Assuming the current rate of economic growth continues, the average college student will have a lifetime income ________ that of his or her parents.a. five times d. about twiceb. ten times e. halfc. about the same as

D

If output is above potential, so that (Y~t) is positive, the change in the inflation rate will be negative, so inflation will fall over time

False

Bob is not employed by anyone, and he does not care about finding a job and is not searching for a job. Bob is unemployed.

FalsePage 182. To be considered unemployed, a person must be actively looking for a job in the four weeks prior to measuring the unemployment rate.

Explain Seignorage and the inflation tax...

Names for the revenue that the governmentobtains from printing more money (ΔM)The inflation tax- Shows up as a rise in the price level- Is paid by people holding currency

To minimize what was believed to be a wage-price spiral, the ________ administration ________

Nixon; imposed price controls

Does investment equal saving?

None of the above

By purchasing a fixed-rate 30-year mortgage, inflation risk is:

Passed from the borrower to the lender

What is the idea of Shoe leather costs of inflation?

People want to hold less money when inflation ishigh.

Which of the following best answers whether growth in the labor force leads to overall economic growth?

Population growth can produce growth in the Solow model in the aggregate but not in output per person.

In the steady-state, capital accumulation is zero.TrueFalse

True

In the Solow model, the equation of capital accumulation is:a. Kt+1 = Kt + It - d(bar)Ktb. Kt+1 = Kt + d(bar)Kt - Itc. Kt+1 = Kt + It +d(bar)Ktd. change in Kt = It - d(bar)Kte. Kt + It = Kt+1

a

Historically, for most Americans, the length of unemployment is:a. less than one week.b. usually less than three months.c. usually more than one year.d. usually more than three months.e. indefinite.

b

Historically, for most Americans, the length of unemployment is:a. usually more than one year d. indefiniteb. usually more than three months e. less than one weekc. usually less than three months

c

According to the quantity equation, the cure for hyperinflation is:a. higher taxes d. All of these answers are correct.b. reducing government spending e. None of these answers are correct.c. reducing money growth

c

Let R denote the real interest rate and i denote the nominal interest rate; these two interest rates are related by:a. i = π.b. i = R − π.c. i = R + π.d. i = R/π.e. None of these answers is correct.

c

Let r denote the real interest rate, i denote the nominal interest rate, and pi denote the rate of inflation. The equation i=r+piis called:a. the money supply d. the quantity theory of moneyb. the quantity equation e. money neutralityc. the Fisher equation

c

M2 includes M1 and:a. large time deposits d. long-term bondsb. overnight repurchase agreements e. gold reservesc. saving accounts

c

Money that has no intrinsic value except as money is called ________ money.a. bondedb. commodityc. fiatd. intrinsice. None of these answers is correct.

c

Which of the following will have a real effect on the United States economy?

Page 222-223. Changes in the money supply will have no real effect on the economy unless the relative price of goods is changed. None of the three changes alter relative prices.

With an average annual growth rate of 5 percent per year, per capita income will increase by what factor over a century?

128Applying the Rule of 70 implies 70/5 = 14. Thus, income will double in 14 years. In a century, per capita income will double approximately 7 times, which is 100/14. Thus, GDP per capital will increase by a factor of 2 7.

According to the rule of 70, if an economy averages a 4 percent growth rate, it will take about ________ years to double in size.

17.5

Suppose x grows at a rate of percent and y grows at a rate of percent. If z = y × x, then z grows at ________ percent; if z = x/ y, z grows at ________ percent.

17; −7

When did Robert Solow create the Solow model?

1950s.

Using Figure 7.1, which of the following years are the approximate trough of a recession

1983

When did Robert Solow win the Nobel Prize?

1987.

When did Paul Romer create the Romer model?

1990s.

b. should fire some labor until MPL =w.

1f MPL < w, the firm:a. has the optimal amount of laborb. should fire some labor until MPL=wc. should fire some labor until MPL=0d. should hire more capital until MPK = 0e. should hire more capital until MPL=w

b. can be consumed by more than one person at a time.

1n economics, a nonrival good is one that:a. cannot be consumed by more than one person at a time.b. can be consumed by more than one person at a time.c. can be consumed by more than one person at a time but is congested.d. cannot be consumed by more than two people at a time.e. None of these answers is correct.

b. an immediate increase in output and output growth will slow.

1n the Romer model, if an economy's share of researchers decreases, there will be:a. an immediate decrease in output and output growth will slow.b. an immediate increase in output and output growth will slow.c. an immediate increase in output and output growth will accelerate.d. an immediate decrease in output and output growth will accelerate.e. no change in output but output growth will slow.

If population doubles every 35 years, then the growth rate of population is

2 percentThe Rule of 70 implies that the growth rate equals 70/35 = 2%.

If Y = AK 1/3 L 2/3 and A grows at a rate of 1 percent per year, K grows at a rate of negative 3 percent per year and L grows at a rate of 3 percent per year, then the growth rate of Y is

2 percentThe growth rate formula for such a production function is g( Yt) = g( At) + (1/3)* g( Kt) + (2/3)* g( Lt). The first two terms cancel and we are left with (2/3)*(3).

Figure 5.5 represents two countries, 1 and 2. Country ________ has a higher depreciation rate and, therefore, has a ________ steady state than the other country.

2; lower

Over the past 50 years, Brazil's population growth rate has averaged about2.3 percent. According to the rule of 70, Brazil's population will double in about _____________years.

30

Over the past 50 years, Brazil's population growth rate has averaged about 2.3 percent. According to the rule of 70, Brazil's population will double in about ________ years.

30

Over the past 50 years, Brazil's population growth rate has averaged about 2.3 percent. According to the rule of 70, Brazil's population will double in about ________ years.

30 percent70/2.3=30 percent

In the year 2014 TFP was about ____ times ____ important than capital per person when determining differences in per capita GDP using the production model

3; more

If 21% of unemployed find jobs and 0.9% of the employed lose their jobs, the natural rate of unemployment will be:

4.1.%S= .009F=0.21PAGE 191, use formula 7.4

If population and GDP are growing at the same rates, then per capita GDP does not grow.

true

If real GDP increases by 2 percent and nominal GDP increases by 4 percent, then inflation is approximately 2 percent.

true

If real GDP is growing at a rate of 2 percent, the central bank should grow the money supply at a rate of 2 percent to keep prices unchanged.

true

When comparing GDP across countries, it is better to use comparisons based on common prices than simply on exchange rate conversions.

true

In the Solow model, in every period, a fraction of total output _____ next period's capital stock, which _____.

c. is saved; adds to

In the Solow model, if net investment is positive:

capital accumulation is positive

The two main inputs we consider in a simple production function are:

capital and labor

In growth accounting, the residual, g(A), is so named because:a. the economy is complicatedb. economists know exactly what contributes to growthc. it is a way to measure observed TFP growthd. it is a way to measure unobserved TFP growthe. it measures labor composition

d

In our balloon analogy, the air being pumped into the balloon represents:a. total exports.b. real or potential GDP.c. the monetary base.d. the money supply.

d

Differences in output across economies with the same per capita capital stock can be explained by:

differences in total factor productivity.

A person is unemployed if they...

do not have a job that pays a wage or salaryhas actively looked for a job in the last 4 weeksis available to work

In the Solow model, if, in the absence of any shocks, the capital stock remains at K* forever, this rest point is called the: a. dynamic systemb. the rate of capital accumulationc. short-run equilibriumd. saving ratee. steady state

e

If the marginal product of capital is less than the rental rate of capital, the firm should rent more capital.

false

In the Solow model, defining s(bar) as the saving rate and Y(t) as output, consumption is given by s(bar)Y(t).

false

In the Solow model, if gross investment is equal to capital depreciation, the economy accumulates newcapital.

false

In the Romer model, what is the growth rate of technology?

gbar = zbarlbarLbar

In Figure 5.1, the capital stock at K1 is not the steady state because:

gross investment is higher than capital depreciation.

If we define the saving rate as s, output as F(K,L), and the depreciation rate as d and if sF(K,L)> dK, the economy is:

growing.

Suppose k and l grow at constant rates given by gk and gl .What is the growth rate of y if

gy = agk -(1-a)gl

Suppose k, l, and A grow at constant rates given by gbark, gbarl and gbarA. What is the growth rate of y if y = A k^a l^(1−a)When a > 0?

gy = gbarA + agbark + (1 − a) gbarl

What is the equation that relates nominal and real GDP? And what is the GDP deflator?

nominal GDP = price level x real GDPThe GDP deflator is the price level that satisfiesthis equation.

The difference between economic profits and normal profits is that:

normal profits are earnings based on the normal competitive return to one's own labor; economic profits are the above-normal returns associated with prices that exceed competitive prices

Structural Unemployment

obsolete job skill sets

The unemployment rate in Europe has been higher than that in the U.S. during the last two decades because:

of the combined effect of the inefficient unemployment insurance system and the productivity slowdown/high oil prices in the 1970sPage 192-194. In the 1970s European economies were hit by a productivity slowdown and high oil prices which caused an increase in unemployment. Additionally, the existence of very generous social programs in terms of size and duration coupled with a high implicit tax rate associated with returning to work encourage individuals to remain unemployed.

The president of Tunisia asks you to suggest an idea to improve the economy's growth without worrying about decreasing returns. You suggest:

offering firms an incentive to produce new ideas.

Because there are no diminishing returns in the stock of ideas in the Romer model:

old ideas continue to contribute to current economic growth.

As a rough approximation, differences in capital per person explain about ________ of the difference in incomes between the richest and poorest countries, while differences in ________ explain ________.

one-fourth; total factor productivity; three-fourths

As a rough approximation, differences in capital per person explain about ________ of the difference in incomes between the richest and poorest countries, while differences in ________ explain ________.

one-third; total factor productivity; two-thirds

Relating to The Empirical Fit of theProduction Function If the productivity parameter is 1, the model ____________ GDP per capita.

over predicts

In the equation, Y=(Abar)(K^1/3)(L^2/3), the "bar" over the A means that is a:

parameter that is fixed and exogenous

In the Solow model, the steady-state capital stock is a function of:

productivity, the depreciation rate, the labor stock, and the saving rate

In the Solow model, the steady-state capital stock is a function of:

productivity, the depreciation rate, the labor stock, and the saving rate.

The monetary base consists of

reserves and currency.

A firm's profit is simply defined as:

revenues minus costs

A firm's profit is simply defined as:

revenues minus costs.

In the past 60 years or so, labor's share of GDP in the United States has been...

roughly two-thirds.

In the "Bathtub model" of unemployment, the key equation is:

s(bar)Et = f(bar)Ut

M2 includes M1 and

savings account.

An increase in ________ leads to a higher steady-state capital stock, and a decline in ________ leads to a lower steady-state capital stock.

savings rate; productivity

How do we calculate the labour force?

sbar/(sbar + fbar)Where...sbar = separation ratefbar = finding rate

Nominal gross domestic product is defined as the value of all goods and...

services produced by an economy, within its borders, over a period of time, at current prices.

In the Romer model in Figure 6.2, at time t0, a change in the shape of the production function can be explained by an increase in the:

share of labor engaged in research.

If MPK>r, the firm:

should hire more capital until MPK=r

In Figure 5.1, if the economy begins with the initial capital stock at K2, the capital stock will ________ and the economy will ________.

stay constant; be in its steady state

In the Solow model, if, in the absence of any shocks, the capital stock remains at K* forever, this rest point is called the:

steady state.

The amount of capital in an economy is a(n) ________, while the amount of investment is a(n) ________.

stock; flow

A lower level of TFP implies...

that workers produce less output for anygiven level of capital per person.

Despite the costs associated with economic growth, most believe:

the benefits far outweigh the costs.

An economy starts in steady state. A war causes a massive destruction of the capital stock. This shock will cause

the growth rate of output to rise initially as the economy begins to converge to the old steady state.The diagram in Figure 5.1 indicates that if the capital stock is below the steady-state level of capital, the economy will proceed to the old steady-state level. Note that a shock to the level of capital will not shift any of the curves, and that the steady state remains unchanged in the long run. Because the economy is below steady state, growth is positive.

The revenue governments obtain from printing money is called

the inflation tax

Using the Solow model, if, in time t = 0, the initial capital stock is K0 =100, investment is I0 = 25, and d=0.1 is the depreciation rate, capital accumulation from period 0 to period 1 is:

ΔK1 = 15.

In the Romer model, explain algebraically why The growth rate of knowledge is constant

∆At+1/At = zbarLat = zbarlbarLbar

Suppose that nominal GDP is $5,000 and the velocity of money is equal to 5. According to the quantity theory of money, what is the amount of money in circulation?

$1,000

GDP does not include...

- Government transfer payments to individuals. • Pensions, social benefits, unemployment insurance- A measure of the health of a nations people.- Changes in environmental resources.

Consider a simple economy producing 2 goods: coffee and TVs. In 2014 the economy produced 2000 pounds of coffee and 10 TVs. In 2015 the economy produced 1000 pounds of coffee and 12 TVs. The price of one TV was $1,000 in both years while the price of coffee decreased from $6/pound in 2014 to $5/pound in 2015. Based on this information the percentage change in real GDP in chained prices benchmarked to 2015 is:

-16.5 percentFEEDBACK: Pages 29-33; Table 2.4.Real GDP 2014 using 2014 prices = 2,000x6 + 10x1,000=22,000Real GDP 2015 using 2014 prices = 1,000x6 + 12x1,000=18,000Percentage change = (18,000-22,000)/22,000= -18%Real GDP 2014 using 2015 prices = 2,000x5 + 10x1,000=20,000Real GDP 2015 using 2015 prices = 1,000x5 + 12x1,000=17,000Percentage change = (17,000-20,000)/20,000= -15%Percentage change in real GDP in chained prices benchmarked to 2015 is the average of the two growth rates = (-18 -15)/2 = - 16.5%

Weaknesses of Solow Model

-wide differences in capital stock across countries-doesn't explain wide ranges of standard of living-TFP taken in as a residual -doesn't embed a theory of long term growth (explains part of why a country grows but not all)

Using the expenditure approach, investment includes:

. fixed firm and household structures, equipment, and inventories

. Actual GDP is ________ to potential GDP.

. rarely equal

As an economist working at the International Money Fund, you are given the following data for Burundi: predicted per capita GDP, relative to the US as given by y=k^1/3, is 0.10, and TFP is 0.083. What is the observed per capita GDP, relative to the US?

.008

A country has a total civilian population (over age 16) of 300 million. Of this population, 225 million are employed, 25 million are unemployed, and the remainder of the population is not in the labor force. Then, the unemployment rate is

.100Page 182. The unemployment rate is the fraction of the labor force that is unemployed. The labor force is the sum of the employed and the unemployed. Here the labor force is 225 plus 25. Thus, the unemployment rate is 25/250.

As an economist working at the International Monetary Fund, you are given the following data for Italy: observed per capita GDP, relative to Canada, is 0.79; but per capita GDP, as predicted by y=kα, is 0.99 relative to Canada. What is total factor productivity?

0.80

For the years 1948-1973, output per person in the private sector grew 3.3%, labor composition grew 0.2%, and TFP grew 2.2%. What was the growth rate of capital intensity?

0.9%

Which of the following is an example of a ratio scale?

1, 5, 25, 125, 625.

Which of the following is an example of a ratio scale?

1, 5, 25, 125, 625...

Between 1970 and 1976, Israel's average inflation rate was about 65 percentper year. With that rate of inflation, prices would double about every ________ years, using the rule of 70.

1.1

Between 1970 and 1976, Israel's average inflation rate was about 65 percent per year. With that rate of inflation, prices would double about every ________ years, using the rule of 70.

1.1

The president of the World Bank has asked you to calculate the average per capita GDP growth rate of Rwanda from 1980 to 2010. In 1980, per capita GDP was about $728 and in 2010 was about $1,025. You tell him the average growth rate of per capita GDP is about ________ percent

1.1(1025/728)^1/30-1=1.1 percent

If the production function is given by Y=AK^1/3L^2/3, the saving rate, s, is 20 percent; the depreciation rate, d, is 10 percent; and A=L=1, the steady-state level of output is:

1.4

For the years 1995-2007, if output per person in the private sector grew 2.7 percent, the contribution of the capital-labor ratio was 1.1 percent, and the change in the labor composition accounted for 0.2 percent of that growth, what was the growth rate of total factor productivity?

1.4 percentFEEDBACK: Pages 157-158; Table 6.2. We can decompose the growth rate of per capita GDP into the growth rate of TFP, the growth rate of capital, and the growth rate of workers. Therefore, in this example the contribution of TFP is equal to 2.7%-1.1%-0.2%=1.4%

7. When we look at the ________ we are concerned with the ________.a. short run; causes of economic fluctuationsb. long run; causes of economic fluctuationsc. short run; determinants of economic growthd. long run; causes of inflatione. long run; money supply

A

Which of the following people benefits from a surprise increase in inflation?

A person who borrowed large amounts of money on a fixed payment schedulePages 218-219. Borrowers with fixed interest rate loans are winners because they can repay their debts using the newer and cheaper dollars.

Which of the following people benefits from a surprise increase in inflation?

A person who borrowed large amounts of money on a fixed payment schedule.Pages 225-226. Borrowers with fixed interest rate loans are winners because they can repay their debts using the newer and cheaper dollars.

Negative inflationary surprises lead to:

A redistribution of wealth from borrowers to lenders

If we compress the vertical axis at "key doubling points," we call this:a. the logarithmic scale d. the quadratic scaleb. the ratio scale e. the geometric scalec. the exponential scale

B

In 2005, prices adjusted for inflation; the U.S. per capita GDP was about ________ in 1870, and by 2012 it had grown to about ________.a. $500; $37,000 d. $10,000; $37,000b. $2,800; $43,000 e. $100; $100,000c. $500; $17,000

B

What country or countries do the following characteristics possibly describe?• Life expectancy at birth is under 50 years.• More than 90 percent of households do not have electricity.• Fewer than 10 percent of young adults have graduated from high school.a. Kenya d. Russiab. the United States in the late 1800s e. All of these answers are correct.c. Bangladesh

B

he United States and Chile have both grown at about 2 percent per year for the last 40 years. By the principle of transition dynamics, what does this imply?

Both countries are at their steady states.

The United States and Chile have both grown at about 2 percent per year for the last 40 years. By the principle of transition dynamics, what does this imply?

Both countries are at their steady states. The fact that most rich and poor countries grow at the same rate suggests that most countries have already reached their steady states. If a relatively poorer country like Chile were poor because of a bad shock, we would expect it to grow faster.

c. $10,000

By how much does the current GDP rise in the following scenario? A real estate agent sells a house for $250,000 that the previous owners had purchased 10 years earlier for $90,000. The real estate agent earns a commission of $10,000.a. $160,000 d. $90,000b. $250,000 e. $260,000c. $10,000

18. According to the income approach to GDP, the largest percentage of GDP comes from:a. indirect business taxes d. depreciation of fixed capitalb. firm profits e. None of these answers are correct.c. compensation to employees

C

21. If France's per capita GDP is $5,000 in 1950 and Portugal's is $2,500, but Portugal is growing faster, the expectation that sometime in the future Portugal's per capita GDP will equal that of France is called economic:a. growth d. dynamicsb. divergence e. justicec. convergence

C

What are the exponents of a Cobb Douglas function with constant returns to scale? Increasing? Decreasing?

Constant returns: a + b = 1Increasing returns: a + b > 1Decreasing returns: a + b < 1

In the Romer model, the growth rates of all endogenous variables are . . .

Constant.

Increasing vs. Constant Returns

Constant: 1% increase in input leads to 1% increase in output. Increasing: 1% increase in inputs leads to greater than 1% increase in output

This year a real estate agent helped you buy a house for $200,000 which was originally built in 1985. The agent's commission was $12,000. How will this transaction affect this year's GDP?

Consumption expenditures will increase by $12,000.

According to the quantity theory of money, the price level can be written as

Pt*=(Mt Vt)/Yt .

The velocity of money can be calculated from the quantity equation with

PtYt /Mt.

The velocity of money can be calculated from the quantity equation with...

PtYt/Mt

To recap, in the Solow Model, what is the Production function?

Q = A(L^α)(K^β)Where α is 1/3and β is 2/3

Real GDP is calculated by:

RGDP = Nominal GDP * Price Level (of a given year).

The key difference between the Solow model and the production model is that the:

Solow model endogenizes the process of capital accumulation.

b. w*L* + r*K* = Y*

Suppose the payments to capital and labor are (w*L*)/Y* = 2/3 and (r*K*)/Y* = 2/3, respectively. Oneimplication of this result is:a. w*L* + r*K* < Y*b. w*L* + r*K* = Y*c. w*L* + r*K* > Y*d. (w*L*/r*K*) = Y*e. (w*L*/Y*)(r*K*/Y*)=1

d

The designation "natural" implies that the natural rate of unemployment: a. is desirable.b. is constant over time.c. is impervious to economic policy.d. does not go away on its own even in the long run.

Define "Cyclical Unemployment."

The difference between the actual rate and the natural rate of unemployment.

Why is the growth in the combined Solow-Romer is faster than the growth in the Romer model?

The effects of changes in technology are amplified by changes in the capital stock. Technological change changes output, the change in output changes savings, the change in savings changes investment, the change in investment changes the capital stock, and the change in the capital stock changes output again (subject to diminishing returns).

In the standard production model, the productivity parameter enters the equation with an exponent of one, while in the Solow model it is greater than one because:

The endogenous level of the capital stock itself depends on productivity

When interpreting the solution to the Cobb-Douglas Production Function, what can be said about The equilibrium rental rate?

The equilibrium rental rate is proportional tooutput per capitalOutput per capital = (Y/K)

What do new ideas depend on?

The existence of ideas in the previous period, the number of workers producing ideas, and worker productivity.

Summarise The Principle of TransitionDynamics...

The farther below its steady state aneconomy is, (in percentage terms), the faster the economy will grow.The closer to its steady state, the slower the economy will grow.Allows us to understand whyeconomies grow at different rates

Explain the history and Beginning of sustained growth

The first sustained economic growth occurredin England in the late 1700s and spreadacross western Europe over the next fewdecades.A thousand years ago, living standards werequite equal across countries—incomesdiffered by a factor of maybe 2.Today, living standards differ by a factor of30, perhaps as high as 50, across countries.

What is an explanation for why an economy eventually settles in steady state?

The first two arguments taken together imply the third argument. Diminishing returns implies the slope of the investment curve becomes smaller, while depreciation remains constant. At the intersection of the two curves, net investment is zero.

Macroeconomics is the study of ________ while microeconomics studies ________.

The overall performance of an economy; an individual market.

The combined Solow and Romer model helps explain

The overall trend in the income around the worldWhy long-run growth is possibleWhy different countries can grow at different rates even though in the long run, all countries grow at the same ratePage 158. The Romer model explains the first two points, while transition dynamics of the Solow model explain differences across countries.

Which of the following is NOT an endogenous variable in the Romer model?

The productivity of an individual researcherFEEDBACK: Page 148. The fraction of the population engaged in research is an exogenously given parameter.

Imagine increases in the parameters of the Solow model that are all identical in magnitude. Which one of the following parameters will result in the largest increase in steady-state output?

The productivity parameter

Imagine increases in the parameters of the Solow model that are all identical in magnitude. Which one of the following parameters will result in the largest increase in steady-state output?

The productivity parameter Notice that the investment rate is raised to the power of .5, the labor force to the power of 1, and the productivity parameter to the power of 1.5. Thus, if the magnitudes of the increases are identical, the productivity parameter will have the largest impact on output in steady state.

What is the productivity parameter?

The productivity parameter measures howefficiently countries are using their factorinputs.total factor productivity (TFP) also known as 'residual'If TFP is ≠ to 1 → better model

Which of the following is included in TFP?

The quality of labor

Consider an economy described by the combined Solow and Romer model. If this economy is on its balanced growth path when an exogenous permanent increase in the depreciation rate occurs:

There will be an immediate growth effectChanging any parameter of the model creates transition dynamics. According to equation 6.23, an increase is the rate of depreciation immediately decreases the level of output per capita on the new balanced growth path but current income levels are the same. The economy is above its balanced growth path level of income and its growth rate will rapidly decrease in order for the economy to reach the new lower level of output per person on the balanced growth path.

Why are rich countries rich?

They have more capital per person. More importantly, they use labor and capital more efficiently.

c

To be counted as "employed" in the U.S. labor force statistics, a person:a. must be working for pay and be working full time.b. must be working for pay but does not have to be working full time.c. does not have to be working for pay if they are working for a family business but must be employed full time.d. does not have to be working for pay if they are working for a family business and does not have to be working full time

A surprising result of the Solow model is that capital accumulation cannot serve as the engine of growth in the long run.TrueFalse

True

Exogenous variables are predetermined by the model builder

True

If population and GDP are growing at the same rates, then per capita GDP does not grow. True or False

True

If s(bar) is the saving rate, F(Kt, L(bar)) is the production function, and d(bar) is the depreciation rate, the growth of capital can be expressed as change in Kt+1 = s(bar)F(Kt, L(bar)) - d(bar)Kt.TrueFalse

True

If the marginal product of capital is more than the rental rate of capital, the firm should rent more capital. True or False

True

If the number of employed is 145,926, the number of unemployed is 6,849, and the number of discouraged workers is 77,676, the unemployment is about 4.5%

True

If the production function is given by Y = K^1/3 x L^2/3, the marginal product of capital is (1/3)( Y/ K).TrueFalse

True

If we include population growth in the Solow model, we can model this concept by thinking of population growth as capital depreciation per person.TrueFalse

True

In 1990, a country's per capita income was $1,000. By the year 2000, it was $1,650. The average annual growth rate was approximately 0.05. True or False

True

In the Solow diagram, an increase in the investment rate will cause a decrease in consumption for all levels of capital.

True

In the Solow diagram, an increase in the investment rate will cause a decrease in consumption for all levels of capital. T/F

True

In the Solow model, the equation of capital accumulation is Kt+1 = Kt + It - d(bar)Kt.TrueFalse

True

In the Solow model, we generally assume that the capital depreciation rate is the same across all countries.TrueFalse

True

In the long run, the real interest rate is equal to the marginal product of capital.

True

In the long run, the real interest rate is equal to the marginal product of capital. T or F

True

One explanation for the college wage premium is that demand for skill-based knowledge is rising

True

The change in the capital stock is a flow variable.

True

The labor demand curve is derived from the marginal product of labor

True

The productivity parameter, A(bar), plays a larger role in the Solow model than it does in the production model.TrueFalse

True

Total factor productivity explains a larger amount of the difference in income per capita in the Solow model than in the production model.

True

The change in the capital stock is a flow variable.

TrueA flow variable is one that lasts only for one period. Capital alone is a stock variable, but the change in capital is a flow variable.

If population and GDP are growing at the same rates, then per capita GDP does not grow.True/false.

True.Page 58. Growth rate formulas imply that the growth rate of per capita GDP is the growth rate of GDP minus the growth rate of population, which in this example is 0.

What are the model dynamics of the Solow model?

When not in the steady state,- the economy exhibits a change in capital towardthe steady state.As K moves to its steady state,- output will also move to its steady state.At the rest point of the economy,- all endogenous variables are steady.

in the solow model, what is the steady state?

Where investment = depreciation

A

Which of the following can explain a rightward shift in the Beveridge Curve?(a) skills mismatch between firms and workers(b) the economy is expanding(c) it becomes easier to search for available jobs(d) duration of unemployment rises

c. The government builds a new highway.

Which of the following counts toward changes in the current GDP?a. You find $10 on the sidewalk.b. You purchase a used stereo from a friend.c. The government builds a new highway.d. You fix your own sink.e. None of these answers is correct.

b. You buy a used car from your parents.

Which of the following does NOT count toward changes in the current GDP?a. A student pays for another year of tuition.b. You buy a used car from your parents.c. The local police station buys new squad cars.d. The Pentagon buys gasoline.e. None of these answers is correct

According to the study conducted by Piketty and Saez, the rise in income inequality in recent decades has been largely because:a. of increased compensation for CEOs and from business income.b. of rising capital income.c. of the rise of the "service" economy.d. globalization has exported manufacturing jobs to developing countries.e. of lower borrowing costs.

a

Which of the following questions does the solow model not help explain?

Why do countries sustain growth in the long run.

Which of the following questions does the Solow model NOT help to explain?

Why do countries sustain growth in the long run?

Which of the following questions does the Solow model NOT help to explain?Why do countries have different growth rates in the same time periods?Why are some countries richer than other countries?Why do countries sustain growth in the long run?Will a country be richer if the investment rate is higher than another country, all else being equal?

Why do countries sustain growth in the long run?Solow shows economies resting in a steady state in the long run and not sustained economic growth

Which of the following questions does the Solow model NOT help to explain?

Why do countries sustain growth in the long run? The Solow model helps us explain why some countries are richer than others are (different parameters) and why growth rates differ (transition dynamics). The Solow model does not generate long-run economic growth because the economy rests in steady state.

The Solow and Romer models don't answer . . .

Why investment rates and TFP differ across countries.

If Y is a good's output, X is spending to produce a good, F¯ is the fixed costassociated with production, and C is the average cost of production, which of the followingproduction functions exhibits increasing returns?

Y = (X − Fbar)/C

If Y is a good's output, X is total expenditures associated with the production of a good, Fbar is the fixed cost associated with production, and C is the marginal cost of production, which of the following production functions exhibits increasing returns?

Y = (X-Fbar)/C

In the Cobb-Douglas production function A K^α*L^(1-α) y = Y/ L as output per person and k = K/ L as capital per person, the per person production function is...

Y = AK^α

What is the production function in the production model?

Y = AbarK^(1/3)L^(2/3)

What is the national income accounting identity?

Y = C + I + G + NX

The national income accounting identitystates...

Y = C + I + G + NXWhereY = GDP (in dollars)C = consumptionI = investmentG = government purchasesNX = net exports = exports - imports

What is included in the "National Income Identity:"

Y = C + I + G + NXY = GDPC = ConsumptionI = InvestmentG = Government SpendingNX = Net Exports

According to the expenditure approach, if Y is GDP, C is consumption, I is investment, G is government purchases, and NX is net exports, the national income identity can be written as:

Y=C+I+G+NX

According to Figure 4.5, does the production model accurately predict the level of per capita GDP for Singapore?

Yes, because the predicted value of per capita GDP for Singapore is close to the actual value of its per capita GDP

what is the Excludability of ideas?

You can have Legal restrictions onuse of a good or ideaIdeas are nonrivalrousbut may be excludable

What is the output production function in the Romer model?

Yt = AtLyt

What is the Solow production function?

Yt = F(Kt, Lt) = AbarKt^(1/3)Lt^(2/3)

The constant growth rate rule states that...

Yt = Y0(1 + g-bar)^tt is the time periodYt is the value of variable Y in time tY0 is the initial value of variable Y in period 0g-bar is the constant growth rate

Solve the Solow model for the steady state level of output.

Yt* = (s/d)^(1/2)Abar^(3/2)Lbar

What are the four unknowns/endogenous variables in the Romer model?

