ECO 302 Week 6 Quiz Solution – New

ECO 302 Week 6 Quiz – Strayer

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Chapter 8

TRUE/FALSE

1. Intertemporal substitution effects are substitution effects over time.

2. When the marginal product of labor increases due to a positive technology change, the real wage falls.

3. The model predicts that in response to a permanent positive change in technology real consumption will be procyclical.

4. An increase in the interest rate makes future consumption cheaper and future leisure more expensive.

5. The income effect on labor supply is positive.

6. A trend line for U.S. GDP since World War II is mostly flat.

7. In the equilibrium business cycle model, an improvement in the level of technology will increase the real wage rate.

8. In the equilibrium business cycle model, an improvement in the level of technology will decrease the interest rate.

9. In the equilibrium business cycle model, an improvement in the level of technology will decrease the interest rate.

10. The equilibrium business cycle model predicts that the real wage will be procyclical.

11. The equilibrium business cycle model predicts that the real rental price of capital will be procyclical.

12. The equilibrium business cycle model predicts that real investment will be countercyclical.

MULTIPLE CHOICE

1. The cyclical part of real GDP is
a. trend real GDP less real GDP. c. real GDP/trend real GDP.
b. real GDP less trend real GDP. d. trend real GDP/real GDP.

2. Real GDP equals:
a. trend real GDP plus the cyclical part of GDP c. trend real GDP less the cyclical part of GDP.
b. trend real GDP times the cyclical part of GDP. d. trend real GDP divided by the cyclical part of GDP.

3. An equilibrium business-cycle model:
a. uses shocks to GDP to find equilibrium conditions. c. uses equilibrium conditions to determine how shocks affect real GDP and other macroeconomic variables. .
b. uses GDP to find equilibrium shocks to the economy. d. uses GDP to find equilibrium conditions.

4. An increase in the level of technology, A, causes:
a. an increase in the MPL c. a movement along the MPL hiring more labor.
b. a decrease in the MPL d. a movement along the MPL hiring less labor.

5. The model predicts that an economic expansion caused by an increase in technology, A, will:
a. drive down the real wage. c. drive up the real wage.
b. cause labor supply to be greater than labor demand. d. lead to a relatively low real wage.

6. The model predicts that in a recession caused by an decrease in technology, A, we would observe:
a. a relatively low real wage. c. a relatively high real wage.
b. an excess demand for labor. d. an increase in the MPL

7. If technology, A, increases, then:
a. the MPK and the demand for capital services increase. c. the MPK increases and the demand for capital services decreases.
b. the MPK and the demand for capital services decrease. d. the MPK decreases and the demand for capital services increases.

8. The model predicts that if there is a technology, A, shock, the real rental price of capital will:
a. be relatively high during an economic expansion or a recession. c. be relatively high during an economic expansion and relatively low during a recession.
b. be relatively low during an economic expansion or a recession. d. be relatively low during an economic expansion and relatively high during a recession.

9. The model predicts that if there is a technology, A, shock, the interest rate, i, will be:
a. relatively high during an economic expansion or a recession. c. relatively high during an economic expansion and relatively low during a recession.
b. relatively low during an economic expansion or a recession. d. relatively low during an economic expansion and relatively high during a recession.

10. During an economic expansion due to an increase in technology, A, consumption will:
a. tend to rise due to the income effect. c. tend to fall due to the intertemporal substitution effect of the interest rate rising.
b. may rise or fall depending on whether the income effect is greater than the substitution effect or not. d. all of the above.

11. During an economic expansion due to an increase in technology, A, consumption will:
a. tend to fall due to the income effect. c. tend to rise due to the intertemporal substitution effect of the interest rate rising.
b. may rise or fall depending on whether the income effect is greater than the substitution effect or not. d. all of the above.

12. During an economic expansion due to an increase in technology, A, consumption will:
a. tend to rise due to the income effect. c. tend to rise due to the intertemporal substitution effect of the interest rate rising.
b. be unchanged. d. tend to fluctuate.

13. During an economic expansion due to an increase in technology, A, consumption will:
a. tend to fall due to the income effect. c. tend to fall due to the intertemporal substitution effect of the interest rate rising.
b. be unchanged. d. tend to fluctuate.

14. If technology, A, increases permanently then we would expect:
a. consumption to decrease as the substitution effect would be greater than the income effect of the change. c. consumption to increase as the substitution effect would be greater than the income effect of the change.
b. consumption to increase as the income effect would be greater than the substitution effect of the change. d. consumption to decrease as the income effect would be greater than the substitution effect of the change.

