ECON 102 Midterm #2

Which of the following may influence technological progress: -monopolies -scale of the market -r&d spending -all of the above

-all of the above

In an economy with no government sector or foreign sector, saving must equal investment because

-total income is equal to total demand -total demand is equal to consumption and investment -total income is equal to consumption and saving

In the chapter 7 classical labor market model from class, unanticipated inflation is most likely to cause

an increase in labor demand

Technological progress is defined by economists as:

an increase in output with no additional increases in inputs

what causes movement along the aggregate demand curve?

an increase in price level

Which of the following would shift the aggregate demand curve to the left?

an increase in taxes!

Which of the following would result in a higher real wage rate and a greater level of employment in the United States?

an increase in the supply of capital in the United States

Suppose that technological advancement makes labor more productive. What is likely to happen to wages and to potential output?

wages increase and potential output increases

If the labor supply curve was horizontal, what would be the effects on real wages, output and employment?

wages would be unchanged, but output and employment would increase or decrease

If the labor supply curve is vertical, what are the effects on real wages, output and employment?

wages would increase or decrease, but output and employment are unchanged

Which is true based on the data we saw in lecture on income per capita and life expectancy

we have seen a widening income distribution among countries over time

In the short run, when prices are slow to adjust to changes in demand and supply, _________ determined production

demand

Suppose a firm increases its capital stock. How will this impact the firm's staff productivity and number of employees?

employees will become more productive and the firm will hire more employees until marginal benefit equals marginal cost

An expectation that the economy is going to do badly can cause the stock market to __ and investment spending to __

fall;fall

According to the labor market model in class, all of the following scenarios would lead to a decrease in GDP, except...

falling nominal wages in anticipation of a decrease in oil prices

According to the labor market model we have learned in class, all of the following scenarios would lead to a decrease in GDP, EXCEPT

falling nominal wages in anticipation of a decrease in oil prices

Converge happens if rich and poor countries have the same per capita GDP growth rates 1. True 2. False

false

In the last few years, poor countries have started to catch up more quickly to US levels a. True b. False

false

if prices fall while gdp falls, we know it is Keynesian recession because negative AS shocks make prices rise.

false

in the last few years poor countries have started to catch up more quickly to US levels

false

The data we've seen in class shows a negative relationship real wages and hours worked in the U.S. since 1960. Using these data and economic theory from class, we should therefore expect that future increases in labor productivity will lead to:

higher real wages and lower labor input

Statement: Since capital is subject to diminishing returns, an increase in the supply of capital will reduce real wages - why is this statement wrong?

increase the marginal benefit from employing labor and therefore increase the demand for labor and real wages

Assume the government increases the payroll tax. Based on the labor market model we've learned in class, in the case of an upward sloping labor supply curve, this would result in

labor demand shifting to the left, causing a decrease in the after tax real wage earned by workers and lower employment

Over the past 100 years...

per capita GDP has risen all over the world, life expectancies have risen all over the world, vaccination rates have risen all over the world

According to the Keynesian model, shifts in AD are bigger if mpc is

bigger

In the Keynesian model we have a ___ when prices rise and real wages ___

boom with GDP above potential; fall

Suppose there is a collapse in international trade that causes the economy to enter into a recession. All other things being equal,

tax revenues should be expected to decrease

After accounting for changes in the labor force, ______________ is the next biggest source of the growth of GDP in the US.

technological progress

oil shocks that randomly drive up the price of oil are considered

technology shocks

Economic growth likely causes negative externalities in terms of pollution, which then affects productivity, feeding back to lower GDP growth

true

Free trade and capital may cause economic growth for all but may at the same time widen the gap between rich and poor a. True b. False

true

changes in purchasing power of wages are estimated from the data, changes in real wage using the CPI will be lower than those using the PCE deflator

true

If the government increased its purchases of goods and services by 18,000, and this resulted in an eventual increase in the aggregate demand of 36,000, the marginal propensity to save in the economy is..

