financial account. D. Brazilian citizens receive interest on U.S. Treasury bonds they​ own, which is a negative entry in the current account. D. The IRS sells a bankrupt​ singer's home to an Egyptian​ citizen, which is a positive entry in the financial account. A. Kuwait pays for the services of Red​ Adair's U.S. team of oil fire​ fighters, which is a positive entry in the current account. D. A U.S. bank buys U.K. government​ bonds, which is a negative entry in the financial account.

Improved technology is likely to A. increase the marginal product of labor. B. create the need for universal guaranteed income. C. displace​ workers, causing high unemployment. D. reduce wages.

A. increase the marginal product of labor.

Suppose that total capital and labor both increase by the same percentage​ amount, so that the amount of capital per worker​ doesn't change. Writing the production function in​ per-worker terms requires that this increase in capital and labor must not change the amount of output produced per worker. Based on the growth accounting​ equation, equal percentage increases in capital and labor will leave output per worker unaffected only if a aK + aN = A. 0. B. 1. C. -1. D. 100.

B. 1.

Consider two large open​ economy, the home economy and the foreign economy. Which of the following lowers the world real interest rate ​(rw​)? A. A decrease in the willingness of foreigners to save. B. A decrease in the domestic expected marginal product of capital. C. An increase in foreign government purchases. D. An increase in foreign expected marginal product of capital.

B. A decrease in the domestic expected marginal product of capital.

1.) How could a recession decrease a deficit in the current​ account? A. Income falls during a​ recession, thereby increasing the demand for imports. B. Income falls during a​ recession, thereby reducing the demand for imports. C. Income rises during a​ recession, thereby increasing the demand for imports. D. Income rises during a​ recession, thereby reducing the demand for imports. ​ 2.) Which of the following is true about historical trends in the current account balance for the United​ States? A. There was a big increase in the current account balance from the 1970s to the mid 1980s. B. During the​ 1970s, the current account balance moved up and down around a zero balance. C. The current account balance increased throughout the 1990s. D. The current account balance was generally negative during the 1960s. ​ 3.) Which of the following is one explanation for the decrease in the current account balance from 1991 to​ 2005? A. Europe experienced relatively quick economic growth during this period. B. There was a significant decrease in oil prices during this period. C. The saving rate increased in developing nations during this period. D. There were relatively few opportunities for international financial investment during this period.

B. Income falls during a​ recession, thereby reducing the demand for imports. B. During the​ 1970s, the current account balance moved up and down around a zero balance. C. The saving rate increased in developing nations during this period.

1.) Which of the following is true about​ China's 2006 real GDP per capita compared to that of Japan and the United​ States? A. It is high but growing slowly. B. It is low but growing rapidly. C. It is low and growing slowly. D. It is high and growing rapidly. ​ 2.) Since​ 2001, China's economic growth has been about five times larger than that in the United States. Which of the following does not help to explain this​ difference? A. China has changed aspects of its structure from a centrally planned economy to a market economy. B. China has had fast growth in productivity. C. China has increased its technology investment by sacrificing investment in capital. D. China has increased its trade with other countries. ​3.) Which of the following is are true of future growth of GDP in​ China? ​(Select all that​ apply) A. If​ China's economic growth remains at about five times larger than that in the United States it will take over 30 years to catch the up to the GDP level in the United States. B. If​ China's economic growth remains at about five times larger than that in the United States it will take less than 15 years to catch the up to the GDP level in the United States. C. It is impossible for China to ever reach the GDP level of the United States. D. As they transition to being a more developed nation their growth rate will slow.

B. It is low but growing rapidly. C. China has increased its technology investment by sacrificing investment in capital. A. If​ China's economic growth remains at about five times larger than that in the United States it will take over 30 years to catch the up to the GDP level in the United States. + D. As they transition to being a more developed nation their growth rate will slow.

What is the difference between gross investment and net​ investment? Can gross investment be positive when net investment is​ negative? A. Gross investment is the overall increase in the capital​ stock;Yes B. Net investment is the overall increase in the capital​ stock;Yes. C. Gross investment is the overall increase in the capital​ stock; No. D. The difference is equal to depreciated​ capital; No.

