ECON 3080-Midterm 2 Quizzes
9. Analysis of population growth around the world concludes that countries with high population growth tend to: Have high income per worker Have a lower level of income per worker then countries with low population growth Have the same standards of living as other parts of the world Be the high-income-producing nations of the world
Have a lower level of income per worker then countries with low population growth
10. A study by economists on the relationship between firm management and productivity concludes that well-managed firms have all of these features EXCEPT: Higher sales Higher profits Higher stock market value Higher bankruptcy rates
Higher bankruptcy rates
7. Which of these hypotheses is consistent with fewer hours worked per year in Europe than in the United States? Fewer mandated holidays in Europe than in the U.S. Higher employment-to-population ratios in Europe than in the U.S. Higher tax rates in Europe than in the U.S. A smaller underground economy in Europe than in the U.S.
Higher tax rates in Europe than in the U.S.
7. According to Olivier Blanchard, Europeans are more likely to use increases in real wages resulting from technological progress to increase ____, and Americans are more likely to use these increases in real wages to increase ____. Hours of work; hours of leisure Consumption of goods and services; hours of leisure Hours of leisure; consumption of goods and services Unemployment insurance benifits; efficiency wages
Hours of leisure; consumption of goods and services
10. Economic research shows that ____ in explaining international differences in living standards. Physical capital is more important than human capital Human capital is at least as important as physical capital Human capital is much more important than physical capital Infrastructure is the most important factor
Human capital is at least as important as physical capital
8. In the graph, starting from capital-labor ratio k1, the capital-labor ratio will: Decrease Remain constant Increase First decrease and then remain constant
Increase
6. If the government of a small open economy wishes to reduce a trade deficit, which policy action will be successful in achieving this goal? Increasing taxes Increasing government spending Increasing investment tax credits Imposing protectionist trade policies
Increasing taxes
10. Which of these policies of the government is NOT designed to increase resources devoted to research and development? Tax breaks to firms engaging in research and development Increasing the amount people can put in tax-exempt retirement accounts Providing innovators with temporary monopoly in the form of patents Providing subsidies for basic research at universities
Increasing the amount people can put in tax-exempt retirement accounts
8. ____ cause(s) the capital stock to rise, while ____ cause(s) the capital stock to fall Inflation; Deflation Interest rates; the discount rate Investment; Depreciation International trade; depressions
Investment; Depreciation
6. The real exchange rate: Measures how many Japanese yen you can get for one U.S. dollar Is equal to the nominal exchange rate (measured in units of the foreign currency divided by units of home currency) multiplied by the domestic price level divided by the foreign price level Is equal to the nominal exchange rate (measured in units of the foreign currency divided by units of home currency) multiplied by the foreign price level divided by the domestic price level Domestic price level divided by the foreign price level
Is equal to the nominal exchange rate (measured in units of the foreign currency divided by units of home currency) multiplied by the domestic price level divided by the foreign price level
6. In a large open economy, the real exchange rate adjuncts so that net exports equal: Domestic saving Domestic investment Net capital outflow Domestic investment plus net capital outflow
Net capital outflow
6. The real exchange rate is determined by the equality of: Saving and the demand for net exports Investment and the demand for net exports Net capital outflow and the demand for net exports The negative value of net capital outflow and the demand for net exports
Net capital outflow and the demand for net exports
9. Schumpeter's thesis of "creative destruction" is an explanation of economic progress resulting from: Using up scarce natural resources to create new products Breaking down barriers to and trade and development New product producers driving incumbent producers out of business Creating new methods to destroy the environment
New product producers driving incumbent producers out of business
6. An expansionary fiscal policy leads to ____ in investment spending for a small open economy while it leads to ___ in investment spending for a large open economy. A decrease; no change No change; decrease A decrease; an increase A decrease; a decrease
No change; decrease
6. If purchasing power parity holds, then changes in domestic saving will ____ the real exchange rate. Increase Decrease Not change Either increase or decrease
Not change
10. Balanced growth refers to the property where: All countries of the world grow at the same rate in the steady state Values of many variables within a country rise together in the steady state Total capital stock and total labor force become equal in the steady state The economy achieves the golden rule level of capital stock in the steady state
