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25 Cards in this Set

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What does the keynsian cross show
the equality of planned expenditure and income in the short run
in the keynsian cross model, actual expenditures equal
GDP
the government purchases multiplier shows how much
income changes in response to a $1 change in government purchases
in the keynsian cross model if taxes are reduced by 100, then planned expenditures
increase, but by less than 100
assume that a war reduces a country's labor force but does not directly affect its capital stock. if the economy was in a steady state before the war and the saving rate does not change after the war, then, over time, capital will____ and output per worker will grow _____ than it did before the war
decline, more slowly
suppose that two countries are exactly alike in every aspect except that the citizens of country A have a higher savings rate than the citizens of country B.

Which country will have the higher level of output per in the steady state?


Which country will have the faster rate of growth of output in the steady state?
Country A will have a higher level of output

In the steady state the growth rate of output per worker will be zero in both country A and country B
According to the Solow model, persistently rising living standards can only be explained by...
technological progress
In the solow model with technological change, the Golden Rule level of capital is the steady state that maximizes
consumption per effective worker
in the solow model with technological progress, the steady-state growth rate of total output is
n + g
What change would bring the US capital stock, currently below the GOlden Rule level, closer to the steady-state, consumption maximizing level
increasing the saving rate
okun's law is
the negative relationship between real GDP and the unemployment level
Most economists believe that prices are
flexible in the long run but many are sticky in the short run
if the national savings rate increases...
the economy will grow at a faster rate until a new, higher, steady state capital labor ratio is reached
in the solow growth model, with a given production function, depreciation rate, no technological change, and no population growth, a higher savings rate produces...
higher steady state level of output per worker
with a perworker production function y=k ^1/2, the steady state capital stock per worker (k*) as a function of the saving rate (s) is given by
k*=(s/d)^2
The solow growth model describes
how savings, population growth, and technological change affect output over time
unlike the long run classical model in chapter 3, the solow growth model:
describes changes in the economy over time
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
five percent
the efficiency of labor
includes the knowlodge, health and skills of labor
if two economies are indentical (including having the population growth rates and efficiency of labor), but one economy has a lower saving rate, then the steady state level of income per worker in the economy with the lower saving rate:
will be at a lower level than the steady state of the high saving economy
in the solow 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
in the keynsian cross model if government purchases increase by 250, then the equilibrium level of income:
increases by more than 250
when planned expenditure is drawn on a graph as a function of income, the slope of the line is
between zero and one
according to the keynsian-cross analysis, where there is a shift upward in the government purchase schedule by an amount deltaG and the planned expenditure schedule by an equal amount, then equilibrium income rises by
delta G divided by the quantity one minus the marginal propensity to consume
In the keynesian cross model, if the MPC equals .75, then a $1billion decrease in taxes increases plannes expenditures by____ and increases the wquilibrium level of income by_____
.75 billion, more than .75 billion