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Econ 3203 Exam 2
| Question | Answer |
|---|---|
| According to Oliver Blanchard, Europeans are more likely to use increases in real wages resulting from technological progress to increase _____, and Americans are more likely to use these increase in real wages to increase _____. | hours of leisure; consumption of goods and services |
| Which of these hypotheses is consistent with fewer hours worked per year in Europe than in the United States? | higher tax rates in Europe than in the United States |
| As the relative demand for unskilled workers falls, wages for unskilled workers _____, and unemployment compensation becomes a ______ attractive option. | fall; more |
| Which of these characteristics made the 2008-2009 recession differ MOST sharply from previous recessions? | a large spike in the duration of unemployment |
| Suppose that over the course of a year 100 people are unemployed for four weeks each (short-term unemployed), while 10 people are unemployed for 52 weeks each (long-term unemployed). What % of the unemployment were bc of the short-term unemployed? | 43.5 percent |
| One efficiency-wage theory implies that firms pay high wages because: | the more a firm pays its workers, the greater their incentive to stay with the firm. |
| The earned income tax credit: | does not raise labor costs |
| All of these are causes of structural unemployment EXCEPT: | unemployment insurance |
| According to studies of individual unemployed workers, these workers are MOST likely to find a job: | within a few weeks of their unemployment insurance running out |
| Government policies directed at reducing frictional unemployment include: | Making unemployment insurance 100 percent experience rated. |
| Economists call the changes in the composition of demand among industries and regions: | sectoral shifts |
| Which of these is an example of frictional unemployment? | Dave searches for a new job after voluntarily moving to San Diego. |
| Any policy aimed at lowering the natural rate of unemployment must either _____ the rate of job separation or _____ the rate of job finding. | reduce; increase |
| A policy that increase the job-finding rate _____ the natural rate of unemployment. | will decrease |
| When the unemployment rate is at a steady state: | the number of people finding jobs equals the number of people losing jobs. |
| The macroeconomic problem that affects individuals most directly and severely is: | Unemployment |
| If the steady-state rate of unemployment equals 0.10 and the fraction of employed workers who lose their jobs each month (rate of job separations) is 0.02, then the fraction of unemployed workers who find jobs each month (rate of job findings) must be: | 0.18 |
| All of these are reasons for frictional unemployment EXCEPT: | unemployed workers accept the first job offer that they receive. |
| Unemployment insurance increases the amount of frictional unemployment by: | softening the economic hardship of unemployment |
| Wage rigidity: | prevents labor demand and labor supply from reaching the equilibrium level. |
| If the saving rate of the economy changes to a rate consistent with the golden rule level of capital, then at the new steady state | consumption per worker will be higher compared to the original steady state. |
| Which of these statements is NOT true about the steady state of the basis Solow model? | The marginal product of capital always is equal to the depreciation rate. |
| When an economy's capital is below the Golden Rule level, reaching the Golden Rule level: | requires initially reducing consumption to increase consumption in the future |
| When an economy begins above the Golden Rule level, reaching the Golden Rule level: | results in higher consumption at all times in the future |
| Suppose that an economy is in its steady state and the capital stock is above the Golden Rule level. Assuming that there are no population growth or technological change, if 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. |
| If an economy is in a steady state with no population or technological change and the marginal product of capital is less than the depreciation rate: | steady-state consumption per worker would be higher in a steady state with a lower saving rate. |
| The Golden Rule level of steady-state consumption per worker is: | AB |
| The formula for steady-state consumption per worker (c*) as a function of output per worker and investment per worker is: | c* = f(k*) - gk* |
| Suppose an economy is at its steady-state equilibrium and there is a permanent reduction in the saving rate of the economy. In this case, as the economy approaches its new steady state, capital per worker will _____ and output per worker will _____. | fall; fall |
| In the Solow model, if the economy starts with more capital per worker than the steady-state level of capital per worker, then the capital per workers will _____ and the output per worker will _____ as the economy approaches steady state. | fall; fall |
| per worker production function for an economy is given by y=k^1/2, the saving rate is 0.3, the depreciation rate is 10%, and the economy starts off with 25 units of capital per worker, then the capital per worker will __ and the output per worker will __. | fall; fall |
| A war reduces a country's labor force but does not directly affect its capital stock. The economy was in a steady state before the war and the saving rate does not change after the war, then, over time, capital per worker will ____ and output will ____. | decline; decrease |
| If y = k^1/2, there is no population growth or technological progress, 5 percent of capital depreciates each year, and a country saves 20 percent of output each year, then the steady-state level of capital per worker is: | 16 |
| The Solow model shows that a key determinant of the steady-state ratio of capital to labor is the: | saving rate |
| 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 |
| In this graph, starting from capital-labor ratio k1, the capital-labor ratio will: | increase |