Values of many variables within a country rise together in the steady state
7. A policy that increases the job-finding rate ____ the natural rate of unemployment. Will increase Will decrease Will not change Could either increase or decrease
Will decrease
8. The formula for steady-state consumption per worker (c*) as a function of output per worker and investment per worker is: c* = f(k*) - δk* c* = f(k*) + δk* c* = f(k*) / δk* c* = k* - δf(k)*
c* = f(k*) - δk*
9. In a steady-state economy with saving rate s, population growth n, depreciation rate δ, and labor-augmenting technological progress g, the steady-state ratio of capital per effective worker (k*), in terms of output per effective worker (f(k*)), is: sf(k)/((δ+n+g)) s/((f(k))(δ+n+g)) f(k)/((s)(δ+n+g) (s-f(k))/(δ+n+g)
sf(k)/((δ+n+g))
8. The steady state level of capital occurs when the change in capital stock per worker (delta k) equals: 0 The saving rate The depreciation rate The population growth rate
0
9. In the Solow model with technological progress, the steady-state growth rate of capital per effective worker is: 0 g n n+g
0
7. If the steady-state rate of unemployment equals 0.10 and the fraction of employed workers who lose their jobs each month (the rate of job separation) is 0.02, then the fraction of unemployed workers who find jobs each month (the rate of job findings) must be: 0.02 0.08 0.10 0.18
0.18
10. Assume that an economy described by the Solow model is in a steady-state with output and capital growing at 3% and labor growing at 1%. The capital share is 0.3. The growth-accounting equation indicates that the contributions to growth of capital, labor, and total factor productivity are: 0%, 1%, and 2%, respectively 0.3%, 0.7%, and 2% 0.9%, 0.7%, and 1.4% 1.8%, 0.3%, and 0.9%
0.9%, 0.7%, and 1.4%
10. The total capital stock of an economy increases by 10 units and the toal labor increases by 50 units. The marginal product of capital and labor are 50 and 10, respectively. If there is no TFP growth, the total output will increase by ____ units. 500 1000 1500 2000
1000
8. If y=k1/2, there is no population growth or technological progress, 5 percent of capital depreciates each year, and a country saves 20 percent of output each year, then the steady state level of capital per worker is: 2 4 8 16
16
10. The recent worldwide slowdown in economic growth began in the early: 1960s 1970s 1980s 1990s
1970s
9. Suppose an economy has 100 units of capital, 100 units of labor, and the efficiency of each worker is equal to 2. The effective number of workers for this economy is ___ and the capital per effective worker is ____. 50;2 200;½ 50;½ 200;2
200;½
10. If the contribution of capital to growth in output is 1.5 percent, the contribution of labor is 0.5 percent, and the Solow residual growth is equal to 1 percent, then total output must be growing at: 1 percent 2 percent 2.5 percent 3 percent
3 percent
7. Suppose that over the course of a year 100 people are unemployed for four weeks each (the short-term unemployed), while 10 people are unemployed for 52 weeks each (the long-term unemployed). Approximately what percentage of the total spells of unemployment were attributable to the short-term unemployed? 9 10 43.5 56.5
43.5
10. If the production function is Y=AK2/3L1/3 in the land of Antegria, and the labor force increases by 3%, capital stock increases by 3%, and TFP grows by 3%, then the total output growth is _____ percent. 1 2 6 9
6
6. Which of these panels illustrates the impact of contractionary fiscal policies at home on the real exchange rate? A B C D
A
6. According to recent estimates produced by economists, the trade restrictions announced by President Donald Trump at the beginning of 2018 had this effect: An increase in exports A decrease in the trade deficit as a percentage of GDP An increase in imports A decrease in the overall volume of trade
A decrease in the overall volume of trade
7. Which of these characteristics made the 2008-2009 recession differ MOST sharply from previous recessions? A large spike in the duration of unemployment A large increase in teenage unemployment Higher rates of female unemployment than rates of male unemployment An increase in the rate of job separation and a decrease in the rate of job finding
A large spike in the duration of unemployment
10. The balanced growth property of the Solow growth model with population growth and technological progress predicts which of these sets of variables will grow at the same rate in the steady state? Output per effective worker, capital per effective worker, real wage Output per worker, capital per worker, real wage Real rental price of capital, real wage, output per worker Capital-output ratio, output per worker, capital per worker
Output per worker, capital per worker, real wage
9. In the Solow model with population growth but no technological progress, when the economy finds itself at the Golden Rule steady state, the marginal product of capital minus the rate of depreciation will equal 0 The population growth rate The saving rate Output per worker
The population growth rate