B. Net investment is the overall increase in the capital​ stock;Yes.

What is the desired capital​ stock? A. The desired capital stock is the difference between gross investment and net investment. B. The desired capital stock is the amount of capital that allows the firm to earn the largest possible profit. C. The desired capital stock is defined where the marginal productivity of capital equals zero. D. The desired capital stock is the amount of capital that exactly replaces worn out capital.

B. The desired capital stock is the amount of capital that allows the firm to earn the largest possible profit.

For a household with a given level of​ income, how are consumption and saving​ linked? Saving = Income − Consumption What is the basic motivation for​ saving? A. To reduce tax obligations. B. To provide for future consumption. C. To maximize the returns from saving. D. To maximize current consumption.

B. To provide for future consumption.

In a small open​ economy, national saving​ _____ investment and output​ _____ absorption. A. must​ equal; does not have to equal B. does not have to​ equal; does not have to equal C. must​ equal; must equal D. does not have to​ equal; must equal

B. does not have to​ equal; does not have to equal

1.) Evidence suggests that the 2001 tax rebates were A. almost entirely saved by consumers. B. initially saved by consumers who later increased their spending. C. almost entirely spent by consumers. D. initially spent by consumers who later increased their saving. ​ 2.) Compared to earlier​ research, later research indicates that a larger amount of the 2001 tax rebates was spent than originally​ thought, implying that the rebates did a better job of stimulating the economy than originally thought. ​3.) Agarwal,​ Liu, and​ Souleles's study indicates that the Ricardian equivalence theory seems to hold A. true for neither those with high credit limits nor low credit limits. B. equally true for those with high credit limits and low credit limits. C. more true for people with low credit limits than for people with high credit limits. D. more true for people with high credit limits than for people with low credit limits. ​ 4.) The application implies that younger people are more likely to have binding borrowing constraints and therefore that they are likely to spend more of a tax rebate than other groups.

B. initially saved by consumers who later increased their spending. D. more true for people with high credit limits than for people with low credit limits.

If Ricardian equivalence​ holds, a reduced government budget deficit caused by a​ lump-sum tax increase in an open economy leads to A. a decline in the current account balance. B. no change in the current account balance. C. a rise in the current account balance. D. a rise in the current account balance in a large open​ economy; no change in the current account balance in a small open economy. If Ricardian equivalence does not​ hold, a reduced government budget deficit caused by a​ lump-sum tax increase in an open economy leads to A. a rise in the current account balance in a large open​ economy; no change in the current account balance in a small open economy. B. no change in the current account balance. C. a rise in the current account balance. D. a decline in the current account balance.

B. no change in the current account balance. C. a rise in the current account balance.

How do a​ country's current account and financial account balances affect its net foreign​ assets? The net amount of new foreign assets that a country acquires equals its current account​ _____, which in turn must equal its financial account​ _____. A. deficit; deficit B. surplus; deficit C. surplus; surplus D. ​deficit; surplus If country A has greater net foreign assets per citizen than does country​ B, is country A necessarily better off than country​ B? A. No; total GDP matters more B. No; net foreign assets and net official assets together matter most C. No; total national wealth is what matters D. Yes

B. surplus; deficit C. No; total national wealth is what matters

What is the key difference that determines whether an international transaction appears in the current account or the financial​ account? A. Trade in currently produced goods is services are entered in the financial​ account, trade in assets is entered in the current account. B. Gold movements are entered in the financial​ account, all other transactions are entered in the current account. C. Trade in currently produced goods and services is entered in the current​ account, trade in assets is entered in the financial account. D. Receipts are entered in the current​ account, payments are entered in the financial account.

C. Trade in currently produced goods and services is entered in the current​ account, trade in assets is entered in the financial account.

