Economic Growth and Unemployment: Impact of Fiscal Policy and Technological Progress, Apuntes de Macroeconomía

¡Descarga Economic Growth and Unemployment: Impact of Fiscal Policy and Technological Progress y más Apuntes en PDF de Macroeconomía solo en Docsity! Macroeconomía I - UAB Examen Final - Junio 1, 2016 A Nombre: NIE: Grupo: 1. Gross Domestic Product (GDP) is (a) the market value of all final goods and services that are bought by all economic agents in an economy during a period. (b) the market value of all final goods and services that are produced in an economy during a period. (c) the value added created by all national economic agents of an economy during a period. (d) the aggregation of all incomes of all national economic agents of an economy during a period. (e) None of the options above is correct. 2. The Consumer Price Index (a) is an indicator of the level of activity in the private sector. (b) is an indicator of the price level of all goods produced in an economy. (c) is an indicator of the cost of the goods included in the consumption basket. (d) is an indicator of the prices of the goods usually imported by consumers. (e) None of the options above is correct. 3. In the context of the Solow Model, among the following statements: i) A change in the saving rate will change the growth rate of the economy in the long run. ii) Marginal productivity of labor (MPL) increases with technological progress. iii) An increase in the population growth rate induces an increase in the investment needed to keep capital per efficient worker constant. iv) A larger growth rate of technological progress produces an increase in the Golden Rule level of capital per efficient worker. (a) Only i) and iv) are correct. (b) Only ii) and iii) are correct . (c) Only iii) and iv) are correct. (d) Only i) and ii) are correct. (e) All the options above are correct. 1 4. Suppose that aggregate production in an economy can be represented as y = k0.5, where k is the capital stock per worker (assume there is no population growth and no technological progress). The saving rate is 0.3 and the depreciation rate of capital is δ = 0.05. The initial amount of capital is k0 = 1, hence consumption in the long run will be: (a) larger than in the first period, since the economy decreases towards its steady state. (b) equal to first period consumption, because the economy is already at its steady state. (c) larger than in the first period, since the economy grows towards its steady state. (d) smaller than in the first period, since the economy decreases towards its steady state. (e) None of the options above is correct. 5. Consider an economy that can be described by the Solow model (with neither population growth nor technological progress). In this economy, the saving rate is such that, in the long run, capital will attain the Golden Rule level kgold. Suppose that the initial level of capital is larger than the long run level k0 > kgold. Hence, over a transition to the steady state: (a) both consumption and capital will decrease. (b) both consumption and capital will increase. (c) capital will increase but consumption will decrease. (d) capital will decrease but consumption will increase. (e) both capital and labor remain unchanged, since the economy converges to the Golden Rule. 6. Suppose that the aggregate production function of an economy is Cobb-Douglas: Y = KαL(1−α), with α ∈ (0, 1). Assume perfect competition in all markets, hence the capital income share of total income is: (a) constant and equal to 1/2 (that is, GDP is equally split between labor and capital). (b) constant and equal to α. (c) constant and equal to α/(1− α). (d) depends of the capital-to-labor ratio, K/L, hence it can change. (e) None of the options above is correct. 7. The Solow residual is a measure of (a) changes in total factor productivity. (b) the growth rate of output per worker. (c) output losses due to residual unemployment. (d) the parameter α of the Cobb-Douglas production function. (e) None of the options above is correct. 2 16. One could say that the recipes of economic policy implemented in Europe, to mitigate the effects of the Great Recession, have consisted in a combination of expansionary monetary policy together with contractionary fiscal policy. In line with the IS-LM model, in the short run, such a combination should have: (a) increased both, equilibrium income and the interest rate. (b) decreased both, equilibrium income and the interest rate. (c) increased equilibrium income and reduced the interest rate. (d) decreased the interest rate, with an ambiguous effect on equilibrium income. (e) None of the options above is correct. 17. Consider the IS-LM model in the short run. Indicate which one of the following statements is correct: The larger the sensitivity of investment to changes in the interest rate, a given increase in money supply will give rise to (a) a smaller increase in output, since the IS curve is steeper. (b) a larger increase in output, since the IS curve is steeper. (c) a smaller increase in output, since the IS curve is flatter. (d) a larger increase in output, since the IS curve is flatter. (e) None of the options above is correct. 