Econ 313

Suppose that the unemployment rate is 10 percent, and the number of employed workers is 90 million. Then the number of unemployed worker is

10 million

If C = 2000 + .9YD, what decrease in taxes must occur for equilibrium output to increase by 900?

100

If C = 2000 + .9YD, what increase in government spending must occur for equilibrium output to increase by 1000?

100

Suppose the population is 150 million people, of whom 120 million are of working age. Of these 120 million, 80 million have jobs. Of the remainder: 20 million are actively searching for jobs; 10 million would like jobs but are not searching; and 10 million do not want jobs at all. Then the labor force is

100 million

Suppose that the population is 200, the number of employed is 135, and the unemployment rate is 10 percent. Then the number of unemployed is

15

Suppose that the number of employed workers is 40 million and the number of unemployed workers is 10 million, and the number of discouraged workers is 5 million. Then the official unemployment rate is

20 percent.

Suppose that the MPC is .50 and autonomous investment increases by 1,000. Using the simple multiplier, output would increase by

2000

Suppose that the MPC is .80 and government spending increases by 500. Using the simple multiplier, output would change by

2500

Use the following information to answer the question below: (1) the rate of depreciation is 10% per year, (2) the population growth rate is 2% per year, and (3) the growth rate of technology is 3% per year. Which of the following represents the steady-state growth rate of output per worker in this economy?

3%

Suppose that: C = 200 + .9(Y-T) I = 300 G = 400 T = 300 At equilibrium, saving is

400

Suppose the consumption equation is represented by the following: C = 250 + .75YD. Now assume government spending increases by 100. Given the above information, we know that equilibrium output will increase by

400

Suppose the consumption equation is represented by the following: C = 250 + .8YD. The multiplier for the above economy equals

5

Suppose the Phillips curve is represented by the following equation: πt−πt−1=15−3ut. Given this information, we know that the natural rate of unemployment in this economy is

5%

Use the following information to answer the question below: (1) the rate of depreciation is 10% per year, (2) the population growth rate is 2% per year, and (3) the growth rate of technology is 3% per year. Which of the following equals the annual growth rate of "effective labor" in the steady state in this economy?

5%

Use the following information to answer the question below: (1) the rate of depreciation is 10% per year, (2) the population growth rate is 2% per year, and (3) the growth rate of technology is 3% per year. Which of the following represents the steady-state growth rate of output in this economy?

5%

Suppose that: C = 200 + .9(Y-T) I = 300 G = 400 T = 300 At equilibrium, consumption is:

5600

Suppose that the population is 5,000, the number of unemployed is 200, and the unemployment rate is 5 percent. Then the labor force participation rate is

80 percent

Suppose that the MPC is .75 and autonomous investment increases by 200. Using the simple multiplier, output would increase by

800

Suppose that the population is 1,000, the number of unemployed is 45, and the unemployment rate is 5 percent. Then the employment to population ratio is

855/1000

Starting from a medium run equilibrium in the AD-AS model, suppose the central bank implements a monetary contraction. Which of the following would we expect to occur in the medium run?

A decrease in the nominal wage.

According to the AS-AD model, which of the following would cause an increase in the natural level of output in the medium run?

A decrease in the price of oil.

Which of the following represents a dimension of technological progress?

All of the above - A larger variety of products. -New and/or better products. -Larger quantities of output for given quantities of capital and labor.

Which of the following will NOT cause an increase in the natural rate of unemployment?

An increase in the expected inflation rate.

Which of the following would occur if the central bank conducts an open market purchase of bonds?

An increase in the money supply.

Suppose a central bank implements a monetary contraction. Using the AD-AS model, which of the following would we expect to occur in the short run?

An increase in the real wage.

Use the following version of the Phillips curve equation to answer this question: πt−πt−1=(m+z)−αzt. Which of the following will cause an increase in the natural rate of unemployment?

An increase in z.

For this question, assume that the Phillips curve equation is represented by the following equation: πt−πt−1=(m+z)−αzt. Which of the following will cause a reduction in the natural rate of unemployment?

An increase in α

A Fed purchase of Treasury bills will have which of the following effects?

An outward shift in the LM curve

Which of the following is (are) a main conclusion(s) about growth for the countries examined in the chapter?

Answers a and b are both true. (a)Living standards have converged since 1950. (b)There has been a large increase in the standard of living since 1950.

Suppose output per worker in a country has grown at the same rate as technology over for many years. This country's growth would be described as

"balanced" growth.

