Econ 2315 Quiz #2 Ch 4+5+6
Which policy would decrease national saving? A. exchanging sales taxes for higher taxes on interest and dividends B. reducing deficit spending C. increasing allowable contributions to tax-free retirement accounts D. replacing income taxation with consumption-based taxation
A. exchanging sales taxes for higher taxes on interest and dividends
Two countries are IDENTICAL in every way except that one has a much higher capital-labor ratio than the other. According to the Solow model, which country's total output will grow more quickly? A. the country with the lower capital-labor ratio B. the country with the higher capital-labor ratio C. both countries will grow at the same rate D. not enough information to answer the question Does your answer depend on whether one country or the other is in a steady state? A. Yes. The country in the steady state will grow more quickly. B. Yes. The country in the steady state will grow more slowly. C. No. The country with the lower capital-labor ratio will always grow faster. D. No. The country with the higher capital-labor ratio will always grow faster. In general terms, how will your answer be affected if the two countries are allowed to trade with each other? A. the country with the lower capital-labor ratio will grow even faster, and the other will grow the same or slower B. the country with the higher capital-labor ratio will grow even faster, and the other will grow the same or slower C. both countries will grow even faster D. both countries will grow even slower E. there will be no change in growth speed
A. the country with the lower capital-labor ratio C. No. The country with the lower capital-labor ratio will always grow faster. C. both countries will grow even faster
What are the two components of the user cost of capital? A. The real interest rate and salvage cost. B. The real interest rate and the rate of depreciation. C. The rate of depreciation and salvage cost. D. The price of a unit of capital and the rate of inflation
B. The real interest rate and the rate of depreciation.
Give two equivalent ways of describing equilibrium in the goods market. A. Y = Cd + Id + G - T and Sd = Id - G B. Y = Cd + Id + G and Sd = Id C. Y = Cd + Sd + G and Sd = Id + (G - T) D. Y = Cd + Id and Sd = Y - Id
B. Y = Cd + Id + G and Sd = Id
In a world with two large open economies, in equilibrium, desired international lending by one country must equal desired international _____ by the other country. The equilibrium real world interest rate is determined by the point at which the current account balance of one country equals the _____ balance of the other country. A. borrowing; current account B. borrowing; financial account C. lending; financial account D. lending; current account
B. borrowing; financial account
What is the effect on the steady-state of an increase in h? What is the effect on the steady-state value of per-worker capital? A. per-worker capital increases B. per-worker capital decreases C. per-worker capital remains the same D. not enough information to answer this question What is the effect on the steady-state value of per-worker output? A. per-worker output increases B. per-worker output decreases C. per-worker output remains the same D. not enough information to answer this question What is the effect on the steady state of per-worker consumption? A. per-worker consumption increases B. per-worker consumption decreases C. per-worker output remains the same D. not enough information to answer this question
B. per-worker capital decreases B. per-worker output decreases B. per-worker consumption decreases
Consider a large open economy (the home country) that currently has a zero current account balance. Suppose that the country now runs a government budget deficit that affects desired national saving. In the new equilibrium, the world real interest rate _____ and investment in the home country _____. A. rises; rises B. rises; declines C. declines; declines D. declines; rises In the new equilibrium, in the foreign country, investment _____ and the current account balance _____. A. rises; rises B. declines; declines C. rises; declines D. declines; rises
B. rises; declines D. declines; rises
You just read that forecasters predict the United States will run a current account surplus in 2025. From this you would infer that the United States will also A. run a financial account surplus in 2025. B. run a balance of payments surplus in 2025. C. increase its net foreign assets in 2025. D. decrease its official reserve assets in 2025.
C. increase its net foreign assets in 2025.
Which of the following is a policy with a reasonable chance of increasing productivity growth? A. increasing population B. increasing the labor force C. increasing taxes on investment income D. increasing the number of grants for scientific research
D. increasing the number of grants for scientific research
We distinguish between small open economies and large open economies based on: A. rates of inflation. B. whether they are net lenders or net borrowers to the world economy. C. GDP or output measures. D. their influence on the world interest rate.
D. their influence on the world interest rate.
Of the three sources of growth identified by growth accounting, which one is primarily responsible for the slowdown in U.S. economic growth after 1973? growth in productivity What are some of the reasons given for this decline in U.S. productivity? A. Inaccuracies in the measurement of output, such as changes in the quality of output B. A "learning curve" effect from the exploding IT (information technology) revolution C. Higher oil prices, causing firms in all industrialized nations to conserve energy D. Changes in the legal and human environment, such as growing emphasis placed on protecting the environment and worker safety E. All of the above have been offered as reasons for the decline in U.S. productivity beginning in 1973.
