Intermediate Macro Homework 2

If taxes​ increase, private saving​ __________, government saving​ __________, and national saving​ __________. A. decreases; increases; increases B. increases; increases; increases C. decreases; increases; does not change D. does not​ change; increases; increases

A. decreases; increases; increases

Suppose that in a given economy all goods and services produced are sold in imperfectly competitive markets. In this​ case, the economy would be best represented using the _____________ approach. This approach to an economy characterized by imperfectly competitive markets is more appropriate since it assumes that prices exhibit a high degree of _______________.

Suppose that in a given economy all goods and services produced are sold in imperfectly competitive markets. In this​ case, the economy would be best represented using the Keynesian approach. This approach to an economy characterized by imperfectly competitive markets is more appropriate since it assumes that prices exhibit a high degree of stickiness.

The NBER Business Cycle Dating Committee stated that the U.S. economy entered a recession in December 2007. The​ S&P/Case-Shiller Home Price Index​ (a widely used measure of home​ prices) shows an increase from January 2000 to April 2006. Since​ then, home prices decreased until May 2009. This correlation suggests that home prices might best be characterized as ____________ variable. The turning points in home prices relative to the turning points in overall economic activity indicate that home prices are a ___________ indicator.

This correlation suggests that home prices might best be characterized as a procyclical variable. The turning points in home prices relative to the turning points in overall economic activity indicate that home prices are a leading indicator.

Variables are classified as​ leading, lagging, or coincident depending on where their turning points are relative to the turning points of _____________.

Variables are classified as​ leading, lagging, or coincident depending on where their turning points are relative to the turning points of the business cycle.

Compare the following factors of production in terms of their rivalry and​ excludability: A robot that welds car frames is ________________ and the idea of building a car in an assembly line is ___________________. A recipe to make pancakes is __________________ and the recipe to manufacture a soda drink is _____________________.

- A robot that welds car frames is rivalrous and excludable and the idea of building a car in an assembly line is nonrivalrous and nonexcludable. - A recipe to make pancakes is nonrivalrous and nonexcludable and the recipe to manufacture a soda drink is nonrivalrous and highly excludable.

Compared to Keynesian ​macroeconomists, classical macroeconomists view the typical market as being ________________ by monopolistic forces. Given their market structure​ views, classical macroeconomists see prices and wages as being mostly _____________. This view of classical macroeconomists regarding the responsiveness of prices and wages to changing conditions suggests​ (to them) that the economy adjusts to​ long-run equilibrium rather ____________. For classical ​macroeconomists, the​ economy's rapid adjustment to​ long-run equilibrium makes government intervention ________________.

- Compared to Keynesian ​macroeconomists, classical macroeconomists view the typical market as being unconstrained by monopolistic forces. - Given their market structure​ views, classical macroeconomists see prices and wages as being mostly flexible. - This view of classical macroeconomists regarding the responsiveness of prices and wages to changing conditions suggests​ (to them) that the economy adjusts to​ long-run equilibrium rather quickly. - For classical ​macroeconomists, the​ economy's rapid adjustment to​ long-run equilibrium makes government intervention unnecessary.

Suppose Japan has a GDP of $3 trillion, and that its national saving rate is 22​%. What is Japan's national savings? If private saving is ​$462 ​billion, what are Japan's government savings?

- Japan's national saving is $660 billion. - Japan's government saving is ​$198 billion.

Crowding out refers to ____________ in private investment when there is _________ in government spending. Government budget deficits can often lead to crowding out of private investment and higher real interest rates. Is this statement true or​ false?

- a decrease; an increase - True.

Suppose the domestic economy experiences a rise in saving. For each of the following​ variables, indicate the impact this increase in domestic saving is likely to produce. The trade surplus in the domestic economy will become __________. The world real interest rate will ___________. Investment in the domestic economy will __________. Investment in the rest of the world will __________.

- larger - decrease - increase - increase

Suppose the domestic economy experiences a rise in investment. For each of the following​ variables, indicate the impact this increase in domestic investment is likely to produce. The trade surplus in the domestic economy will become ________. Net capital outflows in the domestic economy will become _________. The world real interest rate will __________. The trade deficit in the rest of the world will become __________. Net capital inflows in the rest of the world will become __________. Investment in the rest of the world will _________.

- smaller - smaller - rise - smaller - smaller - fall

Which of the following is not a role of the legal system in promoting property​ rights? A. A legal system ensures a​ low-cost system of maintaining property rights. B. A legal system enacts a good system of laws to create strong property rights. C. A legal system helps to provide sufficient funding for courts and qualified judges to maintain property rights. D. A legal system provides​ lawyers, which are necessary to protect investments.

