Macro Midterm 2

The main goal of the unemployment insurance system is to reduce a. the rate of job finding. b. the rate of job separation. c. frictional unemployment. d. workers' uncertainty about their incomes.

d

What must be true if domestic saving is $100 and domestic investment is $110? a. The net capital outflow is $10 b. The net capital inflow is $10 c. There is a trade surplus of $10 d. GDP must be less that $210

b

When the unemployment rate is at a steady state: a. no hiring or firings are occurring. b. the number of people finding jobs equals the number of people losing jobs. c. the number of people finding jobs exceeds the number of people losing jobs. d. the number of people losing jobs exceeds the number of people finding jobs.

b

Which is the key equation of growth accounting? a. Y = AF(K,L) b. ΔY/Y = αΔK/K + (1 - α)ΔL/L + ΔA/A c. ΔY/Y = αΔK/K + (1 - α)ΔL/L d. ΔY/Y = αΔK/K + (1 - α)ΔL/L - ΔA/A

b

Which would NOT change total factor productivity? a. Technological progress b. An increase in capital, labor, or both c. Government regulations d. Improvements in education

b

Which of the following statements about minimum-wage workers in the United States is not correct: a. minimum-wage workers are more likely to be young. b. minimum-wage workers are more likely to work part time. c. minimum-wage workers are more likely to be male. d. minimum-wage workers are more likely to be less educated.

c

What do we call the difference between what a country produces and what it demands for consumption, investment, and government purchases? a. Net income b. Imports c. Gross national product d. Net Exports

d

You read on a financial website that the nominal interest rate is 12 percent per year in Canada and 8 percent per year in the United States. Suppose that international capital flows equalize the real interest rates in the two countries and that purchasing-power parity holds. Use this information along with the Fisher equation (introduced in an earlier chapter) to answer the questions. What can you infer about expected inflation rates in Canada compared with the United States? Expected inflation is: a. 4 percent higher in the United States than in Canada. b. 4 percent in both countries, due to the real exchange rate. c. 4 percent higher in Canada than in the United States. d. 4 percent in both countries, due to the nominal exchange rate.

c

What is TRUE if the net marginal return to capital (MPK - δ) is above the economy's average growth rate (n + g)? a. An opportunity exists to increase future consumption per capita b. Higher population growth would increase future consumption c. The steady state is unattainable for this economy d. The economy is beyond the Golden Rule level of capital

a

When a nation runs a trade deficit: a. it experiences a capital inflow b. its output exceeds the sum of its consumption, investment, and government purchases. c. its saving exceeds its domestic investment

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

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

The president is considering placing a tariff on the import of Japanese luxury cars. Using the model presented in this chapter, consider the economics and politics of such a policy. How would this policy affect the U.S. trade deficit? This policy proposal would ultimately _____ the trade deficit. a. increase b. decrease c. not affect

c

The rate of labor-augmenting technological progress (g) is the growth rate of: a. output. b. capital. c. the efficiency of labor. d. labor.

c

The real exchange rate is determined by the equality of: a. saving and the demand for net exports. b. investment and the demand for net exports. c. net capital outflow and the demand for net exports. d. the negative value of net capital outflow and the demand for net exports.

c

Use the model of the small open economy to predict what would happen to the trade balance, the real exchange rate, and the nominal exchange rate in response to an introduction of a stylish line of Toyotas that makes some consumers prefer foreign cars over domestic cars. The trade balance would _____ . a. increase b. decrease c. remain unchanged

c

What do we call this equation: S - I = NX ? a. Net capital outflow b. Net exports c. National income accounts identity d. Crowding out from trade

c

When an economy's capital is below the Golden Rule level, reaching the Golden Rule level: a. produces lower consumption at all times in the future. b. requires higher consumption levels at all times. c. requires initially reducing consumption to increase consumption in the future. d. requires initially increasing consumption to decrease consumption in the future.

