EC 308 Exam 2

If the steady-state rate of unemployment equals 0.10 and the fraction of employed workers who lose their jobs each month (the rate of job separations) is 0.02, then the fraction of unemployed workers who find jobs each month (the rate of job findings) must be: 0.02 0.08 0.10 0.18

0.18

Assume that the money demand function is (M / P)d = 2,000 - 100r, where r is the interest rate in percent. The money supply M is 2,000, and the price level P is 2. The equilibrium interest rate is ______ percent. 5 10 15 20

10

What was the median replacement rate of the unemployment insurance during the COVID pandemic? 50% 100% 114% 134%

134%

If y = k1/2, the country saves 20 percent of its output each year, and the steady-state level of capital per worker is 16, then the steady-state levels of output per worker and consumption per worker are: Answers: 2 and 1.6, respectively. 2 and 1.8, respectively. 4 and 3.2, respectively. 4 and 3.6, respectively.

4 and 3.2, respectively.

If the labor force is growing at a 3 percent rate and the efficiency of a unit of labor is growing at a 3 percent rate, then the number of effective workers is growing approximately at a rate of: 2 percent 3 percent 5 percent 6 percent

6 percent

If the number of employed workers equals 200 million and the number of unemployed workers equals 20 million, the unemployment rate equals ______ percent (rounded to the nearest percent). 0 9 11 20

9

If y = k1/2, there is no population growth or technological progress, 5 percent of capital depreciates each year, and a country saves 15 percent of output each year, then the steady-state level of capital per worker is: 2 4 9 16

9

If the capital stock equals 100 units in year 1 and the depreciation rate is 5 percent per year, then in year 2, assuming no new or replacement investment, the capital stock would equal _____ units. 110 100 95 90

95

Unions contribute to structural unemployment when collective bargaining results in wages: above the equilibrium level. below the minimum wage. below the equilibrium level. above the level of unemployment compensation.

above the equilibrium level.

The equilibrium condition in the Keynesian-cross analysis in a closed economy is: income equals consumption plus investment plus government spending. planned expenditure equals consumption plus planned investment plus government spending. actual expenditure equals planned expenditure. actual saving equals actual investment.

actual expenditure equals planned expenditure.

An LM curve shows combinations of: taxes and government spending. nominal money balances and price levels. interest rates and income, which bring equilibrium in the market for real money balances. interest rates and income, which bring equilibrium in the market for goods and services.

interest rates and income, which bring equilibrium in the market for real money balances.

Exhibit: Output, Consumption, and InvestmentIn this graph, when the capital stock per worker is OA, AB represents: investment per worker, and AC represents consumption per worker. consumption per worker, and AC represents investment per worker. investment per worker, and BC represents consumption per worker. consumption per worker, and BC represents investment per worker.

investment per worker, and BC represents consumption per worker.

According to the theory of liquidity preference, the supply of real money balances: decreases as the interest rate increases. increases as the interest rate increases. increases as income increases. is fixed by the central bank.

is fixed by the central bank.

One reason for unemployment is that: it takes time to match workers and jobs. all jobs are identical. the labor market is always in equilibrium. a laid-off worker can immediately find a new job at the market wage.

it takes time to match workers and jobs.

Which of the following statements about minimum-wage workers in the United States is not correct: minimum-wage workers are more likely to be male. minimum-wage workers are more likely to work part time. minimum-wage workers are more likely to be less educated. minimum-wage workers are more likely to be young.

minimum-wage workers are more likely to be male.

Two economies are identical except that the level of capital per worker is higher in Highland than in Lowland. The production functions in both economies exhibit diminishing marginal product of capital. An extra unit of capital per worker increases output per worker: more in Highland. more in Lowland. by the same amount in Highland and Lowland. in Highland but not in Lowland.

more in Lowland.

Planned expenditure is a function of: planned investment. planned government spending and taxes. planned investment, government spending, and taxes. national income and planned investment, government spending, and taxes.

national income and planned investment, government spending, and taxes.

According to efficiency-wage theories, firms benefit by paying higher-than-equilibrium wages because worker _____ increases. productivity turnover unionization shirking

productivity

Other things being equal, all of the following government policies are likely to increase national saving except: decreasing taxes on savings accounts. running a budget deficit. running a budget surplus. retiring part of the national debt.

running a budget deficit.

