Econ 100C Midterm Practice Qs

b

26. In the steady state of Mortensen-Pissarides model of unemployment: A. no hiring or firings are occurring. B. the number of people finding jobs equals the number of people losing jobs. C. the number of people finding jobs exceeds the number of people losing jobs. D. the number of people losing jobs exceeds the number of people finding jobs.

d

13- If the per-worker production function is given by y = k^1/2, the saving ratio is 0.3, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is: A) 1. B) 2. C) 4. D) 9. Hint: in steady state, saving x y = depreciation x k

d

13. In the search-matching model of unemployment, an increase in unemployment benefits shifts the wage-setting curve to the , leading to wages unemployment. A. left; higher; lower B. right; lower; higher C. left; lower; lower D. right; higher; higher

b

14- If a war destroys a large portion of a country's capital stock but the saving rate is unchanged, the Solow model predicts output will grow and that the new steady state will approach: A) a higher output level than before. B) the same output level as before. C) a lower output level than before. D) the Golden Rule output level.

c

14- If the rate of separation is 0.02 and the rate of job finding is 0.08 but the current unemployment rate is 0.10, then the current unemployment rate is ______ the equilibrium rate, and in the next period it will move ______ the equilibrium rate. A) above; toward B) above; away from C) below; toward D) below; away from

a

14. In the search-matching model of unemployment, an increase in workers' bargaining power leads to wages, market tightness, and unemployment. A. higher; lower; higher B. higher; higher; higher C. lower; higher; higher D. lower; higher; lower

b

15- It has been argued that technological progress promotes specialization and makes it harder to match workers and jobs. If this is true, then graphically a higher rate of technological progress shifts the Beveridge curve: A) Inward B) Outward C) doesn't shift the Beveridge curve

a

16- The change in the number of unemployed over time (change in U) is equal to: A. sx(L-U) - fxU B. fx(L-U) - sxU C. fxU - sX(L-U) D. sxU - fX(L-U)

d

18- In the Solow growth model, the assumption of constant returns to scale means that: A) all economies have the same amount of capital per worker. B) the steady-state level of output is constant regardless of the number of workers. C) the saving rate equals the constant rate of depreciation. D) the number of workers in an economy does not affect the relationship between output per worker and capital per worker.

c

19- The production function y = f(k) means: A) labor is not a factor of production. B) output per worker is a function of labor productivity. C) output per worker is a function of capital per worker. D) the production function exhibits increasing returns to scale.

d

19. Under the assumptions of the question above, an increase in labor productivity, y, leads to: A. an increase in market tightness and a decrease in unemployment B. a decrease in market tightness and a increase in unemployment C. no effect on market tightness but a decrease in unemployment D. no effect on market tightness or unemployment

b

2- Endogenous variables are: A) fixed at the moment they enter the model. B) determined within the model. C) the inputs of the model. D) from outside the model.

d

2. The Beveridge curve is a(n) relationship between and A. increasing; market tightness (θ), real wage rate (w) B. decreasing; market tightness (θ), real wage rate (w) C. increasing; market tightness (θ), unemployment rate (u) D. decreasing; market tightness (θ), unemployment rate (u)

c

20. In the search model of unemployment, suppose the government imposes a tax τ on filled jobs, and the wage is fixed at w. This causes a(n) in θ and a(n) in u. A. increase; increase B. increase; decrease C. decrease; increase D. decrease; decrease

a

21- In the Solow growth model, if investment exceeds depreciation, the capital stock will ______ and output will ______ until the steady state is attained. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

c

22. In the Mortensen-Pissarides model of unemployment equilibrium wage rate is determined by the A. intersection of the labor demand and labor supply curves B. Beveridge curve C. intersection of vacancy supply and wage setting curve D. marginal product of labor

a

24- With a per-worker production function y = k^1/2, the steady-state capital stock per worker (k*) as a function of the saving rate (s) is given by: A) k* = (s/δ)^2 B) k* = (δ/s)^2 C) k* = s/δ. D) k* = δ/s.