c

Which does NOT refer to the term ΔA/A ? a. The Solow Residual b. Change in output not explained by changes in inputs c. Change in the steady state d. Change in output measured indirectly

c

In the Solow growth model, the assumption of constant returns to scale means that: a. the number of workers in an economy does not affect the relationship between output per worker and capital per worker. b. the steady-state level of output is constant, regardless of the number of workers. c. all economies have the same amount of capital per worker. d. the saving rate equals the constant rate of depreciation.

a

In the Solow model with technological progress, the steady-state growth rate of capital per effective worker is: a. 0. b. g. c. n. d. n + g.

a

In the solow growth model, which variable is endogenous? a. The capital stock b. The saving rate c. The depreciation rate d. Technological progress

a

In the steady state of the Solow model with technological progress, which of the following variables is not constant? a. the real wage b. capital per effective worker c. the real rental price of capital d. the capital-output ratio

a

Models of Schumpeterian creative destruction aim to explain: a. how entrepreneurs with new products displace incumbent producers. b. how old capital is best retired and replaced with new capital. c. why economies grow quickly after suffering the ravages of war. d. why seeming technological progress can reduce average incomes.

a

Steady-state consumption is the gap between: a. output and depreciation b. depreciation and investment c. saving and investment d. saving and depreciation

a

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: a. multiplied by f (k*) divided by the sum of the depreciation rate plus n. b. multiplied by the sum of the depreciation rate plus n. c. divided by the sum of the depreciation rate plus n. d. divided by the product of f (k*) and the sum of the depreciation rate plus n.

a

The president is considering placing a tariff on the import of Japanese luxury cars. Using the model presented in this chapter, consider the economics and politics of such a policy. How would it affect the exchange rate? The exchange rate would _____ . a. increase b. decrease c. remain unchanged

a

The type of legal system and the level of corruption in a country have been found to be: a. significant determinants of the rate of economic growth in a country. b. unrelated to the rate of economic growth in a country. c. important variables explaining the Golden Rule level of capital. d. important topics for political discussion, but not economic explanations of growth.

a

When the unemployment rate is at a steady state: a. the number of people finding jobs equals the number of people losing jobs. b. the number of people losing jobs exceeds the number of people finding jobs. c. the number of people finding jobs exceeds the number of people losing jobs. d. no hiring or firings are occurring.

a

Which of the following events would cause a currency to depreciate? a. an increase in the price level b. a tax cut c. a tax increase abroad d. an investment boom

a

Complete the following statement concerning a small open economy. If an import restriction does not influence domestic investment or saving, it causes a country's currency to _____ , resulting in _____ .

appreciate; an unchanged trade balance

If two economies are identical (including having the same saving rates, population growth rates, and efficiency of labor), but one economy has a smaller capital stock, then the steady-state level of income per worker in the economy with the smaller capital stock: a. will be at a higher level than in the steady state of the high capital economy. b. will be at the same level as in the steady state of the high capital economy. c. will be proportional to the ratio of the capital stocks in the two economies. d. will be at a lower level than in the steady state of the high capital economy.

b

In a small open economy, starting from a position of balanced trade, if the government increases the income tax, this produces a tendency toward a trade _____ and _____ net capital outflow. a. deficit; negative b. surplus; positive c. deficit; positive d. surplus; negative

b

In the Solow growth model of an economy with population growth but no technological change, the break-even level of investment must do all of the following except: a. keep the level of capital per worker constant. b. equal the marginal productivity of capital (MPK). c. offset the depreciation of existing capital. d. provide capital for new workers.

b

In the case of unions, the conflict of interest between different groups of workers results in insiders wanting ______, while outsiders want ______. a. high wages; fewer hirings b. high wages; more hirings c. fewer hirings; high wages d. more hirings; high wages

b

In the steady state in the Solow model, which is not one of the uses of new capital? a. To replace depreciating capital b. To replace capital exported to other countries c. To provide capital for new 'effective workers' created by technological progress d. To provide capital for new workers

b

The main cause of the decline in labor force participation in recent years is an increase in the number of a. people in school. b. retired workers. c. discouraged workers. d. disabled workers.