A. A legal system ensures a​ low-cost system of maintaining property rights.

What is a​ patent? A. An intellectual property right granted by the government giving inventors the sole right to​ use, make, or sell licensing rights to others for a set period of timeusually around twenty years. B. An intellectual property right granted by the government giving inventors the sole right to​ use, make, or sell licensing rights to others for their entire lifetime. C. An intellectual property right granted by the manufacturing company giving inventors the sole right to​ use, make, or sell licensing rights to others for a set period of timeusually around twenty years. D. A property right granted by the government giving inventors the sole right to​ use, make, or sell licensing rights to others for a set period of time. Why do governments grant​ them? A. Patents are granted as a means of controlling which products are available for purchase. B. Patents are granted only to wealthy companies that are able to afford the price of the patent. C. Patents are granted to stimulate further research and development. D. Patents are granted to limit further research and development.

A. An intellectual property right granted by the government giving inventors the sole right to​ use, make, or sell licensing rights to others for a set period of timeusually around twenty years. C. Patents are granted to stimulate further research and development.

What is the difference between a closed economy and an open​ economy? A. In an open​ economy, economies are open to trade with one​ another, while in a closed​ economy, there is no trading between the different economies. B. In an open​ economy, economies are open to exports and​ imports, while in a closed​ economy, the country is willing to export its goods only. C. In an open​ economy, changes in the money supply affect the world interest​ rate, while in a closed​ economy, changes in the money supply affect only the domestic real interest rate. D. An open economy can influence the world real interest​ rate, while a closed economy has no effect on the world interest rate. How do the conditions required for goods market equilibrium differ in the two types of​ economies? A. In an open​ economy, goods market equilibrium occurs when saving equals​ investment; however, in a closed​ economy, it can still be in equilibrium even when saving and investment are not equal. B. In an open​ economy, imports must equal​ exports, while in a closed​ economy, the goods market equilibrium is always zero. C. There are no real differences between the two types of economies. D. In a closed​ economy, goods market equilibrium occurs when saving equals​ investment; however, in an open​ economy, it can still be in equilibrium even when saving and investment are not equal.

A. In an open​ economy, economies are open to trade with one​ another, while in a closed​ economy, there is no trading between the different economies. D. In a closed​ economy, goods market equilibrium occurs when saving equals​ investment; however, in an open​ economy, it can still be in equilibrium even when saving and investment are not equal.

What shortcoming of the Solow growth model does the Romer model attempt to​ remedy? A. In the Solow​ model, output per person eventually reaches a steady state​, from which it grows no further. B. A rise in population at first leads to a decline in​ per-capita output, but the growth rate of​ per-capita output will rise permanently. C. A higher rate of​ saving, and hence a higher level of investment relative to​ income, leads to higher levels of capital and output per worker. D. The Solow model suggests that economies that start with different​ capital-labor ratios tend to converge to the steady state and end up with similar levels of per capita income.

A. In the Solow​ model, output per person eventually reaches a steady state​, from which it grows no further.

What happens in a small open economy if there is an increase in domestic​ saving? A. It leads to a larger trade balance and an increase in net capital outflows. B. It leads to a smaller trade balance and lowers net capital outflows. C. It leads to a fall in the domestic interest rate. D. It leads to changes in the world real interest rate.

A. It leads to a larger trade balance and an increase in net capital outflows.

Why is sustained per capita growth possible in the Romer model but not in the Solow​ model? A. Technology, At ​, is used in producing more​ technology, ΔAt​, and also to produce goods and services. B. The functional form of production describing the role of capital and labor used in the Romer model is basically different from that of the Solow model. C. The Romer model assumes that some​ labor, Lp​, is devoted to producing goods and​ services, while the​ rest, LA​, is devoted to producing new​ technology, which we will refer to as research and development​ (R&D). D. This rivalry of ideas and technology in the Romer model makes sustained per capita growth possible. Why is sustained per capita growth possible in the Romer model but not in the Solow​ model? A. Because the rivalrous nature of technology means that additions of technology from​ R&D are not subject to diminishing returns. B. Because the nonrivalrous nature of technology means that additions of technology from​ R&D are not subject to diminishing returns. C. Because the Romer model assumes that some​ labor, Lp​, is devoted to producing goods and​ services, while the​ rest, LA​, is devoted to producing new technology. D. Sustained per capita growth is actually possible in both models.

