Macro Unit 4

We have seen that price gaps for goods and services (and assets) in different locations tend to be quickly minimised today, but this phenomenon does not seem to be true for the price of labour. Which of the following is the main explanation for these facts?

Richer countries have become more resistant to immigration

We have seen that price gaps for goods and services (and assets) in different locations tend to be quickly minimised today, but this phenomenon does not seem to be true for the price of labour. Which of the following is the main explanation for these facts?

Richer countries have become more resistant to immigration.

Which of the following statements is the most accurate and complete summary of trends in income inequality over the period 1950-2015, as presented in Unit 19

The net effect of trends in within-country and between-country inequality is that inequality is falling.

Which of the following statements is the most accurate and complete summary of trends in income inequality over the period 1950-2015, as presented in Unit 19?

The net effect of trends in within-country and between-country inequality is that inequality is falling.

Unemployment is a stock. The size of that stock will increase if:

The rate of job destruction is 2 per cent per year and the rate of job creation is 1 per cent per year.

The price gap reflects the cost of trade between two countries. Assume that the costs of trade are falling over time, ceteris paribus. In these circumstances we would expect to see:

The selling price of the good in the importing country falling and the quantity imported rising.

Figure 16.18 is a graph of the share of employment in manufacturing industry in different countries.

The shift of employment out of industry was led by the UK and the US around 1950.

Which term can be defined as "The relocation of part of a firm's activities outside of the national boundaries in which it operates"?

quota

Suppose that the productivity of labour (λ) is $35,000 per year and the equilibrium mark up (μ) is 0.25. The long-run price-setting curve will be at a real wage of:

$26,250.00

Which of the following will lead to a decrease in the equilibrium markup

A lower expected long-run corporate tax rate.

Which of the following will lead to a decrease in the equilibrium markup?

A lower expected long-run corporate tax rate.

The figure shows the Gini coefficient and annual average GDP per capita growth for a selection of countries. Based on this figure, which of the following is correct?

Among the countries shown, the US has the most unequal distribution of income and modest per-capita GDP growth.

Suppose that a country in eastern Europe (EE) has an abundance of cheap labour and a comparative advantage in the production of fruit. This country applies and is admitted to the EU. In the short-run, the likely effect of this will be:

An increase in the wages of fruit workers in EE

Suppose that a country in eastern Europe (EE) has an abundance of cheap labour and a comparative advantage in the production of fruit. This country applies and is admitted to the EU. In the short-run, the likely effect of this will be:

An increase in the wages of fruit workers in EE.

During the 1930s, a number of major countries tried to solve their unemployment problems by imposing tariffs on imported goods. Using your knowledge of macroeconomics, which of the following statements best explains why tariffs can directly reduce unemployment?

By reducing the demand for imports.

Looking at the figure shown, if it were the case that countries with strong trade unions also experienced high unemployment rates, we would expect the data points to be:

Clustered around an upward-sloping line.

The figure shows a plot of unemployment rate vs. gross unemployment benefit replacement rate, averaged over the period 2001 to 2011. Based on this information, which of the following statements is correct?

Countries that offer generous unemployment insurance schemes can still achieve low rates of unemployment.

(The Economy Question 19.6) Which of the following statements are correct?

Endowments are facts about an individual that may affect his or her income.

For countries with a progressive tax system, when making the adjustment from market income to disposable income we would usually expect the Gini coefficient to _____, and in making the adjustment to final income we would expect it to _____

Fall; fall.

Last year, an economy had 1m registered unemployed and a labour force of 20m. Official statistics forecast a level of unemployment of 0.8m by the year's end while the size of the labour force remains unchanged. If this happens then the unemployment rate will have:

Fallen from 5 per cent to 4 per cent.

Figure 16.8 depicts the graphs of the long-run price-setting curve and the markup at which firm entry and exit are both zero.

Higher risk of expropriation of businesses overseas results in a higher price-setting curve.

Which of the following may help to promote the spread of new technology in the long run?