Yt, At, Lyt, Lat

What are the five unknowns/endogenous variables in the Solow model?

Yt, Kt, Lt, Ct, It

If Ct denotes consumption, It denotes investment, and Yt is output, the resource constraint in the Solow model is:

Yt=. Ct+ It

A

_______________ unemployment is unemployment that arises due to the time it takes to search for an appropriate job.A Frictional B Cyclical C Structural D Natural

According to the Phillips curve presented in the text,a positive macroeconomic shock:a. increases the rate of inflationb. decreases the rate of inflationc. has no effect on the rate of inflationd. has a negative effect on the unemployment ratee. has a positive effect on the unemployment rate

a

According to the classical dichotomy, in the long run there is:a. complete separation of the nominal and real sides of the economy.b. no growth after the economy reaches the steady state.c. perfect connectivity between the nominal and real sides of the economy.d. accelerating economic growth.e. zero inflation.

a

If current output is Y(t)=$10 billion and potential output Y(bar)(t)=$10.5 billion, then the economy is is in a ________ and Y(~bar)(t) is about ________.a. recession; -4.7 percentb. boom; 4.7 percentc. boom; -4.7 percentd. recession; -5 percente. boom; 5 percent

a

In the Solow model, in every period, a fraction of total output ________ next period's capital stock, which ________.a. is saved; adds tob. depreciates; adds toc. is saved; reducesd. is consumed; reducese. is consumed; adds to

a

In the Solow model, the parameter d(bar) denotes ________ and is ________.a. the depreciation rate; less than oneb. the depreciation rate; equal to zeroc. investment; less than oned. consumption; greater than onee. investment; greater than one

a

Okun's law shows the ________ relationship between ________ and ________.a. negative; the unemployment gap; economic fluctuationsb. positive; the unemployment gap; economic fluctuationsc. negative; the unemployment gap; inflationd. positive; the unemployment gap; inflatione. negative; inflation; economic fluctuations

a

Potential output is defined as:a. the amount of total output if all inputs were utilized at their long-run, sustainable levelsb. what an economy produces when it is at capacityc. the current level of outputd. the amount of output where inflation is zeroe. the level of output when unemployment is 10 percent

a

Suppose you put $100 in the bank on January 1, 2017. If the annual nominal interest rate is 5 percent and the inflation rate is 5 percent, you will be able to buy ________ worth of inflation-adjusted goods on January 1, 2018.a. $100b. $90c. $95d. $105e. $110

a

The cure for hyperinflation is:a. reducing money growth.b. maintaining government spending.c. lower taxes.d. seignorage.e. All of these answers are correct.

a

The key difference between the Solow model and the production model is:a. the Solow model endogenizes the process of capital accumulationb. the standard model endogenizes the process of capital accumulationc. the Solow model uses different values for the capital shared. the Solow model does not contain a productivity measuree. the Solow model exogenizes the process of capital accumulation

a

What contributed to Reagan's defeat of Carter in the 1980 presidential election?a. double-digit inflationb. the low rate of unemploymentc. the takeover of the U.S. embassy in Tehran, Irand. Billy Carter's beere. Margaret Thatcher

a

Which is responsible for dating business cycles?a. Business Cycle Committee of the National Bureau of Economic Researchb. Business Cycle Committee of the Department of Treasury c. Department of Treasuryd. Commerce Departmente. Board of Governors of the Federal Reserve System

a

Which of the following flowcharts best summarizes Romer's description of ideas and growth?a. Ideas->Nonrivalry->Increasing returns->Imperfect competitionb. Ideas->Capital->Constant returns->Imperfect competitionc. Capital->Rivalry->Increasing returns->Perfect competitiond. Ideas->Rivalry->Increasing returns->Perfect competitione. Capital->Nonrivalry->Decreasing returns->Imperfect competition

a

In Figure 5.2, steady-state consumption is represented by:

a ---- b.

If not all price setters are convinced that high inflation rates will end soon,there is/are...

a coordination problem

If not all price setters are convinced that high inflation rates will end soon, there is

a coordination problem

If not all price setters are convinced that high inflation rates will end soon, there is/are

a coordination problem.

The quantity theory of money says that a doubling of the growth rate in the money supply will, in the long run, lead to

a doubling of inflationPage 220. In the long run, changes in the growth rate of money will lead to a one-for-one change in the inflation rate.

the quantity theory of money says that a doubling of the growth rate in the money supply will, in the long run, lead to

a doubling of inflation.Page 213. In the long run, changes in the growth rate of money will lead to a one-for-one change in the inflation rate.

The Romer model predicts that a decrease in population will have

a growth effect that decreases the rate of growthPages 152-153. The example in the text shows that an increase in population results in only an increase in the growth rate. An algebraic solution shows that a decrease in population results in a decrease in the rate of growth.

In the equation Y=F(K,L)=Abar*K^1/3*L^2/3, the lack of a "bar" over the L means that it is:

an endogenous variable.

In the Romer model, if an economy's share of researchers decreases, there will be:

an immediate increase in output and output growth will slow.

The rise of the employment-population ratio in the United States is most likely explained by:

an increase in female participation in the labor forcePage 181. The employment-population ratio for women has risen from 35 percent to 58 percent from 1960 to 2000.

The relationship between pollution and per capita GDP is documented as:

an inverse U.

A decline in the saving rate causes the steady-state level of output....

and capital to fall.

The production function Y=K^1/3*L^2/3 describes how ________ can be combined to generate output.

any amount of capital and labor

Why would poor countries ignore intellectualproperty rights?

as Items or ideas could be obtained cheaplyMay encourage multinational firms to relocate todeveloping countries

The explanation for the upward-sloping supply of labor curve is that:

as the wage rises, the opportunity cost of leisure rises, so people work more

If we define the saving rate as (sbar) output as F(K,L), and the depreciation rate as (dbar), and if (sbar)F(K,L)-(dbar)Kt = 0, the economy is:

at the steady state

According to data presented in the text, the country with the lowest number of working hours per week in 2010 was:a. the United States.b. France.c. the United Kingdom.d. Japan.e. Canada.

b

According to the quantity theory of money, the price level can be written as:a. Pt* = Y(bar) x M(bar)/V(bar)b. Pt* = (M(bar) x V(bar))/Y(bar)c. Pt* = M(bar)/Y(bar)d. Pt* = 1/Y(bar)e. Pt* = M(bar)

b

Among the world as a whole, there is ________ correlation between how rich a country is and how fast it ________ from 1960 to 2010.a. a strong positive; grew d. a strong negative; contractedb. almost no; grew e. almost no; contractedc. a strong positive; contracted

b

An implication of the Solow model is that once an economy reaches the steady state,a. long-term growth continues indefinitelyb. long-term growth does not continuec. long-term growth acceleratesd. long-term growth decelerates e. none of these answers are correct

b

Fiat money has value because:a. it is backed by gold.b. people believe it has value.c. it has intrinsic value.d. it is backed by silver.e. None of these answers is correct.

b

Generally, during a recession:a. the employment rate rises.b. the unemployment rate rises.c. there is no change in the unemployment rate.d. inflation rises.e. the natural rate of unemployment rises.

b

If Canada and Taiwan have the same fraction of researchers and the same knowledge efficiency parameter but Canada's population is larger, then:a. Taiwan has a higher per capita output growth rateb. Canada has a higher per capita output growth ratec. each country's per capita output grows at the same rated. Canada has higher per capita income than Taiwane. Canada's level of income is greater than Taiwan's

b

If Ct denotes consumption, It denotes investment, and Yt is output, the resource constraint in the Solow model is:a. Yt = Ct - Itb. Yt = Ct + Itc. Yt = A(bar)Kt^1/3 x Lt^2/3d. Change in Kt = It - d(bar)Kte. None of these answers are correct

b

If the monopsony model assumptions hold as predicted:a. the classical model of no actual involuntary unemployment is true.b. a minimum wage can increase both wages and employment.c. minimum wages are ineffective at raising entry level wages.d. a minimum wage always creates unemployment and is harmful to the economy.

b

If there are large fixed or research and development costs, such as in the pharmaceutical industry, production can be characterized by:a. large variable costs.b. increasing returns to scale.c. negative costs.d. decreasing returns to scale.e. constant returns to scale.

b

In Figure 5.1, if the economy begins with the initialcapital stock at K1, the capital stock will ________ andthe economy will ________.a. decrease; grow d. decrease; shrinkb. increase; grow e. stay constant; growc. stay constant; shrink

b

In Figure 5.3, at K1, the difference between s(bar)Y and d(bar)K is ________ and the difference betweenY and s(bar)Y is ________.a. output; investment d. output; consumptionb. net investment; consumption e. depreciation; gross investmentc. gross investment; consumption

b

In the Romer model, what two key goods are produced?a. a government good and new ideasb. a consumption good and new ideasc. a consumption good and total factor productivityd. a consumption good and capitale. None of these answers are correct.

b

In the Solow model, defining s(bar) as the saving rate, Y(t) as output, and C(t) as consumption, investment I(t) is given by:a. I(t)=(1-s(bar))d. I(t)=s(bar)Y(t)-C(t)b. I(t)=s(bar)Y(t)e. I(t)=(1-s(bar))Y(t)c. I(t)=(1-s(bar))C(t)

b

In the Solow model, if a country's saving rate increases, the country:a. moves from a relatively low steady state to one that is lowerb. moves from a relatively low steady state to one that is higherc. moves from a relatively high steady state to one that is lowerd. stays at a constant high steady statee. stays at a constant low steady state

b

In the Solow model, net investment is defined as:a. investment plus capital depreciationb. investment minus capital depreciationc. the saving rate minus the depreciation rated. the saving rate plus the depreciation ratee. None of these answers are correct.

b

In the labor market depicted in Figure 7.3 (Homework 3/22), a decrease in labor regulation shifts labor:a. supply from LS 2 to LS 1.b. demand from LD 2 to LD 1.c. demand from LD 1 to LD 2.d. supply from LS 1 to LS 2.e. None of these answers is correct.

b

In the labor market depicted in Figure 7.3, a decrease in labor regulation:a. shifts labor supply from LS2 to LS1b. shifts labor demand from LD2 to LD1c. shifts labor demand from LD1 to LD2d. shifts labor supply from LS1 to LS2e. None of these answers are correct.

b

In the quantity equation, the value PtYt is:a. real GDP.b. nominal GDP.c. aggregate expenditure.d. the velocity of money.e. real money.

b

Increasing returns to scale is characterized by:a. constantly declining fixed costs.b. economies of scale; that is, the average cost falls as output rises.c. diseconomies of scale; that is, the average cost is constant as output rises.d. diseconomies of scale; that is, the average cost falls as output rises.e. economies of scale; that is, the average cost rises as output rises.

b

Consider Figure 4.1. The shape of this production function suggests that α in the production function Y=K^alpha L^1-alpha. Look at #17.a) equal to one.b) greater than one.c) equal to zero.d) less than one.e) Not enough information is given.

d) less than one.

The Solow model of economic growth:a. endogenizes labor d. exogenizes investmentb. endogenizes physical capital e. endogenizes investmentc. exogenizes physical capital

b

Defining per capita GDP in 2013 as y2013 and per capita GDP in 2014 as y2014, the growth rate of per capita GDP, gbar, from 2013 to 2014 is given by:

d. (y2014 - y2013)/y2013

According the text, there are approximately _____ different coherent paragraphs written with 100 words or less in the English language.

d. 10^430

Examples of shocks to the economy include all of the following except,a. Sudden changes in oil prices.b. Changes in government spendingc. Development of new technologyd. An increase in Inflatione. A natural disaster

d. An increase in Inflation"Shocks cause either the aggregate demand or supply curve to shift; inflation then responds over time."

A lesson from microeconomics is that unless there is some market power where firms charge prices above marginal cost, __________ are zero.a. Costsb. Revenuesc. Normal Profitsd. Economics Profitse. Variable Costs

d. Economics Profits

Which of the following are not included in the expenditure approach to National Income Accounting?a. Defense expendituresb. Firm expenditures on equipmentc. Resident expenditures d. Household service expenditurese. None of the above.

d. Household service expenditures

A key reason that unemployment in the Unites States is so low compared to most of Europe is because of:a. No cyclical unemploymentb. Low frictional unemploymentc. High structural unemploymentd. Low structural unemploymente. No structural unemployment.

d. Low structural unemployment

According to historical data, the wages in ancient Greece and Rome were _____ in sixteenth-century Britain or eighteenth-century France.

d. about the same as

In the corn farm example, corn can be used as:

d. either consumption or investment

If the nominal GDP rises by 3 percent and the price level rises by 5 percent, then the real GDP ______ by _____.

d. falls; 2 percent

In the knowledge production function change-inAt = zbarAtLat, zbar represents:

d. how good an economy is at generating knowledge

Idea accumulation in the Romer model exhibits:

d. no diminishing returns in the stock of ideas

If MPK > r, the firm:

d. should hire more capital until MPK = r

The equation Y = (K^a)(L^1-a) is called:

d. the Cobb-Douglas production function

The compression of the vertical axis at "key doubling points" is called:

d. the ratio scale

Nominal GDP is the _____ of all goods and services produced in a period of time using ____ prices.

d. value; current

In Figure 5.1, if the economy begins with the initial capital stock at K3, the capital stock will ________ and the economy will ________.

decrease; shrink

The marginal product of the labor curve represents the:

demand for labor.

According to the quantity theory of money, the price level is:

determined by the ratio of the effective quantity of money to the volume of goods.

In the Solow model, if we assume that capital depreciation rates are the same across all countries, differences in per capita output can be explained by:

differences in productivity and saving rates.

Real GDP is _________ of all goods and services produced in a period of time using __________ prices.a. Summation; Currentb Value; Base yearc. Value;1970d. Value; 1945e. Summation; Base year

b Value; Base year

In 1994 your parents made an investment of $4,000. By 2015 the investment grew to $32,000. Assuming a constant rate of growth, what was the average annual growth rate of this investment? Go to #10 to look at picture.a) 7%b) 10%c) 70%d) 100%

b) 10%Pages 52-53. The data above are plotted using a ratio scale. Since this is a straight line we can conclude that the growth rate is constant. We see that the investment doubles every 7 years (i.e. for 1994 - 2001 the investment grew from $4,000 to $8,000; or use formula 3.9 to verify). Therefore, we can estimate the growth rate using the rule of 70: 70/7 = 10%.

If population doubles every 35 years, then the growth rate of population isa) 1 percentb) 2 percentc) 3 percentd) 4 percent

b) 2 percentPage 53. The Rule of 70 implies that the growth rate equals 70/35 = 2%.

With an average annual growth rate of 3.5 percent per year, per capita income will increase by what factor over a century?a) 16b) 32c) 64d) 128

b) 32Pages 50-51. Applying the Rule of 70 implies 70/3.5 = 20. Thus, income will double in 20 years. In a century, per capita income will double 5 times, which is 100/20. Thus, GDP per capital will increase by a factor of 2^5.

If the depreciation and saving rates are constant, the economy eventually will reach the steady state in the Solow model because of:

diminishing returns to capital in production.

A person is unemployed if she...

does not have a job that pays a wage or salaryhas actively looked for a job in the last 4 weeksis available to work

A production function exhibits decreasing returns to scale (RTS) when you:

double each input - you less than double output

A production function exhibits constant returns to scale when you:

double each input-you double the output

A production function exhibits constant returns to scale when you:

double each input—you double the output.

A production function exhibits decreasing returns to scale when you:

double each input—you less than double the output.

The rule of 70 states that if yt grows at a rate of g percent per year, then the number of years it takes yt to:

double is approximately equal to 70/ g.

The rule of 70 states that if yt grows at a rate of g percent per year, then the number of years it takes y, to:

double is approximately equal to 70/g

What is a critical factor that contributed to Reagan's defeat of Carter in the 1980 presidential election?

double-digit inflation

The demand for labor curve is...

downward sloping.derived from the firm's profit maximization problem.equal to the marginal product of labor.derived from the marginal product of labor.

A government that relies on seignorage to finance excess government expenditures is the foundation for the following quote:a. "Velocity growth should be equal to 2 percent in the long run."b. "Inflation is always and everywhere a monetary phenomenon."c. "Velocity is always constant."d. "Inflation is always zero in the long run."e. "Inflation is always and everywhere a fiscal phenomenon."

e

According to the Keynesian School:a. labor demand is relatively inelastic.b. there may be an increase of nonlabor income relative to labor income.c. employers are not very sensitive to modest minimum wages. d. workers bargaining power has declined over the last several decades.e. all of the answers are true.

e

A country that, since 1980, has shown convergence to the United States isa) Japanb) Chinac) South Africad) Germany

b) ChinaPages 54-55. Convergence is the process of a nation's economy catching up to another nation's economy.

If current output is Yt = $12billion and potential output (Y~t) = 11.25billion, then the economy is in a _____ and (Y~t) is about ______%

boom; 6.7%

Considering Figure 5.6, the transitional dynamics best describe:an increase in the depreciation rate.a positive TFP shock.a decline in the saving rate.a decrease in the capital stock.both a and c.

both a and c

According to the Solow model two countries will grow at different rates if:

both have different steady-state level of output and the same capital stock below the steady-state level

The labor market determines:a. the equilibrium wageb. the equilibrium quantity of employmentc. the equilibrium wage and the quantity of employmentd. the number of unemployede. All of these answers are correct.

e

The long-run model determines ________ and ________.a. current output; unemployment d. potential output; potential inflationb. potential output; unemployment e. potential output; long-run inflationc. current output; long-run inflation

e

The real interest rate is:a. the interest rate not adjusted for inflationb. the "advertised" interest ratec. a description of the return in units of currencyd. All of these answers are correct.e. None of these answers are correct.

e

A drawback of unemployment benefits is that:a. the payments are too large.b. they cost taxpayers over 50 percent of their incomes.c. they give workers a disincentive to find work.d. they increase job destruction.e. they always lengthen the time spent unemployed.

c

A key reason that unemployment in the United States is so low compared to most of Europe is because of ________ unemployment.a. high structuralb. no structuralc. low structurald. low frictionale. no cyclical

c

Practically, the real interest rate is equal to:a. a savings account d. the return to stock marketsb. the rate of return to long-term bonds e. the return to housingc. the marginal product of capital

c

Suppose the parameters of the Romer model take the following values: A(bar) = 100, l(bar) = 0.05, z(bar) = 1/100 and L(bar) = 1,000. What is the growth rate of this country's economy?a. 0.02 percentb. 10 percentc. 50 percentd. 0.10 percente. 40 percent

c

The Board of Governors of the Federal Reservea. have staggered 14 year terms.b. have seven members.c. are true for all of the answers.d. were the original policy making body of the FED

c

The Solow model of economic growth:a. endogenizes laborb. endogenizes investmentc. endogenizes physical capitald. exogenizes investmente. exogenizes physical capital

c

When a lower-income economy's GDP is able to "catch up" with a higher-income economy's GDP, this behavior is related to an important concept in the study of economic:

c. convergence

In 1960, the Phillipines had a per capita income _____ South Korea. In 2010, _____.

c. equal to; South Korea had relatively higher per capita income.

Between 1960 and 2010, the fraction of the world's population that lived on $5 a day or less ___. This can be attributed to, in part, _____.

c. fell; economic growth in China and India

The natural rate of unemployment is the unemployment rate that would prevail:a. if inflation is zero.b. if there are no discouraged workers.c. if the economy were in neither a boom or recession.d. during seasonal changes in the economy.e. if the unemployment rate is zero.

c. if the economy were in neither a boom or recession.

In Romer's influential paper he divided the economic world into:

c. objects and ideas

In the Romer model, output is increasing in ____ and decreasing in _____.

c. the growth rate of knowledge; the fraction of population in the ideas sector

According to the constant growth rate rule, if a variable stats at some initial value y0 at t = 0 and grows a yt = y0(1+gbar)^t at a constant rate gbar, then the value of the variable in three periods is given by:

c. y3 = y0(1+gbar)^3

In economics, a nonrival good is one that:

can be consumed by more than one person at a time

In economics, a rival good is one that...

cannot be consumed by more than one person at a time.

In economics, a rival good is one that:

cannot be consumed by more than one person at a time.

Which of the following inputs do we generally consider in a simple production function?

capital

A central lesson of the Solow model is that:

capital accumulation cannot serve as the engine of long-run per capita economic growth.

The key insight in the Solow model is that:

capital accumulation contributes to economic growth.

With the production function, Yt = A Kt^1/3 Lt^1/3 if we double ________, we have a constant returns production

capital and labor

The solution to the firm's maximization problem is how much:

capital and labor to hire, given the rental rate of capital and labor's wage rate.

Capital has diminishing returns in the Solow model, but ideas do not have diminishing returns in the Romer model because

capital is a rival object, but ideas are non-rival.Pages 150-151. The fact that ideas are nonrival places no restriction on the returns to ideas.

In the solow model, If the amount of investment > depreciation. This means that

capital stock will increase untilsY = dKHere, the change in capital is equal to 0.The capital stock will stay at this value of capital forever.This is called the steady state

With the production function, Yt = A Kt^1/3 Lt^1/3 if we double ________, we have an increasing returns production.

capital, labor, and the stock of ideas

Cyclical Unemployment

caused by business cycle

Consider an economy where the only consumption good is ice cream. Firms in this economy must:

choose how many workers to hire and how many ice cream machines to rent.

Consider an economy where the only consumption good is ice cream.Firms in this economy must:

choose how many workers to hire and ice cream machines to rent

According to the classical dichotomy, in the long run there is...

complete separation of the nominal and real sides of the economy

According to the classical dichotomy, in the long run there is

complete separation of the nominal and real sides of the economy.

According to the classical dichotomy, in the long run there is:

complete separation of the nominal and real sides of the economy.

In the Solow model, it is assumed a(n) ________ fraction of capital depreciates each period.

constant

In the Solow model, it is assumed that a(n) ________ fraction of capital depreciates regardless of thecapital stock.

constant

In the Solow model, it is assumed that a(n) ________ fraction of capital depreciates regardless of the capital stock.

constant

The Solow model assumes the saving rate is:

constant

In the Romer model, the production function Yt = At Lyt where At is knowledge and Lyt is the amount of labor in the output sector, exhibits:

constant returns to labor and increasing returns to labor and knowledge.

A production function has inputs X, Y, and Z and a productivity parameter . The A1/3 X1/3 Y1/3 Z1/3 exhibits.

constant returns to scale

One of the key characteristics of the Cobb-Douglas production function is:

constant returns to scale.

The Solow model assumes the saving rate is:

constant.

Recently, the largest share of GDP is

consumption

In the Romer model, what are the two key outputs produced?

consumption good and new ideas

An implication of the Solow model is that once an economy reaches the steady state, per capita:

consumption is constant

The endogenous variables in the Solow model are:

consumption, investment, the capital stock, labor, and output

The endogenous variables in the Solow model are....

consumption, investment, the capital stock, labor, and output.

The endogenous variables in the Solow model are:

consumption, investment, the capital stock, labor, and output.

When a lower-income economy's GDP is able to "catch up" with a higher-income economy's GDP, this behavior is related to an important concept in the study of economic:

convergence

Consider two Romer economies, A and B. If the initial stock of knowledge in country A is higher than the initial stock of knowledge in country B but country A is not as good as country B at producing ideas, what conclusions about the relative growth rate of knowledge in these two countries can be drawn?:

country A's growth rate of knowledge on the balanced growth path will be lowerPage 149. On the balanced growth path in the Romer model, the growth rate of knowledge is a function of the following model parameters - the productivity parameter, which captures how good a country is at producing ideas, the share of labor engaged in research, and the population. It does not depend on the initial stock of knowledge. Therefore, country A's growth rate of knowledge on the balanced growth path will be lower due to its lower productivity parameter.

Monetary base includes:

currency andaccounts (reserves)Banks hold accounts with the economy's central bank.Banks ensure that they have cash on hand in case of withdrawals.

A key reason that unemployment in the United States is so low compared to most of Europe is because of:a. no cyclical unemployment d. low structural unemploymentb. low frictional unemployment e. no structural unemploymentc. high structural unemployment

d

Assume production function is given by Yt = A(bar)Kt^1/3 x L(bar)^2/3. If A(bar) = 2 and L(bar) = 1, and the steady-state capital stock is 8.0, the steady-state level of output is about (see pg. 112 text):a. 8.0b. 22.6c. 2.0d. 4.0e. 45.4

d

The steady state is defined as the point where capital accumulation, Δ K t, is equal to:a. the depreciation rateb. the productivity growth ratec. the saving rated. the population growth ratee. zero

e

Using Figure 7.1, identify the year of the peak of theboom:a. 1982 d. 2010b. 1992 e. 1990c. 2005

e

Using the quantity theory of money, we can calculate inflation using ________, under the assumption that ________.a. Pi = % change in M(bar); velocity is constant.b. Pi = % change in Y(bar); velocity is variablec. Pi = % change in M(bar) - % change in Y(bar); percent change in velocity always equals one.d. Pi = 0; velocity is constante. Pi = % change in M(bar) - % change in Y(bar); velocity is constant

e

What might be an explanation for the production of open source, free software?a. marginal cost is zero d. moral hazardb. increasing returns e. altruismc. diminishing marginal utility

e

Compared to the nominal interest rate, the real interest rate is:a. negative d. relatively stableb. always smaller e. relatively volatilec. always greater than zero

d

Consider Figure 9.1. The dashed line is potential output and the solid line is current output; therefore:a. areas a and b are boomsb. area b represents an economic boom, and area a is a recessionc. the economy is in neither a recession nor a boom in areas a and bd. area a represents an economic boom, and area b is a recessione. areas a and b are expansions

d

Consider the Solow model exhibited in Figure 5.4.Which of the following is/are true?i.For any single country, the movement from point a to b is due to an increase in the saving rate, s1>s2.ii. For any single country, the movement from point c to b is due to an increase in capital stock for thesaving rate, s2.iii. If s1 and s2 stands for the saving rates in Countries 1 and 2, respectively, Country 2 has a lower saving rate.a. i d. i and iib. iie. i, ii, and iiic. iii

d

Over the past 50 years or so, the:a. male employment-population ratio always has been rising.b. female employment-population ratio generally has been falling.c. male employment-population ratio generally has been rising.d. female employment-population ratio generally has been rising.e. None of these answers is correct.

d

In the simple Solow model, we assume:a. the depreciation rate is negativeb. TFP equals onec. net investment is always positived. labor is exogenouse. the saving rate changes frequently

d

Nonrivalry in the Romer model means that ideas created can:a. benefit only similar economies.b. benefit only a few economies across the world.c. be used only in the economy that devised them.d. benefit virtually all economies across the world.e. None of these answers is correct.

d

On average, if both rich and poor countries grow at the same rate, this suggests that:a. most countries are contractingb. most countries still are growingc. no countries have reached their steady stated. most countries have reached their steady statee. most countries are unproductive

d

One possible explanation for a high steady-state level of unemployment is:a. the existence of a small number of institutional restrictionsb. a shrinking labor forcec. perfectly flexible wagesd. a high job separation ratee. a rising job finding rate

d

Which of the following is NOT an example of a short-term macroeconomic shock?a. political unrestb. a change in the tax codec. a droughtd. increased military spendinge. None of these answers is correct.

e

Which of the following is a nonrival good?a. a peanut butter sandwichb. orange juicec. a jacketd. All of these answers are correct.e. None of these answers is correct.

e

Which of the following is an example of an idea?a. new irrigation techniquesb. turning sand into computer chipsc. the assembly lined. the steam enginee. All of these answers are correct.

e

With an inflation tax:a. all individuals in an economy feel the pressures equitably.b. there is a redistribution of income from owners of real assets to income earners.c. everybody loses.d. the government has a lot of debt to repay.e. there is a redistribution of income from currency holders to owners of real assets.

e

In perfect competition, the price is ________; in a monopoly, the price is ________.

equal to the marginal cost; greater than the marginal cost

An economy's ________ is/are equal to its ________.

expenditure on goods and services; output

The proposition that changes in money have no real effect on the economy and affect only prices is called:a. inflation d. the neutrality of moneyb. the classical dichotomy e. the quantity theoryc. the quantity equation

d

The quote "It's a recession when your neighbor loses his job; it's a depression when you lose yours" is attributed to:a. Karl Marx d. Harry S Trumanb. Franklin D. Roosevelt e. Alan Greenspanc. John Maynard Keynes

d

The velocity of money can be calculated from the quantity equation with:a. P(t)Y(t)b. P(t)Y(t)M(t)c. M(t)/P(t)Y(t)d. P(t)Y(t)/M(t)e. M(t)

d

If you decide to buy a house with an adjustable-rate mortgage (ARM), you are:

exposing yourself to inflation risk

A U.S. citizen works for a U.S. company in Germany. The income earned by the citizen increases U.S. GDP.

false

Capital per person explains about one-half of the difference in per capita income between the richest and poorest countries.

false

Empirically, money is neutral in the short run as well as the long run

false

Fiscal policy involves changes in the money supply and interest rates to influence the macro-economy.

false

In the article sent to you by email, the state that isconsidering raising the minimum wage to $15 per hour by ballot initiative is New York.

false

In the last three hundred years, the standards of living between the richest and poorest countries have converged.

false

Milton Friedman was a Keynesian economist.

false

The Classical solution for a recession is expansionaryfiscal policy.

false

The fraction of people living in poverty has risen since 1960 as the populations of India and China have grown substantially.

false

The standard replication argument implies that Italy can raise its per capita GDP by doubling the amount of capital per person

false

The standard replication argument implies that Italy can raise its per capita GDP by doubling the amount of capital per person.

false

We cannot tell whether the production function Y = K aL 1-a has constant returns to scale, because we do not know the value of a.

false

When price equals marginal cost, economic profits are positive.

false

When the trade balance is negative, domestic producers are exporting more goods than are being imported.

false

The study of economic growth concentrates on understanding the determinants of:a. the rate of price changesb. the short-term change in per capita GDPc. the rate of population growthd. the change in per capita GDP over timee. None of these answers are correct.

D

If the productivity parameter is assumed to equal 1, the production model:A Correctly identifies that countries are richer if they have more capitalB Incorrectly predicts that poor countries are substantially richer than they areC Incorrectly predicts that some countries are richer than the United StatesD All of these choices are correct

D All of these choices are correct

A production function has inputs X,Y, and Z and a productivity parameter . The production function exhibits Y = A^(1/3)X^(1/3)Y^(1/3)Z^(1/3).A Decreasing returns to scaleB Increasing returns to scaleC Diminishing returns to scaleD Constant returns to scale

D Constant returns to scale

If MPK > r, the firm:A Should hire more laborB Should hire more capital until MPK = 0C Should get rid of some capital until MPK = rD Should hire more capital until MPK = rE Has the optimal amount of capital

D Should hire more capital until MPK = r

In the production model from the text, which of the following is NOT an exogenous variable or a parameter?A The supply of capitalB The supply of laborC The productivity of parameterD The amount of capital

D The amount of capital

In the steady state, investment equals . . .