18/36 = .5

Assume that the U.S. imposes tariffs on steel imports, such that the price of steel rises in the U.S. Steel Imports fall (as a result of higher cost of imports) more than investment spending falls (as a result of the higher price of capital good)

AD increases and LRAS decreases

US imposes tariffs, price of steel rises, imports fall, more than investment spending fall..

AD increases and LRAS decreases

In the Keynesian model from class an increase in government spending implies

AD shifts right, inventories decrease, price increases, and labor demand shifts to the left

How well does Professor Gregory Clark's theory fit the rapid growth in some East Asian economies in recent years?

Clark's theory fits well with the rapid growth in East Asian economies since western values have become more acceptable

Decreases in the stock of capital will lead to which of the following?

Decreases in wages and decreases in GDP

Convergence happens if rich and poor countries have the same per capita GDP growth rates

FALSE

If wages are sticky...

Firms' product prices will be sticky and reduce the economy's ability to bring demand and supply into balance in the short run

If the demand for labor increases, real wages rise and the amount of labor employed increases.

If the supply of labor increases, real wages fall and the amount of labor employed increases.

According to the Gapminder data seen in class, which of the following is false?

The majority of the world's population lives in low-income (poor) countries

Per capita research and development funding in the U.S. has been hit hard by the Great Recession

True, but R&D as a share of GDP is still very high

In the chapter 9 model from class, a decrease in net investment spending implies

a fall in potential output, lower real wages, and an unknown impact on aggregate prices

According to the keynesian model, a fall in net exports results in

a leftward shift in AD, followed by a movement down and to the right along AD as prices fall and we move to AD=AS

Reducing taxes on investment will likely result in

a rightward shift of LRAS, a rightward shift in AD, a rightward shift in AD

In our simple model, if labor-replacing technologies reduce the demand for labor, we expect

a temporary increase in structural unemployment, followed by a fall in labor force participation rates and zero unemployment

Classical economists argue that AD mistakes would have to be small and could never cause big recessions. a. Classical economists think the mpc is small and swings in AD are small b. Classical economists think the mpc is big and swings in AD are small

a. Classical economists think the mpc is small and swings in AD are small

Per capita GDP growth in China is forecast to be just over 6% this year. Using the rule of 70 a. GDP per capita should double in 12 years b. GDP per capita should double in 120 years

a. GDP per capita should double in 12 years

In the Keynesian boom we are above potential GDP but in the classical boom we are at potential GDP a. True b. False

a. True

In the classical explanation of recession lower employment is the result of workers voluntarily leaving the labor force a. True b. False

a. True

Per-capita Research and Development funding in the US has been hard hit by the Great Recession a. True, but R&D as a share of GDP is still very high b. False, it was always low

a. True, but R&D as a share of GDP is still very high

According to the Keynesian model, a fall in net exports results in a. a leftward shift in AD followed by a movement down and to the right along AD as prices fall and we move to AD=AS b. a leftward shift in AD followed by a movement down and to the left along AD as prices fall and we move to AD=AS

a. a leftward shift in AD followed by a movement down and to the right along AD as prices fall and we move to AD=AS

In our simple model, if labor replacing technologies reduce the demand for labor, we expect, a. a temporary increase in structural unemployment, followed by a fall in labor force participation rates and zero unemployment b. a permanent increase in structural unemployment until workers can get retrained, at which point we return to zero unemployment

a. a temporary increase in structural unemployment, followed by a fall in labor force participation rates and zero unemployment

The ISM Purchasing Manager's Index for manufacturing a. is a closely-watched monthly indicator of future manufacturing activity b. hasn't been looking very good lately c. is an index of firm responses to a survey asking them about their inventories, new orders, how behind they are in filling old orders, hiring plans, and other questions d. all of the above

a. all of the above

2. According to the Keynesian model, shifts in AD are bigger if the mpc is a. bigger b. smaller

a. bigger

In the Keynesian model we have a _____ when prices rise and real wages _______ a. boom with GDP above potential; fall b. recession with GDP below potential; fall

a. boom with GDP above potential; fall

Technological progress is a. hard to predict and tends to follow long waves with clumping of innovations for some periods and then a long period of tepid progress b. easy to predict and is a smooth a steady transition determined by Research and Development spending

a. hard to predict and tends to follow long waves with clumping of innovations for some periods and then a long period of tepid progress

