EC309 exam 2 MC

In the steady state with no population growth or technological change, the capital stock does not change because investment equals: A) output per worker. B) the marginal product of capital. C) depreciation. D) consumption.

depreciation

If the national saving rate increases, the: A) economy will grow at a faster rate forever. B) capital-labor ratio will increase forever. C) economy will grow at a faster rate until a new, higher, steady-state capital-labor ratio is reached. D) capital-labor ratio will eventually decline.

economy will grow at a faster rate until a new, higher, steady-state capital-labor ratio is reached

When the real exchange rate rises: A. exports will decrease but imports will be unaffected. B. imports will decrease but exports will be unaffected. C. exports will increase and imports will decrease. D. exports will decrease and imports will increase.

exports will decrease and imports will increase

Unlike the long-run classical model in Chapter 3, the Solow growth model: A) assumes that the factors of production and technology are the sources of the economy's output. B) describes changes in the economy over time. C) is static. D) assumes that the supply of goods determines how much output is produced.

describes changes in the economy over time

The Golden Rule level of the steady-state capital stock: A) will be reached automatically if the saving rate remains constant over a long period of time. B) will be reached automatically if each person saves enough to provide for his or her retirement. C) implies a choice of a particular saving rate. D) should be avoided by an enlightened government.

implies a choice of a particular saving rate

If the real exchange rate depreciates from 1 Japanese good per U.S. good to 0.5 Japanese good per U.S. good, then U.S. exports-----------and U.S. imports------. A. increase; increase B. decrease; decrease C. increase; decrease D. decrease; increase

increase; decrease

In a small open economy, if the world interest rate falls, then domestic investment will________ and the real exchange rate will __________, holding all else constant. A. decrease; decrease B. decrease; increase C. increase; decrease D. increase; increase

increase; increase

A reduction in the saving rate starting from a steady state with more 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

decrease

If the money supply is held constant, then an increase in the nominal interest rate will________ the demand for money and________ the price level. A. increase; increase B. increase; decrease C. decrease; increase D. decrease; decrease

decrease; increase

If the per-worker production function is given by y = k1/2, the saving rate (s) is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is: A) 1. B) 2. C) 4. D) 9.

4

In the Solow growth model with population growth, but no technological change, a higher level of steady-state output per worker can be obtained by all of the following except: A) increasing the saving rate. B) decreasing the depreciation rate. C) increasing the population growth rate. D) increasing the capital per worker ratio.

increasing the population growth rate

Two economies are identical except that the level of capital per worker is higher in Highland than in Lowland. The production functions in both economies exhibit diminishing marginal product of capital. An extra unit of capital per worker increases output per worker: A) more in Highland. B) more in Lowland. C) by the same amount in Highland and Lowland. D) in Highland, but not in Lowland.

more in Lowland

The definition of the transactions velocity of money is: A) money multiplied by prices divided by transactions. B) transactions divided by prices multiplied by money. C) money divided by prices multiplied by transactions. D) prices multiplied by transactions divided by money.

prices multiplied by transactions divided by money

The right of seigniorage is the right to: A) levy taxes on the public. B) borrow money from the public. C) draft citizens into the armed forces. D) print money.

print money

Variables expressed in terms of physical units or quantities are called ..............variables. A. real B. nominal C. endogenous D. exogenous

real

If the demand for real money balances is proportional to real income, velocity will: A) increase as income increases. B) increase as income decreases. C) vary directly with the interest rate. D) remain constant.

remain constant

A country's exports may be written as equal to: A) GDP minus consumption minus investment minus government spending. B) GDP minus consumption of domestic goods and services minus investment of domestic goods and services minus government purchases of domestic goods and services. C) imports. D) GDP minus imports.