1.) Why might low taxes be associated with a decrease in​ investment? A. Congress decreases taxes to lower investment in expansionary fiscal policy. B. Congress decreases taxes to lower investment in contractionary fiscal policy. C. Congress might lower taxes as a response to​ already-low investment spending. D. A decrease in taxes tends to lower the interest rate and therefore investment spending. ​ 2.) The application discusses a 1994 study by​ Cummins, Hubbard, and Hassett. Which of the following would seriously undermine the assumptions of this​ study? A. Evidence that changes in investment during periods of large tax changes are attributable to some​ non-tax factor. B. Evidence that any factors other than tax laws changed during the periods studied. C. Evidence that tax laws are different for different types of capital. D. All of the above. ​ 3.) The study by​ Cummins, Hubbard, and Hassett implies that a decrease in taxes related to investment in factories A. would have no significant effect on investment for firms who already heavily invest in factories. B. would result in the biggest increase in investment for firms who already heavily invest in factories. C. would result in the same increase in investment regardless of whether a firm tends to invest in factories or machines. D. could convince firms that currently heavily invest in machines to switch to investment in factories.

C. Congress might lower taxes as a response to​ already-low investment spending. A. Evidence that changes in investment during periods of large tax changes are attributable to some​ non-tax factor. B. would result in the biggest increase in investment for firms who already heavily invest in factories.

Which of the following statements below describe what is meant by a steady​ state, in terms of the Solow​ model?​ (Assume there is no productivity​ growth) I. Output per worker​ = consumption per worker​ = capital per worker. II. Output per​ worker, consumption per worker and capital per worker are constant. III. Output per​ worker, consumption per worker and capital per worker all grow at the same positive rate. IV. Total​ output, total consumption and total capital all grow at the same rate​ (the growth of the labor​ force). A. I only B. I and IV C. II and IV D. II and III E. I, II, III and IV​ - all of the above statements describe the steady state as given by the Solow model.

C. II and IV

1.) Which of the following is an example of a time period in the United States when changes in consumer sentiment were not met with changes in consumption spending in the same​ direction? A. The period of large productivity gains in the United States in the​ mid-1990s. B. Late 2007 to early​ 2008, when financial markets crashed. C. Late​ 1998, when the Russian government defaulted on a large amount of debt. D. The recession between 1978 and 1980. ​ 2.) Which of the following statements best summarizes the behavior of the Thomson​ Reuters/University of Michigan Index of Consumer Sentiment as related to a​ recession? A. The index turns down sharply during an economic expansion and turns up sharply during an economic recessionlong dash—the opposite of initial economic expectations. B. The index tends to turn down sharply during​ recessions, but there are also significant turndowns when no recession exists. C. The index remains roughly constant over time regardless of what is going on in terms of a recession or expansion in the economy as a whole. D. The index exhibits sharp downturns that begin months before recessions​ occur, providing economists and politicians with reliable warnings of recessions to come. ​ 3.) The application indicates that the Thomson​ Reuters/University of Michigan Index of Consumer Sentiment is useful as a way to measure consumer perceptions about the current​ economy, useful as a tool to help explain past changes in​ spending, useful as a way to measure consumer perceptions about likely future changes in the​ economy, and not useful as a method of forecasting consumer spending. ​4.) The study by Croushore cited in the application indicates that the best models to predict future consumer spending would include information on A. consumer knowledge of monetary and fiscal​ policy, but not necessarily past consumer spending. B. consumer sentiment and interest​ rates, but not necessarily consumer income. C. past consumer spending and stock​ prices, but not necessarily consumer sentiment. D. stock prices and consumer​ sentiment, but not necessarily interest rates.

C. Late​ 1998, when the Russian government defaulted on a large amount of debt. B. The index tends to turn down sharply during​ recessions, but there are also significant turndowns when no recession exists. C. past consumer spending and stock​ prices, but not necessarily consumer sentiment.

In what periods has the U.S. had twin​ deficits? A. The U.S. had twin deficits in the 1970s and first half of the 1980s. B. The U.S. has never had twin deficits. C. The U.S. had twin deficits in the 1980s and first half of the 1990s. D. The U.S. had twin deficits in the 1990s and first half of the 2000s. In what periods did the deficits move in opposite​ directions? A. The deficits moved in opposite directions in the late 1980s. B. The deficits moved in opposite directions in the late 1960s and from 1998 to 2001. C. The deficits moved in opposite directions in the late 1970s. D. The deficits moved in opposite directions in the late 1990s and from 2008 to 2011.

C. The U.S. had twin deficits in the 1980s and first half of the 1990s. D. The deficits moved in opposite directions in the late 1990s and from 2008 to 2011.