A. Technology, At ​, is used in producing more​ technology, ΔAt​, and also to produce goods and services. B. Because the nonrivalrous nature of technology means that additions of technology from​ R&D are not subject to diminishing returns.

Which of the following is not one of the three factors that determine an​ economy's growth rate in the Romer​ model? A. The saving rate B. The total population in the economy C. The fraction of the population that is engaged in​ R&D D. The productiveness of labor used in​ R&D

A. The saving rate

Discuss the following​ statement: "Real GDP has decreased for two quarters in a​ row; we definitively are living through a​ contraction." A. The statement is incorrect since the official arbiter of business cycle dates​ (the NBER) looks at multiple indicators of economic activity before declaring the onset of a contraction. B. The statement is correct since two consecutive quarters is more than enough time to determine an​ economy's trend. C. The statement is correct since this measurement standard has been mandated by the U.S. Congress. D. The statement is correct because changes in real GDP precisely mirror changes in other variables that reflect overall economic activity.

A. The statement is incorrect since the official arbiter of business cycle dates​ (the NBER) looks at multiple indicators of economic activity before declaring the onset of a contraction.

Uruguay implemented the One Laptop per Child​ (OLPC) initiative at the beginning of 2007. This program aimed to give one laptop to every child and teacher in a public primary school. By the second semester of​ 2009, every child and teacher in a public primary school had a laptop. What is the likely effect of this program on​ Uruguay's human capital​ stock? A. This program is an increase in the chi ​(​) parameterthe productivity of research and developmentof the​ Romer's model. B. This program is an increase in the alpha ​(​) parameterthe fraction of the population that is devoted to ​R&Dof the​ Romer's model. C. This program will increase all parameters of the growth rate of​ technology, ​, of the​ Romer's model. D. This program will have very little effect on​ worker's productivity. What is the likely effect of this program on​ Uruguay's output per capita growth​ rate? A. This program increases output per capita in the short​ run, but the balanced growth path of output per capita remains the same. B. This program increases the balanced growth path of output per capita. C. This program decreases output per capita in the short​ run, but the balanced growth path of output per capita remains the same. D. This program does not change the balanced growth path of output per capita.

A. This program is an increase in the chi ​(​) parameterthe productivity of research and developmentof the​ Romer's model B. This program increases the balanced growth path of output per capita.

Consider the​ following: "When Keynes stated that​ 'in the long​ run, we are all​ dead' he meant that we should only focus on the short run and not pay attention to any​ long-run consequence of our​ actions, since we will be dead by then and we therefore should not​ care." How should this statement be​ interpreted? A. This statement distorts​ Keynes' view of the long run as his exaggeration was only meant to highlight the​ "slowness" of the​ economy's self-correcting mechanism. B. This statement distorts​ Keynes' view of the long run because he believed that the long run mattered more than the short run. C. This statement accurately portrays​ Keynes' view that the long run is irrelevant. D. This statement accurately portrays​ Keynes' view that the long run comes quite quickly and the short run should be enjoyed while it lasts.

A. This statement distorts​ Keynes' view of the long run as his exaggeration was only meant to highlight the​ "slowness" of the​ economy's self-correcting mechanism.

In a small open​ economy, the real interest rate A. is determined by world markets independent of domestic policies. B. can be influenced by domestic policies. C. never changes. D. is determined domestically.

A. is determined by world markets independent of domestic policies.

The difference between saving and investment A. is zero in a closed economy. B. is equal to imports minus exports. C. is fixed in the long run. D. is referred to as the twin deficit.

A. is zero in a closed economy.

The effect of persistent budget deficits can be to A. reduce private investment. B. lower​ long-term real interest rates. C. create a housing bubble. D. shift the investment curve to the right.

A. reduce private investment.

If a country has a closed​ economy, a decrease in autonomous investment will A. shift the investment curve to the​ left, decreasing the real interest rate and the levels of saving and​ investment, which will cause the​ economy's wealth to decline. B. shift the investment curve to the​ left, decreasing the real interest rate but increasing the levels of saving and​ investment, which will cause the​ economy's wealth to increase. C. cause a decrease in net exports and raise the real interest​ rate, which should decrease the​ economy's wealth. D. shift the investment curve to the​ right, increasing the real interest rate and the levels of saving and​ investment, which will cause the​ economy's wealth to increase. If a country has a small open​ economy, a decrease in autonomous investment will A. cause an increase in net exports and the economy buys more foreign​ assets, which should not change the​ economy's wealth. B. cause an increase in net exports and the economy buys more foreign​ assets, which should decrease the​ economy's wealth. C. shift the investment curve to the​ left, decreasing the real interest rate but increasing the levels of saving and​ investment, which will cause the​ economy's wealth to increase. D. cause a decrease in net exports and raise the real interest​ rate, which should decrease the​ economy's wealth.