Depreciation.sY* = dK*

Why does the Solow model fail to explain economic growth in the long run?

Diminishing returns to capital and constant depreciation rate.

Why does the Solow model lead to the principle of transition dynamics, and why is it useful?

Diminishing returns to capital and constant depreciation rate. The more capital you have, the more capital you have wearing out, and the harder it is to build extra units of capital.

How do you find per capita GDP?

Divide Y by L.y = Abark^(1/3)

To turn the Cobb-Douglas Production Function into focusing on output per person, what must be done?

Divide output by the number of workers

Macroeconomists have a general approach to study questions of interest, explain what these are...

Document the facts.Develop a model.Compare predictions of the model with original facts.Use the model to make other predictions that will eventually be tested.

The growth rate of per capita GDP in the Romer model depends on the number of workers engaged in research. However, the country of Luxemburg, which has far fewer researchers than the U.S., grows at a rate faster than the U.S. and has a higher per capita GDP. How can the Romer model explain this difference in growth rates?

Due to the nonrivalry of ideas, the economy of Luxemburg grows because the model is based on ideas created throughout the world not just within that country.FEEDBACK: Pages 151-152. All countries benefit from all the ideas created in the world not just those created within their own borders because of the existence of international trade, multinational corporations, licensing agreements, international patent filings, the open flow of information, and migration.

________ are parameters to the model and generally are fixed over time, while ________ are the outcomes of the model.

Exogenous variables; endogenous variables

__________ are parameters to the model and generally are fixed over time, while _________ are the outcomes of the model.

Exogenous variables; endogenous variables

____ 1. Macroeconomics is the study of an individual market

F

____ 4. An economic model is an exact replica of the macroeconomy.

F

The Solow model is a static model and thus can only tell us the levels of our endogenous variables in steady state. T/F

False

The Solow model is a static model and thus can only tell us the levels of our endogenous variables in steady state. True or False

False

The high rate of inflation in the US in the late 1970s and ealy 1980s was due to high seigniorage

False

We cannot tell whether the production function Y=K^(a)L^(1−a) has constant returns to scale because we do not know the value of a.

False

The investment rate in a particular economy is a function of the amount of output (income) an economy generates each year.

FalseAlthough rich and poor countries often have different investment rates, the investment rate is an exogenously given parameter in the Solow model. Unless shocked, it does not change over time.

Patents are unambiguously beneficial to society because they create profits for firms, which generate incentives to produce new ideas.

FalseFEEDBACK: Page 144. Patents also distort the economy by generating welfare loss.

The production function Y = Abar^1/3Kbar^1/3Lbar^1/3 exhibits decreasing returns in K and L but increasing returns to A, K, and L together.

FalseFEEDBACK: Pages 141-143. Scaling K and L by 2 will result in decreasing returns to K and L, but doubling A, K, and L will only double output (constant returns to A, K, and L).

Give 3 useful mathematical properties of growth rates...

Growth rates obey mathematical operationsthat are a level simpler than the operation onthe original variableVariables divided => growth rates subtracted Variables multiplied => growth rates addedVariable taken to a power number => growth ratemultiplied by that number

d. should hire more capital until MPK = r.

If MPK > r, the firm:a. should hire more labor.b. should hire more capital until MPK = 0.c. should get rid of some capital until MPK =r.d. should hire more capital until MPK = r.e.has the optimal amount of capital

b

If Samantha quits her job voluntarily and actively searches for other work, then she is considered: A) structurally unemployed.B) frictionally unemployed.C) cyclically unemployed.D) not to be unemployed.

a. the same steady-state level of output as it would have before the disaster.

If a natural disaster destroys a large portion of a country's capital stock but the saving and depreciation rates are unchanged, the Solow model predicts that the economy will grow and eventually reach:a. the same steady-state level of output as it would have before the disaster.b. a higher steady-state level of output than it would have before the disaster.c. a lower steady-state level of output than it would have before the disaster.d. Not enough information is given.e. None of these answers is correct.

E

If current output is $21.92 trillion and potential output is $23 trillion, then the economy is in aand the GDP gap is .(a) expansion; 4.7% (b) expansion; 4.93% (c) recession; -4.93%(d) expansion; -4.7%(e) recession; -4.7%

GDP does include...

Only goods and services that aretransacted through markets are included inGDP.

What are the four equations of the Romer model?

Output production function, idea production function, resource constraint, allocation of labor.

What is constant in the steady state?

Output, capital, output per person, consumption per person.

What is lower steady state production caused by?

Faster depreciation.

Money that has no intrinsic value except as money is called _____________ money.

Fiat

International comparisons of GDP involvetwo conversions. What are these?

First, we need exchange rates to convert themeasures into a common currency.Second, just as we need to use commonprices to measure real GDP over time, wealso need to use common prices to comparereal GDP across countries.

3 things about The employment-population ratio...

Fraction of the civilian population over the age of 16 that is workingHas been increasing over time (US)Decreases during recessions

A

Frictional unemployment is the unemployment that results from(a) workers changing jobs in a dynamic economy(b) workers losing their jobs during a recession(c) prevailing labor market institutions(d) workers losing their jobs during seasonal changes

natural rate of unemployment

Frictional+structural

Define and explain The government budget constraint...

G = T + ∆B + ∆MWhere:G = Govt fundsT = Tax revenue ∆B = Borrowing ∆M = Changes in the stock of money G also = usesT + ∆B + ∆M also = Sources of funds

What are the 5 types of inflation?

GDP deflator, CPI, PPI, Kore CPI, PCE

By how much does GDP change between 2010 and 2011 in the following scenario? In 2010, a rich woman has a chef and pays him $50,000 to cook for her. In 2010, she marries the chef and he continues to cook.

GDP falls by $50,000.

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

Gross Domestic Product

Why is growth accounting useful?

Growth accounting taught economists that ideas were much more important than many wanted to believe, which eventually encouraged economists to build good models of where ideas come from.

The crux of the solow growth model is that...

It Augments the production model with capital accumulationCapital stock is no longer exogenous.Capital stock is now endogenizedThe accumulation of capital is a possibleengine of long-run economic growth.

In the solow model, Can growth in the labor force lead to overall economic growth?

It can in the aggregateIt cannot in output per person

Why is national defense nonrivalrous?

It costs roughly as much to defend 100 people from invasion as to defend 100 million people from invasion.

A government is more likely to utilize the inflation tax if...

It's running a budget deficit, lenders worry that the government will not pay back its debts, politicians will not raise taxes, because they cannot be reelected if they do.Pages 228-229. The inflation tax is likely to be used as a last resort. If deficits are high and additional borrowing and taxing are impossible, the inflation tax will be used to raise revenue.

...

Lecture 3If the marginal product of capital is less than the rental rate of capital, the firm should rent more capital.a.trueb.false

...

Lecture 3We cannot tell whether the production function y = K^(a)L^(1-a) has constant returns to scale because we do not know the value of a.a.trueb.false .

Balloon example for monetary vs. fiscal policy

Outside of balloon represents Potential GDP. Inside balloon is fiscal policy. Fed is outside, Fed pumps air in and out of balloon. Pumping air in is expansionary monetary policy, pumping out is extractionary.

...

Lecture 9Suppose prices adjust immediately because there is no sticky inflation. Then, monetary policy willa.have only real effects.b.have only nominal effects.c.have both real and nominal effectsd.have no effect.

...

Lecture 9Suppose the Federal Reserve decreases interest rates from 4 percent to 3 percent, which leads to an increase in short-run output of 1.5 percent. If there are no other shocks to the economy, and the resulting change in inflation is +0.375 percent, what is the value of the parameter V? a.4b.0.25c.1.5d.0.66

The wholesale price of one pound of coffee was 8.25 cents in 1900 and $1.50 in 2015. If the CPI was 3.43 for 1900 and 100 for 2015, coffee was

Less expensive in 2015 compared to 1900

The wholesale price of one pound of coffee was 8.25 cents in 1900 and $1.50 in 2015. If the CPI was 3.43 for 1900 and 100 for 2015, coffee was

Less expensive in 2015 compared to 1900Pages 215-216. We can find the equivalent 2015 value of the 1900 price using the equation.Thus, the equivalent 2015 value of $0.0825 is $2.41, which makes coffee less expensive in 2015.

Define the natural rate of unemployment.

Lowest rate of unemployment that can be sustatined in the long run. Structural and frictional

To recap, in the Solow Model, what is the labour force equation?

Lt = Lbar

What is the Solow labor force equation?

Lt = Lbar

What is the resource constraint in the Romer model?

Lyt + Lat = Lbar

In the Romer model, explain what is meant by the resource constraint

Lyt + Lat = LbarThat is, the number of workers producing output and the number of workers producing ideas (engaged in research) add up to the total population L, which we take to be a constant parameter.

Solve the Romer model for labor.

Lyt = (1 - l)Lbar

What is included in M2?

M1 + Saving deposits, and individual money market accounts

The measure of money that includes demand deposits and currency only is called

M1.

How do you maximize profit in the production function?

MPK = r and MPL = wMax Pi = AbarK^(1/2)L^(1/2) - rK - wL

The solution to the firm's profit maximization is...

MPL = w and MPK = r

Define and explain the quantity theory of money....

MV = PYWhere..M = money supply V = Velocity of money (The average number of times per year that each piece of paper currency is used in a transaction)P = Price levelY = Real GDP It connects Money and inflation and shows how The amount of money used in purchases isequal to nominal GDP

A minimum wage:

May reduce employment if firms have monopsony power

What does growth accounting endeavor to do?

Measure what factors, and in what proportions, affect overall economic growth.

Models do what 3 things...

Models simplify the complicated real world into its most relevantelements.A model is useful if it has good predictive power.Economic models often involve systems of multiple equations.

The growth rate of output in the Romer model is zlL. Why does each of theseparameters belong in the solution?

More efficient idea creation, a larger fraction of workers searching for ideas, or more workers in the first place—all of these would increase the economy's overall growth rate.

The rise in the employment-population ratio over the last fifty years is largely due to:

More women in the workforce.

What is the miracle of long-term economic growth?

Most of the things people want are a little bit less scarce each year.

What are the variables in the "Quantity Theory of Money," and what they mean?

Mt*Vt = Pt*YtMt: Money SupplyVt: Velocity of MoneyPt: Price LevelYt: Output

Total factor productivity is also referred to as . . .

Multi-factor productivity or the Solow residual.

Do all countries exhibit the transition dynamics predicted by the solow growth model ? For example the South Korea and Philipines case study?

No

Which of the following theories would predict that immigration causes local workers' wages to decrease?

None of the above

What is nonrivalry?

Nonrivalry exists when one person's use of a good leaves just as much of that good for someone else. A nonrivalrous good can't be "used up."

Explain the link between Increasing returns to scale and non-rivalry

Nonrivalry:Objects are rivalrous, One person's use reduces the usefulness to someone else. BUTIdeas are nonrivalrous, National defense is nonrivalrous.This means that with Increasing returns to scale, once one person pays the cost of creating it, manypeople can use it without paying any extra cost.As the scale grows larger, the average cost ofproducing the nonrivalrous good always falls.

The influences of institutions on economic performance can be easily contrasted using:

North and South Korea

The Romer model divides the world into what 2 categories...

Objects- capital and labor from the Solow model- these are finiteIdeas- items used in making objects- these are virtually infinite

The production function of the Romer model has increasing returns to scale in . . .

Objects alone.

In Romer's influential paper he divided the economic world into . . .

Objects and ideas.

What is the rivalry of objects and ideas?

Objects are rivalrousOne person's usereduces the usefulnessto someone elseIdeas are nonrivalrousOne person's use doesnot reduce theusefulness to someone

Ideas vs. Objects

Objects: physical things, constant returns to scale, rival. Ideas: inspiration, don't have constant returns to scale, in the public goods sector, nonrival, public goods.

How does nonrivalry lead to increasing returns?

Once one person pays the cost of creating the good, many people can use it without paying any extra cost. As the scale grows larger, the average cost of producing the nonrivalrous good always falls.

e. None of these answers is correct.

One consequence of wage rigidity is:a. lower rates of unemployment. b. less labor market volatility. c. labor market stability.d. a lower unemployment rate.e. None of these answers is correct.

B

One possible explanation for a high steady-state level of unemployment is(a) a shrinking labor force (b) a high job separation rate (c) a rising job finding rate(d) perfectly flexible wages

What Is Included in GDP and WhatIs Not?

Only considers final goods and servicesIntermediate goods are not included inGDP calculationsFor example, if Alcoa sells aluminium to Ford tomake a Focus STThe sale of the car is included in GDP, but notthe sale of the aluminium

The present value formula for a single amount is:

PV = FV x [ 1 ÷ (1+i)ⁿ]

What is total revenue in the production function?

PY

Which of the following will have a real effect on the United States economy?

Page 215-216. Changes in the money supply will have no real effect on the economy unless the relative price of goods is changed. None of the three changes alter relative prices.

An allocation that is ________ exists if there is no way to change a resource allocation that makes someone worse off when allocating more to another.

Pareto optimal

In an economy patents help to do what... And what are some of the problems with this...

Patents help to...- Grant monopoly power over a good for a period- Generate positive profits- Provide incentive for innovationHowever, due to monopoly power, P > MC and hence there will be a welfare lossOther incentives may avoid welfare loss such as Government funding or Prizes

Malthus' model has been described as a "trap" because

Population growth nullifies any improvements in productivity

An increase in ________ leads to a higher steady-state level of output per worker, and a decline in the ________ leads to a lower steady-state level of output per worker.

productivity; saving rate

The reason perfect competition cannot generate new ideas is that:

profits are zero.

In the combined Solow-Romer model, an exogenous increase in the saving rate:

pushes the economy to a higher per capita output balanced growth path

What is the rule for capital hiring in the production model?

r = (1/3)(Y/K)r* = (1/3)Abar(Lbar/Kbar)^(2/3)

What is total cost in the production function?

rK + wL

Which of the following is/are left out of the Solow model?productivityconsumptionreal interest ratesthe saving ratedepreciation

real interest rates

Negative inflationary surprises lead to a(n)

redistribution of wealth from borrowers to lenders.

When computing the present discounted value (pdv) of a future stream of labor income, an increase in the interest rate will

reduce the pdvPages 195-197. Arrange the sum of the period present discounted values into a geometric series. You will notice that an increase in the interest rate decreases all terms except the first one, which remains unchanged.

According to the quantity equation, the cure for hyperinflation is:

reducing money growth

According to the quantity equation, the cure for hyperinflation is...

reducing money growth.

The cure for hyperinflation is

reducing money growth.

Compared to the nominal interest rate, the real interest rate is :

relatively stable

Compared to the nominal interest rate, the real interest rate is:

relatively stable.

If MPL < w, the firm:

should fire some labor until MPL = w.

If MPL < w, the firm:

should fire some labor until MPL =w

If MPK > r, the firm

should hire more capital until MPK = r

If MPK > r, the firm:

should hire more capital until MPK = r.

The birthplace of modern economic growth was in ________ during the ________ century.

the United Kingdom; mid-eighteenth

The marginal product of labor is defined as:

the additional output generated by hiring an additional unit of labor.

Under the classical dichotomy, which of the following does not determine real GDP in the long run?

the aggregate price levelPages 211-212. In the long run, real GDP is only determined by real considerations and not on variables, such as money or the aggregate price level.

The velocity of money is

the average number of times a dollar is used in a transaction per year.

Despite the costs associated with economic growth, most believe:

the benefits far outweigh the costs

Hyperinflation can be caused by

the central bank injecting to much money into the economy.a collapse of real output.*both answers.

When calculating fixed retirement payments, it is important not to forget

the decline in the payment's value due to inflation.

The marginal product of the labor curve represents:

the demand for labor

In the Solow model, the parameter denotes ________ and is ________.

the depreciation rate; less than one

In the Solow model, with population growth:

the economy eventually settles down to a steady state in output per person

If net investment is negative,

the economy is above its steady state and growth of output is negative.

If net investment is negative:

the economy is above its steady state and growth of output is negative.

If net investment is negative:

the economy is above its steady state and growth of output is negative. Negative net investment implies depreciation is greater than investment. Thus, the economy has a capital stock that is decreasing because it is above steady state.

If net investment is negative:

the economy is above its steady state and growth of output is negative. Negative net investment implies depreciation is greater than investment. Thus, the economy has a capital stock that is decreasing because it is above steady state.

The level of consumption is largest when:

the economy is above its steady state.

The quantity theory states that the nominal GDP is equal to

the effective amount of money used in purchases.

Starting from steady state, a permanent increase in the rate of depreciation in the Solow model causes

the growth rate of output to fall temporarily and the level of GDP to fall permanently.An increase in the depreciation rate causes the depreciation curve to pivot upward, resulting in a new lower steady state. Thus, the growth rate of output is rapidly negative at first and converges to zero as it approaches steady state.

Starting from steady state, a permanent increase in the rate of depreciation in the Solow model causes

the growth rate of output to fall temporarily and the level of GDP to fall permanently.An increase in the depreciation rate causes the depreciation curve to pivot upward, resulting in a new lower steady state. Thus, the growth rate of output is rapidly negative at first and converges to zero as it approaches steady state.

An economy starts in steady state. A war causes a massive destruction of the capital stock. This shock will cause

the growth rate of output to rise initially as the economy begins to converge to the old steady state.

If a country is on its balanced growth path, then

the growth rates of the number of workers engaged in research and the number of researchers engaged in producing output are constantThe growth rate of output is constantThe growth rate of the stock of ideas is constantPage 151. Along a balanced growth path, the growth rates of all endogenous variables are constant.

If long-run real GDP growth is determined by real changes in the economy, the quantity theory of money implies that changes in

the money growth rate lead one-for-one to changes in the inflation rate in the long run.

In the long run, the key determinant of the price level is

the money supply

In the long run, the key determinant of the price level is

the money supplyPages 212-213. The price level is determined by the money supply, while the inflation rate is pinned down by the growth rate in the money supply.

The Solow model assumes the:

the number of workers is constant

Macroeconomics is the study of ________ while microeconomics studies ________.

the overall performance of an economy; an individual market

When discussing inflation, we generally speak of it in terms of

the percent change in the consumer price index.

Which of the following is included in TFP?

the quality of labor

If the inflation rate is larger than the nominal interest rate

the real interest rate is negative.

If the inflation rate is larger than the nominal interest rate:

the real interest rate is negative.

If the real interest rate is 3 percent and the nominal interest rate is 1 percent, then the economy is experiencing deflation according to the Fisher equation.

true

In 1990, a country's per capita income was 1,000. By the year 2000, it was 1,650. The average annual growth rate was approximately 0.05.

true

In a Cobb-Douglas production function, the factor share of income going to each input is equal to the exponent on the input in the production function.

true

In a liquidity trap, expansionary monetary policy is not effective.

true

In the Solow model, if gross investment is greater than capital depreciation, the economy accumulates new capital.

true

In the Solow model, it is assumed that a constant fraction of capital depreciates in each period.

true

Keynesian economists are "demand side" focused while classical economists focus on "supply side."

true

Keynesian economists believe in fiscal policy.

true

Keynesian economists believed velocity to be unstable.

true

Per capita GDP can grow at a negative rate.

true

Keynesian (original school) economists argue

velocity is unstable.monetary policy can influence real output in the long-run.monetary policy is a weak policy tool.*all of the answers are true.

What is the rule for labor hiring in the production model?

w = (2/3)(Y/L)w* = (2/3)Abar(Kbar/Lbar)^(1/3)

Suppose the payments to capital and labor are ( w*L*) /Y* = 2/3 and ( r*K*) /Y* = 2/3, respectively. One implication of this result is...

w*L* + r*K* > Y*

Present discounted value

where fv = future valuei = interest rate t = year

For which of the following does the Solow model provide adequate explanations?

why saving rates differ across countriesthe cause of productivity differences across countrieswhy population growth rates differ across countrieswhat causes long-term economic growth

Suppose k, l, and A grow at constant rates given by gk , gl , and g A. What is the growth rate of y if

y = Aka l^ 1 -a ,a > 0?

What is the solution for output per person?

y* = (Y*/L*) = Abar^(3/2)(s/d)^(1/2)

In Figure 5.3, at K2, capital accumulation is ________, the economy is ________, and consumption is ________.

zero; in the steady state; positive

Using the Solow model, if, in time t = 50, the capital stock is K50 = 150, investment is I50 = 15, and d=0 is the depreciation rate, capital accumulation from period 50 to 51 is:

ΔK51 = 0.

Using the Solow model, if, in time t = 50, the capital stock is K50 = 150, investment is I50 = 15, and is the depreciation rate, capital accumulation from period 50 to 51 is:

ΔK51 = 15

What is the Solow change in capital stock equation?

ΔKt+1 = Kt+1 - KtThus, ΔKt+1 = (Kt + It - dKt) - KtΔKt+1 = It - dKt

Change in capital stock defined as:

δKt+1 = Kt+1 - Ktand thus (from the other slide in deez slides referring Goods invested for the future determine the accumulation of capital.)δKt+1 = It - (dbar x Kt)

The Romer model produces long-run growth, explain why this is so and how it differs from the solow model

∆At+1 = zbarAtLatDoes not have diminishing returns to ideas because labour and ideas are nonrivalrous and have increasing returns together which in turn means Returns to ideas are unrestricted.In the Solow model however, capital has diminishingreturns and Eventually, capital and income stop growing

If the real GDP growth is 6 percent per year, the money growth rate is 4 percent, and velocity isconstant, using the quantity theory, the inflation rate is:

−2 percent

According to the quantity theory of money, increases in the money supply and in real GDP will cause inflation.

falsePage 212-213. After solving the quantity theory of money model, we realize that increases in the money supply and decreases in real GDP will cause inflation.

Empirically, money is neutral in the short run as well as the long run.

falsePage 215-216. The neutrality of money fails in the short run, because nominal prices do not respond immediately to changes in the money supply.

Price differences over time are actually larger than the raw difference in prices between any two years, because inflation has eroded the value of the dollar over time.

falsePages 208-209. Because inflation has eroded the value of the dollar, price differences between a good purchased in 1950 and today are actually smaller than they seem after adjusting.

If MPK = r, the firm:

has the optimal amount of capital.

Define and explain the Fisher equation...

i = R + πWhere:i = nominal interest rate R = Real interest rateπ = inflation rateThe nominal interest rate is generally highwhen inflation is high

Given a discounted value equation, $386 = $1, 000/(1.1)10, this means you are...

indifferent between receiving $386 today and $1,000 in 10 years.

Suppose an economy exhibits a large unexpected increase in productivity growth that lasts for a decade; however, monetary policymakers are slow to recognize that the change is to potential-not current-output, and they interpret the increase in output as a boom that leads current to exceed potential output. In this scenario, policymakers believe that ______ pressures are building and incorrectly responded by _____ interest rates, sending the economy into a____ gap:

inflationary, raising, recessionary

The parameter(s) in the Romer model is/are the:

initial stock of ideas, the population, the fraction of population in the ideas sector, and the ideas efficiency parameter.

Both the United States and France, among the richest countries in the world, have similar levels of education and capital per worker, but U.S. citizens enjoy higher incomes than the French. One explanation might be differences in:

institutions.

In the Solow model, net investment is defined as:

investment - capital depreciation

In the Solow model, net investment is defined as:

investment minus capital depreciation.

In the Romer model, with decreasing returns to the knowledge sector, the number of researchers is...

irrelevant to long-term per capita income

In the Solow model, if capital is in the steady state, output:

is also in the steady state.

The level of consumption:

is largest when the economy is above its steady state.

The level of consumption:

is largest when the economy is above its steady state. Consumption is the difference between the amount produced and the amount invested. The amount invested depends on the investment rate and the production function, none of which depend on the depreciation rate. We can see from the figure that the difference between the output line and the investment line grows as capital increases.

Consider 2 economies. If each country has the same production function and the same amount of capital and labor, the country that ________ produces more.

is more productive

Consider two economies. If each country has the same production function and the same amount of capital and labor, the country that ________ produces more.

is more productive

When interpreting the solution to the Cobb-Douglas Production Function, what can be said about The equilibrium wage?

it is proportional to output per workerOutput per worker = (Y/L)

A government is more likely to utilize the inflation tax if

it is running a budget deficit.lenders worry that the government will not pay back its debts.politicians will not raise taxes, because they cannot be reelected if they do.Pages 221-222. The inflation tax is likely to be used as a last resort. If deficits are high and additional borrowing and taxing are impossible, the inflation tax will be used to raise revenue.

In the Romer model, if an economy's population increases:

output growth accelerates

In the equation Y=F(K,L)=Abar*K^1/3*L^2/3 , the "bar" over the A means that it is a:

parameter that is fixed and exogenous.

The Cobb-Douglas production describes how ________ can be combined to generate output.

particular amounts of capital and labor

By purchasing a fixed-rate 30-year mortgage, inflation risk is:

passed from the borrower to the lender

Nonrivalry in the knowledge sector means that:

per capita income depends on the total stock of ideas

If NGDP is nominal GDP and P is the price level, what can be used to calculate the growth of the real GDP?

percent change in NGDP − percent change in P

The inflation rate is calculated as the

percent change in the price level.

The Solow model of economic growth endogenizes...

physical capital.

In figure 5.1 at K1, net investment is _____ and the economy is ______

positive; will grow

Okun's Law

presents the relationship between cyclical unemployment and short-run output.u-u(bar)=-(1/2)Y(~bar)(t)first u represents current unemployment rate, second u represents the natural rate of unemployment and Y represents short-run output

Structural unemployment is the unemployment that results from...

prevailing labor market institutions.

Wage rigidity prevents...

prevents the labor market from realizing equilibrium.

The right to seignorage is the right to

print money.

According to the government's budget constraint, if the government spends more than it generates in taxes, itcan raise revenues by

printing money

The sources of Investment (I) include

private savings (S)foreign savings (M-X)government savings (T-G)*all of the answers.

In the Solow model, the ________ plays a ________ role than it does in the standard production function model.

productivity parameter; larger

Which of the following is an exogenous variable in the Solow model?

productivity, depreciation rate, the saving rate, initial capital stock

In the Solow model, the steady-state level of output per worker is a function of:

productivity, the depreciation rate, and the saving rate.

Which of the following is an exogenous variable in the Solow model?

productivity, the depreciation rate, the saving rate, the initial capital stock

In the United States, money is backed by

no physical commodity.

In the quantity equation, the value PtYt is:

nominal GDP

When comparing shares of consumption in GDP it is best to use ( ___ ) variables. When comparing real rates of economic growth it is best to use ( ___ ) variables.

nominal; chain-weighted

Keynesian economists believe that consumers have money illusion, that is

they act on changes in nominal variables instead of real variables.

What is the Cobb-Douglas Production Function?

Y = F(K,L) = A K^α*L^(1-α)

What are the five unknowns/endogenous variables in the production model?

Y, K, L, r, w

Which of the following production functions exhibits increasing returns to scale?

Y= K^1/2 * L^3/4

If the production function is given by Y=K^1/3 * L^2/3 and K = 27 and L = 8, total output equals:

Y=12

growth rate of knowledge

zlL

Solve for the change in the stock of knowledge in the Romer model.

zlL.

What is the idea production function in the Romer model?

ΔAt+1 = zAtLat

Using the Solow model, if, in time t = 0, the initial capital stock is K0 = 100, investment is I0 = 25, and .1 is the depreciation rate, capital accumulation from period 0 to period 1 is:

ΔK1 = 15.

True

(TRUE/FALSE) Recessions are worse when wages are sticky

False

(TRUE/FALSE) The job separation rate generally rises during recessions.

True

(TRUE/FALSE) Unemployment due to institutional frictions is called structural unemployment

False

(TRUE/FALSE) Unemployment generally rises during economic booms.

A Reduction in Labor Demandwith Wage Rigidity could be represented graphically like...

(but also imagine another demand curve above the one shown with the same gradient but intersecting the supply curve at Ls)

In the romer model, the growth rate of knowledge is given by:

(change in At+1 / At) = (zbar)(lbar)(Lbar)

referring to money aggregates as defined by the bank of England, what is M0 ?

+Currency + banks operational balances at the BoE+Banks' retail deposits+Building societies' shares and deposits+Other interest bearing bank deposits

What is the equation for demand = supply for labor in the production model?

L = Lbar

What is the allocation of labor in the Romer model?

Lat = lLbar

Using the labor market, we would see a decline in the supply of labor, which would increasewages/salaries for those workers still in the market, as the number of workers declined.

Leading up to the 2010 midterm elections, there was lively debate on whether the Bush tax cuts, enacted in 2003, should be allowed to expire for families with annual incomes over $250,000. What would be the impact of allowing income taxes on these families to rise on their incomes and the number of labor participants?

The Solow model of economic growth:

endogenizes physical capital

Output per capita and output per worker are

equal in the production model, but output per capita is smaller in general.

Formulate the Bathtub Model of Unemployment and explain how it is solved.

Set the change in unemployment to zeroSolve the equation for U

If MPL<w, the firm:

Should rent more capital until MPL = w

The firm's profit maximization problem is:

max pie + F(K, L) - rK - wL {K, L}

The firm's profit maximization problem is:

max π = F( K, L) − rK − wL{ K, L}.

Suppose that nominal GDP is $5,000 and the velocity of money is equal to 5. According to the quantity theory of money, what is the amount of money in circulation?

$1,000Page 218. Apply equation 8.1, where Mt is the unknown variable, Mt = 5, and PtYt = $5,000. Solving form Mt yields Mt = $1,000.

In 1979, in the face of rising competition in the fast food hamburger market, McDonald's reduced theprice of its cheeseburger to $0.43. If the CPI in 1979 was 37.2 and the CPI in 2005 was 100, what is the price of a 1979 cheeseburger in 2005 dollars?

$1.16

Suppose the government decides to spend $500 million on infrastructure improvement projects. Part of the financing will be from additional borrowing in the amount of $200 million. An increase in taxes will bring an extra $200 million. If the government decides to print new money to finance the rest, how much will the seignorage be?

$100 millionPage 221. Apply equation 8.7, where G = $500 million, T = $200 million, = ΔB = $200 million and is the unknown variable. Solving from yields = $100 million.

Suppose the government decides to spend $500 million on infrastructure improvement projects. Part of the financing will be from additional borrowing in the amount of $200 million. An increase in taxes will bring an extra $200 million. If the government decides to print new money to finance the rest, how much will the seignorage be?

$100 millionPage 228. Apply equation 8.7, where G = $500 million, T = $200 million, ΔB = $200 million, and ΔM is the unknown variable. Solving for ΔM yields ΔM = $100 million.

Suppose that nominal GDP is $5,000 and the velocity of money is equal to 5. According to the quantity theory of money, what is the amount of money in circulation?

$1000Page 211. Apply equation 8.1, where Mt is the unknown variable, Vt = 5, and PtYt = $5,000. Solving for Mt yields Mt = $1,000.

Suppose you put $100 dollars in the bank on January 1, 2013. If the annual nominal interest rate is 5percent and the inflation rate is 2 percent, you will be able to buy ________ worth of goods on January 1, 2014.