Which of the following types of changes in desired saving and desired investment does NOT lead to a larger current account deficit in a small open​ economy? A. An increase in the expected future marginal product of capital. B. An increase in government purchases to finance a military expansion. C. A temporary adverse supply shock. D. An increase in taxes to finance government infrastructure investment projects.

D. An increase in taxes to finance government infrastructure investment projects.

1.) Today, the United States is more of an importer than an exporter and more of a net international debtor than a net international creditor. When we say that the United States is a net international debtor​, we mean that more A. goods and services made in the United States are sold to foreigners than goods and services made by foreigners are sold to those living in the United States. B. foreign assets are owned by those living in the United States than U.S. assets are owned by foreigners. C. U.S. assets are owned by foreigners than foreign assets are owned by those living in the United States. D. goods and services made by foreigners are sold to those living in the United States than goods and services made in the United States are sold to foreigners. ​ 2.) According to Figure 5.6 in the Application​ box, from the mid 1980s to 2006 in the United​ States, both exports and imports started growing A. more slowly than they had in the​ past, with imports exceeding exports. B. more slowly than they had in the​ past, with exports exceeding imports. C. more rapidly than they had in the​ past, with imports exceeding exports. D. more rapidly than they had in the​ past, with exports exceeding imports. ​ 3.) Overall, according to​ economists, for the United States international trade A. both creates and destroys​ jobs, creating more jobs than it destroys. B. both creates and destroys​ jobs, destroying more jobs than it creates. C. only creates jobs. D. only destroys jobs.

C. U.S. assets are owned by foreigners than foreign assets are owned by those living in the United States. C. more rapidly than they had in the​ past, with imports exceeding exports. A. both creates and destroys​ jobs, creating more jobs than it destroys.

This problem adds the government to the Solow model. Which of the following expressions characterizes the steady state​ capital-labor ratio? A. sf(k) − g​ = (n​ + d)k B. sf(k) =​ (n + d​ + g)k C. [f(k) − ​g] =​ (n +​ d)k D. sf(k)​ = ​(n​ + d −g​)k The following graphically shows how the ​sf(k​) curve shifts after the addition of​ government, and the resulting​ steady-state level of capital per​ worker, k​*. If the government permanently increases purchases per worker​ (an increase in g​), Output per worker A. remains the same in the steady state. B. can not be determined qualitatively. C. is lower in the steady state. D. is higher in the steady state. If the government permanently increases purchases per worker​ (an increase in g​), Capital per worker A. can not be determined qualitatively. B. is higher in the steady state. C. is lower in the steady state. D. remains the same in the steady state. If the government permanently increases purchases per worker​ (an increase in g​), Consumption per worker A. is higher in the steady state. B. remains the same in the steady state. C. can not be determined qualitatively. D. is lower in the steady state.

C. [f(k) − ​g] =​ (n +​ d)k C. is lower in the steady state. C. is lower in the steady state. D. is lower in the steady state.

According to the Solow model of economic​ growth, if there is no productivity​ growth, what will happen to output per​ worker, consumption per​ worker, and capital per worker in the long​ run? A. all will decrease B. all will increase C. all will remain the same D. output and capital per worker will​ increase, while consumption will decrease

C. all will remain the same

Which of the following outcomes of a change in the government budget deficit would increase the current account deficit of a small open​ economy? A. an increase in the budget surplus that has no effect on national saving because of Ricardian equivalence. B. an increase in the budget deficit that has no effect on national saving because of Ricardian equivalence. C. an increase in the budget deficit that reduces national saving. D. an increase in the budget surplus that raises national saving. If a change in the government budget deficit changes the current account deficit of a small open​ economy, by how much does the current account deficit​ change? A. By the amount that national saving changes. B. By zero. C. By the average change in national saving and investment. D. By the amount that national investment changes. What is the connection between the government budget deficit and the current account​ balance, if an increase in the budget deficit reduces national​ saving? A. They move in opposite directions. B. They move in the same direction in expansions and in opposite directions in recessions. C. They move in the same direction. D. Their movements are uncorrelated.

C. an increase in the budget deficit that reduces national saving. A. By the amount that national saving changes. C. They move in the same direction.