A. shift the investment curve to the​ left, decreasing the real interest rate and the levels of saving and​ investment, which will cause the​ economy's wealth to decline. A. cause an increase in net exports and the economy buys more foreign​ assets, which should not change the​ economy's wealth.

During the late 1960s Chinese authorities imposed the precepts of the​ "Cultural Revolution" on their people. As a result almost all scholars and researchers were sent to the fields to perform manual agricultural tasks. According to the Romer​ model, the​ "Cultural Revolution" in China created ____________​, resulting in _____________.

According to the Romer​ model, the​ "Cultural Revolution" in China created a decrease in α​, resulting in a decrease in the growth rate of output per worker.

Which of the following causes an increase in desired​ saving? A. A decrease in taxes. B. A decrease in autonomous consumption. C. An increase in government purchases. D. All of the above. If desired saving​ increases, what happens to the real interest rate and desired​ investment? A. The real interest rate​ decreases, which causes desired investment to decrease. B. The real interest rate​ decreases, which causes desired investment to increase. C. The real interest rate​ increases, which causes desired investment to decrease. D. The real interest rate​ increases, which causes desired investment to increase.

B. A decrease in autonomous consumption. B. The real interest rate​ decreases, which causes desired investment to increase.

Michael​ Kremer's research suggests that higher population might stimulate technological progress. How can higher population stimulate technological​ change? A. A higher population immediately increases α​, ​which, in​ turn, increases the balanced growth path. B. A higher population puts more pressure on limited available​ resources, thereby increasing incentives to spur technological change. C. A rise in population at first leads to a decline in​ per-capita output, and the growth rate of​ per-capita output will decrease permanently. D. The research may be just a conjecture on the role of technology based on the growth of the world population.

B. A higher population puts more pressure on limited available​ resources, thereby increasing incentives to spur technological change.

How does a small open economy differ from a large open​ economy? A. In a small open​ economy, equilibrium occurs when saving equals​ investment; however, in a large open economy equilibrium occurs when desired saving minus desired investment equals net exports. B. A small open economy has no effect on the world real interest rate. C. A small open economy is able to influence the world interest rate through its saving and investment decisions. D. A small open economy is only open to trade with similar economies.

B. A small open economy has no effect on the world real interest rate.

Assume you have saved​ $20,000 and that you are considering a couple of options. One of them is to use these funds as a down payment to buy a newly built house. The other one is to buy a U.S. savings bond. Which option will add to the​ economy's capital​ stock? A. Buying a savings bond will transfer funds to the U.S. government and therefore add to GDP. B. Buying a newly built house will add to residential investment and therefore add to GDP. C. Both options will increase expenditures and thus add to GDP. D. Neither option adds to GDP. How would a decrease in the real interest rate affect your​ decision? A. You should purchase the bonds as a lower real interest rate now makes bonds more affordable to purchase. B. You should purchase a smaller home and also purchase the bonds as a means of future saving. C. You should buy the newly built house as a lower real interest rate now means smaller mortgage payments. D. You should invest your money in stocks and wait to purchase the home.

B. Buying a newly built house will add to residential investment and therefore add to GDP. C. You should buy the newly built house as a lower real interest rate now means smaller mortgage payments.

Which of the following is not a determinant of national saving and investment in a closed​ economy? A. Consumption B. Net exports C. Income D. The real interest rate

B. Net exports

What are property rights and how do they influence economic​ growth? A. A property right is the exclusive authority to determine how a resource is used. The efficient use of scarce resources is the key to economic growth. B. Property rights are the exclusive right of​ owning, using, and disposing of properties. People require property rights to have incentives to make investments that promote economic growth. C. Property rights are the exclusive right of​ owning, using, and disposing of properties. Government only has the right to expropriate these properties. In the private​ sector, individuals and businesses require property rights to have incentives to make investments that promote economic growth. D. A property right is the exclusive authority to determine how a resource is used. Without property​ rights, people cannot accumulate wealth.

B. Property rights are the exclusive right of​ owning, using, and disposing of properties. People require property rights to have incentives to make investments that promote economic growth.