E. All of the above have been offered as reasons for the decline in U.S. productivity beginning in 1973.
A government wishes to maximize long-run economic growth. Assume this government consistently runs a small deficit. Which of the following policies would be most effective? A. Increase taxes to fund investments in infrastructure, research, and human capital. B. Reduce spending on investments in infrastructure, research, and human capital to reduce the deficit. C. Increase taxes to reduce the deficit, but do not change spending on investments in infrastructure, research, and human capital. D. Decrease taxes on the returns to saving. E. Not enough information to answer this question. Which would be more effective at increasing living standards: a policy which doubles the savings rate, or one which doubles the productivity of capital? A. a policy which doubles the savings rate B. a policy which doubles the productivity of capital C. both would have equal effectiveness D. not enough information is available to answer this question.
E. Not enough information to answer this question. B. a policy which doubles the productivity of capital
1.) Which of the following is true about the availability of balance of payments information for the United States? A. Full information on the balance of payments is available quarterly, but some aspects are available monthly. B. Full information on the balance of payments is available monthly. C. Full information on the balance of payments is available annually, but some aspects are available quarterly. D. Full information on the balance of payments is available quarterly, with none made available monthly. 2.) The sum of the current account plus the capital and financial account should sum to zero. If the sum is not the amount you identified above, this is due to A. statistical discrepancy. B. negative externalities. C. incentives to lie about figures. D. measurement bias.
A. Full information on the balance of payments is available quarterly, but some aspects are available monthly. A. statistical discrepancy.
The diagram to the right shows the current account balance as a percentage of nominal GDP for the U.S. from 1959 to 2004. Which of the following is not a plausible explanation for the trend in this data? A. Greater demand for U.S. exports. B. The growth in U.S. budget deficits. C. Increased saving activity by foreign households. D. Increased opportunities for international investment.
A. Greater demand for U.S. exports.
1.) Productivity growth in the United States has averaged about 1 percent per year since 1929. This growth in productivity has been erratic with the lowest growth rate occurring between 1973-1982. 2.) Which of the following could explain why productivity growth appears to arrive in waves over time? A. Since there are many years between transformational innovations, their positive impacts on productivity growth will appear in waves. B. Since oil prices only increase substantially about once per decade, its positive impact on productivity growth will appear in waves. C. The United States government only takes measurements of productivity growth every five years, this makes all productivity growth appear to come in waves. D. All of the above are true. 3.) Which of the following are likely true of future innovations such as artificial intelligence, self-driving cars, and robotics as they relates to jobs in the economy? (Select all that apply) A. Large scale innovations tends to suppress wages causing them to fall dramatically. B. There would likely be an increase in wages across the economy. C. These new technologies can directly replace jobs currently done by people, resulting in at least some displacement of jobs. D. These innovations can be complementary to existing jobs and therefore increase the marginal product of labor.
A. Since there are many years between transformational innovations, their positive impacts on productivity growth will appear in waves. B. There would likely be an increase in wages across the economy. + C. These new technologies can directly replace jobs currently done by people, resulting in at least some displacement of jobs. + D. These innovations can be complementary to existing jobs and therefore increase the marginal product of labor.
Why does desired investment fall as the real interest rate rises? A. The user cost of capital increases, resulting in a smaller desired capital stock. B. A higher interest rate makes capital less productive, resulting in a smaller desired capital stock. C. A higher interest rate results in less existing capital that needs to be replaced.
A. The user cost of capital increases, resulting in a smaller desired capital stock.
1. The U.S. government sells F-16 fighter planes to a foreign government. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts is: A. U.S. citizens buy cars from the foreign country, which is a negative entry in the current account. B. No transaction needed. C. A foreign bank buys U.S. government bonds, which is a negative entry in the financial account. D. Kuwait pays for the services of Red Adair's U.S. team of oil fire fighters, which is a positive entry in the current account. 2. A London bank sells yen to, and buys dollars from, a Swiss bank. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts is: A. Kuwait pays for the services of Red Adair's U.S. team of oil fire fighters, which is a positive entry in the current account. B. A U.S. bank buys U.K. government bonds, which is a negative entry in the financial account. C. U.S. citizens buy cars from the foreign country, which is a negative entry in the current account. D. No transaction needed. 3. The Federal Reserve sells yen to, and buys dollars from, a Swiss bank. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts is: A. U.S. citizens buy cars from the foreign country, which is a negative entry in the current account. B. The Federal Reserve sells dollars to, and buys euros from, the European Central Bank, which is a negative entry in the financial account. C. No transaction needed. D. The IRS sells a bankrupt singer's home to an Egyptian citizen, which is a positive entry in the financial account. 4. A New York bank receives the interest on its loans to Brazil. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts is: A. Kuwait pays for the services of Red Adair's U.S. team of oil fire fighters, which is a positive entry in the current account. B. A U.S. bank buys U.K. government bonds, which is a negative entry in the financial account. C. No transaction needed. D. Brazilian citizens receive interest on U.S. Treasury bonds they own, which is a negative entry in the current account. 5. A U.S. collector buys some ancient artifacts from a collection in Egypt. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts is: A. Kuwait pays for the services of Red Adair's U.S. team of oil fire fighters, which is a positive entry in the current account. B. A U.S. bank buys U.K. government bonds, which is a negative entry in the financial account. C. No transaction needed. D. The IRS sells a bankrupt singer's home to an Egyptian citizen, which is a positive entry in the financial account. 6. A U.S. oil company buys insurance from a Canadian insurance company to insure its oil rigs in the Gulf of Mexico. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts is: A. Kuwait pays for the services of Red Adair's U.S. team of oil fire fighters, which is a positive entry in the current account. B. U.S. citizens buy cars from the foreign country, which is a negative entry in the current account. C. No transaction needed. D. The IRS sells a bankrupt singer's home to an Egyptian citizen, which is a positive entry in the financial account. 7. A U.S. company borrows from a British bank. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts is: A. No transaction needed. B. The IRS sells a bankrupt singer's home to an Egyptian citizen, which is a positive entry in the financial account. C. U.S. citizens buy cars from the foreign country, which is a negative entry in the current account. D. A U.S. bank buys U.K. government bonds, which is a negative entry in the financial account.
