Assume the participation rate is constant and equal to 100 percent in both economies.

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.