Which of the following variables changes in order to bring saving and investment into​ equilibrium? A. The money supply B. The real interest rate C. Productivity D. The nominal interest rate

B. The real interest rate

What determines whether a small open economy will have a trade surplus or a trade​ deficit? A. The difference between saving and expenditures B. The value of the domestic real interest rate versus the world real interest rate C. The size of government spending D. The amount of factors of production relative to the production function

B. The value of the domestic real interest rate versus the world real interest rate

Discuss the validity of the following​ statement: "Unlike​ Solow's model,​ Romer's model concludes that changes in the saving rate do not affect the sustained​ per-capita output growth​ rate." A. This statement is true because only​ Romer's model concludes that a higher saving rate results in a higher level of output per​ capita, but not a higher sustained growth rate. B. This statement is false because both models conclude that a higher saving rate results in a higher level of output per​ capita, but not a higher sustained growth rate. C. This statement is false because the Solow model—not the Romer model—concludes a higher saving rate results in a higher level of output per​ capita, but not a higher sustained growth rate. D. This statement is false because the outcome of a higher sustained growth rate cannot be determined.

B. This statement is false because both models conclude that a higher saving rate results in a higher level of output per​ capita, but not a higher sustained growth rate.

The national saving rate for the United States A. has been relatively constant for the last several decades. B. is currently negative. C. is given by . D. has been rising for the last several decades.

B. is currently negative.

If autonomous consumption rises A. the saving curve could shift to the​ left, to the​ right, or stay the same. B. the saving curve will shift to the left. C. the saving curve will shift to the right. D. the investment curve will shift to the left.

B. the saving curve will shift to the left.

The​ ____________ is the rate that equates desired world saving and desired world investment and thus achieves goods market equilibrium for the world as a whole. A. domestic real interest rate B. world real interest rate C. domestic nominal interest rate D. world nominal interest rate Why must the domestic real interest rate be the same as the world​ rate? A. If domestic rates were below the world​ rate, domestic lenders would only lend to borrowers from abroad at higher rates. B. If domestic rates were above the world​ rate, domestic borrowers would only borrow from abroad at lower rates. C. Even if the rates were not the​ same, capital mobility would move the domestic rate to equal the world rate. D. All of the above.

B. world real interest rate D. All of the above.

What is the impact of an increase in saving in the Romer​ model? A. A higher saving rate results in both a higher level of output per capital and a higher sustained growth rate. B. A higher saving rate results in both a lower level of output per capital and a lower sustained growth rate. C. A higher saving rate results in a higher level of output per​ capita, but not a higher sustained growth rate. D. A higher saving rate results in a lower level of output per​ capita, but not a lower sustained growth rate.

C. A higher saving rate results in a higher level of output per​ capita, but not a higher sustained growth rate.

Which of the following is not a similarity between the effects of changes in domestic saving and investment for large open economies to those for small open economies and closed​ economies? A. Changes in domestic saving and investment affect the trade balance and net capital flowslike small open economies. B. Changes in domestic saving and investment will affect the world real interest ratelike small open economies. C. Changes in domestic saving and investment will affect the actual level of investmentlike closed economies. D. Changes in domestic saving and investment affect the domestic interest rate - like closed economies.

C. Changes in domestic saving and investment will affect the actual level of investmentlike closed economies.

Which of the following is not equivalent to a trade​ surplus? A. Net capital outflows. B. S - I > 0. C. I​ > S. D. NX​ > 0.

C. I​ > S.

What relation between desired saving and desired investment is required for goods market​ equilibrium? A. Saving must be greater than investment B. Saving must be less than investment C. Saving must be equal to investment D. Goods market equilibirum cannot be reached in a closed economy

C. Saving must be equal to investment

Consider the world economy and comment on the effect of the Industrial Revolution on the​ world's output per person growth rate according to the assumptions of the Romer model. A. The Industrial Revolution was a period in which technological growth and the world population increased at a fast​ rate, increasing the growth rate of​ per-capita output permanently. B. The Industrial Revolution was a period of developing property rights and the strengthening of legal frameworks—both of which contributed to economic growth. C. The Industrial Revolution increased χ—the productivity of ​R&D—and α—the fraction of the population engaged in ​R&D—thereby increasing the balanced growth paths of many countries. D. The Industrial Revolution was a period in Europe in which technological growth increased at a fast rate in a few countries.