$103

Suppose you put $100 in the bank of January 1, 2017. If the annual nominal interest rate is 5% and the inflation rate is 2%, you will be able to buy ______ worth of goods on January 1, 2018, valued at 2017's prices

$103

If nominal GDP grew by 7% in year 2 relative to year 1, the price level increased by 2% during the same period and the real GDP in year 1 was $1,000, what was real GDP in year 2?

$1050 Real GDP = Nominal GDP / Price level, therefore% Change in Real GDP = %Change in Nominal GDP - % Change in Price level= 7% - 2% = 5%If real GDP in year 2 be Y, then(Y - $1,000) / $1,000 = 0.05Y - $1,000 = $50Y = $1,050

After graduating college, you start a job making $40,000. Your earnings grow at a constant growth rate of 3 percent per year. When you retire 40 years later, you are earning approximately:

$130,000 40000(1.03^40)

A construction company produces a $200,000 house using $50,000 worth of wood and steel in addition to $50,000 of labor hours. The value added by the construction company is

$150,000

A construction company produces a $200,000 house using $50,000 worth of wood and steel, in addition to $60,000 of labor hours. The value added by the construction company is?

$150,000

What was the United States Real GDP in Q2 2016?

$16.575 trillion.

What was the United States Nominal GDP in Q2 2016?

$18.43 trillion.

By how much does current GDP rise in the following scenario? A real estate agent sells a house for $500,000 that the previous owners had purchased 10 years earlier for $180,000. The real estate agent earns a commission of $20,000.

$20,000

Assume that Mexico's average annual per capita GDP growth rate is 3 percent per year, while Argentina's is 2.5 percent. Next, assume that both countries beganwith an initial per capita GDP of $1,000 in 1965. By 2015, per capita GDP would havebeen ________ in Mexico and ________ in Argentina

$4,384; $3,437

Which of the following lists the four steps we use to study macroeconomic behaviour in thecorrect order?

(1) document the facts;(2) develop a model; (3) compare the predictions of themodel to the original facts; and(4) use the model to make other predictions thatmay eventually be tested.

list the four steps we use to study macroeconomic behavior in the correct order?

(1) document the facts; (2) develop a model; (3) compare the predictions of the model to the original facts; and (4) use the model to make other predictions that may eventually be tested

If Pt is the price level in time, t, inflation is calculated as

(Pt+1-Pt )/Pt .

False

(TRUE/FALSE) An increase in labor market tightness is associated with an increase in theduration of unemployment, all else constant

Consider a simple economy producing 2 goods: coffee and TVs. In 2014 the economy produced 2000 pounds of coffee and 10 TVs. In 2015 the economy produced 1000 pounds of coffee and 12 TVs. The price of one TV was $1,000 in both years while the price of coffee decreased from $6/pound in 2014 to $5/pound in 2015. Based on this information the inflation rate is approximately:

-6.5 percentReal GDP 2014 using 2014 prices = 2,000x6 + 10x1,000=22,000Real GDP 2015 using 2014 prices = 1,000x6 + 12x1,000=18,000Percentage change = (18,000-22,000)/22,000= -18%Real GDP 2014 using 2015 prices = 2,000x5 + 10x1,000=20,000Real GDP 2015 using 2015 prices = 1,000x5 + 12x1,000=17,000Percentage change = (17,000-20,000)/20,000= -15%Percentage change in real GDP in chained prices benchmarked to 2015 is the average of the two growth rates = (-18 -15)/2 = - 16.5%Nominal GDP 2014 = 2,000x6 + 10x1,000=22,000Nominal GDP 2015 = 1,000x5 + 12x1,000=17,000Percentage change in nominal GDP = (17,000-22,000)/22,000 = -22.7%Percentage change in price level (inflation) = -22.7%+16.5%=-6.2%

Strengths of Solow Model

-provides good example of long term growth-solid model -widespread framework for most macroeconomic models -shows a clear mathematical pathway for a country to become wealthy and prosperous

Suppose India has a per capita GDP that is .074 times the United States GDP. It has a capital-per-person ratio that is .035 times that of the United States. Compared to the United States, the implied value of total factor productivity for India is approximately

.23

Suppose India has a per capita GDP that is .074 times the United States GDP. It has a capital-per-person ratio that is .035 times that of the United States. Compared to the United States, the implied value of total factor productivity for India is approximately?

.23

If the productivity parameter is assumed to equal 1, the production model

.a correctly identifies that countries are richer if they have more capital.b. incorrectly predicts that poor countries are substantially richer than they are.c. incorrectly predicts that some countries are richer than the United States.d. All of these choices are correct

You have just conducted a growth accounting exercise for one Eastern European country. Your results show that during the period 2002-2007 the growth rate of per capita GDP was 5.9% where the contribution of capital was 4% and the contribution of workers was 1.4%. What was the contribution of TFP?

0.5%Page 160; Table 6.2. We can decompose the growth rate of per capita GDP into the growth rate of TFP, the growth rate of capital, and the growth rate of workers. Therefore, in this example the contribution of TFP is equal to 5.9%-4%-1.4%=0.5%

One of the key characteristics of the Cobb-Douglas production function is . . .

Constant returns to scale.

What is the marginal product of capital (MPK) for the production function Y=AK1/2L1/2 ?

1/2 ak1/2 L1/2 Over K

According to figure 3.7, the fastest growing country during 1960-2014 had a level of per capita GDP approximately equal to _____of the U.S. level:

1/4

In 1994 your parents made an investment of $4,000. By 2015 the investment grew to $32,000. Assuming a constant rate of growth, what was the average annual growth rate of this investment?

10 percentThe data above are plotted using a ratio scale. Since this is a straight line we can conclude that the growth rate is constant. We see that the investment doubles every 7 years (i.e. for 1994 - 2001 the investment grew from $4,000 to $8,000; or use formula 3.9 to verify). Therefore, we can estimate the growth rate using the rule of 70: 70/7 = 10%

In 1994, your parents made an investment of $4,000. By 2015, the investment grew to $32,000. Based on the figure below, what was the average annual growth rate of this investment?

10%

A Romer economy starts off with an initial stock of ideas equal to 100. The total population in the economy is 60, two of the workers are employed in the research sector, and the productivity parameter of the research sector is equal to 0.01. The stock of ideas in period 10 is equal to:

100(1 + 0.01x2)^10FEEDBACK: Pages 148-149. The stock of ideas in period t is equal to At = Abar0(1+gbar)^t and gbar = zbarℓbarLbar, where zbar is the productivity parameter of the research sector (0.01), ℓbar is the fraction of the population that works in research, and Lbar is the total population in the economy.

A Romer economy starts off with an initial stock of ideas equal to 100. The total population in the economy is 60, two of the workers are employed in the research sector, and the productivity parameter of the research sector is equal to 0.01. The stock of ideas in period 10 is equal to:

100*(1+0.01*2)^10Pages 148-149

Using the quantity equation, if, Mtt = $1,000, Ptt = 1.1, and Ytt = 100,000, then the velocity of money is:

110

Using the quantity equation, if Mt=$1,000, Pt=1.1, and Yt=100,000, then the velocity of money is

110.

in a production model where the production function is Y=AK1/3L2/3 the equilibrium wage rate is equal to 30/27, labor supply is 27 workers and the productivity parameter is equal to 1. what is the equilibrium level of capital?

125The equilibrium wage rate is given by and is equal to in this case. We know that in equilibrium, quantity of labor supplied is equal to the quantity of labor demanded, so L* = 27. Set the equilibrium wage rate equal to the analytical solution for w* in Table 4.2 and solve for K;K = 125

With an average annual growth rate of 5 percent per year, per capita income will increase by what factor over a century?

126

If Y=A(K^1/3)(L^2/3) and A grows at a rate of 1 percent per year, K grows at a rate of -3 percent per year, and L grows at a rate of 3 percent per year, then the growth rate of Y is?

2%

What is the average annual growth rate in the United States?

2% per year.

According to the International Monetary Fund, income per capita in Bhutan in 2015 was Int$8,201 while income per capita in Chad in the same year was Int$1,214. If Bhutan's investment rate is 40% and Chad's investment rate is 10%, what is the productivity A(Bhutan)/A(Chad)? Round to the nearest tenth. Assume both countries are in their steady states.

2.3

According to the International Monetary Fund, income per capita in Bhutan in 2015 was Int$8,201 while income per capita in Chad in the same year was Int$1,214. If Bhutan's investment rate is 40% and Chad's investment rate is 10%, what is the productivity ratio ? Round to the nearest tenth. Assume both countries are in their steady states.

2.3

According to the International Monetary Fund, income per capita in Bhutan in 2015 was Int$8,201 while income per capita in Chad in the same year was Int$1,214. If Bhutan's investment rate is 40% and Chad's investment rate is 10%, what is the productivity ratio mc012-1.jpg? Round to the nearest tenth. Assume both countries are in their steady states.

2.3

The era of modern economic growth began about:

250 years ago

Assume a production function is given by Y=AK^1/3L^2/3. If A=L=1, the depreciation rate is d=0.05, and the saving rate is s=0.1 the steady-state level of capital is about:

2.8.

In the Cobb-Douglas production function Y=(K^1/3)(L^2/3), Labor's share of GDP is

2/3, regardless of how much labor there is

If per capita GDP in 2015 was $1,000 and in 2016 was $1,200, the growth rate of per capita GDP was:

20 percent

If per capita GDP in 2015 was $1,000 and in 2016 was $1,200, the growth rate of per capita GDP was:

20 percent1000-1200=200200/1000=20 percent

If the population of Romania was about 22 million in 2010 and the average population growth rate is 0.2 percent, then Romania's "initial" population was about ________ million in 1970.

20.3

If the population of Romania was about 20.3 million in 1970 and the average population growth rate is 0.2 percent, then Romania's population would have been about ________ million in 2010.

22.0

If the population of Romania was about 20.3 million in 1970 and the average population growth rate is 0.2 percent, then Romania's population would have been about ________ million in 2010.

22.020.3(1.002)^40=22.0

consider a perfectly competitive economy with a production function Y=AK 1/3 L2/3. There are 27 workers who produce cream cheese (a numeraire good) with 125 units of capital. If the productivity parameter is equal to 1 and the economy produces 40 tons of cream cheese in equilibrium, what is the sum of the total payments to capital and labor?

40 tons of cream cheeseSince the numéraire good is cream cheese, all prices are expressed in tons of cream cheese. Total payments to capital and labor (w*L + r*K) are also expressed in tons of cream cheese. In equilibrium the sum of payments to capital and labor is equal to total production.

Consider an economy characterized by the production function Y= AK 1/2L1/2 where the productivity parameter is equal to 1.2. How many units of output can be produced with 25 units of capital and 64 workers?

48A production function is a mathematical representation of the relationship between inputs and output, i.e. how much output can be produced with any input combination. Replacing , K = 25, and L = 64 yields Y = 48.

In the Solow model, there are 5 equations and 5 unknowns.Tell me what these are?

5 unknowns: Y K L C I5 equations:Production functionCapital accumulation Labour forceResource constraint Allocation of resources

A Romer economy starts off with an initial stock of ideas equal to 100. The growth rate of ideas is 5% and the share of the population engaged in research is 5%. What is the growth rate of output per capita? Round to the nearest decimal.

5%FEEDBACK: Pages 149-150; Figure 6.2. Output per capita grows at a constant rate. Therefore, we can calculate the level of income per capita in any two periods and find the corresponding growth rate. For example, y1 = 100x(1 - 0.05)x(1 +0.05) = 99.8 and y2 = 100x(1 - 0.05)x(1 + 0.05)^2 = 104.7. The growth rate of per capita output in period 2 is then (104.7-99.8)/99.8=5%.

A Romer economy starts off with an initial stock of ideas equal to 100. The growth rate of ideas is 5% and the share of the population engaged in research is 5%. What is the growth rate of output per capita? Round to the nearest decimal.

5%Pages 149-150; Figure 6.2. Output per capita grows at a constant rate. Therefore, we can calculate the level of income per capita in any two periods and find the corresponding growth rate. For example, y1= 100*(1-0.05)*(1+0.05)= 99.8, and y2= 100*(1-0.05)*(1+0.05)^2= 104.7. The growth rate of per capita output in period 2 is then (104.7-99.8)/99.8=5%.

Suppose the parameters of the Romer model take the following values: Abar0 = 100, ℓbar = 0.05, zbar = 1/100, and Lbar = 1,000. What is the growth rate of this country's economy?

50 percent

You are the head of the central bank and you want to maintain 2 percent long-run inflation, using the quantity theory of money. If the real GDP growth is 4 percent and velocity is constant, you suggest a

6 percent money supply growth.

Suppose x grows at a rate of gx 3 percent and y grows at a rate of gy 3 percent. If z x y, then z grows at ________ percent; if z x/y, z grows at ________ percent

6;0

In the year 2014 the five richest countries had a per capita GDP ________ times higher than the five poorest countries. Differences in capital per worker explain about ________ percent of this difference, with total factor productivity making up about ________ percent of this difference

70; 5; 14

Assume a production function is given by Y=AK^1/3L^2/3. If and L=1, the depreciation rate is d=0.05, and the saving rate is s=0.1, the steady-state level of capital is about:

8.0

The price controls imposed by the Nixon administration lasted for

90 days.

10. The National Income and Product Accounts provides a system for:a. aggregating the production of all goods and services into a single measure of economic activityb. aggregating the production of all goods into a single measure of economic activityc. aggregating the production of all services into a single measure of economic activityd. aggregating the production of most goods and services into a single measure of economic activitye. aggregating the production of all goods and services into two measures of economic activity

A

11. The difference between economic profits and normal profits is that:a. normal profits are earnings based on the normal competitive return to one's own labor; economic profits are the above-normal returns associated with prices that exceed competitive pricesb. economic profits are earnings based on the normal competitive return to one's own labor; normal profits are the above-normal returns associated with prices that exceed competitive pricesc. normal profits are earnings based on the normal competitive return to one's own labor; economic profits are the above-normal returns associated with prices that exceed monopolistic pricesd. economic profits are earnings based on the noncompetitive return to one's own labor; normal profits are the above-normal returns associated with prices that exceed competitive pricese. None of these answers are correct.

A

12. Goods that are produced in a different year than they are sold are called:a. inventory d. a lossb. output adjustment e. net national productc. capital depreciation

A

17. Using the expenditure approach, consumption expenditures include household purchases of:a. durable and nondurable goods and servicesb. durable and nondurable goodsc. durable and nondurable goods and taxesd. durable and nondurable goods and residencese. nondurable goods

A

2. Which of the following does macroeconomics endeavor to answer?i. What role does the government play in recessions and booms and in determining the rate of inflation?ii. What causes an increase in the price of Exxon stock?iii. How does a dairy farmer react to rising milk prices?a. i only d. i, ii, and iiib. ii only e. ii and iiic. iii only

A

Regarding the solow growth model, output can be understood as...

A function of consumption and investment called a "resource constraint"C + I = Y(here it is assumed there are no exports or imports)

Economic growth can be useful in describing why:a. Europeans are better off in 2007 than they were in 1907 and why Europeans are better off than Thaisb. Europeans are better off in 2007 than they were in 1907 and why Europeans are worse off than Thaisc. Europeans are better off in 2007 than they were in 1907d. Europeans are worse off than Thaise. Europeans are worse off in 2007 than they were in 1907 and why Europeans are better off than Thais

A

Economic growth is defined as:a. the percent change in per capita income, or GDPb. the percent change in prices, or GDPc. the decline in the unemployment rated. the difference between the nominal and real GDPe. changes in technology

A

English philosopher Thomas Hobbes is notable for observing that life was ________ for thousands of years.a. nasty, brutish, and short d. halcyon, fulsome, but shortb. just like the legend of King Arthur e. comfortable and prosperousc. great, if you were a king

A

In the Cobb-Douglas production function Y = K^(a)L^(1−a), if a = 1/4, then:A Capital's share of GDP is one-fourthB Labor's share of GDP is halfC Capital's share of GDP is three-fourthsD Labor's share of income is one-fourthE Capital's share of GDP is four

A Capital's share of GDP is one-fourth

Table 4.1: Production Model's Prediction for Per Capita GDP (US = 1)Consider Table 4.1, which compares the model to actual statistical data on per capita GDP. You observe the model:A Consistently underestimates the level of per capita GDPB Consistently overestimates the level of per capita GDPC Does a really good job of estimating the level of per capita GDPD Clearly contains all factors that affect per capita GDP

A Consistently underestimates the level of per capita GDP

The influences of institutions on economic performance can be easily contrasted using:A North and South KoreaB France and GermanyC Iowa and IllinoisD Uzbekistan and the U.K.E Earth and Mars

A North and South Korea

What is a ratio scale?

A Plot where equally spaced tick marks on thevertical axis are labeled consecutively withnumbers that exhibit a constant ratioWhen plotted on a ratio scale, a variable thatgrows at a constant rate will be a straight line

d. the labor supply curve shifting right.

A decrease in the income tax will result in:a. the labor demand curve shifting right.b. the labor demand curve shifting left.c. the labor supply curve shifting left and the labor demand curve shifting right.d. the labor supply curve shifting right.e. neither the labor supply nor the demand curve shifting.

The quantity theory of money says that a doubling of the growth rate in the money supply will, in the long run, lead to

A doubling of inflation

In perfect competition the allocation of resources is pareto efficient, but under increasing returns to scale, this poses a problem due to the fact that...

A firm faces initial fixed costs and marginal costs. If P = MC, no firm will do research to invent ideas.This means that The fixed research costs will never be recovered.

Which of the following is an example of cyclical unemployment?

A worker loses her job because the economy begins to enter a recessionPage 189. Cyclical unemployment is the short-run fluctuation that occurs as a result of booms and recessions.

What are the five parameters in the Solow model?

A, s, d, L, K0

The difference between economic profits and normal profits is that:

A. Normal profits are earnings based on the normal competitive return to one's own labor; economic profits are the above-normal returns associated with prices that exceed competitive prices

You are an economist working for the International Monetary Fund. Yourboss wants to know what the total factor productivity of China is, but all you have is dataon per capita GDP, y, and the per capita capital stock, k. If you assume that capital's shareof GDP is one-third, what would you use to find total factor productivity?

Abar = y/(k^(1/3))

What are the parameters in the production model?

Abar, Kbar, Lbar

A

According to ________, there exists a negative relationship between cyclical unemployment and the GDP gap.A Okun's Law B sticky wages C Law of Supply D the Phillips Curve

c. complete separation of the nominal and real sides of the economy.

According to the classical dichotomy, in the long run there is:a. accelerating economic growth.b. perfect connectivity between the nominal and real sides of the economy.c. complete separation of the nominal and real sides of the economy.d. no growth after the economy reaches the steady state.e. zero inflation

c. determined by the ratio of the effective quantity of money to the volume of goods.

According to the quantity theory of money, the price level is:a. exogenous.b. determined by the money supply only.c. determined by the ratio of the effective quantity of money to the volume of goods.d. indeterminate in the long run.e. determined by the volume of goods produced.

Name 2 differences between the Solow model andproduction model:

Added dynamics of capital accumulationOmit capital and labour markets and their prices

The National Income and Product Accounts provides a system for:

Aggregating the production of most goods and services into a single measure economic activity.

If the productivity parameter is assumed to equal 1, the production model:a) correctly identifies that countries are richer if they have more capital.b) incorrectly predicts that poor countries are substantially richer than they are.c) correctly predicts that some countries are richer than the United States.d) All of these choices are correct.

All choices are correct.

Output per person is higher when: A. a country is more efficient in adopting technology.B. a country has a higher capital-to-population ratio.C. a country has stronger property rights & contract enforcement.D. All choices are correct.

All choices are correct.

Which of the following is/are essential for economic development?

All of the above are essential

Which of the following can be used to give firms incentive to innovate?

All of these answers are correct.

Which of the following is an exogenous variable in the Solow model?productivitythe depreciation ratethe saving ratethe initial capital stockAll of these answers are correct.

All of these answers are correct.

In the Solow model, the saving rate is an endogenous variable.

False

What is an explanation for why an economy eventually settles in steady state?The production function exhibits diminishing returns to capital.The capital stock depreciates at a constant rate.Eventually, investment generated is equal to the amount of capital depreciated.All of these choices are correct.

All of these choices are correct.

Profits are not the only way to encourageinnovation. Give 3 other examples

Altruistic generosityDesire to signal skills"Purpose motives"

a

Amy is working part-time. Tavaris is on temporary layoff. Who is included in the Bureau of Labor Statistics' "employed" category?a. only Amyb. only Tavarisc. both Amy and Tavarisd. neither Amy nor Tavaris

b. long-term growth does not continue.

An implication of the Solow model is that once an economy reaches the steady state:a. long-term growth continuesindefinitely.b. long-term growth does not continue.c. long-term growth accelerates.d. long-term growth decelerates.e. None of these answers is correct.

a. the saving rate; the depreciation rate

An increase in _____ leads to a higher steady-state level of output, and an increase in _____ leads to a lower steady-state level of output.a. the saving rate; the depreciation rate b. the saving rate; productivityc. productivity; the initial capitalstockd. the depreciation rate; the laborstock e. None of these answers is correct.

a. productivity; saving rate

An increase in ________ leads to a higher steady-state level of output per worker, and a decline in the ________ leads to a lower steady-state level of output per worker.a. productivity; saving rate b. the saving rate; initial capital stockc. the saving rate; depreciation rated. the initial capital stock; savings ratee. None of these answers is correct.

b. the labor demand curve shifting left.

An increase in labor regulations results in:a. the supply curve shifting left.b. the labor demand curve shifting left.c. the labor supply curve shifting left and the labor demand curve shifting right.d. the labor demand curve shifting right.e. neither the labor supply nor the demand curve shifting.

B

An increase in the unemployment rate is always a sign that the economy is performing worse.A True B False

Name 3 demographics who are hurt during inflation...

An individual who has a pension that is not indexed to inflation A bank that issues loans at fixed rates but that paysinterest rates that move with the marketAn individual with a variable rate mortgage

Wages in ancient Greece and Rome were approximately equal to wages in seventeenth-century France.

Answers:a. Job loss in certain sectorsb. Increased income inequalityc. Global warmingd. All of these choices are correct.(correct)

What is the principle of transition dynamics?

Any time an economy is away from the steady-state capital-labor ratio, forces will naturally return the economy to the steady state. The farther it gets, the faster it bounces back.

e. 0.70

As an economist working at the International Monetary Fund, you are given the following data for Italy: observed per capita GDP, relative to the United States, is 0.69; predicted per capita GDP (also relative to the US), given by y = k 1/3, is 0.98. What is total factorproductivity of Italy relative to the US?a. 0.75 d. 0.81b. 0.68 e. 0.70c. 0.99

In the US, decisions about monetary policy are conducted by the Federal Reserve, which is likely to lower income taxes.

False

c. 0.0556

As an economist working at the international Monetary Fund, you are given the following datafor Burundi: observed per capita GDP, relative to the United States, is 0.01; predicted per capita GDP, given by y = k ^(1/3), is 0.18. What is total factor productivity?a. 0.44 d. 0.00b. 0.98 e. 18.00c. 0.0556

more; flatter

As markets become less competitive, prices become ____ (more/less) sticky, and the Phillips Curve becomes _______ (steeper/flatter).

Explain what happens to capital stock with a decrease in the investment rate.

As the capital stock drops, the gap between the high level of depreciation and the lower level of savings will also drop.

Solve for At in the Romer model.

At = A0(1 + g)^t

Show algebraically that The stock of knowledge depends on its initial value and its growth rate

At = Abar₀(1+gbar)^t

The production function, Yt = A Kt^1/3 Lt^1/3 where At is the stock of ideas, Kt is capital, and Lt is labor, assumes:

At is nonrivalrous.

In 2015, The Avengers: Age of Ultron generated about $191.2 million on its opening weekend. In 2007,Spider Man 3 generated $151.1 million on its opening weekend. If the CPI in 2000 was 100, the CPI in 2007was 113.4, and the CPI in 2015 was 137.6, ________ is the larger single-day grossing movie, with about________ million in revenues in 2000 dollars.

Avengers; $138.9

In 2015, The Avengers: Age of Ultron generated about $191.2 million on its opening weekend. In 2007, Spider Man 3 generated $151.1 million on its opening weekend. If the CPI in 2000 was 100, the CPI in 2007 was 113.4, and the CPI in 2015 was 137.6, ________is the larger single-day grossing movie, with about ________ million in revenues in 2000 dollars.

Avengers; $138.9

1. Which of the following does macroeconomics endeavor to answer?i. Why is the typical person in the United States today more than ten times richer than the typical person a century ago?ii. Why has the unemployment rate been nearly twice as high in Europe as in the United States in recent years?iii. What determines the rate of inflation? What determines how rapidly the overall price level in an economy increases?a. i only d. i and iib. i, ii, and iii e. ii and iiic. ii only

B

13. The statistic used by economists to measure the value of economic output is:a. the unemployment rate d. the GDP deflatorb. GDP e. the federal funds ratec. the CPI

B

19. The president of the World Bank has asked you to calculate the average population growth rate of Hungary from 1970 to 2010. You know the population in 1970 was about 10.4 million and in 2010 about 9.5 million. The average growth rate is about:a. 0.2 percent d. 2.7 percentb. -0.2 percent e. -200 percentc. 98.4 percent

B

20. Real GDP is the ________ of all goods and services produced in a period of time using ________ prices.a. summation; current d. value; 1945b. value; base year e. summation; base yearc. value; 1970

B

20. Suppose that in 1960 Japan had an initial per capita GDP of $12,000 per year and China had a per capita GDP of $5,000. But China is growing at 5 percent per year and Japan is growing at 3 percent per year. ________ is richer in 2010 with a per capita GDP of approximately ________.a. Japan; $5,000 d. China; $73,500b. Japan; $31,500 e. Not enough information is given.c. China; $7,500

B

21. If the percent change in the price level is ________ than the percent change in ________, ________.a. smaller; nominal GDP; real GDP shrinksb. greater; nominal GDP; real GDP shrinksc. greater; real GDP; nominal GDP shrinksd. greater; real GDP; nominal GDP always stays the samee. Not enough information is given.

B

22. In 1960, approximately ________ of the world's population lived on less than $5 per day, and the rate has ________ steadily since.a. 10 percent; fallen d. one-third; fallenb. two-thirds; fallen e. two-thirds; risenc. 10 percent; risen

B

25. To get a more accurate view of the size of countries' economies, we first need to convert each country's GDP to the dollar using ________ and then adjust for ________.a. the interest rate; the exchange rateb. the exchange rate; price level differencesc. price level differences; the interest rated. the exchange rate; fiscal policye. fiscal policy; the exchange rate

B

4. Which of the following questions should a successful model predict?i. How do changes in government policies change the labor market?ii. How does money supply influence inflation?iii. How does investment affect economic growth?a. ii only d. i and iib. i, ii, and iii e. i and iiic. iii only

B

9. Which measure of overall economic activity was not available in the 1930s?a. Stock prices d. Steel productionb. GDP e. Gold pricesc. Industrial production

B

Output per capita and output per worker areA Always equalB Equal in the production model, but output per capita is smaller in generalC Equal in general, but output per capita is smaller in the production modelD Not equal, because output per capita is always greater

B Equal in the production model, but output per capita is smaller in general

Which measure of overall economic activity was not available in the 1930s?

B. GDP

Macroeconomics is the study of ____ while microeconomics is the study of ______.

B. The overall performance of an economy ; an individual market

Which of the following does macroeconomics endeavor to answer?i. Why is the typical person in the United States today more than ten times richer than the typical person a century ago? ii. Why has the unemployment rate been nearly twice as high in Europe as in the United States in recent years?iii. What determines the rate of inflation? What determines how rapidly the overall price level in an economy increases?

B. i, ii, and iii

In the combined Solow-Romer model, why is long-run growth sustained?

Because of the nonrivalry of ideas.

d. 1.077

Between 1970 and 1976, Israel's average inflation rate was about 65 percent per year. With that rateof inflation, prices would double about every years, using the rule of 70.a. 93 d. 1.077b. 107.7 e. 9.3c. 0.95

The United States and Chile have both grown at about 2 percent per year for the last 40 years. By the principle of transition dynamics, what does this imply?

Both countries are at their steady states.

24. Suppose x grows at a rate g=5 percent and y grows at a rate g=12 percent. If z = y ´ x, then z grows at ________; if z = x/y, z grows at ________.a. 7 percent; -17 percent d. 60 percent; 42 percentb. -17 percent; 7 percent e. 60 percent; -42 percentc. 17 percent; -7 percent

C

5. Which of the following questions should a successful model predict?i. How do changes in government policies change the labor market?ii. How does money supply influence inflation?iii. What is the relationship between inflation and unemployment?a. iii only d. i and iib. ii only e. i and iiic. i, ii, and iii

C

8. When we look at the ________ we are concerned with ________.a. long run; money supplyb. long run; causes of economic fluctuationsc. long run; causes of economic growthd. long run; causes of inflatione. long run; unemployment

C

Assume that both Japan's and the United States' average annual per capita GDP growth rates are 2 percent per year, and both countries began with an initial per capita GDP of $1,000. However, the United States has been growing since 1910 and Japan only since 1960. In 2010, the United States would have been ________ than Japan.a. 0.37 times poorer d. 4,555 times richerb. 99 times richer e. 0.269 times poorerc. 2.69 times richer

C

If per capita GDP in 2014 was $1,000 and in 2015 was $1,200, the growth rate of per capita GDP was:a. 1.2 percent d. 120 percentb. about 17 percent e. Not enough information is given.c. 20 percent

C

If the 130,000-year period since anatomically modern humans made their first appearance were compressed into a single day, economic growth would have begun in the last ________.a. three hours d. half hourb. hour e. two hoursc. three minutes

C

The birthplace of modern economic growth was in ________ during the ________ century.a. Japan; mid-twentieth d. China; late twentiethb. the United States; mid-nineteenth e. Germany; early nineteenthc. the United Kingdom; mid-eighteenth

C

Until about 12,000 years ago, humans were ________; at that point ________ led to the first towns and true economic development.a. farmers; the Bronze Ageb. hunters and gatherers; the Iron Agec. hunters and gatherers; agricultured. hunters and gatherers; universitiese. farmers; industry

C

To recap, in the Solow Model, what is the Resource constraint

C + I = Y

As an economist working at the International Monetary Fund, you are given the following data forBrazil: predicted per capita GDP, relative to the United States, as given by y = k^(1/3), is 0.56, and totalfactor productivity is 0.36. What is the observed per capita GDP, relative to the United States?A 0.92B 1.57C 0.20D 0.56E 0.81

C 0.20

One explanation for the difference between the predicted output per person and the observed per capita GDP in Table 4.1 is differences in:A Per capita capitalB The labor supplyC Factor productivityD Labor's share of GDPE None of these answers are correct

C Factor productivity

The marginal product of the labor curve represents:A The demand for wagesB The supply of laborC The demand for laborD The demand for capitalE The supply of wages

C The demand for labor

If the production function is given by Y = K^( 1/3)L^(2/3) and K = 27 and L = 8, total output equals:A Y = 1B Y = 18C Y = 12D Y = 8

C Y = 12

When we look at the ____, we are concerned with the _____.