a

25. Suppose L denotes the size of the labor force, U the number of unemployed people, s denotes the separation rate and f denotes the job finding rate. The change in the number of unemployed over time, ∆U, is equal to A. s(L − U) − fU B. f(L − U) − sU C. fU − s(L − U) D. sU − f(L − U)

d

Consider the following production function with three input factors, YY = AK^aL^bH^c, where H stands for human capital (e.g., education). The coefficients a, b, and c are numbers between 0 and 1. This production function exhibits constant returns to scale if: a. a + b = 1 d. a + b + c = 1 b. b + c = 1 e. None of the above c. a + c = 1

b

10- In a steady state: A) no hiring or firings are occurring. B) the number of people finding jobs equals the number of people losing jobs. C) the number of people finding jobs exceeds the number of people losing jobs. D) the number of people losing jobs exceeds the number of people finding jobs.

b

10- The real wage will increase if: A) the supply of labor increases. B) the productivity of labor increases. C) the price of output increases. D) the supply of capital decreases.

c

11- In the steady state, the capital stock does not change because investment equals: A) output per worker. B) the marginal product of capital. C) depreciation. D) consumption.

b

23. According to the BLS, in October 2015 the overall unemployment rate was A. 4.5% B. 5.0% C. 5.5% D. 6.0%

c

6- Consider the matching function H(U,V) = A x U x V. The job finding rate is equal to: A) A√v/u B) A x v/u C) A x v D)A√u/v

c

8- Any policy aimed at lowering the rate of unemployment must either ______ the rate of job separation or ______ the rate of job finding. A) reduce; reduce B) increase; increase C) reduce; increase D) increase; reduce

a

8. Consider a variation of the Mortensen-Pissarides where labor force, L is growing at a constant rate n, with entrants starting off unemployed. In the steady state equilibrium for this model, the unemployment rate, u satisfies A. s+n/s+f B. s/s+f+n C. s/s+f D. f/s+f+n

b

9- In a Cobb-Douglas production function the marginal product of capital will increase if: A) the quantity of labor increases. B) the quantity of capital increases. C) labor's share of output increases. D) average capital productivity decreases.

a

9- The consumption function in the Solow model assumes that society saves a: A) constant proportion of income. B) smaller proportion of income as it becomes richer. C) larger proportion of income as it becomes richer. D) larger proportion of income when the interest rate is higher.

b

9. Suppose that at the time a job is terminated the firm must pay a one-time tax called the firing tax. Let F denote the firing tax. The equation for the vacancy-supply condition of the search-matching model of unemployment becomes: A. k = q (y − w/s − F) B. k = q(y − w/s )− F C. k − F = q(y − w/s) D. k = q(y − w − F/s)

c

In the steady state, the capital stock does not change because investment equals: A. output per worker. B. the marginal product of capital. C. depreciation. D. consumption.

c

Investment per worker (i) as a function of the saving ratio (s) and output per worker (f(k)) may be expressed as: A. s + f(k). B. s - f(k). C. sf(k). D. s/f(k).

d

11. Henry Ford decided to double the wages of Ford Motor Company workers to $5.00 a day in 1914. Following the wage increase, A. Job turnover and layoffs increased B. Job turnover increased, but layoffs decreased C. Job turnover decreased, but layoffs increased D. Job turnovers and layoffs decreased

b

1- Macroeconomics does not try to answer the question of: A) why do some countries experience rapid growth. B) what is the rate of return on education. C) why do some countries have high rates of inflation. D) what causes recessions and depressions.