9. In the Solow model with population growth but no technological change, the break-even level of investment must do all of these EXCEPT: Offset the depreciation of existing capital Provide capital for new workers Equal the marginal productivity of capital (MPK) Keep the level of capital per worker constant
Equal the marginal productivity of capital (MPK)
6. Starting from a small open economy with balanced trade, if large foreign countries increase their domestic government purchases, this policy will tend to increase: Investment in the small open economy Saving in the small open economy Exports by the small open economy Imports by the small open economy
Exports by the small open economy
8. If the per worker production function for an economy is given by y=k1/2, the saving rate is 0.3, the depreciation rate is 10%, and the economy starts off with 25 units of capital per worker, then the capital per worker will ____ and output per worker will ____ as the economy approaches the steady state. Rise, rise Rise, fall Fall, rise Fall, fall
Fall, fall
8. In the Solow model, if the economy starts with more capital per worker than the steady-state level of capital per worker, then the capital per worker will ____ and the output per worker will ____ as the economy approaches steady state. Fall, fall Fall, rise Rise, fall Rise, rise
Fall, fall
8. Suppose an economy is at its steady-state equilibrium and there is a permanent reduction in the saving rate of the economy. In this case, as the economy approaches its new steady, capital per worker will ____ and output per worker will ____. Rise, rise Rise, fall Fall, rise Fall, fall
Fall, fall
7. As the relative demand for unskilled workers falls, wages for unskilled workers ____, and unemployment compensation becausomes a ____ attractive option. Fall; more Fall; less Rise; more Rise; less
Fall; more
6. In a large open economy, if political instability abroad lowers the net capital outflow function, then the real interest rate: Rises, while real exchange rate rises and net exports fall Rises, while real exchange rate falls and net exports rise Falls, while real exchange rate rises and net exports rise Falls, while real exchange rate rises and net exports fall
Falls, while real exchange rate rises and net exports fall
8. The Golden Rule level of steady-state consumption per worker is: AC AB BC DE
AB
10. One of the main hypotheses of the real business cycle theory is that recessions are caused by: Adverse technology shocks Lack of aggregate demand Decrease in government deficit Labor hoarding by firms
Adverse technology shocks
6. Based on a Cobb-Douglas production function and perfect capital mobility, capital should flow to economies in which: Capital is relatively scarce Capital is relatively abundant Technological production capabilities are inferior Labor is relatively scarce
Capital is relatively scarce
9. In the Solow model with population growth but no technological progress, the steady-state amount of investment can be thought of as a break-even amount of investment because the quantity of investment just equals the amount of: Output needed to achieve the max level of consumption per worker Capital needed to replace depreciation capital and equip new workers Saving needed to achieve the max level of output per worker Output needed to make the capital per worker ratio equal to the marginal product of capital
Capital needed to replace depreciation capital and equip new workers
8. The consumption function in the solow model assumes that society saves a: Constant proportion of income Smaller proportion of income as it becomes richer Larger proportion of income as it becomes richer Larger proportion of income when the interest rates are higher
Constant proportion of income
8. Suppose the economy is originally at a steady state where the marginal product of capital is less than the depreciation rate. If the saving rate of the economy changes to a rate consistent with the golden rule level of capital, then at the new steady state Capital per worker will be higher compared to the original steady state Output per worker will be higher compared to the original steady state Investment per worker will be higher compared to the original steady state Consumption per worker will be higher compared to the original steady state
Consumption per worker will be higher compared to the original steady state
10. Labor hoarding refers to: Keeping workers in low-wage jobs in order to reduce labor costs Using less capital in production so that more workers will have jobs Continuing to employ workers during a recession to ensure they will be available in the recovery Contractually preventing workers form obtaining jobs with competing firms
Continuing to employ workers during a recession to ensure they will be available in the recovery
9. In the two-sector endogenous growth model, income growth persists because the: Production function shifts exogenously Saving rate exceeds the rate of depreciation Creation of knowledge in universities never slows down Fraction of the labor force in universities is large
Creation of knowledge in universities never slows down
6. Which of the panels illustrates the impact of protectionist trade policies on the real exchange rate? A B C D
D
6. In a small open economy, if net exports are negative, then: Domestic spending is greater than output Saving is greater than investment Net capital outflows are positive Imports are less than exports