C. The Industrial Revolution increased χ—the productivity of ​R&D—and α—the fraction of the population engaged in ​R&D—thereby increasing the balanced growth paths of many countries.

In the Romer​ model, how does an increase in the fraction of the population engaged in​ R&D, α​, affect the growth rate of​ per-capita output over​ time? A. When α ​increases, both the level of​ per-capita output and the growth rate of​ per-capita output will rise permanently. B. When α ​increases, both the level of​ per-capita output and the growth rate of​ per-capita output will fall permanently. C. When more resources are devoted to research and​ development, the level of​ per-capita output at first​ falls, but the growth rate of​ per-capita output will rise permanently. D. When more resources are devoted to research and​ development, the level of​ per-capita output at first​ rises, but the growth rate of​ per-capita output will fall permanently.

C. When more resources are devoted to research and​ development, the level of​ per-capita output at first​ falls, but the growth rate of​ per-capita output will rise permanently.

Suppose the world real interest rate decreases. In a small open​ economy, this would A. increase net exports. B. decrease desired investment. C. decrease net capital outflows. D. increase desired saving.

C. decrease net capital outflows.

In the Romer​ model, how does an increase in total population affect the growth rate of​ per-capita output over​ time? A. A rise in population leads to both a decline in​ per-capita output and the growth rate of​ per-capita output. B. A rise in population at first leads to an increase in​ per-capita output, but the growth rate of​ per-capita output will decline permanently. C. A rise in population leads to both an increase in​ per-capita output and the growth rate of​ per-capita output. D. A rise in population at first leads to a decline in​ per-capita output, but the growth rate of​ per-capita output will rise permanently.

D. A rise in population at first leads to a decline in​ per-capita output, but the growth rate of​ per-capita output will rise permanently.

Which of the following government policies cannot be used to promote productivity​ growth? A. Building infrastructure and increasing human capital B. Government spending on​ R&D and tax incentives for​ R&D C. Offering incentives to promote a higher saving and strengthening patent protection D. All of the above policies are used to promote productivity growth.

D. All of the above policies are used to promote productivity growth.

Do you think corruption affects the enforcement of property​ rights, or is it that badly designed institutions create opportunities for​ corruption? In other​ words, does corruption determine the enforcement and design of property​ rights, or is it the other way around and causality runs from the design of property rights to​ corruption? Explain your arguments. A. Poor countries exhibit a combination of poorly designed and enforced property rights and corruption. B. The prevalence of corruption in a society makes the enforcement of property rights very​ difficult, as often government officials are bribed in exchange for preferential treatment or concessions. C. Badly designed institutions can often promote corruption. D. All of the above.

D. All of the above.

Which of the following is a correct representation of national​ saving? Part 2 A. Y - C - G B. NX + I C. S_G + S_P D. All of the above.

D. All of the above.

Why may private​ R&D expenditures be too​ low? A. Because technology is​ excludable, it is hard to keep unauthorized users from using​ it, reducing the potential benefits than can be made from producing it. B. Because private​ R&D depends on the number of patents the government is willing to​ issue, expenditures may be low. C. Because private​ R&D depends on the state of the​ economy, fewer individuals may be willing to risk a potential loss. D. Because technology is​ nonexcludable, it is hard to keep unauthorized users from using​ it, reducing the potential benefits that can be made from producing it.

D. Because technology is​ nonexcludable, it is hard to keep unauthorized users from using​ it, reducing the potential benefits that can be made from producing it.

What is the effect of an increase in domestic saving on the trade balance and net capital​ outflows? A. If domestic saving​ increases, net capital outflows will fall and net exports will increase. B. If domestic saving​ increases, net capital outflows will fall and net exports will decrease. C. If domestic saving​ increases, net capital outflows will rise and net exports will decrease. D. If domestic saving​ increases, net capital outflows will rise and net exports will increase.

D. If domestic saving​ increases, net capital outflows will rise and net exports will increase.

In the foreign aid​ debate, economist Jeffrey Sachs believes foreign aid should be​ increased, while William Easterly believes more foreign aid can do more harm than​ good? Which of the following ideas would not be supported by​ Sachs' argument? A. Increasing foreign aid can break down the poverty cycle and allow individuals to escape their poverty traps. B. If rich countries would increase their foreign aid budgets over the next​ decade, they could help eliminate extreme global poverty. C. Increasing foreign aid may lead to dramatic improvements in health and life expectancy in developing countries. D. Increasing foreign aid usually​ doesn't work but any aid is better than no aid for poor countries. Which of the following ideas would tend to support​ Easterly's argument? A. The political elites that run these governments often use foreign aid funds to line their own or their​ friends' pockets. B. With access to increased​ resources, bad governments are even more likely to stay in power. C. Foreign aid removes incentives for countries to develop policies that promote economic growth. D. Easterly would support all of the above ideas.