If the reserve ratio is .20, currency holdings are zero, and the Fed makes a $10,000 purchase of bonds, then the monetary base will change by

$10,000

Suppose that: - Firm 1 produces wool from raw materials using workers and machines. It sells the wool to firm 2 for $500. - Firm 1 pays its workers $400 leaving $100 in profit (abstract from depreciation cost, etc. for simplicity) - Firm 2 uses the $500 in wool, along with workers and machines, to produce clothing it sells for $700 - Firm 2 pays its workers $120 leaving $80 in profit ($700 - $500 for wool - $120 for wages = $80 profit) In this example, the value added by firm 2 is:

$200

Suppose that: C=c0+c1(Y−T) T=T0 I=b0+b1Y−b2i G=G0 then the expenditure multiplier is

1/(1-b1-c1)

For this question, assume that individuals do not hold currency (i.e., c = 0). If the reserve ratio is .10, the simple money multiplier is

10

High powered money (i.e. the monetary base) equals

C+R (currency plus reserves).

If the saving rate is 1 (i.e., s = 1), we know that

C/N=0

When the capital stock per worker is below its steady state level

Capital per worker will rise because sf(K_t/N)= δ(K_t)/(N), that is, investment is greater than depreciation.

The income=expenditures and the savings=investment approaches to finding equilibrium in the goods market

Give exactly the same values for equilibrium income, consumption, saving, etc.

Which of the following represents the fertility of research?

How R&D spending translates into new ideas.

Which of the following is false?

Human capital does not affect the standard of living in the long-run.

At equilibrium in the growth model

I_t=S_t

In the production function Y=f(K,NA), for a given state of technology, constant returns to scale implies that output will increase by 7% when

K and N increase by 7%.

In the long-run steady state equilibrium where the capital stock is constant, the equilibrium condition reduces to

K_{t+1}-K_t = sf({K_t}/{N}) -δ{K_t}/{N}

The equation relating investment to the capital stock is

K_{t+1}=(1-δ) Kt+It

The equation for the money supply is

M = (multiplier)(C + R)

Which of the following is NOT constant when balanced growth is obtained?

NA

Suppose that the price setting equation is, as usual, W = P/(1+m) and that the wage setting equation is W = PeF(u,z), where F(u,z) = 1 - αu + z. Also assume that the production function is Y = N. Then the equation for the AS curve is (impose the definition of equilibrium, solve for P, then substitute in the relationship between Y and u, which involves L)

P = Pe(1+m)* [1- α + αu(Y/L) + z]

In the AS relation, when output is equal to the natural rate of output (Y = Yn)

P=P^e

In the AS equation, when output is greater than the natural rate of output (Y > Yn)

P>P^e

Which of the following best describes a situation where research is considered relatively fertile?

Research that translates into many new products.

Suppose the consumption equation is represented by the following: C = 250 + .75YD, then private savings is

S = -250 + .25YD

If the consumption function is C = c0 + c1(Y - T), then the saving function is:

S = -c0 + (1-c1)(Y - T)

In the growth model studied in the text, the saving rate is

S_t=sY_t

Which of the following is not included as a component of the M1 definition of money?

Savings accounts

Which of the following represents the appropriability of research?

The extent to which firms benefit from the results of their own R&D spending.

In the wage setting relation W = P^eF(u,z), the variable z does not include which of the following variables?

The extent to which firms mark up prices over their marginal cost.

Which of the following is true after an economy reaches a balanced growth equilibrium?

The growth rate of capital is equal to the growth rate of the effective work force.

A reduction in the saving rate will NOT affect which of the following variables in the long run?

The growth rate of output per worker.

Suppose the Phillips curve is represented by the following equation: πt−πt−1=20−2ut. Given this information, which of the following is most likely to occur if the actual unemployment in any period is equal to 6%?

The rate of inflation will tend to increase.

Which of the following represents the labor force participation rate?

The ratio of the labor force to the civilian non institutional population.

Which of the following is a main conclusion about growth for OECD countries and the four rich countries examined in the chapter?

There has been a large increase in the standard of living since 1950.

In the equation for the consumption function, C = c0 + c1(Y - T)

Y-T is disposable income

Suppose the production function is Y=AK^(α)N^(1−α). This can be rewritten as:

Y/N=A(K/N)^α

Which of the following is constant when balanced growth is achieved?