A. U.S. citizens buy cars from the foreign country, which is a negative entry in the current account. D. No transaction needed. B. The Federal Reserve sells dollars to, and buys euros from, the European Central Bank, which is a negative entry in the financial account. D. Brazilian citizens receive interest on U.S. Treasury bonds they own, which is a negative entry in the current account. D. The IRS sells a bankrupt singer's home to an Egyptian citizen, which is a positive entry in the financial account. A. Kuwait pays for the services of Red Adair's U.S. team of oil fire fighters, which is a positive entry in the current account. D. A U.S. bank buys U.K. government bonds, which is a negative entry in the financial account.
Improved technology is likely to A. increase the marginal product of labor. B. create the need for universal guaranteed income. C. displace workers, causing high unemployment. D. reduce wages.
A. increase the marginal product of labor.
Suppose that total capital and labor both increase by the same percentage amount, so that the amount of capital per worker doesn't change. Writing the production function in per-worker terms requires that this increase in capital and labor must not change the amount of output produced per worker. Based on the growth accounting equation, equal percentage increases in capital and labor will leave output per worker unaffected only if a aK + aN = A. 0. B. 1. C. -1. D. 100.
B. 1.
Consider two large open economy, the home economy and the foreign economy. Which of the following lowers the world real interest rate (rw)? A. A decrease in the willingness of foreigners to save. B. A decrease in the domestic expected marginal product of capital. C. An increase in foreign government purchases. D. An increase in foreign expected marginal product of capital.
B. A decrease in the domestic expected marginal product of capital.
1.) How could a recession decrease a deficit in the current account? A. Income falls during a recession, thereby increasing the demand for imports. B. Income falls during a recession, thereby reducing the demand for imports. C. Income rises during a recession, thereby increasing the demand for imports. D. Income rises during a recession, thereby reducing the demand for imports. 2.) Which of the following is true about historical trends in the current account balance for the United States? A. There was a big increase in the current account balance from the 1970s to the mid 1980s. B. During the 1970s, the current account balance moved up and down around a zero balance. C. The current account balance increased throughout the 1990s. D. The current account balance was generally negative during the 1960s. 3.) Which of the following is one explanation for the decrease in the current account balance from 1991 to 2005? A. Europe experienced relatively quick economic growth during this period. B. There was a significant decrease in oil prices during this period. C. The saving rate increased in developing nations during this period. D. There were relatively few opportunities for international financial investment during this period.
B. Income falls during a recession, thereby reducing the demand for imports. B. During the 1970s, the current account balance moved up and down around a zero balance. C. The saving rate increased in developing nations during this period.
1.) Which of the following is true about China's 2006 real GDP per capita compared to that of Japan and the United States? A. It is high but growing slowly. B. It is low but growing rapidly. C. It is low and growing slowly. D. It is high and growing rapidly. 2.) Since 2001, China's economic growth has been about five times larger than that in the United States. Which of the following does not help to explain this difference? A. China has changed aspects of its structure from a centrally planned economy to a market economy. B. China has had fast growth in productivity. C. China has increased its technology investment by sacrificing investment in capital. D. China has increased its trade with other countries. 3.) Which of the following is are true of future growth of GDP in China? (Select all that apply) A. If China's economic growth remains at about five times larger than that in the United States it will take over 30 years to catch the up to the GDP level in the United States. B. If China's economic growth remains at about five times larger than that in the United States it will take less than 15 years to catch the up to the GDP level in the United States. C. It is impossible for China to ever reach the GDP level of the United States. D. As they transition to being a more developed nation their growth rate will slow.