| The steady-state level of capital occurs when the change in the capital stock per worker (k) equals: | 0 |
| _____ cause(s) the capital stock to rise, while _____ cause(s) the capital stock to fall. | Investment; depreciation |
| The consumption function in the Solow model assumes that society saves a: | constant proportion of income |
| 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. |
| In a steady state with population growth and technological progress: | the real rental price of capital is constant and the real wage grows at the rate of technological progress. |
| Which of these statements is NOT true about the creation of knowledge and the process of research and development? | Knowledge is a private good, that is, rival and excludable |
| Schumpeter's thesis of "creative destruction" is an explanation of economic progress resulting from: | new product producers driving incumbent producers out of business |
| In the two-sector endogenous growth model, income growth persists because the: | creation of knowledge in universities never slows down |
| If Y is output, K is capital, u is the fraction of the labor force in universities, L is labor, E is the stock of knowledge, and the production Y = F(K, (1 - u) EL) exhibits constant returns to scale, then outputs (Y) will double if: | K and E are doubled |
| Endogenous growth theory rejects the assumption of exogenous: | technological change |
| If the production function is y = k^1/2 , the steady-state value of y in the Solow model with population growth and technological progress is: | y = s / ((g) + n + g) |
| Which of these statements is NOT true about the steady state in the Solow Model with population and technological progress: | total capital stock and total output grow at the rate of population growth |
| In the Solow model with technological progress, the steady-state growth rate of total output is: | n + g |
| In the Solow model with technological progress, the steady-state growth rate of capital per effective worker is: | 0 |
| According to the Solow model, persistently rising living standards can only be explained by: | technological progress |
| The rate of labor-augmenting technological progress (g) is the growth rate of: | the efficiency of labor |
| Suppose an economy has 100 units of capital, 100 units of labor, and the efficiency of each worker is equal to 2. The effective number of workers for this economy is _____ and the capital per effective worker is _____. | 200; 1/2 |
| The efficiency of labor: | depends on the knowledge, health, and skills of labor. |
| In the Solow model with population growth and no technological progress, an increase in the population growth rate leads to a(n) _____ in the effective investment rate leading to a(n) _____ in the steady-state income per worker. | decrease; decrease |
| According to the Kremerian model, large populations improve living standards because: | there are more people who can make discoveries and contribute to innovation. |
| Analysis of population growth around the world concludes that countries with high population growth tend to: | have a lower level of income per worker than countries with low population growth. |
| In the Solow growth model with population growth but no technological progress, when the economy finds itself at the Golden Rule steady state, the marginal product of capital minus the rate of depreciation will equal: | the population growth rate |
| 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 of an economy with population growth but no technological change, the break-even level of investment must do all of these EXCEPT: | equal the marginal productivity of capital (MPK). |
| If Central Bank A cares only about keeping the price level stable and Central Bank B cares only about keeping output at its natural level, then in response to an exogenous decrease in the velocity of money: | both Central Bank A and Central Bank B should increase the quantity of money |
| Since the Covid-19 health crisis caused many businesses to temporarily shut down and lay off their workers, there was a(n) _____ in the natural rate of unemployment and the long-run aggregate supply (LRAS) curve shifted _____. | increase; left |
| If the Fed accommodates an adverse supply shock, output falls _____, and prices rise _____. | less; more |
| In the short run, a favorable supply shock causes: | prices to fall and output to rise |
| If the short-run aggregate supply curve is horizontal, an increase un union aggressiveness that pushes wages and prices up will result in _____ prices and _____ output in the short run. | higher; lower |
| Using the aggregate demand-aggregate supply (AD-AS) model, the economic downturn caused by Covid-19 can be BEST described by a: | leftward shift of LRAS and leftward shift of AD |
| Stabilization policy refers to policy actions aimed at: | reducing the severity of short-run economic fluctuations. |
| The economic response to the overnight reduction in the French money supply by 20 percent in 1724: | confirmed that money is not neutral in the short run because both output and prices dropped. |
| If the short-run aggregate supply curve is horizontal and the long-run aggregate supply curve is vertical, then a change in the money supply will change _____ in the short run and change ______ in the long run. | only output; only prices |
| If the short-run aggregate supply curve is horizontal and the Fed increases the money supply, then: | output and employment will increase in the short run. |
| Business cycles are: | irregular and unpredictable |
| Over the business cycle, investment spending _____ consumption spending. | is more volatile than |
| The version of Okun's law studied in the Chapter 11 assumes that with no change in unemployment, real gross domestic product (GDP) normally grows by 3 percent over a year. If the unemployment rate rose by 2 percentage points over a year, real GDP would: | decrease by 1 percent |
| Measures of average workweeks and building permits for new housing units are included in the index of leading indictors bc shorter workweeks tend to indicate ___ future econ activity and increased permits for new units tend to indicate _____ future econ | weaker; stronger |