Y/NA

Suppose that investment depends upon income: C=c_0+c_1(Y-T)C=c0+c1(Y−T) T=T_0T=T0 I=b_0+b_1YI=b0+b1Y G=G_0G=G0 In this case, the solution for equilibrium output is:

Y= 1/(1-b1-c1)*[c0+b0+G0-c1T0]

Suppose that taxes depend upon income: C=c_0+c_1(Y-T)C=c0+c1(Y−T) T=T_0+tYT=T0+tY I=I_0I=I0 G=G_0G=G0 In this case, the solution for equilibrium output is

Y= 1/(1-c1(1-t))* [c0+I0+G0-c1T0]

Suppose that: C=c0+c1(Y-T) T=T0 I=b0+b1Y-b2i G=G0 Then the equation for the IS curve is:

Y=1/(1-b1-c1)*[c0+b0+G0-c1T0]*(b2/1-b1-c1)

In the AS relation, when the price level is equal to the expected price level (P = P^e)

Y=Yn

Which of the following would not cause a change in autonomous investment?

a change in consumer confidence

Which of the following would not cause a change in autonomous consumption?

a change in disposable income.

In the IS-LM model, an increase in taxes causes

a decrease in income and a decrease in the interest rate.

Which of the following will cause an increase in output per effective worker?

a decrease in population growth.

The AD curve is downward sloping because

a decrease in the price level reduces money demand, the interest rate falls, investment increases, and the increased investment drives output higher.

Which of the following will cause an increase in output per effective worker?

a decrease in the rate of technological progress.

An increase in m causes

a downward shift in the PS curve.

The IS curve is negatively sloped because

a fall in the interest rate causes investment to increase, the increase in investment drives output higher.

Suppose business confidence decreases causing a reduction in investment. This will cause

a reduction in consumption as the economy adjusts to the decrease in investment

Suppose the saving rate is initially greater than the golden rule saving rate. An increase in the saving rate will cause

a reduction in consumption per worker in the long-run.

Suppose there is a Fed purchase of bonds and simultaneous tax increase. This combination of policies will cause, unambiguously,

a reduction in i

An equal and simultaneous reduction in G and T will cause

a reduction in output

In the short run, a reduction in the price of oil will cause

a reduction in the interest rate.

Suppose the minimum wage decreases. Given this event, and beginning from a medium run equilibrium in the AD-AS model, we would expect which of the following to occur?

a reduction in the price level and an increase in output in the medium run.

When the FOMC meets, it sets

a target value for the federal funds rate

An increase in the saving rate will cause

a temporary increase in the rate of growth of output per capita.

In the money demand - money supply model, a reduction in income will cause

an increase in bond prices and a reduction in in the interest rate.

In the following production function, Y=f(K,NA), an increase in A represents

an increase in effective labor.

Suppose there is a simultaneous Fed sale of bonds and increase in consumer confidence. We know with certainty that these two simultaneous events will cause

an increase in i

In the IS-LM model, an increase business confidence causes

an increase in income and an increase in the interest rate

In the IS-LM model, an increase consumer confidence causes

an increase in income and an increase in the interest rate.

In the IS-LM model, an increase in government spending causes

an increase in income and an increase in the interest rate.

Assume the economy is initially operating at the natural level of output. Now suppose there is an increase in taxes. Then there will be (you will need to think about how the IS-LM and AD-AS models work together to answer this question)

an increase in investment in the medium run.

In the IS-LM model, an increase in the money supply causes

an increase in output and a decrease in the interest rate

The aggregate supply curve is positively sloped because

an increase in output increases employment (reduces unemployment), wages increase, and that causes firms to raise prices.

The two sources of growth in the standard of living are

an increase in the capital labor ratio and an improvement in technology.

According to the WS-PS model, a reduction in the markup will cause

an increase in the equilibrium real wage

In the AS relation (one-to-one means, for example, that if one variable doubles, the other variable also doubles)

an increase in the expected price level causes the price level to increase one-to-one.

In the money demand-money supply model, an increase in income will cause which of the following?

an increase in the interest rate

Which of the following would tend to make the multiplier smaller?

an increase in the marginal propensity to save

A reduction in the reserve ratio, θ, will cause

an increase in the money multiplier.

For this question, assume that the production function is Y = N and P^e=P. Based on our understanding of the labor market model presented in Chapter 6, we know that an increase in the minimum wage will cause

an increase in the natural level of employment

In the WS-PS diagram, a simultaneous decrease in the mark-up and improvement in unemployment compensation will cause

an increase in the real wage and an uncertain effect on unemployment.

When consumption is below its golden rule level

an increase in the saving rate will lower consumption today and increase consumption in the future.

Which of the following will cause an increase in output per effective worker?

an increase in the saving rate.

In the AD-AS model, an increase in the price of oil will cause which of the following in the medium run?

an increase in the unemployment rate.

In the Phillips curve equation, which of the following will cause an increase in the current inflation rate?

an increase in wage bargaining power.

In the IS-LM model, an increase in business confidence causes

an outward shift in the IS curve.

In the IS-LM model, a reduction in the aggregate price level will cause

an outward shift in the LM curve and a reduction in the interest rate.

