ECN 302 Quizzes

Real investment tends to be

procyclical and more variable than real GDP

If public goods can be produced more efficiently, then

public goods increase, and private goods may increase or decrease

The intertemporal substitution of leisure effect is used to justify the assumption that current labor supply increases when the

real interest rate increases

In the real intertemporal model, an adverse sectoral shock acts to

reduce real output and increase the real interest rate

An increase in government spending

reduces consumption, increases hours worked, and reduces the real wage

For a borrower, an increase in the real interest rate

reduces current consumption and has an uncertain effect on future consumption

A government deficit occurs when

the government spends more than what it gets in taxes

The opportunity cost of money is

the nominal interest rate

The real wage denotes

the number of units of consumption goods that can be exchanged for one unit of labor time

The participation rate was higher in 2012 than in 1948 because

the participation rate of women rose between 1948 to 2012

Lifetime wealth is

the present value of disposable income

The supply market curve for credit card services is an increasing function of

the price of credit card services

At the optimal consumption bundle, the marginal rate of substitution of leisure for the consumption is equal to

the real wage and the budget line is tangent to an indifferent curve

An increase in energy prices is a likely cause of

the recession of 1973-1975

In response to an increase in total factor productivity

the substitution effect suggests that hours worked should increase, while the income effect suggests that hours worked should decrease

When the representative firm maximizes profits

the wage equals marginal labor productivity

When we compare poor and rich countries in the world

there is much greater dispersion in growth rates in per capita income for the poor countries than for the rich countries

Financial intermediaries

transform assets, borrow from one group of people and lend to another, and include life insurance companies

For the study of economic growth, it is most helpful to examine movements in ____________; for the study of business cycles, it is most helpful to examine movements in __________

trend GNP; deviations from trend in GNP

An increase in total factor productivity shifts the PPF

upward, and also changes its slope

The concept of Pareto optimality is a

useful concept because it defines economic efficiency

If (we) represents a two-period consumer's lifetime wealth and r denotes the real rate of interest, the horizontal (current consumption) intercept of the consumer's budget line is equal to

we

Circulating private bank notes

were widely used in the Free Banking Era

The Ricardian Equivalence says

whatever the timing of taxes, consumption is the same

A consumer is said to be indifferent between two consumption bundles

when the two bundles provide equal amounts of utility

Which characteristic does money currently not have?

It is not backed by gold

According to Solow's exogenous growth theory, what happens to a country at steady state that suffered extensive capital destruction due to a war or climate event?

It will get back to its original status

Which of the following is not a reason for the Ricardian equivalence theorem to fail to hold?

People can borrow from the government

Fisher relation

Refers to the difference between real and nominal interest rates

If N is the working-age population, Q is the labor force, and U is the number of unemployed, then the unemployment rate is measured as

U/Q

What is the key feature that differentiates business cycle theories?

Whether the theory is Keynesian or non-Keynesian

A permanent increase in income leads to

a large increase in current consumption

All of the following increase total factor productivity except

a.) more capital ← b.) new management techniques c.) favorable changes in gov't regulations d.) new inventions

Convergence means that

all countries tend towards the same per capita income

The income-expenditure identity is best paraphrased as

all spending, generates income

An open-market operation refers to

an exchange of money for interest-bearing debt by the monetary authority

When the wage increases, the income effect on the household's choices leads to

an increase in consumption and leisure

If an epidemic hits a Malthusian economy, the immediate consequence is

an increase in the standard of living

The appropriate monetary policy response to a situation with deficient financial liquidity is

an open market sale of government bonds

Real GDP values current production at

base year prices

The real business cycle model replicates the key business cycle regularites

both quantitatively and quantitatively

The utility function captures

how an individual consumer ranks consumption bundles

In the DMP model, an increase in the unemployment insurance benefit does not, under any circumstances

increase the vacancy rate

In the endogenous growth model, an increase in a worker's level of human capital

increases both the amount of additional human capital she can produce and the amount of output she can produce

An increase in total factor productivity

increases consumption, increases output, and increases the real wage

In a model with money neutrality, a 10% increase in the money supply leads to an increase of prices by

10%

The average unemployment rate was lowest during what period?

1950-1970

Which of the following, if implemented in the Solow growth model, would not lead to a steady state?

A constant marginal product of capital

What is the appropriate monetary policy response to a situation with deficient financial liquidity, when there is a liquidity trap?

An increase in the interest rate on reserves

The gold standard is an example of

commodity-backed paper currency

Additions to inventory are

counted as a component of investment spending

If the current income increases as much as future income decreases

current consumption increases

The current demand for money increases when

current real income increases

In the DMP model, an increase in productivity does not

decrease the size of the labor force

As the quantity of capital increases, the marginal product of capital

decreases

If the interest rate increases, lifetime wealth (we)

decreases

In an economic model, an exogenous variable is

determined outside the model

The endogenous growth model predicts that

differences in per capital incomes across countries persist forever

A lump-sum tax is a tax that

does not depend on the actions of the economic agent being taxed

In the DMP model

each consumer decides between searching for work and home production

The behavior of the Solow residual suggests that when current total factor productivity increases

future total factor productivity is also likely to increase

In the long run, inflation is caused by

growth in the money supply

If future total factor productivity increases

investment demanded increases

Seasonal adjustment

is a common characteristic of macroeconomic time series in wide use

In a one-period economy, real consumption

is exactly equal to disposable income

Before the Industrial Revolution, standards of living differed

little over time and across countries

An important critique of real business cycle theory is the belief that cyclical movements in total factor productivtity

may, in part, be an artifact of measurement error

The most distinguishing economic feature of money is its

medium of exchange role

Labor demand depends on the interest rate because

of Ricardian equivalence

In the two-period model, the nature of the asymmetric information is that

only borrowers know whether they are bad or not

In Solow's model of economic growth, suppose that s represents the savings rate, z represents total factor productivity, k represents the level of capital per worker, and f(k) represents the per-worker production function. Also suppose that n represents the population growth rate and d represents the depreciation rate of capital. The equilibrium level of capital per worker, k*, will satisfy the equation

szf(k*)=(n+d)k*

The Laffer curve is a curve showing

tax revenue as a function of the tax rate

The quantity of money in circulation in the US is managed by

the Federal Reserve System

The production function is concave in labor because

the contribution to production of each additional unit of labor decreases

In Solow's exogenous growth model, the principal obstacle to continuous growth in output per capital is due to

the declining marginal product of capital

An interest rate spread is

the difference between lending and borrowing interest rates