Intermediate Macroeconomics Exam 2

Front 1

The Macroeconomic problem that affects individuals most directly and severely is:
A) inflation.
B) unemployment.
C) low savings.
D) low investment.

Back 1

B) unemployment

Front 2

The unemployment rate in the United States since 1952 has:
A) never been close to zero.
B) gravitated toward a steady-state rate of zero.
C) Remained constant from year to year.
D) equaled the natural rate of unemployment in every year.

Back 2

A) never been close to zero.

Front 3

The natural rate of unemployment in the United States since 1950 has averaged between ___ and ____ percent.
A) 0; 1
B) 1; 3
C) 5; 6
D) 10; 15

Back 3

C) 5; 6

Front 4

In a steady state:
A) no hiring or firings are occurring.
B) the number of people finding jobs equals the number of people losing jobs.
C) the number of people finding jobs exceeds the number of people losing jobs.
D) the number of people losing jobs exceeds the number of people finding jobs.

Back 4

B) the number of people finding jobs equals the number of people losing jobs.

Front 5

One reason for unemployment is that:
A) it takes time to match workers and jobs.
B) all jobs are identical.
C) the labor market is always in equilibrium.
D) a laid-off worker can immediately find a new job at the market wage.

Back 5

A) it takes time to match workers and jobs.

Front 6

<i>All</i> of the following are reasons for frictional unemployment <i>except</i>:
A) workers have different preferences an abilities.
B) unemployed workers accept the first job offer that they receive.
C) the flow of information is imperfect.
D) geographic mobility takes time.

Back 6

B) unemployed workers accept the first job offer that they receive.

Front 7

Unemployment caused by the time it takes workers to search for a job is called ____ unemployment.
A) frictional
B) structural
C) efficiency
D) insider

Back 7

A) frictional

Front 8

Sectoral shifts:
A) lead to wage rigidity.
B) explain the payment of efficiency wages.
C) depends on the level of the minimum wage.
D) make frictional employment inevitable.

Back 8

D) make frictional employment inevitable.

Front 9

Economists call the changes in the composition of demand among industries and regions:
A) insider-outsider conflicts.
B) sectoral shifts.
C) moral hazard.
D) adverse selection.

Back 9

B) sectoral shifts.

Front 10

Unemployment insurance increases the amount of frictional unemployment by:
A) making workers more frantic in their search for new jobs.
B) including workers to accept the first job offer that they receive.
C) making employers more reluctant to layoff workers.
D) softening the economic hardship of unemployment.

Back 10

D) softening the economic hardship of unemployment.

Front 11

<i>All</i> of the following policies were adopted by government in an attempt to reduce the natural rate of unemployment <i>except</i>:
A) unemployment insurance.
B) government employment agencies.
C) public retraining programs.
D) the Illinois bonus program for unemployment insurance claimants who found jobs quickly.

Back 11

A) unemployment insurance.

Front 12

Wage rigidity:
A) forces labor demand to equal labor supply.
B) is caused by sectoral shifts.
C) prevents labor demand and labor supply from reaching the equilibrium level.
D) increases the rate of job.

Back 12

C) prevents labor demand and labor supply from reaching the equilibrium level.

Front 13

The minimum wage:
A) is usually about 75 percent of the average wage earned in manufacturing.
B) raises the wages of highly skilled workers.
C) encourages master workers to take on apprentices.
D) has its greatest impact on teenage unemployment.

Back 13

D) has its greatest impact on teenage unemployment.

Front 14

The percentage of workers who belong to unions in the United States is approximately:
A) 18 percent.
B) 28 percent.
C) 33 percent.
D) 50 percent.

Back 14

A) 18 percent.

Front 15

Unions contribute to structural unemployment when collective bargaining results in wages:
A) above the equilibrium level.
B) below the minimum wage.
C) below the equilibrium level.
D) above the level of unemployment compensation.

Back 15

A) above the equilibrium level.

Front 16

One efficiency-wage theory implies that firms pay high wages because:
A) this practice increases the problem of moral hazard.
B) in wealthy countries, it is important to pay workers high wages to improve their health.
C) the more a firm pays its workers, the greater their incentive to stay with the firm.
D) paying high wages promotes adverse selection.

Back 16

C) the more a firm pays its workers, the greater their incentive to stay with the firm.

Front 17

Paying efficiency wages helps firms reduce the problem of adverse selection by:
A) generation additional profits that can be used to pay for more proficient hiring managers.
B) keeping labor unions from organizing workers in the firm.
C) encouraging unsupervised workers to maintain a high level of productivity.
D) providing an incentive for the best-qualified workers to remain with the firm.

Back 17

B) keeping labor unions from organizing workers in the firm.

Front 18

When Henry Ford paid his workers $5 per day when the prevailing wage was between $2 and $3 a day:
A) it greatly increased his company's costs.
B) workers reduced their work efforts because they felt they "had it made."
C) Ford proved the efficiency-wage theory was wrong.
D) it raised the efficiency of his workers.