​1.) From the point of view of the United​ States, "net foreign​ borrowing" refers to A. foreign nations buying assets owned by the United States. B. foreign nations lending to the United States. C. both of the above. D. neither of the above. ​ 2.) If a nation has net foreign assets of dash-​$100 ​million, we can also correctly say that the nation has A. net foreign debt of dash-​$100 million. B. a budget deficit of​ $100 million. C. net exports of​ $100 million. D. net foreign debt of​ $100 million. ​3.) The​ world's largest international debtor in absolute​ (dollar) terms is currently the United States​, and the largest direct investor in the United States is currently the United Kingdom. Can we say definitively that a nation with a high dollar amount of debt is in financial​ trouble? A. Not​ necessarily, as we must consider the dollar figure relative to the​ nation's GDP. B. Not​ necessarily, as we must consider what the nation spends the debt on. C. Both of the above are correct. D. Neither of the above are​ correct: High dollar amounts of debt lead directly to big financial trouble.

C. both of the above. D. net foreign debt of​ $100 million. C. Both of the above are correct.

​1.) The​ uses-of-saving identity ​(Eq. 1LOADING...​) implies​ that, assuming national private saving is​ unchanged, an increase in the budget deficit must be met with A. a decrease in investment by firms. B. an increase in the current account deficit. C. option​ (A), option​ (B), or some combination of the two. D. none of the above. ​ 2.) The​ twin-deficits idea states that A. a budget deficit in one nation tends to cause a budget deficit in its biggest trading partner nation. B. budget deficits tend to cause current account deficits. C. current account deficits tend to cause budget deficits. D. a decrease in taxes tends to cause a budget deficit. ​ 3.) The Ricardian equivalence proposition predicts that tax cuts will not affect saving and will not affect the current account. The​ twin-deficits idea does not agree with the Ricardian equivalence​ proposition, implying that tax cuts will increase the budget deficit.

C. option​ (A), option​ (B), or some combination of the two. B. budget deficits tend to cause current account deficits.

Suppose a large open economy​ (the home​ country) currently has a current account balance of zero.​ Then, the foreign country is hit by a temporary adverse supply shock. In the new​ equilibrium, the world real interest​ _____ and investment in the home country​ _____. A. declines; declines B. rises; rises C. rises; declines D. declines; rises In the new​ equilibrium, saving in the home country​ _____ and the current account balance in the home country​ _____. A. rises; declines B. declines; declines C. ​rises; rises D. declines; rises How would the results change if the temporary adverse supply shock hit both countries instead of just the foreign​ country? In the new​ equilibrium, the world real interest rate A. would rise more than if the shock just hit the foreign country. B. would rise less than if the shock just hit the foreign country. C. would fall more than if the shock just hit the foreign country. D. would fall less than if the shock just hit the foreign country.

C. rises; declines C. ​rises; rises A. would rise more than if the shock just hit the foreign country.

The term saving refers to A. a change in wealth. B. firms' accumulation of physical capital. C. the flow of funds that is not consumed out of income. D. the stock of funds that represents the accumulated amount of net saving over time. The term savings refers to A. the flow of funds that is not consumed out of income. B. a change in wealth. C. firms' accumulation of physical capital. D. the stock of funds that represents the accumulated amount of net saving over time.

C. the flow of funds that is not consumed out of income. D. the stock of funds that represents the accumulated amount of net saving over time.

What are some of the reasons given why the U.S. experienced the large growth in productivity during the​ 1990's? A. the revolution in information and communications technologies​ (ICT) B. existing U.S. laws allowed firms to take advantage of the ICT improvements C. intangible investment​ (such as research and​ development, reorganization of​ firms, and worker​ training) allowed firms to take advantage of the ICT improvements D. All of the above have been cited as reasons to explain the increases in worker productivity. E. None of the above are correct.