C. Long run; causes of economic growth

Nonrivalry means that ideas created

Can benefit virtually all economies across the world

In the Romer model, if Canada and Taiwan have the same fraction of researchers and the same knowledge efficiency parameter but Canada's population is larger,then...

Canada has a higher per capita output growth rate.

In the Romer model, if Canada and Taiwan have the same fraction of researchers and the same knowledge efficiency parameter but Canada's population is larger, then:

Canada has a higher per capita output growth rate.

Which country or countries do the following characteristics possibly describe?- Life expectancy at birth is under 50 years.- More than 90% of households do not have electricity.- Fewer than 10% of young adults have graduated from high school.

Canada in the late 1800s

A central lesson of the Solow model is a bit of a surprise:

Capital accumulation cannot serve as the engine of long-run per capita economicgrowth.

A central lesson of the Solow model is that . . .

Capital accumulation cannot serve as the engine of long-run per capita economic growth.

What is the mechanism in the Solow model that generates growth?

Capital accumulation.

What can we double in the production function to get constant returns?

Capital and labor.

In the combined Solow and Romer model, which of the following is FALSE?

Capital is the engine of economic growth of output per personPage 166. Capital amplifies long-run economic growth, but it alone cannot generate sustained long-run growth in output per person.

Countries with high investment rates have high . . .

Capital-output ratios (K/Y).

What are we concerned with when we look at the short run?

Causes of economic fluctuations.

What are we concerned with when we look at the long run?

Causes of economic growth.

If the current capital stock in South Korea is greater than the current capital stock in China, but their level of TFP is the same, then according to the principle of transition dynamics:

China initially will grow faster than South Korea, but each will have the same steady state

Suppose that in 1960 Japan had an initial per capita GDP of $12,000 per year and China had a per capita GDP of $5,000.But China is growing at 5 percent per year and Japan is growing at 3 percent per year. ________ is richer in 2010 with a per capita GDP of approximately ________.

China; $5,000

Suppose that in 1965 Japan had an initial per capita GDP of $12,000 per yearand China had a per capita GDP of $5,000. But China is growing at 5 percent per year andJapan is growing at 3 percent per year. ________ would have been richer in 2015 with aper capita GDP of approximately ________.

China; $57,337

The equation Y=K^a * L^1-a is called the ________ function.

Cobb-Douglas production

Solving the Solow Model

Combine the investment allocation andcapital accumulation equationSubstitute the fixed amount of labor into theproduction functionIf the amount of investment > depreciation- capital stock will increase until intersection-- Here, the change in capital is equal to 0.-- The capital stock will stay at this value of capital forever.-- This is called the steady state.If depreciation is greater than investment- the economy converges to the same steady state as above.

Silver, gold, and chocolate are examples of:

Commodity money

According to the classical dichotomy, in the long run there is:

Complete separation of the nominal and real sides of the economy

Explain The production function of the Romer model and it's returns to scale

Constant returns to scale in objects aloneWith Increasing returns to scale in objects and ideas

A

Conventional wisdom is that most of the natural rate of unemployment is due to(a) frictional unemployment(b) bad fiscal policy (c) cyclical unemployment(d) structural unemployment(e) bad monetary policy

relating to The Empirical Fit of theProduction Function, Diminishing returns to capital implies that...

Countries with low K will have a high MPKCountries with a lot of K will have a low MPK, andcannot raise GDP per capita by much throughmore capital accumulation

Consider two countries, labeled 1 and 2. Each has the production function , Yi = AbarKbar^ 1/3L^2/3i = 1, 2. If the only difference between the two countries is that A1 > A2 then...

Country 1 will produce more than Country 2, ceteris paribus

What is the Solow resource constraint?

Ct + It = Yt

In the Solow model, defining (s) as the saving rate, Yt as output, and (It) as investment, consumption is given by:

Ct = (1 - s)Yt

consumption defined when referring to the solow growth model is...

Ct = (1-sbar)Ytsbar = fraction of total output invested

Solve the Solow model for the steady state level of consumption.

Ct* = (1 - s)Yt*

What is Mb?

Currency and reserves, which are directly under the control of the Central Bank.

What is included in M1?

Currency, Demand Deposits, Travelers Checks

In the last 300 years, the standards of living in the richest and poorest countries have converged. True or False

False

b

Cyclical unemployment refers to: a. the portion of unemployment created by job search.b. short-run fluctuations around the natural rate of unemployment.c. changes in unemployment due to changes in the natural rate of unemployment.d. the portion of unemployment created by wages set above the equilibrium level.

19. Nominal GDP is the ________ of all goods and services produced in a period of time using ________ prices.a. value; 1945 d. value; currentb. summation; current e. summation; base yearc. value; a previous year's

D

28. Despite the costs associated with economic growth, most believe:a. they will get only higher d. the benefits far outweigh the costsb. there are not too many benefits e. the benefits are negativec. they are higher than the benefits

D

3. ________ variables are parameters to the model and generally are fixed over time, while ________ variables are the outcome of the model.a. Shocks; parameters d. Exogenous; endogenousb. Endogenous; exogenous e. Parameters; systemc. Endogenous; shocks

D

6. Actual GDP is ________ to potential GDP.a. rarely not equal d. rarely equalb. always equal e. Not enough information is given.c. always not equal

D

According to historical data, the wages in ancient Greece and Rome were ________ in sixteenth-century Britain or eighteenth-century France. a. somewhat lower than d. about the same asb. a lot higher than e. None of these answers are correct.c. a lot lower than

D

Developed countries' average incomes rose from about ________ in 1700 to about ________ today.a. $1,000; $30,000 d. $500; $45,000b. $2,500; $50,000 e. $500; $100,000c. $500; $70,000

D

The production function Y = K^(1/3)L^(2/3) describes:A) How any amount of capital and labor can be combined to generate outputB) How particular amounts of capital and labor can be combined to generate outputC) How any amount of capital and a particular amount of labor can be combined to generate outputD How any amount of labor and a particular amount of capital can be combined to generate output

D

_____ variables are parameters to the model and generally are fixed over time, while _____ variables are the outcome of the model.

D. Exogenous, endogenous

Who led the team that created the original National Income and Product Accounts in the 1930s?

D. Simon Kuznets

Which of the following people benefits from a surprise increase in inflation?A.A person receiving a fixed pensionB.A lender of large amounts of money who is repaid on a fixed scheduleC.A person with a variable rate mortgageD..A person who borrowed large amounts of money on a fixed payment schedule

D.A person who borrowed large amounts of money on a fixed payment schedule

The growth rate of per capita GDP in the Romer model depends on the number of workers engaged in research. However, the country of Luxemburg, which has far fewer researchers than the U.S., grows at a rate faster than the U.S. and has a higher per capita GDP. How can the Romer model explain this difference in growth rates?

Due to the nonrivalry of ideas, the economy of Luxemburg grows because the model is based on ideas created throughout the world not just within that country.Pages 151-152. All countries benefit from all the ideas created in the world not just those created within their own borders because of the existence of international trade, multinational corporations, licensing agreements, international patent filings, the open flow of information, and migration.

decline; declines

During recessions, the job finding rate tends to _________ (rise/decline), while the job separation rate _________ (rise/declines).

24. Suppose we calculate the percent change in real GDP from year 1 to year 2 using both the Laspeyres and the Paasche indices. With the Laspeyres index we get 12 percent and with the Paasche index we get 9 percent. The chain-weighted growth of real GDP is:a. 1.5 percent d. 9.5 percentb. 9.75 percent e. 10.5 percentc. 1.33 percent

E

According to the rule of 70, if an economy averages a 4 percent growth rate, it will take about ________ years to double in size.a. 2.8 d. 5.7b. 1,750 e. 17.5c. 0.06

E

The era of modern economic growth began about:a. the time of the Egyptian pharaohs d. the time of the Renaissanceb. 500 years ago e. 300 years agoc. the time of Caesar

E

The law of diminishing marginal product to capital means that as we add additional units of capital:A And labor, output will increase but at a constant rateB And labor, output will increase but at a decreasing rateC But hold labor constant, output will increase but at an increasing rateD But hold labor constant, output will increase but at a constant rateE But hold labor constant, output will increase but at a decreasing rate

E But hold labor constant, output will increase but at a decreasing rate

In 2012, government expenditures accounted for about ___ of total GDP.

E. 20 percent

The National Income and Product Accounts identity states:

E. Production = Expenditure = Income

According to the expenditure approach, if Y is GDP, C is consumption, I is investment, G is government purchases, and NX is net exports, the national income identity can be written as:

E. Y = C + I + G + NX

Explain 3 costs of economic growth

Environmental problemsIncome inequality across and within countriesLoss of certain types of jobs

What are the costs of economic growth?

Environmental problems, income inequality across and within countries, loss of certain types of jobs.

Suppose oil prices increase. Which of the following is true?

Equilibrium wages are lowerEmployment is lowerPage 186-187. An increase in oil prices will cause a negative shock to labor demand because the firm will allocate less money to labor. Thus, employment and wages will both decrease.

One explanation for the difference between the predicted output per person and the observed per capita GDP in Table 4.1 is the differences in:

Factor productivity

All else equal, a higher rate of depreciation, increases the capital stock.

False

If a variable is growing at a positive constant rate, when plotted on a ratio scale, the slope of the plot will be becoming steeper over time.

False

If an economy has a higher investment rate and a higher depreciation rate, the economy will have a higher level of output.

False

If the marginal product of capital is less than the rental rate of capital, the firm should rent more capital.

False

If the production function is given by Y = K^1/3 x L^2/3, then labor's share of GDP is one-third.TrueFalse

False

If an economy has a higher investment rate and a higher depreciation rate, the economy will have a higher level of output.

FalseImagine an economy with a given rate of depreciation and investment. An economy with higher rates will have depreciation and investment curves that are both higher in the Solow diagram. Whether the steady state is higher or lower depends on the magnitudes of the parameters. Thus, we cannot determine the output definitively—it may be higher, lower, or the same.

The Solow model is a static model and thus can only tell us the levels of our endogenous variables in steady state.

FalseThe Solow model is a dynamic model. Although we can only mathematically solve for the endogenous variables in steady state, they are subscripted by time because the model holds at all points in time.

The investment rate in a particular economy is a function of the amount of output (income) an economy generates each year. T/F

FalseAlthough rich and poor countries often have different investment rates, the investment rate is an exogenously given parameter in the Solow model. Unless shocked, it does not change over time.

Patents are unambiguously beneficial to society because they create profits for firms, which generate incentives to produce new ideas

FalsePage 144. Patents also distort the economy by generating welfare loss

During the era of the new economy, growth accounting shows that the increase in growth during the era is accounted for in roughly equal parts by capital and TFP growth.

FalsePage 161. Capital and TFP growth were both important to the new economy. New inventions related to computer technology and purchasing new computers were both important.

The natural rate of unemployment can be reduced to zero percent

FalsePage 189. The natural rate of unemployment includes frictional and structural unemployment. Even if structural unemployment is eliminated, frictional unemployment will remain because it stems from workers changing jobs in a dynamic economy.

Increasing wages beyond the wage rate needed to retain a worker will definitely decrease a firm's profit.

FalsePage 193. The theory of efficiency wages implies that a firm may increase profit by raising wages. One reason for this is that the firm will attract workers that are more able.

According to the quantity theory of money, increases in the money supply and in real GDP will cause inflation.

FalsePage 219-220. After solving the quantity theory of money model, we realize that increases in the money supply and decreases in real GDP will cause inflation.

Empirically, money is neutral in the short run as well as the long run.

FalsePage 222-223. The neutrality of money fails in the short run, because nominal prices do not respond immediately to changes in the money supply.

If price equals marginal cost, firms will have adequate incentives to produce new ideas.

FalsePages 143-144. As long as a fixed cost to producing the idea exists, firms will then have no incentive to create an idea because they must recover this fixed cost in order to stay profitable.

The Solow and Romer models explain why countries have different TFP levels and investment rates.

FalsePages 163-164. The Solow and Romer models leave this question unanswered. Perhaps institutions or other factors not in the model may explain these concepts.

Workers in Europe work fewer hours than in the United States, and thus per capita GDP is lower in Europe. Because per capita income is lower in Europe, Europeans are clearly worse off in terms of welfare than Americans.

FalsePages 194-195. If working less is voluntary (Europeans prefer leisure more than Americans do), then this decision is likely to be welfare enhancing.

The inflation tax will affect an individual who holds all his assets in artwork.

FalsePages 228-229. Holders of currency only pay the inflation tax. Because all prices in the economy are influenced by the inflation tax, the value of the artwork changes proportionately with all other prices.

If an economy has a higher investment rate and a higher depreciation rate, the economy will have a higher level of output. T/F

FalseWe cannot tell where the steady states are from this info

The neutrality of money says that changes inthe money supply...

Have no real effects on the economy and Only affect pricesEmpirically, this Holds in the long run buy Does not hold in the short run.nominal prices do not respond immediately to changes in the money supply

According to the Solow model, in the steady state, countries with high saving rates should have a . . .

High capital-output ratio.

What is higher steady state production caused by?

Higher productivity (Abar) and investment rate (s).

Labor demand is a function of the marginal product of labor, changes in output prices, and laborregulation. A heavily regulated labor market reduces the demand for labor. Removing theserestrictions would increase the demand for young labor and commensurately increase theirwages.

Historically, young French workers (under age 25) have had relatively high unemployment rates: 21 percent in 2005. In 2006, the French government proposed to allow employers to fire young employees without cause (eliminating a labor restriction). How should this policy improve employment prospects foryoung French workers? What would the impact be on their wages? Use a graph toguide your analysis.

What does a production function tell us?

How much output can be produced given any number of inputs, laborers, and machines.

Liquidity is a measure of:

How quickly an asset can be converted to currency

What explains TFP differences?

Human capitalTechnologyInstitutionsMisallocation

What flowchart best summarizes Romer's description of ideas and growth?

Ideas → Nonrivalry→ Increasing returns → Imperfect competition

4 factors impact TFP, what are these and how do they work?

Human capital- Stock of skills that individuals accumulate to makethem more productive- Education and training Technology- Richer countries may use more modern andefficient technologies than poor countries.- Increases productivity parameterInstitutions - are in place to foster humancapital and technological growth by...- Property rights- The rule of law- Government systems- Contract enforcementMisallocation- Resources not being put to their best use e.g.- Inefficiency of state-run resources- Political interference

Why are some countries more efficient at using capital and labor?

Human capital, technology, and institutions.

If the price level in year 1 was equal to 100 and the price level in year 2 was equal to 1,000, in year 2 the country is experiencing:

HyperinflationPages 212-213. The inflation rate is measured with the annual percentage change in the price level . In this case, the inflation rate is 900%. An episode of extremely high inflation is known as hyperinflation.

To recap, in the Solow Model, what is the allocation of resources equation?

I = sbar x Y

You want to deposit $625 in a savings account. If you choose bank A, your balance will be $756 in two years (bank A pays interest annually). However, you know that banks B and C also offer savings accounts: bank B pays an annual interest of 9% while bank C pays an annual interest of 10%. Assuming that you plan to keep your money in the bank for two years, which bank should you choose? Round to 1 decimal place.

I am indifferent between Bank A and Bank CPage 195. Given that bank B pays annual interest of 9%, bank C is preferred to bank B. To find the interest rate paid by bank A, use formula 7.7 where the present discounted value is $625, the future value is $756, and T=2, then solve for the interest rate:

Explain how nonrivalry leads to increasing returns in the two key productionfunctions of the Romer model.

Ideas get used twice in the same model: once to create output and once to create new ideas.

Draw the idea diagram related to the romer model

Ideas →Nonrivalry → Increasing returns →Problems with pure competition

Which of the following flowcharts best summarizes Romer's description of ideas and growth?

Ideas → Nonrivalry → Increasing returns → Imperfect competition

a. the money growth rate lead one-for-one to changes in the inflation rate in the long run.

If long-run real GDP growth is determined by real changes in the economy, the quantity theory of money implies that changes in:a. the money growth rate lead one-for-one to changes in the inflation rate in the long run.b. the money growth rate lead one-for-one to changes in the inflation rate, but only in the short run.c. velocity lead one-for-one to changes in the inflation rate.d. the money growth rate lead to a greater than one-for-one change in the inflation rate in the long run.e. None of these answers is correct

d. diminishing returns to capital in production.

If the depreciation and saving rates are constant, the economy eventually will reach the steady state in the Solow model because of:a. the lack of productivity.b. increasing returns to capital in production.c. constant returns to capital in production.d. diminishing returns to capital in production.e. increasing returns to labor in production.

c. the real interest rate is negative.

If the inflation rate is larger than the nominal interest rate:a. unemployment rises.b. the real interest rate is zero.c. the real interest rate is negative.d. the real interest rate is larger than the nominal interest rate.e. Not enough information is given.

d. is lower than firms are willing to pay for labor.

If the minimum wage is set below the equilibrium market wage, it:a. increases unemployment.b. is effective and reduces unemployment.c. equals the black market wage.d. is lower than firms are willing to pay for labor.e. None of these answers is correct.

c. in the short run, the real interest rate can deviate from the marginal product of capital.

If the real interest rate is negative, it must mean that:a. in the short run, bond rates can be very volatile.b. in the short run, the real interest rate equals the marginal product of capital.c. in the short run, the real interest rate can deviate from the marginal product of capital.d. it is difficult to predict long-term interest rates.e. there is no relationship between long- and short-term interest rates.

What is the rule of 70

If y grows at a rate of g percent per year, then thenumber of years it takes y to double isapproximately equal to 70/g

What is the Rule of 70?

If yt grows at a rate of g percent per year, then the number of years it takes yt to double is approximately equal to 70/g.

D

If π = π^e, the macroeconomy is(a) not enough information(b) in an expansion(c) in a recession(d) at its potential level of output

Explain 3 benefits of economic growth

Improvements in healthHigher incomesIncrease in the variety of goods and services

What are the benefits of economic growth?

Improvements in health, higher incomes, increase in the variety of goods and services.

c. $1.16

In 1979, in the face of rising competition in the fast food hamburger market, McDonald's reducedthe price of its cheeseburger to $0.43. If the CPI in 1979 was 37.2 and the CPI in 2005 was 100, what is the price of a 1979 cheeseburger in 2005 dollars?a. $0.77 b. $7.36 c. $1.16d. $0.43e. $0.14

e. $6.17

In 2015, the Wendy's Junior Cheeseburger Deluxe was on the "Right Price Right Size" menu and was priced at $1.89. If the CPI in 1979 was 72.6 and the CPI in 2015 was 237.0, what is the price of a 2015 cheeseburger in1979 dollars?a. $4.28 b. $8.06 c. $0.97d. $0.58e. $6.17

d

In June 2009 the Bureau of Labor Statistics reported an adult population of 234.9 million, a labor force of 154 million and employment of 141.6 million. Based on these numbers the unemployment rate was:a. 93.3/234.9.b. 12.4/234.9. c. 93.3/154. d. 12.4/154.

a

In June 2009 the Bureau of Labor Statistics reported an adult population of 234.9 million, unemployment of 12.4 million, and employment of 141.6 million. Based on these numbers the labor-force participation rate was:a. 154/234.9. b. 141.6/234.9. c. 141.6/154.d. None of the above is correct.

Use the Solow model to explain what happens to the economy with a decrease in the investment rate.

In period 1, consumption increases and investment decreases resulting in negative net investment, but capital stock and output (income) do not change. In period 2, the capital stock will start falling toward its new steady-state level. At first, the drop in capital stock will be rapid (net investment is the most negative), but eventually it will come to rest at the new, lower level of capital stock.

a. labor's share of GDP is two-thirds.

In the Cobb-Douglas production function Y = K^(a)L^(1-a), if a = 1/3 then:a. labor's share of GDP is two-thirds.b. labor's share of GDP is one-third.c. capital's share of GDP is two-thirds.d. capital's share of income is one.e. labor's share of income is three

e. output growth accelerates.

In the Romer model, if an economy's population increases:a. output growth decelerates.b. output immediately increases and output growth slows.c. output immediately decreases and output growth slows.d. output immediately decreases and output growthaccelerates.e. output growth accelerates.

What is the principle of transition dynamics in the combined Solow-Romer model?

In the Solow-Romer model, the economy has a balance rate of growth, where the capital stock, output, and total factor productivity grow at constant rates. A change in the underlying parameters of the model can alter the growth rate temporarily, but due to diminishing returns to capital the economy will transition back to a balanced rate of growth. The further it is below its balanced growth per capita output, the faster it will bounce back.

D

In the second quarter of 2009, Real GDP was $14,347.1 while Potential GDP was $15,363.7. How large was the GDP Gap?A 6.62% B -7.09% C 7.09% D -6.62%

Solving mathematically for the steady state...

In the steady state, investment equalsdepreciation.Substitute into the production function:Solve for K*The steady state level of capital is:Positively related to the- investment rate- the size of the workforce- the productivity of the economyNegatively correlated with- the depreciation rate

Regarding The Rising Return to Education, what should happen theoretically and what has happened in actuality?

In theory:wages↑ → supply↑ → wages↓In actuality:Wages↑ → supply↑ → demand↑ → ∆demand>supply → wages↑

The great inflation of the 1970s was partially caused by:

Increases in oil prices, and a money supply that was growing too quickly.Pages 232. Both B and C are correct. Increase in oil prices spurred inflation while the Federal Reserve made mistakes in running a monetary policy that was too loose.

Nonrivalry of ideas and the standard replication argument imply the production function will have

Increasing returns to scalePages 142-143. The standard replication argument implies we can double output by doubling objects, but ideas are nonrivalrous and can be used in two duplicate factories simultaneously.

Nonrivalry of ideas and the standard replication argument imply the production function will have . . .

Increasing returns to scale.

The Solow model experiences transition dynamics, The Romer model however does not. What occurs instead?

Instead, has balanced growth pathConstant growth rates of all endogenous variables

Goods that are produced in a different year than they are sold are called...

Inventory goods

The relationship between pollution and per capita GDP is documented as:

Inverse U shaped

In Figure 5.2, steady-state investment is represented by:

Investment is not represented.

What is the Solow allocation of resources equation?

It = sYtTherefore, Ct = (1 - s)Yt

Solve the Solow model for the steady state level of investment.

It* = sYt*

In the Solow model, defining s as the saving rate, Yt as output, and Ct as consumption, investment It is given by:

It=sYt

Suppose that in 1955 Japan had an initial per capita GDP of $15,000 per year and China had a per capita GDP of $2,500. But China is growing at 7 percent per year and Japan is growing at 2 percent per year. In 2015, ________ would have been the lower-income country, with a per capita GDP of approximately ________.

Japan; $49,000

Define "Frictional Unemployment"

Jobs that are destroyed and created naturally in the business cycle.

What is the equation for demand = supply for capital in the production model?

K = Kbar

Regarding the solow growth model, Goods invested for the future determine theaccumulation of capital. This concept is expressed through the "capital accumulation equation". What is this?

K(t+1) = next years capitalK(t) = this years capital I(t) = this years investment dbar = depreciation rate (the depreciation rate is between 0 and 1 and is usually assumed to be 0.07 or 0.1)

...

Know Solow Diagram Questions

In the Romer model, ________ is the driving force behind sustained ________ economic growth.

Knowledge; long-term.

Solve the Solow model for the steady state level of capital.

Kt* = ((s/d)Abar)^(3/2)Lbar

What is the Solow capital accumulation equation?

Kt+1 = Kt + It - dKt

In the Solow model, the equation of capital accumulation is:

Kt+1= Kt+ It -dKt

...

Lecture 10All economies are open. A recession in Europe decreases demand for U.S. goods. The U.S. economy will havea.initially higher short-run output and inflation, but lower short-run output and inflation in the long run.b.initially lower short-run output and inflation, but higher short-run output and inflation in the long run.c.initially lower inflation and short-run output, but in the long run will have the same long-run steady state as before the shock.d.initially higher inflation and short-run output, but in the long run will have the same long-run steady state as before the shock.

...

Lecture 10Suppose an economy is hit with a positive oil price shock in one period that raises the level of oil prices permanently. If adaptive expectations hold, this willa.shift the AS curve up initially and then shift the AS curve back to original position in the following period.b.shift the AS curve up initially and gradually shift the AS curve back to original position over time.c.shift the AS curve up permanently.d.shift the AS curve down permanently.

...

Lecture 2If a country's income grows at 1 percent per year, It will take about __ years for income to double.

...

Lecture 2How quickly GDP doubles will depend ona.the initial value of GDPb.the growth rate of GDPc.the current value of GDPd.All of these choices are correct.

...

Lecture 2If Y= AK^(1/3)L^(2/3) and A grows at a rate of 1 percent per year, K grows at a rate of -3 percent per year, and L grows at a rate of 3 percent per year, then the growth rate of Y is a.0 percent.b.1 percent.c.2 percent.d.3 percent.

...

Lecture 2If growth is slightly faster at 5 percent per year•Income doubles every ______years.

...

Lecture 2If population doubles every 35 years, then the growth rate of population isa.1 percent.b.2 percent.c.3 percent.d.4 percent.

...

Lecture 2United States per capita GDP 1870: $3,200 •United States per capita GDP 2015:$50,800.•What is the average annual growth rate over these 145 years?

...

Lecture 2With an average annual growth rate of 5 percent per year, per capita income will increase by what factor over a century?a.16b.32c.64d.126

...

Lecture 4An economy starts in steady state. A war causes a massive destruction of the capital stock. This shock will cause...a.the economy to converge to a new lower steady state.b.the growth rate of output to rise initially as the economy begins to converge to the old steady state.c.the growth rate of output to rise initially as the economy begins to converge to a new lower steady state.d.the economy to enter a period of negative growth.

...

Lecture 4Imagine increases in the parameters of the Solow model that are all identical in magnitude. Which one of the following parameters will result in the largest increase in steady-state output?a.the investment rate b.the productivity parameter c.the amount of labor d.They all will increase output by the same amount.

...

Lecture 4Starting from steady state, a permanent increase in the rate of depreciation in the Solow model causes...a.the growth rate of output to fall temporarily and the level of GDP to fall permanently.b.the growth rate of output to fall temporarily but leaves the level of GDP unchanged in the long run. c.the growth rate of output to rise temporarily and the level of GDP to rise permanently. d.the growth rate of output to rise temporarily but leaves the level of GDP unchanged in the long run.

...

Lecture 6Which of the following is an example of cyclical unemployment?a.A worker loses her job because the minimum wage increases substantially. b.A worker quits her job to find a better job. c.A worker is unemployed because the cost of finding a job in another city is too high. d.A worker loses her job because the economy begins to enter a recession.

...

Lecture 6A country has a total civilian population (over age 16) of 300 million. Of this population, 225 million are employed, 25 million are unemployed, and the remainder of the population is not in the labor force. The unemployment rate isa.0.083.b.0.100.c.0.111.d.0.150.

In the Solow model, if capital is in the steady state, output is...

also in the steady state.

...

Lecture 6According to the bathtub model of unemployment, which of the following statements is true if a law permanently increases only the job finding rate?a.The natural rate of unemployment will fall. b.The natural rate of unemployment will rise.c.The unemployment rate will fall, but the natural rate of unemployment will be unchanged. d.The unemployment rate will rise, but the natural rate of unemployment will be unchanged.

...

Lecture 6If a tax is imposed on labor supply and wages are rigid, wages and the employment-population ratio will be lower than the market clearing level after the shocka.trueb.false

...

Lecture 7If real GDP is growing at a rate of 2 percent, the central bank should grow the money supply at a rate of 2 percent to keep prices unchangeda.trueb.false

...

Lecture 7If the real interest rate is 3 percent and the nominal interest rate is 1 percent, then the economy is experiencing deflation according to the Fisher equation.a.trueb.false

...

Lecture 7The quantity theory of money says that a doubling of the growth rate in the money supply will, in the long run, lead toa.a doubling of real GDP growth. b.a doubling of inflation. c.a decrease of inflation. d.a doubling of the price level.

...

Lecture 7Under the classical dichotomy, which of the following does not determine real GDP in the long run? a.the investment rate b.the aggregate price level c.TFP d.new ideas

...

Lecture 7What is the price in 2015 dollars of a loaf of bread with price of 25 cents in 1980?

...

Lecture 7Which of the following people benefits from a surprise increase in inflation? a.a person receiving a fixed pension b.a person with a variable rate mortgagec.a person who borrowed large amounts of money on a fixed payment schedule d.a lender of large amounts of money who is repaid on a fixed schedule

...

Lecture 9If the aggregate demand parameter increases and the central bank wishes to stabilize output at potential, it shoulda.raise the nominal interest rateb.lower the nominal interest rate.c.buy government bonds.d.expand the money supply.

Suppose you are given the data for Brazil and Portugal. In Brazil, the saving rate is 0.1 and the depreciation rate is 0.1, while in Portugal the saving rate is 0.2 and the depreciation rate is 0.1. Using the Solow model, you conclude that in the steady state:

Portugal has a higher capital-output ratio than Brazil

Suppose you are given the data for Brazil and Portugal. In Brazil, the saving rate is 0.1 and the depreciation rate is 0.1, while in Portugal the saving rate is 0.2 and the depreciation rate is 0.1. Using the Solow model, you conclude that in the steady state:

Portugal has a higher capital-output ratio than Brazil.

What does solving the quantity theory of money for prices show?

Prices will rise as a result of- Increases in the money supply- Decreases in real GDPIn the long run, the key determinant of the pricelevel is the money supply.

ExpenditureY = C + I + G + NXIncomeCompensation of Employees (Wages and Salaries & Benefits) + Taxes Less Subsidies on businesses + Net Operating Surplus of Business + Depreciation of Fixed CapitalProductionThe value of the goods and services produced in an economy during a given period (NO DOUBLE COUNTING) only add value added

Production = Expenditure = Income

The National Income and Product Accounts identity states

Production = Expenditure = Income

What are the five equations in the Solow model?

Production Function, Capital Accumulation, Labor Force, Resource Constraint, Allocation of Resources.

What are the five equations of the production model?

Production function, rule for hiring capital, rule for hiring labor, demand = supply for capital, demand = supply for labor.

If we want to calculate the Mexican real GDP in U.S. dollars but adjusted for prices what equation would we use?

Real GDP in mexico($) = (US price level)/(Mexican price level) x Nominal GDP (US)

Define "Structural Unemployment"

Results from the labor market institutions that match up workers and firms in the labor market. Examples include: Hiring and firing costs, unemployment benefits, minimum wage.

Seignorage

Revenue that the federal government gets for printing money

Skill bias technical change

Rewarding people of specified skills, punishing people with obsolete skills.

The rise in income inequality in the U.S. after 1980 is associated with:

Salaries and Business IncomePage 198. According to Thomas Piketty and Emmanuel Saez, inequality in the U.S. at the beginning of the 20th century was associated with capital income while more recently it is associated with salaries and business income.