An increase (to the right) in the LRAS curve can also be represented by an ______ in the aggregate production function a. increase (shift up) b. decrease (shift down)

a. increase (shift up)

If income and substitution effects do not offset in labor markets, then payroll taxes a. increase costs for firms and reduce GDP b. decrease costs for firms but reduce take-home pay for workers and reduce GDP

a. increase costs for firms and reduce GDP

Stagflation happens when a. negative AS shifts are bigger than negative AD shifts b. negative AD shifts are bigger than negative AS shifts

a. negative AS shifts are bigger than negative AD shifts

In the ch 7 classical labor market, anticipated inflation is most likely to cause a. none b. an increase in labor supply c. an increase in labor demand d. an increase in the real wage

a. none

In the Keynesian model, a fall in AD causes a movement along AS as a. prices fall and labor productivity rise; firms cut employment b. prices and labor productivity fall; firms cut employment

a. prices fall and labor productivity rise; firms cut employment

An increase in the minimum wage, holding the price level constant, will in this model a. reduce labor demand b. shift labor demand

a. reduce labor demand

Both in the long run and recently, we've observed that per-capita GDP and life expectancy have both been a. rising al over the world b. rising only in rich countries

a. rising al over the world

In the classical model with frictions, labor-replacing technologies will cause a. structural unemployment to rise in the short run and for there to be increased unemployment in the long run as frictions increase b. structural unemployment to rise in the short run but to return to the original long run equilibrium unemployment level

a. structural unemployment to rise in the short run and for there to be increased unemployment in the long run as frictions increase

The desire to work less when w/p falls is the _______ effect; the desire to work more when w/p falls is the ______ effect a. substitution; income b. income; substitution

a. substitution; income

Oil "shocks" that unexpectedly drive up the price of oil are considered a. technology shocks b. shocks to capital deepening

a. technology shocks

The economist Thomas Picketty argues that capitalists start out richer, are able to save more and then a. they earn even more capitalist income and become even richer, whereas the poor can't afford to save and earn capitalist income b. they hire more workers, who get higher real wages, so their incomes converge toward those of capitalists

a. they earn even more capitalist income and become even richer, whereas the poor can't afford to save and earn capitalist income

The classical model predicts w/p, employment, and GDP will all move up and down together over the business cycle a. this is also what is observed in the data b. there is debate about whether or not this is observed in the data

a. this is also what is observed in the data

Changes in the purchasing power of wages are estimated from the data. Changes in the real wage using the CPI will be lower than those using the PCE deflator. a. true b. false

a. true

Economic growth likely causes negative externalities in terms of pollution, which then affects productivity (heat affects agricultural production but also the ability to use machinery for both manufacturing and computing), feeding back to lower GDP growth a. true b. false

a. true

Scientific questions are those that test falsifiable hypotheses a. true b. false

a. true

The US approach to fiscal stimulus during the early months of the pandemic has more of an emphasis on _______ than in other countries a. unemployment and income support b. job retention and job support

a. unemployment and income support

If economic growth is driven by AD shocks (increases in Government spending or Consumption) then a. we expect to see aggregate prices increasing b. we expect to see aggregate prices decreasing

a. we expect to see aggregate prices increasing

If this open view toward immigration prevails, what impact do we expect on real wages and employment? a. According to the classical model, w/p will fall, Labor force participation rates for all workers (including immigrants) will rise, L goes up b. According to the classical model, w/p will fall, Labor force participation rates for all workers (including immigrants) will fall, L goes up

b. According to the classical model, w/p will fall, Labor force participation rates for all workers (including immigrants) will fall, L goes up