D. All of the above have been cited as reasons to explain the increases in worker productivity.

Which of the following are the main sources of economic​ growth, according to the growth accounting​ system? I. Growth in capital II. Growth in labor III. Growth in productivity IV. Growth in natural resources A. I only B. I and II only C. III only D. I, II and III E. I, II, III and IV

D. I, II and III

The world is made up of only two large​ countries: Eastland and Westland. Westland is running a large current account deficit and often appeals to Eastland for help in reducing this current account deficit.​ Currently, the government of Eastland purchases​ $10 billion of goods and​ services, and all of these goods and services are produced in Eastland. The finance minister of Eastland proposes that the government purchase half of its goods from Westland.​ Specifically, the government of Eastland will continue to purchase​ $10 billion of​ goods, but​ $5 billion will be from Eastland and​ $5 billion will be from Westland. The finance minister gives the following​ rationale: "Both countries produce identical goods so it does not really matter to us which country produced the goods we purchase.​ Moreover, this change in purchasing policy will help reduce​ Westland's large current account​ deficit." What are the effects of this change in purchasing policy on the current account balance in each country and on the world real interest​ rate? (Hint: What happens to net exports by the private sector in each country after the government of Eastland changes its purchasing​ policy?) A. The current account balance increases. B. The financial account balance and the current account balance both increase. C. The current account balance decreases. D. The current account balance is unaffected.

D. The current account balance is unaffected.

Assuming zero net unilateral​ transfers, how is the current account balance related to net​ exports? Current Account Balance = Net Exports ​+ Net income from abroad Which is an incorrect statement about the balance of payments​ accounts? A. Any transaction involving a flow of funds into a country is a positive item in the​ country's balance of payments. B. The balance of payments accounts consist of the current account and the financial account. C. Any transaction involving a flow of funds out of a country is a negative item in the​ country's balance of payments. D. The financial account measures a​ country's trade in currently produced goods and services.

D. The financial account measures a​ country's trade in currently produced goods and services.

1.) The yield curve slopes upward. Which of the following best explains this​ observation? A. Treasury bonds and municipal bonds have about the same amount of default risk. B. The interest rate on a municipal bond tends to be higher than the interest rate on a Treasury bill. C. There are many interest rates in the​ economy, but they all tend to rise and fall together. D. The interest rate on a bond with a​ 30-year maturity tends to be higher than the interest rate on a bond with a​ 10-year maturity. ​2.) The basic rate that banks charge on loans to their best customers is called the prime rate​, the interest rate on a Treasury bond is called the default risk free rate and the interest rate on overnight loans between banks is called the federal funds rate. ​ 3.) Which of the following would cause a bond to have a relatively high interest​ rate? ​(Select all that​ apply) A. A bond that has high default risk. B. The bond being a U.S. Treasury bill. C. A bond that has a long maturity. D. There is a high probability that the firm issuing the bond will go out of business. ​ 4.) In​ general, the prime interest rate and the federal funds rate tend to move in the same direction.

D. The interest rate on a bond with a​ 30-year maturity tends to be higher than the interest rate on a bond with a​ 10-year maturity. A. A bond that has high default risk. C. A bond that has a long maturity. D. There is a high probability that the firm issuing the bond will go out of business.

What two explanations of productivity growth does endogenous growth theory​ offer? A. population growth and increased saving B. increased saving and technological innovation C. population growth and technological innovation D. accumulation of human capital and technological innovation How does the production function in an endogenous growth model differ from the production function in the Solow​ model? In the Solow​ model, the production function​ _____, while in the endogenous growth​ model, the production function​ _____. A. does not exhibit diminishing marginal​ productivity; exhibits diminishing marginal productivity B. depends on capital but not​ labor; depends on labor but not capital C. exhibits diminishing marginal​ productivity; does not exhibit diminishing marginal productivity. D. depends on labor but not​ capital; depends on capital but not labor

D. accumulation of human capital and technological innovation C. exhibits diminishing marginal​ productivity; does not exhibit diminishing marginal productivity.

Which of the following is NOT a policy with a reasonable chance of increasing productivity​ growth? A. constructing a national​ high-speed rail network B. providing free university education C. increasing the number of grants for scientific research D. all of the above are policies which may increase productivity growth Will the above policies necessarily lead to an increase in economic​ growth? A. No. Increased taxes or deficit spending will lead to a decline in​ long-run economic growth. B. Yes. Productivity growth is the principal determinant of of​ long-run output and consumption per worker. C. No. The policies may divert resources from more effective investments. D. Yes. Government spending is a direct component of​ GDP, and increases will lead to an improvement in​ long-run growth

D. all of the above are policies which may increase productivity growth C. No. The policies may divert resources from more effective investments.