b

The number of effective workers takes into account the number of workers and the: a. rate of growth of the number of workers. b. efficiency of each worker. c. saving rate of each worker. d. amount of capital available to each worker.

b

All of these are causes of structural unemployment EXCEPT: a. minimum-wage laws. b. the monopoly power of unions. c. unemployment insurance. d. efficiency wages.

c

In the Solow growth model, the assumption of constant returns to scale means that: a. all economies have the same amount of capital per worker. b. the saving rate equals the constant rate of depreciation. c. the number of workers in an economy does not affect the relationship between output per worker and capital per worker. d. the steady-state level of output is constant, regardless of the number of workers.

c

In the two-sector endogenous growth model, the saving rate (s) affects the steady-state: a. growth rate of the stock of knowledge. b. level of income and growth rate of income. c. growth rate of income. d. level of income.

d

In the steady state of the Solow model, higher population growth leads to a _____ level of income per worker and _____ growth in total income.

lower; higher

According to the Solow model, if an economy increases its saving rate, then in the new steady state, compared with the old one, the marginal product of capital will be _____ , and the growth rate of income per person will be _____ .

lower; the same

Complete the following statement pertaining to a small open economy. Other things equal, an increase in the world interest rate pushes the trade balance toward _____ and causes the currency to _____ .

surplus; depreciate

Suppose an economy is described by the Solow model. The rate of population growth is 1%, the rate of technological progress is 3%, the depreciation rate is 5%, and the saving rate is 10%. In a steady state, output per person grows at a rate of =

3%

According to the theory of efficiency wages, paying an above-equilibrium wage may increase all the following except a. worker turnover. b. worker effort. c. the quality of a firm's workforce. d. the natural rate of unemployment.

a

As the relative demand for unskilled workers falls, wages for unskilled workers _____, and unemployment compensation becomes a _____ attractive option. a. fall; more b. fall; less c. rise; more d. rise; less

a

If the capital stock is 2 times annual GDP, depreciation is 8 percent of GDP, and capital income is 20 percent of GDP, what is the net marginal product of capital? a. 6 b. 2 c. 4 d. 5

a

If the government of a small open economy wishes to reduce a trade deficit, which policy action will be successful in achieving this goal? a. increasing taxes b. increasing government spending c. increasing investment tax credits d. imposing protectionist trade policies

a

Which of the following is the best example of structural unemployment? a. Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available. b. Fatima lost her job at a packing plant but has not looked very intensively for a new job because she still has two months of unemployment insurance benefits left. c. Vickie lost her job as a graphic artist at a movie studio because she did not have training in computer-generated animation. d. Tim is looking for a job with flexible hours but has not been offered one yet.

a

Which of these characteristics made the 2008-2009 recession differ MOST sharply from previous recessions? a. a large spike in the duration of unemployment b. a large increase in teenage unemployment c. higher rates of female unemployment than rates of male unemployment d. an increase in the rate of job separation and a decrease in the rate of job finding

a

Which statement is TRUE regarding the concept of convergence? a. Convergence appears to have occurred across the United States but not across the globe b. Convergence appears not to have occurred across the United States but to have occurred across the globe c. Convergence appears to have occurred both across the United States and across the globe d. Convergence appears to have occurred neither across the United States nor across the globe.

a

Which statement is not true? a. The net capital outflow equals the opposite of the trade balance b. The net capital outflow is the excess of domestic saving over domestic investment c. The trade balance is the amount received for a country's net exports of goods and services d. The net capital outflow is the opposite of the government budget deficit

a

The real exchange rate: a. measures how many Japanese yen you can get for one U.S. dollar. b. is equal to the nominal exchange rate (measured in units of the foreign currency divided by units of home currency) multiplied by the domestic price level divided by the foreign price level. c. is equal to the nominal exchange rate (measured in units of the foreign currency divided by units of home currency) multiplied by the foreign price level divided by the domestic price level. d. domestic price level divided by the foreign price level.

