Macro midterm
If inflation and unemployment increase at the same time, then MOST likely, it is _____ inflation cost-push monetary unexpected demand-pull
cost push
Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, in the periods after a permanent reduction in the central bank's inflation target, the DAS shifts downward because:
expectations of inflation decrease as a result of lower inflation in previous periods.
The short-run aggregate supply curve is drawn for a given:
expected price level.
International differences in income per person in accounting terms must be attributed to differences in ______ and/or ______.
factor accumulation; production efficiency
John Taylor's rule for setting the federal funds rate proposes increasing the nominal federal funds rate as inflation _____ and the GDP gap _____.
increases; increases
If the per-worker production function is y = k^(1/2), the saving rate is s = 0.25, the population growth rate is n = 0.01, depreciation is δ = 0.04, and the economy is in a steady state, then total output will grow at the rate: 0. 0.01. 0.04. 0.25.
0.01
The relationship between unemployment and inflation was explained in 1958 by:
A.W. Phillips.
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:
Active Policy
in FUntion Y=F[K, (1−u)LE], Out Y will double if
Both K and E double
In the Solow growth model with population growth and technological change, the break-even level of investment must cover: depreciating capital. depreciating capital and capital for new workers. depreciating capital, capital for new workers, and capital for new effective workers. depreciating capital and capital for new effective workers.
C
In the long run, the aggregate supply curve is: vertical. horizontal. downward sloping. upward sloping.
Vertical
If the IS curve is given by Y = 1,700 - 100r and the LM curve is given by Y = 500 + 100r, then equilibrium income and interest rate are given by:
Y = 1,100, r = 6 percent.
The rate of growth of Labor Y/L may be expressed as theTotal factor productivity:
plus the capital share multiplied by the rate of growth of the capital-labor ratio
If the long-run aggregate supply curve is vertical, then changes in aggregate demand affect:
prices but not level of output.
In the Golden Rule steady state, the marginal product of capital net of depreciation =
rate of population growth
Arguments in favor of passive economic policy include all of the following except:
recessions do not reduce economic well-being, so using monetary and fiscal policy for stabilization is unnecessary.
Starting from long-run equilibrium, without policy intervention, the long-run impact of a temporary adverse supply shock is that prices will:
return to the old level, and output will be restored to the natural rate.
If an economy begins with a level of steady-state capital that is less than the Golden Rule level of capital, then policymakers need to increase the _____ rate in order to guide the economy to the Golden Rule level of capital
savings
Following an unexpected increase in aggregate demand, a larger fraction of flexible price firms in the economy, as opposed to the presence of a larger fraction of sticky-price firms, means that the long-run response of the price level is _____ and that of output is _____. the same; the same larger; the same the same; smaller larger; smaller
the same, the same According to the text, in the long run, all prices are flexible, and the economy returns to the equilibrium implied by the classical model.
If MPK of capital net depreciation equals 8%, rate of Population growth equals 2%, and the rate of labor-augmenting technical progress equals 2 %, to reach the Golden rule level of Capital Stock:
the saving rate in the economy must increase
the short-run aggregate supply curve is_______ due to _________
upward sloping some market imperfection (that is, some type of friction) causes the output of the economy to deviate from its natural level. As a result, the short-run aggregate supply curve is upward sloping rather than vertical, and shifts in the aggregate demand curve cause output to fluctuate. These temporary deviations of output from its natural level represent the booms and busts of the business cycle.
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:
will be at the same level as in the steady state of the high capital economy.
Which per-worker production function does NOT exhibit diminishing returns to capital?
y=k
Production Function Equation
y=√k. y = Output per worker = square root of capital per worker k=capital per worker
In an economy with population growth at rate n, the change in capital stock per worker is given by the equation:
Δk = sf (k) - (δ + n) k.
Suppose that Mexico experiences an investment boom that causes the economy to grow and experience higher inflation at the same time. The inflation experienced by Mexico would be considered _____ inflation.
Demand Pull
k=K/L
Capital per worker
In the Solow model with technological change, the Golden Rule level of capital is the steady state that maximizes:
Consumption per effective worker
According to the natural-rate hypothesis, fluctuations in aggregate demand affect output in:
only in the short run.
When capital increases by ΔK units and labor increases by ΔL units, output (ΔY) increases by: (MPL × ΔK) + (MPK × ΔK) units. (MPK × ΔK) + (MPL × ΔL) units. ΔK + ΔL units. MPL + MPK units.
