Macro Exam 2

An increase in the saving rate starting from a steady state with less capital than the Golden Rule causes investment to ______ in the transition to the new steady state. A)​increase B)​decrease C)​first increase, then decrease D)​first decrease, then increase

A

In the IS-LM model when M remains constant but P rises, in short-run equilibrium, in the usual case the interest rate ______ and output ______. A) rises; falls B) rises; rises C) falls; rises D) falls; falls

A

In the Solow growth model, an economy in the steady state with a population growth rate of n but no technological growth will exhibit a growth rate of output per worker at rate: A) 0. B) n. C) g. D) (n + g).

A

Public policies in the United States designed to stimulate technological progress do not include: A)​tax breaks to encourage homeownership. B)​the temporary monopoly granted by the patent system. C)​tax breaks for research and development. D)​subsidies given by the National Science Foundation.

A

Spells of unemployment end when the unemployed person finds a job or: A)​withdraws from the labor force. B)​enters the labor force. C)​runs out of unemployment insurance compensation. D)​refuses to answer unemployment survey questions.

A

The natural rate of unemployment is: A)​the average rate of unemployment around which the economy fluctuates. B)​about 10 percent of the labor force. C)​a rate that never changes. D)​the transition of individuals between employment and unemployment.

A

Unemployment caused by the time it takes workers to search for a job is called ______ unemployment. A)​frictional B)​structural C)​efficiency D)​insider

A

When the real wage is above the level that equilibrates supply and demand: A)​the quantity of labor supplied exceeds the quantity demanded. B)​the quantity of labor demanded exceeds the quantity supplied. C)​there is no unemployment. D)​the labor market clears.

A

With population growth at rate n and labor-augmenting technological progress at rate g, the Golden Rule steady state requires that the marginal product of capital (MPK): A)​net of depreciation be equal to n + g. B)​net of depreciation be equal to the depreciation rate plus n + g. C)​plus n be equal to the depreciation rate plus g. D)​plus g be equal to the depreciation rate plus n.

A

If consumption is given by C = 200 + 0.75(Y - T) and investment is given by I = 200 - 25r, then the formula for the IS curve is: A) Y = 400 - 0.75T - 25r + G. B) Y = 1,600 - 3T - 100r + 4G. C) Y = 400 + 0.75T - 25r - G. D) Y = 1,600 + 3T - 100r - 4G.

B

If money demand does not depend on income, then the ______ curve is ______. A) IS; vertical B) IS; horizontal C) LM; vertical D) LM; horizontal

B

If the per-worker production function is y = Ak, where A is a positive constant, then the marginal product of capital: A)​increases as k increases. B)​is constant as k increases. C)​decreases as k increases. D)​cannot be measured in this case.

B

If Y = K0.3L0.7, then the per-worker production function is: A) Y = F(K/L). B) Y/L = (K/L)^0.3. C) Y/L = (K/L)^0.5. D) Y/L = (K/L)^0.7.

B

(Exhibit: Shift in Aggregate Demand) In this graph, initially the economy is at point E, with the price P0 and output Y. Aggregate demand is given by curve AD0, and SRAS and LRAS represent, respectively, short-run and long-run aggregate supply. Now assume that the aggregate demand curve shifts so that it is represented by AD2. The economy moves first to point ______ and then, in the long run, to point ______. A)​A; D B)​D; A C)​A; B D)​B; A

A

According to efficiency-wage theories, firms benefit by paying higher-than-equilibrium wages because worker _____ increases. A)​productivity B)​turnover C)​unionization D)​shirking

A

Government policies directed at reducing frictional unemployment include: A)​abolishing minimum-wage laws. B)​making unemployment insurance 100 percent experience rated. C)​increasing the earned income credit. D)​making government part of the union-firm wage bargaining process.

B

(Exhibit: IS-LM Fiscal Policy) Based on the graph, starting from equilibrium at interest rate r1 and income Y1, a decrease in government spending would generate the new equilibrium combination of interest rate and income: A) r2, Y2 B) r3, Y2 C) r2, Y3 D) r3, Y3

B

A policy that decreases the job separation rate _____ the natural rate of unemployment. A)​will increase B)​will decrease C)​will not change D)​could either increase or decrease

B

An increase in the rate of population growth with no change in the saving rate: A)​increases the steady-state level of capital per worker. B)​decreases the steady-state level of capital per worker. C)​does not affect the steady-state level of capital per worker. D)​decreases the rate of output growth in the short run.

B

Economic research shows that ______ in explaining international differences in living standards. A)​physical capital is more important than human capital B)​human capital is at least as important as physical capital C)​human capital is much more important than physical capital D)​infrastructure is the most important factor

B

Empirical investigations into whether differences in income per person are the result of differences in the quantities of the factors of production available or differences in the efficiency with which the factors are employed typically find: A)​a negative correlation between the quantity of factors and the efficiency of use. B)​a positive correlation between the quantity of factors and the efficiency of use. C)​no correlation between the quantity of factors and the efficiency of use. D)​large gaps between the quantity of factors accumulated and the efficiency of use.

B

In the Solow growth model with population growth, but no technological progress, the steady-state amount of investment can be thought of as a break-even amount of investment because the quantity of investment just equals the amount of: A)​output needed to achieve the maximum level of consumption per worker. B)​capital needed to replace depreciated capital and to equip new workers. C)​saving needed to achieve the maximum level of output per worker. D)​output needed to make the capital per worker ratio equal to the marginal product of capital.

B

In the aggregate demand-aggregate supply model, short-run equilibrium occurs at the combination of output and prices where: A)​aggregate demand equals long-run aggregate supply. B)​aggregate demand equals short-run aggregate supply. C)​aggregate demand equals short-run and long-run aggregate supply. D)​short-run aggregate supply equals long-run aggregate supply.

