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If a U.S. corporation purchases a product made in Europe and the European producer uses the proceeds to purchase a U.S. government bond, then U.S. net exports ______ and net capital outflows ______.
(Exhibit: Saving and Investment in a Small Open Economy) In a small open economy, if the world interest rate is r1, then the economy has:
a trade surplus.
An increase in the trade surplus of a small open economy could be the result of:
an increase in the world interest rate.
If the government of a small open economy wishes to reduce a trade deficit, which policy action will be successful in achieving this goal?
The adoption of an investment tax credit in a small open economy is likely to lead to:
an increase in domestic investment but no change in domestic saving in the small open economy.
Two reasons why capital may not flow to poor countries are that the poorer countries may:
have inferior production capabilities and not enforce property rights.
In a small open economy with perfect capital mobility, a reduction in the government's budget deficit ______ net exports and the real exchange rate ______.
An effective policy to reduce a trade deficit in a small open economy would be to:
The percentage change in the nominal exchange rate equals the percentage change in the real exchange rate plus the:
foreign inflation rate minus the domestic inflation rate.
In the model of the steady-state unemployment rate with a fixed labor force, the rate of job finding equals the percentage of the ______ who find a job each month, while the rate of job separation equals the percentage of the ______ who lose their job each month.
If the steady-state rate of unemployment equals 0.125 and the fraction of unemployed workers who find jobs each month (the rate of job findings) is 0.56, then the fraction of employed workers who lose their jobs each month (the rate of job separations) must be:
Which of the following is an example of frictional unemployment?
Dave searches for a new job after voluntarily moving to San Diego.
Public policy to increase the job finding rate include _____ and public policy to decrease the job separation rate include _____.
job training programs; 100 percent experience rated unemployment insurance
Which of the following is the best example of structural unemployment?
Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available.
Paying efficiency wages helps firms reduce the problem of moral hazard by:
encouraging unsupervised workers to maintain a high level of productivity.
Which of the following characteristics made the 2008–2009 recession differ most sharply from previous recessions?
a large spike in the duration of unemployment
Many economists attribute part of the recent increase in European unemployment to:
generous benefits for unemployed workers.
Earlier retirement in Europe than in the United States contributes to:
lower employment-to-population ratios in Europe than in the United States.
All of the following are causes of structural unemployment except:
If wage rigidity holds the real wage above the equilibrium level, an increase in the demand for labor will ______ the number unemployed.
Any policy aimed at lowering the natural rate of unemployment must either ______ the rate of job separation or ______ the rate of job finding.
Unlike the long-run classical model in Chapter 3, the Solow growth model:
describes changes in the economy over time.
In the Solow growth model of Chapter 8, where s is the saving rate, y is output per worker, and i is investment per worker, consumption per worker (c) equals:
(1 – s)y
In the Solow growth model of Chapter 8, for any given capital stock, the ______ determines how much output the economy produces and the ______ determines the allocation of output between consumption and investment.
production function; saving rate
The change in capital stock per worker (Dk) may be expressed as a function of s = the saving ratio, f(k) = output per worker, k = capital per worker, and d = the depreciation rate, by the equation:
Dk = sf(k) – dk.
In the steady state with no population growth or technological change, the capital stock does not change because investment equals:
In the Solow growth model, if investment is less than depreciation, the capital stock will ______ and output will ______ until the steady state is attained.
The formula for the steady-state ratio of capital to labor (k*), with no population growth or technological change, is s:
multiplied by f(k*) divided by the depreciation rate.
If the per-worker production function is given by y = k1/2, the saving rate (s) is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is:
If a war destroys a large portion of a country's capital stock but the saving rate is unchanged, the Solow model predicts that output will grow and that the new steady state will approach:
the same level of output per person as before.
Starting from a steady-state situation, if the saving rate increases, the rate of growth of capital per worker will:
increase until the new steady state is reached.
In the Solow growth model, with a given production function, depreciation rate, no technological change, and no population growth, a higher saving rate produces a:
higher steady-state level of output per worker.
The formula for steady-state consumption per worker (c*) as a function of output per worker and investment per worker is:
c* = f(k*) – dk*.