Suppose we wish to examine the determinants of the equilibrium real wage and equilibrium level of employment (N). In a graph with the real wage on the vertical axis, and the level of employment on the horizontal axis, the wage-setting relation will now be

an upward sloping line

Efficiency wages

are used by firms to increase productivity and decrease turnover.

Discouraged workers

are workers who would take a job if one was offered to them, but have given up looking.

The intuition for the positive slope of the LM curve is that

as income increases, money demand goes up, and the increase in money demand causes the interest rate to go up.

Starting from a medium run equilibrium in the AD-AS model, suppose there is an increase in government spending, a decline in taxes, an increase in autonomous consumption, etc. In the transition from the short-run to the medium run equilibrium

both nominal wages and the expected price level will increase.

Starting from a medium run equilibrium in the AD-AS model, suppose there is an increase in the money supply. In the transition from the short-run to the medium run equilibrium

both nominal wages and the expected price level will increase.

Starting from a medium run equilibrium in the AD-AS model, suppose there is an increase in the price of oil. In the transition from the short-run to the medium run equilibrium

both nominal wages and the expected price level will increase.

An increase in the price of oil

can be represented as an increase in m because an increase in the price of oil, an input to production, causes firms to raise prices.

An increase in the price level

causes a downward movement along the AD curve.

In the money demand - money supply model, and increase in the price level

causes an increase in the interest rate.

In the AS relation, an increase in the price level

causes an upward movement along the AS curve

Open market operations

change the money supply by changing the monetary base, i.e. by changing the quantity of high powered money.

Which of the following is NOT a reason for the change in the natural rate of unemployment over time?

changes in government spending.

Monetary neutrality means that

changes in the money supply have no effect on output in the medium run.

When a worker's nominal wage is indexed, the nominal wage is usually automatically adjusted based on movements in which of the following variables?

changes in the price level.

Okun's law captures the relationship between

changes in the unemployment rate and output growth

In a closed economy, the total demand for goods and services is

consumption plus investment plus government spending

In the 45-degree line diagram, when unintended inventories are increasing, firms will

cut production and output will move closer to equilibrium

Suppose that M=M0 Money Supply M/P=d1Y−d2i Money Demand Then the slope the LM curve is

d1/d2

Suppose that M=M0 Money Supply M/P=d1Y−d2i Money Demand The slope of the LM curve is vertical when

d2=0 (Money demand does not depend upon the interest rate)

Assume that there are decreasing returns to capital, decreasing returns to labor, and constant returns to scale. Now suppose that both capital and labor decrease by 5%. Given this information, we know that output (Y) will

decrease by 5%

When steady state capital per worker is above the golden-rule level, an increase in the saving rate will

decrease consumption in both the short run and the long run.

Which of the following will cause an increase in output per effective worker?

decrease in the rate of depreciation.

A decrease in the saving rate will

decrease temporarily the growth of output per worker.

When banks decide to increase the quantity of excess reserves they are holding, the money multiplier

decreases

In the WS-PS diagram, a decrease in m

decreases the unemployment rate and raises the real wage.

Macroeconomics is the study of

entire economies.

The sum of the MPS and the MPC

equals 1

Nominal GDP

equals real GDP times the GDP deflator.

The labor force

equals the number of employed plus the number of unemployed

The AD curve can be derived by

examining how changes in the price level affect equilibrium output in the IS-LM diagram.

Prior to the 1970s, it was reasonable for people to

expect that inflation would be zero.

When the responsiveness of investment to the interest rate goes up

fiscal policy becomes less effective.

At equilibrium in the growth model with technological progress, the growth rate of output per worker, i.e. the growth in the standard of living, is

gA

Once the economy has achieved balanced growth, output per effective worker is

growing at a rate of 0.

Once the economy has achieved balanced growth, output is

growing at a rate of gA+gN.

Once the economy has achieved balanced growth, the capital stock is

growing at a rate of gA+gN.

Once the economy has achieved balanced growth, output per worker is

growing at a rate of gA.

Suppose the economy is in a situation where Y < Yn.

he SRS will begin shifting down.

The MPC tells us

how consumption changes when disposable income changes by one unit.

Inflation

hurts people on fixed incomes

The IS curve

illustrates the combinations of i and Y that maintain equilibrium in the goods market.

Two ways that countries with low standards of living can catch up to countries with higher standards of living are

improving their technology and accumulating capital.

The money demand curve shifts out when

incoe increases

In the 45-degree line diagram, the economy is at equilibrium when

income = expenditures

In the 45-degree line diagram, when output is above equilibrium

income is greater than expenditures.

An increase in the saving rate will unambiguously

increase output per worker.