Back 18

D) it raised the efficiency of his workers.

Front 19

Policies to substantially reduce unemployment should be targeted at:
A) the short-term unemployed.
B) the long-term unemployed.
C) discouraged workers.
D) insiders and outsiders.

Back 19

B) the long-term unemployed.

Front 20

Short-term unemployment is most likely to be ___ unemployment, while long-term unemployment is most likely to be ___ unemployment.
A) structural; frictional
B) structural; the natural rate of
C) the natural rate of; frictional
D) frictional; structural

Back 20

D) frictional; structural

Front 21

A spell of unemployment begins when a person leaves his or her job or:
A) withdraws from the labor force.
B) enters the labor force.
C) takes a vacation.
D) has been without a job for at least four weeks.

Back 21

B) enters the labor force.

Front 22

Discouraged workers are counted as:
A) part of the labor force.
B) out of the labor force.
C) employed.
D) unemployed.

Back 22

B) out of the labor force.

Front 23

Many economists attribute part of the recent increase in European unemployment to:
A) high birthrates.
B) slow rates of technological change.
C) generous benefits for unemployed workers.
D) increased demand for unskilled workers.

Back 23

C) generous benefits for unemployed workers.

Front 24

The recent reduced demand for unskilled workers relative to skilled workers relative to skilled workers has led to ___ for unskilled workers in Europe compared to ___ for unskilled workers in the United States.
A) unemployment; lower wages
B) lower wages; unemployment
C) more unionization; efficiency wages
D) efficiency wages; more unionization

Back 24

A) unemployment; lower wages

Front 25

Discouraged workers are individuals who:
A) have jobs that do not match their skills (e.g., a PhD driving a taxi cab).
B) have been unemployed for more than 26 weeks.
C) call themselves unemployed but are not seriously looking for a job.
D) want a job but have given up looking for one.

Back 25

C) call themselves unemployed but are not seriously looking for a job.

Front 26

The solow growth model describes:
A) how output is determined at a point in time.
B) how output is determined with fixed amounts of capital and labor.
C) how saving, population growth, and technological change affect output over time.
D) the static allocation, production, and distribution of the economy's output.

Back 26

C) how saving, population growth, and technological change affect output over time.

Front 27

Unlike the long-run classical model in Chapter 3, the solow growth model:
A) assumes that the factors of production and technology are the sources of the economy's output.
B) describes changes in the economy over time.
C) is static.
D) assumes that the supply of goods determines how much output is produced.

Back 27

B) describes changes in the economy over time.

Front 28

When f(k) is drawn on a graph with increases in k noted along the horizontal axis, the:
A) graph is a straight line.
B) slope of the line eventually gets flatter and flatter.
C) slope of the line eventually becomes negative.
D) slope of the line eventually become steeper and steeper.

Back 28

B) slope of the line eventually gets flatter and flatter.

Front 29

The consumption function in the Solow model assumes that society saves a:
A) constant proportion of income.
B) smaller proportion of income as it becomes richer.
C) larger proportion of income as it becomes richer.
D) larger proportion of income when the interest rate is higher.

Back 29

A) constant proportion of income.

Front 30

If a war destroys a large portion of a country's capital stock but the saving rate is unchanged, the Solow model predicts output will grow and that the new steady state will approach:
A) a higher output level than before.
B) the same output level as before.
C) a lower output level than before.
D) the Golden Rule output level.

Back 30

B) the same output level as before.

Front 31

Among the four countries--the United States, the United Kingdom, Germany, and Japan--the one that experienced the most rapid growth rate of output per person between 1948 and 1972 was:
A) the United States.
B) the United Kingdom.
C) Germany.
D) Japan.

Back 31

D) Japan.

Front 32

if the national saving rate increases, the:
A) economy will grow at a faster rate forever.
B) capital-labor ratio will increase forever.
C) economy will grow at a faster rate until a new, higher, steady-state capital-labor ratio is reached.
D) capital-labor ratio will eventually decline.

Back 32

C)economy will grow at a faster rate until a new, higher, steady-state capital-labor ratio is reached.

Front 33

The solow model shows that a key determinant of the steady-state ratio of capital to labor is the:
A) level of output.
B) labor force.
C) saving rate.
D) capital elasticity in the production function.

Back 33

C) saving rate.

Front 34

A higher saving rate leads to a:
A) higher rate of economic growth in both the short run and the long run.
B) higher rate of economic growth only in the long run.
C) higher rate of economic growth in the short run but a decline in the long run.
D) large capital stock and a high level of output in the long run.

Back 34

D) large capital stock and a high level of output in the long run.

Front 35

According to the Kremerian model, large populations improve living standards because:
A) crowded conditions put more pressure on people to work hard.
B) there are more people who can make discoveries and contribute to innovation.
C) more people have the opportunity for leisure and recreation.
D) most people prefer to live with many other people.

Back 35

B) there are more people who can make discoveries and contribute to innovation.