18. Consider the effect of a negative shock on money demand. In line with the IS-LM model, in the short run we should observe: (a) an increase in the interest rate and a decrease in income. (b) an increase in income and an ambiguous effect on the interest rate. (c) an increase in the interest rate and an ambiguous effect on income. (d) an increase in income and a decrease in the interest rate. (e) None of the options above is correct. The next two questions refer to the following, closed economy, IS-LM model: Consumption C = 100 + 0, 5(Y −T ), Investment I = 1000− 100r, Public Expenditure G = 100, Taxes T = 50, Supply of Real (Money) Balances M/P = 1000, where we assume P = 1, Money Demand L = Y − 100r. 19. Select the correct statement. (a) The equilibrium is (r∗, Y ∗) = (4.5, 1450). (b) The equation of the IS curve is Y = 2350− 200r. (c) The equation of the LM curve is Y = 1000− 100r. (d) Answers a and b are correct. (e) None of the options above is correct. 5 20. Select the correct statement. (a) The long run equilibrium is (P ∗, Y ∗) = (2, 1500). (b) The equation of Aggregate Demand is Y = 75 + 1000/P . (c) The equation of Aggregate Demand is 0.5Y = 1175− 100r. (d) The equation of Aggregate Demand is 1.5Y = 1175 + 1000/P . (e) None of the options above is correct. 21. Consider the AS-AD model in the short run and in the long run. A permanent increase in public expenditures, G, will give rise to (a) a reduction in the price level and an increase in output in the short run, and, after that, a progressive increase in the price level, until the economy reaches the output level observed before the increase in public expenditures. (b) an increase in output in the short run, and, after that, an increase in the price level and a reduction of output, until the economy reaches the output level observed before the increase in public expenditures. (c) an increase in both, output and the price level, in the short run, and, after that, a decrease in both, output and the price level, until the economy reaches the output level observed before the increase in public expenditures. (d) an increase in the price level in the short run, and, after that, a reduction in output without decreases in the price level. (e) None of the options above is correct. 22. Consider an economy that is currently at its short run and long run equilibrium point. The functions for AS in the short and in the long run are P = 5 and Y = 10, respectively, and the AD function is Y = 15 − P . Suppose now that, due to a negative permanent shock, the new AD is Y = 12−P . As a result of this shock , the pairs (Y, P ) of equilibrium income and prices (initial, in the short run, and in the long run) will be: (a) (10, 5), (7, 5), (10, 5). (b) (10, 5), (7, 5), (10, 2). (c) (10, 5), (10, 2), (10, 5). (d) (10, 5), (10, 2), (7, 5). (e) (10, 5), (7, 5), (7, 5). 23. The fact that, in the short run, the Aggregate Supply curve (SRAS) in the Y − p plane is flat indicates that, at the given price, (a) firm’s capacity is fully employed. (b) the real wage of workers equalizes labor demand and supply. (c) firms are willing to supply any quantity that is demanded. (d) workers are not willing to work additional hours unless employers increase wages. (e) None of the options above is correct. 6 24. In line with the model of Aggregate Supply and Demand (AS-AD), the increase in oil prices observed during the 70’s implied, in the short run (a) a fall in employment and income, because it was a negative supply shock. (b) a fall in employment and income, because it was a negative demand shock. (c) an increase in employment and income, because it was a positive supply shock. (d) an increase in employment and income, because it was a positive demand shock. (e) None of the options above is correct. 25. Consider an economy, which has a trade deficit of 2% of GDP, private savings are 2.5% of GDP and aggregate investment is 3% of GDP. Select the CORRECT statement. This economy has: (a) a public surplus of 1.5% PIB. (b) a public deficit of 1.5% PIB. (c) a public surplus of 2.5% PIB. (d) a public deficit of 2.5% PIB. (e) None of the options above is correct. 26. In line with the Mundell-Fleming model, in a small open economy, (a) fiscal policy is more effective than monetary policy, independent of the exchange rate regime. (b) monetary policy is more effective than fiscal policy under a floating exchange rate regime. (c) fiscal policy is more effective than monetary policy under a fixed exchange rate regime. (d) both, fiscal and monetary policy loose their effectiveness in open economies. (e) Options b and c are correct. 27. In an open economy with fixed exchange rates and perfect capital mobility, monetary au- thorities (a) accumulate reserves when the supply of local currency is larger than demand. (b) decumulate reserves when the demand of local currency is larger than supply. (c) do not impose constraints on the currency exchange market. (d) cannot increase money supply with the objective of increasing income. (e) None of the options above is correct. 