B. It is low but growing rapidly. C. China has increased its technology investment by sacrificing investment in capital. A. If China's economic growth remains at about five times larger than that in the United States it will take over 30 years to catch the up to the GDP level in the United States. + D. As they transition to being a more developed nation their growth rate will slow.
What is the difference between gross investment and net investment? Can gross investment be positive when net investment is negative? A. Gross investment is the overall increase in the capital stock;Yes B. Net investment is the overall increase in the capital stock;Yes. C. Gross investment is the overall increase in the capital stock; No. D. The difference is equal to depreciated capital; No.
B. Net investment is the overall increase in the capital stock;Yes.
What is the desired capital stock? A. The desired capital stock is the difference between gross investment and net investment. B. The desired capital stock is the amount of capital that allows the firm to earn the largest possible profit. C. The desired capital stock is defined where the marginal productivity of capital equals zero. D. The desired capital stock is the amount of capital that exactly replaces worn out capital.
B. The desired capital stock is the amount of capital that allows the firm to earn the largest possible profit.
For a household with a given level of income, how are consumption and saving linked? Saving = Income − Consumption What is the basic motivation for saving? A. To reduce tax obligations. B. To provide for future consumption. C. To maximize the returns from saving. D. To maximize current consumption.
B. To provide for future consumption.
In a small open economy, national saving _____ investment and output _____ absorption. A. must equal; does not have to equal B. does not have to equal; does not have to equal C. must equal; must equal D. does not have to equal; must equal
B. does not have to equal; does not have to equal
1.) Evidence suggests that the 2001 tax rebates were A. almost entirely saved by consumers. B. initially saved by consumers who later increased their spending. C. almost entirely spent by consumers. D. initially spent by consumers who later increased their saving. 2.) Compared to earlier research, later research indicates that a larger amount of the 2001 tax rebates was spent than originally thought, implying that the rebates did a better job of stimulating the economy than originally thought. 3.) Agarwal, Liu, and Souleles's study indicates that the Ricardian equivalence theory seems to hold A. true for neither those with high credit limits nor low credit limits. B. equally true for those with high credit limits and low credit limits. C. more true for people with low credit limits than for people with high credit limits. D. more true for people with high credit limits than for people with low credit limits. 4.) The application implies that younger people are more likely to have binding borrowing constraints and therefore that they are likely to spend more of a tax rebate than other groups.
B. initially saved by consumers who later increased their spending. D. more true for people with high credit limits than for people with low credit limits.
If Ricardian equivalence holds, a reduced government budget deficit caused by a lump-sum tax increase in an open economy leads to A. a decline in the current account balance. B. no change in the current account balance. C. a rise in the current account balance. D. a rise in the current account balance in a large open economy; no change in the current account balance in a small open economy. If Ricardian equivalence does not hold, a reduced government budget deficit caused by a lump-sum tax increase in an open economy leads to A. a rise in the current account balance in a large open economy; no change in the current account balance in a small open economy. B. no change in the current account balance. C. a rise in the current account balance. D. a decline in the current account balance.
B. no change in the current account balance. C. a rise in the current account balance.
How do a country's current account and financial account balances affect its net foreign assets? The net amount of new foreign assets that a country acquires equals its current account _____, which in turn must equal its financial account _____. A. deficit; deficit B. surplus; deficit C. surplus; surplus D. deficit; surplus If country A has greater net foreign assets per citizen than does country B, is country A necessarily better off than country B? A. No; total GDP matters more B. No; net foreign assets and net official assets together matter most C. No; total national wealth is what matters D. Yes
B. surplus; deficit C. No; total national wealth is what matters
What is the key difference that determines whether an international transaction appears in the current account or the financial account? A. Trade in currently produced goods is services are entered in the financial account, trade in assets is entered in the current account. B. Gold movements are entered in the financial account, all other transactions are entered in the current account. C. Trade in currently produced goods and services is entered in the current account, trade in assets is entered in the financial account. D. Receipts are entered in the current account, payments are entered in the financial account.
C. Trade in currently produced goods and services is entered in the current account, trade in assets is entered in the financial account.
1.) Why might low taxes be associated with a decrease in investment? A. Congress decreases taxes to lower investment in expansionary fiscal policy. B. Congress decreases taxes to lower investment in contractionary fiscal policy. C. Congress might lower taxes as a response to already-low investment spending. D. A decrease in taxes tends to lower the interest rate and therefore investment spending. 2.) The application discusses a 1994 study by Cummins, Hubbard, and Hassett. Which of the following would seriously undermine the assumptions of this study? A. Evidence that changes in investment during periods of large tax changes are attributable to some non-tax factor. B. Evidence that any factors other than tax laws changed during the periods studied. C. Evidence that tax laws are different for different types of capital. D. All of the above. 3.) The study by Cummins, Hubbard, and Hassett implies that a decrease in taxes related to investment in factories A. would have no significant effect on investment for firms who already heavily invest in factories. B. would result in the biggest increase in investment for firms who already heavily invest in factories. C. would result in the same increase in investment regardless of whether a firm tends to invest in factories or machines. D. could convince firms that currently heavily invest in machines to switch to investment in factories.
