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18 May 2019

Question 2

  1. For any given expected inflation rate, short-run aggregate supply curves show the relationship between

    the money supply and growth rate of output.

    inflation and growth rate of output.

    production factors and wages.

    inflation and wages.

1 points

Question 3

  1. Why is the SRAS curve steeper above its intersection with the Solow growth curve?

    Wages are stickier in the upward direction.

    Wages are less sticky in the upward direction.

    Lower inflation will lead to faster growth.

    Employees become less motivated to work during times of unexpected inflation.

1 points

Question 4

  1. What factors triggered the Great Depression?

    decreased consumer spending and tight monetary policy

    decreased investment and increased inflation

    decreased employment and increased money supply

    decreased inflation and increased income taxes

1 points

Question 5

  1. How might changes in the money supply be non-neutral in the short run?

    As the amount of money circulating in the economy changes before prices respond, consumers' purchases change accordingly, which leads producers to change production levels.

    When money supply changes in the short run, it will affect nominal, but not real, variables in the short run.

    As money growth increases at a faster rate, it will cause real GDP to grow at an equally faster rate.

    If producers expect inflation to increase, they will increase supply in order to sell before the arrival of inflation.

1 points

Question 6

  1. For a given nominal interest rate, an increase in deflation will cause the real rate of interest to

    remain relatively constant.

    increase.

    decrease.

    become unpredictable.

    Question 8

    Which of the three price indexes measures the average price level of the largest total number of goods?

    the consumer price index

    the GDP deflator

    the producer price index

    Each price index accomplishes the same task.

    The textbook uses the

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Related textbook solutions

Principles of Economics
2nd Edition, 2017
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ISBN: 9781947172364
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2 Edition,
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Principles of Microeconomics
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Related questions

Question 32

  1. Tim, a citizen of the United States living in Virginia, buys a computer that was made in South Korea by a Japanese firm. This transaction would affect the GDP of the United States in which way?

    Net exports would decrease and GDP would decrease.

    Net exports would decrease and GDP would be unaffected.

    Net exports would increase and GDP would increase.

    Net exports would increase and consumption would increase.

1 points

Question 33

  1. An increase in U.S. government spending tends to

    increase U.S. interest rates and increase the U.S. capital account surplus.

    increase U.S. interest rates and decrease the U.S. capital account surplus.

    decrease U.S. interest rates and increase the U.S. capital account surplus.

    decrease U.S. interest rates and decrease the U.S. capital account surplus.

1 points

Question 34

  1. A _______ is a system in which the government intervenes extensively in the foreign exchange market to keep the exchange rate within certain bounds.

    dirty float

    floating exchange rate

    fixed exchange rate

    dollarization

1 points

Question 35

  1. Suppose the exchange rate between the euro and the dollar is E0.5 to $1. If a Big Mac costs $3 in the United States and E1.5 in Germany, then the real exchange rate is

    1:1.

    2:1.

    1:2.

    It cannot be determined from this information.

1 points

Question 36

  1. Which of the following prevent the purchasing power parity theorem from holding perfectly?

    transportation costs

    goods that cannot be shipped

    tariffs and quotas

    Each of these answers is correct.

1 points

Question 37

  1. Fiscal policy is more effective in affecting economic activity if

    many resources are unemployed.

    there is a real shock instead of an aggregate demand shock.

    the economy returns to the long-run condition almost immediately.

    there is a long implementation lag.

1 points

Question 38

  1. In a typical year, changes in government spending compared to overall spending are relatively

    small.

    large.

    unpredictable.

    well-timed.

1 points

Question 39

  1. Which statement is TRUE about the difference between monetary and fiscal policy?

    Fiscal policy can quickly adjust to changes in aggregate demand.

    Fiscal policy can have a more direct impact.

    Monetary policy is subject to many long lags.

    Monetary policy can affect the economy regardless of the actions banks take.

1 points

Question 40

  1. Fiscal policies that help an economy in a recession without additional actions by policy makers are called

    consumption smoothers.