If s is the rate of job separation, f is the rate of job finding, and both rates are constant, then the steady state unemployment rate is approximately: Answers: f / (f + s). (f + s) / f. s / (s + f). (s + f) / s.

s / (s + f)

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

saving; increased

Investment per worker (i) as a function of the saving ratio (s) and output per worker (f (k)) may be expressed as: s + f (k) s - f (k) sf (k) s / f (k)

sf (k)

Unemployment insurance increases the amount of frictional unemployment by: making workers more frantic in their search for new jobs. inducing workers to accept the first job offer that they receive. making employers more reluctant to lay off workers. softening the economic hardship of unemployment.

softening the economic hardship of unemployment.

The unemployment resulting when real wages are held above equilibrium is called ______ unemployment, while the unemployment that occurs as workers search for a job that best suits their skills is called ______ unemployment. efficiency; inefficiency efficiency; structural frictional; efficiency structural; frictional

structural; frictional

According to the Solow model, persistently rising living standards can only be explained by: population growth. capital accumulation. saving rates. technological progress.

technological progress.

Two interpretations of the IS-LM model are that the model explains: the determination of income in the short run when prices are fixed or what shifts the aggregate demand curve. the short-run quantity theory of income or the short-run Fisher effect. the determination of investment and saving or what shifts the liquidity preference schedule. changes in government spending and taxes or the determination of the supply of real money balances.

the determination of income in the short run when prices are fixed or what shifts the aggregate demand curve.

The interaction of the IS curve and the LM curve determines: the price level and the inflation rate. the level of output and the price level. investment and the money supply. the equilibrium level of the interest rate and output.

the equilibrium level of the interest rate and output.

The IS curve shifts when any of the following economic variables change except: the interest rate. government spending. taxes. the marginal propensity to consume.

the interest rate.

When f (k) is drawn on a graph with increases in k noted along the horizontal axis, the slope of the curve denotes: output per worker. output per unit of capital. the marginal product of labor. the marginal product of capital.

the marginal product of capital.

The number of effective workers takes into account the number of workers and the: amount of capital available to each worker. rate of growth of the number of workers. efficiency of each worker. saving rate of each worker.

efficiency of each worker.

The government-purchases multiplier indicates how much ______ change(s) in response to a $1 change in government purchases. the budget deficit consumption income real balances

income

The tax multiplier indicates how much ______ change(s) in response to a $1 change in taxes. the budget deficit income consumption real balances

income

One efficiency-wage theory implies that firms pay high wages because: this practice increases the problem of moral hazard. in wealthy countries, it is important to pay workers high wages to improve their health. the more a firm pays its workers, the greater their incentive to stay with the firm. paying high wages promotes adverse selection.

the more a firm pays its workers, the greater their incentive to stay with the firm.

When the unemployment rate is at a steady state: no hiring or firings are occurring. the number of people finding jobs equals the number of people losing jobs. the number of people finding jobs exceeds the number of people losing jobs. the number of people losing jobs exceeds the number of people finding jobs.

the number of people finding jobs equals the number of people losing jobs.

The IS-LM model takes ______ as exogenous. the price level and national income the price level national income the interest rate

the price level

In the Keynesian-cross model, if the MPC equals 0.75, then a $1 billion increase in government spending increases planned expenditures by ______ and increases the equilibrium level of income by ______. $2 billion; $4 billion $1 billion; $4 billion $0.75 billion; $0.75 billion $1 billion; $2 billion

$1 billion; $4 billion

Which of the following is an example of frictional unemployment? Dave searches for a new job after voluntarily moving to San Diego. Elaine is willing to work for less than the minimum wage, but employers cannot hire her for less than the minimum wage. Bill is qualified and would like to be an airline pilot, but airlines do not find it profitable to hire him at the wage established by the airline pilots' union. Joan is willing to work for less than the going wage, but there are no jobs available.

Dave searches for a new job after voluntarily moving to San Diego.

A tax cut shifts the ______ curve to the right, and the aggregate demand curve ______. IS; shifts to the right IS; does not shift LM; shifts to the right LM; does not shift

IS; shifts to the right

Which of the following is the best example of structural unemployment? Tim is looking for a job with flexible hours but has not been offered one yet. Vickie lost her job as a graphic artist at a movie studio because she did not have training in computer-generated animation. Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available. Fatima lost her job at a packing plant but has not looked very intensively for a new job because she still has two months of unemployment insurance benefits left.

Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available.