Industry-wide wage-bargaining

In principle, international trade in goods and services increases the consumption possibilities for all. But the free movement of capital can pose long-term problems because, ceteris paribus, capital prefers

Low levels of tax and regulation

Explanations of why egalitarian countries such as Japan, South Korea, and Taiwan in Asia, and Nordic and other northern European countries have done so well economically include all of the following EXCEPT

Low taxes which encourage people to work hard

Which of the following is not a necessary characteristic of an infant industry?

Tariff protection.

The extent to which the diffusion of new technology results in increased employment depends upon the extent to which the wage-setting curve shifts upwards. Which of the following might encourage this upward shift?

The government introduces more generous unemployment benefits to compensate those losing their jobs.

The extent to which the diffusion of new technology results in increased employment depends upon the extent to which the wage-setting curve shifts upwards. Which of the following might encourage this upward shift?

The government introduces more generous unemployment benefits to compensate those losing their jobs.

The graph shows the plot of Beveridge curves for the US and Germany for the period 2001 Q1 to 2015 Q2. Based on this information, which of the statements below is correct?

The matching rate in Germany improved after its Beveridge curve shifted around 2007.

Sections 16.8 and 16.9 argue that institutional arrangements are an important influence on economic performance. Which of the following is given as an example of favourable institutional change?

UK policy to increase competition in the labour market, 1980-90.

Which term can be defined as "A set of government policies designed to provide improvements in the welfare of citizens by assisting with income smoothing"?

welfare state

Watch our 'Economist in action' video featuring John van Reenen about the determinants of the productivity of firms. Based on the video, which of the following statements is correct?

A country's openness to imports can affect its productivity.

In an imaginary economy, GDP falls from $100bn to $95bn while output per worker rises from $5000 to $5020. In this economy there has been:

A fall in production and an increase in productivity.

Net investment is the principal route through which new technology is incorporated in the production process. In the figure shown, the effect of this addition to capital is represented by:

A steepening (or upward stretching) of the production function.

Which of the following statements regarding current accounts is correct, ceteris paribus?

An increase in the official aid payment sent to other countries means a lower current account.

Suppose that industry in the EU is generally more capital- intensive than fruit growing in the EU. As the production and processing of fruit shifts towards the new member state (EE), the likely outcome in the original EU is

An increase in the overall level of unemployment in the original EU

Figure 18.6 is a graph of an index that represents trade costs. A higher index represents higher trade costs and less globalization. Based on this information, which of the following statements are correct?

Attempts by countries to address their unemployment problems after the 1929 Great Depression seem to have led to a decline in globalization.

Which of the following is NOT an example of inequalities based on accidents of birth that exist within countries?

Automation

Suppose that country A using a given amount of labour can produce 50 units of corn or 10 units of textiles, while country B using the same amount of labour can produce 60 units of corn or 30 units of textiles. This shows that:

B has a comparative advantage in the production of textiles.

Which term can be defined as "The inverse relationship between the unemployment rate and the job vacancy rate"?

Beveridge curve

Many large IT firms find it advantageous to have their headquarters in an area of California knows as 'Silicon Valley'. These advantages are likely to take the form of:

Economies of agglomeration.

In the short run, immigration is likely to increase unemployment and lower the real wage at which workers are compelled to work. In the long run, however, the best possible outcome for both workers and firms is that:

Firms become more profitable and may expand investment and employment.

The following diagram shows Carlos' and Greta's feasible production frontiers and their utility-maximizing choices of consumption between wheat and apples under autarky (no trade).

Greta can consume 3,750 apples and 2,500 tonnes of wheat but will choose not to do so.

The following graph plots the real wage growth of different countries against their unemployment rate, averaged over the period 1970-2011.

If you only cared about wage growth, then European countries have outperformed North American countries.

The figure shows cross-sectional and intergenerational inequality for some countries. Based on this figure, which of the following statements is correct

In Finland, the probability that the child of a high-income father will also have a high income is comparatively low.

Figure 18.20 is a diagram that describes the effects of trade on the employers and the workers in the US and China. The initial size of each economy is normalized to one. The US has the comparative advantage in the capital-intensive goods, while China has the comparative advantage in the labour-intensive goods. As a result of trade the US's economy is assumed to grow by 30% and that of China by 40%.

