Macroeconomics International Edition 5th Edition by Stephen D. Williamson – Test Bank A+

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Macroeconomics, 5e (Williamson)

Chapter 3 Business Cycle Measurement

1) The defining feature of business cycles is that they

1. A) are inherently bad.
2. B) represent the underlying trend of real GDP in the economy.
3. C) are fluctuations about trend in real GDP.
4. D) measure prospects for future growth in the economy.

Answer: C

Question Status: Previous Edition

2) A business cycle peak is a

1. A) small positive deviation from trend in real GDP.
2. B) relatively large positive deviation from trend in real GDP.
3. C) small negative deviation from trend in real GDP.
4. D) relatively large negative deviation from trend in real GDP.

Answer: B

Question Status: Previous Edition

3) A business cycle trough is a

1. A) small positive deviation from trend in real GDP.
2. B) relatively large positive deviation from trend in real GDP.
3. C) small negative deviation from trend in real GDP.
4. D) relatively large negative deviation from trend in real GDP.

Answer: D

Question Status: Previous Edition

4) A turning point is

1. A) a change in policy.
2. B) a peak or a trough.
3. C) a boom or a recession.
4. D) a zero deviation from trend.

Answer: B

Question Status: Previous Edition

5) Business cycle persistence refers to the property that

1. A) real GDP is rarely exactly at trend.
2. B) booms and recessions last a long time.
3. C) when real GDP is above trend, it tends to stay above trend, and when it is below trend, it tends to stay below trend.
4. D) business cycles are persistently hard to predict.

Answer: C

Question Status: Previous Edition

6) Macroeconomic forecasting is made easier due to the fact that

1. A) real GDP is variable about trend.
2. B) the business cycle has a regular frequency.
3. C) deviations from trend in real GDP are persistent.
4. D) turning points are easy to predict.

Answer: C

Question Status: New

7) Macroeconomic forecasting is made more difficult due to the fact that

1. A) deviations from trend in real GDP are persistent.
2. B) turning points are hard to predict.
3. C) there is no regularity in comovements.
4. D) consumption is smooth.

Answer: B

Question Status: New

8) Which of the following is NOT a feature of recent U.S. business cycles?

1. A) The time series of deviations from trend in real GDP is quite choppy.
2. B) The time series of deviations from trend in real GDP is quite smooth.
3. C) There is no regularity to the amplitude of fluctuations in real GDP above trend.
4. D) There is no regularity to the frequency of fluctuations in real GDP above trend.

Answer: B

Question Status: Previous Edition

9) Predicting business cycles is difficult because

1. A) they are very persistent.
2. B) the weather changes unpredictably.
3. C) statistics lie.
4. D) their frequency is irregular.

Answer: D

Question Status: Previous Edition

10) Before 2000, the three most recent U.S. recessions occurred in

1. A) 1969-1973, 1979-1982, and 1994-1995.
2. B) 1973-1975, 1982-1985, and 1990-1991.
3. C) 1973-1975, 1981-1982, and 1990-1991.
4. D) 1981-1982, 1990-1991, and 1998-1999.

Answer: C

Question Status: Previous Edition

11) The official dating of the most recent recession places its timing as

1. A) 2007.
2. B) 2007-2009.
3. C) 2008.
4. D) 2008-2009.

Answer: D

Question Status: Previous Edition

12) The property that macroeconomic variables fluctuate together in patterns that exhibit strong regularities is called

1. A) coincidence.
2. B) co-movement.
3. C) correlation.
4. D) coexistence.

Answer: B

Question Status: Previous Edition

13) A time series is

1. A) the length of a business cycle.
2. B) a macroeconomic aggregate that does not lead or lag the business cycle.
3. C) data that is subject to revision.
4. D) a sequence of dated measurements.

Answer: D

Question Status: Previous Edition

14) Robert Lucas has popularized the notion that with respect to

1. A) severity, business cycles are all alike.
2. B) causation, business cycles are all alike.
3. C) quantitative behavior of co-movements among series, business cycles are all alike.
4. D) qualitative behavior of co-movements among series, business cycles are all alike.