C. Congress might lower taxes as a response to already-low investment spending. A. Evidence that changes in investment during periods of large tax changes are attributable to some non-tax factor. B. would result in the biggest increase in investment for firms who already heavily invest in factories.
Which of the following statements below describe what is meant by a steady state, in terms of the Solow model? (Assume there is no productivity growth) I. Output per worker = consumption per worker = capital per worker. II. Output per worker, consumption per worker and capital per worker are constant. III. Output per worker, consumption per worker and capital per worker all grow at the same positive rate. IV. Total output, total consumption and total capital all grow at the same rate (the growth of the labor force). A. I only B. I and IV C. II and IV D. II and III E. I, II, III and IV - all of the above statements describe the steady state as given by the Solow model.
C. II and IV
1.) Which of the following is an example of a time period in the United States when changes in consumer sentiment were not met with changes in consumption spending in the same direction? A. The period of large productivity gains in the United States in the mid-1990s. B. Late 2007 to early 2008, when financial markets crashed. C. Late 1998, when the Russian government defaulted on a large amount of debt. D. The recession between 1978 and 1980. 2.) Which of the following statements best summarizes the behavior of the Thomson Reuters/University of Michigan Index of Consumer Sentiment as related to a recession? A. The index turns down sharply during an economic expansion and turns up sharply during an economic recessionlong dash—the opposite of initial economic expectations. B. The index tends to turn down sharply during recessions, but there are also significant turndowns when no recession exists. C. The index remains roughly constant over time regardless of what is going on in terms of a recession or expansion in the economy as a whole. D. The index exhibits sharp downturns that begin months before recessions occur, providing economists and politicians with reliable warnings of recessions to come. 3.) The application indicates that the Thomson Reuters/University of Michigan Index of Consumer Sentiment is useful as a way to measure consumer perceptions about the current economy, useful as a tool to help explain past changes in spending, useful as a way to measure consumer perceptions about likely future changes in the economy, and not useful as a method of forecasting consumer spending. 4.) The study by Croushore cited in the application indicates that the best models to predict future consumer spending would include information on A. consumer knowledge of monetary and fiscal policy, but not necessarily past consumer spending. B. consumer sentiment and interest rates, but not necessarily consumer income. C. past consumer spending and stock prices, but not necessarily consumer sentiment. D. stock prices and consumer sentiment, but not necessarily interest rates.
C. Late 1998, when the Russian government defaulted on a large amount of debt. B. The index tends to turn down sharply during recessions, but there are also significant turndowns when no recession exists. C. past consumer spending and stock prices, but not necessarily consumer sentiment.
In what periods has the U.S. had twin deficits? A. The U.S. had twin deficits in the 1970s and first half of the 1980s. B. The U.S. has never had twin deficits. C. The U.S. had twin deficits in the 1980s and first half of the 1990s. D. The U.S. had twin deficits in the 1990s and first half of the 2000s. In what periods did the deficits move in opposite directions? A. The deficits moved in opposite directions in the late 1980s. B. The deficits moved in opposite directions in the late 1960s and from 1998 to 2001. C. The deficits moved in opposite directions in the late 1970s. D. The deficits moved in opposite directions in the late 1990s and from 2008 to 2011.
C. The U.S. had twin deficits in the 1980s and first half of the 1990s. D. The deficits moved in opposite directions in the late 1990s and from 2008 to 2011.
Which of the following types of changes in desired saving and desired investment does NOT lead to a larger current account deficit in a small open economy? A. An increase in the expected future marginal product of capital. B. An increase in government purchases to finance a military expansion. C. A temporary adverse supply shock. D. An increase in taxes to finance government infrastructure investment projects.
D. An increase in taxes to finance government infrastructure investment projects.
1.) Today, the United States is more of an importer than an exporter and more of a net international debtor than a net international creditor. When we say that the United States is a net international debtor, we mean that more A. goods and services made in the United States are sold to foreigners than goods and services made by foreigners are sold to those living in the United States. B. foreign assets are owned by those living in the United States than U.S. assets are owned by foreigners. C. U.S. assets are owned by foreigners than foreign assets are owned by those living in the United States. D. goods and services made by foreigners are sold to those living in the United States than goods and services made in the United States are sold to foreigners. 2.) According to Figure 5.6 in the Application box, from the mid 1980s to 2006 in the United States, both exports and imports started growing A. more slowly than they had in the past, with imports exceeding exports. B. more slowly than they had in the past, with exports exceeding imports. C. more rapidly than they had in the past, with imports exceeding exports. D. more rapidly than they had in the past, with exports exceeding imports. 3.) Overall, according to economists, for the United States international trade A. both creates and destroys jobs, creating more jobs than it destroys. B. both creates and destroys jobs, destroying more jobs than it creates. C. only creates jobs. D. only destroys jobs.