    Ricardian equalizers.

    automatic stabilizers.

    Each of these answers is correct.

1 points

Question 41

  1. The U.S. individual income tax system can best be described as a

    regressive tax system.

    flat tax system.

    zero tax system.

    progressive tax system.

1 points

Question 42

  1. What demographic change in the United States will cause government spending to increase in the next 50 years?

    The population over 65 will grow.

    The population will be younger.

    Women will have fewer children.

    Immigration will increase.

1 points

Question 43

  1. What kind of rising costs will mostly cause U.S. government spending to skyrocket in the future?

    defense

    environmental protection

    education

    health care

1 points

Question 47

  1. The Fed could have popped the bubble of the housing boom in the 2000s by

    lending directly to homeowners.

    regulating the stock markets more.

    reducing the growth rate of the money supply.

    doing nothing.

1 points

Question 48

  1. Which of the following would be an example of running monetary policy by rules?

    A 5 percent increase in money supply automatically leads to a 2 percent increase in real GDP.

    An increase in money supply automatically leads to an increase in inflation.

    The Fed will increase money growth to different levels, depending on the severity of the recession.

    A 1 percent drop in real GDP will automatically elicit a 2 percent increase in money supply.

    Question 50

    Moral hazard occurs when

    the failure of one financial institution can bring down other institutions as well.

    financial institutions take on too much risk because they are insured.

    financial institutions become insolvent because they issued too many loans.

    there are more short-term liabilities than short-term assets.

    Which of the following is NOT a transmission mechanism?

    reductions in the money supply

    intertemporal substitution

    uncertainty

    sticky wages and prices

    Question 56

    For a given increase in government spending growth, intertemporal substitution is more widespread when

    the impact of AD growth on both inflation and real GDP growth is stronger.

    the impact of AD growth on both inflation and real GDP growth is weaker.

    the impact of AD growth on inflation is stronger and the impact of the AD growth on real GDP growth is weaker.

    the impact of AD growth on inflation is weaker and the impact of AD growth on real GDP growth is stronger.

    Stalin:

    instituted democratic reforms, leading to widespread prosperity.

    took government control of the farms in Ukraine, leading to the starvation of millions of people.

    increased the provision of public goods, which had a positive effect on lowering the unemployment rate.

    tried unsuccessfully to expand voting rights in 1924 Russia.

    1 points

    Question 60

    1 points

    Question 59

    If voters care about two issues such as taxes and war, then politicians:

    will form a stable policy on these issues.

    can pose a policy that will never lose against another policy.

    must assume that there is no median voter.

    may never converge on a stable outcome.

    1 points

    Question 58

    Policy A adversely affects 50 million people at a cost of $1 per person. But Policy A also benefits 1,000 people at $30,000 per person. Which of the following statements is true?

    Policy A will not become law because it hurts more people than it helps.

    Policy A concentrates all the costs among a small group of people and all the benefits among a large group of people.

    Policy A is likely to be supported by politicians even though it makes society worse off.

    Since Policy A negatively affects many people, and so rational ignorance will not be a problem.

    1 points

    Question 57

    Data for the United States show that the incumbent party tends to win the election if:
    I. personal disposable income is growing.
    II. the inflation rate is low.
    III. the political party has not been in power for too many continuous terms.

    I only

    I and II only

    I and III only

    I, II, and III

    1 points

    Question 53

    1 points

    Question 52

    What is the purpose of the Fed's structure?

    to give the President of the United States as many tools as possible to regulate the economy

    to make sure all states are given equal access to monetary policy decisions

    to keep the private sector out of the monetary policy making arena

    to keep the power of the Fed dispersed

    1 points

    Question 51

    An increase in money growth will cause inflation to increase in

    the short run only.

    the long run only.

    both the short run and the long run.

    neither the short run nor the long run.

Which of the following statements has been proposed as a benefit of passive policy making?

Passive policy making utilizes the rational expectations hypothesis.