Answer: D

Question Status: Previous Edition

15) Positive correlation between x and y implies that

1. A) when x is high, y is high.
2. B) when x is high, y is low.
3. C) when x is zero, y is positive.
4. D) x and y are positively unrelated.

Answer: A

Question Status: Previous Edition

16) When a macroeconomic aggregate is procyclical

1. A) it grows faster than GDP.
2. B) its deviations from trend generally change before the deviations from trend in GDP do.
3. C) its deviations from trend generally change more that the deviations from trend in GDP.
4. D) its deviations from trend are more often of the same sign as the deviations from trend in GDP.

Answer: D

Question Status: Previous Edition

17) Negative correlation between x and y implies that

1. A) when x is high, y is high.
2. B) when x is high, y is low.
3. C) xy < 0.
4. D) x/y < 0.

Answer: B

Question Status: Previous Edition

18) If x is useful for predicting future GDP then

1. A) x is coincident.
2. B) x is a lagging variable.
3. C) x is countercyclical.
4. D) x is a leading variable.

Answer: D

Question Status: New

19) If the correlation between GDP and y is 0.55, we say y is

1. A) procyclical.
2. B) acyclical.
3. C) countercyclical.
4. D) tricyclical.

Answer: A

Question Status: Previous Edition

20) If the correlation between GDP and y is -0.75, we say y is

1. A) procyclical.
2. B) acyclical.
3. C) countercyclical.
4. D) tricyclical.

Answer: C

Question Status: Previous Edition

21) If the correlation between GDP and y is 0, we say y is

1. A) procyclical.
2. B) acyclical.
3. C) countercyclical.
4. D) tricyclical.

Answer: B

Question Status: Revised

22) A lagging variable can be recognized by the fact that

1. A) its persistence is smaller than that of GDP.
2. B) its turning points happen before the turning points of GDP.
3. C) the turning points of GDP happen before its turning points.
4. D) its persistence is larger than that of GDP.

Answer: C

Question Status: Previous Edition

23) If deviations from trend in a macroeconomic variable are positively correlated with deviations from trend in real GDP, that variable is said to be

1. A) useful in predicting future movements in real GDP.
2. B) procyclical.
3. C) countercyclical.
4. D) acyclical.

Answer: B

Question Status: Previous Edition

24) A scatterplot is

1. A) a graph highlighting leads and lags.
2. B) a graph with one series on each axis.
3. C) a graph of one series against time.
4. D) a graph of two series against time.

Answer: B

Question Status: Previous Edition

25) A scatterplot allows us

1. A) to mark peaks and troughs.
2. B) to determine whether a series leads or lags.
3. C) to see the comovement between two time series.
4. D) to determine how persistent a series is.

Answer: C

Question Status: Revised

26) If deviations from trend in a macroeconomic variable are negatively correlated with deviations from trend in real GDP, that variable is said to be

1. A) useless in predicting future movements in real GDP.
2. B) procyclical.
3. C) countercyclical.
4. D) acyclical.

Answer: C

Question Status: Previous Edition

27) If a macroeconomic variable tends to aid in predicting the future path of real GDP, it is said to be a

1. A) convenient variable.
2. B) coincident variable.
3. C) leading variable.
4. D) lagging variable.

Answer: C

Question Status: Previous Edition

28) If real GDP helps to predict the path of a particular macroeconomic variable, it is said to be a

1. A) conventional variable.
2. B) coincident variable.
3. C) leading variable.
4. D) lagging variable.

Answer: D

Question Status: Previous Edition

29) An example of a leading variable in the US is

1. A) GDP.
2. B) investment is structures.
3. C) the consumer price index.
4. D) housing starts.

Answer: D

Question Status: Previous Edition

30) Forecasting the future path of real GDP by exploiting past statistical relationships

1. A) is never very reliable.
2. B) can be accomplished by the construction and use of an index of leading variables.
3. C) can be accomplished by the construction and use of an index of lagging variables.
4. D) can be accomplished by the construction and use of an index of coincident variables.

Answer: B

Question Status: Previous Edition

31) Real consumption tends to be

1. A) procyclical and less variable than real GDP.
2. B) procyclical and more variable than real GDP.
3. C) countercyclical and less variable than real GDP.
4. D) countercyclical and more variable than real GDP.