C. U.S. assets are owned by foreigners than foreign assets are owned by those living in the United States. C. more rapidly than they had in the past, with imports exceeding exports. A. both creates and destroys jobs, creating more jobs than it destroys.
This problem adds the government to the Solow model. Which of the following expressions characterizes the steady state capital-labor ratio? A. sf(k) − g = (n + d)k B. sf(k) = (n + d + g)k C. [f(k) − g] = (n + d)k D. sf(k) = (n + d −g)k The following graphically shows how the sf(k) curve shifts after the addition of government, and the resulting steady-state level of capital per worker, k*. If the government permanently increases purchases per worker (an increase in g), Output per worker A. remains the same in the steady state. B. can not be determined qualitatively. C. is lower in the steady state. D. is higher in the steady state. If the government permanently increases purchases per worker (an increase in g), Capital per worker A. can not be determined qualitatively. B. is higher in the steady state. C. is lower in the steady state. D. remains the same in the steady state. If the government permanently increases purchases per worker (an increase in g), Consumption per worker A. is higher in the steady state. B. remains the same in the steady state. C. can not be determined qualitatively. D. is lower in the steady state.
C. [f(k) − g] = (n + d)k C. is lower in the steady state. C. is lower in the steady state. D. is lower in the steady state.
According to the Solow model of economic growth, if there is no productivity growth, what will happen to output per worker, consumption per worker, and capital per worker in the long run? A. all will decrease B. all will increase C. all will remain the same D. output and capital per worker will increase, while consumption will decrease
C. all will remain the same
Which of the following outcomes of a change in the government budget deficit would increase the current account deficit of a small open economy? A. an increase in the budget surplus that has no effect on national saving because of Ricardian equivalence. B. an increase in the budget deficit that has no effect on national saving because of Ricardian equivalence. C. an increase in the budget deficit that reduces national saving. D. an increase in the budget surplus that raises national saving. If a change in the government budget deficit changes the current account deficit of a small open economy, by how much does the current account deficit change? A. By the amount that national saving changes. B. By zero. C. By the average change in national saving and investment. D. By the amount that national investment changes. What is the connection between the government budget deficit and the current account balance, if an increase in the budget deficit reduces national saving? A. They move in opposite directions. B. They move in the same direction in expansions and in opposite directions in recessions. C. They move in the same direction. D. Their movements are uncorrelated.
C. an increase in the budget deficit that reduces national saving. A. By the amount that national saving changes. C. They move in the same direction.
1.) From the point of view of the United States, "net foreign borrowing" refers to A. foreign nations buying assets owned by the United States. B. foreign nations lending to the United States. C. both of the above. D. neither of the above. 2.) If a nation has net foreign assets of dash-$100 million, we can also correctly say that the nation has A. net foreign debt of dash-$100 million. B. a budget deficit of $100 million. C. net exports of $100 million. D. net foreign debt of $100 million. 3.) The world's largest international debtor in absolute (dollar) terms is currently the United States, and the largest direct investor in the United States is currently the United Kingdom. Can we say definitively that a nation with a high dollar amount of debt is in financial trouble? A. Not necessarily, as we must consider the dollar figure relative to the nation's GDP. B. Not necessarily, as we must consider what the nation spends the debt on. C. Both of the above are correct. D. Neither of the above are correct: High dollar amounts of debt lead directly to big financial trouble.
C. both of the above. D. net foreign debt of $100 million. C. Both of the above are correct.
1.) The uses-of-saving identity (Eq. 1LOADING...) implies that, assuming national private saving is unchanged, an increase in the budget deficit must be met with A. a decrease in investment by firms. B. an increase in the current account deficit. C. option (A), option (B), or some combination of the two. D. none of the above. 2.) The twin-deficits idea states that A. a budget deficit in one nation tends to cause a budget deficit in its biggest trading partner nation. B. budget deficits tend to cause current account deficits. C. current account deficits tend to cause budget deficits. D. a decrease in taxes tends to cause a budget deficit. 3.) The Ricardian equivalence proposition predicts that tax cuts will not affect saving and will not affect the current account. The twin-deficits idea does not agree with the Ricardian equivalence proposition, implying that tax cuts will increase the budget deficit.
