Intermediate Macro Midterm 2
With an increase in total factor productivity in the Solow growth model,
A: the economy reaches a steady state with higher output.
The consumer's lifetime budget constraint states that
A: the present value of lifetime consumption must be equal to the present value of lifetime disposable income.
There is evidence that income per worker is converging in
A: the richest countries, but not the poorest countries.
Consumption smoothing refers to
A: the tendency of consumers to seek a consumption path over time that is smoother than income.
One drawback of the modeling of government expenses so far is that
A: they are pure waste.
Real business cycle theory argues that the primary cause of business cycles is fluctuations in
A: total factor productivity.
The simplest device to analyze dynamic decisions is a
A: two-period model.
For the production function, Y = zK^(0.36)N^(0.64), if measured output is Y, measured capital input is K, and measured labor input is N, then the Solow residual would be equal to
A: Y/(K^(0.36)*N^(0.64))
The biggest contribution to real U.S. GDP growth in the 1970s was due to growth in
A: both the capital stock and the labor force.
The Solow model emphasizes the role of which of the following factors of production?
A: capital
The endowment point is the consumption bundle in which
A: consumption is equal to disposable income in each period.
Changes in government spending are not likely causes of business cycles because government spending induced business cycles would predict
A: countercyclical consumption.
The experience of the U.S. economy during World War II confirms the prediction that a dramatic increase in government spending is likely to
A: increase real GDP and decrease consumption.
An increase in total factor productivity
A: increases consumption, increases output, and increases the real wage.
In the steady state of Solow's exogenous growth model, an increase in the savings rate
A: increases output per worker and increases capital per worker.
In the steady state of Solow's exogenous growth model, an increase in total factor productivity
A: increases output per worker and increases capital per worker.
The saving rate has the following characteristic in Solow's exogenous growth model
A: it is constant.
Before the Industrial Revolution, standards of living differed
A: little over time and across countries.
All of the following increase total factor productivity except
A: more capital.
Recent evidence suggests that output per worker is
A: positively related to the rate of investment and negatively related to the rate of population growth.
Percentage deviations from trend in the Solow residual are
A: procyclical and have about equal magnitude as percentage deviations from trend in GDP
Changes in total factor productivity are plausible causes of business cycles because productivity-induced business cycles correctly predict
A: real wages and consumption must be pro cyclical.
An increase in government spending
A: reduces consumption, increases hours worked, and reduces the real wage.
Why are there no savings in the household's lifetime budget constraint?
A: savings are future consumption
Growth accounting, popularized by Robert Solow, attempts to attribute a change in aggregate output
A: separately between changes in total factor productivity and changes in the supplies of factors of production.
Just prior to the four most recent U.S. recessions, there has been a
A: significant increase in the relative price of energy.
The biggest contribution to real GDP growth in the "East Asian Tigers" during the period 1966-1991 was due to growth in
A: the capital stock.
In Solow's exogenous growth model, the principal obstacle to continuous growth in output per capita is due to
A: the declining marginal product of capital.
In the Solow growth model, the law of motion of capital takes into account
A: the depreciation of old capital.
Conditional convergence means that
A: the distance between poor and rich countries decreases
The variable G considered in the model encompasses
A: government expenses on goods and services.
Which of the following increases total factor productivity?
A: new production procedures
The endowment point is the consumption bundle in which
A: no savings occur
For conditional convergence to hold, it is required that
A: poor countries grow faster than rich countries.
Savings in our model are
A: postponed consumption.
The Solow residual attempts to measure the amount of output notexplained by
A: the direct contribution of labor and capital.
Which feature of the data can the Solow growth model not replicate?
A: There is a widening gap between income levels across countries
A one-period bond is a promise to repay
A: (1 + r) units of goods in the second period.
Which of the following, if implemented in the Solow growth model, would not lead to a steady state?
A: A constant marginal product of capital.
If the population growth rate increases by the same percentage points as the depreciation rate, what happens to the steady-state, per-worker output in Solow's exogenous growth model?
A: It decreases
If the population growth rate increases by 5% and the depreciation rate decreases by 5%, what happens to the steady-state, per-worker consumption in Solow's exogenous growth model?
A: It does not change.
