Econ midterm 2

An increase in the number of bank failures will MOST likely cause the reserve-deposit ratio to:

increase

If countries A and B have identical production function and saving rates but A has a higher depreciation than B,

then A will have a lower saving rate per working in steady state

When the economy is at the steady state and the saving ate increases, the growth rate of output per worker

will be positive until the economy reaches a new steady state

In 2015, a country has a labor force of L=100. The growth rate of labor augmenting technological progress is g = 0.03. In 2016:

the average worker is as producitve as 1.03 workers in 2015

Thomas Malthus: predicted that pressures of an increase population

extended poverty

Capital stock per worker increases when:

sy> δk.... when investment exceeds depreciation

Ratio k + K/ (E x L) is called

capital per effective worker

In Solow model, demand consists of consumption and

investments

Depreciation function

δk increases at constant rate

An economy has the production function y = k1/2. It has a saving rate of s = 0.20, a depreciation rate of δ = 0.03, a population growth rate of n = 0.05, and a rate of labor-augmenting technological progress of g = 0.02. This implies that in the steady state, output per effective worker grows at _____ percent

0

In the U.S. in the last 65 years, the rate of growth rate of total factor productivity (TFP) was highest during

1950s and 1960s

According to the text, if economies converge, that is, the gap in income per person becomes smaller, then this gap shrinks on average by about ____ percent per year

2

In 1946 to 1972, output per person grew at a rate of about 2 % per year in the U.S. and about

8% in Japan

The Solow growth model assumes that the production function has ____ returns to scale

Constant

Solow growth model assumes a production function with

Constant returns to scale and a diminishing marginal product of capital

Two countries have the same production function, y = k1/2, and both countries are characterized by δ = 0.04, n = 0.01, and g = 0.03. The only differences are that country A has a higher saving rate than country B. Country A has capital per effective worker of kA = 4 country, and country B has capital per effective worker of kB = 6. According to the Solow model:

Country A will converge to a steady state with a higher output per effective worker than Country B.

capital markets in countries with legal systems based on English-style common-law tend to allocate resources more efficiently that those in countries with legal traditions that evolved from the French Napoleonic Code. All of the following nations base their legal systems on English-style common law EXCEPT:

France

Investment per worker equation

I = s x f(k)

The saving rate can be increased by _____ public saving, _____ private saving.

Increasing both public and private saving

Knowledge of which facts makes it possible to determine the marginal product net of depreciation?

K/Y, depreciation as a percent of output per worker, (R x K) / Y as a share of income

The following sequence correctly orders the countries from lowest standard of living to the highest standard of living in 2012

Pakistan; Indonesia; Brazil; Russia

_____ members of the U.S. Federal Open Market Committee are appointed by the president of the United States and confirmed by Congress.

Some

third factor that could cause both more efficient use of the factor of production and a higher level of accumulated factors of production could be all of the following except

a wide disparity between the incomes of highest and lowest earners

From 2007 to 2014, the U.S. monetary base increased about 400 percent but M1 increased by only about 100 percent. This occurred because:

banks wanted to hold more reserves during the financial crisis and economic downturn of this period.

Solow growth models predicts that returns to capital measured by the real rental price of capital will ___ over time; Karl Marx predicted that returns to capital will ____ over time

be constant; decrease

According to the text, the prediction of the Solow model that real wages in the United States will rise on average at the same rate as technological progress has _____ since 1965.

been roughly true on average over

In the Solow model with labor-augmenting technological growth, the Golden Rule level of capital per effective worker is defined as the steady state that maximizes

consumption per effective worker

Two methods to determine the Golden Rule capital Level, looking at steady-state:

consumption, or comparing the marginal product of capital to the depreciation rate

Economic growth theories tries to explain the reasons that income per capita varies across ___ and over time

countries

A decrease in the confidence of consumers in the banking system caused by bank failures would cause the _____ ratio to increase and the money multiplier to _____:

currency-deposit; decrease

Governments can promote economic growth in all the following ways EXCEPT

declaring some companies are too big to fail

In a fractional-reserve banking system, banks keep as reserves a fraction of customer:

deposits in the banks' vaults or at the Federal Reserve.

International findings suggest that countries converge to ____ steady states

different

Data about income from about 100 countries from 1960 to 2010 indicates that:

different investment shares of output explain some, but not most, of the variation in income per person among countries

According to the text, convergence of economies as measured by a shrinking gap in income per person, Y / L, is observed among:

economies that are similar in economic culture and policies but not among all economies.