C. option (A), option (B), or some combination of the two. B. budget deficits tend to cause current account deficits.
Suppose a large open economy (the home country) currently has a current account balance of zero. Then, the foreign country is hit by a temporary adverse supply shock. In the new equilibrium, the world real interest _____ and investment in the home country _____. A. declines; declines B. rises; rises C. rises; declines D. declines; rises In the new equilibrium, saving in the home country _____ and the current account balance in the home country _____. A. rises; declines B. declines; declines C. rises; rises D. declines; rises How would the results change if the temporary adverse supply shock hit both countries instead of just the foreign country? In the new equilibrium, the world real interest rate A. would rise more than if the shock just hit the foreign country. B. would rise less than if the shock just hit the foreign country. C. would fall more than if the shock just hit the foreign country. D. would fall less than if the shock just hit the foreign country.
C. rises; declines C. rises; rises A. would rise more than if the shock just hit the foreign country.
The term saving refers to A. a change in wealth. B. firms' accumulation of physical capital. C. the flow of funds that is not consumed out of income. D. the stock of funds that represents the accumulated amount of net saving over time. The term savings refers to A. the flow of funds that is not consumed out of income. B. a change in wealth. C. firms' accumulation of physical capital. D. the stock of funds that represents the accumulated amount of net saving over time.
C. the flow of funds that is not consumed out of income. D. the stock of funds that represents the accumulated amount of net saving over time.
What are some of the reasons given why the U.S. experienced the large growth in productivity during the 1990's? A. the revolution in information and communications technologies (ICT) B. existing U.S. laws allowed firms to take advantage of the ICT improvements C. intangible investment (such as research and development, reorganization of firms, and worker training) allowed firms to take advantage of the ICT improvements D. All of the above have been cited as reasons to explain the increases in worker productivity. E. None of the above are correct.
D. All of the above have been cited as reasons to explain the increases in worker productivity.
Which of the following are the main sources of economic growth, according to the growth accounting system? I. Growth in capital II. Growth in labor III. Growth in productivity IV. Growth in natural resources A. I only B. I and II only C. III only D. I, II and III E. I, II, III and IV
D. I, II and III
The world is made up of only two large countries: Eastland and Westland. Westland is running a large current account deficit and often appeals to Eastland for help in reducing this current account deficit. Currently, the government of Eastland purchases $10 billion of goods and services, and all of these goods and services are produced in Eastland. The finance minister of Eastland proposes that the government purchase half of its goods from Westland. Specifically, the government of Eastland will continue to purchase $10 billion of goods, but $5 billion will be from Eastland and $5 billion will be from Westland. The finance minister gives the following rationale: "Both countries produce identical goods so it does not really matter to us which country produced the goods we purchase. Moreover, this change in purchasing policy will help reduce Westland's large current account deficit." What are the effects of this change in purchasing policy on the current account balance in each country and on the world real interest rate? (Hint: What happens to net exports by the private sector in each country after the government of Eastland changes its purchasing policy?) A. The current account balance increases. B. The financial account balance and the current account balance both increase. C. The current account balance decreases. D. The current account balance is unaffected.
D. The current account balance is unaffected.
Assuming zero net unilateral transfers, how is the current account balance related to net exports? Current Account Balance = Net Exports + Net income from abroad Which is an incorrect statement about the balance of payments accounts? A. Any transaction involving a flow of funds into a country is a positive item in the country's balance of payments. B. The balance of payments accounts consist of the current account and the financial account. C. Any transaction involving a flow of funds out of a country is a negative item in the country's balance of payments. D. The financial account measures a country's trade in currently produced goods and services.
D. The financial account measures a country's trade in currently produced goods and services.
1.) The yield curve slopes upward. Which of the following best explains this observation? A. Treasury bonds and municipal bonds have about the same amount of default risk. B. The interest rate on a municipal bond tends to be higher than the interest rate on a Treasury bill. C. There are many interest rates in the economy, but they all tend to rise and fall together. D. The interest rate on a bond with a 30-year maturity tends to be higher than the interest rate on a bond with a 10-year maturity. 2.) The basic rate that banks charge on loans to their best customers is called the prime rate, the interest rate on a Treasury bond is called the default risk free rate and the interest rate on overnight loans between banks is called the federal funds rate. 3.) Which of the following would cause a bond to have a relatively high interest rate? (Select all that apply) A. A bond that has high default risk. B. The bond being a U.S. Treasury bill. C. A bond that has a long maturity. D. There is a high probability that the firm issuing the bond will go out of business. 4.) In general, the prime interest rate and the federal funds rate tend to move in the same direction.
D. The interest rate on a bond with a 30-year maturity tends to be higher than the interest rate on a bond with a 10-year maturity. A. A bond that has high default risk. C. A bond that has a long maturity. D. There is a high probability that the firm issuing the bond will go out of business.
