Econ 309 Exam 2

What was the median replacement rate of the unemployment insurance during the COVID pandemic?

134%

In this graph, capital-labor ratio k2 is not the steady-state because:

depreciation is greater than gross investment.

The government-purchases multiplier indicates how much ______ change(s) in response to a $1 change in government purchases.

income

The tax multiplier indicates how much ______ change(s) in response to a $1 change in taxes.

income

An LM curve shows combinations of:

interest rates and income, which bring equilibrium in the market for real money balances.

In this graph, when the capital stock per worker is OA, AB represents:

investment per worker, and BC represents consumption per worker.

One reason for unemployment is that:

it takes time to match workers and jobs.

The number of effective workers takes into account the number of workers and the:

efficiency of each worker.

Paying efficiency wages helps firms reduce the problem of moral hazard by:

encouraging unsupervised workers to maintain a high level of productivity.

International differences in income per person in accounting terms must be attributed to differences in ______ and/or ______.

factor accumulation; production efficiency

Two interpretations of the IS-LM model are that the model explains:

the determination of income in the short run when prices are fixed or what shifts the aggregate demand curve.

The interaction of the IS curve and the LM curve determines:

the equilibrium level of the interest rate and output.

The IS curve shifts when any of the following economic variables change except: the interest rate. government spending. taxes. the marginal propensity to consume.

the interest rate.

When f (k) is drawn on a graph with increases in k noted along the horizontal axis, the slope of the curve denotes:

the marginal product of capital.

One efficiency-wage theory implies that firms pay high wages because:

the more a firm pays its workers, the greater their incentive to stay with the firm.

When the unemployment rate is at a steady state:

the number of people finding jobs equals the number of people losing jobs.

The IS-LM model takes ______ as exogenous.

the price level

The generosity of unemployment insurance benefits is measured by:

the replacement rate and the duration of benefits.

In the Keynesian-cross model, if the MPC equals 0.75, then a $1 billion increase in government spending increases planned expenditures by ______ and increases the equilibrium level of income by ______.

$1 billion; $4 billion *figure out how

Which of the following is an example of frictional unemployment?

(a)Dave searches for a new job after voluntarily moving to San Diego. (b)Elaine is willing to work for less than the minimum wage, but employers cannot hire her for less than the minimum wage. (c)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. (d) 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.**

All of the following are causes of structural unemployment except:

(a)minimum-wage laws. (b)the monopoly power of unions. (c)unemployment insurance. (d)efficiency wages. *Unemployment insurance*

If y = k1/2, the country saves 20 percent of its output each year, and the steady-state level of capital per worker is 16, then the steady-state levels of output per worker and consumption per worker are:

4 and 3.2, respectively. *figure out how*

If the labor force is growing at a 3 percent rate and the efficiency of a unit of labor is growing at a 3 percent rate, then the number of effective workers is growing approximately at a rate of:

6 percent

If the number of employed workers equals 200 million and the number of unemployed workers equals 20 million, the unemployment rate equals ______ percent (rounded to the nearest percent).

9

If y = k ^ 1/2, there is no population growth or technological progress, 5 percent of capital depreciates each year, and a country saves 15 percent of output each year, then the steady-state level of capital per worker is:

9 *figure out how*

A tax cut shifts the ______ curve to the right, and the aggregate demand curve ______.

IS; shifts to the right

An increase in the money supply shifts the ______ curve to the right, and the aggregate demand curve ______.

LM; shifts to the right

According to efficiency-wage theories, firms benefit by paying higher-than-equilibrium wages because worker _____ increases.

Productivity

If Y = K^0.2L^0.8, then the per-worker production function is:

Y / L = (K / L)^0.2.

In this graph, the equilibrium levels of income and expenditure are:

Y2and PE2

Which of the following characteristics made the 2008-2009 recession differ most sharply from previous recessions?

a large spike in the duration of unemployment

Unions contribute to structural unemployment when collective bargaining results in wage

above the equilibrium level

The equilibrium condition in the Keynesian-cross analysis in a closed economy is:

actual expenditure equals planned expenditure.

