Real GDP per person in Northland is $30,000

Question 1
Real GDP per person in Northland is
$30,000, while real GDP in Southland is $10,000. However, Northland’s real GDP
per person is growing at 1 percent per year and Southland’s is growing at 3
percent per year. If these growth rates persist indefinitely, then
Answer

Northland’s real GDP per person will
decline until it equals Southland’s.

Northland’s real GDP per person will
always be greater than Southland’s.

Southland’s real GDP per person will
always be the same as Northland’s.

Southland’s real GDP per person will
eventually be greater than Northland’s.

1 points
Question 2
If the production function for an economy
is Y = A KaL1-a, then the production function in per capita terms (using lower
case letters to denote per capita variables and assuming all people are
workers) is
Answer

y = ka

y = Aka

y = Akal1-a

y = l1-a

1 points
Question 3
To achieve long-run equilibrium in an
economy with a recessionary gap, output will ______ and the inflation rate will
_____.
Answer

increase; increase

increase; decrease

increase; not change

decrease; decrease

1 points
Question 4
At long-run equilibrium, inflation _______
and output equals ______.
Answer

equals the value determined by past
expectations and pricing decisions; potential output.

equals the value determined by past
expectations and pricing decisions; the level of short-run equilibrium output
consistent with that inflation rate

equals the value consistent with
potential output; the level of output consistent with zero inflation

is stable; potential output.

1 points
Question 5
Consider the country of Solow, which is
described by the Solow-Swan model. Let the saving rate q = 0.8; let the population
growth rate n = 0.05; let the rate of depreciation d = 0.05. If per capita
income y = 100 and the per capita stock of capital k = 800, then:
Answer

replacement investment is 60, saving is
80 and k will decrease towards the steady state per capita capital stock.

replacement investment is 80, saving is
80 and k is at the steady state per capita capital stock.

replacement investment is 80, saving is
60 and k will decrease towards the steady state per capita capital stock.

replacement investment is 80, saving is
60 and k will increase towards the steady state per capita capital stock.

1 points
Question 6
If population growth is minus two per cent
and the depreciation rate of capital is five per cent, then by how much would
the capital stock have to grow just to satisfy the need for replacement
investment?
Answer

3 percent

4 percent

1 percent

7 percent

10 percent

1 points
Question 7
If policymakers attempt to offset a
favourable inflation shock with monetary _____, the resulting long-run
equilibrium will be at _____ inflation rate compared with allowing the
self-correcting mechanism to return the economy to potential output.
Answer

tightening; a higher

tightening; a lower

easing; a higher

easing; a lower

1 points
Question 8
Total production in the economy is
described by the production function Y=AKaL1-a. Capital in use is equal to 25
units, labour in use is equal to 25 units, A is equal to 2 units and a = 0.5.
Output per worker is equal to
Answer

2 units.

1 unit.

25 units.

50 units.

1 points
Question 9
The following table gives you information
regarding two economies Shrek Republic and Farquaad Republic. Assume the
participation rate is constant and equal to 100 percent in both economies.

Shrek Republic

Farquaad Republic

Population growth rate

2 percent

15 percent

Growth rate of Productivity

7 percent

3 percent

Growth rate of GDP

9 percent

18 percent

The growth in the standard of living of Farquaad Republic will be ________ than
Shrek Republic because ___________.
Answer

higher, because its growth rate of
per-capita output is higher

lower, because its growth rate of output is
lower

lower, because its growth rate of
population is lower

lower, because its growth rate of
per-capita output is lower

1 points
Question 10
Assume that the share of population
employed in all countries is 50 per cent. Based on the information below, which
country has the highest real GDP per capita?

Country

Population (millions)

Average Labour Productivity ($)

A

100

2,000

B

150

10,000

C

75

25,000

D

250

50,000

E

95

60,000

Answer

Country A

Country B

Country C

Country D

Country E

1 points
Question 11
Which of the following factors would not be
useful when a policymaker aims to achieve a higher standard of living for her
country in the long run?
Answer

Using expansionary fiscal and monetary
policy to raise the level of demand in the economy.

Raising the number of years of schooling
and the level of skills of workers

Encouraging people to save more, leading
to increased capital accumulation.

Spending more on research and development
(R&D)

1 points
Question 12
According to the Solow-Swan model, for a
country that is initially in steady state, if the technology parameter A
(denoting secondary factors) rises, then
Answer

the per capita capital stock initially
decreases, then returns to its initial steady state level.

the per capita capital stock decreases
and the country moves to a new lower steady state level of per capita income.

the per capita capital stock initially
increases, then returns to its initial steady state level.

the per capita capital stock increases
and the country moves to a new higher steady state level of per capita
income.

1 points
Question 13
Starting from a long-run equilibrium, a
reduction in potential output leads to _____ gap in the short run and to ___
rates of inflation in the long run.
Answer

an expansionary; higher

an expansionary; lower

no output; higher

a recessionary; higher

1 points
Question 14
Growth of real GDP per person is totally
determined by the growth of average
Answer

labour productivity and the proportion of
the population employed.

labour productivity and the proportion of
the population in the labour force.

labour force participation and the share
of income going to capital.

labour force participation and the share
of the population employed.

1 points
Question 15
Disinflation is
Answer

negative inflation, also called
deflation.

a substantial increase in the rate of
inflation.

a substantial decrease in the rate of
inflation.

a zero inflation.

1 points
Question 16
Let the saving rate q = 0.8; let the
population growth rate n = 0.025; let the rate of depreciation d = 0.025. If
per capita income y = 100, then the steady state per capita capital stock in
the Solow-Swan model is
Answer

160

1600

800

80

2000

1 points
Question 17
Consider the country of ‘Swan’, which is
described by the Solow-Swan model. Let the saving rate q = 0.8; let the
population growth rate n=0.05; let the rate of depreciation d = 0.05. If per
capita income y=100 and the per capita stock of capital k = 600, then
Answer

Dk = 0 and k is at the steady state per
capita capital stock.

Dk = 20 and k is below the steady state
per capita capital stock.

Dk = -20 and k is above the steady state
per capita capital stock.

Dk = -20 and k is below the steady state
per capita capital stock.

1 points
Question 18
The self-correcting tendency of the economy
means that rising inflation eventually eliminates
Answer

expansionary gaps.

recessionary gaps.

exogenous spending.

induced spending.

1 points
Question 19
Suppose that the saving rate for an economy
is 0.8; the level of per capita capital stock is 100; the rate of depreciation
is 0.03 and the rate of population growth is 0.02. What is the level of per
capita income if this economy is in steady state?
Answer

6.25

625

2.5

3.75

4.75

1 points
Question 20
Suppose the country of ‘Neo’ is in steady
state in the Solow-Swan growth model and decides that its growth rate of per
capita income is too low. In response, it decides to raise its savings rate.
This has the effect of
Answer

temporarily raising per capita income
growth as the economy moves to a new steady state, but no long-run effect on
per capita income growth.

raising per capita income growth in both
the near term and in the new steady state.

raising steady state per capita income
growth in the long run but has no immediate effect on per capita income
growth.

raises the replacement investment
required for any given level of per capita capital stock.