Chapter 15 Answers

Topics: Macroeconomics, Inflation, Monetary policy Pages: 14 (3463 words) Published: March 14, 2014
1) Which of the following would be a useful way to increase the saving rate? A) Tax breaks to increase the real return that savers receive B) Increasing taxes if Ricardian equivalence holds
C) Increasing government spending
D) Increasing taxes on capital goods
Answer: A

2) Assume that the full-employment level of output is $5000 billion and the natural unemployment rate is 5%. Suppose the current unemployment rate is 8%. What would be the current level of output according to Okun's law (when the Okun's law coefficient is 2)? A) $4500 billion

B) $4700 billion
C) $4900 billion
D) $5300 billion
Answer: B

4) Endogenous growth theory attempts to
A) replace the Solow model with a model in which money growth plays a key role. B) explain how societies can more easily reach the "Golden Rule." C) show how population growth reduces capital and output.

D) explain why productivity changes.
Answer: D

5) Which of the following would be a useful way to increase the saving rate? A) Tax breaks to increase the real return that savers receive B) Increasing taxes if Ricardian equivalence holds
C) Increasing government spending
D) Increasing taxes on capital goods
Answer: A

6) A developing country does not have enough taxes to cover its expenditures and is unable to borrow. This government would be most likely to cover its deficit by A) purchasing government bonds from the public.

B) selling government bonds to the public.
C) selling newly issued government bonds directly to the central bank. D) buying newly issued government bonds directly from the central bank. Answer: C

8) Suppose the government provides a tax cut today that is matched by a tax increase in the future that's equal in present value to the tax cut. This causes a consumer's saving to A) decrease.
B) increase.
C) remain unchanged.
D) increase if the person was a lender and decrease if the person was a borrower. Answer: B

9) Steady state consumption per worker is
A) larger in the short run than in the long run.
B) less than steady state investment per worker.
C) less than steady state saving per worker.
D) steady state production per worker minus steady state investment per worker. Answer: A

10) The Golden Rule capital-labor ratio is the level of the capital-labor ratio that, in the steady state, A) maximizes output per worker.
B) maximizes investment per worker.
C) maximizes consumption per worker.
D) maximizes capital per worker.
Answer: C

11) In the Solow model, if f(k) = 2k0.5, s = 0.3, n = 0.05, and d = 0.15, what is the value of k at equilibrium? A) 1
B) 3
C) 6
D) 9
Answer: D

12) An earthquake destroys a good portion of the capital stock. How would you expect this to affect the capital-labor ratio in the long run? There would be A) a rightward movement along the saving-per-worker curve and an increase in the capital-labor ratio. B) no change in the long-run capital-labor ratio.

C) a downward shift in the saving-per-worker curve and a decrease in the capital-labor ratio. D) a leftward movement along the saving-per-worker curve and a decrease in the capital-labor ratio. Answer: B

13) All else being equal, a permanent decrease in the saving rate in a steady-state economy would cause A) an increase in the capital-labor ratio and an increase in consumption per worker. B) an increase in the capital-labor ratio and a decrease in consumption per worker. C) a decrease in the capital-labor ratio and a decrease in consumption per worker. D) a decrease in the capital-labor ratio and an increase in consumption per worker. Answer: C

14) An increase in the growth rate of population in a steady-state economy would cause A) a parallel shift upward in the investment line.
B) a pivot up and to the left in the investment line.
C) a pivot down and to the right in the investment line.
D) a parallel shift downward in the investment line.
Answer: B

15) A productivity improvement will cause
A) a rightward movement...
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