Passive policy making allows for making immediate changes in response to an anticipated change in economic performance.

When using passive policy making there is no tradeoff between price stability and unemployment.

Passive policy making does not wait for the time lag between recognition of a problem and policy action before engaging in economic policies to stabilize the economy.

1.47 points

QUESTION 6

The idea of policy making taking place in response to a predetermined set of rules is referred to as

discretionary policy making.

passive policy making.

Keynesianism.

active policy making.

1.47 points

QUESTION 7

What types of unemployment will still exist when the economy is at the natural rate of unemployment?

frictional and cyclical unemployment only

frictional, structural, and cyclical unemployment

frictional and structural unemployment only

structural and cyclical unemployment only

1.47 points

QUESTION 8

The natural rate of unemployment is

the unemployment rate that exists in long-run equilibrium, after adjustments to all changes have occurred.

the unemployment rate when there is no structural unemployment.

the unemployment rate when there is no structural or cyclical unemployment.

zero.

1.47 points

QUESTION 9

According to the text, minimum-wage laws cause increases in

employment possibilities.

structural unemployment.

poverty.

productivity.

1.47 points

QUESTION 10

During a recession, the overall unemployment rate

exceeds the natural rate of unemployment.

falls below the natural rate of unemployment.

falls rapidly.

equals the inflation rate.

1.47 points

QUESTION 11

Cyclical unemployment is

the unemployment due to the unemployment benefits and welfare programs of the government.

the unemployment due to union activities and government-imposed restrictions to entry into specific occupations.

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

the difference between the unemployment rate when the economy is in a recession and the unemployment rate when the economy is at the peak of an expansion.

1.47 points

QUESTION 12

Which of the following unemployment rates can be negative?

the natural unemployment rate

the seasonal unemployment rate

the official unemployment rate reported by the Bureau of Labor Statistics

the cyclical unemployment rate

1.47 points

QUESTION 13

An unexpected increase in aggregate demand typically causes

the price level to increase but has no effect on the unemployment rate.

frictional unemployment to increase but structural unemployment to decrease.

the price level to increase and the unemployment rate to fall.

the price level to increase and the unemployment rate to increase.

1.47 points

QUESTION 14

The rate of unemployment below which the rate of inflation tends to rise and above which the rate of inflation tends to fall is known as the

non-accelerating-inflation rate of unemployment (NAIRU).

contrary rate of unemployment.

Phillips rate of unemployment.

menu cost rate of unemployment.

1.47 points

QUESTION 15

Based on the work of economist A.W. Phillips, economists concluded that

high inflation rates are associated with low unemployment rates.

higher rates of inflation are associated with higher rates of unemployment.

there is no trade-off between inflation and unemployment.

unemployment can be effectively combated by raising wages.

1.47 points

QUESTION 16

What happens to the Phillips curve when the expected rate of inflation rises?

The curve shifts to the right

The curve shifts to the left

The Phillips curve is unaffected

The curve becomes horizontal

1.47 points

QUESTION 17

The short-run Phillips curve suggests what policy making implications?

Passive policy making is more effective than active policy making.

Active policy making does not yield any predictable results.

Maintaining both the inflation and unemployment rates at low levels is possible if policy makers will rely solely on nondiscretionary policy making.

Using discretionary policies, it may be possible to achieve just the right unemployment and inflation mix.

1.47 points

QUESTION 18

We observe the duration of unemployment falling and wage rates rising. It is likely that

aggregate supply has increased.

aggregate demand has increased.

summer has arrived.

the government has initiated expansionary fiscal policy but the policies haven't taken effect yet.

1.47 points

QUESTION 19

Policymakers' attempts to use the Phillips curve to reduce the unemployment rate below the natural rate

will be successful since the Phillips curve shows the relationship between the inflation rate and the unemployment rate.

will be unsuccessful if monetary policy is used since monetary policy leads to higher prices.

will be successful if monetary policy is used.

will be unsuccessful since workers' expectations adjust to attempts to reduce unemployment below the natural rate.