7 4. Suppose that aggregate production in an economy can be represented as y = k0.5, where k is the capital stock per worker (assume there is no population growth and no technological progress). The saving rate is 0.3 and the depreciation rate of capital is δ = 0.05. The initial amount of capital is k0 = 1, hence consumption in the long run will be: (a) larger than in the first period, since the economy decreases towards its steady state. (b) equal to first period consumption, because the economy is already at its steady state. (c) larger than in the first period, since the economy grows towards its steady state. (d) smaller than in the first period, since the economy decreases towards its steady state. (e) None of the options above is correct. 5. Consider an economy that can be described by the Solow model (with neither population growth nor technological progress). In this economy, the saving rate is such that, in the long run, capital will attain the Golden Rule level kgold. Suppose that the initial level of capital is larger than the long run level k0 > kgold. Hence, over a transition to the steady state: (a) both consumption and capital will decrease. (b) both consumption and capital will increase. (c) capital will increase but consumption will decrease. (d) capital will decrease but consumption will increase. (e) both capital and labor remain unchanged, since the economy converges to the Golden Rule. 6. Suppose that the aggregate production function of an economy is Cobb-Douglas: Y = KαL(1−α), with α ∈ (0, 1). Assume perfect competition in all markets, hence the capital income share of total income is: (a) constant and equal to 1/2 (that is, GDP is equally split between labor and capital). (b) constant and equal to α. (c) constant and equal to α/(1− α). (d) depends of the capital-to-labor ratio, K/L, hence it can change. (e) None of the options above is correct. 7. The Solow residual is a measure of (a) changes in total factor productivity. (b) the growth rate of output per worker. (c) output losses due to residual unemployment. (d) the parameter α of the Cobb-Douglas production function. (e) None of the options above is correct. 2 8. Suppose that the probability of an employed worker to loose her/his job is s = 0, 02, and that the probability of an unemployed worker to find a job is f = 0, 18. In accordance with the model studied during the course, the natural rate of unemployment is: (a) 0,05 (b) 0,10 (c) 0,15 (d) 0,20 (e) None of the options above is correct. 9. Determine which of the following statements is false. (a) Investments leading to increases of labor productivity will contribute positively to the reduction of structural unemployment. (b) Theories based on efficiency wages propose an explanation for the existence of fric- tional unemployment. (c) Too generous unemployment benefits may favor a high rate of frictional unemploy- ment. (d) A high minimum wage may create structural unemployment. (e) At full employment the unemployment rate is positive. 10. Consider the decision of hiring labor from a perfectly competitive firm, which uses 100 units of capital, faces a nominal market wage rate of 10, and has access to the production technol- ogy F (K,L) = (KL)1/2. The price level is 1. What is the amount of labor, L, that the firm will hire? (a) L = 10. (b) L = 1. (c) L = 10/2. (d) L = 1/4. (e) L = 4. 11. In the Keynesian Cross model (in which both, G and T , are exogenous), an increase in taxes, T , and in public expenditure, G, of the same magnitude (a) increases private consumption and equilibrium output. (b) increases revenue from taxation, and leaves equilibrium output unchanged. (c) decreases private consumption, and increases equilibrium output. (d) increases equilibrium output by the same amount as the tax increase, and leaves private consumption unchanged. (e) None of the options above is correct. 3 12. Consider an economy in which the government is thinking of introducing fiscal stimulus to increase equilibrium income. In the Council a few ministers suggest to increase public ex- penditure by ∆G. However, other ministers sustain that it would be more effective to reduce taxes by an equivalent amount ∆T = −∆G. In accordance of the model of the Keynesian Cross, (a) these fiscal measure will not have any impact on equilibrium income, because in equilibrium planned and actual expenditures coincide. (b) both policies will have exactly the same positive impact on equilibrium income, given that their magnitude is equivalent. (c) the increase in G will promote a smaller increase in equilibrium income than the decrease in T . (d) the increase in G will promote a larger increase in equilibrium income than the de- crease in T . (e) None of the options above is correct. 