Homework answers / question archive / 1)In the goods market equilibrium condition for a closed economy, the total demand for goods equals A) Cd + Id B) Cd + Id + G C) Cd + Id - G D) Cd + G - Id   One way of writing the goods—market equilibrium condition for a closed economy is A) Y = C + G + S B) Y = Cd + Gd + S C) Sd = Id D) Y - Cd - G - Sd = Id    An economy has government purchases of 2000

1)In the goods market equilibrium condition for a closed economy, the total demand for goods equals A) Cd + Id B) Cd + Id + G C) Cd + Id - G D) Cd + G - Id   One way of writing the goods—market equilibrium condition for a closed economy is A) Y = C + G + S B) Y = Cd + Gd + S C) Sd = Id D) Y - Cd - G - Sd = Id    An economy has government purchases of 2000

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1)In the goods market equilibrium condition for a closed economy, the total demand for goods equals

A) Cd + Id

B) Cd + Id + G

C) Cd + Id - G

D) Cd + G - Id

 

2. One way of writing the goods—market equilibrium condition for a closed economy is

A) Y = C + G + S

B) Y = Cd + Gd + S

C) Sd = Id

D) Y - Cd - G - Sd = Id 

 

3. An economy has government purchases of 2000. Desired national saving and desired investment are given by

                  Sd = 200 + 5000r + 0.10Y - 0.20G

                   Id = 1000 - 4000r

When the full-employment level of output equals 5000, then the real interest rate when the goods market is in equilibrium will be

A) 7.78%.

B) 10.00%.

C) 14.44%.

D) 23.33%.

 

200 + 5000r + 0.10Y - 0.20G = 1000 - 4000r set savings = investment

200 + 5000r + 0.10Y - 400 = 1000 - 4000r

5000r + 0.10Y - 200 = 1000 - 4000r

9000r = 700 at full employment

Y = 700/9000 à 7.78%

 

4. Suppose the current level of output is 5000. A 10% increase in productivity would increase the current level of output to

A) 5050.

B) 5100.

C) 5500.

D) 6000.

 

            5000*1.1 = 5500

 

 

5. Over the past year, productivity grew 2%, capital grew 1%, and labor grew 1%. If the elasticities of output with respect to capital and labor are 0.2 and 0.8, respectively, how much did output grow?

A) 1%

B) 2%

C) 3%

D) 4%

 

            2% + (0.2)(1) + (0.8)(1) = 3%

 

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 productivity grow?

A) 0.5%

B) 1.0%

C) 2.2%

D) 2.8%

 

            5% = x + (0.3)(5) + (0.7)(1) = x + 1.5 +0.7 = x + 2.2 à x = 2.8

 

7. A new pollution law requires businesses to pay for inspections of their plants by independent pollution-monitoring firms. What effect is this likely to have?

A) Increase productivity

B) Increase the capital stock

C) Reduce productivity

D) Increase the demand for labor in those firms

 

8. In the Solow model, if f(k) = 2k0.5, s = 0.3, n = 0.05, and d = 0.15, what is the value of k at equilibrium?

A) 1

B) 3

C) 6

D) 9

 

            sf(k) = (n + d)k

0.3*2k0.5= (0.05 + 0.15)k

0.6 k0.5= (0.2)k

3k0.5= k à k =9

 

 

9. A striking conclusion of the Solow model is that in the absence of productivity growth, in the long run

A) the economy reaches a steady state.

B) consumption per worker equals the capital stock per worker.

C) consumption per worker equals output per worker.

D) consumption per worker equals investment per worker.

10. In the long run, a reduction in productivity will 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.

 

11. In the Solow model, if k = 8, y = 20, and s = 0.2, what is c?

A) 24

B) 20

C) 16

D) 12

           

S=sY

sY = (n+d)K

            20-0.2(20) = 16

 

12. In the textbook model of endogenous growth, long-run output growth would decline if there were either a ________ in the saving rate or a ________ in the depreciation rate.

A) rise; rise

B) rise; fall

C) fall; rise

D) fall; fall

 

13. Mr. Pierpont has wealth of $200,000. He wants to keep at least $80,000 in bonds at all times, and will shift $10,000 into bonds from his checking account for each percentage point that the interest rate on bonds exceeds the interest rate on his checking account. Currently, he keeps $100,000 in bonds, which pay him 7%. What is the current interest rate on checking accounts?

A) 5%

B) 7%

C) 9%

D) 10%

           

 

14. Real money demand is given by

                  Md/P = 1000 + .2Y - 1000i.

Given that P = 200, Y = 2000, and i = .10, real money demand is equal to

A) 1300.

B) 1500.

C) 260,000.

D) 300,000.

 

M/200 = 1000 +0.2(2000) – 1000(0.1) = 1000 +400-100 = 1300

 

 

 

15. If real income rises 5%, prices rise 3%, and nominal money demand rises 7%, what is the income elasticity of real money demand?

A) 3/4

B) 4/5

C) 5/6

D) 6/7

 

 X * 5= (7-3)

 

16. Suppose velocity is 3, real output is 9000, and the price level is 1.5. What is the level of real money demand in this economy?

A) 2000

B) 3000

C) 6000

D) 30,000

 

V=PY/M à 3=1.5(9000)/M àM = 13500/3 = 4500 àM/P = 4500/1.5 = 3000

 

17. Suppose the real money demand function is

                  Md/P = 2400 + 0.2Y - 10,000 (r + πe).    

Assume M = 4000, P = 2.0, πe = .03, and Y = 5000. The real interest rate that clears the asset market is

A) 3%.

B) 6%.

C) 11%.

D) 14%.

 

4000/2 = 2400 + 0.2 (5000) – 10000(r + 0.03)

2000 = 3400 – 300 – 10000r

1100 = 10000r

r=11%

 

18. Suppose real money demand is

                  L = 0.8 Y - 100,000 (r + πe).

If the nominal money supply is 12,000, real output is 15,000, the real interest rate is .02, and the expected inflation rate is .01, then the price level is

A) 3/4.

B) 1.

C) 4/3.

D) 3.

 

P = M/L = 12000/[(0.8(15000)-100000(.02+.01)]=12000/(12000-3000) = 4/3

 

 

 

19. If the income elasticity of money demand is 3/4 and income increases 8%, by about how much does the price level change?

A) Falls by 6%

B) Unchanged

C) Rises by 6%

D) Rises by 8%

 

rin price level = rin money supply – elas *rincome

-0.75*8 = -6

 

20. If real money demand increases 5% and real money supply increases 10%, by about how much does the price level change?

A) Falls by 5%

B) Unchanged

C) Rises by 2%

D) Rises by 5%