15. If there is a permanent increase in technology, A, then we expect consumption to:
a. increase by more than real GDP. c. increase but by less than real GDP.
b. increase by the same amount as real GDP. d. be unchanged.

16. If there were a permanent increase in technology, A, we would expect real saving to:
a. increase as the increase in real consumption is less than real GDP. c. decrease as the increase in real consumption is more than real GDP.
b. increase as the increase in real consumption is more than real GDP. d. decrease as the increase in real consumption is less than real GDP.

17. A variable that moves in the same direction as real GDP is known as:
a. acyclical. c. countercyclical.
b. procyclical. d. exogenous.

18. A variable that has little tendency to move during a business cycle is known as:
a. acyclical. c. countercyclical.
b. procyclical. d. exogenous.

19. A variable that moves in the opposite direction as real GDP is known as:
a. acyclical. c. countercyclical.
b. procyclical. d. exogenous.

20. An acyclical variable is one that:
a. moves the same direction as real GDP. c. moves the opposite direction as real GDP.
b. has little tendency to move during a business cycle. d. determined outside the model.

21. An procyclical variable is one that:
a. moves the same direction as real GDP. c. moves the opposite direction as real GDP.
b. has little tendency to move during a business cycle. d. determined outside the model.

22. An countercyclical variable is one that:
a. moves the same direction as real GDP. c. moves the opposite direction as real GDP.
b. has little tendency to move during a business cycle. d. determined outside the model.

23. US real consumer expenditure since 1954 has been:
a. procyclical. c. a cyclical.
b. countercyclical. d. exogenous.

24. US real gross domestic private investment since 1954 has been:
a. procyclical. c. a cyclical.
b. countercyclical. d. exogenous.

25. Since 1954, in the US:
a. real gross private investment has varied more than real GDP, while real consumer expenditure has varied less than real GDP. c. real gross private investment has varied less than real GDP, while real consumer expenditure has varied more than real GDP.
b. real gross private investment and real consumer expenditure have varied more than real GDP. d. real gross private investment and real consumer expenditure have varied less than real GDP.

26. US real average earnings of production workers since 1954 has been:
a. procyclical. c. a cyclical.
b. countercyclical. d. exogenous.

27. US real rental price of capital since 1954 has been:
a. procyclical as the model predicts. c. procyclical rather countercyclical as the model predicts.
b. countercyclical as the model predicts. d. countercyclical rather procyclical as the model predicts.

28. An example of a temporary change in technology would be:
a. a new discovery. c. a harvest failure.
b. a new invention. d. all of the above.

29. An example of a temporary change in technology would be:
a. a new discovery. c. a new invention.
b. a general strike. d. all of the above.

30. With a temporary change in technology the model predicts:
a. the interest rate will be procyclical. c. a higher interest rate will motivate households to increase current real saving.
b. a lower interest rate will motivate households to increase current real consumption. d. all of the above.

31. With a temporary change in technology the model predicts:
a. the interest rate will be procyclical. c. a higher interest rate will motivate households to decrease current real saving.
b. a lower interest rate will motivate households to decrease current real consumption. d. all of the above.

32. With a temporary change in technology, we would expect:
a. the income effect of consumption to be larger. c. the intertemporal substitution effect on consumption to be larger.
b. the income effect of consumption to be smaller. d. the intertemporal substitution effect on consumption to be larger.

33. With a temporary positive change in technology we would expect real current consumption:
a. to increase a lot. c. to remain unchanged.
b. to decrease a lot. d. to either increase or decrease a little.

34. With a temporary change in technology, A, we expect little change in consumption because:
a. the income effect on consumption is larger. c. the intertemporal-substitution effect is larger.
b. the income effect on consumption is smaller. d. the intertemporal-substitution effect is smaller.

35. The model predicts that an economic expansion caused by a temporary increase in technology, A, would lead to:
a. high real GDP and investment. c. low real GDP and investment.
b. low real GDP and high real investment. d. high real GDP and low real investment.

36. Temporary changes in technology, A, conflict with the data in that:
a. investment is clearly acyclical. c. the wage rate is clearly countercyclical.
b. consumption is clearly procyclical. d. all of the above.

37. A higher real wage:
a. makes consumption more expensive. c. makes leisure less expensive.
b. makes it a worse deal for households to work an extra hour. d. makes leisure more expensive.