(MPK × ΔK) + (MPL × ΔL) units.
steady-state investment is steady-state output is steady-state consumption the level of k* that maximizes consumption is the one at which
(δ+n)k* f(k*) c*=f(k*)−(δ+n)k* MPK=δ+n or MPK-δ=n -Investment is expenditure on new plant and equipment, and it causes the capital stock to rise. -Depreciation is the wearing out of old capital due to aging and use, and it causes the capital stock to fall
In the Taylor rule, Nominal Federal Funds Rate = Inflation + 2.0 + 0.5 (Inflation − 2.0) + 0.5 (GDP gap), the Federal Reserve's responsiveness to deviations of the inflation from its target value is: 0. 0.5. 2. a random variable.
0.5
Economists estimate that the government spending on Medicare, Medicaid, and Social Security will rise to about _____ percent of GDP by 2047. 12.1 15.5 24.7 30.5
15.5
Suppose that the inflation rate in a country is 5 percent. If the sacrifice ratio is 5, then the percentage of a year's gross domestic product that has to be forgone to bring inflation down to 1 percent is _____ percent. 0.8 1.25 20 25
20 The sacrifice ratio represents the percentage of one year's gross domestic product that must be forgone to reduce inflation by 1 percent. If the sacrifice ratio is 5, then to reduce inflation by 4 percentage points (5 percent to 1 percent), 20 percent of a year's gross domestic product must be forgone
Suppose that the Federal Reserve adopts the Taylor rule: Nominal Federal Funds Rate = Inflation + 2.0 + 0.5 (Inflation − 2.0) + 0.5 (GDP gap). If the U.S. economy is fully employed and the inflation rate is 4 percent, then the nominal federal funds rate should be _____ percent 4 5 6 7
7 If the economy is fully employed, the GDP gap = 0
Stagflation is caused by a decrease in expected inflation. wage stagnation. a supply shock. a demand shock.
A supply shock A supply shock causes inflation to rise, which in turn increases expected inflation. As the central bank applies its rule for monetary policy and responds by raising interest rates, it gradually squeezes inflation out of the system, but only at the cost of a prolonged downturn in economic activity
The U.S. recession of 2001 can be explained in part by a declining stock market and terrorist attacks. Both of these shocks can be represented in the IS-LM model by shifting the ______ curve to the ______.
IS; left
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
Over the business cycle, investment spending ______ consumption spending.
Is more volatile than
Which is the correct ordering of countries, from the country with the largest government debt as a percentage of gross domestic product in 2016 to the country with the smallest government debt as a percentage of gross domestic product in 2016? Japan; the United States; Australia Australia; the United States; Japan the United States; Japan; Australia Japan; Australia; the United States
Japan; the United States; Australia
An increase in the money supply shifts the ______ curve to the right, and the aggregate demand curve ______.
LM; shifts to the right
y=Y/L
Output per Worker
According to the aggregate supply equation in the text, if output does not respond to deviations of the price level from the expected price level, then the aggregate supply curve is: upward sloping. vertical. horizontal. downward sloping.
Vertical The parameter α indicates how much output responds to unexpected changes in the price level; 1/α is the slope of the aggregate supply curve
A central bank _____ implement policy that yields both low output variability and low inflation variability. can may would not want to cannot
cannot
The relationship between the quantity of goods and services supplied and the price level is called:
aggregate supply.
Suppose the government cuts taxes without cutting expenditure, so that it runs a budget deficit. It finances the deficit by borrowing. Consumer Jill receives a $1,000 tax cut and uses the money to buy a $1,000 government bond. If Ricardian equivalence is correct, Jill's net wealth: increases, but her consumption increases by less than the increase in her net wealth. increases, but her consumption remains constant. and consumption both remain constant. remains constant, but her consumption increases.
and consumption both remain constant.
In the dynamic model of aggregate demand and aggregate supply, if a demand shock occurs and lasts five periods, then output is above the natural level in the first five periods and _____ the natural level on the sixth period. below the same as just above still above
below
In the dynamic AD-AS model, beginning from long-run equilibrium, a reduction in the target rate for inflation will eventually cause the inflation to _____ and the output to be _____ the natural level. increase; above decrease; above decrease; at increase; at
decrease; at
Suppose that the Federal Reserve adopts the Taylor rule: Nominal Federal Funds Rate = Inflation + 2.0 + 0.5 (Inflation − 2.0) + 0.5 (GDP gap). If the U.S. economy goes into a recession when inflation is at its target value, and the gross domestic product falls 2 percentage points from full employment output, then, according to the Taylor rule, the Federal Reserve should respond by: increasing the federal funds rate by 2 percentage points. increasing the federal funds rate by 1 percentage point. decreasing the federal funds rate by 2 percentage points. decreasing the federal funds rate by 1 percentage point.
decreasing the federal funds rate by 1 percentage point.