If prices fall while GDP falls, we know it is a Keynesian recession, because negative AS shocks make prices rise a. True b. False

b. False

In the data, Consumption tends to be more volatile than GDP a. True b. False

b. False

As firms accumulate capital goods in our model this results in, a. a decrease in the demand for labor, as capital replaces workers b. an increase in the demand for labor, as capital adds to worker productivity

b. an increase in the demand for labor, as capital adds to worker productivity

According to the article, technological progress in agriculture had a short run negative effect on employment a. but in the long run there was also technological progress that led to increased labor demand in the manufacturing sector b. but a long run positive effect as cheap food freed up income to buy other types of goods and workers were needed there

b. but a long run positive effect as cheap food freed up income to buy other types of goods and workers were needed there

Lower population growth implies that both GDP and per capita GDP are higher a. true b. false

b. false

According to economic theory, countries with lower per capita GDP are likely to a. have capital account deficits, with money flowing in, which causes them to grow faster b. have capital account surpluses, with money flowing in, which causes them to grow faster

b. have capital account surpluses, with money flowing in, which causes them to grow faster

FDR famously instituted a variety of "make work" programs during the Great Depression a. If that were a classical downturn, the "make work" program would have had no impact on GDP because Ls is vertical in that model b. if that were a classical downturn, the "make work" program would have reduced employment in the private sector

b. if that were a classical downturn, the "make work" program would have reduced employment in the private sector

Fewer babies means a. labor demand is further to the left, real wages are higher, and per capita GDP is higher b. labor supply is further to the left, real wages are higher, and per capita GDP is higher c. labor supply is further to the left, real wages are lower, but per capita GDP is higher d. labor demand is further to the left, real wages are lower, but per capita GDP is higher

b. labor supply is further to the left, real wages are higher, and per capita GDP is higher

Labor demand is downward-sloping function of the real wage because a. of the law of demand, which assumes diminishing marginal utility from additional units of labor b. of the joint assumptions of diminishing returns to L and perfect competition in labor markets

b. of the joint assumptions of diminishing returns to L and perfect competition in labor markets

The natural rate of unemployment falls (in theory) if a. we are in a business cycle expansion b. there are fewer frictions in labor markets (easier for firms to find the right kinds of workers) c. People spend less time in schooling or retirement

b. there are fewer frictions in labor markets (easier for firms to find the right kinds of workers)

An expectation that the economy is going to do badly can cause the stock market to ______ and Investment spending to ________ a. rise; rise b. rise; fall c. fall; fall d. fall; rise

c. fall; fall

When economists refer to the "new economy" they mean a. the period after 1800, also known as the Industrial Revolution b. the 21st century period in which young people only like to buy new things and demand for used goods has fallen c. the period in the 1990's in which we saw the transformation of production, distribution, and communication using computer technologies

c. the period in the 1990's in which we saw the transformation of production, distribution, and communication using computer technologies

The video argues that the less protected US economy will likely do ___ during the recession and ______ during the recovery a. better; better b. better; worse c. worse; better d. worse; worse

c. worse; better

Output in the long-run depends on which of the following two factors?

capital and full employment of labor

Real wages, employment and real GDP all tend to move together over the business cycle and can be explained by

changes in technological progress

Economic models that assume that wages and prices adjust freely to changes in demand and supply are know as _____________ models

classical

Recessions occur because

coordination failures in labor markets, real negative shocks to technology, real negative shocks to K

Which of the following is NOT a characteristic of the data from class for the period 2014-2019? a. US real wages increased steadily over this period b. US unemployment rates fell and GDP grew steadily over this period c. European unemployment rates fell and GDP grew steadily over this period d. US inflation rates increased steadily over this period

d. US inflation rates increased steadily over this period

Suppose the demand for U.S. produced goods and services decreases ... in the short run, firms will

decrease production and reduce the number of workers

Crowding out refers to

decreases in consumption, investment, or net exports caused by an increase in government purchases