Answer: A

Question Status: Previous Edition

32) Real investment tends to be

1. A) procyclical and less variable than real GDP.
2. B) procyclical and more variable than real GDP.
3. C) countercyclical and less variable than real GDP.
4. D) countercyclical and more variable than real GDP.

Answer: B

Question Status: Previous Edition

33) Employment tends to be

1. A) procyclical and less variable than real GDP.
2. B) procyclical and more variable than real GDP.
3. C) countercyclical and less variable than real GDP.
4. D) countercyclical and more variable than real GDP.

Answer: A

Question Status: Previous Edition

34) Employment tends to

1. A) lead the cycle.
2. B) be coincident with the cycle.
3. C) lag the cycle.
4. D) sometimes lead, sometimes lag the cycle.

Answer: C

Question Status: Previous Edition

35) Average labor productivity is computed as the

1. A) ratio of industrial production to the employment rate.
2. B) ratio of real output in manufacturing to the level of real GDP.
3. C) ratio of real GDP to the unemployment rate.
4. D) ratio of real GDP to the level of employment.

Answer: D

Question Status: Previous Edition

36) Average labor productivity tends to be

1. A) procyclical and less variable than real GDP.
2. B) procyclical and more variable than real GDP.
3. C) countercyclical and less variable than real GDP.
4. D) countercyclical and more variable than real GDP.

Answer: A

Question Status: Previous Edition

37) A positive relationship between the rate of change in money prices and real GDP is

1. A) a leading relationship
2. B) a lagging relationship.
3. C) an example of countercyclicality.
4. D) a Phillips curve.

Answer: D

Question Status: New

38) One example of a Phillips Curve would be a

1. A) positive relationship between deviations from trend in real and nominal interest rates.
2. B) negative relationship between deviations from trend in real and nominal interest rates.
3. C) positive relationship between deviations from trend in the level of prices and the level of aggregate economic activity.
4. D) negative relationship between deviations from trend in the level of prices and the level of aggregate economic activity.

Answer: C

Question Status: Previous Edition

39) A reverse Phillips Curve would consist of a

1. A) positive relationship between deviations from trend in real and nominal interest rates.
2. B) negative relationship between deviations from trend in real and nominal interest rates.
3. C) positive relationship between deviations from trend in the level of prices and the level of aggregate economic activity.
4. D) negative relationship between deviations from trend in the level of prices and the level of aggregate economic activity.

Answer: D

Question Status: Previous Edition

40) For the period 1947-2012 in the United States, the price level was

1. A) acyclical.
2. B) bicyclical.
3. C) procyclical.
4. D) countercyclical.

Answer: D

Question Status: Revised

41) For the period 1947-2012 in the United States, the money supply was

1. A) procyclical and leading.
2. B) procyclical and lagging.
3. C) countercyclical and leading.
4. D) countercyclical and lagging.

Answer: A

Question Status: Revised

42) The observation that the money supply is procyclical and leading the level of aggregate economic theory is most closely associated with

1. A) Lucas and Friedman.
2. B) Friedman and Schwartz.
3. C) Kydland and Prescott.
4. D) David Runkle.

Answer: B

Question Status: Previous Edition

43) For the period 1947-2012, the behavior of the U.S. money supply is best characterized as

1. A) nearly constant over time.
2. B) somewhat smoother than GDP.
3. C) somewhat more volatile than GDP.
4. D) extremely volatile and unstable.

Answer: B

Question Status: Revised

44) After 1980, the following is true

1. A) money is a leading variable.
2. B) any lead/lag relationship between money and real GDP is difficult to detect.
3. C) money is a lagging variable.
4. D) money is coincident.

Answer: B

Question Status: New

45) For the period 1947-2012, employment in the United States was

1. A) procyclical and leading.
2. B) procyclical and lagging.
3. C) countercyclical and leading.
4. D) countercyclical and lagging.