38. A higher real wage:
a. increases the income of households inducing them to work more. c. increases the income of households inducing them to work less.
b. decreases the income of households inducing them to work more. d. decreases the income of households inducing them to work less.

39. The overall effect of a higher real wage is:
a. to increase labor as the income and substitution effect reinforce each other. c. to decrease labor as the income and substitution effect reinforce each other.
b. ambiguous on labor as the income and substitution effect work against each other. d. ambiguous because the income and substitution effect reinforce each other.

40. We expect that an increase in real wages will:
a. increase labor supply, if temporary. c. increase labor supply, whether permanent or temporary.
b. increase labor supply, if permanent. d. reduce labor supply, whether permanent or temporary.

41. An increase in the interest rate induces worker to:
a. work more in the current period and less in the future. c. work less in the current period and more in the future.
b. work more in the current period and in the future. d. work less in the current period and in the future.

42. A higher interest rate makes:
a. future consumption cheaper. c. current consumption more expensive.
b. future leisure cheaper. d. all of the above.

43. A higher interest rate makes:
a. future consumption and leisure more expensive. c. future consumption and leisure cheaper.
b. future consumption cheaper and future leisure more expensive. d. future consumption more expensive and future leisure cheaper.

44. A higher interest rate makes:
a. current consumption and leisure more expensive. c. current consumption and leisure cheaper.
b. current consumption cheaper and current. leisure more expensive. d. current consumption more expensive and current leisure cheaper.

45. A higher interest rate makes:
a. current consumption and future leisure more expensive. c. current consumption and future leisure cheaper.
b. current consumption cheaper and future. leisure more expensive. d. current consumption more expensive and future leisure cheaper.

46. Intertemporal substitution effects motivate households to:
a. supply more labor when the wage rate is temporarily low. c. supply less labor when the wage rate is temporarily low.
b. supply more labor when the wage rate is permanently low. d. supply more labor when the wage rate is permanently low.

47. In the US since 1964 total hours worked and employment have been:
a. acyclical. c. procyclical.
b. countercyclical. d. exogenous.

48. The measure of labor productivity used in the popular media is:
a. Y/L c. procyclical.
b. average product of labor. d. all of the above.

49. In the model with an upward sloping supply curve of labor and increase demand for labor due to a positive technological, A, change:
a. increases employment and the real wage. c. decreases employment and the real wage.
b. decreases employment and increases the real wage. d. decreases employment and increases the real wage.

50. When the labor supply of households is allowed to slope upward:
a. the model predictions match the observed data that employment and real wages are countercyclical. c. the model predictions do not match the observed data that employment and real wages are procyclical.
b. the model predictions do not match the observed data that employment and real wages are countercyclical. d. the model predictions match the observed data that employment and real wages are procyclical.

51. The most important feature of U.S. real GDP in the post-World War II era most likely is
a. the overall upward trend. c. the large fluctuations relative to trend.
b. the high standard deviation from trend. d. the many recessions related to politics.

52. The equilibrium business cycle model, unlike the long-run Solow growth model, assumes that
a. changes in capital are important. c. the interest rate always rises.
b. changes in capital are insignificant. d. the cyclical growth in GDP is positive.

53. Suppose that the economy suffers a major natural disaster. The equilibrium business-cycle model predicts that the interest rate will be
a. unchanged. c. relatively low.
b. relatively high. d. greater than the return on capital.

54. Suppose that the economy suffers a major natural disaster. The equilibrium business-cycle model predicts that the real rental price of capital will be
a. unchanged. c. relatively low.
b. relatively high. d. greater than the return on capital.

55. According to the equilibrium business-cycle model, a major improvement in competitiveness in a nation’s economy will affect the real wage in which way?
a. The real wage will be unchanged. c. The real wage will be relatively low.
b. The real wage cannot be predicted. d. The real wage will be relatively high..

56. In the equilibrium business-cycle model, an improvement in the level of technology causes
a. an economic expansion. c. a trend level of GDP.
b. a recession. d. an economic shock.

57. In the equilibrium business-cycle model, an economic expansion typically starts with
a. an improvement in the level of technology. c. a decline in the level of technology
b. an increase in the stock of capital. d. a decrease in the stock of capital.

58. In the equilibrium business-cycle model, a recession typically starts with
a. an improvement in the level of technology. c. a decline in the level of technology
b. an increase in the stock of capital. d. a decrease in the stock of capital.