In the WS-PS diagram, anything that increases z

increases the natural rate of unemployment and leaves the real wage unchanged.

Which of the following explains why the original Phillips curve relation disappeared or, as some economists have remarked, "broke down" in the 1970s?

individuals changed the way they formed expectations of inflation.

Two years after the discovery of the Phillips curve using UK data, Robert Samuelson and Robert Solow used US data to find a similar relationship between

inflation and unemployment.

In the late 1970s, those who believed fighting inflation would not be very costly argued that

inflation expectations would quickly adjust and the increase in unemployment would be small

As the proportion of labor contracts that index wages to prices decreases,

inflation will be less sensitive to changes in unemployment.

The MPS

is equal to 1-MPC

The responsiveness of investment to the interest rate

is larger near full employment and smaller in recessions.

The money demand curve

is positively related to income and negatively related to the interest rate

Real GDP

is the amount of goods and services produced in a given time period controlling for changes in prices.

The GDP deflator

is the ratio of nominal GDP to real GDP.

Nominal GDP

is the total value of goods and services produced in a given period of time

People hold more money when prices increase because

it takes more money to purchase the same amount of goods.

Assume that expected inflation is based on the following: πte=θπt−1. If θ = 1, we know that

low rates of unemployment will cause steadily increasing rates of inflation.

In the money demand - money supply model, an increase in the money supply

lowers the interest rate

In the price-setting equation (PS), P = (1+m)W

m is the mark-up over marginal cost due to monopoly power.

In the price-setting equation (PS) P = (1+m)W

m is zero under pure competition.

The CPI

measures the cost of living for a typical household.

When the responsiveness of investment to the interest rate goes up

monetary policy becomes more effective.

Patent protection is important for technological progress because it makes research and development

more appropriable

In the WS-PS diagram, an increase in the minimum wage will cause

no change in the equilibrium real wage

For this question, assume that the economy is initially operating at the natural level of output. According to the AD-AS model, a monetary expansion will cause

no change in the real wage in the medium run

For this question, assume that the economy is initially operating at the natural level of output. A reduction in consumer confidence will cause

no change in the real wage in the medium run.

At the current level of output, suppose the actual price level is greater than the price level that individuals expect (i.e., P > Pe). Then

output is currently above the natural level of output.

When the current price level is equal to the expected price level, we know that

output is equal to the natural level of output.

If there are decreasing returns to scale, when both capital and labor double

output less than doubles.

Assume that there are decreasing returns to capital, decreasing returns to labor, and constant returns to scale. In this case, successive and equal increases in capital per worker will cause

output per worker to increase at a decreasing rate.

Starting from a medium run equilibrium in the AD-AS model, suppose there is an increase in government spending, a decline in taxes, an increase in autonomous consumption, etc. In the transition from the short-run to the medium run equilibrium

output will decrease and the price level will increase.

Starting from a medium run equilibrium in the AD-AS model, suppose there is an increase in the price of oil. In short run

output will decrease and the price level will increase.

Starting from a medium run equilibrium in the AD-AS model, suppose there is an increase in the price of oil. In the transition from the short-run to the medium run equilibrium

output will decrease and the price level will increase.

Assume that constant returns to scale exists and that N and K both decrease by 3%. Given this information, we know that

output will decrease by 3%.

Suppose there is a simultaneous fiscal expansion and monetary expansion. We know with certainty that

output will increase

Starting from a medium run equilibrium in the AD-AS model, suppose there is an increase in the money supply. In the transition from the short-run to the medium run equilibrium

output will increase and the price level will decrease.

Starting from a medium run equilibrium in the AD-AS model, suppose there is an increase in government spending, a decline in taxes, an increase in autonomous consumption, etc. In the short-run

output will increase and the price level will increase.

Starting from a medium run equilibrium in the AD-AS model, suppose there is an increase in the money supply. In the short-run

output will increase and the price level will increase.

When the money market is out of equilibrium because money demand exceeds money supply

people will sell financial assets as they attempt to increase money holdings, the price of financial assets will fall, and the interest rate will go up to restore equilibrium.

Starting from a medium run equilibrium in the AD-AS model, suppose there is an increase in the price of oil. At the new medium run equilibrium

prices will be higher and output will be lower.

Starting from a medium run equilibrium in the AD-AS model, suppose there is an increase in government spending, a decline in taxes, an increase in autonomous consumption, etc. At the new medium run equilibrium

prices will be higher and output will be unchanged.

Starting from a medium run equilibrium in the AD-AS model, suppose there is an increase in the money supply. At the new medium run equilibrium

prices will be higher and output will be unchanged.

Efficiency wage theory suggests that

productivity might drop if the wage rate is too low.