Answer: B

Question Status: Revised

46) The weight of empirical evidence suggests that in the United States, the real wage rate is

1. A) acyclical.
2. B) bicyclical.
3. C) procyclical.
4. D) countercyclical.

Answer: C

Question Status: Previous Edition

47) Difficulties in determining the cyclical pattern in real wage rates from aggregate data are primarily caused by biases due to

1. A) substitution behavior.
2. B) substantial differences across different business cycles.
3. C) variations in the composition of the labor force over the business cycle.
4. D) changing policy responses to business cycles.

Answer: C

Question Status: Previous Edition

48) Which of the following is not a correct characterization of the U.S. business cycle?

1. A) Employment is procyclical.
2. B) Consumption is procyclical.
3. C) Real wages are procyclical.
4. D) Prices are procyclical.

Answer: D

Question Status: Previous Edition

49) Which of the following is not a correct characterization of the U.S. business cycle?

1. A) Money is countercyclical.
2. B) Employment is procyclical.
3. C) Labor productivity is procyclical.
4. D) Prices are countercyclical.

Answer: A

Question Status: Previous Edition

50) Which of the following is not a correct characterization of the U.S. business cycle?

1. A) Investment fluctuates less than GDP.
2. B) Consumption fluctuates less than GDP.
3. C) Employment fluctuates less than GDP.
4. D) Average labor productivity fluctuates less than GDP.

Answer: A

Question Status: Previous Edition

51) Which of the following is not a correct characterization of the U.S. business cycle?

1. A) Employment lags GDP.
2. B) Consumption is coincident.
3. C) Money lags GDP.
4. D) Investment is coincident.

Answer: C

Question Status: Previous Edition

52) Which of the following is not a correct characterization of the U.S. business cycle?

1. A) Prices are procyclical.
2. B) Consumption fluctuates little.
3. C) Investment fluctuates a lot.
4. D) Average labor productivity is procyclical.

Answer: A

Question Status: Previous Edition

53) Which of the following is not a correct characterization of the U.S. business cycle?

1. A) Employment is procyclical.
2. B) Average labor productivity is countercyclical.
3. C) Wages are procyclical.
4. D) Money is procyclical.

Answer: B

Question Status: Revised

54) Which of the following is not a correct characterization of the U.S. business cycle?

1. A) Investment is procyclical.
2. B) Consumption is procyclical.
3. C) Investment is highly variable.
4. D) Consumption is highly variable.

Answer: D

Question Status: Revised

55) Seasonal adjustment

1. A) should never be used.
2. B) is rarely used.
3. C) is a common characteristic of macroeconomic time series in wide use.
4. D) is not used by modern macroeconomists.

Answer: C

Question Status: New

56) Seasonal adjustment tends to

1. A) smooth a time series with an important seasonal component.
2. B) accentuate seasonal fluctuations.
3. C) take out the deviations from trend in a time series.
4. D) make a time series acyclical.

Answer: A

Question Status: New

Macroeconomics, 5e (Williamson)

Chapter 7 Economic Growth: Malthus and Solow

1) If changes in economic policy could cause the growth rate of real GDP to increase by 1% per year for 100 years, then GDP would be ________ % higher after 100 years than it would have been otherwise.

1. A) 1.3
2. B) 2.0
3. C) 2.7
4. D) 3.8

Answer: C

Question Status: Previous Edition

2) On average, for the last 100 years or more, real GDP per capita in the United States has increased by

1. A) 0.5% per year.
2. B) 1% per year.
3. C) 2% per year.
4. D) 4% per year.

Answer: C

Question Status: Revised

3) When we compare poor and rich countries in the world

1. A) There is much greater dispersion in growth rates in per capita income for the poor countries than for the rich countries.
2. B) The investment rate is higher for poor countries than for rich countries.
3. C) There is much greater dispersion in growth rates in per capita income for the rich countries than for the poor countries.
4. D) Population growth rates are higher in rich countries than in poor countries.

Answer: A

Question Status: New

4) In an exogenous growth model, growth is caused by

1. A) capital accumulation.
2. B) government policies.
3. C) human capital accumulation.
4. D) forces that are not explained by the model itself.

