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...

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, thenAnswer

   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

1. If the production function for an economy is Y =AK^aL^1-a, then the production function in per capita terms (using lower case letters to denote per capita variables and assuming all people are workers) isAnswer

   y =ka

   y = Aka

   y= Akal1-a

   y = l1-a

1 points

Question 3

1. 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

1. 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

1. Consider the country of Solow, which is described by the Solow-Swan model. Let the saving rateq = 0.8; let the population growth raten = 0.05; let the rate of depreciationd = 0.05. If per capita incomey = 100 and the per capita stock of capitalk = 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

1. 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

1. 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

1. Total production in the economy is described by the production function Y=AK^aL^1-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 toAnswer

   2 units.

   1 unit.

   25 units.

   50 units.

1 points

Question 9

1. 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

1. 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

1. 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

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

   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

1. 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

1. Growth of real GDP per person is totally determined by the growth of averageAnswer

   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

1. Disinflation isAnswer

   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

1. Let the saving rateq = 0.8; let the population growth raten = 0.025; let the rate of depreciationd = XXXXXXXXXXIf per capita incomey = 100, then the steady state per capita capital stock in the Solow-Swan model isAnswer

   160

   1600

   800

   80

   2000

1 points

Question 17

1. 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, thenAnswer

   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

1. The self-correcting tendency of the economy means that rising inflation eventually eliminatesAnswer

   expansionary gaps.

   recessionary gaps.

   exogenous spending.

   induced spending.

1 points

Question 19

1. 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

1. 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 ofAnswer

   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.