The level of output per worker in the steady state will

remain constant

When switching from the "current exchange rate" method to the "purchasing power parity" method, India's standard of living in dollars

rises, but still remains far below that of the U.S

When the economy is operating at the steady state,

saving is equal to depreciation.

Suppose that {K_{t+1}}/{N} >{K_t}/{N}. Then

saving per worker is greater than depreciation per worker in period t.

The equilibrium condition for the growth model allowing for technological change in chapter 12 says that

savings per effective worker equals the amount of investment that is needed to keep the capital stock per effective worker constant.

In the long-run steady state equilibrium where the capital stock is constant, the equilibrium condition reduces to

sf({K_t}/{N})= δ{K_t}/{N}

In the 45-degree line diagram, an increase in taxes will

shift the expenditure function down and decrease output

In the 45-degree line diagram, a decrease in both government spending and taxes will

shift the expenditure function down and decrease output.

In the 45-degree line diagram, an increase in autonomous investment will

shift the expenditure function up and increase output

In the 45-degree line diagram, an increase in government spending will

shift the expenditure function up and increase output.

A decrease in government spending

shifts the AD curve inward

An increase in taxes

shifts the AD curve inward.

An increase in the money supply

shifts the AD curve outward

An increase in autonomous consumption (due to, for example, to an increase in expected future inflation)

shifts the AD curve outward.

An increase in autonomous investment (due, for example, to an increase in expected future GDP)

shifts the AD curve outward.

Anything, except a change in prices, that shifts either the IS or LM curve outward

shifts the AD curve outward.

In the AS relation, an increase in z (due to an increase in unionization, unemployment compensation, the minimum wage, etc.)

shifts the AS curve inward.

In the AS relation, an increase in the expected price level

shifts the AS curve upward.

An increase in the price of oil

shifts the PS curve down and increases the natural rate of unemployment.

In the WS-PS diagram, a decrease in m

shifts the PS equation upward.

The Phillips curve

shows the relationship between inflation and unemployment.

The LM curve

shows the the set of i and Y that maintain equilibrium in financial markets

Suppose the production function is written as Y/AN=f(K/AN). Then equal and successive increases in K/AN will cause

smaller and smaller increases in output

Suppose two countries are identical in every way with the following exception. Economy A has a higher rate of depreciation (δ) than economy B. Given this information, we know with certainty that

steady state consumption in A is lower than in B.

High growth in the rich countries from 1950 to 2009 was most likely due to

technological progress.

Which of the following must occur to sustain growth in the standard of living in the long run?

technological progress.

In the late 1970s, those who believed that fighting inflation would be costly argued that

the Fed had lost credibility, and inflation expectations would not change as a result of the Fed's announced intention to bring inflation down, leading to high unemployment.

Suppose investment spending is NOT very sensitive to the interest rate. Given this information, we know that

the IS curve should be relatively steep

An increase in the responsiveness of investment to changes in the interest rate causes

the IS curve to become flatter

An increase in taxes will cause

the IS curve to shift in

An increase in autonomous investment will cause

the IS curve to shift out

An increase in business confidence will cause

the IS curve to shift out

An increase in autonomous consumption will cause

the IS curve to shift out.

An increase in government spending will cause

the IS curve to shift out.

During 2008 in the United States, consumer confidence fell significantly. Which of the following will occur as a result of this reduction in consumer confidence?

the IS curve will shift leftward

When the money supply goes up

the LM curve shifts out.

An increase in the price level causes

the LM curve to shift in.

An increase in the money supply causes

the LM curve to shift out

Starting from a medium run equilibrium in the AD-AS model, suppose there is an increase in government spending, a decline in taxes, an increase in autonomous consumption, etc. In the transition from the short-run to the medium run equilibrium

the SRS will shift upward as price expectations rise.

Starting from a medium run equilibrium in the AD-AS model, suppose there is an increase in the money supply. In the transition from the short-run to the medium run equilibrium

the SRS will shift upward as price expectations rise.

Starting from a medium run equilibrium in the AD-AS model, suppose there is an increase in the price of oil. In the transition from the short-run to the medium run equilibrium

the SRS will shift upward as price expectations rise.

An increase in the marginal propensity to save from .3 to .4 will cause

the ZZ line to become flatter and reduce the multiplier.

The Phillips curve is derived from

the aggregate supply curve.

Which of the following generally occurs when a central bank pursues expansionary monetary policy?

the central bank purchases bonds and the interest rate decreases.

The equation relating investment to the capital stock tell us that

the change in the capital stock equals investment minus depreciation.

People hold more money when nominal income increases because

the dollar value of transactions increases

Changes in the interest rate have a larger impact on investment when

the economy is near full employment.

