QU Macro Test #2 (Ch. 4, 9 & 8)

______ cause(s) the capital stock to rise over time, while ______ cause(s) the capital stock to fall over time.

Investment; depreciation

In an economy with population growth at rate n, the change in capital stock per worker is given by the equation:

(delta)k = sf(k) - ((delta) + n)k.

In the Solow growth model, an economy in the steady state with a population growth rate of n but no technological growth will exhibit a growth rate of output per worker at rate:

0

The minimum amount of owners' equity in a bank mandated by regulators is called a _____ requirement.

capital

To increase the monetary base, the Fed can:

conduct open-market purchases.

The consumption function in the Solow model assumes that society saves a:

constant proportion of income.

With a per-worker production function y = k1/2, the steady-state capital stock per worker (k*) as a function of the saving rate (s) is given by:

k* = (s/delta)(squared)

In the Solow growth model, an economy in the steady state with a population growth rate of n but no technological growth will exhibit a growth rate of total output at rate:

n

In the Solow growth model of an economy with population growth but no technological change, if population grows at rate n, total output grows at rate ______ and output per worker grows at rate ______.

n; 0

. In the steady state of the Solow growth model of an economy with population growth but no technological change, if population grows at rate n, then capital grows at rate ______ and output grows at rate ______.

n; n

The currency-deposit ratio is determined by:

preferences of households about the form of money they wish to hold.

When the Federal Reserve conducts an open-market purchase, it buys bonds from the:

public

When an economy begins below the Golden Rule, reaching the Golden Rule:

requires initially reducing consumption to increase consumption in the future.

Compared to typical open-market operations, when pursuing quantitative easing, Federal Reserve purchases tended to be _____ securities.

riskier and longer-term

To prevent banks from using excess reserves to make loans that would increase the money supply, the Federal Reserve could conduct open-market ______ and _____ the interest rate paid on bank reserves.

sales; raise

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

saving

If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits (rr) is constant and the monetary base (B) is constant, then:

the money supply decreases.

If the ratio of reserves to deposits (rr) increases, while the ratio of currency to deposits (cr) is constant and the monetary base (B) is constant, then:

the money supply decreases.

In the Solow growth model, the assumption of constant returns to scale means that:

the number of workers in an economy does not affect the relationship between output per worker and capital per worker.

Demand deposits are funds held in:

checking accounts

When the Fed increases the interest rate paid on reserves, it:

increases the reserve-deposit ratio (rr).

Assuming that technological progress increases the efficiency of labor at a constant rate is called:

labor-augmenting technological progress.

In a system with 100-percent-reserve banking:

no bank can make loans

In the Solow growth model, the steady state level of output per worker would be higher if the _____ increased or the _____ decreased.

saving rate; depreciation rate

When the Fed decreases the interest rate paid on reserves, if the ratio of currency to deposits decreases also while the monetary base is constant, then:

the money supply increases.

In the Solow growth model with population growth, but no technological progress, the steady-state amount of investment can be thought of as a break-even amount of investment because the quantity of investment just equals the amount of:

capital needed to replace depreciated capital and to equip new workers.

In the Solow growth model, the steady-state occurs when:

capital per worker is constant.d

A country that is on a gold standard primarily uses:

commodity money

The Golden Rule level of capital accumulation is the steady state with the highest level of:

consumption per worker.

In the Solow growth model with population growth, but no technological change, a higher level of steady-state output per worker can be obtained by all of the following except:

increasing the population growth rate.

Currency equals:

the sum of coins and paper money

If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals:

2.5

The formula for steady-state consumption per worker (c*) as a function of output per worker and investment per worker is:

c* = f(k*) - (delta)k*

High-powered money is another name for:

the monetary base.

The ratio of the money supply to the monetary base is called:

the money multiplier.

If you hear in the news that the Federal Reserve conducted open-market purchases, then you should expect ______ to increase.

the money supply

If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the monetary base equals:

$150 billion

If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the money supply equals:

$600 billion.

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:

$800 billion.

In the Solow growth model of Chapter 8, where s is the saving rate, y is output per worker, and i is investment per worker, consumption per worker (c) equals:

(1 - s)y

A bank balance sheet consists of only the following items: Deposits $1,000 Reserves $100 Securities $400 Debt $500 Loans $2,000 What is the value of bank capital?

+$1,000

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

0

Bank Balance Sheet Assets Liabilities & Net Worth Reserves $ 10,000 Deposits $100,000 Loans 100,000 Debt 20,000 Securities 40,000 Equity 30,000 Based on the table, what is the reserve-deposit ratio at the bank?

10 percent

A reduction in the saving rate starting from a steady state with more capital than the Golden Rule causes investment to ______ in the transition to the new steady state.

decrease

If the Federal Reserve wishes to increase the money supply, it should:

decrease the discount rate

In a fractional-reserve banking system, banks create money because:

each dollar of reserves generates many dollars of demand deposits.

If the national saving rate increases, the:

economy will grow at a faster rate until a new, higher, steady-state capital-labor ratio is reached.

The number of effective workers takes into account the number of workers and the:

efficiency of each worker.

The most frequently used tool of monetary policy is:

open-market operations.

The production function y = f(k) means:

output per worker is a function of capital per worker

In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply:

remains the same

Endogenous growth theory rejects the assumption of exogenous:

technological change

The monetary base consists of:

currency held by the public, plus reserves held by banks.

When the Fed makes an open-market sale, it:

decreases the monetary base (B).

When the Fed decreases the interest rate paid on reserves, it:

decreases the reserve-deposit ratio (rr).

In the Solow growth model with population growth and technological change, the breakeven level of investment must cover:

depreciating capital, capital for new workers, and capital for new effective workers.