An American publisher sells​ $200 worth of books to a resident of Brazil. By​ itself, this item is a positive item in the U.S. current account. Offsetting transactions that would ensure that the U.S. current account and the financial account balances would continue to sum to zero​ include: A. any positive item in the financial account B. a gold transfer from the U.S. to Brazil. C. any positive item in the current account D. any negative item in the financial account

D. any negative item in the financial account

The desire to have a relatively even pattern of consumption over time is known as the A. ​life-cycle permanent-income hypothesis. B. relative consumption theory. C. conspicuous consumption theory. D. consumption-smoothing motive. If a​ person's income​ declines, the​ consumption-smoothing motive suggests that the person will A. reduce current consumption by the amount of the decline in income. B. reduce future consumption by the amount of the decline in income. C. reduce consumption in both the current and future periods. D. increase future consumption and reduce current consumption.

D. consumption-smoothing motive. C. reduce consumption in both the current and future periods.

When households first received their tax​ rebates, on average they A. increased spending on their credit cards and reduced their​ credit-card debt. B. did not increase spending on their credit cards and increased their​ credit-card debt. C. increased spending on their credit cards and increased their​ credit-card debt. D. did not increase spending on their credit cards and reduced their​ credit-card debt. Nine months after households received their tax​ rebates, on average they A. increased spending on their credit cards and reduced their​ credit-card debt. B. increased spending on their credit cards and increased their​ credit-card debt. C. did not increase spending on their credit cards and increased their​ credit-card debt. D. did not increase spending on their credit cards and reduced their​ credit-card debt.

D. did not increase spending on their credit cards and reduced their​ credit-card debt. B. increased spending on their credit cards and increased their​ credit-card debt.

A variable that is taken as given in an economic model is called A. endogenous. B. a growth rate. C. a level. D. exogenous. A variable that is determined by the equilibrium in a model is called A.exogenous. B. a growth rate. C. a level. D. endogenous. A sensible question to ask is A. how does a change in an exogenous variable affect an endogenous​ variable? B. how does a change in one exogenous variable affect another exogenous​ variable? C. how does a change in an endogenous variable affect another endogenous​ variable? D. how does a change in an endogenous variable affect an exogenous​ variable?

D. exogenous. D. endogenous. A. how does a change in an exogenous variable affect an endogenous​ variable?

1.) Events in the stock market in August 1987​ _________, while events in the stock market in October 1987​ ________. A. decreased​ consumption; decreased consumption further B. increased​ consumption; increased consumption further C. decreased​ consumption; increased consumption D. increased​ consumption; decreased consumption ​2.) In the 1980s and​ 1990s, increases in consumption A. were a surprise because of generally poor stock market growth in the 1990s. B. occurred because of decreases in GDP. C. occurred at least in part due to a​ long-term trend unrelated to events in the stock market. D. came almost entirely from wealth gains due to a booming stock market. ​ 3.) The theory described in the text suggests that an increase in stock prices should lead to increases in consumption. Which of the following time periods exhibited the opposite effect—that ​is, an inverse​ (negative) relationship—between stock prices and​ consumption? A. Stock market crash of 1987. B. Early 2000s with its decline in stock prices. C. Late 1990s with its growth in the stock market. D. Financial crisis of 2008. ​ 4.) The explanation given for the high consumption following the decline in stock prices in the early 2000s is best described by which of the​ following? A. Consumers refused to change their behavior from the​ record-high increases in consumption in the late 1990s. B. Consumption changed in nominal​ terms, but not real terms. C. Home prices before the early 2000s were so low that consumption had already gone as low as it could. D. Increases in​ consumption, like​ wealth, are spread out over the​ consumer's lifetime.

D. increased​ consumption; decreased consumption C. occurred at least in part due to a​ long-term trend unrelated to events in the stock market. B. Early 2000s with its decline in stock prices. D. Increases in​ consumption, like​ wealth, are spread out over the​ consumer's lifetime.


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