c

1. If A represents the efficiency of the matching process, U is the number of unemployed, and V is the number of vacancies, then which of the following matching functions is NOT constant returns to scale? A. H(U, V ) = A min(U, V ) (Leontief) B. H(U, V ) = AUV/U+V C. H(U, V ) = AUV (Quadratic) D. H(U, V ) = A√UV (Cobb Douglas)

c

12- Exhibit: The Capital-Labor Ratio *refer to graph 2 In this graph, starting from capital-labor ratio k1, the capital-labor ratio will: A) decrease. B) remain constant. C) increase. D) first decrease and then remain constant.

a

12- The urn-ball matching function takes the following form: H(U,V) = V x (1-e^(u/v)) Does the matching function exhibit constant returns to scale? A) Yes B) No

c

12. Any policy aimed at lowering the steady-state rate of unemployment must either the rate of job separation or the rate of job finding A. reduce; reduce B. increase; increase C. reduce; increase D. increase; reduce

a

13- A policy that decreases the job separation rate _____ the vacancy supply curve and ____ the Beveridge curve. A) Shifts out, shifts out B) Shifts out, shifts in C) Shifts in, shifts out D) Shifts in, shifts in

c

10- An increase in the efficiency of the matching process shifts the Beveridge curve to the -- --- and the vacancy supply curve ------. A) Right / Downward B) Right / Upward C) Left / Upward D) Left / Downward

c

10- In this graph, when the capital-labor ratio is OA, AB represents: *refer to graph 1 A) investment per worker, and AC represents consumption per worker. B) consumption per worker, and AC represents investment per worker. C) investment per worker, and BC represents consumption per worker. D) consumption per worker, and BC represents investment per worker.

b

10. Consider the search-matching model of unemployment with efficiency-wage considerations. In such a model worker's productivity depends on the wage. The labor productivity is expressed as a function of the real wage in the following fashion: y(w) = (1 + y)w − w^2/2 The profit-maximizing value of w is: A. w∗ = 1 + y B. w∗ = y C. w∗ = 2y D. w∗ = 0

d

11- When Henry Ford paid his workers $5 per day when the prevailing wage was between $2 and $3 a day: A) it greatly increased his company's costs. B) workers reduced their work efforts because they felt they "had it made." C) Ford proved the efficiency-wage theory was wrong. D) it raised the efficiency of his workers.

b

29. At some point in time, you notice that real interest, R is not equal to the marginal product of capital, i.e. R 6= MPK. What could the reason be? A. A dysfunctional production function B. Installing capital to equate R and MPK takes time. C. R cannot equal MPK as capital is always depreciating. D. Banks prefer not to set R = MPK.

c

3- Consider a model where H(U,V ) = UV . Wages are negotiated between firm and employee. An increase in unemployment benefits will A) Increase wages, decrease unemployment B) Decrease wages, decrease unemployment C) Increase wages, increase unemployment D) Decrease wages, increase unemployment

b

3. The vacancy supply curve is a(n) relationship between and A. increasing; market tightness (θ), real wage rate (w) B. decreasing; market tightness (θ), real wage rate (w) C. increasing; market tightness (θ), unemployment rate (u) D. decreasing; market tightness (θ), unemployment rate (u)

a

30. Suppose at some point, real interest rate, R is smaller than the marginal product of capital, MPK, i.e. R <MPK. It means economic agents should A. borrow in order to accumulate more capital B. uninstall capital in order to repay debt C. hire more workers D. fire workers

b

4- A firm's economic profit is: A) the price of output minus the wage minus the rental price of capital. B) revenue minus costs. C) revenue plus capital costs. D) the price of output minus labor costs.

a

4. The wage setting curve is a(n) relationship between and A. increasing; market tightness (θ), real wage rate (w) B. decreasing; market tightness (θ), real wage rate (w) C. increasing; market tightness (θ), unemployment rate (u) D. decreasing; market tightness (θ), unemployment rate (u)

b

5- Consider the matching function H(U,V) = A x U x V. Does this function exhibit constant returns to scale? A) Yes B) No

b

5- If the number of employed workers equals 200 million and the number of unemployed workers equals 20 million, the unemployment rate equals ______ percent (rounded to the nearest percent). A) 0 B) 9 C) 10 D) 20

c

5- The neoclassical theory of distribution explains the allocation of: A) output between goods and services. B) output among consumption, investment, and government spending. C) income among factors of production. D) income between saving and investment.