Unlike the long-run classical model in Chapter 3, the Solow growth model:

describes changes in the economy over time.

Money that has no value other than as money is called ______ money

fiat

An increase in the saving rate starting from a steady state with less capital than the Golden Rule causes investment to ______ in the transition to the new steady state.

increase

When the Fed increases the discount rate, it:

is likely to decrease the monetary base (B).

To increase the money multiplier, the Fed can:

lower the interest rate paid on reserves.

The money supply will increase if the:

monetary base increases.

In the Solow model, it is assumed that a(n) ______ fraction of capital wears out as the capital-labor ratio increases.

constant

The Solow growth model describes:

how saving, population growth, and technological change affect output over time

If an economy is in a steady state with no population growth or technological change and the capital stock is below the Golden Rule:

if the saving rate is increased, output per capita will rise and consumption per capita will first decline and then rise above its initial level.

The Golden Rule level of the steady-state capital stock:

implies a choice of a particular savings rate

If the reserve-deposit ratio is less than one, and the monetary base increases by $1 million, then the money supply will:

increase by more than $1 million

In the Solow growth model the saving rate determines the allocation of output between:

investment and consumption

A higher saving rate leads to a:

larger capital stock and a higher level of output in the long run.

In the Solow growth model with no population growth and no technological progress, the higher the steady capital-per-worker ratio, the higher the steady-state

level of output per worker.

The use of borrowed funds to supplement existing funds for purposes of investment is called:

leverage

The amount of capital that banks are required to hold depends on the:

riskiness of the bank's assets.

To reduce the money supply, the Federal Reserve:

sells government bonds

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

steady states.

According to the Solow model, persistently rising living standards can only be explained by:

technological progress.

The size of monetary base is determined by:

the Federal Reserve

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

the marginal product of capital.

Bank Balance Sheet Assets Liabilities & Net Worth Reserves $ 10,000 Deposits $100,000 Loans 100,000 Debt 20,000 Securities 40,000 Equity 30,000 Based on the table, owners' equity will fall to zero if loan defaults reduce the value of total assets by _____ percent.

20

Bank Balance Sheet Assets Liabilities & Net Worth Reserves $ 10,000 Deposits $100,000 Loans 100,000 Debt 20,000 Securities 40,000 Equity 30,000 (Table: Bank Balance Sheet) Based on the table, what is the leverage ratio at the bank?

5

If the labor force is growing at a 3 percent rate and the efficiency of a unit of labor is growing at a 2 percent rate, then the number of effective workers is growing at a rate of:

5 percent.

If a war destroys a large portion of a country's capital stock but the saving rate is unchanged, the Solow model predicts that output will grow and that the new steady state will approach:

the same level of output per person as before.

Excess reserves are reserves that banks keep:

above the legally required amount

In a system with fractional-reserve banking:

all banks hold reserves equal to a fraction of their deposits.

In a country on a gold standard, the quantity of money is determined by the:

amount of gold

The reserve-deposit ratio is determined by:

business policies of banks and the laws regulating banks

To increase the money supply, the Federal Reserve:

buys government bonds

The preferences of households determine the:

currency-deposit ratio.

The interest rate charged on loans by the Federal Reserve to banks is called the:

discount rate.

When an economy begins above the Golden Rule, reaching the Golden Rule:

produces higher consumption at all times in the future.

In a fractional-reserve banking system, banks create money when they:

make loans

Money's liquidity refers to the ease with which:

money can be converted into goods and services.

If the Federal Reserve increases the interest rate paid on reserves, banks will tend to hold _____ excess reserves, which will _____ the money multiplier.

more; decrease

Schumpeter's thesis of "creative destruction" is an explanation of economic progress resulting from:

new product producers driving incumbent producers out of business.

International data suggest that economies of countries with different steady states will converge to:

their own steady state

Conditional convergence occurs when economies converge to:

their own, individual steady states.

If two economies are identical (with the same population growth rates and rates of technological progress), but one economy has a lower saving rate, then the steady-state level of income per worker in the economy with the lower saving rate:

will be at a lower level than in the steady state of the high-saving economy

If two economies are identical (including having the same saving rates, population growth rates, and efficiency of labor), but one economy has a smaller capital stock, then the steady-state level of income per worker in the economy with the smaller capital stock:

will be at the same level as in the steady state of the high capital economy.

Open-market operations are:

Federal Reserve purchases and sales of government bonds

An important factor in the evolution of commodity money to fiat money is:

a desire to reduce transaction costs

To make a trade in a barter economy requires:

a double coincidence of wants.

In the Solow growth model with population growth, but no technological change, which of the following will generate a higher steady-state growth rate of total output?

a higher population growth rate

In a 100-percent-reserve banking system, banks:

cannot affect the money supply.

The Solow residual measures the portion of output growth that cannot be explained by growth in:

capital and labor.

In an economy with no population growth and no technological change, steady-state consumption is at its greatest possible level when the marginal product of:

capital equals the depreciation rate.

The money supply will decrease if the:

currency-deposit ratio increases.

Suppose an economy is initially in a steady state with capital per worker below the Golden Rule level. If the saving rate increases to a rate consistent with the Golden Rule, then in the transition to the new steady state consumption per worker will:

first fall below then rise above the initial level.

If an economy is in a steady state with no population growth or technological change and the capital stock is above the Golden Rule level and the saving rate falls:

output, investment, and depreciation will decrease, and consumption will increase and then decrease but finally approach a level above its initial state.

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

plus consumption.

The Solow model shows that a key determinant of the steady-state ratio of capital to labor is the:

saving rate