D. Increasing foreign aid usually​ doesn't work but any aid is better than no aid for poor countries. D. Easterly would support all of the above ideas.

As an input to​ production, how does technology differ from labor and capital​ inputs? A. Technology is basically an exogenous input to​ production, but labor and capital are endogenous inputs. B. Because capital and labor are physical​ things, or objects​, they are nonrival in their​ use, whereas technology is a set of instructions or​ designs, or ​ideas, so it is rival in its use. C. Technology involves improving organizational frameworks to increase the efficiency of the use of capital and labor.​ Therefore, it is not a separate input to production but determines the functional form of production. D. Technological ideas are nonrivalrous inputs and they often have a low level of​ excludability, whereas capital and labor are fundamentally excludable rival inputs.

D. Technological ideas are nonrivalrous inputs and they often have a low level of​ excludability, whereas capital and labor are fundamentally excludable rival inputs.

The White House website describing the Economic Recovery Act of 2009 states​ "The Recovery Act​ [...] provides for​ $7.2 billion for broadband internet access​ nationwide, including grants for rural broadband​ access, expanding computer center​ capacity, and sustainable broadband adoption​ initiatives." Is there a good rationale for such a​ policy? A. The idea is to make small businesses more competitive against large companies. B. The idea is to increase capital stock and to decrease the amount of capital per worker. C. The idea is to make the economy more capital intensive rather than labor intensive. D. The idea is to increase technology and to make each U.S. worker more productive.

D. The idea is to increase technology and to make each U.S. worker more productive.

How might the effects of government spending on proper sewage infrastructure that results on improved sanitation for crowded cities in poor countries promote economic​ growth? A. Improving health conditions in poor countries may decrease the prevalence of transmissible diseases like​ cholera, but its effect on the balanced growth path of output per capita is ambiguous. B. This program will have very little effect on the balanced growth part of output per capita. C. Improving health conditions reduces the costs associated with treating patients and at the same time it increases returns to education. Output per capital will increase but the balanced growth path of output per capita remains the same. D. The spending can increase productivity in many​ ways, which results in a healthier and therefore more productive labor​ force, increasing the balanced growth path of output per capita.

D. The spending can increase productivity in many​ ways, which results in a healthier and therefore more productive labor​ force, increasing the balanced growth path of output per capita.

Which of the following does not represent national​ saving? A. Private Saving​ + Government Saving B. Y - T - C ​+ T - G C. Y - C - G D. Y - C - I - G

D. Y - C - I - G

Autonomous consumption is the part of consumption that A. varies with disposable income. B. households are forced to spend above desired consumption. C. is dependent on the real interest rate. D. is independent from disposable income or the real interest rate.

D. is independent from disposable income or the real interest rate.

The twin deficits A. are primarily caused by high taxes and tariffs. B. increased during the late 1990s in the United States. C. are made worse by lower domestic consumption. D. refer to simultaneous trade deficits and government budget deficits.

D. refer to simultaneous trade deficits and government budget deficits.

If a country has a large open​ economy, an increase in government surplus​ (or a decrease in government​ deficit) will A. shift the saving curve to the​ left, which will decrease net​ exports, and the real interest rate remains the same. B. shift the saving curve to the​ left, which will decrease net​ exports, and the real interest rate increases. C. shift the saving curve to the​ right, which will increase net​ exports, and the real interest rate remains the same. D. shift the saving curve to the​ right, which will increase net​ exports, and the real interest rate decreases. If a country has a small open​ economy, an increase in government surplus​ (or a decrease in government​ deficit) will A. shift the saving curve to the​ right, which will increase net​ exports, and the real interest rate decreases. B. shift the saving curve to the​ right, which will increase net​ exports, and the real interest rate remains the same. C. shift the saving curve to the​ left, which will decrease net​ exports, and the real interest rate remains the same. D. shift the saving curve to the​ left, which will decrease net​ exports, and the real interest rate increases.

D. shift the saving curve to the​ right, which will increase net​ exports, and the real interest rate decreases. B. shift the saving curve to the​ right, which will increase net​ exports, and the real interest rate remains the same.

