ECON 282 Assignment 1 & 2

Assume these questions will be on the final.

Changes in total factor productivity are also called:

The Solow residual.

For the Canadian economy, we can assume that:

Labour is a larger source of growth than capital.

A country's balance of payments can be affected by changes in:

foreign income

the real exchange rate

the differential between domestic and foreign interest rates

domestic income

If a central bank believes that an economic disturbance will negatively affect GDP in the current quarter but will have little permanent effect, then it should:

Sit on its hands since any policy action would destabilize the economy further.

A downward-sloping yield curve is often seen as an indication that:

A recession may be imminent.

Generally one can expect the yield of a corporate bond to be higher:

If the bond is less liquid.

A country's balance-of-payments surplus is equal to:

The current account surplus plus private net capital inflow.

According to neoclassical growth theory which of the following does NOT affect a nation's long-term growth rate?

The saving rate and the rate of depreciation.

Automatic stabilizers reduce the size of economic fluctuations since they:

Ensure that disposable income falls by less than income after a disturbance.

According to the simplified life-cycle theory of consumption, a retired person with zero income from labour would:

Consume a fraction of accumulated wealth based upon her/his life expectancy.

A central bank that is independent of the administration is desirable since:

countries with independent central banks tend to have lower inflation rates

independence decreases the likelihood of political cycles

independence mitigates the problem of dynamic inconsistency

independence lends more credibility to monetary policy

If a central bank employs policy that seem appropriate for the short run but may endanger its long-run goals, then:

It’s actions involve dynamic inconsistency.

According to the accelerator model, as GDP declines and the economy enters a recession, we should expect the level of net investment to:

Become negative.

A big advantage of automatic stabilizers is that they:

Do not have any inside lag.

Given the production function Y = AF(K,N) and assuming constant returns to scale, the contribution of capital to output growth can be estimated by:

Multiplying the growth rate of capital by capital’s share in production.

Based on the Mundell-Fleming model, the same one- dollar increase in the public spending in the U.S. and Canada:

Leads to greater fiscal expansion in the U.S. economy than the Canadian economy.

Formulating an appropriate policy response to an economic disturbance is difficult since policy makers are often unsure about:

the timing and magnitude of the effects of a proposed policy measure

whether a disturbance is temporary or permanent

how a proposed policy measure affects people’s expectations

how the economy really works

Consumption is an important element of aggregate demand because it:

Accounts for roughly 60 percent of GDP.

If a French citizen buys 100 shares of Canadian Stock at the Toronto Stock Exchange, the transaction will be recorded as:

A surplus item in the capital accoount.

Any policy designed to increase business saving will most likely:

Increase national saving since personal saving will decrease by less than the increase in business saving.

Growth accounting explains:

What part of growth in total output is due to growth in different factors of production.

Assume Canadian interest rates decrease but interest rates in other countries remain the same.

The exchange rate of foreign currency to Canadian dollars will decrease.

Designing a successful economic stabilization policy is difficult since:

Policy makers do not know the expectations of consumers and firms or how they may react.

Assume a Cobb-Douglas production function in which the share of capital is a = 1/4 and the share of labour is b = 3/4. In this case, the marginal product of capital is:

Y/4K

If all changes in inventories were intended:

The business cycle will be less extreme.

Economic disturbances are likely to be caused by:

changes in government spending or tax policies

wars

economic policies designed to win elections

major innovations that require large amounts of investment

For a neoclassical growth model:

An increase in the savings rate will not increase the steady-state growth rate of aggregate output.

If a central bank targets inflation, then:

It is guided by the belief that large deviations from full-employment are rare.

A firm will keep investing until the value of the marginal product of capital is equal to:

The rental cost of capital.

According to the life-cycle theory of consumption, an individual’s:

MPC out of transitory income is fairly small.