EC 302 Final Exam Practice
Factors that shifts the AD curve include ____________.
autonomous consumption
The IS curve shifts to the left when __________.
autonomous investment decreases
r: 0.04 Y1: $10000 Y2: $40000 W: $40000 Using the info above, how much should this individual spend in period 1 if they wish to spend $80000 in period 2?
$11538.46
An economy's production function is Y=AK^0.3L^0.7, and the economy's total output in equilibrium is $90 billion. Total capital income in the economy is
$27 billion
If output per worker in a steady state is $30000, depreciation is 13%, the population growth is 2%, and the saving rat4e is 20%, what is the steady state capital-labor ratio?
$40000
According to supply-side theory, a cut in taxes will tend to cause _________.
an increase in the amount of total tax revenue collected
In an economy with production function Y=1.5XK^0.3L^0.7, K=343, and L=512. If a factor markets are in equilibrium, then the rental price of capital is (approximately) ______________.
0.6
An economy with population 500 million has a research and development productivity of 0.0005, and its output per person has risen from one period to the next along its balanced growth path from 350 to 362.5. The fraction of this economy's population engaged in research and development is _____________.
10%
video games: year 1 price: 40 year 1 output: 100 year 2 price: 40 year 2 output: 120 year 3 price: 45 year 3 output: 150 energy drinks: year 1 price: 2 year 1 output: 500 year 2 price: 2.5 year 2 output: 550 year 3 price: 2.5 year 3 output: 600 Based on the table "Real and Nominal GDP," if year one is the base year, then the inflation rate in year three is ___________.
14.6%
The IS curve is Y=20-1.5r, and the aggregate demand curve is Y=15.5-0.3pi. When the interest rate is 7%, the inflation rate is __________ percent.
20
C=2 I=3 G=1.45 T=1.6 NX=1 mpc=0.50 c=0.05 d=0.3 x=0.15 f=2 Given the values in the table above, the real interest rate r= _______ when equilibrium output Y=10.
3.3
According the graph above, the expansion that began in December 1914 had a duration of ________.
44 months
video games: year 1 price: 40 year 1 output: 100 year 2 price: 40 year 2 output: 120 year 3 price: 45 year 3 output: 150 energy drinks: year 1 price: 2 year 1 output: 500 year 2 price: 2.5 year 2 output: 550 year 3 price: 2.5 year 3 output: 600 Based on the table "Real and Nominal GDP," if year one is the base year, then the real GDP in year three, is __________.
7200
Demonstrate graphically the effect of "crowding out."
A decline in savings results from "crowding out."
Compare and contrast what the Romer model would suggest would be the result of 2) a policy that focuses on making existing technology more efficient for all workers.
An increase in productiveness of research and development immediately leads to higher per-capita growth
r: 0.04 Y1: $10000 Y2: $40000 W: $40000 Using the info above, determine where the consumption line intersects both axis
C1: $88461.54 C2: $92000
The fundamental identity of national income accounting implies _______________.
Expenditure=production=income
Suppose a wave of immigration increases the number of workers in research and development without altering the labor input in production. Describe the impact on the level of growth rate of output per worker, immediately, and as time passes.
If a wave of immigration increases the number of workers in the research and development, then a rise in the fraction of population engaged in research and development decreases short-run per-capita output but leads to a permanent increase in per-capita output growth
In the 1970s, nominal interest rates in the United States were quite high, while real interest rates were extremely low. Which group "wins" in this circumstance, lenders or borrowers? What might explain the willingness of the "losers" to accept disadvantageous loan terms?
In this circumstance, borrowers are more likely to win because the real interest rate is a measure of how much return you owe when borrowing money. If interest rates are low, borrowers are more likely to borrow more money. A lender would accept these loan terms because the borrowers are more likely to take out a larger loan resulting in the lenders make more money.
Consider an economy with the production function y=20kt^1/3. If the depreciation rate is 12.5% and savings rate is 10%, calculate the change in consumption per capita if the savings rate were to triple4.
The change in consumption per capita is about 25 if the savings rate were to triple.
Describe the different aspects of monetary policy that cause a shift in the MP versus moving to a different point along the same MP curve.
