Homework 1

Name _________________________________________

From our Solow model list 2 endogenous variables and 2 exogenous variables.

Endogenous Exogenous

1) _______________________ 3) _______________________

2) _______________________ 4) _______________________

5) Macroeconomics deals with:

a) the overall performance of the economy. c) relative prices in different markets.
b) how individual markets work. d) substitution of one good for another good.

List 2 prices Macroeconomics deals with

6) Macroeconomics deals with if the price of goods

_______________________ 7) If_______________________
the price of good and services will be low the demand will be high.
and services will high demand will be low.
Monetary policy involves:
8) Answer: determining the quantity of money
9)
10)

11) The unemployment rate is:

a) the fraction of the labor force with no job. c) the rate of growth of those with no job.
b) the fraction of the population with no job. d) the rate of growth of those seeking work.

12) Fiscal policy involves:

a) government expenditures. c) interest rates.
b) determining exchange rates. d) all of the above.

13) The price of labor is the:

a) exchange rate. b) interest rate. c) wage rate. d) the rental price.

14) The U.S. annual inflation rate since the late 1970s has been approximately what? _____________%

15) A macroeconomic model which uses a microeconomic foundation will begin with
a) a macroeconomic model, which is then disaggregated to form a microeconomic model.
b) a microeconomic model, which is then aggregated to form a macroeconomic model.
c) a macroeconomic model, which is then aggregated to form a microeconomic model.
d) a gold standard model, which is then held exogenous to form a macroeconomic model.

16) A TRUE / FALSE : flow variable measures the dollar amount of goods at a specific point in time.

17) Real GDP measures the:

a) dollar value of all goods and services produced in an economy at a point in time.
b) dollar value of all goods and services produced in an economy during a specified time period.
c) the constant dollar value of all goods and services produced in an economy at a point in time. T
d) the constant dollar value of all goods and services produced in an economy during a specified time period.

18) Personal consumption expenditure includes:

a) Hair cuts. c) homes.
b) Airbus planes. d) all of the above.
19) Net imports of goods and services equals:
a) imports + exports. b) imports - exports. c) exports - imports. d) all of the above.
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20) Depreciation is:

a) when a student forgets their math skills from c) Pigs drown in a hurricain.
high school after a number of years. d) all of the above.
b) capital used up producing today’s output.

21) Give one issue or problem with using the CPI to capture the average price of goods paid for by American
consumers over time.
22) Issues arise in the regard of consumer per index when average price of goods are paid because the government of United States of America embraced
that consumer per index have to maintain changes in standard of livings. Most of the things depends upon the way of living on people of any country

23) TRUE / FALSE : Diminishing returns to labor implies that eventually the marginal product of labor will
alway be positive.

24) If A in the production function Y = A • F(K,L) rises, then:

a) output rises for any level of K and L. c) the marginal product of labor rises.
b) the marginal product of capital rises. d) all of the above.

25) If A in the production function Y = A • F(K,L) doubles, while K and L remain the same, then
a) output doubles. c) the marginal product of labor falls.
b) the marginal product of capital falls. d) output increases by less than double.

26) The marginal product of labor is:

a) how output rises for when labor increases. c) capital divided by labor (K/L).
b) labor divided by capital (L/K) d) the level of technology.

27) Diminishing marginal product of capital (MPK) means:

28) Answer:The MPK eventually falls as capital rises

29) In the Solow growth model the economy reaches the optimal k*:
a) always. b) randomly. c) over a period of time. d) cyclically.

30) At this point in the class The Solow growth model assumes unemployment is:
a) zero. b) rising. c) falling. d) constant.

31) The Solow growth model shows that the growth rate of real GDP per worker depends on:
a) the saving rate, s c) size of the labor force.
b) the inflation rate . d) all of the above.

32) During the transition to the steady state in the Solow growth model:
a) the output per worker rises. c) labor force participation rises.
b) the rate of growth of capital rises. d) all of the above.

33) In the steady state for the Solow growth model,

a) the labor per technology unit ratio increases. c) labor per technology unit ratio no longer moves.
b) the capital per worker ratio increases. d) the capital per worker ratio no longer moves.

