Econ 320 Lecture 8, 9, 10, 11, 12 cards

2. According to Okun's law (given by the equation: %∆ in Y = 3% -2*%∆ in Unemployment Rate), how would real GDP change if the unemployment rate rose by 2 percent? A. Real GDP would fall by 1 percent. B. Real GDP would fall by 2 percent. C. Real GDP would fall by 6 percent. D. Real GDP would not change.

A. Real GDP would fall by 1 percent.

In the Solow growth model, which variable is endogenous? A. The capital stock B. The saving rate C. The depreciation rate D. Technological progress

A. The capital stock

Steady-state consumption is the gap between: A. output and depreciation. B. depreciation and investment. C. saving and investment. D. saving and depreciation.

A. output and depreciation.

Which statement is TRUE when the interest rate is high? A. Income is high on the LM curve and low on the IS curve. B. Income is high on the IS curve and low on the LM curve. C. Income is high on both the IS curve and the LM curve. D. Income is low on both the IS curve and the LM curve.

A. Income is high on the LM curve and low on the IS curve.

In the standard Lewis model, as GDP rises A. Income share of capital rises as well B. Income share of labor rises as well C. Both the shares of capital and labor rise. D. None of the above

A. Income share of capital rises as well

In Piketty's Model, if (r -g) is very high A. Income share of capital will rise B. Income share of labor will rise C. Both the shares of capital and labor will rise. D. None of the above

A. Income share of capital will rise

Which statement is TRUE regarding the Keynesian cross and the IS curve? A. Investment is fixed in the Keynesian cross and a function of the interest rate in the IS diagram. B. Investment is a function of the interest rate in the Keynesian cross and fixed in the IS diagram. C. Investment is a function of the interest rate in both the Keynesian cross and the IS diagram. D. Investment is fixed in both the Keynesian cross and the IS diagram.

A. Investment is fixed in the Keynesian cross and a function of the interest rate in the IS diagram.

Which is a valid description of the aggregate demand curve? A. It tells us the possible combinations of the price level and output for a given money supply. B. It tells us the possible combinations of the price level and output for a given interest rate. C. It tells us the short-run equilibrium level of output. D. It tells us the long-run output of the economy.

A. It tells us the possible combinations of the price level and output for a given money supply.

Assuming the production function is 𝑦 = 𝑘, what is the approximate depreciation rate for an economy with a steady-state capital stock of 8 units of capital per worker and a saving rate of 0.4? A. 0.05 B. 0.14 C. 0.32 D. 0.40

B. 0.14

Which statement is TRUE according to the Solow growth model? A. A higher saving rate results in faster, sustained growth. B. A higher saving rate results in temporarily faster growth. C. A sustained high saving rate will result in a larger capital stock but not more output. D. An increase in the saving rate does not change the steady state but enables the economy to reach it more quickly.

B. A higher saving rate results in temporarily faster growth.

In the model developed in the chapter, what would follow an unexpected increase in inventories? A. An increase in the price level B. An increase in the unemployment rate C. An increase in government revenues D. An increase in real output

B. An increase in the unemployment rate

Which statement is TRUE when the economy starts with LESS capital than the Golden Rule level? A. Depreciation must be reduced to reach the Golden Rule level of capital. B. Current generations must sacrifice to maximize future consumption. C. To maximize consumption, the current saving rate must fall. D. Increasing the capital stock to the Golden Rule level benefits both current and future generations.

B. Current generations must sacrifice to maximize future consumption.

In the Solow growth model, which expression defines the marginal product of capital? A. MPK =f (k + 1)/f (k ) B. MPK =f (k + 1) −f (k ) C. MPK =f (k + 1) +f (k ) D. MPK =f (k ) −f (k + 1)

B. MPK =f (k + 1) −f (k )

Why do the short-run and long-run aggregate supply curves have different slopes? A. Technological advances B. Sticky prices C. Inflation expectations D. Stochastic shocks

B. Sticky prices

Which variable links the IS and LM curves in the IS-LM model? A. The real wage rate B. The real interest rate C. The M1 money supply D. Potential real GDP

B. The real interest rate

What is the main target of Keynes's critique of classical economics? A. The doctrine of monetary neutrality B. The view that aggregate supply alone determines national income C. The assumption that prices are flexible in the long run D. The preference for monetary over fiscal policy as a stabilization tool

