Macroeconomics Midterm 1

- Unemployment = Labor Force- Employment - Adult Pop. = Labor Force + # of ppl. not in labor force - Participation Rate = Adult Pop. / Labor Force - Employment Ratio = Employed / Adult Pop. - Current Acct. = Desired Savings - Desired Investment - Current Acct. = Exports-Imports+International income receipts-payments to foreigners - Financial Acct. = Sales of assets to foreigners-purchases of assets located abroad

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An invention that raises the future marginal product of capital (in a closed economy) would cause an increase in desired investment, which would cause the investment curve to shift to the ________ and would cause the real interest rate to ________. A) right; increase B) right; decrease C) right; remain unchanged D) left; decrease E) left; increase

A

In a two-economy model of the United States and the rest of the world, if desired saving by the rest of the world increased A) U.S. current account would decrease. B) investment in the rest of the world would decrease. C) U.S. investment would decrease. D) U.S. current account would increase. E) the world real interest rate would increase.

A

In the Solow model, if output per worker is given by 2k^(0.5), the saving rate is s= 0.3, population rate is n= 0.05, and the depreciation rate is d= 0.15, what is the value of capital per worker at the steady-state equilibrium (where saving per worker (saving rate times output per worker) must equal steady state investment per worker ((n + d) times capital per worker)? A) 9 B) 6 C) 3 D) 64 E) 81

A

Over the past year, output grew 4%, capital grew 3%, and labor grew 3%. If the elasticities of output with respect to capital and labor are 0.3 and 0.7, respectively, how much did total factor productivity grow? (∆Y/Y= ∆A/A+ a_K∆K/K+ a_N∆N/N where output growth rate equals the productivity growth rate plus the elasticity of output with respect to capital times the rate of growth of capital plus the elasticity of output with respect to labor times the growth rate of labor.) A) 1% B) 2% C) 5% D) 3% E) 4%

A

Over the past year, total factor productivity grew 3%, capital grew 2%, and labor input grew 2%. If the elasticities of output with respect to capital and labor add to one, how much did output grow? (∆Y/Y = ∆A/A + a_K∆K/K + a_N∆N/N where output growth rate equals the productivity growth rate plus the elasticity of output with respect to capital times the rate of growth of capital plus the elasticity of output with respect to labor times the growth rate of labor.) A) 5% B) 4% C) 2% D) 3% E) 1%

A

Rachel earns 20 during her learning period, 100 during her second period, and 0 during her third (and last) period. She has zero initial assets. The real interest rate is zero. Rachel is not allowed to borrow by the banks. Whenever possible, Rachel wants to smooth consumption between periods. How much will she consume during her learning period? A) 20 B) 60 C) 50 D) 30 E) 40

A

Rachel earns 200 during her learning period, 1000 during her second period, and 0 during her third (and last) period. She has zero initial assets. The real interest rate is zero. Rachel is not allowed to borrow by the banks. Whenever possible, Rachel wants to smooth consumption between periods. How much will she save during her second period? A) 500 B) 600 C) 400 D) 200 E) 300

A

Sam's Semiconductors produces computer chips, which it sells for $10 million to Carl's Computer Company (CCC). CCC's computers are sold for a total of $16 million. What is the value added of CCC? A) $6 million B) $22 million C) $16 million D) $26 million E) $10 million

A

Suppose your bank raises its minimum-balance requirement for free checking on checking accounts by $500. You take $500 out of your passbook savings account and put it in your checking account. What is the overall effect on M1 and M2? A) M1 rises by $500, M2 is unchanged. B) M1 rises by $500, M2 falls by $500. C) M1 is unchanged, M2 falls by $500. D) M1 is unchanged, M2 is unchanged. E) M1 falls by $500, M2 rises by $500.

A

The Upstart Company has the following production function: Number of Workers Number of Cases Produced 0 0 1 10 2 19 3 26 4 31 5 34 If the company hires 2 workers, which of the following could be the real wage rate? (Profit maximization condition: the marginal product of labor equals real wage) A) 8 B) 6 C) 10 D) 4 E) 2

A

The government budget surplus equals A) government receipts minus government outlays. B) government purchases minus transfers. C) government purchases plus transfers. D) government purchases minus net receipts. E) government outlays minus government receipts.

A

Consider a small open economy with desired national saving of S^d= 2+ 100r^w and desired investment of I^d= 14- 100r^w. If r^w= 0.05, then current account (= national saving minus desired investment) equals A) -4. B) -2. C) 0. D) 4. E) 2.

