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 KaL1a, 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 = Akal1a 


y = l1a 
1 points
Question 3
To achieve longrun 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 longrun 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 shortrun 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 SolowSwan 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 longrun
equilibrium will be at _____ inflation rate compared with allowing the
selfcorrecting 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=AKaL1a. 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 percapita 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 percapita 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 SolowSwan 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 longrun 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 SolowSwan model is
Answer
1 points
Question 17
Consider the country of ‘Swan’, which is
described by the SolowSwan 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 selfcorrecting 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
1 points
Question 20
Suppose the country of ‘Neo’ is in steady
state in the SolowSwan 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 longrun 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. 