econ last mt

A household owns a house valued at $190,000, which it has bought with a loan of $180,000. It also has financial savings of $10,000. Which of the following shows its net worth at the outset, the minimum amount the value of the house has to fall in order to put the household into negative equity (on the house), and the minimum amount the value of the house has to fall to make the household insolvent?

$20,000; $10,001; $20,001.

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 (0.75 * 35,000)

Which of the following are positive feedback mechanisms? Select all correct answers.

1. In a boom, asset prices rise, borrowers have more collateral, banks become more willing to lend to them, and spending increases further. 2. A fall in the price level (deflation) causes consumers to expect further falls. This causes them to postpone spending and the reduction in demand causes prices to fall further.

Watch our 'Economist in action' video featuring John van Reenen about the determinants of the productivity of firms. Based on the video, which of the following statements is correct?

A country's openness to imports can affect its productivity.

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

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

A lower expected long-run corporate tax rate.

The free rider problem is one potential source of market failure. High volumes of air travel, which cause widespread pollution, can be used to illustrate a different source of market failure. This is known as:

A missing market.

We know that imposing a tax can raise the price and discourage the production of a polluting activity. In recent years, many European governments have subsidised hybrid and electric cars in order to encourage their use. Looking at the figure above, and starting at point A, where the market is in equilibrium with Q_1 electric cars being sold at price P_1, the long-run effect of a subsidy to electric cars is shown by:

A shift in the supply curve to S', with a new equilibrium at the intersection (point B).

Net investment is the principal route through which new technology is incorporated in the production process. In the figure shown, the effect of this addition to capital is represented by:

A steepening of the production function.

Following the collapse of Lehman Brothers in September 2008, some of its managers blamed the US government for putting pressure on banks to lend to subprime borrowers. What effect do you think this had on the household leverage ratios and on the financial risks faced by subprime borrowers?

Banks felt obliged to accept lower levels of collateral, so households began with smaller housing equity and higher leverage ratios. This made them more vulnerable to a fall in house prices.

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.Based on this information, which of the following statements is correct?

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

Suppose that net investment is running at 10 per cent of a country's annual GDP and technological developments sustain the marginal product of capital at 0.5. The population is growing at 4 per cent per year. In consequence, real income per capita is:

Growing by 1 per cent per year.

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.Based on this information, which of the following statements is correct?

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

The figure shows the choice of the abatement level, using the economy's feasible set and the citizens' indifference curves for consumption and quality of environment. The lower diagram shows the MRT and MRS curves (Note that these are not shown explicitly in Figure 20.14 in The Economy). Based on this information, which of the following statements is correct?

If abatement became cheaper due to technological advancements, then the feasible set would expand upwards, leading to a choice of a policy with a higher level of abatement.

The following graph plots the real wage growth of different countries against their unemployment rate, averaged over the period 1970-2011.Based on this information, which of the following statements is correct?

If you only cared about wage growth, then European countries have outperformed North American countries.

Which of the following statements is correct regarding the model of the labour market?

In the short- and medium-run models the amount of capital is fixed, while in the long-run model the amount of capital can vary.

Which of the following may help to promote the spread of new technology in the long run?

Industry-wide wage-bargaining.

The Beveridge curve will shift downward (toward the origin) if:

Information about job vacancies improves.

Favourable institutional changes are difficult to bring about because:

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

Figure 16.9b depicts the long-run adjustment process in the labour market after technological progress.Based on this information, which of the following statements is correct?

Lower unemployment at E implies a higher wage required to induce workers to exert high effort, resulting in the higher real wage at B.

Does the introduction of a new labour-saving technology result in ¡?

Lower wage share of output and higher Gini coefficient in the short run.

This question refers to the long-run price-setting curve and wage-setting curve as represented in a figure with employment on the horizontal axis and the real wage on the vertical axis. Which statements are true?

NOT : If the current wage lies above the price-setting curve, job creation will exceed job destruction.

Faced with a shortage of liquidity, banks resorted to fire sales of assets, depressing their prices throughout the system and reducing their value as collateral, triggering further sales and price falls. Imagine you receive a bill for which you do not have sufficient funds to pay now. Which of the following strategies might you adopt when faced with your (individual) liquidity crisis, and why was that strategy not available to banks during the 2008 crisis?

NOT: Instead of selling an asset for money, offer the asset or equivalent goods directly to the creditor. Bank creditors, however, are only interested in money.

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.

Consider labour productivity as a function of capital intensity. Which of the following statements are true?

Technological progress can raise the marginal product of capital at a given level of capital intensity.

Alan Greenspan admitted that his 'model' of the economy contained a 'flaw'. What exactly was that flaw?

The assumption that self-interested economic agents, including firms (and banks especially), would avoid taking excessive risks.

The following diagram shows an economy's production function before and after technological progress:Based on this information, which of the following statements is correct?

The concavity of the production function indicates a diminishing marginal product of capital.

The figure shows the trade-off between consumption and quality of the environment. Which of the following statements best explains the shape of the feasible consumption frontier?

The diagram shows that the environmental gains from giving up consumption are large (and cheap) at the beginning. This is because it assumes that we adopt the most cost-effective technologies first.

The extent to which the diffusion of new technology results in increased employment depends upon the extent to which the wage-setting curve shifts upwards. Which of the following might encourage this upward shift?

The government introduces more generous unemployment benefits to compensate those losing their jobs.

In the diagram shown, demand for the industry's goods falls from A to B. In the new equilibrium at C, individual firms are now receiving lower revenue. If they try to restore their earnings by producing more, which of the following is likely to happen in the short run?

The increase in supply will drive prices down even further (for example, to point D). Producers face a catastrophic fall in prices, partly of their own making.

The profit-maximising mark-up declines as the number of firms increases. This is because:

The larger the number of firms, the more competitive the system is likely to be.

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.

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.

Figure 16.1 is a graph of unemployment rates for 16 OECD countries from 1960 to 2014.Based on this information, which of the following statements is correct?

The unemployment rates of different countries were affected very differently by the oil shocks of the 1970s.

Which of the following is a distinctive characteristic of 'inclusive unions'?

They set their wage demands in accordance with the productivity of labour.