Econ 3080

The steady-state level of capital occurs when the change in the capital stock per worker (Δk) equals:

0

When the federal government incurs additional debt to acquire an asset, under current budgeting procedures the deficit ______, while under capital budgeting procedures the deficit ______.

increases; does not change

Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, in the first period of a multi-period positive demand shock, output _____, and inflation _____.

increases; increases

In the dynamic model of aggregate demand and aggregate supply, one period in time is connected to the next period through:

inflation expectation.

Fiscal policy has a relatively long ______ lag, and monetary policy has a relatively long ______ lag.

inside; outside

In the IS-LM model in a closed economy, an increase in government spending increases the interest rate and crowds out:

investment.

If the long-run aggregate supply curve is vertical, then changes in aggregate demand affect:

prices but not level of output.

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

technological progress.

Monetarists believe all of the following except:

the Fed should adjust the money supply to adjust to various shocks to the economy.

In a steady state with population growth and technological progress:

the capital and labor shares of income are constant.

In the two-sector endogenous growth model, income growth persists because:

the creation of knowledge in universities never slows down.

Two interpretations of the IS-LM model are that the model explains:

the determination of income in the short run when prices are fixed or what shifts the aggregate demand curve.

The interaction of the IS curve and the LM curve determines:

the equilibrium level of the interest rate and output.

The slope of the IS curve depends on:

the interest sensitivity of investment and the marginal propensity to consume.

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.

Which of the following is not held constant along a dynamic aggregate demand curve?

the money supply

The IS-LM model takes ______ as exogenous.

the price level

In comparing two countries with different levels of education but the same saving rate, population growth, and rate of technological progress, one would expect the more highly educated country to have:

the same growth rate of total income and a higher real wage.

Starting from a steady-state situation, if the saving rate increases, capital per worker will:

increase until the new steady state is reached.

If the U.S. production function is Cobb-Douglas with capital share 0.3, output growth is 3 percent per year, depreciation is 4 percent per year, and the Golden Rule steady-state capital-output ratio is 4.29, to reach the Golden Rule steady state, the saving rate must be:

30 percent.

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.

One policy response to the U.S. economic slowdown of 2001 was tax cuts. This policy response can be represented in the IS-LM model by shifting the ______ curve to the ______.

IS; right

If the short-run aggregate supply curve is assumed to be horizontal and international capital flows are infinitely elastic, then the mother of all models in the appendix to Chapter 14 corresponds to which of the following special cases?

Mundell-Fleming model with floating exchange rate

According to the traditional view of government debt (as in the IS-LM model), if taxes are cut without cutting government spending, then in the short run interest rates will ______, and investment will ______.

increase; decrease

Conducting monetary policy so that the federal funds rate = 0.05, where the federal funds rate is the nominal federal funds interest rate, is an example of:

a passive policy rule.

According to the theory of Ricardian equivalence, if consumers are forward-looking, they will view a tax cut combined with no plans to reduce government spending as ______, so their consumption will ______.

a rescheduling of taxes into the future; remain unchanged

Increasing government spending when the economy is in a recession is an example of:

active fiscal policy.

If the short-run aggregate supply curve is assumed to be horizontal and money demand is proportional to income, then the mother of all models in the appendix to Chapter 14 corresponds to which of the following special cases?

aggregate demand and aggregate supply

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.

Conducting monetary policy so that the federal funds rate = π + 0.5(π - 2) + 0.5 (GDP gap), where the federal funds rate is the nominal federal funds interest rate, π is the annual inflation rate, and GDP gap is the percentage shortfall of real GDP from its natural level, is an example of:

an active policy rule.

Policy is conducted by rule if policymakers:

announce in advance how policy will respond to various situations and commit themselves to following through on this announcement.

When planned expenditure is drawn on a graph as a function of income, the slope of the line is:

between zero and one.

In the Solow growth model, the steady-state occurs when:

capital per worker is constant.

The Golden Rule level of capital accumulation is the steady state with the highest level of:

consumption per worker.

The version of Okun's law studied in Chapter 10 assumes that with no change in unemployment, real GDP normally grows by 3 percent over a year. If the unemployment rate rose by 2 percentage points over a year, Okun's law predicts that real GDP would:

decrease by 1 percent.

If the production function is Y = AK2/3L1/3 in the land of Antegria, and the labor force increases by 5 percent while capital is constant, labor productivity, measured by Y / L, will:

decrease by 3.33 percent.