Suppose the supply of money increases, causing output to exceed full employment. As a result,

in the short run, both prices and real output will increase and in the long run, prices will increase further, but real output will fall to the full employment level

All other things being equal, and using the AD-AS model from class, lower taxes on capitalist income tends to

increase both real wages and GDP

If income and substitution effects do not offset in labor markets then payroll taxes,

increase costs for firms and reduce GDP

Suppose gasoline prices increased sharply and consumers became fearful of owning too many expensive cars. As a consequence, they cut back on their purchases of new cars and decided to increase their savings. Assuming a short run aggregate supply curve, this behavior shifts the aggregate demand curve to the

left, leading to a large decrease in output and small decrease in price

In 2014, China decided to cut back on its economic growth in order to prevent imbalances from occurring in their economy. With slower economic growth in China, there is

less opportunity for exports to China, so aggregate demand in the rest of the world will decline

When the labor market is in equilibrium, the labor demand and supply curves determine the

level of employment in the economy and the level of real wages

Workers often have ______ contracts, and so their wages are _______.

long-term; sticky

If the level of investment spending falls then in the chapter 7 labor market model from class we should expect to see

lower real wages, lower mpl, lower labor force participation

A positive supply shock temporarily raises output above full employment and ________ prices. After the positive supply shock, real GDP is ____________ than potential GDP. This implies that unemployment is falling, driving wages up, resulting in a leftward or upwards shift the the SRAS curve.

lowers; higher,

One assumption that gives us a downward-sloping labor demand curve is:

marginal product of labor falls as quantity of labor increases

Long Run Aggregate Supply is vertical because

nominal wages always adjust to match price changes and return the market to w/p = mpl at L*

In the chapter 7 classical labor market model from class, anticipated inflation is most likely to cause

none of these things

Labor demand is a downward sloping function of the real wage because

of joint assumption of diminishing returns to L and perfect competition in the labor markets

Another term for full employment output is _______

potential output

In the Keynesian model, a fall in AD causes a movement along AS as

prices fall and labor productivity rises; firms cut employment

In recent years, total compensation of employees (including benefits) has grown, but wages (not including benefits) have not. Explain why this may have occurred, taking into account that many employers provide health insurance to their employees and health care costs have grown more rapidly than GDP.

real hourly earnings can increase only if output per worker increases more than compensation in benefits

Which of the following in the data is not well explained by the Keynesian model of recessions

real wages tend to fall during recessions

Compared to Keynesians, classical economists tend to think that

shifts in AD are smaller and nominal wages are less sticky

the extent of the decline in output associated with the imposition of an employment tax depends on the

slope of the labor supply

According to the theory and data seen in class, the impact on AD of an increase in G tends to be ___ as the impact on AD of the same sized increase in NX

smaller than

in the classical model with frictions, labor-replacing technologies will cause,

structural unemployment to rise in the short run, and for there to be increased unemployment in the long run as frictions increase

To gauge living standards across countries with populations of different sizes, economists use

the real GDP per capita

Which of the following most likely results in an increase in GDP, but a decrease in real wage, based on the classical labor market from class? -people spend more time in school -there is an increase in female labor force participation rates -retirement of baby-boomers -all of the above

there is in increase in female labor force participation rates

The government opens its borders to immigration. according to the classical model what will happen to GDP, employment, and real wages?

there will be a shift to the right in the labor supply curve, leading to an increase in GDP and employment, but a fall in real wages

To counter the decline in fertility rates, the government of a country opens the borders to more immigration. According to the classical model of labor markets, what will happen to GDP, employment and real wages?

there will be a shift to the right in the labor supply curve, leading to an increase in GDP and employment, but a fall in real wages

Top athletes or entertainers would be more likely to change countries to reduce their taxes as compared to ordinary​ middle-class workers because

these individuals can realize more tax savings than ordinary middle-class workers who have lower incomes.

Technological progress allows output to increase..

without using any more capital or labor