An increase in the money supply shifts the ______ curve to the right, and the aggregate demand curve ______. IS; shifts to the right IS; does not shift LM; shifts to the right LM; does not shift

LM; shifts to the right

If Y = K0.2L0.8, then the per-worker production function is: Y = F(K / L). Y / L = (K / L)0.2. Y / L = (K / L)0.6. Y / L = (K / L)0.8.

Y / L = (K / L)0.2

Exhibit: Keynesian CrossIn this graph, the equilibrium levels of income and expenditure are: Y1and PE1. Y2and PE2. Y3and PE3. Y3and PE4.

Y2and PE2.

Which of the following characteristics made the 2008-2009 recession differ most sharply from previous recessions? a large spike in the duration of unemployment a large increase in teenage unemployment higher rates of female unemployment than rates of male unemployment an increase in the rate of job separation and a decrease in the rate of job finding

a large spike in the duration of unemployment

In the Solow growth model, if investment is less than depreciation, the capital stock will ______, and output will ______ until the steady state is attained. increase; increase increase; decrease decrease; decrease decrease; increase

decrease; decrease

An explanation for the slope of the IS curve is that as the interest rate increases, the quantity of investment ______, and this shifts the expenditure function ______, thereby decreasing income. increases; downward increases; upward decreases; upward decreases; downward

decreases; downward

The simple investment function shows that investment ______ as ______ increases. decreases; the interest rate increases; the interest rate decreases; government spending increases; government spending

decreases; the interest rate

Paying efficiency wages helps firms reduce the problem of moral hazard by: generating additional profits that can be used to improve working conditions. matching the wages each worker is paid to the number of units of output each worker produces. encouraging unsupervised workers to maintain a high level of productivity. providing an incentive for the best-qualified workers to remain with the firm.

encouraging unsupervised workers to maintain a high level of productivity.

International differences in income per person in accounting terms must be attributed to differences in ______ and/or ______. factor accumulation; production efficiency constant returns to scale; the marginal product of capital unemployment rates; depreciation rates consumption; interest rates

factor accumulation; production efficiency

In the IS-LMmodel when M / P rises, in short-run equilibrium, in the usual case the interest rate ______ and output ______. rises; falls rises; rises falls; rises falls; falls

falls; rises

Equilibrium levels of income and interest rates are ______ related in the goods and services market, and equilibrium levels of income and interest rates are ______ related in the market for real money balances. positively; positively positively; negatively negatively; negatively negatively; positively

negatively; positively

With population growth at rate n and labor-augmenting technological progress at rate g, the Golden Rule steady state requires that the marginal product of capital (MPK): net of depreciation be equal to n + g. net of depreciation be equal to the depreciation rate plus n + g. plus n be equal to the depreciation rate plus g. plus g be equal to the depreciation rate plus n.

net of depreciation be equal to n + g.

Discouraged workers are counted as: part of the labor force. out of the labor force. employed. unemployed.

out of the labor force.

Suppose that an economy is in its steady state and the capital stock is above the Golden Rule level. Assuming that there are no population growth or technological change, if the saving rate falls: output, consumption, investment, and depreciation will all decrease. output and investment will decrease, and consumption and depreciation will increase. output and investment will decrease, and consumption and depreciation will increase and then decrease but finally approach levels above their initial state. output, investment, and depreciation will decrease, and consumption will increase and then decrease but finally approach a level above its initial state.

output, investment, and depreciation will decrease, and consumption will increase and then decrease but finally approach a level above its initial state.

In the Solow growth model the demand for goods equals investment: minus depreciation. plus saving. plus consumption. plus depreciation

plus consumption.

Wage rigidity: forces labor demand to equal labor supply. is caused by sectoral shifts. prevents labor demand and labor supply from reaching the equilibrium level. increases the rate of job finding.

prevents labor demand and labor supply from reaching the equilibrium level.

The generosity of unemployment insurance benefits is measured by: the replacement rate and the duration of benefits. the median wage and the unemployment rate. the price level and duration of unemployment. the job-finding rate and the job-separation rate.

the replacement rate and the duration of benefits.

All of the following are causes of structural unemployment except: minimum-wage laws. the monopoly power of unions. unemployment insurance. efficiency wages.

unemployment insurance.

A decrease in the real money supply, other things being equal, will shift the LM curve: downward and to the left. upward and to the left. downward and to the right. upward and to the right.

upward and to the left.

If two economies are identical (with 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. will be at a higher level than in the steady state of the high-saving economy. will be at the same level as in the steady state of the high-saving economy. will grow at a slower rate than in the high-saving economy.

will be at a lower level than in the steady state of the high-saving economy.