Test 2 V2

A decrease in the inflation rate from 10% to 3% implies that deflation has occurred.

False

Incentives are important in structuring the institutions in a country.

False

The productive knowledge and skills that workers acquire through education, training, and experience is called:

Human Capital

_____ is the knowledge and skills that a worker needs to understand to make productive use of technology, whereas _____ is knowledge about how the world works that is used to produce goods and services.

Human capital; technological knowledge

Higher interest rates typically _____ borrowing, ceteris paribus.

Decrease

The demand to borrow function is:

Downward Sloping

If the money supply is $1 million, the velocity of money is 10, and the price level is 100, what is real GDP?

$100,000

Figure: Market for Loanable Funds *(Figure: Market for Loanable Funds) Equilibrium in this market for loanable funds occurs when the quantity of loanable funds is:

$150 million

At an 8% interest rate, the quantity of savings is $250 billion. What would the quantity of savings be if the interest rate falls to 5%?

$190 billion

If the adult population of a country is 200 million, 100 million are employed, and 10 million are unemployed, this country's labor force is:

110 million

Table: Unemployment Statistics for Country X *(Table: Unemployment Statistics for Country X) Using the data in the table, what is the natural unemployment rate for this country in the year 2005?

2.9%

Imagine an economy with production function Y = F(K) = and 400 units of capital. If the depreciation rate is δ = .05, how much capital will deteriorate in the next period?

20 Units

According to the quantity theory of money, a nation that increases its money supply by 30% should expect its price level to increase by approximately:

30%

A country in a steady state invests 50% of its output in new capital (γ = 0.5) and depreciates 5% of its capital stock (δ = .05). With a capital stock of 100 units, labor remains constant. Because of technological innovation, production improves from Y = to Y = 2. What is the new steady-state level of output?

40

If the adult population of a country is 200 million, 100 million are employed, and 10 million are unemployed, this country's labor force participation rate is:

55 %

If the depreciation rate is .03 and the capital stock is 200, how many units of capital will depreciate this period?

6 units

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%

Table: Employment, Unemployment, and Labor Force Participation *(Table: Employment, Unemployment, and Labor Force Participation) Refer to the table. What is the employment rate of the country in 2009?

96%

Which of the following best represents time preference?

Alex smokes a pack of cigarettes per day even though he knows that he may face poor health down the road because of his smoking habit.

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

Both 1995/2005

Table: Consumer Price Index *(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 2007/2009

In the Solow model, an increase in the investment rate will _____ the amount of capital needed to achieve a steady state.

Increase

Which of the following is NOT a role of commercial banks?

Issue Government bonds

Which of the following is NOT true of structural unemployment?

It results from scarcity of information.

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%.

Catching-up growth occurs primarily through capital accumulation and the adoption of simple ideas that already exist.

True

Deflation always implies the inflation rate is negative.

True

One function of banks is to spread risk.

True

When expected inflation is less than actual inflation, inflation causes wealth redistribution from lenders to borrowers.

True

Which would decrease national output?

a natural disaster that destroys some capital

Which of the following is part of the labor force?

a person who was laid off and is now looking for work

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.

People smooth their consumption over their lifetime by:

both borrowing and saving.

Catching-up growth is growth due to:

capital accumulation

Which of the following is NOT a kind of institution that encourages investment and the efficient organization of resources?

closed markets

Conditional convergence refers to the tendency for:

countries with similar steady-state levels of output to grow faster when they're poor than when they're rich until their per capita GDP levels converge.

At which stage in life does someone generally dissave the most?

during retirement

The level of capital stock increases when investment in physical capital is:

greater than depreciation.

Figure: The Solow Model *(Figure: The Solow Model) In the accompanying graph of the Solow model, if the production function shifts from Y1 to Y2 while capital remains at K1, then the capital stock will:

increase until it reaches the new steady-state level.

As more units of capital are added in the Solow model, output:

increases at a decreasing rate.

Debt monetization means that a government pays off its debt by:

increasing the money supply.

Structural unemployment is caused by:

long-lasting shocks to permanent features of an economy that make it more difficult for some workers to find jobs.

The situation in which the government pays off its debts by printing money is called:

monetizing the debt.

Structural unemployment has been a more serious problem in Europe than in the United States because of:

more generous unemployment benefits.

In a steady state, the capital stock:

remains constant

Physical capital is the:

stock of tools, including machines, structures, and equipment, used to produce output.

An ultimate cause for the rapid economic growth during the Industrial Revolution was:

the development of good institutions that provide people with incentives to engage in business and invention.

Which of the following elements reduces structural unemployment?

the enhancement of worker retraining programs

If expected inflation is higher than actual inflation, then:

wealth will be redistributed from borrowers to lenders.

Discouraged workers and underemployed workers are examples of:

workers not included in the unemployment rate.