| A difference between the economic long run and the short run is that: | demand can affect output and employment in the short run, whereas supply is the ruling force in the long run. |
| The assumption of constant velocity in the quantity equation is the equivalent of the assumption of a constant: | demand for real balances per unit of output |
| For a fixed money supply, the aggregate demand curve slopes downward because at a lower price level, real money balances are _____, generating a ______ quantity of output demanded. | higher; greater |
| A short-run aggregate supply curve shows fixed _____, and a long-run aggregate supply curve shows fixed _____. | prices; output |
| Assume that the money demand function is (M/P)^d = 2,200-200r, where r is the interest rate in percent. If the price level is fixed at P = 2, and the Fed wants to fix the interest rate at 7 percent, it should set the money supply at: | 1600 |
| Using the Keynesian-cross analysis, assume that the consumption function is given by C = 200 + 0.7 (Y-T). If planned investment is 100 and T is 100, then the level of G needed to make equilibrium Y equal 1,000 is: | 70 |
| According to the Keynesian-cross analysis, if the marginal propensity to consume is 0.6 and government expenditures and autonomous taxes are both increased by 100, equilibrium income will rise by: | 100 |
| The IS-IM model is generally used: | only in the short run |
| The IS and LM curves together generally determine: | both income and the interest rate |
| The LM curve shows combinations of _____ that are consistent with equilibrium in the market for real money balances. | the interest rate and the level of income |
| A decrease in the nominal money supply, other things being equal, will shift the LM curve: | upward and to the left |
| The LM curve, in the usual case: | slopes up to the right |
| According to the theory of liquidity preference, decreasing the money supply will ______ nominal interest rates in the short run, and, according to the Fisher effect, decreasing the money supply will _____ nominal interest rates in the long run. | increase; decrease |
| If the interest rate is above the equilibrium value, the: | supply of real balances exceeds the demand |
| Along an IS curve all of these are always true EXCEPT: | the demand for real balances equals the supply of real balances |
| Based on the Keynesian model, one reason to support government spending increases over tax cuts as measures to increase output is that: | the government-spending multiplier is larger than the tax multiplier |
| The IS curve shift when any of the following economic variables change EXCEPT: | the interest rate |
| An explanation for the slope of the IS curve is that as the interest rate increase, the quantity of investment _____, and this shifts the expenditure function _____, thereby decreasing income. | decreases; downward |
| In the Keynesian-cross model, if the MPC equals 0.75, then a $3 billion decrease in taxes increases planned expenditures by _____ and increases the equilibrium level of income by _____. | $2.25 billion; $9 billion |
| According to the Keynesian-cross analysis, if the MPC stands for marginal propensity to consume, then a rise in taxes of (Change in)T will: | decrease equilibrium income by (Change in)T(MPC) / (1 - MPC). |
| When firms experience unplanned inventory accumulation, they typically: | lay off workers and reduce production |
| In the Keynesian-cross model, actual expenditures equal: | GDP |
| An increase in taxes lowers income: | in the short run but leaves it unchanged in the long run, while lowering consumptions and increasing investment. |
| If the IS curve is given by Y = 1,700 - 100r, the money demand function is given by (M/P)^D = Y - 100r, the money supply is 1,000, and the price level is 2, then if the money supply is raised to 1,200, equilibrium income rises by: | 50 and the interest rate falls by 0.5 percent |
| Economists who believe that monetary policy is more potent than fiscal policy argue that the: | responsiveness of money demand to the interest rate is small. |
| Other things equal, a given change in government spending has a larger effect on demand the: | flatter the LM curve |
| A given increase in taxes shifts the IS curve more to the left the: | larger the marginal propensity to consume |
| If an economy is in a liquidity trap, then an expansionary monetary policy ends up increasing: | the liquidity of household portfolio. |
| Other things equal, an expected deflation can change demand by: | raising the real interest rate for any given nominal interest rate, thus reducing desired investment |
| The debt-deflation theory of the Great Depression suggests that an _____ deflation redistributes wealth in such a way as to ______ spending on goods and services. | unexpected; reduce |
| The aggregate demand curve generally slopes downward and to the right bc, for any given money supply M, a higher price level P causes a _____ real money supply M/P, which _____ the interest rate and _____ spending. | lower; raises; reduces |
| An increase in the demand for money, at any given income level and level of interest rates, will, within the LS-LM framework, _____ output and _____ interest rates | lower; raise |
| The reason that the income response to a fiscal expansion is generally less in the IS-LM model than it is in the Keynesian-cross model is that the Keynesian-cross model assumes that: | investment is not affected by the interest rate, whereas in the IS-LM model fiscal expansion raises the interest rate and crowds out investment |
| If MPC = 0.6 (and there are no income taxes) when G increases by 200, then the IS curve for any given interest rate shifts to the right by: | 500 |
| The U.S. recession of 2001 can be explained in part by a declining stock market and terrorist attacks. Both of these shocks can be represented in the IS-LM model by shifting the _____ curve to the _____. | IS; left |
| A tax cut shifts the _____ curve to the right, and the aggregate demand curve _____. | IS; shifts to the right |
Created by:
Cannonmurphy66