Mankiw, Macroeconomics 8e Chapter 8

1. The Solow growth model assumes that the production function exhibits:
A. decreasing returns to scale.
B. constant returns to scale.
C. increasing returns to scale.
D. increasing marginal product.

2. Which of the following is not assumed by the Solow growth model?
A. constant returns to scale in production
B. output depends only on capital, labor, and technology
C. diminishing marginal products of labor and capital
D. output is constant

3. In the Solow model, the depreciation rate represents the:
A. fraction of income taken by taxes.
B. difference between the nominal and real interest rates.
C. inflation rate.
D. fraction of the capital stock that wears out each year.

4. The change in the capital stock is equal to:
A. investment.
B. investment – depreciation.
C. investment – inflation.
D. investment – depreciation – inflation.

5. Suppose that the capital stock is 100, the depreciation rate is 10 percent per year, and output is 25. What must the saving rate be to keep the capital stock constant?
A. 2.5 percent
B. 10 percent
C. 25 percent
D. 40 percent

6. If the capital stock is above the steady-state level, then investment:
A. is smaller than depreciation.
B. is larger than depreciation.
C. is equal to depreciation.
D. could be higher than, lower than, or equal to depreciation.

7. If an economy is initially in a steady state and it experiences an increase in its saving rate, then the steady-state capital stock will:
A. fall.
B. stay the same.
C. rise.
D. rise only if depreciation also rises.

8. Suppose that output per worker is 10, the production function is y = k0.5 and the total capital stock is 1,000. How large is the labor force?
A. 1
B. 10
C. 100
D. 1,000

9. Suppose that the production function is y = k0.5, s = 0.40, and the depreciation rate δ = 0.10. What is the steady-state level of capital?
A. 2
B. 4
C. 10
D. 16

10. Suppose that the production function is y = k0.5, s = 0.40, and the depreciation rate δ = 0.10. What level of saving will lead to the highest possible level of output in the steady state?
A. 25 percent
B. 50 percent
C. 75 percent
D. 100 percent

11. A war has wrecked the economy of Baloneya: both the capital stock and the work force have been reduced by 50 percent. If the economy's production function has constant returns to scale, how will the postwar level of output per worker compare to the prewar level?
A. It will be lower.
B. It will be higher.
C. It will be the same.
D. It could be higher or lower.

12. The Golden Rule level of capital accumulation is defined as the level of the capital stock that achieves a steady state with the:
A. highest rate of savings.
B. highest level of income.
C. highest level of consumption.
D. lowest level of depreciation.

13. At the Golden Rule level of capital accumulation, the marginal product of capital equals the:
A. real interest rate.
B. depreciation rate.
C. savings rate.
D. marginal product of labor.

14. Suppose that an economy is in steady state and has more capital than it would have in the Golden Rule steady state. A policymaker would want to pursue policies aimed at decreasing:
A. consumption.
B. the rate of saving.
C. the depreciation rate.
D. the rate of population growth.

15. An economy is in a steady state with capital higher than the Golden Rule level. Now the saving rate falls to a level that will achieve the Golden Rule capital stock in the long run. What will happen to the level of consumption between the initial and new steady states?
A. It will rise gradually.
B. It will fall instantly and then will rise gradually.
C. It will rise instantly and then will fall gradually.
D. It will rise instantly and then will remain constant.

16. An economy starts off in a steady state with less capital than at the Golden Rule level. Now the saving rate changes to the level that will achieve the Golden Rule. What is the path of consumption during the transition to the Golden Rule steady state?
A. It is lower, then higher than in the initial steady state.
B. It is higher, then lower than in the initial steady state.
C. It is always lower than in the initial steady state.
D. It is always higher than in the initial steady state.

17. If two economies are identical except for their rates of population growth, then the economy with the higher rate of population growth will have:
A. higher steady-state output per worker.
B. higher steady-state capital per worker.
C. higher steady-state consumption per worker.
D. lower steady-state output per worker.

18. If two economies are identical except for their rates of population growth, then if both economies are in steady state, the economy with the higher rate of population growth will have a:
A. lower rate of growth of total output.
B. higher rate of growth of total output.
C. lower rate of growth of output per person.
D. higher rate of growth of output per person.

19. If the population growth rate decreases in an economy described by the Solow growth model, the line representing population growth and depreciation will:
A. pivot counterclockwise.
B. pivot clockwise.
C. stay the same.
D. shift upwards.

20. In the Solow growth model with population growth, the Golden Rule steady state is achieved when the marginal product of capital equals:
A. the savings rate.
B. the population growth rate.
C. the population growth rate plus the rate of depreciation.
D. the proportion of output that goes to wages.

21. Suppose that the production function is y = k0.5, s [the saving rate] = 0.20, n [the population growth rate] = 0, and δ[the depreciation rate] = 0.10. What is the Golden Rule level of capital per capita?
A. 20
B. 25
C. 30
D. 35

22. The Kremerian model on population growth:
A. provided additional empirical support to Thomas Malthus' claim that higher population growth rate causes poverty.
B. contradicts Thomas Malthus' claim that higher population growth rate causes poverty. The model suggests that world population growth is a key driver of advancing economic prosperity.
C. contradicts Thomas Malthus' claim that higher population growth rate causes poverty. The model suggests that poverty causes population growth, and not the other way around.
D. contradicts Thomas Malthus' claim that higher population growth rate causes poverty. The model suggests that world population growth and poverty are completely unrelated.

