Macroeconomics Module 4

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

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.

(The Economy Question 17.9) Figure 17.21 is the graph of leverage of banks in the UK and the US between 1960 and 2014.

A leverage ratio of 25 means that a fall of 4% in the asset value would make a bank insolvent. AND A leverage ratio of 40 means that only 2.5% of the asset is funded by equity.

Which of the following will lead to a decrease in the equilibrium markup?

A lower expected long-run corporate tax rate.

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 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.

Which term can be defined as "The inverse relationship between the unemployment rate and the job vacancy rate"?

Beveridge curve

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 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.

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

The roaring twenties and the great moderation were similar in that both ended with a stock market crash, but the figure shown indicates that productivity growth fell much more at the beginning of the Great Depression than it did at the beginning of the Great Recession. What could explain this difference?

Governments had learned from the earlier period that to reduce the damage of a recession they needed to operate much looser monetary and fiscal policy.

The crisis that marked the end of the golden age is sometimes described as a supply-side phenomenon in contrast to the crisis of the 1930s, which was caused by inadequate demand. Which of the following did not cause greater problems on the supply side in the 1970s?

High levels of 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.

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

High investment, rapid productivity growth, rising wages, and low unemployment defined the golden age. Which of the following did not contribute to this virtuous circle?

Increasing house prices

Favourable institutional changes are difficult to bring about because:

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

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.

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

Lending to other countries.

(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.

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.

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 minimized today, but this phenomenon does not seem to be true for the price of labor. 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 Leontief paradox pointed out that:

The US's exports were labour-intensive and imports were capital-intensive.

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?

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?

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.

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

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.

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 17.2) The following figure shows the income share of the top 1% richest households in the US between 1914 and 2013.

The top 1% richest US households received nearly one-fifth of the total income in 2010. AND Inequality can either rise or fall during recessions.

In a country's balance of payments accounts, the current account (CA) consists of:

The value of goods and services exported and imported, together with net earnings from overseas assets acquired in the past.

Sections 16.8 and 16.9 argue that institutional arrangements are an important influence on economic performance. Which of the following is given as an example of favourable institutional change?

UK policy to increase competition in the labour market, 1980-90.

This unit (Unit 17) describes the period 1948-73 as the 'golden age of capitalism' for the US and many other countries. Which of the following is not a common characteristic feature of many countries during that golden age?

Unprecedentedly low inflation.

(The Economy Question 18.9) Figure 18.21 is the long-run labour market model for the US as a result of specialization according to its comparative advantage.

With lower unemployment, workers demand higher wages for high effort, resulting in a higher price-setting curve. AND With the rise in productivity, the firms expand employment resulting in a lower unemployment rate.

You are given the following information about the short-term nominal interest rate and the rate of inflation over a period of 8 years labeled Y1 to Y8. In which year was the real rate of interest at its maximum?

Y4

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 "The practice of buying a good at a low price in a market to sell it at a higher price in another"?

arbitrage

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

countercyclical

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 lag between the first introduction of an innovation and its general use"?

diffusion gap

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 mechanism through which firms' and households' ability to borrow increases when the value of the collateral they have pledged to the lender (often a bank) goes up"?

financial accelerator

Which term can be defined as "The sale of something at a very low price because of the seller's urgent need for money"?

fire sale

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

flow

Which term can be defined as "A process by which the economies of the world become increasingly integrated by the freer flow across national boundaries of goods, investment, finance, and to a lesser extent, labour"?

globalization

Which term can be defined as "The system of fixed exchange rates, abandoned in the Great Depression, by which the value of a currency was defined in terms of gold, for which the currency could be exchanged"?

gold standard

Which term can be defined as "The period of low volatility in aggregate output in advanced economies between the 1980s and the 2008 financial crisis"?

great moderation

Which term can be defined as "The prolonged recession that followed the global financial crisis of 2008"?

great recession

Which term can be defined as "The proportion of a worker's previous pre-tax wage that is received when unemployed"?

gross unemployment benefit replacement rate

Which term can be defined as "Profits in excess of the opportunity cost of capital that an innovator gets by introducing a new technology, organizational form, or marketing strategy"?

innovation rents

Which term can be defined as "The risk that an asset cannot be exchanged for cash rapidly enough to prevent a financial loss"?

liquidity risk

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

medium run

Which term can be defined as "Tending to move in the same direction as aggregate output and employment over the business cycle"?

procyclical

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

protectionist policy

Which term can be defined as "A strategy used by firms to meet payment commitments on liabilities using cash flow, although the firm cannot repay the principal in this way"?

speculative finance