c

5. Which of the following shifts the Beveridge curve? A. Cost of opening a vacancy, k B. Worker's productivity, y C. Separation rate, s D. Worker's bargaining power, β

c

6- In a closed economy, the components of GDP are: A) consumption, investment, government purchases, and exports. B) consumption, investment, government purchases, and net exports. C) consumption, investment, and government purchases. D) consumption and investment.

d

6- In the model of the steady-state unemployment rate with a fixed labor force, the rate of job finding equals the percentage of the ______ who find a job each month, while the rate of job separation equals the percentage of the ______ who lose their job each month. A) labor force; labor force B) labor force; unemployed C) employed; labor force D) unemployed; employed

d

6. As the economy grows and occupations become more specialized, matching between workers and firms becomes less efficient. This affects the parameter , which graphically leads to a shift in A. k; vacancy supply curve and wage setting curve B. k; vacancy supply curve 1 C. A; Beveridge curve D. A; Beveridge curve and vacancy supply curve

c

7- If s is the rate of job separation, f is the rate of job finding, and both rates are constant, then the unemployment rate is approximately: A) f/(f + s). B) (f + s)/f. C) s/(s + f). D) (s + f)/s.

c

7. If s is the separation rate and f the job finding rate, then in a steady state equilibrium, the unemployment rate, u satisfies A. s/f B. f/s+f C. s/s+f D. s/s+1

b

9- If the number of employed workers equals 200 million and the number of unemployed workers equals 20 million, the unemployment rate equals ______ percent (rounded to the nearest percent). A) 0 B) 9 C) 10 D) 20

c

9- One efficiency-wage theory implies that firms pay high wages because: A) this practice increases the problem of moral hazard. B) in wealthy countries, it is important to pay workers high wages to improve their health. C) the more a firm pays its workers, the greater their incentive to stay with the firm. D) paying high wages promotes adverse selection.

c (output per worker depends only on the level of capital per worker. Since capital per worker does not change in this case, neither does the level of output per worker)

A war has wrecked the economy of Baloneya: both the capital stock and the work force have been reduced by 50 percent. If the economy's production function has constant returns to scale, how will the postwar level of output per worker compare to the prewar level? A. It will be lower. B. It will be higher. C. It will be the same. D. It could be higher or lower.

a

According to the theory of liquidity preference, the supply of nominal money balances: A) is chosen by the central bank. B) depends on the interest rate. C) varies with the price level. D) changes as the level of income changes.

c

An economy is in a steady state with capital higher than the Golden Rule level. Now the saving rate falls to a level that will achieve the Golden Rule capital stock in the long run. What will happen to the level of consumption between the initial and new steady states? A. It will rise gradually. B. It will fall instantly and then will rise gradually. C. It will rise instantly and then will fall gradually. D. It will rise instantly and then will remain constant.

c

An explanation for the slope of the LM curve is that as: A) the interest rate increases, income becomes higher. B) the interest rate increases, income becomes lower. C) income rises, money demand rises, and a higher interest rate is required. D) income rises, money demand rises, and a lower interest rate is required.

a

At any particular point in time, the output of the economy: A. is fixed because the supplies of capital and labor and the technology are fixed. B. is fixed because the demand for goods and services is fixed. C. varies because the supplies of capital and labor vary. D. varies because the technology for turning capital and labor into goods and services varies.

b

Based on the Keynesian model, one reason to support spending increases over tax cuts as measures to increase output is that: A) government spending increases the MPC more than tax cuts. B) the government-spending multiplier is larger than the tax multiplier. C) government-spending increases do not lead to unplanned changes in inventories, but tax cuts do. D) increases in government spending increase planned spending, but tax cuts reduce planned spending.

