ECN202 Final

Which of the following is likely to increase the Gini coefficient and income inequality?

A "right to work" law that makes it harder to form unions.

Figure 16-3 shows both movements along and shifts up of the countries' _______________.

production function

Figure 22-6 implies that a dictator will balance how much he extracts in taxes against how long he will stay in power to maximize his ______________.

political rent

1. democracy select 2. political institutions select 3. governing elite select 4. political rent

1. A political system, that ideally gives 2. The rules of the game that 3. Top government officials such as the president 4. A payment or other benefit in exces

1. economic accountability select 2. political accountability select 3. market failure select 4. government failure

1. Accountability achieved by economic processes, notably competition among firms 2. Accountability achieved by political processes such as elections, 3. When markets allocate resources in a Pareto-inefficient way. 4. A failure of political accountability.

1. Innovation or Schumpeterian rents 2. Creative destruction 3. Capital goods 4. Capital intensity

1. Profits in excess 2. Joseph Schumpeter's 3. The equipment, buildings, raw materials 4. Making greater use of capital good

1. In-kind transfers 2. Welfare state select 3. Social insurance select 4. Progressive policy

1. Public expenditure in the form 2. A set of government policies 3. Expenditure by the government 4. An expenditure or transfer that increase

1. Specialization 2. Comparative advantage 3. Economies of scale 4. Economies of agglomeration

1. This takes place when a country 2. A person or country has this 3. These occur when doubling all of the inputs to a pro 4. The cost reductions that firms may

According to the graph below, the unemployment rate during the Great Depression reached a high of _______ in __________.

25%; 1933

According to Figure 19-10, children born in the bottom 20% of families by income have a ______ chance of staying in the bottom 20%.

40%

According to the figure below, __________ of people born in the bottom 20% of the income distribution make it to the top 20% of the income distribution in the United States while __________ make the jump up in Denmark.

7.4%; 16.7%

Franklin Roosevelt became the US President in 1933. In the period after he became the president: The federal government deficit increased to 5.6% of GNP in 1934. The short-term nominal interest rate fell from 1.7% in 1933 to 0.75% in 1935. The CPI fell by 5.2% in 1933 and rose by 3.5% in 1934. The US left the gold standard in April 1933. The New Deal was launched in 1933 and included proposals to increase federal government spending in a wide range of programs and reforms to the banking system. Which of the following statements is correct regarding the years immediately after Roosevelt became the US president?

A change in the expectations of consumers of their future earnings, as a result of the New Deal, would have contributed to an expansion in the economy's aggregate demand.

Which of the following was not one of the main positive feedback mechanisms that worsened the Great Depression?

A housing bubble

One reason that democracy is often said to be superior to other forms of government is that the governing elite are bound to carry out the wishes of the governed. The fact that the government has been elected gives it legitimacy (and therefore power to carry out its intentions). The fact that it can be voted out of office should mean that those intentions must be aligned with the preferences of electors. But in practice there are lots of potential weaknesses when it comes to ensuring that governments behave as electors wish. The relationship between the two is one example of what economics calls the 'principal-agent' problem. It is a problem because it is practically very difficult (or even impossible) to design a contract that ensures that the agents (the government) carry out the wishes of the principals (the voters). Which of the following constitutional arrangements would contribute to ensuring that voters can exercise authority over the government as a whole?

A. Fixed-term elections B. 'Voice' C. Recall D. Public protest

Figure 19.1 shows the inequality in wealth, earnings, and disposable income in the US, Sweden, and Japan using the Gini coefficient. Based on this information, which of the following statements are correct?

A. Wealth is much more unequally distributed than earnings in all three countries. D. Sweden attains its relatively equal disposable income distribution through its system of taxes and transfers.

From this figure, which of the following statements is correct?

An inequality-neutral citizen would choose point A.

Unit 22 concentrates on the practical advantages of democracy, that is, as a way of getting things done that is superior to other political systems. However, if you had to argue in favour of democratic institutions, not on the grounds of their usefulness, but in principle, or in their own right, which of the following might you choose to emphasise?

B. Democracy guarantees a high level of political equality. C. Democracy ensures that those who rule can do so only with the consent of their fellow citizens.

Consider a move from a dictatorship to a regime where periodic elections are held, but between elections power is in the hands of a 'governing elite'. The situation is similar to that of the monopolist - higher taxes increase the chances of being thrown out of office - but this is now more likely since it does not require a violent uprising and so the duration curve is drawn with a flatter slope: any given tax level (other than just sufficient to cover the costs of the public good) is associated with a shorter duration in office. Suppose that the governing elite has been in office for many years because the opposition is seen as extreme, disorganised, and lacking a leader who would be credible as a chief minister of state. Slowly these conditions are reversed: the opposition elects a new charismatic leader who imposes discipline on the party and the opinion polls begin to suggest that it might win an election. How would you modify the diagram shown?

B. The duration curve will become flatter (rotate anti-clockwise about Dmax). D. The duration curve may shift to the left.

