ECON 343 Final

If the nominal interest rate is 1 percent and the inflation rate is 5 percent, the real interest rate is:

-4 percent

In the Solow model with technological progress, the steady-state growth rate of output per effective worker is:

0

The steady-state level of capital occurs when the change in the capital stock (∆k) equals:

0

If the quantity of real money balances is kY, where k is a constant, then velocity is:

1/k.

If the fraction of employed workers who lose their jobs each month (the rate of job separations) is 0.01 and the fraction of the unemployed who find a job each month is 0.09 (the rate of job findings), then the natural rate of unemployment is:

10 percent.

If purchasing-power parity held, if a Big Mac costs $2 in the United States, and if 10 Mexican pesos trade for $1 dollar, then a Big Mac in Cancun, Mexico, should cost:

20 pesos

The CPI is determined by computing:

4.7

If there are 100 transactions in a year and the average value of each transaction is $10, then if there is $200 of money in the economy, transactions velocity is ______ times per year

5

Assume that total output consists of 4 apples and 6 oranges and that apples cost $1 each and oranges cost $0.50 each. In this case, the value of GDP is:

7

If the marginal product of capital net of depreciation equals 10 percent and the rate of population growth equals 2 percent, then this economy will be at the Golden Rule steady state if the rate of technological progress equals _____ percent.

8

If the per-worker production function is given by y = k1/2, the saving ratio is 0.3, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is:

9

The value of net exports is also the value of:

B) the excess of national saving over domestic investment.

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

Investment; depreciation

Which of the following is the best example of structural unemployment?

Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available

Banks create money in:

a fractional-reserve banking system but not in a 100-percent-reserve banking system.

In a small open economy, if the world interest rate is r3, then the economy has:

a trade deficit.

In the long run, the level of output is determined by the:

amounts of capital and labor and the available technology.

An increase in the trade deficit of a small open economy could be the result of:

an increase in government spending

A favorable supply shock occurs when:

an oil cartel breaks up and oil prices fall.

Short-run fluctuations in output and employment are called:

business cycles

The two most important factors of production are:

capital and labor

In the basic endogenous growth model, income can grow forever—even without exogenous technological progress—because:

capital does not exhibit diminishing returns.

Demand deposits are funds held in:

checking accounts.

In the Solow model, it is assumed that a(n) ______ fraction of capital wears out as the capital-labor ratio increases.

constant

Real GDP means the value of goods and services is measured in ______ prices.

constant

If an increase of an equal percentage in all factors of production results in an increase in output of the same percentage, then a production function has the property called:

constant returns to scale.

In the Solow model with technological change, the Golden Rule level of capital is the steady state that maximizes:

consumption per effective worker

The demand for output in a closed economy is the sum of:

consumption, investment, and government spending

The economic statistic used to measure the level of prices is:

cpi

According to the quantity equation, if the velocity of money and the supply of money are fixed, and the price level increases, then the quantity of goods and services purchased:

decreases

In the Solow growth model with population growth and technological change, the break-even level of investment must cover:

depreciating capital, capital for new workers, and capital for new effective workers.

When an aggregate demand curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, if the money supply is decreased, then the aggregate demand curve will shift:

downward and to the left.

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

efficiency of each worker.

If the Fed reduces the money supply by 5 percent and the quantity theory of money is true, then:

every point on the aggregate demand curve moves 5 percent to the left

GDP is the market value of all ______ goods and services produced within an economy in a given period of time.

final

Exogenous variables are:

fixed at the moment they enter the model.

Most economists believe that prices are:

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

In the Solow model with technological progress, the steady-state growth rate of capital per effective worker is:

g

In the Solow model with technological progress, the steady-state growth rate of output per (actual) worker is:

g.

The statistic used by economists to measure the value of economic output is:

gdp

When the Federal Reserve increases the money supply, at a given price level the amount of output demanded is ______ and the aggregate demand curve shifts ______.

greater; outward

The natural rate of unemployment is:

he average rate of unemployment around which the economy fluctuates

Which of the following is a flow variable?

income

In this graph, starting from capital-labor ratio k1, the capital-labor ratio will:

increase

If the real exchange rate decreases, then net exports will

increase.

According to the quantity theory of money, if money is growing at a 10 percent rate and real output is growing at a 3 percent rate, but velocity is growing at increasingly faster rates over time as a result of financial innovation, the rate of inflation must be:

increasing

Which of the following changes would bring the U.S. capital stock, currently below the Golden Rule level, closer to the steady-state, consumption-maximizing level?

increasing the saving rate

A measure of how fast the general level of prices is rising is called the:

inflation rate

The demand for loanable funds is equivalent to:

invesrment

5. When bread is baked but put away for later sale, this is called:

investment in inventory.