b

Examination of recent data for many countries shows that countries with high saving rates generally have high levels of output per person because: A. high saving rates mean permanently higher growth rates of output. B. high saving rates lead to high levels of capital per worker. C. countries with high levels of output per worker can afford to save a lot. D. countries with large amounts of natural resources have both high output levels and high saving rates.

d

If MPC = 0.75 (and there are no income taxes) when G increases by 100, then the IS curve for any given interest rate shifts to the right by: A) 100. B) 200. C) 300. D) 400.

d

If an economy is in a steady state with no population growth or technological change and the capital stock is above the Golden Rule level and the saving rate falls: A. output, consumption, investment, and depreciation will all decrease. B. output and investment will decrease, and consumption and depreciation will increase. C. output and investment will decrease, and consumption and depreciation will increase and then decrease but finally approach levels above their initial state. D. output, investment, and depreciation will decrease, and consumption will increase and then decrease but finally approach a level above its initial state.

c

If an economy is initially in a steady state and it experiences an increase in its saving rate, then the steady-state capital stock will: A. fall. B. stay the same. C. rise. D. rise only if depreciation also rises.

c

If capital lasts an average of 25 years, the depreciation rate is ________ percent per year. A. 25 B. 5 C. 4 D. 2.5

a

If the capital stock is above the steady-state level, then investment: A. is smaller than depreciation. B. is larger than depreciation. C. is equal to depreciation. D. could be higher than, lower than, or equal to depreciation.

c

If the national saving rate increases, the: A. economy will grow at a faster rate forever. B. capital-labor ratio will increase forever. C. economy will grow at a faster rate until a new, higher, steady-state capital-labor ratio is reached. D. capital-labor ratio will eventually decline.

4

If the per-worker production function is given by y = k^1/2, the saving rate (s) is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is: Hint: in steady state, saving x y = depreciation x k

d

If two economies are identical except for their rates of population growth, then the economy with the higher rate of population growth will have: A. higher steady-state output per worker. B. higher steady-state capital per worker. C. higher steady-state consumption per worker. D. lower steady-state output per worker.

c

In an economy with no population growth and no technological change, steady-state consumption is at its greatest possible level when the marginal product of: A. labor equals the marginal product of capital. B. labor equals the depreciation rate. C. capital equals the depreciation rate. D. capital equals zero.

c

In comparing two countries with different levels of education but the same saving rate, rate of population growth, and rate of technological progress, one would expect the more highly educated country to have: A. a higher growth rate of total income and a higher real wage. B. a higher growth rate of total income and the same real wage. C. the same growth rate of total income and a higher real wage. D. the same growth rate of total income and the same real wage.

b

In the Solow growth model of Chapter 7, where s is the saving rate, y is output per worker, and i is investment per worker, consumption per worker (c) equals: A. sy B. (1 -s)y C. (1 + s)y D. (1 - s)y - i

b

In the Solow growth model of an economy with population growth but no technological change, if population grows at rate n, total output grows at rate ______ and output per workers grows at rate ______. A. n ; n B. n ; 0 C. 0 ; 0 D. 0 ; n

c

In the Solow growth model, if investment is less than depreciation, the capital stock will ______ and output will ______ until the steady state is attained. A. increase; increase B. increase; decrease C. decrease; decrease D. decrease; increase

d

In the Solow growth model, the assumption of constant returns to scale means that: A. all economies have the same amount of capital per worker. B. the steady-state level of output is constant regardless of the number of workers. C. the saving rate equals the constant rate of depreciation. D. the number of workers in an economy does not affect the relationship between output per worker and capital per worker.

