Macro Econ Test 2

1.

1 point

At the Golden Rule level of capital per person with population growth:

The marginal product of capital is equal to the rate of depreciation plus the rate of population growth

The marginal product of capital is equal to the rate of depreciation minus the rate of population growth

The marginal product of capital is equal to the savings rate

The marginal product of capital is equal to the rate of population growth

2.

1 point

In a steady state with no population growth:

The amount of capital per worker remains constant over time

Investment per worker equals depreciation per worker

Saving per worker equals depreciating per worker

All of the answers are correct

3.

1 point

An increase in the rate of population growth n will:

Decrease the steady-state level of capital per worker

Have no effect on the steady-state level of capital per worker

Decrease the steady-state level of capital per worker if a < n, and increase the steady-state level if a > n

Increase the steady-state level of capital per worker

4.

1 point

With no population growth, the steady-state level of capital per worker will increase whenever:

The amount of investment per worker decreases

The depreciation rate increases

The saving rate increases

All of the answers are correct

5.

1 point

Choose the correct statement

Expansionary monetary policy stimulates the economy by reducing the rate of Diminishing Marginal Returns to capital.

Diminishing Marginal Returns to caputal do not occur in Constant Returns to Scale production

Diminishing Marginal Returns to capital occur whenever capital grows faster than efficient labor

Diminishing Marginal Returns to capital exists because government policies waste resources.

6.

1 point

If the production function Y=F(K,L) has constant returns to scale, then:

F(zK,zL)=zY

F(K/L,1)=Y/L

y=f(k), where y is output per worker and k is capital per worker

All of the answers are correct

7.

1 point

Suppose that a country in a steady state implements policies to increase its saving rate. After the new steady state is reached:

Output per worker will grow more rapidly than before

The level of output per worker will be higher than before

The amount of capital per worker will be the same as before

All of the answers are correct

8.

1 point

At the steady state described in the previous question, the amount of saving and investment per worker is:

0.8

10

2

1.6

9.

1 point

Malthus's prediction that mankind would forever live in poverty turned out to be wrong because:

Malthus did not foresee the massive technological advances in farming

Malthus did not foresee how birth control could allow people to satisfy their sexual desires without increasing the population

Malthus did not foresee that people might want to reduce the size of their families

All of the answers are correct

10.

1 point

All of the following statements about the marginal product of capital MPK are true EXCEPT:

MPK=f(k+1)-f(k)

When there is only a little capital, MPK is very small

MPK tends to decline as k increases

MPK is equal to the slope of the production function y=f(k)

11.

1 point

If the current steady state level of capital per worker is greater than the Golden Rule level and the savings rate falls, consumption per worker will:

Initially fall below its original level but will eventually rise above it

Initially rise far above its original level and then gradually fall until the level of capital per worker reaches the Golden Rule level

Continuously rise above its original level until the level of capital per worker reaches the Golden Rule level

Continuously fall below its original level

12.

1 point

If capital last for an average of 50 years, the depreciation rate is:

0.5% or 0.005 per year

50%, or 0.5 per year

2%, or 0.02 per year

0.02% or 0.0002 per year

13.

1 point

Suppose the Federal Reserve implements an expansionary open market operation. Which of the following statements correctly describes the operation and its effects?

The Fed buys government bonds, which decreases bank reserves, the money stock, and the Aggregate Demand

The Fed sells government bonds, which increases bank reserves, the money stock, and the Aggregate Demand

The Fed buys government bonds, which decreases bank reserves, increases the money stock, and decreases Aggregate Demand

The Fed buys government bonds, which increases bank reserves, the money stock, and the Aggregate Demand

14.

1 point

Choose the correct statement

Frictional unemployment occurs because wages are sticky in the short run

Cyclical unemployment occurs because wages are sticky in the short run

The actual unemployment rate is calculated by dividing the number of unemployed workers by the number of employed workers

The natural rate of unemployment is calculated by dividing the level of job separation by the level of job finding

15.

1 point

Excluding population growth, at the Golden Rule level of capital k*(gold):

f(k*gold)=ak*gold

MPK=a MPK=a

f(k) reaches a maximum

All of the answers are correct

16.

1 point

Which of the following would cause the interest rate to decline?

Decrease in the federal budget deficit

Increase in the federal budget deficit

Decrease in the money supply

Open market sales of government bonds

17.

1 point

If the current steady-state level of capital per worker is less than the Golden Rule level and the government implements policies that increase the savings rate, consumption per worker will:

Continuously fall below the original level

Initially fall below the original level but will eventually rise above it

Continuously rise above the original level

Initially rise far above the original level and then gradually fall back toward it

18.

1 point

A decrease in the rate of population growth n, like an increase in the savings rate:

Decrease the steady-state growth of income per person

Decrease the steady-state level of income per person

Increase the steady-state growth rate of income per person

Increase the steady-state level of income per person

19.

1 point

If y=k^(1/2), a=5% (0.05), and the Golden Rule level of capital k*gold = 100, then the savings rate associated with the Golden Rule level of capital is:

20% or 0.20

50% or 0.50

5% or 0.05

10% or 0.10

20.

1 point

If y=k^(1/2), s=0.4, and the depreciation rate a=20% (or 0.20), the steady state level of the capital stock per worker is:

2

8

4

16

21.

1 point

In the Solow growth model with population growth n, the change in capital per worker is equal to:

sf(k) - (a-n)k

sf(k) + (a-n)k

sf(k) + (a+n)k

sf(k) - (a+n)k

22.

1 point

The Solow growth model predicts that countries with higher population growth rates will have:

Lower steady-state levels of output per worker

Lower steady-state growth rates of output per worker

Both A and B

Higher steady-state growth rates of output per worker

23.

1 point

Which of the following statements about fiscal policy is correct?

Expansionary fiscal policy causes output and prices to increase in the long run

If the economy initially is in recession, expansionary fiscal policy would cause output and prices to increase

Expansionary fiscal policy causes output and prices to decline in the long run

If the economy initially is in recession, expansionary fiscal policy would cause output and prices to decline

24.

1 point

According to the model of economic growth (g), in steady state the growth rate of output per person

equals the growth rate of the capital stock

equals the growth rate of the money stock

equals the growth rate of government spending

equals the growth rate of technology

25.

1 point

In recessions

Aggregate Demand is less than the full employment level of output

The labor market is in equilibrium

Short-run Aggregate Supply is equal to long-run Aggregate Supply

The unemployment rate is less than the natural rate

26.

1 point

"Break-even" investment is the amount of investment:

required to keep the capital stock per worker constant

At which economic profits are maximized

At which economic profits are zero

At which the marginal product of capital is equal to its price

27.

1 point

The Golden Rule level of capital k*(gold) denotes the steady state with the highest:

Level of consumption per worker

Growth rate of consumption per worker

Level of output per worker

Growth rate of output per worker

28.

1 point

The change in the capital stock is equal to:

Investment x depreciation

Investment / depreciation

Investment + depreciation

Investment - depreciation

29.

1 point

According to the theory of inflation

the Consumer Price Index understates the true rate of inflation

If monetary growth is 5% and real GDP growth is 2%, in the long run inflation will be 3%

The Laspeyres index is an accurate measure of inflation in the short run: the Paasche index is an accurate measure of inflation in the long run

High tax rates are the fundamental causes of inflation