A dictatorship can be seen as a political regime with many of the characteristics of a monopolist. In the diagram shown, it supplies public services, which have a cost per year of C (the horizontal line). At the same time the dictatorship chooses how much to tax its citizens, as shown on the vertical axis. The downward-sloping curve in the figure shows for each level of taxes, the expected duration of the dictator's tenure in office. This "duration curve" is like the monopolist's demand curve. It indicates the trade off between two of the monopolist's objectives: charging more and selling more in the case of the conventional economic monopolist, and taxing more and staying in power for the political monopolist. How would you modify the diagram to show a dictatorship that decided to increase its likely duration by banning free speech and spending more on the police and armed forces?

B. The duration curve will shift to the right. D. The amount the curve shifts depends on how effective the repressive measures are.

Figure 16.18 is a graph of the share of employment in manufacturing industry in different countries. Based on this information, which of the following statements are correct?

B. The shift of employment out of industry was led by the UK and the US around 1950. C. The UK has consistently had a higher share of total employment in industry than the US.

Figure 19.15 shows the feasible frontier of the incomes of the rich and the poor. Which of the following statements is correct?

Between D and F, lower income for the poor leads also to lower income for the rich.

Figure 18.18 depicts the feasible frontier and the consumption frontier of Carlos and Greta if they specialize and trade. The resulting relative price of wheat is assumed to be 2. Let the resulting consumption be at A and B, respectively, for Greta and Carlos. Then which of the following statements is correct?

Carlos trades 4,000 of his apples for 2,000 tonnes of Greta's wheat.

Figure 17.12 describes the movements in employment, profits and wages in the 1950s to 1960s using the labour market model. Which of the following statements is correct regarding this period?

Continuing technological progress owing to widespread expectations of sustained high profits, together with high wages resulting from the strong bargaining power of trade unions, created a virtuous circle of high investment, rapid productivity growth, rising wages, and low unemployment.

The figure shows a plot of unemployment rate vs gross unemployment benefit replacement rate for the period 2000 to 2012. Based on this information, which of the following statements is correct?

Countries that offer generous unemployment insurance schemes can still achieve low rates of unemployment.

Which is not listed as one of the reasons for government failure?

Democracy doesn't work

Herbert Hoover was the US President between 1929 and 1933. During this time: President Hoover advocated a balanced budget which remained within the range of -0.6% to +0.8% of GNP in 1929-31. Output was 20% below the full employment level in 1931. The short-term nominal interest rate fell from 5.8% in 1929 to 1.7% in 1933. The CPI decreased from -2.7% in 1930 to -10.3% in 1932. The US remained on the gold standard while the UK abandoned the regime in 1931. Which of the following statements is correct regarding this period?

Despite the cut in the nominal interest rate, monetary policy was contractionary during this period.

The diagram describes the general movements in employment, profits and wages in the 1950s to 1970s, using the labour market model. In addition, note that the postwar accord collapsed in the US in the 1960s, while it survived in Sweden. Which of the following statements is correct regarding this period?

Due to the strong bargaining position of workers, the oil shock primarily hit employers redistributing income from profit to wages, causing an end to the fair-shares bargaining (the postwar accord) in the US.

Which is not a piece of the book's definition of democracy?

Economic equality

Rodrik's Trilemma suggests we have to choose between three reasonable dimensions and can't achieve all three. Which of the following is not one of those dimensions?

Economic growth

The following is a plot of unemployment rate and trade union density for the period 2000-2012. Trade union density is defined as the fraction of employees who are union members. Based on this information, which of the following statements is correct?

Given the trade union density, the relative unemployment outcomes indicate that inclusiveness of trade unions is higher in Norway than in Belgium.

Figure 16.8 depicts the graphs of the long-run price-setting curve and the markup at which firm entry and exit are both zero. Based on this information, which of the following statements is correct?

Higher risk of expropriation of businesses overseas results in a higher price-setting curve.

According to Heckscher and Ohlin, globalisation during the late 19th century involved the exchange of land-intensive agricultural goods and labour-intensive manufacture goods between land-abundant and labour-scarce countries (the US, Canada, Australia, Argentina and Russia) and labour-abundant and land-scarce countries (Britain, France and Germany). Which of the following statements is correct?

In Britain, the workers would be the winners while the land-owners would be the losers.

Figure 19.10 shows the proportion of children in earnings quantile conditional on their father's earnings quantile in the US and Denmark, respectively. Based on this information, which of the following statements is correct?

In the US, 7.4% of those from the poorest 20% of families managed to move up to become part of the richest 20%.

Figure 18.20 is a diagram that describes the effects of trade on the employers and the workers in the US and China. The initial size of each economy is normalized to one. The US has the comparative advantage in the capital-intensive goods, while China has the comparative advantage in the labour-intensive goods. As a result of trade the US's economy is assumed to grow by 30% and that of China by 40%. Based on this information, which of the following statements is correct?

In the US, the employers are better off while the workers are worse off as a result of trade.

Figure 18.11 depicts the level of immigration into the US as a percentage of the change in the US population. Based on this information, which of the following statements is correct?

In the decade prior to the First World War, the number of immigrants was higher than the number of births minus the number of deaths.

