PS-1 Multiple Choice

Directions¶

There are 20 MC questions, and each question is worth 0.5 course point (for 10 out the total 45 points for this problem set).
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Ch. 2 (Macro Data)¶

Q1¶

Year 1

Good	Quantity	Price
Milk	500	$2
Butter	2000	$1

Year 2

Good	Quantity	Price
Milk	900	$3
Butter	3000	$2

Between Year 1 and Year 2, real GDP (based on Year 1 as a base year) grew by

A) 58.18%
B) 60%
C) 158.18%
D) 160%
E) 260%

Q2¶

If the prices of all goods and services produced in the economy increase while the quantity of all goods and services stayed the same, which would increase?

A) both real GDP and nominal GDP
B) real GDP but not nominal GDP
C) nominal GDP but not real GDP
D) neither nominal GDP nor real GDP
E) There is not enough information to determine the answer.

Q3¶

If the number employed increases while the number unemployed does not change, the unemployment rate

A) will increase
B) will decrease
C) will not change
D) may either increase or decrease

Q4¶

Suppose you downloaded a price index, $P$ , with a data point for each month. The year-over-year inflation rate (as a percent) is defined as $100 \times$

A) $\dfrac{P_t}{P_{t-12}} - 1$
B) $\dfrac{P_t}{P_{t-12}-1}$
C) $\dfrac{P_t}{P_{t-4}} - 1$
D) $\dfrac{P_t}{P_{t-4}-1}$
E) none of the above

Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in 2002 and $0.50 in 2009. If 10 apples and 5 oranges were purchased in 2002, and 5 apples and 10 oranges were purchased in 2009, the CPI for 2009, using 2002 as the base year, is

A) 75
B) 80
C) 100
D) 125
E) 150

Ch. 10 (Facts of Growth)¶

Q6¶

If output per worker grows by a constant 6% per year, then the standard of living would grow by about ____ over 3 years (hints: remember to compound and round to the nearest integer).

A) $12\%$
B) $15\%$
C) $18\%$
D) $19\%$
E) $21\%$

Q7¶

Which of the following equations best represents the concept of constant returns to scale?

A) $F(3K,3L) = 3Y$
B) $2F(2K,2L) = 2Y$
C) $F(4K,4L) = Y/4$
D) $F(K,L)/5 = 5Y$

Q8¶

Assume a constant returns to scale production function. If technology is assumed to be constant, as capital per worker increases, labor productivity (i.e., $Y/N$ )

A) increases at a constant rate.
B) increases at an increasing rate.
C) increases at a decreasing rate.
D) does not change.

Q9¶

Assume a constant returns to scale production function. Suppose the stock of capital increases by 2% and employment increases by 2%. Given this information, we know that

A) output per worker will increase by 6%.
B) output will increase by 4%.
C) output per worker will increase by less than 4% and more than 2%.
D) there will be no change in output per worker.
E) output per worker will fall by 2%.

Q10¶

The two main characteristics of the graph of a production function that relates output per worker to capital per worker are

A) it slopes downward, and the slope becomes flatter as the input increases.
B) it slopes upward, and the slope becomes steeper as the input increases.
C) it slopes upward, and the slope becomes flatter as the input increases.
D) it slopes downward, and the slope becomes steeper as the input increases.

Ch. 11 (Capital Accumulation)¶

Q11¶

An increase in which of the following will cause $K_{t+1}$ to fall?

A) $\delta$
B) $I_t$
C) $K_t$
D) none of the above
E) all of the above

Q12¶

In the Solow growth model, a change in the capital-to-worker ratio is equal to

A) saving - investment.
B) saving + depreciation.
C) investment - depreciation.
D) capital stock - labor force.

Q13¶

Assume lower case letters denote per worker variables. In the Solow growth model, the steady-state output per worker is determined by the equation

A) $y = k/\delta$
B) $y = s/\delta$
C) $y = \delta k / s$
D) $y = k/s$
E) $y = sk/\delta$

Q14¶

Suppose there is no population or technological growth. Define $\tilde{k}$ as the capital-to-worker ratio. If the per worker production function is given by $\tilde{y}=\tilde{k}^{2/3}$ , the saving ratio is 0.2, and the depreciation rate is 0.1, then the steady state capital per worker ratio is

A) 1
B) 2
C) 4
D) 6
E) 8

Q15¶

Suppose there are two countries that are identical with the following exception. The saving rate in country A is greater than the saving rate in country B. Given this information, we know that in the long run

A) output per worker will be greater in B than in A.
B) output per worker will be greater in A than in B.
C) economic growth will be higher in A than in B.
D) more information is needed to answer this question.

Q16¶

Suppose $\tilde{y} = \sqrt{\tilde{k}}$ , total factor productivity is constant and equal to 1, $s = 0.40$ , and $\delta = 0.10$ , where $\tilde{y}$ is output per worker, $\tilde{k}$ is capital per worker, $s$ is the saving rate, and $\delta$ is the depreciation rate. When the economy reaches the steady state, consumption per worker is

A) 1.20
B) 2.40
C) 4.80
D) 13.60

Q17¶

In the absence of technological progress, a decrease in the saving rate will cause which of the following?

A) temporarily decrease the growth of output per worker
B) decrease the steady state growth of output per worker
C) temporarily increase the growth of output per worker
D) increase the steady state growth of output per worker
E) have an ambiguous effect on the growth of output per worker

Ch. 12 (Technological Progress)¶

Q18¶

Assume the following information:

the rate of depreciation is 10% per year,
the population growth rate is 2% per year, and
the growth rate of technology is 3% per year.

Which of the following represents the level of investment needed to maintain a constant capital stock per effective worker, $K/(AN)$ , in this economy?

A) $.02K$
B) $.03K$
C) $.05K$
D) $.10K$
E) $.15K$

Q19¶

Assume that an economy experiences both positive population growth and technological progress. A reduction in the saving rate will cause

A) no change in $K/AN$
B) a permanent reduction in the rate of growth of output per worker
C) a permanent reduction in the rate of growth of output
D) no change in $Y/AN$
E) none of the above

Q20¶

In an economy with population growth but no technological change, if population grows at rate $g_N$ , then capital grows at rate ____ and output grows at rate ____.

A) $g_N; g_N$
B) $g_N; 0$
C) $0; 0$
D) $0; g_N$

Part 1

Growth Model