B

If the price index last year was 1.0 and today it is 1.2, what is the inflation rate over this period? A) 20% B) 2% C) -2% D) 120% E) 1.2%

B

In the Solow model, if output per worker is given by 2k^(0.5), the saving rate is s=0.25, population rate is n=0.1, and the depreciation rate is d = 0.4, what is the value of output per worker at the steady-state equilibrium (where saving per worker (saving rate times output per worker) must equal steady state investment per worker ((n + d) times capital per worker)? A) 1 B) 2 C) 3 D) 4 E) 5

B

In the absence of productivity growth, in a steady-state economy A) output per worker remains constant over time, but consumption per worker grows over time. +B) output per worker and consumption per worker remain constant over time. C) output per worker and consumption per worker both decrease over time. D) output per worker and consumption per worker both grow over time. E) output per worker grows over time, but consumption per worker remains constant over time.

B

In the mid- to late 1980s, the United States had "twin deficits" because both _______ and _______ were negative. A) the capital account; investment B) government saving; the current account C) the current account; investment D) saving; investment E) government saving; private saving

B

In the production function Y= AF(K,N), A is ________, K is ________, and N is ________. A) total factor productivity; investment; the number of workers employed B) total factor productivity; the capital stock; the number of workers employed C) total factor productivity; national saving; the size of the labor force D) average labor productivity; investment; the number of workers employed E) average labor productivity; the capital stock; the size of the labor force

B

Suppose the marginal product of labor is MPN=200-0.5N where N is aggregate employment. The aggregate quantity of labor supplied is 300+8w, where w is the real wage. If a supply shock increases the marginal product of labor by 10 (to MPN= 210 - 0.5N), by how much does the real wage increase? A) 1 B) 2 C) 3 D) 4 E) 5

B

The Golden Rule capital-labor ratio is the level of the capital-labor ratio that, in the steady state, A) maximizes output per worker. +B) maximizes consumption per worker. C) maximizes investment per worker. D) maximizes total factor productivity. E) maximizes capital per worker.

B

Suppose the economy's production function is Y= AK^(0.3)N^(0.7). Suppose K= 10, N= 10, and A= 10. Calculate the marginal product of labor. A) 1 B) 7 C) 100 D) 10 E) 0

B Y=10K^(0.3) * 0.7N^(-0.3) Plug in numbers

A firm's output (Y) depends on how much capital (K) it has, according to the equation: Y=20K-K2. The real interest rate is 6% per year, the depreciation rate of capital is 14% per year and the price of a unit of capital is $70, and each unit of output sells for $1. How many units of capital does the firm desire? (Firm desires capital as long as its marginal product of capital in dollars is no less than the dollar user cost given by the product of the sum of the real interest rate and the depreciation rate and the price of capital.) A) 1 B) 3 C) 2 D) 5 E) 4

B Y=20K-K2 MPK=Δy/Δk User Cost = 20-2K 20-2K = (real int. + d)Pk Plug in values

A small open economy reduces its desired saving. This causes the world real interest rate to ________ and the country's current account balance to ________. A) remain unchanged; rise B) fall; fall C) remain unchanged; fall D) rise; fall E) fall; rise

C

Because of diminishing marginal productivity A) firms try to minimize their employment. B) nominal wages are sticky in a downward direction. C) the labor demand curve is negatively sloped. D) the labor supply curve is positively sloped. E) households save only a small share of their income

C

Government policies to raise the rate of productivity growth include all of the following except A) reducing regulations on businesses. B) improving infrastructure. C) reducing the government budget surplus. D) improving human capital development. E) encouraging research and development.

C

If the marginal product of capital doesn't change as the amount of capital increases, a figure showing the relationship between output and capital A) is a straight line with a negative, constant slope. B) slopes upward with a slope that declines as the amount of capital increases. +C) is a straight line with a positive, constant slope. D) is a vertical line. E) is a straight line with a slope of zero.

C

In a two-economy model of the United States and the rest of the world, if desired saving by the rest of the world declined A) U.S. saving would decrease. B) the world real interest rate would decrease. C) the world real interest rate would increase. D) U.S. investment would increase. E) investment in the rest of the world would increase.

C

Large differences in inflation rates among countries are almost always the result of large differences in A) the growth rates of real money demand. B) average labor productivity C) the growth rates of nominal money supplies. D) total factor productivity. E) real income growth.

C

Which of the following is not a category of consumption spending in the national income accounts? A) Consumer durables B) Expenditures on computer software C) Housing purchases D) Services E) Nondurable goods

C

In the Solow model, if output per worker is given by 2k^(0.5), the saving rate is s=0.25, population rate is n=0.1, and the depreciation rate is d=0.4, what is the value of consumption per worker at the steady-state equilibrium (where saving per worker (saving rate times output per worker) must equal steady state investment per worker ((n + d) times capital per worker)? Note that output has only two uses in this model: consumption or saving. A) 0.5 B) 1.0 C) 1.5 D) 2.0 E) 2.5

C Y=2K^(0.5) Capital-Labor 2sK^(1/2)-(n+s)K=0 => K=(2s/n+d)^2 Output Per Worker Y=2K^(1/2) Plug in K value from above Consumption Per Worker c= (y-sy) = (1-s)y Plug in values

All of the following are explanations of the post-1973 productivity slowdown except A) problems in measuring productivity (not accounting for quality). B) higher oil prices. C) the information and communications technology revolution. D) greater competition from foreign imports. E) changes in the legal and human environment.