59. In the equilibrium business-cycle model, a recession would be characterized by
a. a relatively low real wage and relatively high real rental price of capital. c. a relatively high real wage and relatively low real rental price of capital.
b. a relatively low real wage and real rental price of capital. d. a relatively high real wage and real rental price of capital.

60. In the equilibrium business-cycle model, a recession would be characterized by
a. a relatively low interest rate and relatively high real rental price of capital. c. a relatively high interest rate and relatively low real rental price of capital.
b. a relatively high real wage and real rental price of capital. d. a relatively low interest rate and real rental price of capital.

61. In the equilibrium business-cycle model, an economic expansion would be characterized by
a. a relatively low real wage and relatively high real rental price of capital. c. a relatively high real wage and real rental price of capital.
b. a relatively low real wage and real rental price of capital. d. a relatively high real wage and relatively low real rental price of capital.

62. Which of the following variables is procyclical, according to the equilibrium business-cycle model?
a. the real wage rate c. the real rental rate on capital
b. the real interest rate d. all of the above

63. Which of the following variables is countercyclical, according to the equilibrium business-cycle model?
a. the real wage rate c. the real rental rate on capital
b. the real interest rate d. none of the above

64. The equilibrium real-business cycle model predicts that labor productivity will be
a. procyclical. c. acyclical.
b. countercyclical. d. indeterminate.

65. The measure known as total hours worked
a. multiplies employment by 40. c. divides employment by 24.
b. divides employment by the average wage rate. d. multiplies employment by the average weekly hours worked per employee.

SHORT ANSWER

1. If there is a positive technological change, what happens in the labor market?

2. What does the model predict about investment when technology increases and why and what do the data show about investment in the US?

3. What happens to consumption when there is a permanent and temporary increase in technology, A, and why?

4. What is the relationship between real GDP and the cyclical part of GDP?

5. What happens in the model, if a temporary technology change increase real wages temporarily?

6. What does the real business-cycle model predict will be the relationship between an economic expansion and the real rental price of capital?

Chapter 9

TRUE/FALSE

1. When the capital utilization rate, , is added to the model the interest rate becomes countercyclical.

2.
The higher the capital utilization rate, , the greater the depreciation rate of capital, .

3. An increase in unemployment insurance payments decreases effective real income while unemployed.

4. The duration of unemployment is the number unemployed divided by the labor force.

5. Unemployment will exist in an market clearing model, if it takes some search time for workers to find jobs.

6. An increase in the technology level leads to an outward shift of the demand curve for capital services.

7. An increase in the technology level leads to an increase in the market-clearing real rental price of capital.

8. When a variable capital utilization rate is added to the Barro model, the model predicts that the capital utilization rate will be countercyclical.

9. GDP can rise when a decrease in technology leads to an increase in the capital utilization rate.

10. The natural rate of unemployment in an economy occurs when the job separation rate equals zero.

MULTIPLE CHOICE

1. The capital utilization rate is:
a. the rate capital wears out in a particular period. c. the percentage of capital used in production.
b. the depreciation rate. d. all of the above.

2. When the capital utilization rate, , increases then:
a. GDP increases. c. (hours per period)•(number of machines) increases.
b. machines are in use more hours per period. d. all of the above.

3. When the capital utilization rate, , increases then:
a. GDP decreases. c. (hours per period)•(number of machines) increases.
b. machines are in use fewer hours per period. d. all of the above.

4. When the capital utilization rate, , increases then:
a. GDP decreases. c. (hours per period)•(number of machines) decreases.
b. machines are in use more hours per period. d. all of the above.

5. When the capital utilization rate, , increases then:
a. GDP increases. c. (hour per period)•(number of machines) decreases.
b. machines are in use fewer hours per period. d. all of the above.

6. When we allow a capital utilization rate, , less than 100%, then the rate of return form owning capital becomes:
a. (R/P) – . c. (R/P)• – .
b. (R/P)• – ( ). d. (R/P) – ( ).

7. An owner of capital might set their capital utilization rate below 100% because:
a. the depreciation rate goes up with the capital utilization rate. c. to make time available for maintaining their capital.
b. machines wear out faster when used more intensively. d. all of the above.

8. The optimal capital utilization rate, , is that where:
a. (R/P)• – ( ) is maximized. c. (R/P)• > ( )
b. (R/P)• = ( ) d. (R/P)• < ( )

9. the net real income from supplying capital services is:
a. (R/P)• K – ( )K. c. ( )K – (R/P)•
b. (R/P)• K + ( ). d. (R/P)• K • ( )K

10. Higher capital utilization rates may raise the user costs of capital because higher utilization rates may imply:
a. operating at inconvenient times. c. operating when complementary services like transporters are unavailable or more expensive.
b. paying overtime to employees operating the machines. d. all of the above.