What two explanations of productivity growth does endogenous growth theory offer? A. population growth and increased saving B. increased saving and technological innovation C. population growth and technological innovation D. accumulation of human capital and technological innovation How does the production function in an endogenous growth model differ from the production function in the Solow model? In the Solow model, the production function _____, while in the endogenous growth model, the production function _____. A. does not exhibit diminishing marginal productivity; exhibits diminishing marginal productivity B. depends on capital but not labor; depends on labor but not capital C. exhibits diminishing marginal productivity; does not exhibit diminishing marginal productivity. D. depends on labor but not capital; depends on capital but not labor
D. accumulation of human capital and technological innovation C. exhibits diminishing marginal productivity; does not exhibit diminishing marginal productivity.
Which of the following is NOT a policy with a reasonable chance of increasing productivity growth? A. constructing a national high-speed rail network B. providing free university education C. increasing the number of grants for scientific research D. all of the above are policies which may increase productivity growth Will the above policies necessarily lead to an increase in economic growth? A. No. Increased taxes or deficit spending will lead to a decline in long-run economic growth. B. Yes. Productivity growth is the principal determinant of of long-run output and consumption per worker. C. No. The policies may divert resources from more effective investments. D. Yes. Government spending is a direct component of GDP, and increases will lead to an improvement in long-run growth
D. all of the above are policies which may increase productivity growth C. No. The policies may divert resources from more effective investments.
An American publisher sells $200 worth of books to a resident of Brazil. By itself, this item is a positive item in the U.S. current account. Offsetting transactions that would ensure that the U.S. current account and the financial account balances would continue to sum to zero include: A. any positive item in the financial account B. a gold transfer from the U.S. to Brazil. C. any positive item in the current account D. any negative item in the financial account
D. any negative item in the financial account
The desire to have a relatively even pattern of consumption over time is known as the A. life-cycle permanent-income hypothesis. B. relative consumption theory. C. conspicuous consumption theory. D. consumption-smoothing motive. If a person's income declines, the consumption-smoothing motive suggests that the person will A. reduce current consumption by the amount of the decline in income. B. reduce future consumption by the amount of the decline in income. C. reduce consumption in both the current and future periods. D. increase future consumption and reduce current consumption.
D. consumption-smoothing motive. C. reduce consumption in both the current and future periods.
When households first received their tax rebates, on average they A. increased spending on their credit cards and reduced their credit-card debt. B. did not increase spending on their credit cards and increased their credit-card debt. C. increased spending on their credit cards and increased their credit-card debt. D. did not increase spending on their credit cards and reduced their credit-card debt. Nine months after households received their tax rebates, on average they A. increased spending on their credit cards and reduced their credit-card debt. B. increased spending on their credit cards and increased their credit-card debt. C. did not increase spending on their credit cards and increased their credit-card debt. D. did not increase spending on their credit cards and reduced their credit-card debt.
D. did not increase spending on their credit cards and reduced their credit-card debt. B. increased spending on their credit cards and increased their credit-card debt.
A variable that is taken as given in an economic model is called A. endogenous. B. a growth rate. C. a level. D. exogenous. A variable that is determined by the equilibrium in a model is called A.exogenous. B. a growth rate. C. a level. D. endogenous. A sensible question to ask is A. how does a change in an exogenous variable affect an endogenous variable? B. how does a change in one exogenous variable affect another exogenous variable? C. how does a change in an endogenous variable affect another endogenous variable? D. how does a change in an endogenous variable affect an exogenous variable?
D. exogenous. D. endogenous. A. how does a change in an exogenous variable affect an endogenous variable?
1.) Events in the stock market in August 1987 _________, while events in the stock market in October 1987 ________. A. decreased consumption; decreased consumption further B. increased consumption; increased consumption further C. decreased consumption; increased consumption D. increased consumption; decreased consumption 2.) In the 1980s and 1990s, increases in consumption A. were a surprise because of generally poor stock market growth in the 1990s. B. occurred because of decreases in GDP. C. occurred at least in part due to a long-term trend unrelated to events in the stock market. D. came almost entirely from wealth gains due to a booming stock market. 3.) The theory described in the text suggests that an increase in stock prices should lead to increases in consumption. Which of the following time periods exhibited the opposite effect—that is, an inverse (negative) relationship—between stock prices and consumption? A. Stock market crash of 1987. B. Early 2000s with its decline in stock prices. C. Late 1990s with its growth in the stock market. D. Financial crisis of 2008. 4.) The explanation given for the high consumption following the decline in stock prices in the early 2000s is best described by which of the following? A. Consumers refused to change their behavior from the record-high increases in consumption in the late 1990s. B. Consumption changed in nominal terms, but not real terms. C. Home prices before the early 2000s were so low that consumption had already gone as low as it could. D. Increases in consumption, like wealth, are spread out over the consumer's lifetime.
D. increased consumption; decreased consumption C. occurred at least in part due to a long-term trend unrelated to events in the stock market. B. Early 2000s with its decline in stock prices. D. Increases in consumption, like wealth, are spread out over the consumer's lifetime.