b

The recent worldwide slowdown in economic growth began in the early: a. 1960s. b. 1970s. c. 1980s. d. 1990s.

b

The unemployment resulting when real wages are held above equilibrium is called ______ unemployment, while the unemployment that occurs as workers search for a job that best suits their skills is called ______ unemployment. a. efficiency; inefficiency b. structural; frictional c. efficiency; structural d. frictional; efficiency

b

When an economy's capital is below the Golden Rule level, reaching the Golden Rule level: a. produces lower consumption at all times in the future. b. requires initially reducing consumption to increase consumption in the future. c. requires initially increasing consumption to decrease consumption in the future. d. requires higher consumption levels at all times.

b

When f (k) is drawn on a graph with increases in k noted along the horizontal axis, the slope of the curve denotes: a. output per worker. b. the marginal product of capital. c. output per unit of capital. d. the marginal product of labor.

b

One explanation for greater economic development in moderate versus tropical climates is that institutions established by colonial settlers in moderate climates ______, while institutions established by colonists in tropical climates ______. a. were based on the Napoleonic Code; were based on English common law b. were extractive and authoritarian; protected property rights c. protected property rights; were extractive and authoritarian d. were based on English common law; were based on the Napoleonic Code

c

One explanation for the differing numbers of hours worked in the United States and western Europe is the a. larger number of languages in Europe. b. greater taste for leisure in the U.S. c. higher level of taxes in Europe. d. stronger unions in the U.S.

c

Starting from a steady-state situation, if the saving rate increases, capital per worker will: a. decrease until the new steady state is reached. b. increase and continue to increase unabated. c. increase until the new steady state is reached. d. decrease and continue to decrease unabated.

c

Suppose that over the course of a year 100 people are unemployed for 4 weeks each (the short-term unemployed), while 10 people are unemployed for 52 weeks each (the long-term unemployed). Approximately what percentage of the total spells of unemployment were attributable to the long-term unemployed? a. 43.5 percent b. 56.5 percent c. 9 percent d. 10 percent

c

The Solow model shows that a key determinant of the steady-state ratio of capital to labor is the: a. level of output. b. labor force. c. saving rate. d. capital elasticity in the production function.

c

When insiders have a much greater impact on the wage-bargaining process than do outsiders, the negotiated wage is likely to be ______ the equilibrium wage. a. about one-half of b. almost equal to c. much greater than d. much less than

c

A depreciation of the real exchange rate in a small open economy could be the result of: a. a domestic tax cut. b. an increase in government spending. c. a decrease in the world interest rate. d. the expiration of an investment tax-credit provision.

d

A higher saving rate leads to a: a. higher rate of economic growth in the short run but a decline in the long run. b. higher rate of economic growth in both the short run and the long run. c. higher rate of economic growth only in the long run. d. larger capital stock and a higher level of output in the long run.

d

By paying efficiency wages, firms contribute to higher unemployment because they: a. increase the wage bill. b. keep the wage below the equilibrium level. c. make workers more productive. d. keep the wage above the equilibrium level.

d

Conditional convergence occurs when economies converge to: a. the same steady state as other economies. b. the Golden Rule steady state. c. the balanced-growth steady state. d. their own individual steady states.

d

Endogenous growth theory rejects the assumption of exogenous: a. production functions. b. rates of depreciation. c. population growth rates. d. technological change.

d

If Y is output, K is capital, u is the fraction of the labor force in universities, L is labor, and 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: a. L is doubled. b. K is doubled. c. K and u are doubled. d. K and E are doubled.