Answer: D

Question Status: Previous Edition

5) The idea that an improvement in technology causes an increase in population but causes no increase in the average standard of living is attributed to

1. A) Adam Smith.
2. B) Thomas Malthus.
3. C) Robert Solow.
4. D) Milton Friedman.

Answer: B

Question Status: Previous Edition

6) In the Malthusian model of economic growth

1. A) Per capita consumption affects birth rates and death rates.
2. B) Per capita consumption affects birth rates but not death rates.
3. C) Per capita consumption affects death rates but not birth rates.
4. D) Per capita consumption is always constant.

Answer: A

Question Status: New

7) The Malthusian model performs poorly in explaining economic growth after the

1. A) French Revolution.
2. B) American Revolution.
3. C) Industrial Revolution.
4. D) Bio-technology Revolution.

Answer: C

Question Status: Previous Edition

8) The Solow model emphasizes the role of which of the following factors of production?

1. A) land
2. B) labor
3. C) capital
4. D) natural resources

Answer: C

Question Status: Previous Edition

9) Before the Industrial Revolution, standards of living differed

1. A) greatly over time and across countries.
2. B) little over time, but differed greatly across countries.
3. C) greatly over time, but differed little across countries.
4. D) little over time and across countries.

Answer: D

Question Status: Previous Edition

10) Recent evidence suggests that output per worker is

1. A) positively related to both the rate of investment and to the rate of population growth.
2. B) positively related to the rate of investment and negatively related to the rate of population growth.
3. C) negatively related to the rate of investment and positively related to the rate of population growth.
4. D) negatively related to both the rate of investment and to the rate of population growth.

Answer: B

Question Status: Previous Edition

11) There is evidence that income per worker is converging in

1. A) the richest countries and the poorest countries.
2. B) the richest countries, but not the poorest countries.
3. C) the poorest countries, but not the richest countries.
4. D) neither the richest nor the poorest countries.

Answer: B

Question Status: Previous Edition

12) In the Malthusian model, the population growth rate is

1. A) exogenous.
2. B) positively related to consumption per worker.
3. C) negatively related to consumption per worker.
4. D) assumed to be constant.

Answer: B

Question Status: Previous Edition

13) In the Malthusian model, population growth is endogenous because

1. A) the birth rate is endogenous.
2. B) the death rate is endogenous.
3. C) the birth and death rates are endogenous.
4. D) neither is endogenous.

Answer: C

Question Status: Revised

14) The Malthusian model emphasizes fixity in which of the following factors of production?

1. A) labor
2. B) land
3. C) energy
4. D) none of the above

Answer: B

Question Status: Previous Edition

15) In the Malthusian model of economic growth, an increase in the quantity of land

1. A) increases steady state per capita consumption, and increases the steady state population.
2. B) has no effect on steady state per capita consumption or on steady state population.
3. C) has no effect on steady state per capita consumption, and increases the steady state population.
4. D) increases per capita consumption, and reduces the steady state population.

Answer: C

Question Status: New

16) A steady state is

1. A) a temporary equilibrium.
2. B) a Pareto Optimum.
3. C) a long-run equilibrium.
4. D) an economy with ongoing fluctuations.

Answer: C

Question Status: Previous Edition

17) Why do we analyze the steady state in the Malthusian model?

1. A) Because that is all we know how to do.
2. B) Because there is a non-steady state that is not interesting.
3. C) Because this is the Pareto optimum.
4. D) Because the long run equilibrium of the model is the steady state.

Answer: D

Question Status: New

18) We can use a per-worker production function in the Malthusian model because

1. A) there is a representative worker.
2. B) firms are competitive.
3. C) there is a steady state.
4. D) the production function has constant returns to scale.

Answer: D

Question Status: Previous Edition

19) In the Malthusian model, an improvement in the technology of growing food is likely to

1. A) increase the equilibrium size of the population and increase the equilibrium level of consumption per worker.
2. B) increase the equilibrium size of the population and decrease the equilibrium level of consumption per worker.
3. C) increase the equilibrium size of the population and have no effect on the equilibrium level of consumption per worker.
4. D) have no effect on the equilibrium size of the population and increase the equilibrium level of consumption per worker.

Answer: C

Question Status: Previous Edition

20) The Malthusian model predicts that

1. A) population will keep increasing.
2. B) the standard of living will keep increasing.
3. C) health improvements increase the standard of living.
4. D) population control improves the standard of living.

