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Homework answers / question archive / 1) Assume that in 2015 GDP in the mythical country Kellytopia was $8,500 billion, C was $5,950 billion, I was $1,530 billion, and G was $1,700 billion

1) Assume that in 2015 GDP in the mythical country Kellytopia was $8,500 billion, C was $5,950 billion, I was $1,530 billion, and G was $1,700 billion

Economics

1) Assume that in 2015 GDP in the mythical country Kellytopia was $8,500 billion, C was $5,950 billion, I was $1,530 billion, and G was $1,700 billion. What was NX and KFA in Kellytopia in 2015 assuming NUT and NFP were both equal to zero?

A) NX = $680 billion; KFA = -$680

B) NX = -$680 billion; KFA = $680

C) NX = -$850 billion; KFA = $850

D) NX = $850 billion; KFA = -$850

 

2) Assume that the US is a large open economy and has a current account deficit. When the government increases its expenditures using deficit spending we would expect the current account to ________ and the world interest rate to ________.

A) decrease; decrease

B) decrease; increase

C) increase; decrease

D) increase; increase

 

3) In goods market equilibrium in an open economy,

A) the desired amount of exports must equal the desired amount of imports.

B) the desired amount of exports must equal the desired amount of imports less the amount lent abroad.

C) the desired amount of national saving must equal the desired amount of domestic investment.

D) the desired amount of national saving must equal the desired amount of domestic investment plus the current account balance.

 

4) When a temporary adverse supply shock hits a small open economy, it causes the current account to ________ and investment to ________.

A) fall; fall

B) rise; remain unchanged

C) fall; remain unchanged

D) rise; fall

 

5) When there are two large open economies, the world real interest rate will be such that

A) desired international lending by one country equals desired international borrowing by the other country.

B) desired international lending will be the same in both countries.

C) desired international borrowing will be the same in both countries.

D) desired international lending and borrowing will be zero in both countries.

 

 

 

6) Over the past year, output grew 5%, capital grew 5%, and labor grew 1%. If the elasticities of output with respect to capital and labor are 0.3 and 0.7, respectively, how much did labor productivity grow? (Hint: Think about the difference between labor productivity and total factor productivity)

A) 1.0%

B) 1.2%

C) 2.8%

D) 4.0%

 

7) In the absence of productivity growth, in a steady-state economy

A) output per worker and consumption per worker remain constant over time.

B) output per worker remains constant over time, but consumption per worker grows over time.

C) output per worker grows over time, but consumption per worker remains constant over time.

D) output per worker and consumption per worker both grow over time.

 

8) In the Solow model, if y = 2k0.5, s = 0.25, n = 0.05, and d = 0.2. The capital stock changes according to the following accumulation function: kt+1 – kt = sf(kt) – (n + d)kt. What is the value of y and c in equilibrium?

A) y = 2; c = 1.5

B) y = 4; c = 3

C) y = 2; c = 0.5

D) y = 4; c = 1

 

9) All else being equal, a permanent decrease in the saving rate in a steady-state economy would cause

A) an increase in the capital-labor ratio and an increase in consumption per worker.

B) an increase in the capital-labor ratio and a decrease in consumption per worker.

C) a decrease in the capital-labor ratio and a decrease in consumption per worker.

D) a decrease in the capital-labor ratio and an increase in consumption per worker.

 

10) In the textbook model of endogenous growth, in equilibrium, output grows at the rate of

A) sA - d.

B) n + d.

C) K.

D) A.

 

11) Assume that the Federal Reserve’s target inflation rate is 2%. If real GDP fell by 1.5% and the elasticity of money demand with respect to income is 2/3, how much does the Fed need to increase the money supply to achieve its inflation goal?

A) 1%

B) 2%

C) 3%

D) 4%

 

12) One of moneys primary roles in the economy comes from the use of money to transfer purchasing power to the future. This role of money is called

A) store of value.

B) unit of account.

C) medium of exchange.

D) standard of deferred payment.

 

13) If the nominal money supply doubles while real money demand is unchanged, what happens to the price level?

A) The price level increases by a factor of four.

B) The price level doubles.

C) The price level is unchanged.

D) The price level falls by one-half.

 

14) The uncertainty about the return an asset will earn is

A) liquidity.

B) stochastic dominance.

C) time to maturity.

D) risk.

 

15) What's the most common way for a central bank to reduce the money supply?

A) Collect higher taxes

B) Sell bonds to the public

C) Buy bonds from the government

D) Buy bonds from the public

 

 

 

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