Domestic spending is greater than output
7. Which of these is an example of frictional unemployment? Dave searches for a new job after voluntarily moving to San Diego Elaine is willing to work for less than the minimum wage, but employers cannot hire her for less than the minimum wage. Bill is qualified and would like to be an airline pilot, but airlines do not find it profitable to hire him at the wage established by the airline pilots' union Joan is willing to work for less than the going wage, but there are no jobs available
Dave searches for a new job after voluntarily moving to San Diego
8. 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 chnage after the war, then over time, capital per worker will ____, and output per worker will ____ as it returns to the steady state. Decline, increase Increase, decline Decline, decrease Increase, decrease
Decline, decrease
9.In the Solow model with population growth but no technological progress, an increase in the population growth rate leads to a(n)___ in the effective investment rate leading to a(n) ____ in the steady-state income per worker. Increase;increase Increase;decrease Decrease;increase Decrease;decrease
Decrease;decrease
10. If the government's tax revenue is less than what it spends, then the government runs a budget _____, which represents _____ public saving. Surplus; positive Surplus; negative Deficit; positive Deficit; negative
Deficit; negative
6. In a small open economy, if exports equal $5 billion and imports equal $7 billion, then there is a trade _____ and _____ net capital outflow. Deficit; negative Surplus; negative Deficit; positive Surplus; positive
Deficit; negative
9. The efficiency of labor: Is the marginal product of labor Is the rate of growth of the labor force Depends on the knowledge, health, and skills of labor Equals output per worker
Depends on the knowledge, health, and skills of labor
6. If a U.S. corporation sells a product to Canada and uses the proceeds to purchase a product manufactured in Canada, then U.S. net exports ____, and net capital outflows ____. Increase; increase Decrease; decrease Do not change; do not change Do not change; increase
Do not change; do not change
7. The earned income tax credit: Increases the government's tax revenue Reduces the incomes of poor working families Does not raise labor costs Is not an alternative to raising the minimum wage
Does not raise labor costs
9. If Y is output, K is capital, u is the fraction of labor force in universities, L is labor, E is the stock of knowledge, and the production Y=F(K, (1-u)EL) exhibits constant returns to scale, then output(y) will double if: K is doubled K and u are doubled K and E are doubled L is doubled
K and E are doubled
9. Which of these statements is NOT true about the creation of knowledge and the process of research and development? Knowledge is a private good, that is, rival and excludable Much of the research and development is done by firms driven by the profit motive Patents provide firms with monopoly power that makes research profitable Most innovations build on previous innovations
Knowledge is a private good, that is, rival and excludable
10. When capital increases by 𝚫K units, output increases by: 𝚫L units MPL x 𝚫L units 𝚫K units MPK x 𝚫K units
MPK x 𝚫K units
6. In a small open economy, if domestic saving exceeds domestic investment, then the extra saving will be used to: Make loans to the domestic government Make loans to foreigners Repay the national debt Repay loans to the Federal Reserve
Make loans to foreigners
7. Government policies directed at reducing frictional unemployment include: Abolishing minimum-wage laws Making unemployment insurance 100 percent experience rated Increasing the earned income credit Making government part of the union-firm wage bargaining process
Making unemployment insurance 100 percent experience rated Increasing the earned income credit
10. Which one of these is a reason why many economists are skeptical about industrial policies? Externalities are a theoretical concept and do not really exist in the real world Measuring externalities from different sectors is quite hard Markets can do a perfect job at allocating resources in the presence of externalitites Industrial policy is only useful when a sector generates negative externalities
Measuring externalities from different sectors is quite hard
10. The total output of an economy grows at 4% and the depreciation rate is 3%. Further, the capital stock is 6 times one year's GDP and the capital income is 30% of GDP. In this case, we can conclude that the economy is operating at a level of capital ____ than the Golden Rule and ___ saving will lead to more consumption in the long run. Less; increasing Less; decreasing More; increasing More; decreasing
More; decreasing
8. Suppose that an economy is in it's steady state and the capital stock is above the Golden Rule level. Assuming that there are no population growth or technological change, if the saving rate falls: Output, consumption, investment, and depreciation will all decrease Output and investment will decrease, and consumption and depreciation will increase Output and investment will decrease, and consumption and depreciation will increase and then decrease but finally approach levels above their initial state Output, investment, and depreciation will decrease, and consumption will increase and then decrease but finally approach a level above its initial state
