Intermediate Macro Midterm 2

With an increase in total factor productivity in the Solow growth model,

A: the economy reaches a steady state with higher output.

The consumer's lifetime budget constraint states that

A: the present value of lifetime consumption must be equal to the present value of lifetime disposable income.

There is evidence that income per worker is converging in

A: the richest countries, but not the poorest countries.

Consumption smoothing refers to

A: the tendency of consumers to seek a consumption path over time that is smoother than income.

One drawback of the modeling of government expenses so far is that

A: they are pure waste.

Real business cycle theory argues that the primary cause of business cycles is fluctuations in

A: total factor productivity.

The simplest device to analyze dynamic decisions is a

A: two-period model.

For the production function, Y = zK^(0.36)N^(0.64), if measured output is Y, measured capital input is K, and measured labor input is N, then the Solow residual would be equal to

A: Y/(K^(0.36)*N^(0.64))

The biggest contribution to real U.S. GDP growth in the 1970s was due to growth in

A: both the capital stock and the labor force.

The Solow model emphasizes the role of which of the following factors of production?

A: capital

The endowment point is the consumption bundle in which

A: consumption is equal to disposable income in each period.

Changes in government spending are not likely causes of business cycles because government spending induced business cycles would predict

A: countercyclical consumption.

The experience of the U.S. economy during World War II confirms the prediction that a dramatic increase in government spending is likely to

A: increase real GDP and decrease consumption.

An increase in total factor productivity

A: increases consumption, increases output, and increases the real wage.

In the steady state of Solow's exogenous growth model, an increase in the savings rate

A: increases output per worker and increases capital per worker.

In the steady state of Solow's exogenous growth model, an increase in total factor productivity

A: increases output per worker and increases capital per worker.

The saving rate has the following characteristic in Solow's exogenous growth model

A: it is constant.

Before the Industrial Revolution, standards of living differed

A: little over time and across countries.

All of the following increase total factor productivity except

A: more capital.

Recent evidence suggests that output per worker is

A: positively related to the rate of investment and negatively related to the rate of population growth.

Percentage deviations from trend in the Solow residual are

A: procyclical and have about equal magnitude as percentage deviations from trend in GDP

Changes in total factor productivity are plausible causes of business cycles because productivity-induced business cycles correctly predict

A: real wages and consumption must be pro cyclical.

An increase in government spending

A: reduces consumption, increases hours worked, and reduces the real wage.

Why are there no savings in the household's lifetime budget constraint?

A: savings are future consumption

Growth accounting, popularized by Robert Solow, attempts to attribute a change in aggregate output

A: separately between changes in total factor productivity and changes in the supplies of factors of production.

Just prior to the four most recent U.S. recessions, there has been a

A: significant increase in the relative price of energy.

The biggest contribution to real GDP growth in the "East Asian Tigers" during the period 1966-1991 was due to growth in

A: the capital stock.

In Solow's exogenous growth model, the principal obstacle to continuous growth in output per capita is due to

A: the declining marginal product of capital.

In the Solow growth model, the law of motion of capital takes into account

A: the depreciation of old capital.

Conditional convergence means that

A: the distance between poor and rich countries decreases

The variable G considered in the model encompasses

A: government expenses on goods and services.

Which of the following increases total factor productivity?

A: new production procedures

The endowment point is the consumption bundle in which

A: no savings occur

For conditional convergence to hold, it is required that

A: poor countries grow faster than rich countries.

Savings in our model are

A: postponed consumption.

The Solow residual attempts to measure the amount of output notexplained by

A: the direct contribution of labor and capital.

Which feature of the data can the Solow growth model not replicate?

A: There is a widening gap between income levels across countries

A one-period bond is a promise to repay

A: (1 + r) units of goods in the second period.

Which of the following, if implemented in the Solow growth model, would not lead to a steady state?

A: A constant marginal product of capital.

If the population growth rate increases by the same percentage points as the depreciation rate, what happens to the steady-state, per-worker output in Solow's exogenous growth model?

A: It decreases

If the population growth rate increases by 5% and the depreciation rate decreases by 5%, what happens to the steady-state, per-worker consumption in Solow's exogenous growth model?

A: It does not change.