B. The view that aggregate supply alone determines national income

Which economist predicted that humanity's long-run prospect is poverty? A. Paul Romer B. Thomas Malthus C. Michael Kramer D. Robert Solow

B. Thomas Malthus

In the steady state in the Solow model, which is NOT one of the uses of new capital? A. To replace depreciating capital B. To replace capital exported to other countries C. To provide capital for new 'effective workers' created by technological progress D. To provide capital for new workers

B. To replace capital exported to other countries

In the IS-LM model, which variables are endogenous? A. G and T B. Y and r C. M and P D. There are no endogenous variables.

B. Y and r

Lewis dual economies are countries A. with double capital and labor. B. with a modern manufacturing sector as well as traditional agriculture sector. C. are a pair of countries where one specializes in labor-intensive products and the other specializes in capital-intensive products. D. with foreign-owned and domestically-owned capital.

B. with a modern manufacturing sector as well as traditional agriculture sector.

How do the long-run predictions of the Solow growth model and endogenous growth model compare? A. Both predict an eventual steady-state equilibrium. B. Both recognize the possibility of unlimited growth. C. The Solow model predicts an eventual steady-state equilibrium, and the endogenous growth model allows for continued growth. D. The endogenous growth model predicts an eventual steady-state equilibrium, and the Solow model allows for continued growth.

C. The Solow model predicts an eventual steady-state equilibrium, and the endogenous growth model allows for continued growth.

What is the expected result of a decrease in the velocity of money in the long run? A. The price level and output will both rise. B. The price level will remain constant and output will fall. C. The price level will fall and output will not change. D. The price level and output will both fall.

C. The price level will fall and output will not change.

Assuming the production function is𝑦 = 𝑘, what is the steady-state capital stock for an economy with a saving rate of 0.4 and a depreciation rate of 0.2? A. 0.25 B. 0.5 C. 2 D. 4

D. 4

1. What criterion does the NBER's Business Cycle Dating Committee use to determine when the economy goes into recession? A. Two consecutive quarters of negative growth B. Two consecutive quarters of growth at a rate lower than in the same quarters in the previous year C. A fall in real output of 3 percent or more in any given quarter D. A variety of data and its professional judgement

D. A variety of data and its professional judgement

In the Solow model, which two variables have similar effects on the capital stock per worker? A. Depreciation and technological change B. The saving rate and depreciation C. Population growth and technological change D. Depreciation and population growth

D. Depreciation and population growth

Which variable enables actual expenditure to differ from planned expenditure? A. The real interest rate B. Fiscal policy C. The money supply D. Inventories

D. Inventories

Assuming the labor force and technology are fixed, why is there a limit to capital accumulation? A. Over time, consumers become unwilling to save. B. The current generation is unwilling to sacrifice for future generations. C. There is a finite limit on output. D. More capital means more capital must be replaced.

D. More capital means more capital must be replaced.

In the standard Solow model, as GDP rises A. Income share of capital rises as well B. Income share of labor rises as well C. Both the shares of capital and labor rise. D. None of the above.

D. None of the above.

Which is NOT part of the index of leading economic indicators? A. Manufacturers' new orders for consumer goods and materials B. Manufacturers' new orders for nondefense capital goods, excluding aircraft C. Average weekly initial claims for unemployment insurance D. The M2 money supply

D. The M2 money supply

How do the Solow growth model and endogenous growth (Romer) model view the marginal product of capital? A. Both assume diminishing returns to capital. B. Both assume constant returns to capital. C. The Solow model assumes constant returns, and the endogenous growth model assumes diminishing returns to capital. D. The Solow model assumes diminishing returns, and the endogenous growth model assumes constant returns to capital.

D. The Solow model assumes diminishing returns, and the endogenous growth model assumes constant returns to capital.

At the Golden Rule level of capital, what must the marginal product of capital equal? A. Zero B. The saving rate C. The interest rate D. The depreciation rate plus the population growth if there is no labor productivity growth is zero

D. The depreciation rate plus the population growth if there is no labor productivity growth is zero

From a macroeconomic theory perspective, what is unusual about the Covid-19 recession? A. Despite the enormity of the shock, policy response was fairly muted. B. The recession was almost entirely a supply-side phenomenon. C. Policymakers used both fiscal and monetary strategies to fight the recession. D. There was a shift in the economy's potential output.