Answer: D

Question Status: Previous Edition

21) In a Malthusian world, why is misery recurrent?

1. A) The marginal returns of capital are decreasing.
2. B) Fertility is endogenous.
3. C) Output is increasing in labor.
4. D) Mortality depends on the standard of living.

Answer: D

Question Status: Previous Edition

22) In a Malthusian world, what would improve the standard of living permanently?

1. A) a war
2. B) a new medical drug
3. C) birth control
4. D) democracy

Answer: C

Question Status: Previous Edition

23) In a Malthusian world, what would improve the standard of living temporarily?

1. A) a war
2. B) a new virus
3. C) birth control
4. D) democracy

Answer: A

Question Status: Previous Edition

24) In the Malthusian model, state-mandated population control policies are likely to

1. A) decrease the equilibrium size of the population and increase the equilibrium level of consumption per worker.
2. B) decrease the equilibrium size of the population and have no effect on the equilibrium level of consumption per worker.
3. C) have no effect on the equilibrium size of the population and increase the equilibrium level of consumption per worker.
4. D) have no effect on either the equilibrium size of the population or the equilibrium level of consumption per worker.

Answer: A

Question Status: Previous Edition

25) In the Malthusian model, improvements in health care lead to

1. A) higher population and higher per-capita production.
2. B) higher population and lower per-capita production.
3. C) lower population and higher per-capita production.
4. D) lower population and lower per-capita production.

Answer: B

Question Status: Previous Edition

26) If an epidemic hits a Malthusian economy, the immediate consequence is

1. A) an increase in the standard of living.
2. B) a reduction in the standard of living.
3. C) no change in the standard of living.
4. D) dependent on the population growth rate.

Answer: A

Question Status: Previous Edition

27) If an epidemic hits a Malthusian economy, the long-term consequence is

1. A) an increase in the standard of living.
2. B) a reduction in the standard of living.
3. C) no change in the standard of living.
4. D) dependent on the population growth rate.

Answer: C

Question Status: Previous Edition

28) In a Malthusian world, what event would improve temporarily the standard of living, as measured by output per capita?

1. A) a peace keeping mission
2. B) an increase in violent crime
3. C) a new mutation of germs
4. D) a new sewer system

Answer: B

Question Status: Revised

29) In a Malthusian world, what events would improve permanently the standard of living, as measured by output per capita?

1. A) a peace keeping mission
2. B) an increase in violent crime
3. C) a new mutation of germs
4. D) a new sewer system

Answer: C

Question Status: Previous Edition

30) In more modern times as opposed to the times of Malthus, higher standards of living appear to

1. A) decrease death rates and increase birth rates.
2. B) decrease death rates and also decrease birth rates.
3. C) decrease death rates and have no effect on birth rates.
4. D) have had effects on neither death rates nor birth rates.

Answer: B

Question Status: Previous Edition

31) Malthus was too pessimistic because he did not foresee the effects of

1. A) ever increasing amounts of land for cultivation.
2. B) increases in the capital stock and the effects of such increases on production.
3. C) improved nutrition and health care.
4. D) improved family planning practices.

Answer: B

Question Status: Previous Edition

32) The Solow residual attempts to measure the amount of output not explained by

1. A) technological progress.
2. B) the direct contribution of labor and capital.
3. C) economic projections.
4. D) the amount of a nation’s human capital.

Answer: B

Question Status: Previous Edition

33) Growth accounting, popularized by Robert Solow, attempts to attribute a change in aggregate output

1. A) to its most important single cause.
2. B) separately between changes in government policy and changes in total factor productivity.
3. C) separately between changes in total factor productivity and changes in the supplies of factors of production.
4. D) separately between changes in the supplies of factors of production and changes in government policy.

Answer: C

Question Status: Previous Edition

34) For the production function, Y = zK0.36N0.64, if measured output is , measured capital input is , and measured labor input is , then the Solow residual would be equal to

1. A) .
2. B) × .
3. C) × .
4. D) .

Answer: D

Question Status: Previous Edition

35) All of the following increase total factor productivity except

1. A) new inventions.
2. B) more capital.
3. C) new management techniques.
4. D) favorable changes in government regulations.