Figure 17.26 depicts the US aggregate demand between 2006 Q2 and 2010 Q4. Based on this information, which of the following statements is correct?

In the recession, not only did households stop purchasing new houses and other consumption goods, but also firms stopped investing.

Which of the following statements is correct regarding the model of the labor market?

In the short- and medium-run models the amount of capital is fixed, while in the long-run model the amount of capital can vary.

Which of the following statements is correct regarding foreign portfolio investment and foreign direct investment?

It is possible for a country to have positive net earnings from its foreign portfolio investment.

Figure 16.9b depicts the long-run adjustment process in the labour market after technological progress. Based on this information, which of the following statements is correct?

Lower unemployment at E implies a higher wage required to induce workers to exert high effort, resulting in the higher real wage at B.

Consider Figure 22.10. Which of the following statements is true?

Moving from A to A' in the diagram is a Pareto improvement, improving outcomes for both citizens and the governing elite.

According to Figure 22-13, this country has the longest existing democracy.

New Zealand

According to Figure 16-12, the countries that have done the best in terms of long-run growth and low unemployment are:

Norway and Japan

Which of the following statements is correct regarding policies on inequality?

Providing high-quality education to citizens is a way of raising the endowments of less well off people.

Figure 17.16 is a graph of the unemployment rate and consumer price inflation in advanced economies between 1960 and 2013. Based on this information, which of the following statements is correct?

Stagflation was caused by the shifting up of the Phillips curve, propelled by higher inflation expectations.

The diagram plots GDP per worker vs capital per worker, both across countries in 1990 (the scatter plots) and the trajectories since 1760 for a few representative countries (the paths). Based on this information, which of the following statements is correct?

Taiwan is more capital intensive than the UK in 1990.

Which of the following statements regarding segmented labor markets are correct?

The 'gig economy' is not part of the primary labor market.

In an economy with population 100, there are u unemployed, n employees and 100 - u - n owners of firms. Each firm has one owner. The firms are identical, so they employ the same number of workers and they pay the same wage. The government now introduces unemployment insurance. The following is the Lorenz curve of the economy before and after, in the short run. The Gini coefficient prior to the introduction of unemployment insurance (corresponding to the lower Lorenz curve) is 0.36. Based on this information, which of the following statements is correct?

The Gini coefficient has fallen to 0.24 (2 decimal places).

According to figure 17-2, the income share going to the top 1% was lowest during which economic period?

The Golden Age

In the United States, union membership was highest in which of the following economic eras?

The Golden Age

Union membership was highest in the United States during which of the economic eras discussed in chapter 17?

The golden age

Figure 17-2 shows that the top 1% of income earners had the lowest share of income during which economic era?

The golden age epoch

Figure 18.3 depicts the supply curve in the exporting country and the demand curve in the importing country in a market for a traded good. Assume that the good is produced exclusively in the exporting country and consumed exclusively in the importing country. Based on this information, which of the following statements is correct?

The price gap represents the trade costs, such as transportation costs and trade taxes.

Which is NOT true about political rent?

They are what the dictator pays to stay in power.

Which of the following is the most unequally distributed (and so has the highest Gini coefficient)?

Wealth

Policies that work in the richer developed countries may not always work in poorer developing countries which lack some of the government institutions because of:

administrative infeasibility

During the financial crisis of 2008/09, the government felt it needed to ________ many in the financial sector after the failure of ______________.

bailout; Lehman Brothers

The fact that there are winners and losers because of globalization means that the increase in globalization is often quite _________________.

controversial

The process by which some jobs are created and some are destroyed as the economy adopts new technology is known as:

creative destruction

Figure 16-7 shows that when there is less competition and the markup is high, more firms will ________ the market and the markup will _________.

enter; fall

According to the Beveridge Curves below for the United States and Germany, for any given level of the unemployment rate, Germany has ___________ job vacancies compared to the United States.

fewer

Global inequality, both between country averages and between all of the world's people, is very _________ but has been ___________ in recent decades.

high; falling

The bubble in the __________ market led to the financial crisis when values fell and many financial institutions went bankrupt or had to be bailed out.

housing

Figure 18-4 shows that as trade in wheat __________ between the US and UK, the price gap __________.

increased; decreased

If learning by doing is an important aspect of how companies and countries achieve lower cost production, then countries may want to protect ____________ by imposing trade limitations on imported goods in this industry.

infant industries

One possible reason for trade barriers includes protecting ___________ from foreign competition as they develop new innovations or production techniques.

infant industries

Even if a policy is supported by the population and is both economically and administratively feasible, it could still be blocked by _______________.

special interests

If countries ___________ in the areas in which they have a(n) ___________, then both trading partners can gain from the trade.

specialize; comparative advantage

A tariff is a _________ on imported goods which reduces trade. According to the graph below, tariffs have been ____________ for the past 30 years.

tax; decreasing

In Thomas Piketty's 'Economist in action' video, which of the following were NOT among the reasons that Piketty gave for the fall in the incomes of the very rich during the twentieth century?

the Russian Revolution

Comparing points B and C in the diagram below, the average product of capital is ____________ at point C compared to B and the capital intensity is ____________ at point C.

the same; higher