1.47 points

QUESTION 20

Which one of the following would likely reduce the level of structural unemployment?

strengthening restrictions on who can be licensed to enter certain professions

increasing the minimum wage to encourage more people to work

increasing the level of union bargaining power

limiting unemployment insurance benefits

1.47 points

QUESTION 21

An unexpected decrease in aggregate demand

will decrease real GDP, but will not affect the rate and duration of unemployment.

will decrease the price level.

will decrease long-run aggregate supply.

will decrease the average duration of unemployment.

1.47 points

QUESTION 22

When a person bases her future expectations for the economy on all available current data and her own judgment about future policy effects, this is known as

rational expectations.

irrational expectations.

the policy irrelevance proposition.

the new classical theory.

1.47 points

QUESTION 23

According to the rational expectations hypothesis, monetary policy can have real effects on such variables as real Gross Domestic Product (GDP) in the short run

when the Federal Reserve's open market committee operates as expected in either buying or selling bonds.

regardless of whether the policy is anticipated or unanticipated.

only when the policy is unsystematic and unanticipated.

only when the policy is anticipated.

1.47 points

QUESTION 24

Rational expectations theory suggests that short-run stabilization policy

should not be attempted.

is best achieved with fiscal policy.

is best achieved with monetary policy.

is equally easy to achieve with monetary or fiscal policy.

1.47 points

QUESTION 25

Proponents of the policy irrelevance proposition believe that, under the assumption of rational expectations, the unemployment rate will

go down whenever the Fed announces an anticipated fiscal policy change.

equal the natural rate of unemployment in the long run, regardless of any monetary policy actions.

always be higher in the long run than the natural rate of employment.

go up whenever the Fed announces an anticipated monetary policy change.

1.47 points

QUESTION 26

For the policy irrelevance theorem to hold, people must

not persistently make the same mistakes in forecasting the future.

know exactly what the Fed is planning to do.

know the future perfectly.

never make mistakes in their forecasts, even when they do not know the future perfectly.

1.47 points

QUESTION 27

According to the policy irrelevance proposition, the impact of an anticipated expansionary monetary policy will be to

increase the price level in the long run.

increase the real Gross Domestic Product (GDP) in the long run.

decrease the natural rate of unemployment.

decrease the price level and the unemployment rate.

1.47 points

QUESTION 28

One key assumption lying behind the policy irrelevance proposition is that

prices are "sticky" upward.

wages are "sticky" downward.

markets are not purely competitive.

the rational expectations hypothesis is correct.

1.47 points

QUESTION 29

According to the real business cycle theory, an increase in an input price, such as oil, will

increase both real Gross Domestic Product (GDP) and the price level.

increase real Gross Domestic Product (GDP) but not change the price level.

decrease both real Gross Domestic Product (GDP) and the price level.

decrease real Gross Domestic Product (GDP) but increase the price level.

1.47 points

QUESTION 30

When "stagflation" occurs,

the economy experiences higher inflation rates and higher unemployment rates at the same time.

the economy experiences lower inflation rates and higher unemployment rates at the same time.

the economy experiences higher inflation rates and lower unemployment rates at the same time.

the economy experiences lower inflation rates and lower unemployment rates at the same time.

1.47 points

QUESTION 31

When a supply shock is permanent

only the short-run aggregate supply curve shifts leftward.

only the long-run aggregate supply curve shifts leftward.

there are no shifts in either the long-run or short-run aggregate supply curve.

both the long-run and short-run aggregate supply curves shift leftward.

1.47 points

QUESTION 32

According to economists who promote sticky-price theories,

only monetary policy is an effective stabilization policy.

only fiscal policy is an effective stabilization policy.

both fiscal and monetary policy can be effective stabilization policies.

neither fiscal nor monetary policy is an effective stabilization policy.

1.47 points

QUESTION 33

Some economists suggest that because of the costs of negotiating contracts, printing price lists, etc., it is costly for firms to change prices in response to demand changes. This hypothesis is known as the

menu cost theory.

