Midterm 2 Questions

Which of these statements is NOT true about the steady state of the basic Solow model?

The marginal product of capital always is equal to the depreciation rate

One efficiency-wage theory implies that firms pay high wages because:

The more a firm pays its workers, the greater their incentive to stay with the firm

Which of these statements is NOT true about the steady state in the Solow Model with population and technological progress:

Total capital stock and total output grow at the rate of population growth

Balanced growth refers to the property where:

Values of many variables within a country rise together in the steady state

Suppose an economy is at its steady-state equilibrium and there is a permanent reduction in the saving rate of the economy. In this case, as the economy approaches its new steady, capital per worker will ____ and output per worker will ____.

fall; fall

which would not change total factor production?

government regulations

A policy that increases the job-finding rate ____ the natural rate of unemployment.

will decrease

In a small open economy, if domestic saving exceeds domestic investment, then the extra saving will be used to:

Make loans to foreigners

Which one of these is a reason why many economists are skeptical about industrial policies?

Measuring externalities from different sectors is quite hard

If the contribution of capital to growth in output is 1.5 percent, the contribution of labor is 0.5 percent, and the Solow residual growth is equal to 1 percent, then total output must be growing at:

3 percent

If a U.S. corporation sells a product to Canada and uses the proceeds to purchase a product manufactured in Canada, then U.S. net exports ____, and net capital outflows ____.

Do not change; do not change

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

Domestic spending is greater than output

Analysis of population growth around the world concludes that countries with high population growth tend to:

Have a lower level of income per worker then countries with low population growth

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

Investment; Depreciation

If Y is output, K is capital, u is the fraction of labor force in universities, L is labor, E is 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

The real exchange rate is determined by the equality of:

Net capital outflow and the demand for net exports

An expansionary fiscal policy leads to ____ in investment spending for a small open economy while it leads to ___ in investment spending for a large open economy.

No change; decrease

When an economy's capital is below the Golden Rule level, reaching the Golden Rule level:

Requires initially reducing consumption to increase consumption in the future

The type of legal system and the level of corruption in a country have been found to be:

Significant determinants of the rate of economic growth in a country

According to the Solow model, persistently rising living standards can only be explained by:

Technological progress

When the unemployment rate is at a steady state:

The number of people finding jobs equals the number of people losing jobs

How do the long-run predictions of the Solow growth model compare to the endogenous growth model we studied in class?

The solow grwth model predicts eventual steady state equilibrium, and the endogenous growth model allows for continual growth

The golden rule of capital maximizes

consumption

Economists call the changes in the composition of demand among industries and regions:

sectoral shifts

Which is not a cause of wage rigidity

sectoral shifts