Output, investment, and depreciation will decrease, and consumption will increase and then decrease but finally approach a level above its initial state
7. Wage rigidity: Forces labor demand to equal labor supply Is caused by sectoral shifts Prevents labor demand and labor supply from reaching the equilibrium level Increases the rate of job finding
Prevents labor demand and labor supply from reaching the equilibrium level
7. Any policy aimed at lowering the natural rate of unemployment mus either ___ the rate of job separation or ____ the rate of job finding. Reduce; reduce Increase; increase Reduce; increase Increase; reduce
Reduce; increase
8. When an economy's capital is below the Golden Rule level, reaching the Golden Rule level: Produces lower consumption at all times in the future Requires higher consumption levels at all times Requires initially reducing consumption to increase consumption in the future Requires initially increasing consumption to decrease consumption in the future
Requires initially reducing consumption to increase consumption in the future
9. When an economy begins above the Golden Rule level, reaching the Golden Rule level: Results in lower consumption at all times in the future Results in higher consumption at all times in the future Requires initially reducing consumption to increase consumption in the future Requires initially increasing consumption to decrease consumption in the future
Results in higher consumption at all times in the future
8. The Solow model shows that a key determinant of the steady state ratio of capital to labor is the: Level of output Labor force Saving rate Capital elasticity in the production function
Saving rate
7. Economists call the changes in the composition of demand among industries and regions: Insider-outsider conflicts Sectoral shifts Moral hazard Adverse selection
Sectoral shifts
10. The type of legal system and the level of corruption in a country have been found to be: Unrelated to the rate of economic growth in a country Significant determinants of the rate of economic growth in a country Important topics for political discussion, but not economic explanations of growth Important variable explaining the Golden Rule level of capital
Significant determinants of the rate of economic growth in a country
7. Unemployment insurance increases the amount of frictional unemployment by: Making workers more frantic in their search for new jobs Inducing workers to accept the first job offer that they receive Making employers more reluctant to lay off workers Softening the economic hardship of unemployment
Softening the economic hardship of unemployment
8. 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: The economy is following the Golden Rule Steady state consumption per worker would be higher in a steady state with a lower saving rate Steady state consumption per worker would be higher in a steady state with a higher saving rate 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
6. In a small open economy, if the world real interest rate is above the rate at which national saving equals domestic investment, then there will be a trade ___ and ____ net capital outflow. Surplus; negative Deficit; positive Surplus; positive Deficit; negative
Surplus; positive
6. In a small open economy, starting from a position of balanced trade, if the government increases the income tax, this produces a tendency toward a trade ____ and ____ net capital outflow. Deficit; negative Surplus; positive Deficit; positive Surplus; negative
Surplus; positive
9. Endogenous growth theory rejects the assumption of exogenous: Production functions Rates of depreciation Population growth rates Technological change
Technological change
9. According to the Solow model, persistently rising living standards can only be explained by: population growth Capital accumulation Saving rates Technological progress
Technological progress
10. Prescott interpreted fluctuations in the Solow residual as evidence that: Technology shocks are an important source of short-run economic fluctuations The Solow growth model does not converge to a steady-state equilibrium Endogenous growth models are better explanations of growth than the Solow model The marginal product of labor fluctuates more than the marginal product of capital
Technology shocks are an important source of short-run economic fluctuations
6. The value of net exports is also the value of: Net investment Net saving National saving The difference of national savings and domestic investment is
The difference of national savings and domestic investment is
9. The rate of labor-augmenting technological progress (g) is the growth rate of: Labor The efficiency of labor Capital Output
The efficiency of labor
6. A depreciation of the real exchange rate in a small open economy could be the result of: A domestic tax cut An increase in government spending A decrease in the world interest rate The expiration of an investment tax credit provision
The expiration of an investment tax credit provision