Phillips theory.

Freidman theory.

sticky wage theory.

1.47 points

QUESTION 34

The menu cost theory suggests that

wages and prices move freely and quickly.

there will be no unemployment.

firms find frequent price changes to be costly.

the economy is characterized only by perfect competition.

1.47 points

QUESTION 35

In new Keynesian theory, the pattern of inflation exhibited by an economy with growing aggregate demand known as inflation dynamics is

initially speedy upward adjustment of the price level and inflation in response to higher aggregate demand followed by lower inflation in the future.

initially sluggish downward adjustment of the price level and inflation in response to higher aggregate demand followed by lower inflation in the future.

initially sluggish upward adjustment of the price level and inflation in response to higher aggregate demand followed by higher inflation in the future.

initially speedy upward adjustment of the price level and inflation in response to higher aggregate demand followed by higher inflation in the future.

1.47 points

QUESTION 36

Menu costs are a possible reason for

swings in the labor force participation rate.

sticky product prices.

aggregate supply shocks.

low levels of consumer confidence in response to aggregate supply shocks.

1.47 points

QUESTION 37

New Keynesians hypothesize that

the relationship between inflation and unemployment is exploitable in the short run.

fluctuations in output are largely caused by supply shocks.

the relationship between inflation and unemployment is exploitable in the long run.

there is no relationship between inflation and unemployment.

1.47 points

QUESTION 38

Economists Milton Friedman and E.S. Phelps suggested that the apparent trade-off suggested by the Phillips curve could not be exploited by policy makers, because

unemployment levels and the inflation rate have a negative (inverse) relationship.

unemployment levels and the inflation rate have a clear, positive relationship.

economic participants routinely incorporate changes in the inflation rate into their expectations.

economic participants are not rational, and therefore act unpredictably to any policy change.

1.47 points

QUESTION 39

When it comes to active policy making most economists agree that

it is unlikely that active policy making will have any long term effects on the economy.

it will lead to long term shocks in the system.

it is likely that active policy making will have long term effects on the economy.

active policy making should be used over passive policy making.

1.47 points

QUESTION 40

If population growth occurs while jobs are difficult to obtain or labor force participation does not increase,

economic growth will be robust because any population gain is a plus.

per capita GDP is likely to increase sharply.

there may be little or no increase in a nation's labor resources.

a nation's labor resources will still continue to increase in both quality and quantity.

1.47 points

QUESTION 41

If the level of aggregate real Gross Domestic Product (GDP) remains constant, a reduction in the population

indirectly reduces per capita real GDP.

directly reduces per capita real GDP.

directly increases per capita real GDP.

has no effect on real per capita real GDP.

1.47 points

QUESTION 42

Suppose a nation's real Gross Domestic Product (GDP) grows at a constant rate of 5 percent per year while its population grows 2 percent annually. Given this information, this nation's annual rate of per capita real GDP growth is approximately equal to

2 percent

1 percent

5 percent

3 percent

1.47 points

QUESTION 43

In the determination of economic growth, political freedom

is equally as important as economic freedom.

appears to be less important than economic freedom.

contributes little to job growth.

is more important than economic freedom.

1.47 points

QUESTION 44

Political freedom can sometimes moderately reduce economic growth because

special interest groups may gain at the expense of the overall economy.

campaign contributions rob the economy of investment.

most jobs are in unions that are politically connected.

none of the above.

1.47 points

QUESTION 45

Economic freedom is

the right to own private property and to exchange goods with minimal government interference.

present as long as private individuals own businesses.

the amount of control that the government has in a market.

the right to vote in an election for a political leader.

1.47 points

QUESTION 46

The right to openly support and democratically select national leaders is

population freedom.

political freedom.

economic freedom.

capital freedom.

1.47 points

QUESTION 47

Economic growth is measured by

the annual percentage change in nominal GDP.

the annual percentage change in per capita real GDP.

the annual percentage change in per capita nominal GDP.

the annual percentage change in the unemployment rate.