The natural level of output is the level of output that occurs when

the economy is operating at the unemployment rate consistent with both the wage-setting and price-setting equations.

In the following production function, Y=f(K,NA), suppose A increases by 20%. This 20% increase in A implies that

the effective quantity of labor has increased by 20%.

Unlike the assumption in the previous chapter, in the AD-AS model

the expected price level does not necessarily equal the actual price level.

Suppose the economy is in a situation where Y < Yn.

the expected price level will decrease

In the original Phillips curve relating inflation to unemployment

the expected rate of inflation was assumed to be zero.

Assume the economy is initially operating at the natural level of output. Now suppose there is an increase in government spending (or a reduction in taxes, increase in autonomous investment, etc.). Then (you will need to think about how the IS-LM and AD-AS models work together to answer this question)

the fall in investment will be larger in the medium run as compared to the short-run.

Starting from a medium run equilibrium in the AD-AS model, suppose there is an increase in the price of oil. Then

the fall in output will be larger in the medium run as compared to the short-run.

When the economy is operating at the steady state

the growth of investment per worker is zero.

When the economy is operating at the steady state

the growth of saving per worker is zero.

The most often used measure of changing living standards is

the growth rate of real GDP per capita.

At equilibrium in the growth model with technological progress, the growth rate of output per worker, i.e. that growth in the standard of living, is

the growth rate of technological progress.

When the economy is operating at the steady state,

the growth rate of the capital stock per worker is zero.

Suppose there are two countries that are identical in every way with the following exception: Country A has a lower depreciation rate (δ) than country B. Given this information, we know with certainty that

the growth rate will be the same in the two countries.

Starting from a medium run equilibrium in the AD-AS model, suppose there is an increase in the price of oil. Then

the increase in prices will be larger in the medium run as compared to the short-run.

The opportunity cost of holding money increases when

the interest rate increases

Assume the economy is initially operating at the natural level of output. Now suppose there is an increase in government spending (or a reduction in taxes, increase in autonomous investment, etc.). At the new medium run equilibrium (you will need to think about how the IS-LM and AD-AS models work together to answer this question)

the interest rate will be higher, and investment will be lower.

Assume the economy is initially operating at the natural level of output. Now suppose there is an increase in the money supply. At the new medium run equilibrium (you will need to think about how the IS-LM and AD-AS models work together to answer this question)

the interest rate will be unchanged, and real money balances will be unchanged.

Assume the economy is initially operating at the natural level of output. Now suppose there is an increase in the money supply. In the short-run (you will need to think about how the IS-LM and AD-AS models work together to answer this question)

the interest rate will decrease, and real money balances will increase.

Suppose the economy is operating on the LM curve but not on the IS curve. Given this information, we know that

the money market and bond markets are in equilibrium and the goods market is not in equilibrium.

When the MPC goes down

the multiplier falls the IS curve becomes steeper

When the interest rate increases

the opportunity cost of holding money goes up and less money is held

In the equation for the consumption function, C = c0 + c1(Y - T)

the parameter c0 is autonomous consumption

In the equation for the consumption function, C = c0 + c1(Y - T)

the parameter c1 is the marginal propensity to consume

"Convergence" has been occurring among the OECD countries because

the poorer countries have had higher growth rates than the richer ones.

At equilibrium in the growth model with technological progress, the growth rate of output equals

the population growth rate plus the growth rate of technological progress.

Suppose the economy is in a situation where Y > Yn. Then

the price level will tend to increase.

Suppose individuals wish to obtain the most accurate comparison of living standards between the United States and Saudi Arabia. To do so, one would convert Saudi Arabian output into dollars using

the purchasing power parity method.

For this question, assume that the expected rate of inflation is equal to last year's inflation. Also assume that the unemployment rate has been greater than the natural rate of unemployment for a number of years. Given this information, we know that

the rate of inflation should steadily decrease

In the following production function, Y=f(K,NA), suppose A increases by 20%. This 20% increase in A implies that

the same output can be produced with 20% less labor.

In most countries

the saving rate is below the rate given by the golden rule.

The "golden rule" tells us

the saving rate that maximizes consumption.

Disposable income equals

the sum of consumption and saving

The labor force in the United States is defined as

the sum of the total number of individuals who are employed and the officially unemployed

Which of the following is not a means of measuring GDP

the total value of consumption.

The term "reservation wage" refers to

the wage that makes workers indifferent between work and leisure.

We study macroeconomic aggregates such as GDP and the price level because

they represent the average behavior of prices and output across the economy

In the late 1970s, there was disagreement about the costs of fighting inflation. Some argued it would be costly, others disagreed. Looking back at the evidence,

those who argued it would be costly were correct.