An increase in taxes shifts the IS curve:
downward and to the left.
One important difference between the aggregate demand curve and the dynamic aggregate demand curve is that the: dynamic aggregate demand curve is based on rational expectations, not adaptive expectations. dynamic aggregate demand curve is drawn at a given monetary-policy rule. aggregate demand curve is flatter. aggregate demand curve is steeper.
dynamic aggregate demand curve is drawn at a given monetary-policy rule.
In the dynamic AD-AS model, the curve that shifts in order to bring the economy back to its long-run equilibrium is the _____ curve. inflation/gross domestic product Solow growth dynamic aggregate demand dynamic aggregate supply
dynamic aggregate supply
According to the text, the _____ BEST explains the adjustment of the economy over time in response to economic shocks. S-LM model long-run classical model dynamic model of aggregate demand and aggregate supply neoclassical model of business investment
dynamic model of aggregate demand and aggregate supply This model offers another lens through which we can view short-run fluctuations in output and inflation and the effects of monetary and fiscal policy on those fluctuations The economy is continually bombarded by various shocks. These shocks not only have an immediate impact on the economy's short-run equilibrium but also affect the subsequent path of output, inflation, and many other variables. The dynamic AD-AS model focuses attention on how output and inflation respond over time to changes in the economic environment.
An argument in favor of allowing discretionary macroeconomic policy is that:
giving policymakers flexibility will allow them to respond to changing conditions.
In the dynamic AD-AS model, a decrease in νt will shift the dynamic aggregate supply curve: in an unpredictable way. upward. to the left. to the right.
in an unpredictable way.
According to the monetary-policy rule, an increase in the natural rate of interest will _____ the federal funds rate, and an increase in the target inflation rate will _____ the federal funds rate. increase; increase reduce; reduce increase; reduce reduce; increase
increase; reduce
When investment i = sy = sf(k) exceeds depreciation, δk, the capital stock
increeases
A central bank that does not follow the Taylor principle may experience _____ that is unstoppable. income inequality greed inflation government interference in the economy
inflation 1.)The positive demand shock increases output and inflation in the period in which it occurs. 2.)Because expectations are determined adaptively, higher inflation increases expected inflation. 3.)Because firms set their prices based in part on expected inflation, higher expected inflation leads to higher actual inflation in subsequent periods (even after the demand shock has dissipated). 4.)Higher inflation causes the central bank to raise the nominal interest rate. But because θπ<0, the central bank increases the nominal interest rate by less than the increase in inflation, so the real interest rate declines. 5.)The lower real interest rate increases the quantity of goods and services demanded above the natural level of output. 6.)With output above its natural level, firms face higher marginal costs, and inflation rises yet again. (7)The economy returns to step 2. The economy finds itself in a vicious circle of ever-higher inflation and expected inflation. Inflation spirals out of control.
According to the text, in the dynamic AD-AS model, when choosing the parameters of the monetary-policy rule, the central bank faces a long-run tradeoff between: inflation and unemployment. the real interest rate and the natural rate of interest. inflation variability and output variability. current inflation and expected inflation.
inflation variability and output variability.
The short-run equilibrium in the dynamic model of aggregate demand and supply determines the:
level of output and inflation rate.
Two countries, Anastasia and Beersheba, have identical production functions y = f(k), but Anastasia has a higher saving rate than Beersheba. This implies that, for identical levels of capital per worker, Anastasia has:
lower consumption per worker than Beersheba.
Solow model predicts that countries with higher population growth will have
lower levels of GDP per person
The dynamic aggregate demand curve is downward sloping because, as inflation falls, the central bank _____ the nominal and real interest rates, which _____ the demand for goods and services. raises; decreases raises; increases lowers; decreases lowers; increases
lowers; increases
In general, an increase in the Federal Reserve's responsiveness to inflation _____ to raise the nominal interest rate. may cause the U.S. Congress to intervene will never cause the central bank will always cause the central bank may cause the central bank
may cause the central bank
The Standard & Poor's downgrade of U.S. debt in 2011: meant that reform of the U.S. health care system was imminent. meant that borrowers would have less confidence in U.S. government securities. meant that a U.S. default on debts was very likely. had no effect on confidence, since it was argued that Standard & Poor's had helped bring on the financial crisis of 2008-2009 with its erroneous rating of mortgage-related securities.
meant that borrowers would have less confidence in U.S. government securities.