1.47 points

QUESTION 48

Laws that make it difficult to start a new business lead to a

laissez-faire.

low rate of economic growth.

high rate of economic growth.

more political freedom.

1.47 points

QUESTION 49

Dead capital is

any capital resource that lacks clear title of ownership.

machinery that requires constant maintenance.

machinery that fails to operate properly.

a capital resource that depreciates rapidly.

1.47 points

QUESTION 50

The significance of dead capital is that

it is being removed from its most efficient use.

it is difficult to allocate to its most efficient use.

its fixed cost is too high.

it replaces too many workers.

1.47 points

QUESTION 51

Developing countries are damaged by dead capital because

it replaces too many workers, creating unemployment.

resulting inefficiencies greatly reduce the rate of return on investment.

it must be sold as scrap.

none of the above.

1.47 points

QUESTION 52

The role that dead capital plays in a country's economic growth is that

growth neither increases nor is impaired by dead capital.

growth increases because the dead capital is replaced with more technologically efficient capital.

growth increases since the firms using the dead capital are using it for free.

growth is impaired since the capital cannot be allocated to its most efficient use.

1.47 points

QUESTION 53

When government inefficiencies exist,

a country tends to grow at a faster rate.

economic growth is not influenced.

dead capital is usually not a problem.

a country tends to grow at a slower rate.

1.47 points

QUESTION 54

The acquisition of more than 10 percent of the shares of ownership in a company in another nation is called

gross private international investment.

majority investment.

foreign direct investment.

portfolio investment.

1.47 points

QUESTION 55

Most international investment finance today comes from

portfolio and foreign direct investment.

the sale of antiques.

government financing.

tax collections.

1.47 points

QUESTION 56

Portfolio investment means buying

livestock.

less than 10 percent ownership in a foreign company.

a life insurance policy when traveling abroad.

more than 50 percent ownership in a foreign company.

1.47 points

QUESTION 57

The primary motivation for private foreign investment in developing nations is

to eradicate poverty.

to improve the standard of living for workers.

the potential for high rates of return.

to do research in countries with fewer social regulations.

1.47 points

QUESTION 58

An international financial crisis is most often caused by

a nation's central bank lowering domestic interest rates.

a drop in the value of the U.S. dollar.

foreign investments and loans being withdrawn from a nation.

a government refusing to pay its dues to the United Nations.

1.47 points

QUESTION 59

Adverse selection is a barrier to financing global growth because

there is the possibility that the funds are used for riskier behavior than the lender agreed to.

firms sometimes have trouble determining whether they need funds or not.

if investors have trouble identifying high-risk firms they may be unwilling to lend funds to creditworthy firms.

of the differences between financing using loans, portfolio investment and foreign direct investment.

1.47 points

QUESTION 60

Moral hazard is a barrier to financing global growth because

there is the possibility that the funds are used for riskier behavior than the lender agreed to.

if investors have trouble identifying high-risk firms they may be unwilling to give money to creditworthy firms.

firms sometimes have trouble determining whether they need funds or not.

of the differences between financing using loans, portfolio investment and foreign direct investment.

1.47 points

QUESTION 61

Two types of asymmetric information that create problems for international investment are

adverse hazard and moral selection.

adverse hazard and moral hazard.

adverse selection and moral selection.

adverse selection and moral hazard.

1.47 points

QUESTION 62

The multinational agency that specializes in making loans to developing nations in an effort to promote long-term development and growth is the

International Monetary Fund.

United Nations Development Program.

World Trade Organization.

World Bank.

1.47 points

QUESTION 63

The multinational organization that aims to promote world economic growth by fostering financial stability is the

World Bank.

United Nations.

International Monetary Fund.

World Trade Organization.

1.47 points

QUESTION 64

A nation's account with the IMF is called its

deposit surplus.

capital account.

current account.

quota subscription.