d

If s is the rate of job separation, f is the rate of job finding, and both rates are constant, then the steady state unemployment rate is approximately: a. (f + s) / f. b. f / (f + s). c. (s + f) / s. d. s / (s + f).

d

If the steady-state rate of unemployment equals 0.10 and the fraction of employed workers who lose their jobs each month (the rate of job separations) is 0.02, then the fraction of unemployed workers who find jobs each month (the rate of job findings) must be: a. 0.02 b. 0.08 c. 0.10 d. 0.18

d

If wage rigidity holds the real wage above the equilibrium level, an increase in the supply of labor will ______ the number unemployed. a. not change b. decrease c. possibly increase, decrease, or leave unchanged d. increase

d

In the Solow growth model, where s is the saving rate, y is output per worker, and i is investment per worker, consumption per worker (c) equals: a. (1 - s) y - i b. sy c. (1 + s) y d. (1 - s) y

d

In the Solow model with technological progress, the steady-state growth rate of output per worker is: a. n + g. b. 0. c. n. d. g.

d

Suppose that an economy is in its steady state and the capital stock is above the Golden Rule level. Assuming that there are no population growth or technological change, if the saving rate falls: a. output, consumption, investment, and depreciation will all decrease. b. output and investment will decrease, and consumption and depreciation will increase. c. output and investment will decrease, and consumption and depreciation will increase and then decrease but finally approach levels above their initial state. d. output, investment, and depreciation will decrease, and consumption will increase and then decrease but finally approach a level above its initial state.

d

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: a. largest output per worker. b. smallest depreciation rate. c. largest MPK. d. largest consumption per worker.

d

If the economy has more capital than in the Golden Rule steady state, reducing the saving rate will _____ steady-state income and _____ steady-state consumption.

decrease; increase

Assume a small, open economy. Complete the following statement: Other things equal, an increase in government purchases of goods and services pushes the trade balance toward _____ and causes the currency to _____ .

deficit; appreciate

The U.S. economy has _____ capital than at the Golden Rule steady state, suggesting that it may be desirable to _____ the rate of saving.

less; increase

According to studies of individual unemployed workers, these workers are MOST likely to find a job: a. about three months before their unemployment insurance runs out. b. within a few weeks of their unemployment insurance running out. c. about three months after their unemployment insurance runs out. d. at a time not influenced by the remaining number of weeks of unemployment insurance.

b

According to the model of a small open economy in the chapter, which is NOT a result of protectionist trade policies? a. The real exchange rate appreciates b. The trade balance becomes more positive c. Exports fall d. Overall, society is worse off

b

Although not a goal of the unemployment insurance system, one effect is that the system reduces a. workers' uncertainty about their incomes. b. the rate of job finding. c. the rate of job separation. d. frictional unemployment.

b

In a small open economy, if domestic saving exceeds domestic investment, then the extra saving will be used to: a. make loans to the domestic government. b. make loans to foreigners. c. repay the national debt. d. repay loans to the Federal Reserve.

b

Thomas Malthus believed that a. larger populations put a strain on an economy's food-producing capacity. b. larger populations experience greater innovation because they have more scientists and inventors. c. higher population growth allows economies to take advantage of economies of scale. d. higher population growth depresses the steady-state amount of capital per worker.

a

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. a. 8 b. 0 c. 10 d. 2

a

In a small open economy, if exports equal $5 billion and imports equal $7 billion, then there is a trade _____ and _____ net capital outflow. a. deficit; negative b. surplus; negative c. deficit; positive d. surplus; positive

a

Suppose that .75 percent of the employed lose their jobs each month, and that 15 percent of the unemployed find a job each month. What is the steady-state rate of unemployment? a. 4.76 percent b. 9.00 percent c. 14.25 percent d. 15.75 percent

a

Suppose the price of a cup of coffee is $3 in Boston and 6 euros in Berlin. Use this information to properly answer the following question. According to the theory of purchasing power parity, the exchange rate is a. 2 euros per dollar. b. 1/2 euros per dollar. c. 3 euros per dollar. d. 1/3 euros per dollar.

