Macro Theory Exam 1

E=

Labor Efficiency

Golden Rule Solow Model

MPK-Depreciation=n+g

Nominal GDP means the value of goods and services is measured in ______ prices.

current

Recessions are periods when real GDP:

decreases mildly.

According to the definition used by the U.S. Bureau of Labor Statistics, people are considered to be unemployed if they:

do not have a job, but have looked for work in the past 4 weeks

GDP is the market value of all ______ goods and services produced within an economy in a given period of time.

final

Exogenous variables are:

fixed at the moment they enter the model.

According to the Solow growth model, high population growth rates

force the capital stock to be spread thinly, thereby reducing living standards.

Real GDP ______ over time and the growth rate of real GDP ______.

grows; fluctuates

According to efficiency-wage theories, firms benefit by paying higher-than-equilibrium wages because worker _____ increases.

productivity

Transitions into and out of the labor force:

reduce the amount of frictional unemployment.

In the Solow growth model of Chapter 8, investment equals:

saving.

Change in Capital=

savings- (depreciation+capital for new workers+capital needed for tech improvement) All variables are function of k

When f(k) is drawn on a graph with increases in k noted along the horizontal axis, the:

slope of the line eventually gets flatter and flatter

Unemployment insurance increases the amount of frictional unemployment by:

softening the economic hardship of unemployment.

The Solow model predicts that two economies will converge if the economies start with the same:

steady states.

An assumption of _______ is more plausible for studying the short-run behavior of the economy, while an assumption of ______ is more plausible for studying the long-run, equilibrium behavior of the economy.

sticky prices; flexible prices

The unemployment resulting from wage rigidity and job rationing is called ______ unemployment.

structural

Public policies in the United States designed to stimulate technological progress do not include:

tax breaks to encourage homeownership.

The rate of labor-augmenting technological progress (g) is the growth rate of:

the efficiency of labor.

The CPI is determined by computing:

the price of a fixed basket of goods and services, relative to the price of the same basket in a base year

Frictional unemployment is unemployment caused by:

the time it takes workers to search for a job.

Two equivalent ways to view GDP are as the:

total income of everyone in the economy or the total expenditure on the economy's output of goods and services.

The macroeconomic problem that affects individuals most directly and severely is:

unemployment.

In the Solow model with technological progress, the steady-state growth rate of output per effective worker is:

0.

The steady-state level of capital occurs when the change in the capital stock (delta k) equals:

0.

nk=

Capital for NEW workers (new workers from pop growth)

gk=

Capital to keep up with efficiency of workers Need for capital created by technological improvement

The statistic used by economists to measure the value of economic output is:

GDP.

LE

Number of effective workers

g=

Technological progress increasing labor efficiency

The ability of macroeconomists to predict the future course of economic events:

is no better than the meteorologist's ability to predict the next month's weather.