Compared to Keynesian ​macroeconomists, classical views on macroeconomic fluctuations hold that they are A. variable in length and​ amplitude, thereby calling for the discretionary use of countering measures. B. long−lasting​, owing to the length of the short​ run, thereby justifying the use of government countering measures. C. the result of political rather than economic forces and therefore cannot be countered with economic policies. D. short−lived​, owing to the brevity of the short​ run, thereby negating the need for government countering measures.

D. short−lived​, owing to the brevity of the short​ run, thereby negating the need for government countering measures.

The distinction that macroeconomists make between flexible and sticky prices and wages hinges on A. the time needed for​ long-run equilibrium values to be​ re-established following demand and supply shocks. B. whether the prices and wages are expressed in real or nominal terms. C. whether the markets setting prices and wages are competitive or monopolistic. D. all of the above. E. A and C only.

E. A and C only.

Considering the world as two large open​ economies, a domestic economy and the rest of the​ world, the condition required for goods market equilibrium is that A. desired world saving equals desired world investment. B. the trade surplus in one economy must equal the trade deficit in the other economy. C. the net capital outflows from one economy must match the net capital inflows from the other economy. D. the amount of borrowing by one economy equals the amount of lending by the other economy. E. all of the above are equivalent expressions for equilibrium in the goods market. F. A and B are the only two ways to express goods market equilibrium. The achievement of equilibrium in the goods market occurs as a result of an adjustment in _____________.

E. all of the above are equivalent expressions for equilibrium in the goods market. The achievement of equilibrium in the goods market occurs as a result of an adjustment in the world real interest rate.

Suppose Japan has a GDP of ​$4 ​trillion, and that its national saving rate is ​16%. Assume Japan is an open economy. If​ Japan's net exports are ​2% of​ GDP, Japan's investment is ​$ _____ billion. If​ Japan's imports are ​$ ​700 billion, then​ Japan's exports will be ​$ _____ billion.

If​ Japan's net exports are ​% of​ GDP, Japan's investment is ​$560 billion. If​ Japan's imports are ​$ ​billion, then​ Japan's exports will be ​$780 billion.

In macroeconomic​ analysis, the long run is distinguished from the short run on the basis of _______________. Macroeconomists differentiate between the two time horizons because A. each has different implications regarding the effects of monetary policy. B. money is neutral in the short run but not the long run. C. much more is known about the short run than the long run. D. macroeconomic analysis is only useful in dealing with​ short-run fluctuations.

In macroeconomic​ analysis, the long run is distinguished from the short run on the basis of the degree of price flexibility. A. each has different implications regarding the effects of monetary policy.

Menu costs refer to the costs a firm incurs when it ___________ its prices. Because of menu​ costs, changing prices is not​ costless, and a firm will only change its prices if A. it can rescind the increases at some future time. B. the costs are not too excessive. C. it can blame the increases on the government. D. the benefits of adopting new prices are expected to exceed the costs of changing them. Menu costs contribute to sticky prices since firms will likely change prices _________ frequently than they would if these costs did not exist.

Menu costs refer to the costs a firm incurs when it changes its prices. Because of menu​ costs, changing prices is not​ costless, and a firm will only change its prices if D. the benefits of adopting new prices are expected to exceed the costs of changing them. Menu costs contribute to sticky prices since firms will likely change prices less frequently than they would if these costs did not exist.

Procyclical economic variables differ from countercyclical variables in that procyclical variables move in __________ direction as aggregate economic​ activity, while countercyclical variables ____________ economic activity.

Procyclical economic variables differ from countercyclical variables in that procyclical variables move in the same direction as aggregate economic​ activity, while countercyclical variables move opposite to economic activity.

The period referred to as the​ "Great Inflation" corresponds approximately to the decade of the ________. During this​ period, the U.S. economy experienced A. higher inflation. B. slower growth. C. less severe cyclical behavior. D. all of the above. E. A and B only. The​ "Great Moderation" period has been assigned to the time period __________________. The​ "Great Moderation" is perhaps best noted for A. a heightened degree of stability in most macroeconomic variables. B. the absence of both unemployment and inflation. C. economic policies that removed the harshness of markets. D. none of the above.

The period referred to as the​ "Great Inflation" corresponds approximately to the decade of the 1970s. During this​ period, the U.S. economy experienced E. A and B only. The​ "Great Moderation" period has been assigned to the time period running from 1984 to 2007. The​ "Great Moderation" is perhaps best noted for A. a heightened degree of stability in most macroeconomic variables.