Which of the following is NOT an example of capital?

Screws and bolts used for making cars at an automobile factory

c

Sectoral shifts in demand for output: a. create structural unemployment.b. immediately reduce unemployment.c. increase unemployment due to job search.d. do not affect demand for labor.

a

Some persons are counted as out of the labor force because they have made no serious or recent effort to look for work. However, some of these individuals may want to work even though they are too discouraged to make a serious effort to look for work. If these individuals were counted as unemployed instead of out of the labor force, then: a. both the unemployment rate and labor-force participation rate would be higher.b. the unemployment rate would be higher ,and the labor-force participation rate would be lower.c. the unemployment rate would be lower, and the labor-force participation rate would be higher.d. both the unemployment rate and labor-force participation rate would be lower.

Consider Figure 5.7. If Ksk is the current capital stock in South Korea and Kch is the current capital stock in China, according to the principle of transition dynamics:

South Korea will initially grow slower, but incomes in China and South Korea will converge

Compare Romer Model to Solow Model

Steady growth path in romer model. Solow model reaches a steady state. Solow model assumes perfect competition, Romer model assumes imperfect competition.

What kinds of unemployment make up the natural rate of unemployment?

Structural and Frictional

One of the most effective mechanisms for increasing research may simply be to . . .

Subsidize one of the key inputs into research: the education of scientists and engineers.

...

Suppose oil prices increase. Which of the following is true?a.Equilibrium wages are lower. b.Employment is lower. c.Both of these choices are correct. d.None of these choices are correct.

A

Suppose that Real GDP grows by 4%. How much will the unemployment rate change if everything else (Potential GDP, Natural Unemployment) remains constant?A The unemployment rate will fall by 2%. B The unemployment rate will grow by 8%. C The unemployment rate will fall by 8%. D The unemployment rate will grow by 2%.

A

Suppose that firms expect prices to rise by 2% next year and they maintain this belief regardless of what happens in the economy. These firms are said to formA anchored expectations. B sticky expectations. C rational expectations. D adaptive expectations.

e. 10.5

Suppose we calculate the percent change in real GDP from year 1 to year 2 using both the Laspeyres and the Paasche indices. With the Laspeyres index we get 12 percent and with the Paasche index we get 9 percent. The chain-weighted growth of real GDP is percent.a. 1.5 d. 9.5b. 9.75 e. 10.5c. 1.33

____ 2. These four steps, and in the following order, are used to study macroeconomic behavior:(1) document the facts;(2) develop a model;(3) compare the predictions of the model to the original facts;(4) use the model to make other predictions that eventually may be tested.

T

____ 3. In the short run, we are concerned with the causes of economic fluctuations and how to fix them.

T

____ 5. An exogenous variable is one that is taken as given, that is, a parameter.

T

The difference between total factor productivity (TFP) in the Solow model and the stock of ideas in the Romer model is that:

TFP is fixed and ideas can grow

How do you look at differences in Y/L?

Take the ratio of y* for two countries and assume the depreciation rate is the same. y*rich/y*poor = (Abarrich/Abarpoor)^(3/2)x(srich/spoor)^(1/2)

Over the long run of human history:

Technology improved, but very slowly

The case of the economic reforms if Russia and China provides insight into differences in:

The "Big Bang" versus gradualist approach to development

D

The "natural rate of unemployment" is the unemployment rate that would prevail(a) if people voluntarily leave work.(b) during changes in the business cycle.(c) if the unemployment rate were zero.(d) if the economy were in neither a boom nor a recession.(e) during seasonal changes in the economy.

What is The marginal product of labour (MPL) and how is it found?

The additional output that is produced when one unit of labour is added, holding all other inputs constant.This is found by taking the derivative of the production function holding capital constant

What is the crux of the Romer model?

The Distinction between ideas and objects and the idea that Output requires knowledge and labour

What is the GDP deflator

The GDP deflator is an economic measure that tracks the cost of goods produced in an economy relative to the purchasing power of the dollar. Calculated as: (Nominal GDP/Real GDP) x 100

What is the key difference between the Solow model and the production model?

The Solow model endogenizes the process of capital accumulation.

Which of the following does NOT increase the U.S. GDP?

The U.S. government increases social security payments.

Which of the following does NOT increase U.S. GDP?

The U.S. government social security payments.

What is the The marginal product of capital (MPK) and how is it found?

The additional output that is produced when one unit of capital is added, holding all other inputs constant. This is found by taking the derivative of the production function with respect to capital

Under the classical dichotomy, which of the following does not determine real GDP in the long run?

The aggregate price levelPages 218-219. In the long run, real GDP is only determined by real considerations and not based on variables, such as money or the aggregate price level.

What is the depreciation rate?

The amount of capital that wears out each period. Must be between 0 and 1 in Solow model. Usually between 7 and 10 percent.

In the production model of CH. 4, which of the following is NOT an exogenous variable of parameter?

The amount of capital.

What is the idea of menu costs?

The costs to firms of changing prices frequently.

What is the steady state level of capital negatively related with?

The depreciation rate.

In "The cost of innovation has risen, and productivity has suffered", the Economist magazine discusses research by Bloom, Jones, Van Reenen, and Webb. They find evidence that productivity growth has been fairly constant in recent decades while the number of researchers has risen very sharply. How can the Romer model reviewed in class be reconciled with this empirical evidence?Hint: Use the equations of the Romer model to answer this question.

The fraction of researcher must be rising while their productivity is declining at the same time.

Which of the following is NOT an endogenous variable in the Romer model?

The fraction of the population engaged in researchPage 148. The fraction of the population engaged in research is an exogenously given parameter.

What is the steady state level of capital positively related with?

The investment rate (s), the size of the workforce (Lbar), the productivity of the economy (Abar).

Which of the following does NOT explain differences in total factor productivity, as defined by A in the production function Y=AKαL1-α?

The labour supply

Imagine a two-good economy where the quantity of the goods produced is unchanged over time, but where prices have increased. In the most recent year, real GDP will be?

The largest number when using the Paasche index.

What is GDP?

The market value of the final goods andservices produced in an economy over acertain period.

What is Gross Domestic Product (GDP)?

The market value of the final goods and services produced in an economy over acertain period.

In the long run, the key determinant of the price level is

The money supplyPages 219-220. The price level is determined by the money supply, while the inflation rate is pinned down by the growth rate in the money supply.

d

The natural rate of unemployment is the: a. unemployment rate that would prevail with zero inflation.b. rate associated with the highest possible level of GDP.c. difference between the long-run and short-run unemployment rates.d. amount of unemployment that the economy normally experiences.

According to the bathtub model of unemployment, which of the following statements is true if a law permanently increases only the job finding rate?

The natural rate of unemployment will fall.Pages 190-191. The bathtub model equilibrium is a steady-state equilibrium. A steady-state equilibrium is a long-run phenomenon, which implies the equilibrium of the model is representative of the natural rate rather than the actual rate of unemployment in any particular period.

D

The natural unemployment rate describes the unemployment rate whenA the economy is no longer in a recession. B cyclical unemployment is positive. C frictional unemployment is 0. D real GDP is equal to potential GDP.

Write down the quantity equation in growth terms and identify each variable

The quantity equation is given by MtVt = PtYtwhere...M is money supply, V is velocity, P is the price level (GDP deflator or CPI), and Y is real GDP. In growth terms this is gbarM = π + gbarY because we assume that..gbarV = 0.

Define the "Natural Rate of Unemployment."

The rate that prevails if there is no boom or bust, (Calculated as Frictional + Structural).

A

The rise in the participation rate for the US. in the 1970's is largely due to(a) more women entering the labor force.(b) more teenagers entering the labor force.(c) a shrinking US population(d) an increase in immigrant workers.(e) it is unexplained.

a. double is approximately equal to 70/g.

The rule of 70 states that if yt grows at a rate of g percent per year then the number of years it takesyt to:a. double is approximately equal to 70/g.b. double is exactly equal to 70/g.c. double is approximately equal to g/70.d. triple is approximately equal to 70/g.e. double is approximately equal to 70/(1 + g).

According to the principle of transition dynamics, which economy will grow fastest?

The same country 1 year after the natural disaster destroyed most of the capital stock

According to the principle of transition dynamics, which economy will grow fastest?

The same country 1 year after the natural disaster destroyed most of the capital stockThe principle of transition dynamics says that an economy that is farther below its steady state will grow faster. The destruction of the capital stock places the economy further below its steady state 1 year after the destruction took place.

What is Alwyn Young's "gift of dying"?

There is a "gift" because the more workers die, the more the living workers get paid.

According to the principle of transition dynamics, which economy will grow fastest?

The same country 1 year after the natural disaster destroyed most of the capital stockThe principle of transition dynamics says that an economy that is farther below its steady state will grow faster. The destruction of the capital stock places the economy further below its steady state 1 year after the destruction took place.

In the Cobb-Douglas production function Y=KαL1-α, the α represents:

The share of income claimed by owners of capital

In the Solow model The economy consumes a fraction of output and invests the rest. This means that consumption is...

The share of output not investedC = (1-s)Y

What is present discounted value?

The value of a monetary sum in the future.

Nominal gross national product is defined as:

The value of all goods and services produced by an economy, within its borders, over a period of time, at current prices.

If labor demand increases, holding supplyconstant, what happens to wage?

The wage and the employment- population ratio both rise.

Explain the concept of wave rigidity

The workers are rendered unemployed because at a given wage rate supply of labour exceeds demand for labour. ... It may be noted that stickiness or rigidity of money wage implies that money wage rate will not quickly change, especially in the downward direction to keep equilibrium at full employment level.

Efficiency Wages

Theory that if you raise wages, people will become more productive.

If there are constant returns to all inputstogether, then . . .

There are diminishing returns to each input by itself.

In the Solow diagram, an increase in the investment rate will cause a decrease in consumption for all levels of capital.

TrueConsumption is the difference between the production function and the investment curve. This distance is everywhere smaller as the investment rate increases.

Total factor productivity explains a larger amount of the difference in income per capita in the Solow model than in the production model.

TrueTFP explains a larger difference in the Solow model, because productivity influences output in both models but also influences capital accumulation in the Solow model.

In the long run, the real interest rate is equal to the marginal product of capital.

TrueThe return to saving must equal the return to investment, which implies that the real interest rate equals the rental price of capital, which is equal to the MPK.

The change in the capital stock is a flow variable. T/F

TrueA flow variable is one that lasts only for one period. Capital alone is a stock variable, but the change in capital is a flow variable.

Output per person in the long run can be higher than before a shock occurs, even if the shock causes the level of output per person to fall immediately.

TruePage 154. Notice in Figure 6.4, the level of output per person is higher in the long run even though the shock initially causes a decrease; this will be the case when a positive-growth effect happens in addition to the level effect.

If real GDP is growing at a rate of 2 percent, the central bank should grow the money supply at a rate of 2 percent to keep prices unchanged.

TruePage 220. Prices are stable if the inflation rate is 0 percent and this occurs when the growth rate in the money supply is equal to the growth rate of real output.

If the real interest rate is 3 percent and the nominal interest rate is 1 percent then the economy is experiencing deflation according to the Fisher equation.

TruePage 223. The inflation rate is equal to the nominal interest rate minus the real interest rate, which is negative in this example.

High inflation leads to inefficient resource allocation.

TruePage 226. When inflation is high, some prices adjust faster, and other prices adjust more slowly. This leads to a distortion of relative prices, which leads to an inefficient allocation of resources.

Nonrivalry of ideas implies that per capita GDP depends on the total stock of ideas and not on ideas per person.

TruePages 140-141. Because ideas are nonrival, a new idea can be used by all and thus need not run into diminishing returns like capital does in the Solow model.

The labor demand curve slopes downward because the marginal product of labor is diminishing as we add additional labor.

TruePages 184-185. The labor demand curve is derived from the firm's maximization problem. As we add more workers and other inputs are fixed, each additional worker produces less.

If a tax is imposed on labor supply and wages are rigid, wages and the employment-population ratio will be lower than the market clearing level after the shock.

TruePages 185-188. A tax on labor supply will shift the supply curve to the left and equilibrium wages will rise. However, if wages are rigid, they will remain low and employment will decrease as fewer people are willing to work.

Let us suppose that you open a savings account at the campus credit union. Into this savings account, you place $100 in savings. The interest rate is 5 percent. The future value of this account in two years is $110.25.

TruePages 195-196. Manipulating equation 7.7 implies that the future value is equal to 100*(1 + .05)^2.

High inflation may result if central banks are not independent from the branches of government responsible for spending and taxation,

TruePages 220, 229. If the government is able to finance its spending mainly through an expansion of the money supply, the result will be higher inflation (equation 8.4). Therefore, limiting the government's ability to print money will limit inflation.

Total factor productivity explains a larger amount of the difference in income per capita in the Solow model than in the production model.

TrueTFP explains a larger difference in the Solow model, because productivity influences output in both models but also influences capital accumulation in the Solow model.

In the long run, the real interest rate is equal to the marginal product of capital. T/F

TrueThe return to saving must equal the return to investment, which implies that the real interest rate equals the rental price of capital, which is equal to the MPK.

What is included in U1 unemployment?

U1: Percentage of labor force unemployed 15 weeks or longer.

What is included in U2 unemployment?

U2: Percentage of labor force who lost jobs or completed temporary work.

What is included in U3 unemployment?

U3: People are without jobs and they have actively looked for work within the past four weeks.

What is included in U4 unemployment?

U4: U3 + "discouraged workers", or those who have stopped looking for work because current economic conditions make them believe that no work is available for them.

What is included in U5 unemployment?

U5: U4 + other "marginally attached workers", or "loosely attached workers", or those who "would like" and are able to work, but have not looked for work recently.

What is included in U6 unemployment?

U6: U5 + Part-time workers who want to work full-time, but cannot due to economic reasons (underemployment).

A

Unemployment is given by and the natural rate of unemployment is .(a) Frictional + Structural + Cyclical; Frictional + Structural(b) Frictional + Cyclical; Frictional + Cyclical(c) Frictional + Structural - Cyclical; Frictional + Structural(d) Structural + Cyclical; Structural(e) Cyclical; Frictional + Structural

d

Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills is called:a. the natural rate of unemployment.b. cyclical unemployment.c. structural unemployment.d. frictional unemployment.

c

Unemployment that results because the number of jobs available in some labor markets may be insufficient to give a job to everyone who wants one is called:a. the natural rate of unemployment.b. cyclical unemployment.c. structural unemployment.d. frictional unemployment.

Nominal GDP is the ______ of all goods and services produced in a period of time using ______ prices.

Value; current.

c. prevents the labor market from realizing equilibrium.

Wage rigidity:a. helps the labor market achieve equilibrium.b. prevents the capital market from realizing equilibrium.c. prevents the labor market from realizing equilibrium.d. prevents unemployment.e. None of these answers is correct.

Concerning the returns to scale of the Cobb-Douglas Production Function...When do increasing returns to scale occur?

When exponents sum to > 1

tighter; rises; declines

When firms open more job positions, the labor market becomes (tighter/less tight), the job-finding rate (rises/falls) , and the unemployment rate (rises/declines).

The economies of East and West Timor are identical in every way except that East Timor has fewer Researchers:

West Timor should grow faster, according to the Romer model

Which of the following does macroeconomics endeavor to answer?

What role does the government play in recessions and booms and in determining the rate of inflation?

What is wage rigidity?

When Wages fail to adjust after a shock to labour demand or supply

What is an efficiency wage?

When a firm pays a higher wage than the average/amount needed. Can potentially increase a firms profits.

Concerning the returns to scale of the Cobb-Douglas Production Function...When do constant returns to scale occur?

When exponents sum to 1

Concerning the returns to scale of the Cobb-Douglas Production Function...When do decreasing returns to scale occur?

When exponents sum to < 1

A, B & D

Which of the following groups are considered unemployed in the u-6 unemployment rate calculation?(check all that apply)A part-time workers looking for full-time positions B discouraged workers C retirees D workers who are marginally-attached to the labor force

e. None of these answers is correct.

Which of the following is a nonrival good?a. a peanut butter sandwichb. orange Juicec. a Jacketd. All of these answers are correct.e. None of these answers is correct.

d. Y = K^(1/2)L^(3/4)

Which of the following production functions exhibits increasing returns to scale?a. Y = K^(1/2)L^(1/2)b. Y = K^(a)L^(1-a)c. Y = K^(1/3)L^(2/3)d. Y = K^(1/2)L^(3/4)e. All of these answers are correct.

C

Which of the following statements is true if the job finding rate declines?(a) The steady-state rate of unemployment will fall and the duration of unemployment will rise.(b) The steady-state rate of unemployment will fall and the duration of unemployment will fall.(c) The steady-state rate of unemployment will rise and the duration of unemployment will rise.(d) The steady-state rate of unemployment will rise and the duration of unemployment will fall.

A

Which type of unemployment is associated with the longest duration of unemployment?A structural unemployment B frictional unemployment C cyclical unemployment

d

Who of the following would necessarily be included in the Bureau of Labor Statistics' "unemployed" category?a. Huey, who did not work during the previous four weeksb. Dewey, who tried to find new employment during the previous four weeksc. Louie, who was an unpaid worker during the previous four weeksd. None of the above is correct.

As an economist working at the International Monetary Fund, you are given the following data for Brazil: predicted per capita GDP, relative to the United States, as given by y = k^1/3, is 0.56, and total factor productivity is 0.36. What is the observed per capita GDP, relative to the United States?a. 0.20b. 0.56c. 0.81d. 0.92e. 1.57

a

Because of the dynamics of the workforce, for example, whether workers become discouraged when there are changes in the economy:a. the unemployment rate is not necessarily an accurate gauge of the labor market.b. the unemployment rate is a precise gauge of the labor market.c. one should only consider the employment-population ratio rather than the unemployment rate.d. at times the labor demand curve is upward sloping.e. None of these answers is correct.

a

Consider Figure 5.6. If K(SK) is the current capital stock in South Korea and K(CH) is the current capital stock in China, according to the principle of transition dynamics:a. China initially will grow faster than South Korea, but each will have the same steady stateb. China initially will grow slower than South Korea, but each will have the same steadystatec. China initially will grow faster than South Korea and will have a higher steady stated. China initially will grow faster than South Korea and will have a lower steady statee. Both South Korea and China initially will grow at the same rate and have the same steady state

a

Considering the data in Table 4.1 (Homework 3/4), the explanation for the difference between the predicted and actual level of output is called ________. If you compare India's observed and predicted output, this difference is equal to ________.a. total factor productivity; 0.22b. labor's share of GDP; two-thirdsc. capital's share of GDP; one-thirdd. liquidity; 0.05e. the Solow residual; 4.5

a

Fiat money has value because:a. people believe it has value d. it has intrinsic valueb. it is backed by silver e. it is a commodityc. it is backed by gold

a

If long-run real GDP growth is determined by real changes in the economy, the quantity theory of money implies that changes in:a. the money growth rate lead one-for-one to changes in the inflation rate in the long run.b. the money growth rate lead one-for-one to changes in the inflation rate, but only in the short run.c. velocity lead one-for-one to changes in the inflation rate.d. the money growth rate lead to a greater than one-for-one change in the inflation rate in the long run.e. None of these answers is correct.

a

If not all price setters are convinced that high inflation rates will end soon, there is/are:a. a coordination problem.b. negative real interest rates.c. price staggering.d. substantial menu costs.e. a transfer of wealth from one group to another.

a

If some goods' prices adjust more quickly than others during a period of high inflation, there is:a. a short-run misallocation of resources.b. no inflation.c. a deflation.d. a perfect short-run allocation of resources.e. a hyperinflation.

a

If the current capital stock in South Korea is greaterthan the current capital stock in China, according to the principle of transition dynamics:a. China initially will grow faster than South Korea, but each will have the same steady stateb. China initially will grow slower than South Korea, but each will have the same steady statec. China initially will grow faster than South Korea and will have a higher steady stated. China initially will grow faster than South Korea and will have a lower steady statee. Both South Korea and China initially will grow at the same rate and have the same steady state

a

In our balloon analogy, a hole in the balloon represents.:a. financial crisis.b. a hole in the balloon.c. fiscal policy.d. the thickness of the skin.

a

In the Romer model in Figure 6.1, at time t0, a change in the growth rate of per capita output can be explained by a(n):a. increase in the population.b. decrease in the population.c. increase in the saving rate.d. decrease in the ideas efficiency parameter.e. increase in the share of labor engaged in research.

a

In the Solow model, defining s(bar) as the saving rate, Yt as output, and It as investment, consumption is given by:a. Ct = (1 - s(bar))Ytb. Ct = s(bar)Ytc. Ct = s(bar)Itd. Ct = (1 - s(bar))Yt - Ite. Ct = (1 - s(bar))

a

In the combined Solow-Romer model, an exogenous increase in the saving rate:a. immediately increases the growth rate of per capita output, which eventually slows to its previous rateb. immediately decreases the per capita output, but the growth rate does not changec. increases the growth rate of per capita income, but eventually the economy reaches a new steady-state level of per capita outputd. immediately decreases the growth rate of per capita output, which eventually accelerates to a higher ratee. has no impact on the growth rate or level of per capita output

a

In the labor market depicted in Figure 7.3 (Homework 3/22), an increase in the income tax would result in:a. a shift in labor supply from LS 1 to LS 2.b. a shift in labor demand from LD 2 to LD 1.c. a shift in labor demand from LD 1 to LD 2.d. no change in either the labor supply or demand curve.e. None of these answers is correct.

a

In the labor market depicted in Figure 7.3, an increase in the income tax would result in:a. a shift in labor supply from LS1 to LS2b. a shift in labor demand from LD2 to LD1c. a shift in labor demand from LD1 to LD2d. no change in either the labor supply or demand curvese. None of these answers are correct.

a

In the standard production model, the productivity parameter enters the equation with an exponent of one, while in the Solow model it is greater than one because:a. the endogenous level of the capital stock itself depends on productivityb. there is no productivity parameter in the standard production function modelc. the productivity measure is zero in the standard production function modeld. the productivity measure is negative in the Solow modele. the exogenous level of the capital stock itself depends on productivity

a

Keynesian economists believe that consumers have money illusion, that is:a. they act on changes in nominal variables instead of real variables.b. they suffer from the illusion that they will be rich.c. they are fooled by the central bank.d. they act on changes in real variables instead of nominal variables.

a

Liquidity is a measure of:a. how quickly an asset can be converted to currency.b. the monetary base.c. the amount of reserves.d. how many coins are in circulation.e. how quickly coins can be melted down.

a

M2 includes M1 plusa. savings accounts.b. long-term bonds.c. large time deposits.d. gold reserves.e. overnight repurchase agreements.

a

The key insight in the Solow model is that:a. capital accumulation contributes to economic growthb. capital depreciation enhances economic growthc. savings have no impact on economic growthd. the relationship between capital and output is statice. saving rates are determined in a particular manner

a

The monetary base consists of:a. reserves and currencyb. M1 plus M2c. only M1d. gold reserves plus currencye. a country's holdings of foreign and domestic currencies

a

The monetary base consists of:a. reserves and currency.b. only M1.c. M1 plus M2.d. gold reserves plus currency.e. a country's holdings of foreign and domestic currencies.

a

The parameter(s) in the Romer model is/are:a. the initial stock of ideas, the population, the fraction of population in the ideas sector, and the ideas efficiency parameterb. the ideas efficiency parameterc. the fraction of population in the ideas sector and the ideas efficiency parameterd. the initial capital stock and the fraction of population in the ideas sectore. the initial capital stock and the ideas efficiency parameter

a

The production function used in the Solow model is:a. Yt = A(bar)Kt^1/3 x Lt^2/3b. Yt = A(bar)Kt^2/3 x Lt^2/3c. Yt = A(bar)(K^1/3 + L^2/3)d. Yt = A(bar)(1/3)Kt x (2/3)Lte. Yt = A(bar)(1/3)Kt + (2/3)Lt

a

The real interest rate describes the:a. rate of return adjusted for inflation.b. rate of return in units of a currency.c. rate of return in real goods.d. return with an interest rate equal to zero.e. net return to government bonds.

a

The rise in the employment-population ratio between 1950 and 2010 largely is due to:a. more women entering the labor force.b. an increase in immigrant workers.c. It is unexplained.d. more teenagers entering the labor force.e. a shrinking U.S. population.

a

The short-run model determines ________ and ________.a. current output; current inflation d. unemployment; potential outputb. current output; long-run inflation e. potential output; unemploymentc. unemployment; current inflation

a

The Romer model predicts that a decrease in population will have

a growth effect that decreases the rate of growth.FEEDBACK: Pages 152-153. The example in the text shows that an increase in population results in only an increase in the growth rate. An algebraic solution shows that a decrease in population results in a decrease in the rate of growth.

Assume two economies are identical in every way except that one has a higher saving rate. According tothe Solow growth model, in the steady state, the country with the higher saving rate will have ________level of total output and ________ rate of growth of output than/as the country with the lower savingrate.

a higher; a higher

Assume two economies are identical in every way except that one has a higher saving rate. According to the Solow growth model, in the steady state, the country with the higher saving rate will have ________ level of total output and ________ rate of growth of output than/as the country with the lower saving rate.

a higher; the same

The equation Y F(K,L) AK1/3L2/3 is an example of :

a production function

The equation Y F(K,L) AKa L1 a is an example of:

a production function

The equation Y=F(K,L)=Abar*K^a*L^1-a is an example of

a production function

In the production function Y=F(K,L)=Abar*Kbar^1/3*L^2/3, (Abar) represents:

a productivity parameter

Mathematically, an economic model is:

a set of equations.

Under national income accounting, GDP equals

a the goods produced in the economy.b. the income earned in the economy.c. the total purchases in the economy.d. All of these choices are correct.(correct answer)

Go to #11.

a) (b^1/2)/(d^1/2) * c^3/4

Assume that GDP per capita for two countries is displayed in plot with a ratio scale on the y-axis and a linear time scale (in years) on the x-axis. If the two times series are straight lines in this plot, then the growth rates are _____ over time. If in addition, the two lines are parallel and upward-sloping, then the income gap is ____ in absolute terms. (b)a) Equal to 0/increasing/decreasingb) Equal to 0/increasing/decreasing

a) constantb) increasing

In the Cobb-Douglas production function Y=K^alpha * L^1-alpha, if alpha = 1/3, then:a) labor's share of GDP is 2/3rds.b) labor's share of GDP is 1/3.c) capital's share of GDP is 2/3rds.d) capital's share of income is one.e) labor's share of income is three.

a) labor's share of GDP is 2/3rds.

Considering the data in Table 4.1, the explanation for the difference between the predicted and actual level of output is called ________. If you compare South Africa's observed and predicted output, this difference is equal to ________. Look at #20 for table.a) total factor productivity; 0.37 b) the Solow residual; 2.71 c) Dirac's delta; 0.14d) capital's share of GDP; one-thirde) labor's share of GDP; two-thirds

a) total factor productivity; 0.37

Using the expenditure approach, government expenditures include:a. Defense and non-defense federal, state, and local government expenditures.b. Only non-defense federal government expenditures.c. Only federal government expenditures.d. only state and local government expenditures.e. Residential investment and state and local government expenditures.

a. Defense and non-defense federal, state, and local government expenditures

Which of the following is a cost of economic growth?

a. Job loss in certain sectorsb. Increased income inequalityc. Global warmingd. All of these choices are correct.

When we look at the _________, we are concerned with the ____________.a. Short Run, Causes of Economic Fluctuationsb. Long Run, Causes of Economic Fluctuationsc. Short Run, Determinates of economic Growth.

a. Short Run, Causes of Economic Fluctuations.

What is an explanation for why an economy eventually settles in steady state?

a. The production function exhibits diminishing returns to capital.b. The capital stock depreciates at a constant rate.c. Eventually, investment generated is equal to the amount of capital depreciated.d. ALL OF THESE ARE CORRECT

Output per person is higher when

a. a country is more efficient in adopting a technology.b. a country has a higher capital-to-population ratio.c. a country has stronger property rights and contract enforcement.d. All of these choices are correct.(CORRECT ANSWER)

Which of the following is/are the benefit(s) of economic growth?

a. an expansion in the range of goods and services available

If the U.S. trade deficit is reduced

a. capital inflows from abroad will likely be reduced.there my be disruption in the financial markets.interest rates will rise.*all of the answers are true.

Net exports are also called:

a. capital outflows

If there are large fixed costs due to research and development, perfect competition does not generate new ideas because:

a. firms need to recoup these costs through higher profits

The solution to the firm's maximization problem is:

a. how much capital and labor to hire given the rental rate of capital and labor's wage rate

Which of the following does macroeconomics endeavor to answer?i. What role does government play in recessions and booms and in the determining the rate of Inflation?ii. What causes an increase in the price of Exxon stock?iii. How does a dairy farmer react to rising milk prices?a. i onlyb. ii onlyc ii onlyd i, ii, and iiie ii, and iii

a. i only

Which of the following is/are the benefit(s) of economic growth?

a. increases in life expectancyb. reductions in infant mortalityc. higher incomesd. an expansion in the range of goods and services availableAnswer: E. All of these answers are correct.

Which of the following explain(s) differences in total factor productivity?

a. institutionsb. human capitalc. natural resourcesd. technologye. ALL OF THESE CHOICES ARE CORRECT

An implication of the Solow model is that once an economy reaches the steady state,

a. per capita consumption is constant

The percent change in the nominal GDP is given as:

a. percent change in the price level + percent change in real GDP

The costs of economic growth include which of the following?

a. pollution and the depletion of natural resourcesb. global warmingc. increased income inequalityd. technological advances, which may lead to the loss of specific jobs and industries Answer E. All of these answers are correct.

Which of the following is/are essential for economic success?

a. property rightsb. the rule of lawc. contract enforcementd. the separation of powerse. ALL OF THESE CHOICES ARE CORRECT

The key difference between the Solow model and the production model is:

a. the Solow model endogenizes the process of capital accumulation

Which of the following is/are NOT included in the expenditure approach to national income accounting?

a. transfer payments d. changes in stock prices b. taxes e. All the above. c. Social Security

Suppose the variable a grows at a constant rate , the variable b grows at a constant rate , the variable c grows at a constant rate , and the variable d grows at a constant rate . If we know that , what is the relationship between variables a, b, c, and d?

a=b^1/2 over d^1/2 c3/4

If per capita GDP in 2014 was $900, in 2015 was $1,000, and in 2016 was $1,200, the growth rate of per capita GDP between 2014 and 2016 was:

about 33 percent.

Suppose the parameters of the Romer model take the following values : (Abar) = 10, (lbar) = 0.01, (zbar) = 1/500, and (Lbar) = 10,000. What is the per capita income of this country in the 10th period, y10?

about 61.3

According to historical data, the wages in ancient Greece and Rome were ________ in fifteenth-century Britain or seventeenth-century France.

about the same as

If depreciation exceeds new investment, the capital stock in the economy is:

above its steady-state level

The National Income and Product Accounts provides a system for aggregating the productionof...

all goods and services into a single measure of economic activity.

