Macro 4

(The Economy Question 16.6) 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.

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.

(The Economy Question 18.5) 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). Based on this information, which of the following statements is correct?

Regardless of the shape of the indifference curves (which could be different from those depicted in the diagram), Greta will always choose to consume more of both goods than Carlos.

The profit-maximising mark-up declines as the number of firms increases. This is because:

The larger the number of firms, the more competitive the system is likely to be.

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.

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.

(The Economy Question 18.3) 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.

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.

(The Economy Question 18.6) 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. Let the resulting consumption be at A and B, respectively, for Greta and Carlos. Then which of the following statements is correct?

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

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.

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.

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 Economy Question 16.4) 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. Based on this information, which of the following statements is correct?

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

(The Economy Question 16.7) Figure 16.9b depicts the long-run adjustment process in the labour market after technological progress. Based on this information, which of the following statements is correct?

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

(The Economy Question 16.8) 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.

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 mobility of capital and its preference for low taxation and regulation form the basis for Rodrik's trilemma. This states that:

Large-scale globalization is inconsistent with democracy and national government.

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

Tariff protection.

(The Economy Question 18.9, modified) Figure 18.21 is the long-run labour market model for the US as a result of specialization according to its comparative advantage. The US has a comparative advantage in the production of capital-intensive aircraft, while China, its trade partner, has a comparative advantage in the production of labour-intensive consumer electronics. Before trade, the German labour market equilibrium is at A. Which of the following statements are correct?

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

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 "No tendency to move either in the same or opposite direction to aggregate output and employment over the business cycle"?

acyclical

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

flow

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.

Favourable institutional changes are difficult to bring about because:

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

We expect the diffusion of new technology to raise both the real wage and the level of employment. But this takes time, during which some people may lose out. These include:

Older, less-adaptable, workers.

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.

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.

(The Economy Question 18.2, modified) 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.

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.

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.

(The Economy Question 16.10) The following is a plot of unemployment rate and trade union density for the period 2000-2012. Trade union density is defined as the fraction of employees who are union members. Based on this information, which of the following statements is correct?

Given the trade union density, the relative unemployment outcomes indicate that inclusiveness of trade unions is higher in Norway than in Belgium.

(The Economy Question 16.9) The following graph plots the real wage growth of different countries against their unemployment rate, averaged over the period 1970-2011. Based on this information, which of the following statements is correct?

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

(The Economy Question 18.8) 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%. Based on this information, which of the following statements is correct?

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

(The Economy Question 18.4) Figure 18.11 depicts the level of immigration into the US as a percentage of the change in the US population. Based on this information, which of the following statements is correct?

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.

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.

Global integration may encourage economic growth through a number of channels. Which of the following is unlikely to contribute to economic growth in a context of increasing global integration?

Learning by doing.

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

Lending to other countries.

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

Portfolio investment.

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.

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.

The widespread introduction of new technology into an economy takes time. The length of time between first appearance and general acceptance is known as:

The diffusion gap.

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.

(The Economy Question 16.3) 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.

(The Economy Question 18.1) 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. Based on this information, which of the following statements is correct?

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

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.

(The Economy Question 16.11, modified) Figure 16.18 is a graph of the share of employment in manufacturing industry in different countries. Based on this information, which of the following statements are correct?

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

(The Economy Question 16.1) Figure 16.1 is a graph of unemployment rates for 16 OECD countries from 1960 to 2014. Based on this information, which of the following statements is correct?

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

(The Economy Question 18.7, modified) The following diagram shows Alex's and Jose's feasible production frontiers for oranges and melons. Based on this information, which of the following statements are correct?

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 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 "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 "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 "Tending to move in the opposite direction to aggregate output and employment over the business cycle"?

countercyclical

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 excess of the combined value of its exports and net earnings from assets abroad over the value of its imports"?

current account surplus

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 state which holds when a good is traded at the same price across all buyers and sellers"?

law of one price

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

long run

Which term can be defined as "Measures taken by a government to limit trade"?

protectionist 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

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

short run