GDP minus consumption of domestic goods and services minus investment of domestic goods and services minus government purchases of domestic goods and services

If the purchasing-power parity theory is true, then: A) the net exports schedule is very steep. B) all changes in the real exchange rate result from changes in price levels. C) all changes in the nominal exchange rate result from changes in price levels. D) changes in saving or investment influence only the real exchange rate.

all changes in the nominal exchange rate result from changes in price levels

"Inflation tax" means that: A) as the price level rises, taxpayers are pushed into higher tax brackets. B) as the price level rises, the real value of money held by the public decreases. C) as taxes increase, the rate of inflation also increases. D) in a hyperinflation, the chief source of tax revenue is often the printing of money.

as the price level rises, the real value of money held by the public decreases

A trade deficit can be financed in all of the following ways except by: A) borrowing from foreigners. B) selling domestic assets to foreigners. C) selling foreign assets owned by domestic residents to foreigners. D) borrowing from domestic lenders.

borrowing from domestic lenders

The inflation tax is paid: A) only by the central bank. B) by all holders of money. C) only by government bond holders. D) equally by every household

by all holders of money

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.

consumption per worker

In the case of an unanticipated inflation: A) creditors with an unindexed contract are hurt because they get less than they expected in real terms. B) creditors with an indexed contract gain because they get more than they contracted for in nominal terms. C) debtors with an unindexed contract do not gain because they pay exactly what they contracted for in nominal terms. D) debtors with an indexed contract are hurt because they pay more than they contracted for in nominal terms.

creditors with an unindexed contract are hurt because they get less than they expected in real terms

In the case of an unanticipated inflation: A) creditors with an unindexed contract are hurt because they get less than they expected in real terms. B) creditors with an indexed contract gain because they get more than they contracted for in nominal terms. C) debtors with an unindexed contract do not gain because they pay exactly what they contracted for in nominal terms. D) debtors with an indexed contract are hurt because they pay more than they contracted for in nominal terms.

creditors with an unindexed contract are hurt because they get less than they expected in real terms

If the real interest rate and real national income are constant, according to the quantity theory and the Fisher effect, a 1 percent increase in money growth will lead to rises in: A. inflation of 1 percent and the nominal interest rate of less than 1 percent. B. inflation of 1 percent and the nominal interest rate of 1 percent. C. inflation of 1 percent and the nominal interest rate of more than 1 percent. D. both inflation and the nominal interest rate of less than 1 percent.

inflation of 1 percent and the nominal interest rate of 1 percent

The real exchange rate: A) measures how many Japanese yen one really gets for a U.S. dollar. B) is equal to the nominal exchange rate multiplied by the domestic price level divided by the foreign price level. C) is equal to the nominal exchange rate multiplied by the foreign price level divided by the domestic price level. D) is the price of a domestic car divided by the price of a foreign car.

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

In the small open economy in equilibrium: A) saving is fixed, and investment is determined by the investment function and the world interest rate. B) investment is fixed, and saving is determined by the saving function and the world interest rate. C) saving is fixed, and investment is determined by the trade balance. D) investment is fixed, and saving is determined by the trade balance.

saving is fixed, and investment is determined by the investment function and the world interest rate

The major source of government revenue in most countries that are experiencing hyperinflation is: A) customs duties. B) income taxes. C) seigniorage. D) borrowing.

seigniorage

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.

the number of workers in an economy does not affect the relationship between output per worker and capital per worker

A variable rate of inflation is undesirable because: A) debtors and creditors cannot protect themselves by indexing contracts. B) shoeleather costs are greater under variable inflation than under constant inflation. C) menu costs are greater under variable inflation than under constant inflation. D) variable inflation leads to greater uncertainty and risk as compared to constant inflation.

variable inflation leads to greater uncertainty and risk as compared to constant inflation

If the quantity of real money balances is kY, where k is a constant, then velocity is: A) k. B) 1/k. C) kP. D) P/k.

1/k

If the capital stock equals 200 units in year 1 and the depreciation rate is 5 percent per year, then in year 2, assuming no new or replacement investment, the capital stock would equal _____ units. A) 210 B) 200 C) 195 D) 190

190

The average price of goods and services in an economy equals $10 and the quantity of money in the economy is $200,000, then real money balances in the economy equals to: A. 10. B. 20,000. C. 200,000. D. 2,000,000.

