Macroeconomics Exam 2

(Figure: Labor Market) Refer to the figure. What is the unemployment rate in this market as a result of the implementation of a $10 minimum wage?

5o%

Imagine an economy with production function Y = F(K) = and 400 units of capital. If the fraction of output invested in new capital is γ = 0.2, the depreciation rate is δ = .05, and the economy starts with output of 20, what does the Solow model predict will happen to output in the long run?

It will increase for a time and then return to 20.

How might changes in marginal tax rates on married couples affect labor force participation rates?

Lower marginal tax rates on married couples encourage higher labor force participation rates by the secondary income earner.

If the median wage is $9 in country X and $8 in country Y and both countries have similar elasticities of labor supply and demand, then a minimum wage of $4 in both countries will tend to:

Make unemployment higher in country Y than in country X.

(Figure: Oil Market Diagrams) Consider the world oil market diagrams presented in the figure. Which of the panels correctly depicts the cause of rises in the price of oil in the early 2000s?

Panel D

From an initial equilibrium in the AD-AS model, an increase in consumption growth will initially cause inflation:

and real growth to increase.

If the money supply, the velocity of money, and the price level are fixed, then increases in real GDP:

are impossible because real GDP must also be fixed.

In the basic model that includes the AD and LRAS curves only, aggregate demand shocks caused by changes in the growth of money supply:

are neutral in both the short run and long run.

(Table: Unemployment Statistics for Country X) Using the data in the table, Country X is likely to be in a recession in:

both 1995 and 2005.

(Table: Consumer Price Index) Refer to the CPI values in the table for the years 2005 to 2010. In which year(s) did the country experience disinflation?

both 2007 and 2009

An unexpected increase in money growth leads to increased inflation in:

both the short run and the long run

If the equilibrium wage is $9 in the market for hotel workers and $8 in the market for restaurant workers and both markets have similar elasticities of labor supply and demand, then a minimum wage of $10 in both markets will:

cause more unemployment among restaurant workers than restaurant workers.

The long-run aggregate supply curve is represented by a vertical line at the Solow growth rate because:

there is an underlying assumption of long-run money neutrality.

If U.S. per capita GDP is $50,000 and grows at 5% per year, what will U.S. per capita GDP be in 70 years?

$1.6 million

Tim buys a house from Betty in 2011 for $200,000. Betty receives $185,000 and $15,000 goes to Mary, the real-estate agent. Betty originally purchased the house in 2007 for $240,000. What value is added to GDP in 2011 for this transaction?

$15,000

(Table: Prices and Quantities in a 4-Good Economy) Suppose an economy produces only the four goods listed in this table. All of the country's tomatoes are used in the production of pizzas. What is the GDP in this country?

$7,200

(Table: Prices and Quantities in a 4-Good Economy) Suppose an economy produces only the four goods listed in this table. What is the GDP in this country?

$7,700

(Table: Three-Good Economy II) Suppose an economy produces only the three final goods shown in the table. The table gives information on the quantities produced and the prices of goods sold in 2008 and 2009. What is the growth rate of real GDP in 2009 if 2008 prices are used in the calculation of real GDP?

-3.71%

Consider a small country with a capital stock equal to 900 units. This year it produced 20 units of new capital goods, with a depreciation rate of 10% and a production function of Y = K1/2. If there is no technological advancement, what will the growth rate in this country be over the next year?

-3.97%

(Table: Three-Good Economy II) Suppose an economy produces only the three final goods shown in the table. The table gives information on the quantities produced and the prices of goods sold in 2008 and 2009. What is the growth rate of real GDP in 2009 if 2009 prices are used in the calculation of real GDP?

1.00%

If a country's real GDP per capita in 1950 was $10,000, and it grew to $20,000 by year 2000, then the country's annual growth rate during this period would have been approximately:

1.4%

Imagine an economy with production function Y = F(K) =(square root) K and 400 units of capital. If the fraction of output invested in new capital increases from γ = 0.2 to γ = 0.5 and the depreciation rate is δ = .05, what is the new steady-state amount of capital?

100 units

Suppose a country's annual growth rate of real GDP per capita is approximately 2%. By which year would the country double its real GDP per capita from $10,000 in 1950 to $20,000?

1985

(Figure: Labor Market) Refer to the figure. If this market is initially in equilibrium when a $10 minimum wage is imposed, the quantity of labor employed will fall by:

20

If the production function in a country is Y = K1/2, the investment rate equals 0.25, and the depreciation rate is 0.05, then the steady-state level of the capital stock is equal to:

25 units

(Table: Wheat and Corn) Consider a country that produces only wheat and corn. Based on the data in the table, the growth rate of nominal GDP from 2005 to 2006 is:

27%

If the production function in a country is Y = K1/2, the investment rate equals 0.25, and the depreciation rate is 0.05, then the steady-state level of output is equal to:

5 units

If real GDP per capita in the United States is currently $50,000 and grows at 2.5% per year, it will take approximately how many years to reach $200,000?

56 years

Suppose economies A and B have the same initial level of GDP per capita at $15,000, and each economy begins with a constant growth rate of 1% per year. (Neither country has good institutions for economic growth at first.) Then Country A enters an era of political stability, establishes property rights, and installs incentives for entrepreneurship. Country A's economic growth rate consequently improves to 5%. Assuming population growth rates remain unaffected, how much longer will it take Country B to double its per capita GDP level compared to Country A?