There are important aspects that cause a shift in the MP curve. Autonomous tightening of monetary policy causes the monetary policy curve to experience a shift upwards to reduce inflation. Autonomous easing of monetary policy causes the monetary policy curve to experience a shift downwards to stimulate the economy. Movement along the monetary curve is caused by changes in the real interest rate
Compare and contrast what the Romer model would suggest would be the result of 1) a policy that encourages factory workers to go back to school
There would be an increase in productiveness of workers in the short-run then a permanent increase in the output per capita growth
Does the function F(K,L)=3K^0.2L^0.8 have constant returns to scale? Demonstrate algebraically.
This function does have constant returns to scale
According to the permanent income hypothesis, the impact of ______________.
a change in permanent income on consumption is greater than the impact resulting from a change in transitory income
The substitution effect that occurs when interest rates change involves a change in consumption that develops from _____________.
a change in the relative prices of consumption in the two periods
A higher rate of saving at the national level will, in the long-run ____________.
cause an increase in levels of capital and output
Along any single indifference curve the __________.
consumer is equally satisfied with any of the combinations of goods
Countries with different initial levels of per capita income may gravitate to a similar level of per capital income. Economists call this phenomenon _________________.
convergence
Assume that the per-worker production function is yt=2kt^0.5. The savings rat4e is 0.20 and the depreciation rate is 0.15. Calculate the consumption per worker at the steady state
ct=4.267
Keynesians believe ____________.
that the government should pursue active policies to stabilize economic fluctuations
If an economy invests more than it loses through depreciation ______________.
the capital stock will expand
When the US real interest rate falls, imports _____________ and exports ___________.
decrease; increase
The loss of capital due to the wearing out of machines is known as ______________.
depreciation
If capital per-worker is rising, then _____________.
depreciation is less than investment
An intertemporal budget constraint ____________.
describes how much a person can consume today versus tomorrow
The after-tax income received by the household sector is known as ____________.
disposable income
Private saving refers to _____________.
disposable income minus consumption expenditure
Population growth is similar to depreciation, in that _____________.
each lowers the capital-labor ratio
When the US real interest rate falls ____________.
imports will decrease
The output of an economy can produce with one unit of capital and one unit of labor is ___________.
indicated by the A variable in the Cobb-Douglas production function
A major contribution of the Solow model is its _______________.
insight into what distinguishes rich economies from poor economies
In a closed economy ____________.
investment equals savings
The reason only newly produced goods and services are counted in GDP is that __________________.
it allows economists to avoid double counting the production of goods and services
Assume that the per-worker production function is yt=2kt^0.5. The savings rat4e is 0.20 and the depreciation rate is 0.15. Calculate the capital-labor ratio steady state for the economy
k=7.11
Governments that steal from their own citizens are known as ____________.
kleptocracies
Referring to the graph above, an economic variable that had peaked in December 1911, November3 1914, and February 1919 is likely a __________ variable.
leading countercyclical
Discounting involves dividing next-period income by ____________
one plus the real rate of interest
If the quantities of labor and capital in an economy with a Cobb-Douglas production function each increase by the same x percent, which of the following will increase by x percent?
output
"Crowding out" refers to the decrease in ___________ that may result from an increase in government spending.
private investment
According to Ricardian Equivalence, consumers may not respond to a tax cut ____________.
since they understand a tax cut today will lead to a tax increase in the future
The Romer model is distinct from the Solow model in that the former assumes that __________________.
some labor is devoted to producing new technology
The Romer model is distinct from the Solow model in that the former assumes that ____________.
technology is fixed
The per-worker production function flattens out due to ___________.
the diminishing marginal product of capital
A change in which of the following can change the long-run growth rate of the economy in the Romer model?
the fraction of the population engaged in and the productiveness of research and development
Increases in _______________ typically lead to decreases in consumption
the interest rate
The rate at which a consumer is willing to give up consumption in one period for additional consumption in another is known as ___________
the marginal rate of substitution
When people are holding money in excess of their demand for real money balances ____________.
the nominal interest rate will fall
As the nominal interest rate increases ________________.
the opportunity cost of holding money rises
Which of the following is not true of all indifference curves?
the point at which one indifference curve intersects another represents an optimal consumption basket
The optimal level of consumption is achieved when __________.
the slope of the indifference curve is equal to the slope of the budget line
In the permanent income hypothesis, income is divided into _______________.
transitory and permanent income
Diminishing marginal product means that ______________.
when adding extra units of a single input, output increases become smaller
