Intermediate Macroeconomics Final Exam Questions with Complete Solutions

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Intermediate Macroeconomics Final Exam Questions with Complete Solutions In the Solow growth model, the economy ends up with a steady-state level of capital: a) only if it starts from a level ... of capital below the steady-state level. b) only if it starts from a level of capital above the steady-state level. c) only if it starts from a steady-state level of capital. d) regardless of the starting level of capital. -Answer- d) regardless of the starting level of capital. Suppose an economy's production is defined by the following neoclassical production function: Y=K 1/5L 4/5. Suppose further that the economy wide supply of labor and capital are given as 1,024 and 3,125. What will be the resulting level of output if there is a one-time investment in this economy of 4,651? a) 1,000 b) 7,776 c) 1,536 d) 1,280 -Answer- c) 1,536 Suppose an economy's production is defined by the following neoclassical production function: Y=100K 1/5L 4/5. Suppose further that the economy wide supply of labor and capital are given as 1,024 and 3,125. What will be the resulting rental price of capital if there is a one-time investment in this economy equivalent to 4,651 units of capital? a) 3.95 b) 1.875 c) 0.0395 d) 120 -Answer- a) 3.95 Two economies are identical except that the level of capital per worker is higher in Highland than in Lowland. The production functions in both economies exhibit diminishing marginal product of capital. An extra unit of capital per worker increases output per worker: a) more in Highland b) more in Lowland c) by the same amount in both countries d) in Highland but not Lowland -Answer- b) more in Lowland Growth in the long-run depends on a) increase in a country's factors of production b) expansionary monetary policy c) contractionary monetary policy d) expansionary fiscal policy -Answer- a) increase in a country's factors of production The function y=Ak∝ describes how a) total output depends on capital per worker b) total output depends on capital c) output per worker depends on total capital in the economy d) output per worker depends on capital per worker -Answer- d) output per worker depends on capital per worker Suppose a plague kills a third of the population of a country's residence. Using the neoclassical framework, what will be the impact on the country's labor, wage, and output? a) Labor decreases, wages rise and output falls b) Labor decreases, wages rise and output rises c) Labor increases, wages fall and output falls d) Labor decreases, wages fall and output falls -Answer- a) Labor decreases, wages rise and output falls Suppose an economy's production is defined by the following neoclassical function: Y=K 1/5L 4/5. What are the expressions for the marginal product of capital and the marginal product of labor? a) 1/5Y/K and 4/5Y/L b) 1/5Y/K and 4/5Y/K c) 1/5Y/L and 4/5Y/K d) 1/5Y/L and 4/5Y/L -Answer- a) 1/5Y/K and 4/5Y/L Two important prerequisites for growth to exist in an economy are; a) saving and investment b) consumption and government purchases c) the short-run and the long-run d) capital and labor -Answer- a) saving and investment Suppose an economy's production is defined by the following neoclassical production function: Y=K 1/5L 4/5. Suppose further that the economy wide supply of labor and capital are given as 1,024 and 3,125. What will be the output, equilibrium rental price of capital, and equilibrium wage in this economy? a) 1,000; 0.32; 0.975 b) 1,000; 0.975; 0.32 c) 1,280; 0.082; 1 d) 1,280; 0.41; 1.25 -Answer- c) 1,280; 0.082; 1 When the IOUs/receipts given by gold merchants to depositors were used to make purchases, a) existing banking laws were violated. b) the receipts became in effect paper money. c) the gold standard was created. d) a fractional reserve banking system was created. -Answer- b) the receipts became in effect paper money. [Show More]

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