Which of the following questions should a successful model predict? i. Why, in general, do Americans have higher incomes than Africans? ii. How much less unemployment is there during an economic expansion? iii. Why does the United States have a lower unemployment rate than Europe?

all of em

A government is more likely to utilize the inflation tax ifA. It is running a budget deficitB. Lenders worry that the government will not pay back its debtsC. Politicians will not raise taxes, because they cannot be reelected if they doD. All of the above are correct

all of the above

Which of the following production functions exhibits constant returns to scale?

all of these answers are correct

If a country is on its balanced growth path, then

all of these choices are correct.FEEDBACK: Page 151. Along a balanced growth path, the growth rates of all endogenous variables are constant.

An increase in the income taxes on wages results in:a. the labor demand curve shifting leftb. the labor supply curve shifting leftc. the labor supply and demand curves shifting leftd. the labor demand curve shifting righte. neither the labor supply nor demand curves shifting

b

Any institutional fixed wage set above the equilibrium wage is called:a. the market wage d. a real rigidityb. the minimum wage e. a wage ceilingc. a wage rigidity

b

As an economist working at the International Monetary Fund, you are given the following data for Burundi: observed per capita GDP, relative to the United States, is 0.01; predicted per capita GDP, given by y = k^1/3, is 0.18. What is total factor productivity?a. 0.44b. 0.06c. 18.00d. 0.98e. 0.00

b

Because in many industries the cost of generating new ideas is so high, firms must charge a price ________ cost.a. lower than the marginalb. higher than the marginalc. lower than the average fixedd. equal to the average fixede. equal to the marginal

b

Consider Figure 5.6. If K(SK) is the current capital stock in South Korea and K(CH) is the current capital stock in China, according to the principle of transition dynamics:a. South Korea will be richer than China, foreverb. South Korea will initially grow slower, but incomes in China and South Korea will convergec. China and South Korea have different steady statesd. South Korea will initially grow faster, but incomes in China and South Korea will convergee. China will initially grow slower, but incomes in China and South Korea will converge

b

Consider Table 4.1 (Homework 3/4), which compares the model y = K^1/3 to actual statistical data on per capita GDP. You observe the model:a. consistently underestimates the level of per capita GDP.b. consistently overestimates the level of per capita GDP.c. does a really good job of estimating the level of per capita GDP.d. clearly contains all factors that affect per capita GDP.e. None of these answers is correct.

b

Conventional wisdom is that most of the natural rate of unemployment is due to:a. bad fiscal policy d. structural unemploymentb. frictional unemployment e. bad monetary policyc. cyclical unemployment

b

In March 2016, the United States imposed tariffs on steel imports from China. Using the labor market depicted in Figure 7.3 (Homework 3/22), this would have the impact on the steel labor market of shifting labor:a. supply from LS 2 to LS 1.b. demand from LD 2 to LD 1.c. demand from LD 1 to LD 2.d. supply from LS 1 to LS 2.e. None of these answers is correct.

b

In economics, a nonrival good is one that:a. cannot be consumed by more than one person at a timeb. can be consumed by more than one person at a timec. can be consumed by more than one person at a time but is congestedd. cannot be consumed by more than two persons at a timee. None of these answers are correct.

b

In our balloon analogy, fiscal policy represents:a. the money supply.b. heating or cooling the air molecules.c. the thickness of the skin.d. a hole in the balloon.

b

In the "bathtub model" of unemployment, in the steady state:a. cyclical unemployment equals frictional unemployment.b. the change in unemployment is zero.c. the job-separation rate is zero.d. employment is constant.e. the natural rate of unemployment is zero.

b

In the "bathtub model" of unemployment, in the steady state:a. employment is constantb. the change in unemployment is zeroc. the natural rate of unemployment rate is zerod. cyclical unemployment equals frictional unemploymente. the job separation rate is zero

b

In the Romer model in Figure 6.1, at time t(0), a change in the growth rate of per capita output can be explained by:a. a decrease in the ideas efficiency parameterb. an increase in the populationc. an increase in the research shared. an increase in the saving ratee. a decrease in the population

b

In the Romer model, ________ is the resource constraint.a. K=K(bar) and L=L(bar)d. Y(t)=A(t)K(t)^(*)L(t)^(1-*)b. L(t)=L(y)(t)+L(a)(t)e. There is no resource constraint.c. A(t)=infinity

b

John Maynard Keynes is famous for saying, "In the longrun ________."a. there is no tomorrowb. we are all deadc. the only thing we have to fear is fear itselfd. the study of economics will be redundante. we will tear down this wall

b

Money made with silver, gold, and chocolate are examples of ________ money.a. fiatb. commodityc. backedd. governmente. None of these answers is correct.

b

Negative inflationary surprises lead to:a. an increase in the real interest rateb. a redistribution of wealth from borrowers to lendersc. a decline in the nominal interest rated. a decline in inflation risk for lenderse. a redistribution of wealth from lenders to borrowers

b

Oligopolies are able to make ______________ in the long-run. a. normal profits.b. economic profitsc. only zero economic profits.d. only accounting profits.

b

On average, if both rich and poor countries grow at the same rate, this suggests that:a. no countries have reached their steady states.b. most countries have reached their steady states.c. most countries are unproductive.d. most countries still are growing.e. most countries are contracting.

b

One explanation for the difference between the predicted output per person and the observed per capita GDP in Table 4.1 is differences in:a. the labor supply.b. human capital.c. per capita capital.d. capital's share of GDP.e. None of these answers is correct.

b

Practically, in the long run the real interest rate is equal to:a. the return to stock markets.b. the marginal product of capital.c. the return to housing.d. a savings account.e. the rate of return to long-term bonds.

b

Silver, gold, and chocolate are examples of:a. fiat money d. government moneyb. commodity money e. None of these answers are correct.c. backed money

b

The South Korea - Philippines comparison suggests:a. economists cannot offer any good advice towards economic development.b. there are still many unknowns about the causes of nation development and growth.c. economists have good predictive models for developing countries to utilize for future economic growth.d. economists have long-term nation building down to an exact science.

b

The amount of capital in an economy is a(n) ________, while the amount of investment is a(n) ________.a. flow; stockb. stock; flowc. final good; intermediate goodd. intermediate good; final goode. None of these answers are correct.

b

The difference between total factor productivity (TFP)and the stock of ideas is that:a. TFP grows and ideas are fixed d. TFP is rivalrous and ideas are notb. TFP is fixed and ideas can grow e. There is no difference.c. TFP is nonrivalrous and ideas are not

b

The explanation for the upward-sloping supply of labor curve is that:a. the marginal product of capital is positive.b. as the wage rises, the opportunity cost of leisure rises, so people work more.c. as the wage rises, people want to work less.d. the marginal product of labor is diminishing.e. None of these answers is correct.

b

The quote "Inflation is always and everywhere a monetary phenomenon" is attributed to:a. Alan Greenspan.b. Milton Friedman.c. Thomas Sargent.d. Karl Marx.e. David Ricardo.

b

The velocity of money can be calculated from the quantity equation with:a. Mt .b. PtYt /Mt .c. Mt /Pt Yt .d. PtYt .e. PtYt Mt .

b

When calculating fixed retirement payments, it is important not to forget:a. changes in flexible interest ratesb. the decline in the payment's value due to inflationc. the increase in the payment's value due to inflationd. rates of return in other marketse. the price of tea in China

b

Which of the following is NOT an example of a short-term macroeconomic "shock"?a. a drought d. a change in the tax codeb. planned investment expenditures e. political unrestc. increased military spending

b

How quickly GDP doubles will depend on:a) the initial value of GDPb) the growth rate of GDPc) the current value of GDPd) all of these

b) the growth rate of GDPPage 51. The Rule of 70 implies that the time it takes for a variable to double depends only on its growth rate.

The explanation for the upward sloping supply of labor curve is that:a. The marginal product of capital is positive.b. As the wage rises the opportunity cost of leisure rises, people work more.c. As the wage rises, people want to work less.d. The marginal product of labor is diminished.e. None of the above is correct.

b. As the wage rises the opportunity cost of leisure rises, people work more.

Suppose there are L0 people in the world today. If the population growth rate equals nbar, then in 50 years, the world population will be:

b. L50 = L0(1 + nbar)^50

In the Romer model, ______ is the resource constraint.

b. Lt = Lyt + Lat

Real GDP is given by _________, where the price level is the ________.a. Real GDP = Nominal GDP x Price Level ; CPI b. Real GDP = Nominal GDP / Price Level; GDP deflatorc. Real GDP = Nominal GDP + price Level; GDP deflatord. Real GDP = Nominal GDP - Price Level; GDP deflatore. Real GDP = Nominal GDP / Price Level; CPI

b. Real GDP = Nominal GDP / Price Level; GDP deflator

If C t denotes consumption, I t denotes investment, and Y t is output, the resource constraint in the Solow model is:

b. Y t = C t + I t

Which of the following does NOT count toward changes in the current GDP?a. A student pays for another year of tuition.b. You buy a used car from your parents.c. The local police station buys new squad cars.d. The Pentagon buys gasoline.e. None of these answers is correct.

b. You buy a used car from your parents.

In the Romer model, what two key goods are produced?

b. a consumption good and new ideas

The Solow model assumes the saving rate is:

b. constant

In the Solow model, if investment is ______ depreciation, the capital stock ______.

b. greater than; grows

If the percent change in the price level is ______ than the percent change in ________, __________.a. smaller, nominal GDP, real GDP shrinks.b. greater, nominal, real GDP shrinks.c. greater, real GDP, nominal GDP shrinks.d. greater, real GDP, nominal GDP stays the same.

b. greater, nominal, real GDP shrinks.

If the percent change in the price level is _____ than the percent change in _____, _____.

b. greater; nominal GDP; real GDP shrinks

A model is a _____ representation of _____ world that we use to study economic phenomena.

b. mathematical; a toy

In Figure 5.3 (Solow Diagram), at K1, the difference between sbarY and dbarK is ______ and the difference between Y and sbarY is _____.

b. net investment; consumption

The marginal product of labor is defined as:

b. the additional output generated by hiring an additional unit of labor

The marginal product of labor is measured in:

b. units of output

The steady state is defined as the point where capital accumulation, change-inK t, is equal to:

b. zero

There is a shock that shifts labor supply or labor demand to the left. Then, in theory, the unemployment rate in the long run will

be unchanged from the level prior to the shockPages 185-187. The negative shocks to supply and to demand will raise unemployment rates in the short run, but as people become discouraged, the unemployment rates should converge to the old level.

According to the Solow model two countries will grow at different rates if:

both have different steady-state level of output and the same capital stock below the steady-state levelIf two countries have different steady-state levels of output and the same capital stock then through the process of transition dynamics the country with the higher steady-state level of output will grow faster as it tries to reach that higher steady state.

According to the Solow model two countries will grow at different rates if:

both have different steady-state level of output and the same capital stock below the steady-state levelIf two countries have different steady-state levels of output and the same capital stock then through the process of transition dynamics the country with the higher steady-state level of output will grow faster as it tries to reach that higher steady state.

The law of diminishing marginal product to capital means that as we add additional units of capital:

but hold labor constant, output will increase but at a decreasing rate

The law of diminishing marginal product to capital means that as we add additional units of capital:

but hold labor constant, output will increase, but at a decreasing rate

The law of diminishing marginal product to capital means that as we add additional units of capital:

but hold labor constant, output will increase, but at a decreasing rate.

The U.S. trade deficit (according to many economists) is caused in part by

by foreign inflows of savings that is used to fund U.S. investment.

Perfectly competitive firms typically have _________ fixed costs.a. zerob. very high and risingc. lowd. high

c

A risk a bank takes on by offering long-term fixed interest rate loans is the:a. gains that could have been made if the money were invested in an alternative asset.b. gain that could be made from offering short-term loans.c. loss of real returns due to an unexpected inflation surprise.d. loss of customers wanting flexible interest loans.e. loss of real returns due to anticipated inflation.

c

According to the Phillips curve, short-term changes in inflation are due to changes in:a. interest rates d. long-term inflationb. unemployment e. long-term outputc. short-term output fluctuations

c

According to the classical dichotomy, in the long run there is:a. accelerating economic growthb. perfect connectivity between the nominal and real sides of the economyc. complete separation of the nominal and real sides of the economyd. no growth after the economy reaches the steady statee. zero inflation

c

According to the government's budget constraint, if the government spends more than it generates in taxes, it can raise revenues by:a. decreasing its debt.b. privatizing.c. printing money.d. lowering interest rates.e. increasing interest rates.

c

Any institutional fixed wage set above the equilibrium wage is called:a. the market wage.b. a real rigidity.c. a minimum wage.d. a wage rigidity.e. a wage ceiling.

c

Consider Figure 5.4, which represents two countries, 1 and 2. Country ________ has a higher saving rate and will have a ________ steady state than the other country.a. 2; lower d. 1; lowerb. 1; higher e. Not enough information is given.c. 2; higher

c

Consider Table 7.1. Between January 2012 and January 2013, the unemployment rate ________ and the labor participation rate ________ (rounded to 1 decimal point).a. rose; fell d. fell; fellb. rose; rose e. Not enough information is given.c. fell; was about the same

c

Consider the data in Table 7.2. Using the "bathtub model" of unemployment, in 2015 the natural rate ofunemployment is:a. 19.6 percent d. 0.2 percentb. 10.0 percent e. 90.9 percentc. 9.1 percent

c

Considering the data in Table 4.1 (Homework 3/4), the explanation for the difference between the predicted and actual level of output is called ________. If you compare South Africa's observed and predicted output, this difference is equal to ________.a. labor's share of GDP; two-thirdsb. Dirac's delta; 0.14c. total factor productivity; 0.37d. the Solow residual; 2.71e. capital's share of GDP; one-third

c

Defining Y(t) as current output, Y(bar)(t) as potential output, and Y(~bar)(t) as short-run fluctuations, which of the following equations does the text use to measure the fluctuations component of output?c. Y(~bar)(t)=(Y(t)-Y(bar)(t))/Y(bar)(t)

c

Frictional unemployment is the unemployment that results from:a. workers losing jobs during recessionb. workers losing jobs during seasonal changesc. workers changing jobs in a dynamic economyd. prevailing labor market institutionse. workers leaving the labor force

c

If a perfectly competitive market has market entry, economic profits are: a. zero.b. negative.c. positive.d. increasing fast.

c

In 1960, the Phillipines had a per capita income ________ South Korea. In 2010, ________.a. higher than; this difference was even more pronouncedb. lower than; per capita income was equal in both countriesc. equal to; South Korea had relatively higher per capita incomed. lower than; this situation had reversede. higher than; this situation had reversed

c

In 1960, the Phillipines had a per capita income ________ South Korea. In 2010, ________.a. lower than; this situation had reversedb. lower than; per capita income was equal in both countriesc. equal to; South Korea had relatively higher per capita incomed. higher than; this situation had reversede. higher than; this difference was even more pronounced

c

In 1979, the inflation rate reached about 14 percent,due in part to ________. The Board of Governors of the Federal Reserve under ________ decided to ________ interest rates, sending the economy into a ________.a. a fall in oil prices; Volcker; raise; recessionb. an increase in consumer spending; Volcker; lower; recessionc. an increase in oil prices; Volcker; raise; recessiond. an increase in oil prices; Volcker; lower; boome. a fall in oil prices; Greenspan; raise; recession

c

In Figure 5.3 (Homework 3/4), at K1, the difference between s(bar)Y and d(bar)K is ________ and the difference between Y and s(bar)Y is ________.a. depreciation; gross investmentb. gross investment; consumptionc. net investment; consumptiond. output; consumptione. output; investment

c

In Romer's influential paper he divided the economic world into:a. resources and ideas d. utilities and objectsb. objects and resources e. None of these answers are correct.c. objects and ideas

c

In Romer's influential paper he divided the economic world into:a. resources and ideas.b. objects and resources.c. objects and ideas.d. utilities and objects.e. None of these answers is correct.

c

In our balloon analogy, the skin of the balloon represents:a. total exports.b. the monetary base.c. real or potential GDP.d. the money supply.

c

In the Romer model, the growth rate of ideas, g(bar), is increasing in:a. the research share and the total populationb. the knowledge efficiency parameter and the population growth ratec. the knowledge efficiency parameter, the research share, and the total populationd. the knowledge efficiency parameter and the saving ratee. the fraction of labor in research and development and the saving rate

c

In the Solow model, if It>d(bar)Kt, the capital stock:a. declinesb. stays the samec. growsd. Not enough information is given.e. None of these answers are correct.

c

In the Solow model, if L(t)>d(bar)K(t), the capital stock:a. declines d. Not enough information is given.b. stays the same e. None of these answers are correct. c. grows

c

In the Solow model, the steady-state level of output per worker is a function of:a. productivity and the initial capital stockb. the initial capital stock, productivity, and the depreciation ratec. productivity, the depreciation rate, and the saving rated. the initial capital stock and the steady-state level of capital stocke. the initial capital stock, productivity, and the saving rate

c

In the corn farm example, corn can be used as:a. only consumptionb. either saving or depreciationc. either consumption or investmentd. only investmente. tax revenue

c

In the labor market depicted in Figure 7.3 (Homework 3/22), an increase in oil prices:a. shifts labor demand from LS 2 to LS 1.b. shifts labor supply from LS 2 to LS 1.c. shifts labor demand from LD 1 to LD 2.d. produces no change in either the labor supply or demand curve.e. None of these answers is correct.

c

Inflation is calculated as:a. the overall price level d. the difference in the price levelb. the rate of change of the price level e. the percent change in outputc. the percent change in the price level

c

John Maynard Keynes is famous for saying, "In the long run ________."a. we will tear down this wallb. the only thing we have to fear is fear itselfc. we are all deadd. the study of economics will be redundante. there is no tomorrow

c

Keynesian (original school) economists argue:a. velocity is unstable.b. monetary policy is a weak policy tool.c. all of the answers are true.d. monetary policy can influence real output in the long-run.

c

Nonrivalry in the knowledge sector means that:a. per capita income depends on the total populationb. per capita income depends on some of the stock of ideasc. per capita income depends on the total stock of ideasd. labor in the ideas sector also can be used in the output sectore. all labor is used in the ideas sector

c

One explanation for the difference between the predicted output per person and the observed per capita GDP in Table 4.1 is differences in:a. per capita capital.b. the labor supply.c. factor productivity.d. labor's share of GDP.e. None of these answers is correct.

c

The amount of raw material in the universe—the amount of sand, oil, and the number of atoms of carbon, oxygen, etc.—is ________. The number of ways of arranging and using these raw materials is ________.a. finite; also finite d. virtually infinite; zerob. infinite; virtually infinite e. zero; infinitec. finite; virtually infinite

c

The data presented in Figure 8.1 (Homework 3/31) confirm that the relationship between inflation and money growth is ________, as suggested by ________.a. positive; the Fisher equationb. positive; money neutralityc. positive; the quantity theory of moneyd. negative; the quantity theory of moneye. None of these answers is correct.

c

The endogenous variables in the Solow model are:a. the capital stock, labor, and outputb. consumption, investment, the capital stock, labor, and the saving ratec. consumption, investment, the capital stock, labor, and outputd. productivity and the depreciation and saving ratese. the capital stock, labor, output, and the saving rate

c

The equation s(bar)F(K(t),L(bar)-d(bar)K(t) is called:a. saving d. the capital stockb. investment e. depreciationc. net investment

c

The essence of the quantity theory of money is that:a. only the central bank knows what the price level is.b. in the long run, the only determinant of the price level is the interest rate.c. in the long run, a key determinant of the price level is the money supply.d. money cannot pin down the price level.e. the price level is indeterminate.

c

The essence of the quantity theory of money is that:a. the price level is indeterminateb. in the long run, the only determinant of the price level is the money supplyc. in the long run, a key determinant of the price level is the money supplyd. only the central bank knows what the price level ise. money cannot pin down the price level

c

The implications of the quantity theory of money are the main basis for which of the following quotes?a. "Inflation is always zero in the long run."b. "Inflation is always and everywhere a fiscal phenomenon."c. "Inflation is always and everywhere a monetary phenomenon."d. "Velocity growth should be equal to 2 percent in the long run."e. "Velocity is always constant."

c

The labor demand curve slopes downward because:a. wages are inflexibleb. wages are higher when demand fallsc. of the diminishing marginal product of labord. of the income effecte. None of these answers are correct.

c

The labor demand curve slopes downward because:a. wages are inflexible.b. wages are higher when demand falls.c. of the diminishing marginal product of labor.d. of the income effect.e. None of these answers is correct.

c

The natural rate of unemployment is decomposed into:a. cyclical and frictional unemploymentb. structural and seasonal unemploymentc. structural and frictional unemploymentd. seasonal and frictional unemploymente. structural, frictional, and seasonal unemployment

c

The price controls imposed by the Nixon administration lasted for:a. four weeks d. one yearb. six months e. two yearsc. ninety days

c

The quote "Inflation is always and everywhere a monetary phenomenon" is attributed to:a. Karl Marx d. Alan Greenspanb. Thomas Sargent e. David Ricardoc. Milton Friedman

c

The right to seignorage is the right to:a. make coins d. borrow from the publicb. raise tax revenues e. raise an armyc. print money

c

The right to seignorage is the right to:a. make coins.b. raise tax revenues.c. print money.d. borrow from the public.e. raise an army.

c

The rise in the employment-population ratio largely is due to:a. a shrinking U.S. populationb. more teenagers entering the labor forcec. more women entering the labor forced. an increase in immigrant workerse. It is unexplained.

c

The short-run model determines ________ and ________.a. potential output; unemploymentb. current output; long-run inflationc. current output; current inflationd. unemployment; current inflatione. unemployment; potential output

c

The unemployment rate is defined as the ratio of:a. all adults not working to the total population.b. discouraged workers to the total population.c. unemployed members of the labor force to the total labor force.d. unemployed members of the labor force to the total population.e. unemployed to employed members of the labor force.

c

The unemployment rate is defined as:a. the ratio of all adults not working to the total populationb. the ratio of unemployed to employed members of the labor forcec. the ratio of unemployed members of the labor force to the total labor forced. the ratio of discouraged workers to the total populatione. the ratio of unemployed members of the labor force to the total population

c

The velocity of money is:a. how quickly money can be printedb. how quickly individuals spend their incomec. the average number of times a dollar is used in a transaction per yeard. how many times individuals are paid per yeare. None of these answers are correct.

c

The velocity of money is:a. how quickly money can be printed.b. how quickly individuals spend their incomes.c. the average number of times a dollar is used in a transaction per year.d. how many times individuals are paid per year.e. None of these answers is correct.

c

Using the quantity equation, if, Mt= $1,000, Pt=1.1, and Yt= 100,000, then the velocity of money is:a. 100,000 d. 9.09b. 0.09 e. 0.11c. 110

c

Wage rigidity:a. helps the labor market achieve equilibrium.b. prevents the capital market from realizing equilibrium.c. prevents the labor market from realizing equilibrium.d. prevents unemployment.e. None of these answers is correct.

c

When inflation is high and people are forced to make more trips to the bank, this is often referred to as:a. marginal social cost.b. the neutrality of money.c. shoe-leather costs.d. hyperinflation.e. the double coincidence of wants.

c

Which of the following flowcharts best summarizes Romer's description of ideas and growth?a. Capital → Nonrivalry → Decreasing returns → Imperfect competitionb. Capital → Rivalry → Increasing returns → Perfect competitionc. Ideas → Nonrivalry → Increasing returns → Imperfect competitiond. Ideas → Capital → Constant returns → Imperfect competitione. Ideas → Rivalry → Increasing returns → Perfect competition

c

Which of the following has NO effect on long-run economic growth?a. populationb. institutionsc. moneyd. investmente. productivity

c

With monopolistic pricing, ________ are needed to generate ________.a. profits; capitalb. costs; capitalc. profits; new ideasd. variable costs; total factor productivitye. profits; total factor productivity

c

With unanticipated inflation:a. debtors with an unindexed contract lose, because they pay exactly what they contracted for in nominal terms.b. debtors with an indexed contract are hurt, because they pay more than they contracted for in real terms.c. creditors are hurt unless they have an indexed contract, because they get less than they expected in real terms.d. creditors with indexed contracts gain, because they receive more than they contracted for in nominal terms.e. debtors with an indexed contract are hurt, because they pay more than they contracted for in nominal terms.

c

________ prevent(s) governments from being tempted to use seignorage excessively.a. Gold reservesb. The power of bond marketsc. Central bank independenced. The government budget constrainte. Future generations

c

If nominal GDP grew by 7% in year 2 relative to year 1, the price level increased by 2% during the same period and the real GDP in year 1 was $1,000, what was real GDP in year 2? Use the properties of growth rates in section 3.5 of the textbook to answer your question.a) $1,000b) $1,020c) $1,050d) $1,100

c) $1,050Page 48; 58-60. Nominal GDP = Real GDP x Price level. Applying the second property of growth rates: growth rate of nominal GDP = growth rate of real GDP + growth rate of the price level. Growth rate of real GDP = growth rate of nominal GDP - growth rate of the price level. Growth rate of real GDP = 7% - 2% = 5%. The growth rate is the percentage change from year 1 to year 2: 5% = (real GDP in year 2 - 1,000)/1,000. Real GDP in year 2 = $1,050.

Which of the following is an example of labels for equidistant tick marks on a ratio scale?a) 1, 2, 3, 4, 5... b) 1, 3, 6, 9, 12...c) 1, 5, 25, 125, 625...d) All of these are correct

c) 1, 5, 25, 125, 625...Page 52. A ratio scale is one where the numbers exhibit a constant ratio. The ratio scale here has a constant ratio of 5.

According to figure 3.7, the fastest growing country during 1960-2014 had a level of per capita GDP approximately equal to _____ of the U.S. level in 2014:a) 1/16b) 1/8c) 1/4d) 1/2

c) 1/4Figure 3.7. The fastest growing country during 1960-2014 was Botswana with an average annual growth rate of above 6%. Its level of per capita GDP is slightly above 1/4 of the U.S. level.

If Y = A*K^(1/3)*L^(2/3) and A grows at a rate of 1 percent per year, K grows at a rate of negative 3 percent per year and L grows at a rate of 3 percent per year, then the growth rate of Y isa) 0 percentb) 1 percentc) 2 percentd) 3 percent

c) 2 percentPage 60. The growth rate formula for such a production function is g(Yt) = g(At) + (1/3)*g(Kt) + (2/3)*g(Lt). The first two terms cancel and we are left with (2/3)*(3).

One of the key characteristics of the Cobb-Douglas production function is:a) increasing returns to scale. b) decreasing returns to scale. c) constant returns to scale.d) that it compacts all inputs into a single equation.e) that it is an exact replication of a firm's production function.

c) constant returns to scale.

By how much does the current GDP rise in the following scenario? A real estate agent sells a house for $250,000 that the previous owners had purchased 10 years earlier for $90,000. The real estate agent earns a commission of $10,000.

c. $10,000

Consider the data in Table 2.4 (Eurozone nominal GDP = E13,144 and dollar/euro exchange rate = $1.28/E1) . The value of Eurozone nominal GDP in U.S. dollars is:

c. $16,824

In 2004, investment expenditures accounted for about _________ of total GDP.a. 70%b. 40%c. 16%d. 19%e. 11%

c. 16%

As a result of the Great Depression, inflation, as measured by the CPI, __________ for the first time in 6 decades.a. Increasedb. Decreasedc. Became negatived. Exhibited tendencies of hyper inflation.e. Was of no concern to policy makers.

c. Became negative

Consider two countries, labeled 1 and 2. Each has the production function Y=(Abar i)(Kbar^1/3)(L^1/3), i = 1,2. If the only difference between the two countries is that A1 > A2,

c. Country 1 will produce more than Country 2, ceteris paribus.