In the US, the employers are better off while the workers are worse off as a result of trade.

Figure 18.11 depicts the level of immigration into the US as a percentage of the change in the US population.

In the decade prior to the First World War, the number of immigrants was higher than the number of births minus the number of deaths.

Which of the following statements is correct regarding the model of the labour market?

In the short- and medium-run models the amount of capital is fixed, while in the long-run model the amount of capital can vary.

Imagine yourself as a policymaker concerned about the unequal distribution of disposable income, but for political reasons you are unable to implement policies which change market incomes. Which of the following policies might you adopt?

Increase the entitlement to child benefits.

According to the text, Figure 19.5 (shown below) has three main messages for us, which include all of the following EXCEPT

Inequality has essentially been eliminated

We have seen that a gap can exist between the price of a good in its country of production and in the country where it is finally purchased. Price gaps can also exist between the same asset in different countries. Why is arbitrage so much more successful now in eliminating these gaps than it was in the early nineteenth century?

Information about price anomalies is much more widely available today and transactions can be carried out instantaneously. In the early nineteenth century, information was scarce and transactions were slow.

Favourable institutional changes are difficult to bring about because:

Institutional changes are politically sensitive since they involve winners and losers.

Favourable institutional changes are difficult to bring about because:

Institutional changes are politically sensitive since they involve winners and losers.

A country that is running a current account surplus must be:

Lending to other countries.

A country that is running a current account surplus must be:

Lending to other countries.

Figure 16.9b depicts the long-run adjustment process in the labour market after technological progress.

Lower unemployment at E implies a higher wage required to induce workers to exert high effort, resulting in the higher real wage at B.

Does the introduction of a new labour-saving technology result in ...?

Lower wage share of output and higher Gini coefficient in the short run.

In the short run, successive additions to capital produce smaller and smaller increases in output. Which of the following statement(s) could explain why GDP nevertheless continues to rise In the long run?

New capital equipment incorporates the latest technological developments.

A country running a current account surplus buys bonds issued by an overseas government. This action is best described as:

Portfolio investment.

Figure 19.1 shows the inequality in wealth, earnings, and disposable income in the US, Sweden, and Japan using the Gini coefficient.

Sweden attains its relatively equal disposable income distribution through its system of taxes and transfers.

The Leontief paradox pointed out that:

The US's exports were labour-intensive and imports were capital-intensive.

10 years ago, a growing economy enjoyed an increase in GDP of $1,000 per worker per year when net investment increased the capital available to each worker by $5,000. The same level of net investment last year was followed by an increase in GDP of $800. Which of the following describes the situation?

The marginal product of capital is falling.

10 years ago, a growing economy enjoyed an increase in GDP of $1,000 per worker per year when net investment increased the capital available to each worker by $5,000. The same level of net investment last year was followed by an increase in GDP of $800. Which of the following describes the situation?

The marginal product of capital is falling.

Figure 18.3 depicts the supply curve in the exporting country and the demand curve in the importing country in a market for a traded good. Assume that the good is produced exclusively in the exporting country and consumed exclusively in the importing country.

The price gap represents the trade costs, such as transportation costs and trade taxes.

The figure shows Lorenz curves before and after automation (the solid and dashed line, respectively). Prior to automation there are 90 workers who receive a total of 60% of the economy's income. Of these 90 workers, 60 have skills which are substitutes for those of the new robots, while 30 have skills which are complementary to the robots. There are 5 owners who earn 40% of the economy's income, and 5 workers who are unemployed. The total income of the economy increases by 10% due to automation.

The share of the income received by each worker with complementary skills increases by 75%

Figure 16.1 is a graph of unemployment rates for 16 OECD countries from 1960 to 2014.

The unemployment rates of different countries were affected very differently by the oil shocks of the 1970s.

In a country's balance of payments accounts, the current account (CA) consists of:

The value of goods and services exported and imported, together with net earnings from overseas assets acquired in the past.

Sections 16.8 and 16.9 argue that institutional arrangements are an important influence on economic performance. Which of the following is given as an example of favourable institutional change?