1. If the rate of unemployment is neither rising nor falling, then the number of people finding jobs must equal the number of people:
A. unemployed.
B. losing or leaving jobs.
C. looking for jobs.
D. leaving the labor force.

2. If the rate of job finding rises, the natural rate of unemployment will:
A. remain constant.
B. increase.
C. decrease.
D. rise or decline, depending on the rate of job separation.

3. Suppose that 2 percent of the employed lose their jobs each month (s = 0.02) and 38 percent of the unemployed find a job each month (f = 0.38). Then, the steady-state rate of unemployment is:
A. 2 percent.
B. 5 percent.
C. 16 percent.
D. 36 percent.

4. The unemployment rate is 10 percent. The rate of job separation is 5 percent. How high does the rate of job finding have to be to keep the unemployment rate constant?
A. 10 percent
B. 45 percent
C. 50 percent
D. 90 percent

5. Unemployment insurance schemes mainly increase:
A. frictional unemployment.
B. seasonal unemployment.
C. teenage unemployment.
D. cyclical unemployment.

6. The unemployment caused by the time that it takes to match workers and jobs is called:
A. frictional unemployment.
B. the discouraged-worker effect.
C. structural unemployment.
D. wage rigidity.

7. Frictional unemployment occurs because:
A. the minimum wage is too high.
B. unions exert pressure in the labor market.
C. rigidities exist in the wage-setting process.
D. it takes time to match firms and workers.

8. Which of the following policies would reduce the amount of frictional unemployment?
A. a reduction in corporate taxes
B. an increase in unemployment insurance
C. an increase in the minimum wage
D. public retraining programs

9. If the government increases the amount of unemployment insurance that unemployed workers can collect, the amount of frictional unemployment would be expected to:
A. fall.
B. remain constant.
C. rise.
D. first rise and then fall.

10. When the real wage is above the level that equilibrates supply and demand, then the quantity of labor supplied:
A. depends on the nominal wage.
B. is smaller than the quantity of labor demanded.
C. is equal to the quantity of labor demanded.
D. is greater than the quantity of labor demanded.

11. The unemployment resulting from wage rigidity and job rationing is called:
A. the natural rate of unemployment.
B. the discouraged-worker effect.
C. structural unemployment.
D. insiders versus outsiders.

12. A teenager is not able to find a job because the legal minimum wage is higher than the wage that firms are willing to offer. This situation is an example of:
A. frictional unemployment.
B. structural unemployment.
C. cyclical unemployment.
D. efficient unemployment.

13. Minimum-wage laws are an example of:
A. collective bargaining.
B. wage rigidity.
C. the discouraged-worker effect.
D. insiders versus outsiders.

14. Structural unemployment results when:
A. the minimum wage is set to increase in the near future.
B. there is generous unemployment insurance.
C. workers are temporarily laid off due to weather conditions.
D. the real wage is above its market-clearing level.

15. Which of the following is NOT a cause for real wage rigidity?
A. minimum-wage laws
B. unemployment insurance
C. union power
D. efficiency wages

16. The unemployment caused by unions and by the threat of unionization is an example of:
A. voluntary unemployment.
B. the discouraged-worker effect.
C. efficiency wages.
D. the conflict between insiders and outsiders.

17. Unions may cause unemployment if:
A. outsiders push wages down.
B. insiders force real wages higher than the market-clearing level.
C. outsiders are subject to minimum-wage legislation.
D. insiders are fired and outsiders are hired.

18. Efficiency wage theories claim that firms may pay high real wages in order to:
A. avoid the threat of unionization.
B. make workers more productive.
C. discourage unskilled workers from applying.
D. reduce the level of frictional unemployment.

19. Efficiency wages do not lead to:
A. structural unemployment.
B. wages above their equilibrium level.
C. lower firm profits.
D. increased worker productivity.

20. Which of the following statements about unemployment is TRUE?
A. Most spells of unemployment are long.
B. Most of the time spent unemployed is accounted for by the long-term unemployed.
C. The long-term unemployed make up only a small fraction of the unemployed.
D. Most people who become unemployed remain unemployed for a long time.

21. Compared to long-term unemployment, short-term unemployment is more likely to be:
A. frictional unemployment.
B. structural unemployment.
C. a result of minimum-wage laws.
D. a result of union activity.

22. Suppose that 130 people are unemployed for part of a given year; 120 are unemployed for 1 month, and 10 are unemployed throughout the year. What percentage of total months of unemployment is attributable to the long-term unemployed?
A. 7.7 percent
B. 10 percent
C. 13 percent
D. 50 percent

23. Measured unemployment may be lower than actual unemployment because:
A. measured unemployment does not include the frictionally unemployed.
B. some individuals may want a job but have become discouraged and stopped looking for one.
C. some individuals claim to be unemployed when they are not looking very seriously for a job.
D. measured unemployment does not include teenage unemployment.

24. Discouraged workers who want jobs but have stopped looking for jobs are:
A. frictionally unemployed.
B. unemployed due to structural unemployment.
C. no longer in the labor force.
D. helped by minimum-wage legislation.

25. Many economists believe that the rise in European unemployment from 1960 to 2010 was caused by:
A. generous unemployment benefits.
B. the decreased influence of union insiders.
C. an increase in the number of younger workers, who have higher rates of unemployment.
D. economic inequality.