1.47 points

QUESTION 65

The international unit of accounting used by the International Monetary Fund (IMF) is called

the Eurodollar.

the IMF dollar.

the quota subscription.

special drawing rights.

1.47 points

QUESTION 66

The International Monetary Fund (IMF) was created to achieve each of the following goals EXCEPT

to supervise exchange-rate practices of member countries.

to help finance economic development in poor countries.

to encourage convertibility of member countries' currencies.

to lend funds to countries having difficulties meeting their international payment obligations.

1.47 points

QUESTION 67

The World Bank specializes in making loans to promote

short-term assistance when a nation experiences a financial crisis.

financial stability.

so-called stand-by arrangements and credits.

long-term development and growth.

1.47 points

QUESTION 68

The International Monetary Fund

is the bank that causes international financial crisis when the reserves are too high.

is a central bank like the Federal Reserve System.

is a multinational organization that aims to promote world economic growth through more financial stability.

is a multinational agency that specializes in making loans to promote long-term development and growth in developing countries.

1. According to the Solow model, an increase in the capital-labor ratio will a. always increase steady state consumption per worker b. reduce steady state consumption per worker if the capital-labor ratio is below the Golden rule capital stock c. always reduce steady state consumption per worker d. increase steady state consumption per worker if the capital-labor ratio is below the Golden rule capital stock

2. In a steady state a. capital and labor, by definition, are inversely related to one another b. both consumption per worker and the capital-labor ratio are constant c. consumption per worker can change, but the capital-labor ratio is constant d. consumption per worker is constant, but the capital-labor ratio can change

3. Which of the following changes would lead, according to the Solow model, to a higher level of long-run output per worker? a. An increase in the saving rate b. A lower level of capital per worker c. A decrease in productivity d. A rise in the rate of population growth

4. In the long run, a reduction in productivity will cause a. an increase in the capital-labor ratio and a decrease in consumption per worker b. a decrease in the capital-labor ratio and a decrease in consumption per worker c. a decrease in the capital-labor ratio and an increase in consumption per worker d. an increase in the capital-labor ratio and an increase in consumption per worker

5. An increase in the growth rate of population in a steady-state economy would cause a. a pivot down and to the right in the investment line b. a parallel shift downward in the investment line c. a pivot up and to the left in the investment line d. a parallel shift upward in the investment line 1 2

6. In the efficiency wage model, an increase in productivity would a. have no effect on either output or the real wage b. increase output but have no effect on the real wage c. decrease the real wage but have no effect on output d. increase output but decrease the real wage

7. Keynesian economists believe that in the short run, a. money neutrality does not exist and prices adjust rapidly b. money neutrality does not exist and prices do not adjust rapidly c. money neutrality exists and prices adjust rapidly d. money neutrality exists and prices do not adjust rapidly

8. If the expected inflation rate is unchanged, a fall in the natural rate of unemployment would a. not shift the Phillips curve b. shift the Phillips curve to the left c. shift the Phillips curve to the right d. shift the Phillips curve to the left and shift the long-run Phillips curve to the right

9. Classical economists believe that in the short run, a. money neutrality does not exist and prices adjust rapidly b. money neutrality does not exist and prices do not adjust rapidly c. money neutrality exists and prices do not adjust rapidly d. money neutrality exists and prices adjust rapidly

10. The fact that the long-run Phillips curve is vertical implies that a. money can’t affect inflation in the long run b. money is neutral in the long run c. monetary policy can’t affect unemployment d. there is a natural rate of inflation

1. Briefly explain the shape of the per-worker production curve in the Solow model. If investment per worker initially exceeds saving per worker, how is the steady state capital-labor ratio achieved?

2. Describe the effects of a rise in the domestic real interest rate on the exchange rate and on both domestic and foreign net exports.

3. For each of the following changes, what happens to the real interest rate and output in the short run, before the price level has adjusted to restore general equilibrium? a. Wealth declines b. Money supply declines c. The future marginal productivity of capital declines d. Expected inflation rises e. Future income rises

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