UK policy to increase competition in the labour market, 1980-90

Wealth is usually more unequally distributed than earnings, which in turn are more unequally distributed than disposable income. This is mainly because:

Wealth is accumulated savings. Some of this is accumulated by several generations and then passed from parents to children. Earnings are more equally distributed because there is no cumulative effect. Disposable income is more equally distributed still since many governments operate a 'progressive' tax system.

Figure 18.21 is the long-run labour market model for the US as a result of specialization according to its comparative advantage.

With lower unemployment, workers demand higher wages for high effort, resulting in a higher price-setting curve

The following diagram shows Alex's and Jose's feasible production frontiers for oranges and melons.

With trade and specialization, Jose will specialize in the production of oranges while Alex will specialize in the production of melons.

Which term can be defined as "The condition where the inputs a person or country uses to produce a good are less than in some other person or country"?

absolute advantage

Which term can be defined as "The lag between some outside change in labour market conditions and the movement of the economy to the neighbourhood of the new equilibrium"?

adjustment gap

Which term can be defined as "A means of pooling savings across households in order for a household to be able to maintain consumption when it experiences a temporary fall in income or the need for greater expenditure"?

co-insurance

Which term can be defined as "The condition where the cost of producing an additional unit of some good relative to the cost of producing another good is lower than another person or country's cost to produce the same two goods"?

comparative advantage

Which term can be defined as "The process by which old technologies and the firms that do not adapt are swept away by the new, because they cannot compete in the market"?

creative destruction

Which term can be defined as "The excess of the value of a country's imports over the combined value of its exports plus its net earnings from assets abroad"?

current account deficit

Which term can be defined as "The condition where doubling all of the inputs to a production process more than doubles the output"?

economies of scale

Which term can be defined as "The probability that an asset will be taken from its owner by the government or some other actor"?

expropriation risk

Which term can be defined as "A quantity measured per unit of time"?

flow

Which term can be defined as "A process by which the economies of the world become increasingly integrated by the freer flow across national boundaries of goods, investment, finance, and to a lesser extent, labour"?

globalization

Which term can be defined as "The proportion of a worker's previous pre-tax wage that is received when unemployed"?

gross unemployment benefit replacement rate

Which term can be defined as "The stock of knowledge, skills, behavioural attributes, and personal characteristics that determine the labour productivity or labour earnings of an individual"?

human capital

Which term indicates that only technology and the economy's institutions are exogenous in a model?

long run

Which term can be defined as "Tending to move in the same direction as aggregate output and employment over the business cycle"?

procyclical

Which term can be defined as "Taxes, monetary, and in-kind transfers of the government that result in a distribution of final income that differs from the distribution of market income"?

redistribution policy

Which term can be defined as "An expenditure or transfer that increases the incomes of richer households by more than poorer households, in percentage terms"?

regressive policy

Which term can be defined as "Money sent home by international migrant workers to their families or others in the migrants' home country"?

remittances

Compared with autarky (a situation where countries try to be self-sufficient and do not engage in trade), the combination of specialisation and trade is likely to

shift the feasible consumption frontier to the right of the feasible production frontier.

Which term indicates that prices, wages, the capital stock, technology, and institutions are all exogenous in a model?

short run

Which term can be defined as "The condition where a country or some other entity produces a more narrow range of goods and services than it consumes"?

specialization

Which term can be defined as "A minimum level of pay laid down by law, for workers in general or of some specified type"?

statutory minimum wage

Figure 18.18 depicts the feasible frontier and the consumption frontier of Carlos and Greta if they specialize and trade. The resulting relative price of wheat is assumed to be 2.

Carlos trades 4,000 of his apples for 2,000 tonnes of Greta's wheat.

Which term can be defined as "The extent of a person's advantage in securing a larger share of the economic rents made possible by an interaction"?

bargaining power

Which term can be defined as "Profits in excess of the opportunity cost of capital that an innovator gets by introducing a new technology, organizational form, or marketing strategy"?

innovation rents

Which term can be defined as "The percentage difference in the second generation's status that is associated with a 1% difference in the adult generation's status"?

intergenerational elasticity