13. Consider an economy in which currently the output level is below its long run level, due to a permanent shock (for instance, a permanent reduction in public expenditure). In the long run, we would expect that prices: (a) increase, so that the IS curve will shift to the right and the interest rate will increase. (b) decrease, so that the IS curve will shift to the left and the interest rate will decrease. (c) increase, so that the LM curve will shift to the left and the interest rate will decrease. (d) decrease, so that the LM curve will shift to the right and the interest rate will de- crease. (e) decrease, but as in this case the LM curve is vertical, there will be no effect on equi- librium output. 14. The IS curve is decreasing in the (Y, r) plane because (a) when the interest rate decreases, investing is less attractive. (b) when the interest rate decreases, private consumption also decreases. (c) investing is more attractive, the smaller is the interest rate. (d) when income increases, investment also increases. (e) None of the options above is correct. 15. The LM curve is positively sloped in the (Y, r) plane because: (a) the demand for real money balances increases, when the interest rate increases. (b) when income increases, investment increases, and so the interest rate also increases. (c) the Central Bank increases money supply when the interest rate increases. (d) given money supply, the larger the income, the larger must be the the interest rate to preserve equilibrium in the money market. (e) None of the options above is correct. 4 24. In line with the model of Aggregate Supply and Demand (AS-AD), the increase in oil prices observed during the 70’s implied, in the short run (a) a fall in employment and income, because it was a negative supply shock. (b) a fall in employment and income, because it was a negative demand shock. (c) an increase in employment and income, because it was a positive supply shock. (d) an increase in employment and income, because it was a positive demand shock. (e) None of the options above is correct. 25. Consider an economy, which has a trade deficit of 2% of GDP, private savings are 2.5% of GDP and aggregate investment is 3% of GDP. Select the CORRECT statement. This economy has: (a) a public surplus of 1.5% PIB. (b) a public deficit of 1.5% PIB. (c) a public surplus of 2.5% PIB. (d) a public deficit of 2.5% PIB. (e) None of the options above is correct. 26. In line with the Mundell-Fleming model, in a small open economy, (a) fiscal policy is more effective than monetary policy, independent of the exchange rate regime. (b) monetary policy is more effective than fiscal policy under a floating exchange rate regime. (c) fiscal policy is more effective than monetary policy under a fixed exchange rate regime. (d) both, fiscal and monetary policy loose their effectiveness in open economies. (e) Options b and c are correct. 27. In an open economy with fixed exchange rates and perfect capital mobility, monetary au- thorities (a) accumulate reserves when the supply of local currency is larger than demand. (b) decumulate reserves when the demand of local currency is larger than supply. (c) do not impose constraints on the currency exchange market. (d) cannot increase money supply with the objective of increasing income. (e) None of the options above is correct. 7 28. Consider a small open economy with a fixed exchange rate. The Mundell-Fleming model predicts that a reduction of taxes increases income in the short run (a) because it stimulates net exports. (b) because it leads to an appreciation pressure on the exchange rate, which induces an increase in the supply of real money balances. (c) because it appreciates the exchange rate. (d) because it reduces the local interest rate and increases investment. (e) None of the options above is correct. 29. In a small open economy with floating exchange rate, in line with the Mundell-Fleming model, an increase of money supply, in the short run, will give rise to (a) a depreciation of the local currency, an increase of Net Exports, and no change in investment. (b) an appreciation of the local currency, an increase of Net Exports, and no change in investment. (c) a depreciation of the local currency, an increase of Net Exports and an increase in investment. (d) an appreciation of the local currency, a decrease of Net Exports, and no change in investment. (e) None of the options above is correct. 30. In line with the Mundell-Fleming model, in a small open economy with flexible exchange rates, if the world interest rate, r∗, decreases, then, in the domestic economy, we will ob- serve: (a) an appreciation of the exchange rate, a decrease in net exports, a decrease in invest- ment, and an increase in equilibrium income. (b) an appreciation of the exchange rate, a decrease in net exports, a decrease in invest- ment, and a smaller equilibrium income. (c) a depreciation of the exchange rate, an increase in net exports, a decrease in invest- ment, and an increase in equilibrium income. (d) a depreciation of the exchange rate, an increase in net exports, an increase in invest- ment, and an increase in equilibrium income. (e) an appreciation of the exchange rate, a decrease in net exports, an increase in invest- ment, and a fall in equilibrium income. 8