20,000

If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be ............percent. A) 3 B) 4 C) 9 D)11

3

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. A) 0.2 B) 2 C) 5 D) 10

5

Assume that a war reduces a country's labor force but does not directly affect its capital stock. If the economy was in a steady state before the war and the saving rate does not change after the war, then, over time, capital per worker will ______ and output per worker will ______ as it returns to the steady state. A) decline; increase B) increase; increase C) decline; decrease D) increase; decrease

decline; decrease

In a small open economy, starting from a position of balanced trade, if the government increases domestic government purchases, this produces a tendency toward a trade------ - and------- net capital outflow. A. deficit; negative B. surplus; positive C. deficit; positive D. surplus; negative

deficit; negative

During hyperinflation real tax revenue of the government often drops substantially because of the: A) delay between when a tax is levied and when it is collected. B)significantly greater menu costs of printing tax forms. C) additional deductions taken for increased shoeleather costs. D) greater uncertainty associated with extreme rates of inflation.

delay between when a tax is levied and when it is collected

In a small open economy, if the government encourages investment, say through an investment tax credit, investment: A. increases and is financed through an increase in national saving. B. increases and is financed through an increase in exports. C. increases and is financed through an inflow of foreign capital. D. does not increase; the interest rate rises instead.

increases and is financed through an inflow of foreign capital

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

increasing taxes

The classical dichotomy: A) cannot hold if money is "neutral." B) is said to hold when the values of real variables can be determined without any reference to nominal variables or the existence of money. C) fully describes the world in which we live, especially in the short run. D) arises because money depends on the nominal interest rate.

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

small open economy with perfect capital mobility is characterized by all of the following except that: A. its domestic interest rate always exceeds the world interest rate. B. it engages in international trade. C. its net capital outflows always equal the trade balance. D. its government does not impede international borrowing or lending.

its domestic interest rate always exceeds the world interest rate

In the Solow growth model, with a given production function, depreciation rate, saving rate, and no technological change, lower rates of population growth produce: A) lower steady-state ratios of capital per worker. B) lower steady-state growth rates of output per worker. C) lower steady-state growth rates of total output. D) lower steady-state levels of output per worker.

lower steady-state growth rates of total output

Assume that a small open economy gets involved in a global war, in which its government purchases increase and the rest of the world's government purchases also increase. Then, for the small country, net exports: A) will certainly decrease. B) will certainly increase. C) may increase or decrease. D) will remain the same.

may increase or decrease

The costs of reprinting catalogs and price lists because of inflation are called: A) menu costs. B) shoeleather costs. C) variable yardstick costs. D) fixed costs.

menu costs

If domestic saving is less than domestic investment, then net exports are ______ and net capital outflows are ______. A) positive; positive B) positive; negative C) negative; negative D) negative; positive

negative; negative

Evidence from the past 40 years in the United States supports the Fisher effect and shows that when the inflation rate is high, the ______ interest rate tends to be ______. A) nominal; high B) nominal; low C) real; high D) real; low

nominal; high

Compared to periods of lower rates of inflation, during a hyperinflation all of the following occur except: A) shoeleather costs increase. B) menu costs become larger. C) relative prices do a better job of reflecting true scarcity. D) tax distortions increase.

relative prices do a better job of reflecting true scarcity

If an economy is in a steady state with no population growth or technological change and the marginal product of capital is less than the depreciation rate: A) the economy is following the Golden Rule. B) steady-state consumption per worker would be higher in a steady state with a lower saving rate. C) steady-state consumption per worker would be higher in a steady state with a higher saving rate. D) the depreciation rate should be decreased to achieve the Golden Rule level of consumption per worker.

steady-state consumption per worker would be higher in a steady state with a lower saving rate

The costs of unexpected inflation, but not of expected inflation, are: A) menu costs. B) the arbitrary redistribution of wealth between debtors and creditors. C) unintended distortions of individual tax liabilities D) the costs of relative price variability

the arbitrary redistribution of wealth between debtors and creditors

The costs of unexpected inflation, but not of expected inflation, are: A) menu costs. B) the arbitrary redistribution of wealth between debtors and creditors. C) unintended distortions of individual tax liabilities D) the costs of relative price variability.

the arbitrary redistribution of wealth between debtors and creditors