D. There was a shift in the economy's potential output.

Presidents Kennedy, Reagan, Bush, Obama, and Trump all used fiscal stimuli when they were in office. In what way did one of these president's stimulus program differ from those of the others? A. Reagan's was the only stimulus package to rely mainly on tax cuts. B. Kennedy's was the only stimulus package to rely mainly on government purchases increases. C. Obama's was the only one to work as planned. D. Trump's was the only one enacted when the economy was not sluggish.

D. Trump's was the only one enacted when the economy was not sluggish.

After the Lewis Turning Point (LTP): A. the traditional sector workers start moving back to their villages B. The model becomes identical to the Solow model C. The capitalists' income triangle becomes less than the workers' income rectangle. D. Wages start rising in the urban manufacturing sector.

D. Wages start rising in the urban manufacturing sector.

When does the classical dichotomy NOT hold? A. When the Fed maintains a steady money supply growth rate B. When the economy moves from peak to peak in the business cycle C. When the goods market and the money market are both in equilibrium D. When not all prices are flexible

D. When not all prices are flexible

Which of the following is correct? a) Industry may produce agricultural tools that, in turn, may produce higher agricultural surplus. The tools and the surplus must be traded. b) High agricultural surplus would lead to a better living standard for the workers in agriculture and in industry. c) Agriculture must produce food over and above the food required to sustain the agricultural workers. The surplus food can be used to feed industrial workers. d) Rural to urban migration is important in economic development because rural workers must migrate to urban manufacturing areas to increase manufacturing output. e) All of the above

e) All of the above

If population grows at rate n and workers become more effective at rate g, which variable grows at rate n + g? A. Output B. Output per worker C. Output per effective worker D. Capital per effective worker

A. Output

The people living at the subsistence level in poor countries A. Get a lot of help from their governments B. Have high savings rates C. Depend on their family and friends for support D. Have a high marginal product of labor

C. Depend on their family and friends for support

In the Solow model with population growth and static technology, what is the Golden Rule condition? A. MPK = δ − n B. MPK + n = δ C. MPK − δ = n D. MPK + δ = n

C. MPK − δ = n

How does the economy move from a short-run equilibrium to its long-run equilibrium? A. Flexible prices become sticky at theirequilibrium levels. B. Shifts occur in the long-run aggregate supply curve. C. Shifts occur in the short-run aggregate supply curve. D. Shifts occur in the aggregate demand curve.

C. Shifts occur in the short-run aggregate supply curve.

How do the Fisher effect and the theory of liquidity preference explain the link between monetary policy and nominal interest rates? A. Tighter (looser) money leads to lower (lower)nominal interest rates in the short run but higher(higher) nominal interest rates in the long run. B. Tighter (looser) money leads to higher (lower)nominal interest rates in both the short run and the long run. C. Tighter (looser) money leads to higher (lower)nominal interest rates in the short run but lower(higher) nominal interest rates in the long run. D. Tighter (looser) money leads to lower (higher)nominal interest rates in both the short run and the long run.

C. Tighter (looser) money leads to higher (lower)nominal interest rates in the short run but lower(higher) nominal interest rates in the long run.

For macroeconomists, what distinguishes the short run and the long run? A. The ability to change the factors of production employed B. A time period shorter or longer than two quarters C. Whether prices are sticky or flexible D. A time period shorter or longer than the time from trough to trough in the business cycle

C. Whether prices are sticky or flexible

Which statement is TRUE when the economy starts with MORE capital than the Golden Rule level? A. Depreciation must be increased to reach the Golden Rule level of capital. B. Current generations must sacrifice to maximize future consumption. C. To maximize consumption, the current saving rate must rise. D. Decreasing the capital stock to the Golden Rule level benefits both current and future generations.

D. Decreasing the capital stock to the Golden Rule level benefits both current and future generations.

The Golden Rule level of capital maximizes: A. output. B. the growth rate. C. the steady state. D. consumption.

D. consumption.

If government purchases increase byΔG, output will: A. decrease by ΔG. B. increase by ΔG. C. increase by less than ΔG. D. increase by more than ΔG.

D. increase by more than ΔG.