Answer: B

Question Status: Previous Edition

36) Which of the following increases total factor productivity?

1. A) investment in machinery
2. B) a harsh winter
3. C) better access to credit
4. D) new production procedures

Answer: D

Question Status: Previous Edition

37) Growth in the Solow residual was slowest in the

1. A) 1950s.
2. B) 1960s.
3. C) 1970s.
4. D) 1980s.

Answer: C

Question Status: Previous Edition

38) Growth in the Solow residual was fastest in the

1. A) 1950s.
2. B) 1960s.
3. C) 1970s.
4. D) 1980s.

Answer: B

Question Status: Previous Edition

39) One plausible explanation of the U.S. productivity slowdown starting in 1973 is that it is an artifact of mismeasurement. This explanation would require that production of

1. A) goods is underestimated.
2. B) goods is overestimated.
3. C) services is underestimated.
4. D) services is overestimated.

Answer: C

Question Status: Previous Edition

40) One plausible explanation of the U.S. productivity slowdown starting in 1973 is that it was a result of the increase in the relative price of energy. This explanation would require that, in light of higher energy costs, the

1. A) capital stock is overestimated.
2. B) capital stock is underestimated.
3. C) labor force is overestimated.
4. D) labor force is underestimated.

Answer: A

Question Status: Previous Edition

41) The period from 2000 to 2010

1. A) was a period of high productivity growth.
2. B) was a period with negative productivity growth, because of the Great Recession.
3. C) was a period of zero productivity growth.
4. D) was a period of low productivity growth, almost as bad as the period 1970-1980.

Answer: D

Question Status: New

42) One plausible explanation of the U.S. productivity slowdown starting in 1973 is that it was the result of the time needed to adapt to new technology. This explanation would require that

1. A) workers withdraw from the labor force to learn about the new technology.
2. B) a large number of new entrants be attracted to the labor force.
3. C) managers be reluctant to adopt changes.
4. D) workers time at their jobs be diverted from production to learning the technology.

Answer: D

Question Status: Previous Edition

43) The biggest contribution to real U.S. GDP growth in the 1970s was due to growth in

1. A) total factor productivity.
2. B) the capital stock.
3. C) the labor force.
4. D) both the capital stock and the labor force.

Answer: D

Question Status: Previous Edition

44) The per-worker production function relates output per worker

1. A) to capital per worker.
2. B) to the participation rate.
3. C) to production per worker.
4. D) in different countries.

Answer: A

Question Status: Previous Edition

45) We can express the per-worker production function as a function of only per-worker capital thanks to

1. A) the decreasing marginal return of capital.
2. B) the decreasing marginal return of labor.
3. C) the constant returns to scale.
4. D) the impatience of households.

Answer: C

Question Status: Previous Edition

46) The slope of the output per worker function is equal to the

1. A) marginal product of capital.
2. B) marginal product of labor.
3. C) savings rate.
4. D) growth rate of the population.

Answer: A

Question Status: Previous Edition

47) In the Solow growth model, the law of motion of capital takes into account

1. A) the residential nature of houses.
2. B) the mobility of capital.
3. C) the depreciation of old capital.
4. D) the cost of shipping and installing capital.

Answer: C

Question Status: Previous Edition

48) It is useful to study the Solow growth model because

1. A) it provides a useful account of the reasons for population growth.
2. B) it is useful in understanding the sources of economic growth after 1800.
3. C) it has a steady state.
4. D) it can help us understand the reasons for population control.

Answer: B

Question Status: New

49) In Solow’s model of economic growth, suppose that s represents the savings rate, z represents total factor productivity, k represents the level of capital per worker, and f(k) represents the per-worker production function. Also suppose that n represents the population growth rate and d represents the depreciation rate of capital. The equilibrium level of capital per worker, k*, will satisfy the equation

1. A) szf(k*) = (n + d)k*.
2. B) szk* = (n + d)f(k*).
3. C) nf(k*) = .
4. D) f(k*) = k*.

Answer: A

Question Status: Previous Edition

50) In the steady state of the Solow growth model

1. A) consumption equals depreciation.
2. B) per capita variables grow at the rate of population growth.
3. C) aggregate consumption grows at a constant rate.
4. D) aggregate output is constant.