B

Most economists believe that prices are: A)​flexible in the short run but many are sticky in the long run. B)​flexible in the long run but many are sticky in the short run. C)​sticky in both the short and long runs. D)​flexible in both the short and long runs.

B

Starting from a steady-state situation, if the saving rate increases, the rate of growth of capital per worker will: A)​increase and continue to increase unabated. B)​increase until the new steady state is reached. C)​decrease until the new steady state is reached. D)​decrease and continue to decrease unabated.

B

The relationship between the quantity of goods and services supplied and the price level is called: A)​aggregate demand. B)​aggregate supply. C)​aggregate investment. D)​aggregate production.

B

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: A)​f/(f + s). B)​(f + s)/f. C)​s/(s + f). D)​(s + f)/s.

C

In the Solow growth model with population growth but no technological progress, increases in capital have a positive impact on steady-state consumption per worker by _____, but have a negative impact on steady-state consumption per worker by _____. A)​increasing the capital to worker ratio; reducing saving in the steady state. B)​reducing investment required in the steady state; increasing saving in the steady state. C)​increasing output; increasing output required to replace depreciating capital. D)​decreasing the saving rate; increasing the depreciation rate.

C

In the Solow growth model, capital exhibits ______ returns. In the basic endogenous growth model, capital exhibits ______ returns. A)​constant; diminishing B)​constant; constant C)​diminishing; constant D)​diminishing; diminishing

C

In the Solow growth model, if investment is less than depreciation, the capital stock will ______ and output will ______ until the steady state is attained. A)​increase; increase B)​increase; decrease C)​decrease; decrease D)​decrease; increase

C

In the basic endogenous growth model, income can grow forever—even without exogenous technological progress—because: A)​the saving rate equals the rate of depreciation. B)​the saving rate exceeds the rate of depreciation. C)​capital does not exhibit diminishing returns. D)​capital exhibits diminishing returns.

C

In this graph, starting from capital-labor ratio k1, the capital-labor ratio will: A)​decrease. B)​remain constant. C)​increase. D)​first decrease and then remain constant.

C

Investment per worker (i) as a function of the saving ratio (s) and output per worker (f(k)) may be expressed as: A)​s + f(k). B)​s - f(k). C)​sf(k). D)​s/f(k).

C

Leading economic indicators are: A)​the most popular economic statistics. B)​data that are used to construct the consumer price index and the unemployment rate. C)​variables that tend to fluctuate in advance of the overall economy. D)​standardized statistics compiled by the National Bureau of Economic Research.

C

One efficiency-wage theory implies that firms pay high wages because: A)​this practice increases the problem of moral hazard. B)​in wealthy countries, it is important to pay workers high wages to improve their health. C)​the more a firm pays its workers, the greater their incentive to stay with the firm. D)​paying high wages promotes adverse selection.

C

Schumpeter's thesis of "creative destruction" is an explanation of economic progress resulting from: A)​using up scarce natural resources to create new products. B)​breaking down barriers to trade and development. C)​new product producers driving incumbent producers out of business. D)​creating new methods to destroy the environment.

C

The IS and LM curves together generally determine: A)​income only. B)​the interest rate only. C)​both income and the interest rate. D)​income, the interest rate, and the price level.

C

Wage rigidity: A)​forces labor demand to equal labor supply. B)​is caused by sectoral shifts. C)​prevents labor demand and labor supply from reaching the equilibrium level. D)​increases the rate of job finding.

C

​If the Fed reduces the money supply by 5 percent and the quantity theory of money is true, then output will fall 5 percent in the short run and: A)​prices will remain unchanged in the long run. B)​output will fall 5 percent in the long run. C)​prices will fall 5 percent in the long run. D)​output will remain unchanged in the long run.

C

If MPC = 0.75 (and there are no income taxes) when G increases by 100, then the IS curve for any given interest rate shifts to the right by: A) 100. B) 200. C) 300. D) 400.

D

In the IS-LM model when taxation increases, in short-run equilibrium, the interest rate ______ and output ______. A) rises; falls B) rises; rises C) falls; rises D) falls; falls

D

In the Solow growth model with no population growth and no technological progress, the higher the steady capital-per-worker ratio, the higher the steady-state: A)​growth rate of total output. B)​level of consumption per worker. C)​growth rate of output per worker. D)​level of output per worker.

D

In the Solow growth model with population growth and technological change, the break-even level of investment must cover: A)​depreciating capital. B)​depreciating capital and capital for new workers. C)​depreciating capital and capital for new effective workers. D)​depreciating capital, capital for new workers, and capital for new effective workers.

D

In the two-sector endogenous growth model, the fraction of labor in universities (u) affects the steady-state: A)​level of income. B)​growth rate of income. C)​level of income and growth rate of income. D)​level of income, growth rate of income, and growth rate of the stock of knowledge.

D

Starting from long-run equilibrium, if the velocity of money increases (due to, for example, the invention of automatic teller machines) and no action is taken by the government: A)​prices will rise in both the short run and the long run. B)​output will rise in both the short run and the long run. C)​prices will rise in the short run and output will rise in the long run. D)​output will rise in the short run and prices will rise in the long run.

D

The change in capital stock per worker (Δk) 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: A)​Δk = sf(k)/δk. B)​Δk = sf(k) × δk. C)​Δk = sf(k) + δk. D)​Δk = sf(k) - δk.

D

When drawn on a graph with income along the horizontal axis and the interest rate along the vertical axis, the IS curve generally: A)​is vertical. B)​is horizontal. C)​slopes upward and to the right. D)​slopes downward and to the right.

D

​The Golden Rule level of capital accumulation is the steady state with the highest level of: A)​output per worker. B)​capital per worker. C)​savings per worker. D)​consumption per worker.

D