a

In the Solow growth model, the steady-state occurs when: A. capital per worker is constant. B. the saving rate equals the depreciation rate. C. output per worker equals consumption per worker. D. consumption per worker is maximized

c

In the Solow model, it is assumed that a(n) ______ fraction of capital wears out as the capital-labor ratio increases. A. smaller B. larger C. constant D. increasing

b

Macroeconomic models are used to explain how ______ variables influence ______ variables. A) endogenous; exogenous B) exogenous; endogenous C) microeconomic; macroeconomic D) macroeconomic; microeconomic

c

Macroeconomics is the study of the: A) activities of individual units of the economy. B)decision making by households and firms. C) economy as a whole. D) interaction of firms and households in the marketplace.

d

Suppose that the capital stock is 100, the depreciation rate is 10 percent per year, and output is 25. What must the saving rate be to keep the capital stock constant? A. 2.5 percent B. 10 percent C. 25 percent D. 40 percent Hint: total depreciation is 10 units per year. Saving rate has to be ___ percent to keep capital stock constant if total investment will also be 10 units/year?

d

The Golden Rule level of capital accumulation is the steady state with the highest level of: A. output per worker. B. capital per worker. C. savings per worker. D. consumption per worker.

c

The Golden Rule level of the steady-state capital stock: A. will be reached automatically if the saving rate remains constant over a long period of time. B. will be reached automatically if each person saves enough to provide for his or her retirement. C. implies a choice of a particular saving rate. D. should be avoided by an enlightened government.

c

The Solow growth model describes: A. how output is determined at a point in time. B. how output is determined with fixed amounts of capital and labor. C. how saving, population growth, and technological change affect output OVER TIME D. the static allocation, production, and distribution of the economy's output.

c

The Solow growth model describes: A. how output is determined at a point in time. B. how output is determined with fixed amounts of capital and labor. C. how saving, population growth, and technological change affect output over time. D. the static allocation, production, and distribution of the economy's output.

c

The Solow model with population growth but no technological change cannot explain persistent growth in standards of living because: A. total output does not grow. B. depreciation grows faster than output. C. output, capital, and population all grow at the same rate in the steady state. D. capital and population grow, but output does not keep up.

b

The change in the capital stock is equal to: A. investment. B. investment - depreciation. C. investment - inflation. D. investment - depreciation - inflation.

a

The consumption function in the Solow model assumes that society saves a: A. constant proportion of income. B. smaller proportion of income as it becomes richer. C. larger proportion of income as it becomes richer. D. larger proportion of income when the interest rate is higher.

d

The formula for the steady-state ratio of capital to labor (k*) with population growth at rate n but no technological change, where s is the saving rate, is s: A. divided by the sum of the depreciation rate plus n. B. multiplied by the sum of the depreciation rate plus n. C. divided by the product of f(k*) and the sum of the depreciation rate plus n. D. multiplied by f(k*) divided by the sum of the depreciation rate plus n.

a

The steady-state level of capital occurs when the change in the capital stock ( Dk) equals: A. 0. B. the saving rate. C. the depreciation rate. D. the population growth rate.

a

The steady-state level of capital occurs when the change in the capital stock (Δk) equals: A. 0. B. the saving rate. C. the depreciation rate. D. the population growth rate.

b

The variable that links the market for goods and services and the market for real money balances in the IS-LM model is the: A) consumption function. B) interest rate. C) price level. D) nominal money supply.

b

When an economy begins above the Golden Rule, reaching the Golden Rule: A. produces lower consumption at all times in the future. B. produces higher consumption at all times in the future. C. requires initially reducing consumption to increase consumption in the future. D. requires initially increasing consumption to decrease consumption in the future.

d

When f(k) is drawn on a graph with increases in k noted along the horizontal axis, the slope of the line denotes: A. output per worker. B. output per unit of capital. C. the marginal product of labor. D. the marginal product of capital.

d

Which of the following is not assumed by the Solow growth model? A. constant returns to scale in production B. output depends only on capital, labor, and technology C. diminishing marginal products of labor and capital D. output is constant

positively, negatively

consumption depends ___ on disposable income and investment depends ___ on the real interest rate