8. Which of these statements is NOT true about the steady state of the basic Solow model? The capital per worker and output per worker are constant The investment per worker is always equal to the depreciation per worker The marginal product of capital always is equal to the depreciation rate The saving and consumption per worker are constant
The marginal product of capital always is equal to the depreciation rate
7. One efficiency-wage theory implies that firms pay high wages because: This practice increases the problem of moral hazard In wealthy countries, it is important to pay workers high wages to improve their health The more a firm pays its workers, the greater their incentive to stay with the firm Paying high wages promotes adverse selection
The more a firm pays its workers, the greater their incentive to stay with the firm
7. When the unemployment rate is at a steady state: No hiring or firings are occurring The number of people finding jobs equals the number of people losing jobs The number of people finding jobs exceeds the number of people losing jobs The number of people losing jobs exceeds the number of people finding jobs
The number of people finding jobs equals the number of people losing jobs
8. In the Solow model, the assumption of constant returns to scale means that: All economies have the same amount of capital per worker The steady-state level of output is constant, regardless of the number of workers The saving rate is equals the constant rate of depreciation 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
9. In a steady state with population growth and technological progress: The real rental price of capital is constant and real wage grows at the rate of technological progress The real rental price of capital grows at the rate of technological progress and real wage is constant Both real rental price of capital and real wage grow at the rate of technological progress Both real rental price of capital and real wage are constant
The real rental price of capital is constant and real wage grows at the rate of technological progress
8. If a war destroys a large portion of a country's capital stock but the saving rate is unchanged, the Solow model predicts that output will grow and that the new steady state will approach: A higher level of output per person than before The same level of output per person as before A lower level of output per person than before The Golden Rule level of output per person
The same level of output per person as before
10. Conditional convergence occurs when economies converge to: The same steady state as other economies The Golden Rule steady state The balanced-growth steady state Their own individual steady states
Their own individual steady states
9. According to the Kremerian model, large populations improve living standards because: Crowding conditions put more pressure on people to work hard There are more people who can make discoveries and contribute to innovation More people have the opportunity for leisure and recreation More people prefer to live with many other people
There are more people who can make discoveries and contribute to innovation
10. Countries that save and invest more in physical capital will appear to be more efficient if: There are diminishing returns to physical capital They are situated in regions with better climate There is constant returns to scale There are positive externalities to physical capital accumulation
There are positive externalities to physical capital accumulation
9. Which of these statements is NOT true about the steady state in the Solow Model with population and technological progress: Capital per effective worker and output per effective worker are constant Capital per effective worker and output per effective worker grow at the rate of technological progress Total capital stock and total output grow at the rate of population growth Saving per effective worker and consumption per effective worker are constant
Total capital stock and total output grow at the rate of population growth
7. All of these are reasons for frictional unemployment EXCEPT: Workers have different preferences and abilities Unemployed workers accept the first job offer that they receive The flow of information is imperfect Geographic mobility takes time
Unemployed workers accept the first job offer that they receive
7. The macroeconomic problem that affects individuals most directly and severely is: Inflation Unemployment Low savings Low investment
Unemployment
7. All of these are causes of structural unemployment EXCEPT: Minimum wage laws The monopoly power of unions Unemployment insurance Efficiency wages
Unemployment insurance
7. According to studies of individual unemployed workers, these workers are MOST likely to find a job: About three months before their unemployment insurance runs out Within a few weeks of their unemployment insurance running out About three months after their unemployment insurance runs out At a time not influences by the remaining number of weeks of unemployment insurance
Within a few weeks of their unemployment insurance running out
9. In the Solow model with technological progress, the steady-state growth rate of total output is: 0 g n n+g
n+g
9. If the production function is y=k^(1/2) , the steady-state value of y in the Solow model with population growth and technological progress is: y=((s+g)/(δ+n))^(1/2) y=(s+g)/(δ+n) y=(2/(δ+n+g))^(1/2) y=s/(δ+n+g)
y=s/(δ+n+g)