a

The consumption function in the Solow model assumes that society saves a: a. constant proportion of income. b. smaller proportion of income as it becomes richer. c. larger proportion of income as it becomes richer. d. larger proportion of income when the interest rate is higher.

a

The steady-state level of capital occurs when the change in the capital stock per worker ( Δ k) equals: a. 0. b. the saving rate. c. the depreciation rate. d. the population growth rate.

a

The purpose of _____ growth theory is to explain technological progress. Some of these models do so by questioning the Solow model's assumption of _____ returns to capital.

endogenous; diminishing

You read on a financial website that the nominal interest rate is 12 percent per year in Canada and 8 percent per year in the United States. Suppose that international capital flows equalize the real interest rates in the two countries and that purchasing-power parity holds. Use this information along with the Fisher equation (introduced in an earlier chapter) to answer the questions. What can you infer about the expected change in the exchange rate between the Canadian dollar and the U.S. dollar? The nominal exchange rate: a. will equal the difference between the expected rates of inflation between the two countries. b. will remain unchanged, due to purchasing-power parity between the two countries. c. will depend upon the difference in the real exchange rate between the two countries. d. is dependent upon the net value of purchasing-power parity.

a

If a war destroys a large portion of a country's capital stock but the saving rate is unchanged, the Solow model predicts that output will grow and that the new steady state will approach: a. a higher level of output per person than before. b. the same level of output per person as before. c. a lower level of output per person than before. d. the Golden Rule level of output per person.

b

In the Solow growth model of an economy with population growth but no technological change, if population grows at rate n, then capital in the steady state grows at rate ______, and output grows at rate ______ in the steady state. a. 0; 0 b. n; n c. 0; n d. n; 0

b

In the Solow growth model with population growth but no technological progress, when the economy finds itself at the Golden Rule steady state, the marginal product of capital minus the rate of depreciation will equal: a. 0. b. the population growth rate. c. the saving rate. d. output per worker.

b

In the two-sector endogenous growth model, the steady-state stock of physical capital is determined by _____, and the growth in the stock of knowledge is determined by _____. a. the efficiency of labor; the saving rate b. the saving rate; the fraction of labor in universities c. the fraction of labor in universities; the saving rate d. the production function; the efficiency of labor

b

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

b

Suppose an economy has 100 units of capital, 100 units of labor, and the efficiency of each worker is equal to 2. The effective number of workers for this economy is _____ and the capital per effective worker is _____. a. 50; 2 b. 200; 1/2 c. 50; 1/2 d. 200; 2

b

The productivity slowdown that began in the 1970s has been attributed, at least partly, to each of the following except: a. a deterioration in the quality of education. b. a decline in the number of workers in the labor force. c. a lower average level of experience among workers. d. running out of new ideas about how to produce.

b

Use the model of the small open economy to predict what would happen to the trade balance, the real exchange rate, and the nominal exchange rate in response to an introduction of a stylish line of Toyotas that makes some consumers prefer foreign cars over domestic cars. The nominal exchange rate would _____ . a. rise b. fall c. remain unchanged

b

Use the model of the small open economy to predict what would happen to the trade balance, the real exchange rate, and the nominal exchange rate in response to an introduction of a stylish line of Toyotas that makes some consumers prefer foreign cars over domestic cars. The real exchange rate would _____ . a. rise b. fall c. remain unchanged

b

Which statement is supported by research? a. Nations with high levels of physical and human capital tend to use those factors less efficiently b. Nations with high levels of physical and human capital tend to use those factors more efficiently c. There appears to be no correlation between high levels of physical and human capital and the efficiency with which those factors are used d. Nations with high levels of physical and human capital tend to be wasteful using those factors

b

Which statement is true according to the Solow growth model? a. A higher saving rate results in faster, sustained growth b. A higher saving rate results in temporarily faster growth c. A sustained high saving rate will result in a larger capital stock but not more output d. An increase in the saving rate does not change the steady state but enables the economy to reach it more quickly.