In the wage-setting equation, the nominal wage tends to decrease when

unemployment benefits decrease.

The bargaining power of workers increases when

unemployment compensation is improved

In the 45-degree line diagram, when the economy is at equilibrium

unintended inventories are zero

In the Phillips curve equation, an increase in expected inflation increases actual inflation because

wage earners will demand higher wages, firms raise prices to cover the wage increases, and that causes inflation to increase.

The original Phillips curve, which was based upon British data, identified a relationship between

wage growth and unemployment.

An individual is said to be a discouraged worker if he or she

wants to work, but has given up searching for a job.

Assume that individuals form expectations of inflation according to πte=θπt−1. The value of θ for this equation

was zero until the 1970s, then increased steadily to one.

During the Great Recession, the Phillips curve broke down

when inflation did not fall as much as predicted, perhaps due to nominal wage rigidity.

Investment is inversely related to the interest rate because

when the interest rate increases, expected profit on investment projects declines

An increase in human capital per worker

will increase steady state consumption per worker.

In the WS-PS diagram, anything that increases z

will shift the WS equation upward.

In the wage-setting equation (WS), W = P^eF(u,z),

z represents bargaining power.

Once the economy has achieved balanced growth, the growth rate of K/NA is

0

Suppose that: - Firm 1 produces wool from raw materials using workers and machines. It sells the wool to firm 2 for $500. - Firm 1 pays its workers $400 leaving $100 in profit (abstract from depreciation cost, etc. for simplicity) - Firm 2 uses the $500 in wool, along with workers and machines, to produce clothing it sells for $700 - Firm 2 pays its workers $120 leaving $80 in profit ($700 - $500 for wool - $120 for wages = $80 profit) Using the sum of incomes approach the calculation for GDP is:

$400 in wages in firm 1 + $100 in profit for firm 1 + $120 in wages for firm 2 + $80 in profit for firm 2 = $700

If the reserve ratio is .20, currency holdings are zero, and the Fed makes a $10,000 purchase of bonds, then the money supply will change by

$50,000

Suppose that: - Firm 1 produces wool from raw materials using workers and machines. It sells the wool to firm 2 for $500. - Firm 1 pays its workers $400 leaving $100 in profit (abstract from depreciation cost, etc. for simplicity) - Firm 2 uses the $500 in wool, along with workers and machines, to produce clothing it sells for $700 - Firm 2 pays its workers $120 leaving $80 in profit ($700 - $500 for wool - $120 for wages = $80 profit) In the example given above, using the value added approach the calculation for GDP is:

$500 value added for firm 1 + $200 value added for firm 2 = $700

Suppose that: - Firm 1 produces wool from raw materials using workers and machines. It sells the wool to firm 2 for $500. - Firm 1 pays its workers $400 leaving $100 in profit (abstract from depreciation cost, etc. for simplicity) - Firm 2 uses the $500 in wool, along with workers and machines, to produce clothing it sells for $700 - Firm 2 pays its workers $120 leaving $80 in profit ($700 - $500 for wool - $120 for wages = $80 profit) In this example, the value of GDP is:

$700

In a given year, suppose a company spends $100 million on intermediate goods and $200 million on wages, with no other expenses. Also assume that its total sales are $900 million. The value added by this company equals

$800 million

At equilibrium in the growth model with technological progress, the growth rate of output equals

(gA+gN)

For this question, assume that the Phillips curve equation is represented by the following equation: πt−πt−1=(m+z)−αzt. Given this information, the natural rate of unemployment will be equal to

(m+z)/α

Suppose that the MPC is .90 and both government spending and taxes decrease by 100. According to the balanced budget multiplier, output would change by

-100

Suppose that the MPC is .80 and taxes increase by 500. Using the simple multiplier, output would change by

-2000

Use the following information to answer the question below: (1) the rate of depreciation is 10% per year, (2) the population growth rate is 2% per year, and (3) the growth rate of technology is 3% per year. Which of the following represents the level of investment needed to maintain constant capital per effective worker in this economy?

.15K

Suppose the consumption equation is represented by the following: C = 250 + .75YD. Given this information, the marginal propensity to save is

.25

Assume that there are decreasing returns to capital, decreasing returns to labor, and constant returns to scale. A reduction in labor will cause which of the following?

A reduction in output.

Assume that there are decreasing returns to capital, decreasing returns to labor, and constant returns to scale. A reduction in the capital stock will cause which of the following?

A reduction in output.

The aggregate demand curve will shift to the right when which of the following occurs?

A reduction in taxes.

Which of the following will cause a reduction in the steady-state growth rate of output per worker?

A reduction in the rate of technological progress.