56 years

A country has 50 million people, 30 million of whom are adults. Of the adults, 5 million are not interested in working, another 5 million are interested in working but have given up looking for work, and 5 million are still looking for work. Of those who do have jobs, 5 million are working part time but would like to work full time, and the remaining 10 million are working full time. What is this country's underemployment rate?

60%

Suppose a country's real GDP per capita was $9,000 in 1990, and it grew to $18,000 by 2000. What is the annual growth rate of the country's real GDP per capita during this period?

7%

Consider a small country with a capital stock equal to 900 units. This year it produced 20 units of new capital goods, with a depreciation rate of 20% and a production function of Y = K1/2. What will its capital stock be next year?

740 units

(Table: Wheat and Corn) Consider a country that produces only wheat and corn. Based on the data in the table, the growth rate of real GDP from 2007 to 2008 (in 2005 dollars) is:

8.3%

Which statement is TRUE about economic growth?

A country can grow and become wealthy, never grow, or grow and then begin to stagnate.

In a country where both the labor force participation rate and the unemployment rate are very low, which of the following answers explains why this may be the case?

A large percentage of the population is aging and thus has retired.

Imagine that Jack and Jill buy $500 worth of milk and $200 worth of crayons and coloring books each year for use in their day-care business. Jack and Jill also hire a day-care attendant at a salary of $14,000 per year. If Jack and Jill sell $100,000 worth of day care to parents each year, what is the contribution to GDP by Jack and Jill's Day Care?

A. $100,000

If wages are not as flexible as prices in the AD-AS model, an increase in money growth will lead to:

An increase in inflation and in the profits of firms.

How might changes in the money supply be non-neutral in the short run?

As the amount of money circulating in the economy changes before prices respond, the purchases of consumers change accordingly, which leads producers to change production levels.

If the GDP of country X is 4 times the GDP of country Y and if the GDP of country X remains constant while GDP of country Y grows at a rate of 7% per year, which of the following statements is true?

Country Y's GDP will be equal to country X's GDP in 20 years.

A country's total civilian noninstitutionalized adult population is 1 million, and 500,000 people in this country are working, with another 20,000 people looking for work. Which of the following statements about the labor force statistics in this country is accurate?

The employment rate is 96.15% and the labor force participation rate is 52%.

Which of the following is a negative real shock that occurred during the Great Depression?

Widespread bank failures led to a reduction in the productivity of financial intermediation.

Which of the following is an example of money illusion assuming that inflation is 5%?

You receive a 5% raise at your part-time job and start spending extra money on entertainment every weekend.

Countries A and B have similar levels of technology and physical capital, but country B has twice as much human capital as country A. If diminishing returns apply to all inputs, country B should grow at ______ country A.

a lower rate than

In the Solow model, an earthquake that destroys half of a nation's capital stock will cause:

an increase in the country's growth rate in the years following the earthquake.

If you earned $10-an-hour in 2005 when the CPI was 100, and you earn $11-an-hour today when the CPI is 120, then your real wage rate has _____ since 2005.

decreased

If π < πe:

firms will reduce their output.

If 2009 prices are used in the calculation of real GDP and inflation occurs between 2009 and 2010, then nominal GDP will be ____ real GDP in 2010.

greater than

If the equilibrium wage is $9 in the market for hotel workers and $8 in the market for restaurant workers and both markets have similar elasticities of labor supply and demand, then a minimum wage of $4 in both markets will:

have no effect in either market.

(Figure: Two SRAS Curves) The figure shows the AD-AS model with two SRAS curves. If the economy is initially at Point A and expected inflation rate remains unchanged, the economy can achieve a real GDP growth rate of 9% only by:

moving along SRAS1 to Point B.

The 2003 Iraq War destroyed large amounts of capital. Later, insurgent activity continued to destroy capital and created instability in the government. Today, hostilities have waned and the government has become more stable. According to the Solow growth model, over the next few years we would expect to see growth rates in Iraq _____ those of high-income countries with similar institutions, followed by growth rates that are _____ the growth rates in those countries

higher than; similar to

Which would be most effective in ensuring sustained long-term economic growth?

increasing technological knowledge

Current forecasts say that mild inflation is expected next year. If, however, deflation occurs instead:

lenders on existing fixed rate loans will gain while borrowers will lose.

Consider an economy with production function Y = K1/2, an investment rate equal to 0.25, and a depreciation rate of 0.05. If K = 1,000 this period, the capital stock next period will be:

less than 1,000.

If people expect an inflation rate of 3% and later it turns out to be 5%, then the real rate of return will be:

less than the equilibrium rate.

If the economy experiences unexpected inflation, then the real interest rate will be _____ than its equilibrium rate, and wealth will be distributed from _____.

less; lenders to borrowers

The value of a country's GDP exceeds that of the country's GNP if the value of the:

output produced by foreign workers in the country exceeds the value of output produced by the country's permanent residents in other countries.

For a tax system in which higher income earners pay a larger share of their incomes in taxes, a higher inflation rate:

raises the tax burden of taxpayers.

Using a graph of the AD and long-run aggregate supply curves, the Internet revolution of the 1990s caused:

real growth to increase and inflation to decrease.

If the CPI was 100 in 2000 and 120 in 2010 and the price of a gallon of milk was $4.00 in 2000 and $4.80 in 2010, then in relative terms the real of price milk between 2000 and 2010:

remained the same.

A developing country could buy (or be given) _____ and _____ more easily than _____.

technological knowledge; physical capital; human capital