D

An increase in the real wage rate will cause A) the labor demand curve to shift to the left. B) the labor demand curve to shift to the right. C) the quantity of labor demanded to rise. D) a movement along the labor demand curve. E) the labor supply curve shifts to the right.

D

If the government raises the effective tax rate on capital (in a closed economy), then the real interest rate ________ and the quantity of saving ________. A) rises; declines B) rises; increases C) does not change; does not change D) falls; declines E) falls; increases

D

The city of Hope has a labor force of 1000. Twenty people lose their jobs each month and remain unemployed for exactly one month before finding jobs. On January 1, May 1, and September 1 of each year, 50 people lose their jobs for a period of four months before finding new jobs. What is the unemployment rate in any given month? A) 3% B) 9% C) 5% D) 7% E) 2%

D

The measurement of GDP includes A) non-market goods such as homemaking and child-rearing. B) estimated value of leisure. C) purchases and sales of goods produced in previous periods. D) estimated values of activity in the underground economy. E) the benefits of clean air and water.

D

Assume that a certain country SpaCat satisfies all the assumptions of the Solow model (i.e. standard production function (for example you may assume that the production function is a Cobb-Douglas), constant depreciation rate, constant population growth rate, and constant saving rate ). The economy is currently at a steady state at some capital per worker level. Recently, a certain part of the population decided to separate and become an independent country Cat. Assume that upon separation, the separators (country Cat) will have 25% of the population, and 40% of the capital that the unified country currently had. (Just to clarify, Country Spa will now have 75% of the original population and 60% of the original capital stock.) This is the only change. Then immediately after separation, A) Both countries will regress toward their steady states. B) Both countries will grow toward their steady states. C) Cat will see increases in their standards of living and Spa will see decreases, until they reach their steady states. D) Both countries will fail to grow since they are already at steady states. E) Cat will see declines in their standards of living and Spa will see improvements, until they reach their steady states.

E

If a country's working-age population increases and its wealth declines, then the labor supply curve A) shifts to the left. B) does not change. C) shifts to the right if the effect of the change in wealth is bigger than the effect of the change in the working-age population. D) shifts to the left if the effect of the change in wealth is bigger than the effect of the change in the working-age population. E) shifts to the right.

E

In "Dreaming with BRICs" by Goldman Sachs' economists Dominic Wilson and Roopa Purushothaman in 2002, which of the following statements is CORRECT? A) China could overtake United States by 2014 B) These predictions are highly suspect because the model's performance from 1960 to 2000 is very poor and counterfactual. C) India's real GDP will still be smaller than Germany and UK in 30 years D) Using purchasing power parity was crucial in obtaining the paper's prediction that the BRICs would surpass G6 in 2040 E) Of the G6 (U.S. Japan, Germany, France, Italy, U.K.) in 2002 only the U.S. and Japan may be among the six largest economies in U.S. dollar terms in 2050

E

In economics, money refers to A) wealth. B) income plus wealth C) currency only. D) income. E) assets used and accepted as means of payment.

E

The essential idea in Jared Diamond's book Guns, Germs, and Steel, is that some countries developed more rapidly than others and were able to expand and conquer much of the world because of geographic placement. Another theory suggests that some countries' financial markets developed faster and better (and helped fuel their growth) due to their adoption of common law as opposed to civil law. A third theory places the causal effects of long-run growth to the simultaneous development of economic and political institutions. Given that we covered all three theories and looked at empirical evidence related to the question of why nations differ in living standards, which of the following statements best summarizes our discussion? A) Geographic luck explains none of the TFP differences across countries in the 1200-1492 period and therefore none of their living standards. B) Geographic luck explains all of current TFP differences across countries and therefore their living standards. C) Economic and political institutions are determined by geography and environment, and therefore do not directly impact living standards. D) Geographic luck explains most TFP differences across countries and therefore their living standards; little is left to factors such as legal origins, and economic and political institutions. E) Geographic luck may explain some of the TFP differences across countries and therefore their living standards; but a majority of the explanation is left to factors such as legal origins, and especially to economic and political institutions.

E

Total factor productivity growth is that part of economic growth (growth in output) due to A) labor growth minus capital growth B) capital growth plus labor growth. C) capital growth times labor growth. D) capital growth less labor growth. E) neither capital growth nor labor growth.

E