If the economy experiences a _____ supply shock, then the economy temporarily will produce _____ the natural level of output. positive; below positive; at double negative; above negative; below
negative; below
The time between when government spending increases and when aggregate demand starts to increase is an example of an:
outside lag of fiscal policy.
If the U.S. Congress were to raise taxes in order to decrease the budget deficit, then this would cause the dynamic aggregate demand curve to move in unpredictable ways. not shift the dynamic aggregate demand curve. shift the dynamic aggregate demand curve to the left. shift the dynamic aggregate demand curve to the right.
shift the dynamic aggregate demand curve to the left.
If the U.S. Congress were to raise taxes in order to decrease the budget deficit, then this would: cause the dynamic aggregate demand curve to move in unpredictable ways. not shift the dynamic aggregate demand curve. shift the dynamic aggregate demand curve to the left. shift the dynamic aggregate demand curve to the right.
shift the dynamic aggregate demand curve to the left.
A central bank that increases the nominal interest rate by an amount that is less than any increase in the inflation rate will face an aggregate demand curve that: slopes upward. slopes downward. is vertical. is horizontal.
slopes upward. In the dynamic AD-AS model, a central bank that increases the nominal interest rate by an amount that is less than the percentage increase in the inflation rate will cause the aggregate demand curve to be upward sloping
An economy will _____ move to the Golden Rule steady state
sometimes to achieve this a certain savings rate must be achieved
Prescott interpreted fluctuations in the Solow residual as evidence that:
technology shocks are an important source of short-run economic fluctuations.
In the dynamic model for aggregate demand and aggregate supply, _____ is an exogenous variable. output the inflation rate the money supply the interest rate
the money supply
In the dynamic AD-AS model, the Phillips curve equation relates the inflation rate to all of the following determinants EXCEPT: the rate of growth of the money supply. exogenous supply shocks. the cyclical position of the economy. the expected inflation rate.
the rate of growth of the money supply.
if, in the dynamic AD-AS model, the θπ parameter is less than zero, then the aggregate demand curve is downward sloping. flat. upward sloping. viscous.
upward sloping.
In the dynamic model for aggregate demand and aggregate supply, which is NOT an endogenous variable? interest rates inflation output wages
wages
In production function Y=AK^2/3L^1/3, Labor Force incease of 5%, while capital is constant, Labor productivty measured by Y/L =
-3.33%
The Phillips curve states that the three determinants that cause inflation are________ Phillips curve equation is__ other things equal, higher unemployment is associated with _______ inflation phillips curve is derived from aggregate supply equation which = phillips curve shifts downward if expexcted inflatoion____
-expected inflation; -the deviation of unemployment from its natural rate, called cyclical unemployment; -and supply shocks π = Eπ − β(u−u^n) + v Inflation=Expected Inflation−(β×Cyclical Unemployment)+Supply Shock **β=a parameter that measures the response of inflation to cyclical unemployment other things equal, higher unemployment is associated with lower inflation P=EP+(1/α)(Y−Y) *(the second Y has line ontop)* downward
In the Solow model with technological progress, the steady-state growth rate of capital per effective worker is:
0
The steady-state level of capital occurs when the change in the capital stock per worker (Δk) equals:
0
The production function y = kα exhibits a diminishing MPK if
0 < α < 1.
Over the past 50 years in the United States: 1.)output per worker hour and the real wage have both increased about 2 percent per year, whereas capital stock per worker hour has increased faster and the real rental price of capital has remained about the same. 2.)output per worker hour, the real wage, and the real rental price of capital have all increased about 2 percent per year, whereas capital stock per worker hour has increased faster. 3.)output per worker hour, the real wage, and capital stock per worker hour have all increased about 2 percent per year, whereas 4.)the real rental price of capital has remained about the same. output per worker hour, capital stock per worker hour, the real wage, and the real rental price of capital have all increased about 2 percent per year.
