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    Economic growth

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    1. The time spent on job search rises when:

    a. unemployment compensation decreases
    b. unemployment compensation increases
    c. the efficiency wage rate is lowered
    d. more young people enter the labor force.

    2. The productivity curve:

    a. has a positive slope
    b. has a negative slope
    c. is vertical
    d. is horizontal

    3. Which of the following is not one of the basic preconditions for economic growth?

    a. markets
    b. property rights
    c. investment in human capital
    d. monetary exchange

    4. Suppose that capital per hour of labor grew enough to increase GDP per hour of labor by 3 percent. Then, using the one-third rule, the growth in capital per hour of labor must have been:

    a. 1 percent
    b. 9 percent
    c. 3 percent
    d. 0 percent

    5. A decrease in the amount of capital per hour of labor leads to:

    a. an upward shift in the productivity curve.
    b. a downward shift in the productivity curve.
    c. a movement along the productivity curve to a higher level of output per hour of
    d. a movement along the producitivity cure to a lower level of output per hour of labor

    6. Depository institutions

    a. make profit from the spread between the interest rate they pay on deposits and
    the interest rate they receive on loans.
    b. earn profit according to how much the federal reserve pays them.
    c. earn money by charging the government for their services.
    d. earn zero profit but receive compensation by the government because there
    services are so valuable.

    7. If a $750 bond promises to pay $30 per year, the intereate rate is ________.

    8. Nominal GDP, PY is $7.5 trillion. The quantity of money is $3 trillion. The velocity of
    circulation is ________.

    9. The quantity of money is an economy is $9 million, and the velocity of circulation is
    3. Nominal GDP is this economy is ___________.

    10. Suppose that last year the Consumer Price Index was 124; this year it is 130.7. What was the inflation rate between these years?

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    Solution Preview

    1. b. Efficiency wage theory asserts that higher wages make workers more productive. In this model, wages cannot be lowered because the cost of falling productivity will overwhelm any savings from lower wages. Therefore, a lower efficiency wage would mean that workers will remain productive at a lower price. This would result in more employment and less time looking for a job, not more. However, if unemployment insurance is higher, there is less incentive for unemployed workers to settle for the first job they find. They will therefore look longer.

    2. a. The productivity curve has a positive slope with GDP on the vertical axis and capital per hour worked on the horizontal. As more capital is invested, GDP ...

    Solution Summary

    Efficiency wage theory, 1/3 rule, growth accounting equation, quantity theory of money