Front 36

The <i>efficiency of labor</i> is a term that does not reflect the:
A) high output that comes from labor cooperating with a large amount of capital.
B) health of the labor force.
C) education of the labor force.
D) skills of the labor force acquired through on-the-job training.

Back 36

A) high output that comes from labor cooperating with a large amount of capital.

Front 37

The efficiency of labor:
A) is the marginal product of labor.
B) is the rate of growth of the labor force.
C) includes the knowledge, health, and skills of labor.
D) equals output per worker.

Back 37

C) includes the knowledge, health, and skills of labor.

Front 38

In the Solow growth model with population growth and technological change, the steady-state growth rate of income per person depends on:
A) the rate of population growth.
B) the saving rate.
C) the rate of technological progress.
D) the rate of population growth plus the rate of technological progress.

Back 38

C) the rate of technological progress.

Front 39

According the Solow model, persistently rising living standards can only be explained by:
A) population growth.
B) capital accumulation.
C) saving rates.
D) technological progress.

Back 39

D) technological progress.

Front 40

International data suggests that economies of countries with different steady states will converge to:
A) the same steady state.
B) their own steady state.
C) the Golden Rule steady state.
D) steady states below the Golden Rule level.

Back 40

B) their own steady state

Front 41

If two economies are identical (with the same population growth rates and rates of technological progress), 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:
A) will be at a lower level than the steady state of the high-saving economy.
B) will be at a higher level than the steady state of the high-saving economy.
C) will be at the same level as the steady state of the high-saving economy.
D) will grow at a slower rate than the high-saving economy.

Back 41

A) will be at a lower level than the steady state of the high-saving economy.

Front 42

The preponderance of empirical evidence supports the hypothesis that economies that are open to trade ___ than comparable closed economies.
A) grow more rapidly
B) have lower steady-state levels of income per worker due to foreign competition
C) have faster rates of population growth and technological progress
D) converge more slowly to a steady-state equilibrium

Back 42

A) grow more rapidly

Front 43

Empirical evidence supports the theory that free trade:
A) increases economic growth.
B) decreases economic growth.
C) increases imports, but decreases exports because of greater global competition.
D) increases both imports and exports, but does not contribute to overall economic growth.

Back 43

A) increases economic growth.

Front 44

English-style legal systems give ___ protections to shareholders and creditors than French Napoleonic Codes, typically resulting in ___ capital markets and faster rates of economic growth.
A) greater; more developed
B) greater; more corrupt
C) less; more developed
D) less; less corrupt

Back 44

A) greater; more developed

Front 45

The type of legal system in a country and the level of corruption in a country have been found to be:
A) unrelated to the rate of economic growth in a country.
B) significant determinants of the rate of economic growth in a country.
C) important topics for political discussion, but not economic explanations of growth.
D) important variables explaining the Golden Rule level of capital.

Back 45

B) significant determinants of the rate of economic growth in a country.

Front 46

One explanation for greater economic development development in moderate versus tropical climates is that institutions established by colonial settlers in moderate climates ___, while institutions established by colonists in tropical climates ___.
A) were based on English common law; were based on the Napoleonic code
B) were based on the Napoleonic code; were based on English common law
C) protected property right; were extractive and authoritarian
D) were extractive and authoritarian; protected property rights

Back 46

C) protected property rights; were extractive and authoritarian

Front 47

The productivity slowdown that began in the 1970s has been attributed, at least partly, to each of the following except:
A) running out of new ideas about how to produce.
B) a deterioration in the quality of education.
C) a decline in the number of workers in the labor force.
D) a lower average level of experience among workers.

Back 47

C) a decline in the number of workers in the labor force.

Front 48

Increases in the rate of growth of income per person in the United States in the mid-1990s was most likely the result of:
A) increases in human capital.
B) increases in physical capital.
C) advances in information technology.
D) an increase in the saving rate.

Back 48

C) advances in information technology.

Front 49

Endogenous growth theory rejects the assumption of exogenous:
A) production functions.
B) rates of depreciation.
C) population growth rates.
D) technological change.

Back 49

D) technological change.

Front 50

In the basic endogenous growth model, income can grow forever--even without exogenous technological progress--because:
A) the saving rate equals the rate of depreciation.
B) the saving rate exceeds the rate of depreciation.
C) capital does not exhibit diminishing returns.
D) capital exhibits diminishing returns.

Back 50

C) capital does not exhibit diminishing returns.

Front 51

The endogenous growth model's assumption of constant returns to capital is more plausible if capital is defined to include:
A) plant and equipment.
B) knowledge.
C) depreciation.
D) technology.

Back 51

B) knowledge.

Front 52

Schumpter's thesis of "creative destruction" is an explanation of economic progress resulting from:
A) using up scarce natural resources to create new products.
B) breaking down barriers to trade and development.
C) new product producers driving incumbent producers out of business.
D) creating new methods to destroy the environment.

Back 52

C) new product producers driving incumbent producers out of business.