3
For f(k) = k1/2, s = 0.1, and δ = 0.05, the steady-state level of capital k* equals:
4
The growth rate of a labor force is 0.02, and in 2020, 60 million people are working. At this rate, in 2022, about _____ million people will be working
62.4 million Multiply the number of people working by (1.02)^2 and round to the nearest tenth of a million
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
In the basic endogenous growth model, income can grow forever—even without exogenous technological progress—because: A.)capital does not exhibit diminishing returns. B.)capital exhibits diminishing returns. C.)the saving rate exceeds the rate of depreciation. D.)the saving rate equals the rate of depreciation.
A
In this graph, initially the economy is at point E, with price P0 and output 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 AD1. The economy moves first to point ______ and then, in the long run, to point ______.
C; B
The assumption that technological progress increases the efficiency of labor is called:
Labor-augmenting technological process
Consider the production function y = k0.5. The marginal product of capital MPK = f(k + 1) − f(k) for k = 25 is
MPK=26^0.5 − 25^0.5=0.0991=0.1
The Balanced growth Property of the Sollow Growth model with population growth and Technological Progress Predicts that these sets of variables increase at the same rate
Output Per Worker, Capital Per Worker, Real Wage
If MPK > δ + n in the steady state, then the slope of the _____ is larger than the slope of break-even investment, and increasing the steady-state capital per worker will _____ consumption per worker.
Production function, increase
The most widely accepted explanation for the upward-sloping short-run aggregate supply curve is called the______ This model This model emphasizes that firms do not instantly adjust the prices they charge in response to changes in demand. Sometimes prices are set by long-term contracts between firms and customers. Even without formal agreements, firms may hold prices steady to avoid annoying their regular customers with frequent price changes. Some prices are sticky because of the way certain markets are structured: once a firm has printed and distributed its catalog or price list, it is costly to alter prices. And sometimes sticky prices reflect sticky wages: firms base their prices on the costs of production, and wages may depend on social norms and notions of fairness that evolve only slowly over time. There are various ways to formalize the idea of sticky prices as the basis for an upward-sloping aggregate supply curve. Here we examine an especially simple model. We first consider the pricing decisions of individual firms and then add together the decisions of many firms to explain the behavior of the economy as a whole. To develop the model, we depart from the assumption of perfect competition Fraction of firms with sticky prices= fraction of firms with flexible prices=
Sticky-Price Model s is the fraction of firms with sticky prices 1−s is the fraction with flexible prices
Endogenous growth theory rejects the assumption of exogenous:
Technological change
If two countries, Cheli and Dunland, have identical production functions and saving rates, but Cheli has a higher rate of depreciation than Dunland, then Cheli will have _____ in the steady state higher saving per worker higher per-worker consumption a lower capital per worker ratio higher investment per worker
a lower capital per worker ratio
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.
Assume that two countries both have the per-worker production function y = k1/2, neither has population growth or technological progress, depreciation is 5 percent of capital in both countries, and country A saves 10 percent of output whereas country B saves 20 percent. If country A starts out with a capital-labor ratio of 4 and country B starts out with a capital-labor ratio of 2, in the long run:
country A's capital-labor ratio will be 4, whereas country B's will be 16.
The dynamic aggregate supply curve will shift if any of the following changes except the:
current inflation rate.
The dynamic aggregate demand curve is downward sloping because as inflation falls, the central bank reduces the nominal interest rate by more than the fall in the inflation rate, which _____the real interest rate and _____ the quantity of goods and services demanded.
decreases; increases
To follow a monetary policy rule, the central bank raises the nominal interest rate by:
decreasing the money supply.
According to the imperfect-information model, when the price level rises by the amount the producer expected it to rise, the producer:
does not change production.
The short run refers to a period
during which prices are sticky and cyclical unemployment may occur.
The number of effective workers takes into account the number of workers and the
efficiency of each worker
According to the aggregate supply equation in the text, if the observed price exceeds the price expected by producers, then output: exceeds the natural level. equals the natural level. cannot be calculated. is less than the natural level.
exceeds the natural level.
The dilemma facing the Federal Reserve in the event that an unfavorable supply shock moves the economy away from the natural rate of output is that monetary policy can either return output to the natural rate but with a ______ price level or allow the price level to return to its original level but with a ______ level of output in the short run.
higher; lower
According to the Lucas critique, when economists evaluate alternative policies they must take into consideration:
how the policies will affect expectations and behavior.