The real exchange rate:

is equal to the nominal exchange rate multiplied by the domestic price level divided by the foreign price level.

The classical dichotomy:

is said to hold when the values of real variables can be determined without any reference to nominal variables or the existence of money

To determine whether an economy is operating at its Golden Rule level of capital stock, a policymaker must determine the steady-state saving rate that produces the:

largest output per worker.

The lower the real exchange rate is, the ______ expensive domestic goods are relative to foreign goods, and the ______ the demand is for net exports.

less; greater

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

level of output but not prices.

this is not included in M1

money market deposit accounts.

If a country has a high rate of inflation relative to the United States, the dollar will buy:

more of the foreign currency over time

If domestic saving is less than domestic investment, then net exports are ______ and net capital outflows are ______

negative; negative

The aggregate demand curve is the ______ relationship between the quantity of output demanded and the ______.

negative; price level

Okun's law is the ______ relationship between real GDP and the _____

negative; unemployment rate

In the national income accounts, consumption expenditures include all of the following except household purchases of:

new residential housing.

The real interest rate is equal to the:

nominal interest rate minus the inflation rate.

The labor force equals the:

number of employed and unemployed individuals.

If the short-run aggregate supply curve is horizontal and the long-run aggregate supply curve is vertical, then a change in the money supply will change ______ in the short run and change ______ in the long run.

only output; only prices

In the Solow growth model with population growth, but no technological progress, in the Golden Rule steady state, the marginal product of capital minus the rate of depreciation will equal:

output per worker.

The currency-deposit ratio is determined by:

preferences of households about the form of money they wish to hold.

Wage rigidity:

prevents labor demand and labor supply from reaching the equilibrium level.

Aggregate supply is the relationship between the quantity of goods and services supplied and the:

price level.

A short-run aggregate supply curve shows fixed ______, and a long-run aggregate supply curve shows fixed ______.

prices; output

An adverse supply shock ______ the short-run aggregate supply curve ______ the level of output.

raises; and may also lower

The one-to-one relation between the inflation rate and the nominal interest rate, the Fisher effect, assumes that the:

real interest rate is constant.

In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply:

remains the same.

Starting from long-run equilibrium, without policy intervention, the long-run impact of an adverse supply shock is that prices will:

return to the old level and output will be restored to the natural rate

When there is structural unemployment, the real wage is:

rigid at a level above the market-clearing level

If s is the rate of job separation, f is the rate of job finding, and both rates are constant, then the unemployment rate is approximately:

s/(s + f).

In the Solow growth model, the steady state level of output per worker would be higher if the _____ increased or the _____ decreased.

saving rate; depreciation rate

Investment per worker (i) as a function of the saving ratio (s) and output per worker (f(k)) may be expressed as:

sf(k).

If the nominal interest increases, then:

the demand for money decreases.

Which of the following is an example of a demand shock?

the introduction and greater availability of credit cards

The natural level of output is:

the level of output at which the unemployment rate is at its natural level.

If you hear in the news that the Federal Reserve conducted open-market purchases, then you should expect ______ to increase.

the money supply

The vertical long-run aggregate supply curve satisfies the classical dichotomy because the natural rate of output does not depend on:

the money supply

Along an aggregate demand curve, which of the following are held constant?

the money supply and velocity

In a steady state:

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

the cpi is determined by computing

the price of a fixed basket of goods and services, relative to the price of the same basket in a base year

All of the following statements about sticky prices are true except:

the sticky-price model describes the equilibrium toward which the economy slowly gravitates.

Frictional unemployment is unemployment caused by:

the time it takes workers to search for a job

The value added of an item produced refers to:

the value of a firm's output less the value of the intermediate goods that the firm purchases

All of the following are reasons for frictional unemployment except:

unemployed workers accept the first job offer that they receive

All of the following policies were adopted by the government in an attempt to reduce the natural rate of unemployment except:

unemployment insurance

People use money as a unit of account when they:

use money as a measure of economic transactions.

The quantity theory of money assumes that:

velocity is constant.

The definition of the transactions velocity of money is:

way to display wealth.

If two economies are identical (with the same population growth rates and rates of technological progress), but one economy has a lower saving rate, then the steady-state level of income per worker in the economy with the lower saving rate:

will be at a lower level than in the steady state of the high-saving economy.

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

will decrease

The change in capital stock per worker (∆k) may be expressed as a function of s = the saving ratio, f(k) = output per worker, k = capital per worker, and δ = the depreciation rate, by the equation:

∆k = sf(k) - δk.