If an economy is in a steady state with no population growth or technological change and the marginal product of capital is less than the depreciation rate:
steady-state consumption per worker would be higher in a steady state with a lower saving rate.
If an economy with no population growth or technological change has a steady-state MPK of 0.1, a depreciation rate of 0.1, and a saving rate of 0.2, then the steady-state capital stock:
equals the Golden Rule level.
To determine whether an economy is operating at its Golden Rule level of capital stock, a policymaker must determine the steady-state saving rate that produces the:
largest consumption per worker.
If an economy is in a steady state with no population growth or technological change and the capital stock is above the Golden Rule level and the saving rate falls:
output, investment, and depreciation will decrease, and consumption will increase and then decrease but finally approach a level above its initial state.
If an economy is in a steady state with a saving rate below the Golden Rule level, efforts to increase the saving rate result in:
both higher per-capita output and higher per-capita depreciation, but the increase in per-capita output would be greater.
In the Solow growth model of an economy with population growth but no technological change, the break-even level of investment must do all of the following except:
equal the marginal productivity of capital (MPK).
In the Solow growth model, an economy in the steady state with a population growth rate of n but no technological growth will exhibit a growth rate of output per worker at rate:
In the Solow growth model, an economy in the steady state with a population growth rate of n but no technological growth will exhibit a growth rate of total output at rate:
In the Solow growth model with population growth, but no technological change, a higher level of steady-state output per worker can be obtained by all of the following except:
increasing the population growth rate.
The Solow growth model with population growth but no technological progress can explain:
persistent growth in total output.
The Solow model with population growth but no technological change cannot explain persistent growth in standards of living because:
output, capital, and population all grow at the same rate in the steady state.
In the Solow growth model with population growth, but no technological progress, in the Golden Rule steady state, the marginal product of capital minus the rate of depreciation will equal:
the population growth rate.
If Y = K0.3L0.7, then the per-worker production function is:
Y/L = (K/L)0.3.
If an economy moves from a steady state with positive population growth to a zero population growth rate, then in the new steady state, total output growth will be ______ and growth of output per person will be ______.
lower; the same as it was before
If the labor force is growing at a 3 percent rate and the efficiency of a unit of labor is growing at a 2 percent rate, then the number of effective workers is growing at a rate of:
In the Solow growth model with population growth and technological change, the break-even level of investment must cover:
depreciating capital, capital for new workers, and capital for new effective workers.
According to the Solow model, persistently rising living standards can only be explained by:
With population growth at rate n and labor-augmenting technological progress at rate g, the Golden Rule steady state requires that the marginal product of capital (MPK):
net of depreciation be equal to n + g.
In a Solow model with technological change, if population grows at a 2 percent rate and the efficiency of labor grows at a 3 percent rate, then in the steady state, output per effective worker grows at a ______ percent rate.
In a Solow model with technological change, if population grows at a 2 percent rate and the efficiency of labor grows at a 3 percent rate, then in the steady state, output per actual worker grows at a ______ percent rate.
In the Solow model with technological progress, the steady-state growth rate of output per (actual) worker is:
In the Solow model with technological progress, the steady-state growth rate of total output is:
Conditional convergence occurs when economies converge to:
their own, individual steady states.
If the marginal product of capital net depreciation equals 8 percent, the rate of growth of population equals 2 percent, and the rate of labor-augmenting technical progress equals 2 percent, to reach the Golden Rule level of the capital stock, the ____ rate in this economy must be _____.
Which of the following changes would bring the U.S. capital stock, currently below the Golden Rule level, closer to the steady-state, consumption-maximizing level?
increasing the saving rate
If the production function is y = k1/2, the steady-state value of y is:
y = s/(d + n + g).
Assume that in a small open economy where full employment always prevails, national saving is 300. If domestic investment is given by I = 400 – 20r, where r is the real interest rate in percent, what would the equilibrium interest rate be if the economy were closed?
Assume that in a small open economy where full employment always prevails, national saving is 300. If the economy is open and the world interest rate is 10 percent, what will investment be?
Assume that in a small open economy where full employment always prevails, national saving is 300. What will the current account surplus or deficit be? What will net capital outflow be?
The trade surplus will be 100
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