When the capital stock per worker is lower than the steady-state capital stock per worker, the capital stock per worker will: shrink because investment exceeds depreciation. increase because depreciation exceeds investment. increase because investment exceeds depreciation. shrink because depreciation exceeds investment.
increase because investment exceeds depreciation if k<k* investment exceeds depreciation
In the Keynesian-cross model, if taxes are reduced by 100, then planned expenditures ______ for any given level of income.
increase but by less than 100
In this graph, starting from capital-labor ratio k1, the capital-labor ratio will:
increase.
Analysis of the short-run Phillips curve suggests that policymakers who want to reduce unemployment in the short run should ______ aggregate demand at a cost of generating ______ inflation.
increase; higher
In response to a tax cut, the consumption of a consumer who is borrowing constrained ______, whereas the consumption of a forward-looking, unconstrained consumer acting in accord with Ricardian equivalence ______.
increases; remains unchanged
According to the Phillips curve, policymakers who control aggregate demand can decrease unemployment in the short run by: increasing inflation. increasing the natural rate of unemployment. decreasing the natural rate of unemployment. reducing inflation.
increasing inflation
If the velocity of money varies a great deal, steady growth of the money supply is a(n):
ineffective way to stabilize aggregate demand.
If the per-worker production function is y = Ak, where A is a positive constant, then the marginal product of capital:
is constant as k increases.
In the Keynesian-cross model with a given MPC >0, the government-expenditure multiplier ______ the tax multiplier.
is larger than
If the production function is y = k^1/2, s = 0.5, and δ = 0.05, then the steady-state level of capital per worker _____ the Golden Rule level. is the same as fluctuates compared to is more than is less than
is the same as **a saving rate of 0.5 produces the Golden Rule steady state.*** If y = k^1/2, s = 0.5, and δ = 0.05, the steady state occurs when 0.5 × k1/2 = 0.05 × k, or at k* = 100; at k = 100, MPK = 101^1/2 − 100^1/2 = 0.05 = δ, implying that k* = 100 = kgold
The ex post real interest rate at time t equals:
it - πt + 1
Following an unexpected increase in aggregate demand, the presence of a larger fraction of flexible-price firms in the economy, as opposed to the presence of a larger fraction of sticky-price firms, means that the short-run response of the price level is _____ and that of output is _____. larger; larger smaller; smaller larger; smaller smaller; larger
larger, smaller a firm with flexible prices response to unexpected increase in aggregate demand is to increase price rather than output
When the Federal Reserve reduces the money supply, at a given price level the amount of output demanded is ______, and the aggregate demand curve shifts ______.
lower; inward
Schumpeter's thesis of "creative destruction" is an explanation of economic progress resulting from
new product producers driving incumbent producers out of business
Two countries, Agora and Bensalem, have identical production functions f(k) and saving rates s, but Agora has a higher capital-labor ratio k than Bensalem. This implies that all of the following are true EXCEPT that: output is higher in Bensalem than in Agora. per capita output in Agora is higher than in Bensalem. the marginal product of capital in Agora is lower than in Bensalem. per capita investment in Agora is higher than in Bensalem.
output is higher in Bensalem than in Agora. With k^A > k^B, y^A > y^B, and sy^A > sy^B, so that i^A > i^B, MPK^B > M^PKA.
The balanced growth property of the Solow growth model with population growth and technological progress predicts which of the following sets of variables will grow at the same rate in the steady state?
output per worker, capital per worker, real wage
Following an unexpected increase in aggregate demand, the presence of a larger fraction of sticky-price firms in the economy, as opposed to the presence of a larger fraction of flexible-price firms, means that the short-run response of the price level is _____ and that of output is _____. smaller; larger smaller; smaller larger; smaller larger; larger
smaller, larger a firm with sticky prices response to unexpected increase in aggregate demand is to increase ouput rather than price
Assume that nobody cares about the economic well-being of future generations. Then the Ricardian equivalence view of the effect of debt-financed tax cuts is:
still partially valid because most of the taxpayers will live and pay taxes for a substantial number of years after the tax cut.
Total Factor Productivity may be measured by
subtracting the rate of growth of capital input, multiplied by capital's share of output, plus the rate of growth of labor input, multiplied by labor's share of output, from the rate of growth of outpu
The capital stock per worker increases when: sy > δ k. δk > sf(k). (1 − s)y > i. (1 − δ)c > i.
sy > δ k. since i =sy, and since when i > depreciation(δk), capital stock per worker increases
Each of the following conditions will tend to reduce the sacrifice ratio except when:
the concept of hysteresis accurately describes the impact of history on the natural rate of unemployment.