A difference between the economic long run and the short run is that:

demand can affect output and employment in the short run, whereas supply is the ruling force in the long run.

Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, if the central bank permanently reduces its inflation target, then in the first period after the policy change, the DAS curve _____, and the DAD curve _____.

does not shift; shifts leftward

The number of effective workers takes into account the number of workers and the:

efficiency of each worker.

Hypotheses to explain the positive correlation between factor accumulation and production efficiency include each of the following except:

efficient economies make capital accumulation unnecessary.

Most economists believe that prices are:

flexible in the long run but many are sticky in the short run.

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

governments provide pensions and health care for the elderly.

The basic aggregate supply equation implies that output exceeds natural output when the price level is:

greater than the expected price level.

The majority of empirical evidence supports the hypothesis that economies that are open to trade _____ than comparable closed economies.

grow more rapidly

The idea that the natural rate of unemployment is increased following extended periods of unemployment is called:

hysteresis.

According to the natural-rate hypothesis, output will be at the natural rate:

if inflation meets expectations in the short run.

A 5 percent reduction in the money supply will, according to most economists, reduce prices 5 percent:

in the long run but lead to unemployment in the short run.

All of the following are ways that the modern Phillips curve differs from the relationship observed by A. W. Phillips in 1958

includes supply shocks, includes expected inflation, substitutes price inflation for wage inflation.

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.

A given increase in taxes shifts the IS curve more to the left the:

larger the marginal propensity to consume.

When firms experience unplanned inventory accumulation, they typically:

lay off workers and reduce production.

If the Fed accommodates an adverse supply shock, output falls ______, and prices rise ______.

less; more

The short-run equilibrium in the dynamic model of aggregate demand and supply determines the:

level of output and inflation rate.

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

level of output but not prices.

The lags involved in implementing monetary and fiscal policy are:

long and variable.

An increase in the money supply:

lowers the interest rate and increases income in the short run but leaves both unchanged in the long run.

The political business cycle refers to the:

manipulation of the economy to win elections.

Starting from long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, a five-period positive demand shock causes output to _____ until returning to the natural level in the long run.

move above and then below the natural level of output

If people's expectations of inflation are formed rationally rather than based on adaptive expectations and if policymakers make a credible policy move to reduce inflation, then the costs of reducing inflation will be ______ traditional estimates of the sacrifice ratio.

much lower than

The formula for the steady-state ratio of capital to labor (k*) with population growth at rate n but no technological change, where s is the saving rate, is s:

multiplied by f (k*) divided by the sum of the depreciation rate plus n.

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

Endogenous growth theory rejects the assumption of exogenous:

technological change.

The intersection of the IS and LM curves determines the values of:

r and Y, given G, T, M, and P.

When an economy begins above the Golden Rule level, reaching the Golden Rule level:

results in higher consumption at all times in the future.

If the marginal product of capital net depreciation equals 8 percent, the rate of growth of population equals 2 percent, and the rate of labor-augmenting technical progress equals 2 percent, to reach the Golden Rule level of the capital stock, the ____ rate in this economy must be _____.

saving; increased

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).

the equilibrium level of the interest rate and output.

slopes up to the right.

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.

Economic research finds that greater central-bank independence is ______ correlated with lower and more stable inflation as well as ______ correlated with the average growth and variability of real GDP.

strongly; not

All of the following are ways that the modern Phillips curve differs from the relationship observed by A. W. Phillips in 1958 except that the modern Phillips curve:

substitutes the output gap for unemployment.

Active economic policy seeks to do all of the following except:

take a hands-off approach to macroeconomic policy.

In the Solow growth model, if two countries are otherwise identical (with the same production function, same saving rate, same depreciation rate, and same rate of population growth) except that Country Large has a population of 1 billion workers and Country Small has a population of 10 million workers, the steady-state level of output per worker will be _____, and the steady-state growth rate of output per worker will be _____.

the same in both countries; the same in both countries

According to the Kremerian model, large populations improve living standards because:

there are more people who can make discoveries and contribute to innovation.

Long-run equilibrium occurs in the dynamic model of aggregate demand and aggregate supply when:

there are no shocks and inflation is stable.

In the Keynesian-cross model, actual expenditures differ from planned expenditures by the amount of:

unplanned inventory investment.

If neither investment nor consumption depends on the interest rate, then the IS curve is ______, and ______ policy has no effect on output

vertical; monetary

If the LM curve is vertical and government spending rises by G, in the IS-LM analysis, then equilibrium income rises by:

zero.