macro test 2

If two economies are otherwise identical (same capital share, depreciation rate, technological growth rate, and population growth rate, etc.), but one economy has a smaller capital stock, then the steady-state level of income per worker in the economy with the smaller capital stock will be:

at the same level as in the steady state of the high capital economy.

If the government's tax revenue is less than what it spends, then the government runs a budget _____, which lead to the_____ national saving (and saving rate s).

deficit; negative effect on

In the Solow growth model with population growth and labor-augmenting technological change, the break-even level of investment must cover:

depreciating capital, capital for new workers, and capital for new effective workers.

Exhibit: Capital per Worker and the Steady StateIn this graph, capital per worker level k2 is not the steady-state because:depreciation is greater than gross investment.

depreciation is greater than gross investment.

Suppose an economy is initially in a steady state with capital per worker below the Golden Rule level. If the saving rate increases to a rate consistent with the Golden Rule, then in the transition to the new steady state consumption per worker will:

first fall below and then rise above the initial level.

Short-term unemployment is most likely to be ______ unemployment, while long-term unemployment is mostly likely to be _____ unemployment.

frictional; structural

In the Solow model with population growth and technological progress, the steady-state growth rate of output per worker is:

g.

Starting from a steady-state situation, if the saving rate increases, capital per worker will:

increase until the new steady state is reached.

In the Solow growth model, if investment exceeds depreciation, the capital stock will _____, and output will_____ until the steady state is attained.

increase; increase

Sectoral shifts:

make frictional unemployment inevitable

When insiders have a much greater impact on the wage-bargaining process than do outsiders, the negotiated wage is likely to be ______ the equilibrium wage.

much greater than

In the Solow model with population growth and technological progress, the steady-state growth rate of total output is:

n + g.

Any policy aimed at lowering the natural rate of unemployment must either ______ the rate of job separation or ______ the rate of job finding.

reduce; increase

If the marginal product of capital net depreciation equals 8 percent, the rate of growth of population equals 2percent, 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

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

technological progress.

Suppose the marginal product of capital is 0.09, depreciation rate is 0.05, and technology is growing at 0.03.If the economy is at a steady state where consumption is being maximized, then the population growth rate must be:

1 percent

Suppose for an economy the total capital stock is 6 times one year's GDP and the depreciation of capital is18 percent of the GDP. In this case, we can conclude that the depreciation rate is equal to _____ percent.

3

Suppose for an economy the capital stock is 6 times one year's GDP and the capital income is 30 percent ofGDP. In this case, we can conclude that the marginal product of capital is equal to _____ percent per year.

5

If the labor force L is growing at a 3 percent rate and the efficiency of a unit of labor E is growing at a 2percent rate, then the number of effective workers L*E is growing at a rate of:

5 percent

If two economies are otherwise identical (same capital share, depreciation rate, technological growth rate, and population growth rate, etc.), but one country has initially a lower level of capital per worker than the other ,then as the countries approach the steady state:

the country with the lower capital per worker will grow faster.

All of the following are reasons for frictional unemployment except:

unemployed workers accept the first job offer that they receive

If the per-worker production function is given by y = k1/2, the saving ratio is 0.3, and the depreciation rate is0.1, then the steady-state capital per worker is:

9

All of the following are causes of structural unemployment except:

unemployment insurance

Balanced growth refers to the property where:

values of many variables within a country rise together in the steady state.

f two economies have 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.

In the Solow growth model with population growth and technological progress, the steady-state growth rate of capital per effective worker is _____, and the steady-state growth rate of capital per (actual) worker is_____.

zero; the rate of technological progress

In an economy with population growth at rate n, the change in capital stock per worker is given by the equation:

Δk = sf (k) - (δ + n) k.

In the Solow model with population growth and technological progress, the steady-state growth rate of output per effective worker is:

0

Which of these policies of the government is NOT designed to increase resources devoted to research and development?

Increasing the amount people can put in tax-exempt retirement accounts.

_____ cause(s) the capital stock to rise, while _____ cause(s) the capital stock to fall.

Investment; depreciation

In the Solow model with population growth and labor-augmenting technological progress, which of these describes the condition for the maximization of consumption per effective worker at the steady state?

MPK - δ = n + g

Assume that two economies are identical in every way except that one has a higher saving rate. According to the Solow growth model, in the steady state the country with the higher saving rate will have _____ level of output per worker and _____ rate of growth of output per worker compared to the country with the lower saving rate.

a higher; the same

If the rate of separation is 0.02 and the rate of job finding is 0.08 but the current unemployment rate is 0.10, then the current unemployment rate is ______ the equilibrium rate, and in the next period it will move ______ the equilibrium rate.

below; toward

In the Solow growth model in Chapter 8, the steady state occurs when: (Read options carefully.)

capital per worker is constant

Exhibit: Steady-State ConsumptionThe Golden Rule steady-state is the steady state with the highest level of _____. In this graph, the GoldenRule level of steady-state consumption per worker is______:

consumption per worker; AB.

Differences in which of these variables do NOT prevent countries from converging to the same steady state?

initial capital stock per worker

Exhibit: Output, Consumption, and InvestmentIn 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

With a per-worker production function y = k ^1/2 , the steady-state capital stock per worker (k*) as a function of the saving rate (s) is given by: (If you see a rectangle in the option, it means your computer cannot display the formula properly. The rectangle should be lowercase Greek alphabet delta, i.e. the depreciation rate.)

k* = (s / δ)2.

The endogenous growth model's assumption of constant returns to capital is more plausible if capital is defined to include:

knowledge

A higher saving rate leads to a:

larger capital stock and a higher level of output in the long run.

The production function y = f (k) means:

output per worker is a function of capital per worker

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 g (the rate of technological progress) in the steady state?

output per worker, capital per worker

Wage rigidity:

prevents labor demand and labor supply from reaching the equilibrium level

In the Solow growth model, for any given capital stock, the _____ determines how much output the economy produces, and the _____ determines the allocation of output between consumption and investment.

production function; saving rate

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

productivity