Answer: C

Question Status: New

51) The saving rate has the following characteristic in Solow’s exogenous growth model

1. A) it increases with output.
2. B) it first decreases, then increases with output.
3. C) it first increases, then decreases with output.
4. D) it is constant.

Answer: D

Question Status: Previous Edition

52) In Solow’s exogenous growth model, the principal obstacle to continuous growth in output per capita is due to

1. A) the declining marginal product of labor.
2. B) the declining marginal product of capital.
3. C) limits in the ability of government policymakers.
4. D) too little savings.

Answer: B

Question Status: Previous Edition

53) In the Solow growth model, an increase in the savings rate

1. A) raises steady state per capita output.
2. B) raises the growth rate in aggregate output.
3. C) must reduce per capita consumption.
4. D) must reduce the standard of living.

Answer: A

Question Status: New

54) Which of the following, if implemented in the Solow growth model, would not lead to a steady state?

1. A) A higher population growth rate.
2. B) Decreasing returns to scale in production.
3. C) A savings rate that decreases as income increases.
4. D) A constant marginal product of capital.

Answer: D

Question Status: Previous Edition

55) Which of the following, if implemented in the Solow growth model, would not lead to a steady state?

1. A) A higher savings rate.
2. B) A higher depreciation rate.
3. C) A savings rate that increases as income increases.
4. D) A population growth rate that increases as income increases.

Answer: C

Question Status: Previous Edition

56) In Solow’s exogenous growth model, the economy reaches a stable steady state because

1. A) the marginal return of capital is decreasing.
2. B) capital is growing at a constant rate.
3. C) the substitution effect is stronger than the income effect.
4. D) conditional convergence holds.

Answer: A

Question Status: Previous Edition

57) In the steady state of Solow’s exogenous growth model, an increase in the savings rate

1. A) increases output per worker and increases capital per worker.
2. B) increases output per worker and decreases capital per worker.
3. C) decreases output per worker and increases capital per worker.
4. D) decreases output per worker and decreases capital per worker.

Answer: A

Question Status: Previous Edition

58) Which of the following is not a feature of the steady state in Solow’s exogenous growth model?

1. A) The capital/output ratio is steady.
2. B) Capital grows continuously.
3. C) Consumption per worker is steady.
4. D) Total saving is steady.

Answer: D

Question Status: Previous Edition

59) In Solow’s exogenous growth model, the steady-state growth rate of capital can be increased by

1. A) higher population growth.
2. B) higher depreciation rate.
3. C) higher saving rate.
4. D) higher interest rate.

Answer: A

Question Status: Previous Edition

60) The Golden Rule of capital accumulation maximizes the steady-state level of

1. A) output per worker.
2. B) capital per worker.
3. C) consumption per worker.
4. D) investment per worker.

Answer: C

Question Status: Previous Edition

61) In the Golden Rule steady state, the marginal product of capital is equal to the

1. A) savings rate plus the population growth rate.
2. B) population growth rate plus the depreciation rate.
3. C) depreciation rate plus the savings rate.
4. D) savings rate divided by the marginal product of labor.

Answer: B

Question Status: Previous Edition

62) In the steady state of Solow’s exogenous growth model, an increase in the growth rate of labor force

1. A) increases output per worker and increases capital per worker.
2. B) increases output per worker and decreases capital per worker.
3. C) decreases output per worker and increases capital per worker.
4. D) decreases output per worker and decreases capital per worker.

Answer: D

Question Status: Previous Edition

63) In the steady state of Solow’s exogenous growth model, an increase in total factor productivity

1. A) increases output per worker and increases capital per worker.
2. B) increases output per worker and decreases capital per worker.
3. C) decreases output per worker and increases capital per worker.
4. D) decreases output per worker and decreases capital per worker.

Answer: A

Question Status: Previous Edition

64) With an increase in total factor productivity in the Solow growth model,

1. A) output decreases temporarily and returns to the previous steady state.
2. B) output increases temporarily and returns to the previous steady state.
3. C) the economy reaches a steady state with higher output.
4. D) the economy reaches a steady state with lower output.

Answer: C

Question Status: Previous Edition