34) In the Solow growth model, if technology, A, improves, then in the steady state:
a) output per worker grows faster. c) output per worker grows at the same rate, 0
b) capital per worker grows faster. d) all of the above.
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35) If the level of technology increases in the Solow growth model, then in the steady state
a) capital per worker will be higher. c) saving per worker will be higher.
b) the growth rate of capital will be lower. d) capital per worker will be the same.

36) If the saving rate decreases in the Solow growth model, then in the steady state
a) capital per worker will be higher. c) output per worker will be higher.
b) the growth rate of capital will be smaller. d) none of the above.

37) When converging economies:

a) have the same growth rate of capital per worker. c) the same steady state capital per worker, k*.
b) have the same growth rate of output per worker. d) all of the above.

38) In the Solow growth model with technological progress,

a) k* is constant. b) k* is cyclical. c) k* is growing d) k* is declining.

39) What is an example of a non-rival good:

40) When we talk about the non-rival goods. It includes many of things like laptop. Everyone can use this type of gadget. More than one time. Its also can
resale in market in a very good price.

41) In exogenous growth models, technological progress comes from:

a) outside the system. c) research and development.
b) increases in the capital stock. d) all of the above.

42) To encourage firms to engage in research and development (R&D), governments grant temporary monopolies
in the production of the goods that result from R&D called:
a) patents. c) land grants.
b) anti-trust exemptions. d) all of the above.

43) If intellectual property rights become better secured, then:

a) the costs of R&D are greater. c) the costs of R&D are smaller.
b) the private returns to R&D are greater. d) the private returns to R&D are smaller.

44) Diffusion of technology means:

a) how many industries a technology can be used in.
b) how expensive a technology is.
c) describes the imitation and adaptation of technology from country to country.
d) how many scientist had to work on a technology.

45) A country which has a poorly-performing judicial system will experience

a) an increase in efficiency, which increases productivity and the steady-state real GDP per worker.
b) an increase in saving, which increases the steady-state real GDP per worker.
c) decrease in efficiency, which decreases productivity and the steady-state real GDP per worker.
d) an increase in saving, which decreases the steady-state real GDP per worker.

46) What are two shortcomings of real GDP per capita from a welfare perspective ?
47)

48) Explain why a poistive savings rate does not mean that capital per worker will definately rise over time ?
49)
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51) What is the difference between absolute convergence and conditional convergence in the class?
52)

53) Average GDP growth in the United States is approximately the same before and after world war 2. What is
different about those growth periods.
54)

55) Explain the difference between the 3 approaches for measuing/conceptualizing Real GDP.
56)
57)

FOR THE REST OF THE TEST Assume Y = A*K.5*L.5

58) In equation form- what is the marginal product of capital ?

____________________________________________________________________________________
59) In equation form what is the marginal product of labor ?

____________________________________________________________________________________
60) How do we know that each is diminishing.

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61) Prove that if you double capital and double labor Y doubles.

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62) What is the characteristic described in d called in words ?

63) Write out the Solow Equation for the growth rate of capital per worker as a function of y/k, s, n, and
depreciation.
64)
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68) Given the production function: Y = A*K.5*L.5 . Derive the equation for y/k as a function of just A and k.
69)
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73) Given the production function: Y = A*K.5*L.5 . Derive the equation for k* as a function of just A, s, n, and
depreciation.
74)
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77)

78) Given the production function: Y = A*K.5*L.5 . Derive the equation for y as a function of just A and k.
79)
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82)

Given the production function: Y = A*K.5*L.5. Assume Technology is 1. Savings rate = 5%, depreciation rate =
10% and population growth rate = 2%.

83) What is the steady state amount of capital per worker?

84)
85)

86) What is the steady state output per worker ?

87)

88) If the depreciation rate is increased during a prolong war to 30% - what is the new steady state of capital ?
89)
90)

91) What is the steady state output per worker ?

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92)

93) By what percent does output per worker fall.

94) Assume the war ends and depretiation returns to 10%. Further assume at the end of the war capital per
worker is 1. How fast does capital per worker grow in the first year after the war ?
95)
96)

97) What does this equation tell us : y* = g/(1 – a)

98)

99) If techology grows at a rate of 1% per period- how fast does output per worker grow in the long run or steady
state if the production function is Y = A*K.5*L.5