b

Any policy aimed at lowering the natural rate of unemployment must either _____ the rate of job separation or _____ the rate of job finding. a. reduce; reduce b. increase; increase c. reduce; increase d. increase; reduce

c

Assume that an economy described by the Solow model is in a steady state with output and capital growing at 3 percent and labor growing at 1 percent. The capital share is 0.3. The growth-accounting equation indicates that the contributions to growth of capital, labor, and total factor productivity are: a. 0 percent, 1 percent, and 2 percent, respectively. b. 0.3 percent, 0.7 percent, and 2 percent, respectively. c. 0.9 percent, 0.7 percent, and 1.4 percent, respectively. d. 1.8 percent, 0.3 percent, and 0.9 percent, respectively.

c

Economists call the changes in the composition of demand among industries and regions: a. adverse selection. b. insider-outsider conflicts. c. sectoral shifts. d. moral hazard.

c

In the Solow growth model of an economy with population growth but no technological change, the break-even level of investment must do all of these EXCEPT: a. offset the depreciation of existing capital. b. provide capital for new workers. c. equal the marginal productivity of capital (MPK). d. keep the level of capital per worker constant.

c

In the Solow model with population growth and static technology, what is the Golden Rule condition? a. MPK = δ - n b. MPK = n = δ c. MPK - δ = n d. MPK + δ = n

c

Labor hoarding refers to: a. keeping workers in low-wage jobs in order to reduce labor costs. b. using less capital in production so that more workers will have jobs. c. continuing to employ workers during a recession to ensure they will be available in the recovery. d. contractually preventing workers from obtaining jobs with competing firms.

c

In the Solow growth model, the assumption of constant returns to scale means that: a. all economies have the same amount of capital per worker. b. the steady-state level of output is constant, regardless of the number of workers. c. the saving rate equals the constant rate of depreciation. d. the number of workers in an economy does not affect the relationship between output per worker and capital per worker.

d

In the Solow model, an increase in which of the following raises steady-state growth in income per person? a. the saving rate b. the population growth rate c. the depreciation rate d. none of these

d

In the Solow model, which two variables have similar effects on the capital stock per worker? a. Depreciation and technological change b. The saving rate and depreciation c. Population growth and technological change d. Depreciation and population growth

d

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 state, capital per worker will _____ and output per worker will _____. a. rise; rise b. rise; fall c. fall; rise d. fall; fall

d

The golden rule level of capital maximizes: a. output b. the growth rate c. the steady state d. consumption

d

The production function y = f (k) means: a. labor is not a factor of production. b. the production function exhibits increasing returns to scale. c. output per worker is a function of labor productivity. d. output per worker is a function of capital per worker.

d

The type of legal system and the level of corruption in a country have been found to be: a. unrelated to the rate of economic growth in a country. b. important variables explaining the Golden Rule level of capital. c. important topics for political discussion, but not economic explanations of growth. d. significant determinants of the rate of economic growth in a country.

d

Unemployment insurance increases the amount of frictional unemployment by: a. making workers more frantic in their search for new jobs. b. inducing workers to accept the first job offer that they receive. c. making employers more reluctant to lay off workers. d. softening the economic hardship of unemployment.

d

Your friend claims "Devoting a larger share of national output to investment would help restore rapid productivity growth." Having studied the Solow growth model, you respond with: a. "Devoting more output to investment would increase capital per worker and ultimately decrease output per worker." b. "Devoting more output to investment would decrease output per worker and not help productivity growth in the long run." c. "An increase in saving and investment would increase productivity per worker, but it would decrease total output." d. "An increase in saving and investment would increase productivity per worker in the short run, but it would only have a level effect in the long run."

d