In the Solow growth model, if investment is less than depreciation, the capital stock will ______, and output will ______ until the steady state is attained.

decrease; decrease

An explanation for the slope of the IS curve is that as the interest rate increases, the quantity of investment ______, and this shifts the expenditure function ______, thereby decreasing income.

decreases; downward

The simple investment function shows that investment ______ as ______ increases.

decreases; the interest rate

In the IS-LMmodel when M / P rises, in short-run equilibrium, in the usual case the interest rate ______ and output ______.

falls; rises

Two economies are identical except that the level of capital per worker is higher in Highland than in Lowland. The production functions in both economies exhibit diminishing marginal product of capital. An extra unit of capital per worker increases output per worker:

more in Lowland.

Planned expenditure is a function of:

national income and planned investment, government spending, and taxes.

Equilibrium levels of income and interest rates are ______ related in the goods and services market, and equilibrium levels of income and interest rates are ______ related in the market for real money balances

negatively; positively

With population growth at rate n and labor-augmenting technological progress at rate g, the Golden Rule steady state requires that the marginal product of capital (MPK):

net of depreciation be equal to n + g.

Suppose that an economy is in its 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, investment, and depreciation will decrease, and consumption will increase and then decrease but finally approach a level above its initial state.

In the Solow growth model the demand for goods equals investment:

plus consumption.

Wage rigidity:

prevents labor demand and labor supply from reaching the equilibrium level.

Other things being equal, all of the following government policies are likely to increase national saving except:

running a budget deficit.

If s is the rate of job separation, f is the rate of job finding, and both rates are constant, then the steady state unemployment rate is approximately:

s / (s + f)

If the marginal product of capital net depreciation equals 8 percent, the rate of growth of population equals 2 percent, and the rate of labor-augmenting technical progress equals 2 percent, to reach the Golden Rule level of the capital stock, the ____ rate in this economy must be _____.

saving; increased

Investment per worker (i) as a function of the saving ratio (s) and output per worker (f (k)) may be expressed as:

sf (k)

Unemployment insurance increases the amount of frictional unemployment by:

softening the economic hardship of unemployment.

The unemployment resulting when real wages are held above equilibrium is called ______ unemployment, while the unemployment that occurs as workers search for a job that best suits their skills is called ______ unemployment.

structural; frictional

According to the Solow model, persistently rising living standards can only be explained by:

technological progress.

A decrease in the real money supply, other things being equal, will shift the LM curve:

upward and to the left.

If two economies are identical (with the same population growth rates and rates of technological progress), but one economy has a lower saving rate, then the steady-state level of income per worker in the economy with the lower saving rate:

will be at a lower level than in the steady state of the high-saving economy.

What are some of the policies governments can enact to increase the nation's savings rate?

• Reduce the government budget deficit (or increase the budget surplus). • Increase incentives for private saving: • Reduce capital gains tax, corporate income tax, and estate tax, as they discourage saving. • Replace federal income tax with a consumption tax. • Expand tax incentives for IRAs (individual retirement accounts) and other retirement savings accounts.

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 separations) is 0.02, then the fraction of unemployed workers who find jobs each month (the rate of job findings) must be:

0.18

Which of the following is the best example of structural unemployment?

(a)Tim is looking for a job with flexible hours but has not been offered one yet. (b)Vickie lost her job as a graphic artist at a movie studio because she did not have training in computer-generated animation. (c)Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available. (d)Fatima lost her job at a packing plant but has not looked very intensively for a new job because she still has two months of unemployment insurance benefits left. *Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available.*

Which of the following statements about minimum-wage workers in the United States is not correct:

(a)minimum-wage workers are more likely to be male. (b)minimum-wage workers are more likely to work part time. (c)minimum-wage workers are more likely to be less educated. (d)minimum-wage workers are more likely to be young. **minimum-wage workers are more likely to be male**

Assume that the money demand function is (M / P)d = 2,000 - 100r, where r is the interest rate in percent. The money supply M is 2,000, and the price level P is 2. The equilibrium interest rate is ______ percent

10

If the capital stock equals 100 units in year 1 and the depreciation rate is 5 percent per year, then in year 2, assuming no new or replacement investment, the capital stock would equal _____ units.

95

According to the theory of liquidity preference, the supply of real money balances:

is fixed by the central bank.

Discouraged workers are counted as:

out of the labor force.