According to the Solwo model, international differences in income per person primarily can be attributed to either differences in _____ or differences in _____/

efficiency; factors of production

Technological progress in the Solow model occurs at the rate, g, which is taken to be __________to the model

exogenous

According to some economists, the U.S. Federal Reserve might have reduced the severity of the Great Depression if it had:

increased the monetary base even more than it did.

in the slow model, with labor augmenting technological progress and population growth, the steady-state growth rate of output per worker, Y/L is:

g

An economy in the steady state has a marginal product of capital of 9 percent, a rate of depreciation of 4 percent, a population growth rate of 1 percent, and rate of technological progress of 2 percent. This economy must ___ in order to reach the golden rule Capital

increase the capital stock

When the capital stock per worker (k) is lower than the steady-state capital stock per worker (k*), the capital stock per worker MOST likely will:

increase, because investment exceeds depreciation (vice versa: if k>k*, MPK shrink because depreciation exceeds investment)

If the economy improves following the economic downturn of 2007-2008, the U.S. Federal Reserve will MOST likely _____ the interest paid on reserves in order to _____ bank lending.

increase; discourage

Growth accounting explains output growth as all of the following EXCEPT:

increases in investment input. (explains 3 things: advances in technology, increases in labor input, and increase in capital input)

If a country begins in steady state, but would like to increase the standard of living as measured by output per worker, then the Solow growth model suggests that

increasing the saving rate will increase the standard of living

Two countries have identical production functions, If Argo has a higher saving rate Beaurepaire, and Argo has a higher rate of depreciation

it is indeterminate who has a higher steady-state capital stock per worker

According to the text, the assumption that capital has constant returns to scale may be plausible if capital is interpreted to include:

knowledge

Increase in saving rate

lead to a level effect but no growth effect

If the production function is y=k^(1/2), s-0.4, n=0.02, and δ=0.08, then the steady-state level of capital per worker is _________ Golden Rule level

less than because in Golden Rule, MPK= δ

Country A and B have identical production functions, y=f(k) but A has a higher saving rate than B. This implies that, for identical levels of capital per worker, Anastasia has:

lower consumption per worker than Beersheba

when the depreciation rate is constant, as in the Solow Model, an economy with more capital per worker has to invest _____ a country with a lower k in order to keep constant its stock of capital per worker

more than a country with a lower k

Studies suggest that more efficient factors of production are positively correlated with higher accumulation of factors of production. This may be explained by all the following EXCEPT:

nations with high levels of physical capital tend to use those factors efficiently, but this correlation does not hold for nations with high levels of human capital

_____ are included in the money supply.

neither checks or debit cards

If bankers become more cautious because of bank failures, they would increase the _____ ratio and the money multiplier would _____.

reserve deposit; decrease

When the private returns to research and development activities within a firm are 4 percent, and the societal returns are 10 percent, research and development activities have ____ externalities

positive

When the private returns to research and development activities within a firm are 4 percent, and the societal returns are 10 percent, research and development have ___ externalities

positive (pos. when social excel private)

A study by Jeffrey Frankel and David Romer concluded that trade and income levels of a country are ____ correlated

positively

If MPK > δ + n in the steady state, then the slope of the _____ is larger than the slope of break-even investment and increasing the steady-state capital per worker will _____ consumption per worker.

production function; increase

If the monetary base doubles while the money supply also doubles, then the money multiplier:

remains the same

According to the text, which of the four hypotheses advanced to explain the productivity slowdown beginning in the early 1970s is LEAST likely to be the cause

rise in oil prices

Suppose that an economy has reached the Golden Rule steady state and then, because of favorable economic policies, the rate of technological progress increases. In order the return to the Golden Rule steady state, the saving rate would need to:

saving rate need to decrease

saving function:

sf(k) increases at a decreasing rate

Suppose that an economy has reached the Golden Rule steady state and then, because of favorable economic policies, the rate of technological progress increases. The new Golden Rule level of capital per effective worker will be _____ the original level.

smaller

Investment in the two-sector model is determined by the saving rate and total output. Break-even investment is determined by (δ + n + g(u)k. The intersection of the investment curve and the break-even investment curve determines the:

steady-state level of capital per effective worker.

Natural disaster destroys most of the capital stock in a country. Assuming the saving rate is unchanged, as the capital stock per worker adjusts, the Solow growth model does NOT predict a that

there will be positive growth rates for all subsequent periods

An economy begins with less capital than the Golden Rule level, and the saving rate is increased. Initially, MOST consumers will be

worse off

o Cobb Douglas production function Y=K^1/2L^1/2 rearranged into the ouput of worker function

y=k^1/2

Two countries have the same production function, y = k1/2, and both countries are characterized by δ = 0.04, s = 0.24, n = 0.02, and g = 0.02. The only difference is that country A has capital per effective worker of kA = 6, and country B has capital per effective worker of kB = 4. According to the text, country B:

will grow faster than country A until the steady state is reached.

An economy in the steady state has a marginal product of capital of 7 percent, a rate of depreciation of 3 percent, a population growth rate n of 1 percent, and rate of technological progress of g = 2 percent. This economy should achieve the Golden Rule capital per effective worker if the saving rate were:

increased