If we calculate the real GDP using the initial period's prices, we are using a ____ index. If, instead, we use the final period's prices we are using a ____ index.

c. Laspeyres; Paasche

The birthplace of modern economic growth was in ____ during the ____ century.

c. The United Kingdom; mid-eighteenth

Consider Figure 4.2. (concave up). The shape of this production function suggests:

c. a diminishing marginal product of labor

The following equation is an example of ______: Y= F(K,L)=(Abar)(K^a)(L^1-a).

c. a production function

The two main inputs we consider in a simple production function are:

c. capital and labor

Consider the Solow model exhibited in Figure 5.5.Which of the following is/are true?i. If 1 denotes Country 1 and 2 denotes Country 2, Country 1 has a higher saving rate.ii. If 1 denotes Country 1 and 2 denotes Country 2, Country 1 has a lower depreciation rate.iii. If 1 denotes Country 1 and 2 denotes Country 2, Country 2 has a lower steady state.a. id. ii and iiib. iie. i, ii, and iiic. iii

d

Current output is defined as:a. what an economy produces when it is at capacity.b. the amount of total output if all inputs are utilized at their long-run sustainable levels.c. the amount of output when inflation is about 2 percent.d. the amount of total output at the current level of input utilization.e. the amount of output where unemployment is zero.

d

If East and West Timor are identical in every way except that East Timor has fewer researchers:a. West and East Timor will grow at the same rateb. East Timor should grow faster according to the Romer modelc. West Timor should grow faster according to the Solow modeld. West Timor should grow faster according to the Romer modele. East Timor is smaller than West Timor

d

If a firm is making a normal profit, economic profits are:a. increasing fast.b. negative.c. positive.d. zero.

d

If current output is Y(t)=$12 billion and potential output Y(bar)(t)=$11.25 billion, then the economy is in a ________ and Y(~bar)(t) is about ________.a. boom; -6.7percent d. boom; 6.7 percentb. recession; -6.7 percent e. None of these answers are correct.c. recession; -6.2 percent

d

If the income taxes on wages increase, the labor supply curve will shift left, but what happens to the unemployment rate?a. It unambiguously falls because the labor participation rate changes.b. It unambiguously falls because some workers drop out of the workforce.c. It unambiguously rises because some workers drop out of the workforce.d. It is ambiguous because some workers drop out of the workforce.e. None of these answers is correct.

d

If the real GDP growth is 4 percent per year, the money growth rate is 6 percent, and velocity is constant, using the quantity theory, the inflation rate is:a. 6 percent d. 2 percentb. 4 percent e. -4 percentc. -2 percent

d

If there are large fixed costs due to research and development, perfect competition does not generate new ideas because:a. with monopolistic competition, prices are equal to the marginal cost.b. with monopolistic competition, prices are equal to the marginal cost minus a markup.c. perfectly competitive firms always set prices lower than the marginal cost.d. firms need to recoup these costs through higher profits.e. the government does not adequately fund innovation.

d

If you decide to buy a house with an adjustable-rate mortgage (ARM), you are:a. reducing your inflation risk.b. passing inflation risk to the lender.c. taking on some of the lender's inflation risk.d. exposing yourself to inflation risk.e. increasing your mortgage payment.

d

In Figure 5.1 (Homework 3/4), if the economy begins with the initial capital stock at K 1, the capital stock will ________ and the economy will ________.a. stay constant; growb. stay constant; shrinkc. decrease; growd. increase; growe. decrease; shrink

d

In Figure 5.3, at K2, capital accumulation is ________, the economy is ________, and consumption is________.a. positive; growing; positive d. zero; in the steady state; positiveb. zero; in the steady state; zero e. zero; contracting; negativec. negative; growing; positive

d

In economics, a rival good is one that:a. cannot be consumed by more than two people at a time.b. can be consumed by more than one person at a time.c. is congested if used by more than one person at a time.d. cannot be consumed by more than one person at a time.e. None of these answers is correct.

d

In the Romer model, if Canada and Taiwan have the same fraction of researchers and the same knowledge efficiency parameter but Canada's population is larger, then:a. Taiwan has a higher per capita output growth rate.b. each country's per capita output grows at the same rate.c. Canada's level of income is greater than Taiwan's.d. Canada has a higher per capita output growth rate.e. Canada has higher per capita income than Taiwan.

d

In the Romer model, if an economy allocates allof its labor to production:a. it will reduce outputb. it will reduce the number of ideas it generatesc. it will increase the number of ideas it generatesd. it will not generate any idease. None of these answers are correct.

d

In the Romer model, if an economy's share of researchers decreases, there will be:a. no change in output but output growth will slow.b. an immediate decrease in output and output growth will slow.c. an immediate decrease in output and output growth will accelerate.d. an immediate increase in output and output growth will slow.e. an immediate increase in output and output growth will accelerate.

d

In the Solow model, if net investment is positive:a. savings are negativeb. capital accumulation is negativec. capital accumulation is zerod. capital accumulation is positivee. Not enough information is given.

d

In the Solow model, it is assumed a(n) ________ fraction of capital depreciates each period.a. zero d. constantb. increasing e. None of these answers are correct.c. decreasing

d

In the Solow model, the parameter d(bar) denotes ________ and is ________.a. investment; less than one d. the depreciation rate; less than oneb. the depreciation rate; equal to zeroe. investment; greater than onec. consumption; greater than one

d

In the United States, money is backed by:a. oil d. no physical commodityb. gold e. None of these answers are correct.c. silver

d

In the labor market depicted in Figure 7.3, investment in new physical capital:a. shifts labor supply from LS1 to LS2b. shifts labor supply from LS2 to LS1c. shifts labor demand from LD1 to LD2d. shifts labor demand from LD2 to LD1e. None of these answers are correct.

d

In the quantity theory of money, the:a. price level is exogenousb. real GDP, velocity, and money supply are endogenousc. real GDP and money supply are endogenousd. real GDP, velocity, and money supply are exogenouse. real GDP is endogenous

d

Over the past 50 years or so:a. the employment-population ratio always has been risingb. the employment-population ratio generally has been fallingc. the unemployment-population ratio generally has been risingd. the employment-population ratio generally has been risinge. None of these answers are correct.

d

Per class discussion, the most common barrier to entry for oligopolies are:a. excess profits.b. variable costs of production.c. government protection.d. economies of scale.

d

Potential output is defined as:a. the level of output when unemployment is 10 percent.b. the amount of output where inflation is zero.c. the current level of output.d. the amount of total output if all inputs were utilized at their long-run, sustainable levels (i.e. long-run maximum sustainable level of output).e. what an economy produces when it is booming.

d

The Solow model assumes:a. the depreciation rate changes each periodb. the number of workers is growingc. the saving rate changes each periodd. the number of workers is constante. the capital stock is constant

d

The long-run model determines ________ output and ________.a. current; unemploymentb. potential; potential inflationc. current; long-run inflationd. potential; long-run inflatione. potential; unemployment

d

The measure of money that includes demand deposits and currency only is called:a. M0 d. M1b. MZ e. MBc. M2

d

The natural rate of unemployment is decomposed into ________ unemployment.a. structural, frictional, and seasonalb. structural and seasonalc. cyclical and frictionald. structural and frictionale. seasonal and frictional

d

The production function in the Romer model is given by ________, where is ________.a.; the growth rate of capitalb.; the growth rate of knowledgec.; the growth rate of populationd. y=A(bar)(0)(1-L(bar))(1+g(bar))^t; the growth rate of knowledgee.; the growth rate of population

d

To minimize what was believed to be a wage-price spiral, the ________ administration ________.a. first Bush; increased taxesb. Reagan; increased corporate incomec. Carter; increased interest ratesd. Nixon; imposed price controlse. Clinton; released oil from the strategic reserves

d

Using Figure 7.1 (Homework 3/22), Which of the following year(s) are the approximate trough of a recession?a. 1975b. 1983c. 2011d. All of these answers are correct.e. None of these answers is correct.

d

Using Figure 7.1, which of the following year(s) are the trough of a recession?a. 1975 d. All of these answers are correct.b. 1983 e. None of these answers are correct.c. 1992

d

Using the Solow model, if, in time t = 0, the initial capital stock is K0 = 100, investment is I0 = 25, and d(bar) is the depreciation rate, capital accumulation is: (see pg. 105 text):a. change in K0 = 35b. change in K0 = 115c. change in K0 = -15d. change in K0 = 15e. change in K0 = 0

d

Using the quantity equation, if Mt = $1,000, Pt = 1.1, and Yt = 100,000, then the velocity of money is:a. 0.09.b. 100,000.c. 0.11.d. 110.e. 9.09.

d

With the production function Y(t)=A(t)K(t)^(1/3)L(t)^(2/3) , if we double ________, we have a constant returns production.a. capital d. capital and laborb. capital, labor, and the stock of ideas e. labor and the stock of ideasc. capital and the stock of ideas

d

With the production function Y(t)=A(t)K(t)^(1/3)L(t)^(2/3) , if we double ________, we have an increasing returns production.a. capital d. capital, labor, and the stock of ideasb. capital and the stock of ideas e. labor and the stock of ideasc. capital and labor

d

After graduating college, you start a job making $40,000. Your earnings grow at a constant growth rate of 3 percent per year. When you retire 40 years later, you are earning approximately:a) 41,000b) 70,000c) 100,000d) 130,000

d) 130,000Page 50. Apply formula 3.7 where y0 equals 40,000, the growth rate is .03, and t equals 40.

If the production function is given by Y = K^1/4 * L^3/4 and K = 81 and L = 2.5, total output equals about:a) Y = 1b) Y = .3c) Y = 22.1d) Y = 6e) Y = 82.4

d) Y = 6

According to the U6 unemployment:a. it includes both recent job losers and long-term unemployment.b. it includes marginally attached workers.c. the measure includes U5 plus part-time workers seeking full-time work.d. the magnitude is approximately double the U3 measure of unemployment.e. all of the answers are correct.

e

Because there are no diminishing returns in the stockof ideas in the Romer model:a. old ideas continue to contribute to current economic growthb. economic growth cannot be sustained foreverc. the economy eventually reaches a steady stated. economic growth eventually slowse. new ideas must be continually created

e

Consider Table 7.1 (Homework 3/22). In 2010, the employment-population ratio was ________ percent.a. 64.7b. 90.4c. 9.6d. 60.2e. 58.5

e

Consider Table 7.1 (Homework 3/22). In 2010, the unemployment rate was ________ percent.a. 50.1b. 6.2c. 39.8d. 10.6e. 9.6

e

Defining Yt as current output, Y(bar) as potential output, and ~Y as short-run fluctuations, which of the following equations is correct?a. Yt = ~Y - Y(bar)b. Y(bar) = ~Yc. Yt = ~Y/Y(bar)d. Yt = 0e. Yt = Y(bar) + ~Y

e

Europe's relatively high unemployment rates can be attributed to:a. adverse shocks.b. inefficient labor market institutions.c. strong labor unions.d. generous unemployment insurance.e. All of these answers are correct.

e

For which of the following does the Solow model NOT provide adequate explanations?a. why saving rates differ across countriesb. the cause of productivity differences across countriesc. why population growth rates differ across countriesd. what causes long-term economic growthe. All of these answers are correct.

e

Frictional unemployment is the unemployment that results from:a. prevailing labor market institutions.b. workers leaving the labor force.c. workers losing jobs during recession.d. workers losing jobs during seasonal changes.e. workers changing jobs in a dynamic economy.

e

If P(t) is the price level in time t, inflation is calculated as:a. 1/P(t)b. P(t+1)/P(t)c. P(t+1)-P(t)d. P(t)/P(t+1)e. (P(t+1)-P(t)/P(t)

e

If the minimum wage is set above the equilibrium market wage, it:a. does not affect the market equilibrium.b. equals the black market wage.c. is effective and reduces unemployment.d. is lower than firms are willing to pay for labor.e. increases unemployment.

e

If the real GDP growth is 4 percent per year, the money growth rate is 6 percent, and velocity is constant, using the quantity theory, the inflation rate is ________ percent.a. −2b. 6c. −4d. 4e. 2

e

If there are large fixed or research and development costs, such as in the pharmaceutical industry, production can be characterized by:a. negative costs d. large variable costsb. constant returns to scale e. increasing returns to scalec. decreasing returns to scale

e

In Figure 5.1 (Homework 3/4), the capital stock at K 1 is not the steady state because:a. the saving rate is too highb. gross investment is lower than capital depreciationc. the saving rate is too lowd. the depreciation rate is too lowe. gross investment is higher than capital depreciation

e

In the Romer model, if an economy's population increases:a. output growth deceleratesb. output immediately increases and output growth slowsc. output immediately decreases and output growth slowsd. output immediately decreases and output growth acceleratese. output growth accelerates

e

Increasing returns to scale is characterized by:a. constantly declining fixed costsb. diseconomies of scale; that is, the average cost falls as output risesc. economies of scale; that is, the average cost rises as output risesd. diseconomies of scale; that is, the average cost is constant as output risese. economies of scale; that is, the average cost falls as output rises

e

One explanation for the difference between the predicted output per person and the observed per capita GDP in Table 4.1 (Homework 3/4) is differences in:a. per capita capital.b. labor's share of GDP.c. the labor supply.d. capital's share of GDP.e. the state of technology.

e

Structural unemployment is the unemployment that results from:a. workers leaving the labor forceb. workers changing jobsin a dynamic economyc. workers losing jobs during seasonal changesd. workers losing jobs during recessione. prevailing labor market institutions

e

Suppose the parameters of the Romer model take the following values: A(bar) = 10, l(bar) = 0.01, z(bar) = 1/500 and L(bar) = 10,000. What is the per capita income of this country in the first period, y1?a. about 9.9b. about 1.19c. about 12.0d. about 14.3e. about 11.9

e

The Great Depression stimulated ________ to write ________, which is considered to be the birth of modern macroeconomics.a. John Hicks; Value and Capitalb. Karl Marx; Das Kapitalc. David Ricardo; Principles of Political Economy and Taxationd. Milton Friedman and Anna J. Schwartz; A Monetary History of the United States, 1867-1960e. John Maynard Keyes; The General Theory of Employment, Interest, and Money

e

The Solow model describes:a. how savings, population growth, and technological change affect output in a single periodb. what constitutes technological changec. the static relationship between capital and outputd. how saving rates are determinede. how savings, population growth, and technological change affect output over time

e

The equation s(bar)F(Kt - L(bar)) - d(bar)Kt, is called:a. investmentb. the capital stockc. savingd. depreciatione. net investment

e

The key insight in the Solow model is that:a. saving rates are determined in a particular mannerb. savings have no impact on economic growthc. capital depreciation enhances economic growthd. the relationship between capital and output is statice. capital accumulation contributes to economic growth

e

Which of the following production functions exhibits constant returns to scale?a) Y = K^alpha * L ^1 - alphab) Y = K^1/3 * L^2/3c) Y = K^.1 * L^.9d) Y = K^1/4 * L^3/4e) All of these answers are correct.

e) All of these answers are correct.

The law of diminishing marginal product to capital means that as we add additional units of capital:a) and labor, output will increase, but at a constant rate. b) and labor, output will increase, but at a decreasing rate. c) but hold labor constant, output will increase, but at an increasing rate.d) but hold labor constant, output will increase, but at a constant rate.e) but hold labor constant, output will increase, but at a decreasing rate.

e) but hold labor constant, output will increase, but at a decreasing rate.

The NKPC describes:a. How inflation increase during boom timesb. The impact recessions have on inflation.c. The impact current output has on inflation.d. The change in inflation, attributable to negative and positive GDP gaps.e. All of the above.

e. All of the above.

Which of the following can be used to give firms incentive to innovate?

e. All of these answers are correct.

Which of the following production functions exhibits constant returns to scale?

e. All of these answers are correct.

The Great Depressiona. Is synonymous with the birth of modern economics.b. Was a rapid expansion in outputc. Stimulated the creation of Keynesian economics.d. Was largely responsible for the rational exceptions revolution.e. Both A and C are correct.

e. Both A and C are correct.

A decrease in the demand for labor could be caused by any of the following, except:a. an increase in corporate income taxes.b. An increase in the price of crude oil.c. The cost of hiring and training workers.d. The cost of terminating employment of existing workers.e. Higher wage demands on the part of workers.

e. Higher wage demands on the part of workers.It would be a movement along the demand curve, not a shift or decrease.

Which of the following is a nonrival good?

e. None of these answers are correct.

The National Income and Product Accounts identity states:a. Expenditure = Production + Incomeb. Production = Expenditure - Incomec. Production = Expenditure + Incomed. Expenditure = Production - Incomee. Production = Expenditure = Income

e. Production = Expenditure = Income

In the equation Y=F(K,L)=(Abar)(K^1/3)(L^2/3), the "bar" over the A means that it is:

e. a parameter that is fixed and exogenous

In models with perfect competition:

e. economic profits are zero

Increasing returns to scale is characterized by:

e. economies of scale; that is, the average cost falls as output rises

In the Solow model, the steady-state level of output per worker is a function of;

e. productivity, the depreciation rate, and the saving rate

In models with perfect competition:

economic profits are zero.

Increasing returns to scale is characterized by:

economies of scale; that is, the average cost falls as output rises.

In the corn farm example, corn can be used as:

either consumption or investment.

The inflation tax will affect an individual who holds all his assets in artwork.

falsePages 221-222. Holders of currency only pay the inflation tax. Because all prices in the economy are influenced by the inflation tax, the value of the artwork changes proportionately with all other prices.

In the Romer model, the more labor you dedicate to generating ideas, the ________ but ________.

faster you accumulate knowledge; at a loss to current output in the consumption sector

Money that has no intrinsic value except as money is called ________ money.

fiat

If MPL < w, the firm should...

fire some labor until MPL = w.

If there are large fixed costs due to research and development, perfect competition does not generate new ideas because:

firms need to recoup these costs through higher profits.

Capital accumulation is a(n):

flow

Sometimes when discussing inflation, we use a measure of inflation that excludes ____ prices from its calculation because these prices tend to be volatile

food and energy

In the United States, most of the natural rateof unemployment is

frictional

Defining per capita GDP in 2016 as y2016 and per capita GDP in 2015 as y2015, the growth rate of per capita GDP, g, from 2015 to 2016 is given by:

g = y2016 - y2015/ y2015 .

What are the 2 ways of expressing Percentage change in GDP between period tand t + 1 ?

g-bar = (Yt+1 - Yt) / Ytor Yt+1 = Yt(1 + g-bar)

What is the balanced growth path in the Romer model?

gY = gA

Suppose k, l, and m grow at constant rates given by gk , gl , and gm.What is the growth rate of y if y (mkl) 1/3?

gy=(1/3)gm+(1/3)gk+(1/3)gl

Define and explain Growth rate in the Romer model...

gbar = zbarlbarLbarWhere zbar = how efficiently researchers can use the old stock of ideaslbar = the fraction of the workforce devoted to creating ideas rather than creating goods Lbar = the size of the overall labor forceBasically means that a More efficient idea creation, a larger fraction of workers searching for ideas, or more workers in the first place would increase the economy's overall growth rate.

Frictional Unemployment

good kind, from people switching jobs

Immediately following the increase in the saving rate, output grows rapidly. As the economy approaches its new steady state, the growth rate:

gradually declines.

In the Solow model, if investment is ________ depreciation, the capital stock ________.

greater than; grows

In the Solow model, if investment is ________ depreciation, the capital stock ________.

greater than; grows

In the Solow model, if investment is ________ depreciation, the capital stock _________

greater than; grows

If the percent change in the price level is ________ than the percent change in ________, ________.

greater; nominal GDP; real GDP shrinks

In the Solow model, if (It>DKt) , the capital stock:

grows

In the Solow model, if It>dKt, the capital stock:

grows

In the Romer model, output is increasing in the ________ and decreasing in the ________.

growth rate of knowledge; fraction of population in the ideas sector

A balanced growth path is defined as a situation in which the:

growth rates of all endogenous variables are constant.

A country experiencing a hyperinflation is likely to:

have another hyperinflation after the current problem is solvedPages 230-231. Hyperinflations are usually a recurring phenomenon because it is difficult to end a hyperinflation. Fiscal stability is not easily restored and coordination problems are not easily overcome.

A country experiencing a hyperinflation is likely to:

have another hyperinflation after the current problem is solved.Pages 223-224. Hyperinflations are usually a recurring phenomenon because it is difficult to end a hyperinflation. Fiscal stability is not easily restored and coordination problems not easily overcome.

According to the Solow model, in the steady state, countries with high saving rates should have a:

high capital-output ratio

According to the Solow model, in the steady state, countries with high savingrates should have a...

high capital-output ratio.

According to the Solow model, in the steady state, countries with high saving rates should have a:

high capital-output ratio.

Because in many industries the cost of generating new ideas is so high, firms must charge a price _______ cost

higher than the marginal

Because in many industries the cost of generating new ideas is so high, firms must charge a price ________ cost.

higher than the marginal cost

If MPK > r, the firm should....

hire more capital until MPK = r.

Liquidity is a measure of

how quickly an asset can be converted to currency.

If the price level in year 1 was equal to 100 and the price level in year 2 was equal to 1,000, in year 2 the country is experiencing

hyperinflation

If the price level in year 1 was equal to 100 and the price level in year 2 was equal to 1,000, in year 2 the country is experiencing:

hyperinflationages 206-207. The inflation rate is measured with the annual percentage change in the price level . In this case, the inflation rate is 900%. An episode of extremely high inflation is known as hyperinflation.

Consider the Solow model exhibited in Figure 5.4. Which of the following is/are true? i. For any single country, the movement from point a to b is due to an increase in the saving rate, s1 > s2.ii. For any single country, the movement from point c to b is due to an increase in capital stock for the saving rate, s2.iii. If s1 and s2 stand for the saving rates in Countries 1 and 2, respectively, Country 2 has a lower saving rate.

i,i,iii

Let R denote the real interest rate and i denote the nominal interest rate; these two interest rates are related by

i=R+pi.

If the change in inflation is less than 0, the macroeconomy is:

in a recessionary gap

In Figure 5.1, if the economy begins with the initial capital stock at K1, the capital stock will ________ and the economy will ________.

increase; grow

One reason for the larger trade deficit in the last several decades is:

increased consumption

Inflation ________ price volatility and ________ allocative efficiency

increases; decreases

If there are large fixed or research and development costs, such as in the pharmaceutical industry,production can be characterized by...

increasing returns to scale

If there are large fixed or research and development costs, such as in the pharmaceutical industry, production can be characterized by:

increasing returns to scale

Nonrivalry of ideas and the standard replication argument imply the production function will have

increasing returns to scale.FEEDBACK: Pages 142-143. The standard replication argument implies we can double output by doubling objects, but ideas are nonrivalrous and can be used in two duplicate factories simultaneously.

Consider an economy described by the textbook Solow model with a production function. The economy is producing 100 units of output and the productivity parameter is equal to 1. If the depreciation rate is 6%, the investment rate is 6%, and there are 125 workers, the growth rate of the economy_____:

is positive because the economy is below its steady state. Replace the given numbers in equation 5.7 and solve for the steady state level of capital: K* = 125. Therefore, Y* = 5 * 25 = 125. If the economy currently produces 100 units of output according to the Solow diagram it is below its steady state and the growth rate of the economy is positive.

Consider an economy described by the textbook Solow model with a production function. The economy is producing 100 units of output and the productivity parameter is equal to 1. If the depreciation rate is 6%, the investment rate is 6%, and there are 125 workers, the growth rate of the economy_____:

is positive because the economy is below its steady state. Replace the given numbers in equation 5.7 and solve for the steady state level of capital: K = 125. Therefore, Y = 5 * 25 = 125. If the economy currently produces 100 units of output according to the Solow diagram it is below its steady state and the growth rate of the economy is positive

In the Solow model, in every period, a fraction of total output , ________ which ________ next period's capital stock.

is saved; adds to

In the Solow model, in every period, a fraction of total output ________, which ________ next period's capital stock.

is saved; adds to

How is a variable denoted as being exogenous?

it has a bar on top

In the Romer Model, If an economy allocates all of its labor to production, it will:

no generate any ideas

One problem with unexpected changes in inflation is that:

it often comes in surprising and unpredictable ways

Suppose that in 1955 Japan had an initial per capita GDP of $15,000 per year and China had a per capita GDP of $2,500. But China is growing at 7 percent per year and Japan is growing at 2 percent per year. In 2015, ________ would have been the lower-income country, with a per capita GDP of approximately ________.

japan;$49,000Japan 15(1.020)^60=49China 2.5(1.07)^60=145

In the Romer model, the growth rate of ideas, , is increasing in the:

knowledge efficiency parameter, the research share, and the total population

In the Romer model, _____ is the driving force behind sustained ______ economic growth

knowledge; long-term

In the simple Solow model, we assume:

labor is exogenous.

In the Solow model, saving and investing in additional factories and computers does ________ output to grow in the ________ run if the economy is below Y*. But, in the long run, the ________ returns to capital accumulation lead the return to these investments to fall.

lead; medium; diminishing

The wholesale price of one pound of coffee was 8.25 cents in 1900 and $1.50 in 2015. If the CPI was 3.43 for 1900 and 100 for 2015, coffee was

less expensive in 2015 compared to 1900.Pages 208-209. We can find the equivalent 2015 value of the 1900 price using the equation: value in 1900* (CPI2015/CPI1900). Thus, the equivalent 2015 value of $0.0825 is $2.41, which makes coffee less expensive in 2015. FEEDBACK: Pages 208-209. We can find the equivalent 2015 value of the 1900 price using the equation: value in 1900*(CPI2015/CPI1900). Thus, the equivalent 2015 value of $0.0825 is $2.41, which makes coffee less expensive in 2015.

In the US, money is backed by:

no physical commodity

An implication of the Solow model is that once an economy reaches the steady state:

long-term growth does not continue

An implication of the Solow model is that once an economy reaches the steady state:

long-term growth does not continue.

Yale Professor Ray Fair uses _____ to predict ____.

macroeconomic variables; presidential elections

A model is a(n) ________ representation of ________ world that we use to study economic phenomena.

mathematical; a toy

How should resources be allocated in the Cobb-Douglas Production Function? And what does this mean?

maxπ = F(K,L) - rK - wLπ: profitsr: rental rate of capitalw: wage rateHire capital until the MPK = rHire labour until MPL = w

Which of the following has NO effect on long-run economic growth?

money

Which of the following has NO effect on long-run economic growth in the long-run according to the classicalschool?

money.

On average, if both rich and poor countries grow at the same rate, this suggests that:

most countries have reached their steady states

Consider the Solow model exhibited in Figure 5.4. If a country's saving rate increases from s1 to s2, the economy would:

move from point a to point b.

In the Solow model, if a country's saving rate increases, the country:

moves from a relatively low steady state to one that is higher.

In the standard production model's production function, the productivity parameter enters the equation with an exponent of one, while in the Solow model's equation for the steady-state stock of capital it is greater than one because:

the endogenous level of the capital stock itself depends on productivity.

Consider the following model of the labor market:• Labour supply: Ls = abar × w + lbar,• Labour demand: Ld = fbar − w.Endogenous variables are...

the equilibrium quantity of labor, L*, and wage, w*

The Cobb-Douglas Production Function has diminishing returns as...

the function is globally convex. We can also see this algebraically when taking the 2nd derivative with respect to both L and K and see that they are both < 0

The principle of transition dynamics can be summarized as...

the further below its steady state an economy is, the faster the economy will grow.

The principle of transition dynamics can be summarized as:

the further below its steady state an economy is, the faster the economy will grow.

How quickly GDP doubles will depend on:

the growth rate of GDP

With an inflation tax

there is a redistribution of income from income earners to owners of real assets

The Great Inflation of the 1970s was partially caused by:

the inflation tax used to finance the Vietnam War.increases in oil prices.a money supply that was growing too quickly.Pages 225. Both "increases in oil prices" and "a money supply that was growing too quickly" are correct. Increase in oil prices spurred inflation while the Federal Reserve made mistakes in running a monetary policy that was too loose.

The nominal interest rate is

the interest rate not adjusted for inflation.the "advertised" interest rate.a description of the return in units of currency.*All of these answers are correct

The nominal interest rate is...

the interest rate on a savings account and Is paid in dollars

If South Korea's steady-state GDP per worker is higher than that of the Philippines, you might conclude that ________, ceteris paribus.

the investment rate in South Korea is higher than in the Philippines

Which of the following do(es) NOT explain differences in total factor productivity?

the labor stock

Which of the following does NOT explain differences in TFP?

the labor stock

Which of the following does NOT explain differences in total factor productivity?

the labor stock

Imagine a two-good economy where the quantity of the goods produced is unchanged over time, but where prices have increased. Then, in the most recent year, real GDP will be

the largest number when using the Paasche index.

The real interest rate is equal to...

the marginal product of capital and Is paid in goods

If a natural disaster destroys a large portion of a country's capital stock but the saving and depreciationrates are unchanged, the Solow model predicts that the economy will grow and eventually reach:

the same steady-state level of output as it would have before the disaster

If a natural disaster destroys a large portion of a country's capital stock but the saving and depreciation rates are unchanged, the Solow model predicts that the economy will grow and eventually reach:

the same steady-state level of output as it would have before the disaster

If a natural disaster destroys a large portion of a country's capital stock but the saving and depreciation rates are unchanged, the Solow model predicts that the economy will grow and eventually reach:

the same steady-state level of output as it would have before the disaster.

An increase in ________ leads to a higher steady-state capital stock, and a decline in ________ leads to a lower steady-state capital stock.

the saving rate; productivity

. An increase in ________ leads to a higher steady-state level of output, and an increase in ________leads to a lower steady-state level of output.

the saving rate; the depreciation rate

An increase in ________ leads to a higher steady-state level of output, and an increase in ________ leads to a lower steady-state level of output.

the saving rate; the depreciation rate

The relative wages of college graduates have been increasing as a result of:

the scarcity of highly educated workers in the global economyPages 197-201. The relative wages of college graduates have been increasing due to (1) large shifts in the demand curve as a result of globalization (scarcity of highly educated workers in the global economy) and skill-biased technical change. The shifts in the market for college graduates have to be larger than the shifts in the market for high school graduates in order for the relative wage to rise.

An example of a good that is both non-rivalrous and excludable is

the source code for Microsoft Word.FEEDBACK: Page 140. Nonrivalry implies one person's use of a good does not reduce the usefulness to someone else. The park is rivalrous because you may go there to enjoy quiet, but if it is crowded and no park benches are available, the park has become less useful to you. Excludability is a restriction on the use of a particular idea. While, in principle, multiple consumers can use the same piece of software, access may be restricted by a license purchase requirement, for instance.

To get increasing RTS using the production function Yt = At(Kt^1/3)(Lt^2/3), we need to replace TFP with:

the stock of ideas, At

To get increasing returns to scale using the production function, Yt = A Kt^1/3 Lt^1/3 we need to replace total factor productivity with:

the stock of ideas, At

In the Romer model, Output per person depends on...

the stock of knowledgeyt ≡ Yt/Lbar = At(1-lbar)

What does UK GDP per person measure?

the total output of the UK's economy, divided by the country's population.

The birthplace of modern economic growth was in ________ during the ________ century.

the united kingdom; mid eighteenth

If labor supply increases, holding demandconstant, what happens to wage?

the wage falls and the employment-population ratiorises

Suppose we compare GDP per person in Uganda and the United States in two ways: first using the exchange rate method and second using the relative price-based conversion as well. Then, Uganda appears to be richer under the relative price-based conversion than with the exchange rate conversion.

true

The classical school does not believe in money illusion.

true

The monetary base equals bank reserves and currency in circulation.

true

Until 1970, labor's share of GDP has been relatively stable at approximately two-thirds of GDP.

true

You plot the production function for the United States on a graph with output per person on the vertical axis and capital per person on the horizontal axis. If a shock occurs causing the productivity parameter to increase, the production function would shift upward.

true

The monetary base contains elements that are more liquid than M2.

truePage 210. The broader measures of the money supply (M2 is broader than the monetary base) contain accounts that are less liquid. Thus, the monetary base is more liquid.

If real GDP is growing at a rate of 2 percent, the central bank should grow the money supply at a rate of 2 percent to keep prices unchanged.

truePage 213. Prices are stable if the inflation rate is 0 percent and this occurs when the growth rate in the money supply is equal to the growth rate of real output.

If the real interest rate is 3 percent and the nominal interest rate is 1 percent then the economy is experiencing deflation according to the Fisher equation.

truePage 216. The inflation rate is equal to the nominal interest rate minus the real interest rate, which is negative in this example.

If we define sbar1 and sbar2 as the saving rates in Countries 1 and 2, respectively, dbar1 = dbar2 as the depreciation rates in Countries 1 and 2, respectively, and Abar1 and Abar2 as productivity in Countries 1 and 2, respectively, in the Solow model, the equation ________ predicts that ________ differences contribute the most to differences in steady-state output per worker.

y*1/y*2 = (Abar1/Abar2)^1.5 x (sbar1/sbar2)^0.5productivity

According to the constant growth rate rule, if a variable starts at some initial value y0 at t 0 and grows at yt y0(1g) t at a constant rate g, then the value of the variable in three periods is given by:

y3 = y0(1+g)^ 3 .

Find output per person in the Romer model.

yt = At(1 - l)

In the Romer model, Combining the equations for the stock of knowledge and output per capita, it is possible to formulate an expression of output per person in terms of the parameters of the model. Show this.

yt = A₀(1-lbar)(1+gbar)^t

What is the constant growth rule?

yt = y0(1 + g)^t

What is the equation for growth rates of products?

z = (x)(y)gz = gx + gy

What is the equation for growth rates of ratios?

z = x/ygz = gx - gy

What is the equation for growth rates of powers?

z = x^agz = (a)(gx)

What are the parameters in the Romer model?

z, L, l, A0

In models with perfect competition, economic profits are...

zero

The steady state is defined as the point where capital accumulation, ΔKt+1, is equal to:

zero

The steady state is defined as the point where capital accumulation, ΔKt, is equal to:

zero

The steady state is defined as the point where capital accumulation, ΔKt, is equal to:

zero.