11. Higher capital utilization rates may raise user costs of capital because higher utilization rates may imply:
a. operating at inconvenient times. c. less highway congestion.
b. off-peak utility prices. d. all of the above.

12. Higher capital utilization rates may raise user costs of capital because higher utilization rates may imply:
a. less highway congestion. c. operating when complementary services like transportation are unavailable or more expensive.
b. off peak utility prices. d. all of the above.

13. Higher capital utilization rates may raise user costs of capital because higher utilization rates may imply:
a. less highway congestion. c. off peak utility prices.
b. paying overtime to employees operating the machines. d. all of the above.

14. GDP rises can rise in an expansion due to:
a. an increase in technology, A, directly increasing GDP. c. an increase in technology, A, causing an increase in the capital utilization rate, the quantity of capital services and GDP.
b. an increase in technology, A, causing an increase in labor, L and GDP. d. all of the above.

15. The model predicts the capital utilization rate, , is:
a. acyclical. c. countercyclical.
b. procyclical. d. exogenous.

16. The model predicts that with a negative shock to technology, the capital utilization rate, , will:
a. rise as GDP rises. c. rise as GDP falls.
b. fall as GDP falls. d. fall as GDP rises.

17. After the capital utilization rate, , is included in the model, the interest rate:
a. is still procyclical. c. becomes procyclical.
b. is still countercyclical. d. becomes countercyclical.

18. The US data from 1948 to 2006 shows the capital utilization rate, , is:
a. procyclical as the model predicts. c. procyclical the opposite the model predicts.
b. countercyclical as the model predicts. d. countercyclical the opposite as the model predicts.

19. The model predicts that with a positive shock to technology the capital utilization rate, , will
a. fall as GDP falls. c. rise as GDP rises.
b. fall as GDP rises. d. rise as GDP falls.

20. If the rental price of capital increases, then the capital utilization rate, ,:
a. also increases. c. remains the same.
b. decreases. d. depends on whether the substitution rate is greater than the income effect.

21. The unemployment rate is:
a. the number of workers in the labor force unemployed divided by the number of workers employed. c. the number of workers in the labor force unemployed divided by the labor force.
b. the number of workers employed divide by the number of workers in the labor force unemployed. d. the labor force divided by the number of workers in the labor force unemployed.

22. The vacancy rate in the labor market is:
a. the number of job openings divided by the number of unemployed people in the labor force. c. the ratio of open jobs to filled jobs.
b. the number of job openings divided by the number of workers in the labor force. d. the ratio of open jobs to the total number of jobs that employers want occupied.

23. If the labor force is 100 million, there are 95 million people employed, there are 98 million jobs that employers want occupied, then the number of unemployed workers in the labor force is:
a. 5 million. c. 2 million.
b. 3 million. d. none of the above.

24. If the labor force is 100 million, there are 95 million people employed, there are 98 million jobs that employers want occupied, then the number of vacancies is:
a. 5 million. c. 2 million.
b. 3 million. d. none of the above.

25. If the labor force is 100 million, there are 95 million people employed, there are 98 million jobs that employers want occupied, then the unemployment rate is:
a. 3%. c. 5.3%.
b. 5%. d. none of the above.

26. If the labor force is 100 million, there are 95 million people employed, there are 98 million jobs that employers want occupied, vacancy rate is:
a. 5%. c. 3.1%.
b. 3.2%. d. 3%.

27. If the labor force is 100 million, there are 94 million people employed, there are 99 million jobs that employers want occupied, then the vacancy rate is:
a. 5%. c. 5.3%
b. 5.1% d. 1%

28. One minus the unemployment rate, 1 – u, is:
a. the vacancy rate. c. the employment rate.
b. the labor force. d. the level of employment.

29. Unemployment can exist in a market clearing model, if:
a. there are frictions in the labor market. c. we allow for differences among workers and jobs.
b. it takes some search time for workers to find jobs. d. all of the above.

30. Unemployment can exist in a market clearing model, if:
a. the labor market is in disequilibrium. c. we allow for differences among workers and jobs.
b. we allow capital utilization of less than 100%. d. all of the above.

31. Unemployment can exist in a market clearing model, if:
a. there are frictions in the labor market. c. the labor market is in equilibrium.
b. the labor supply curve is upward sloping. d. all of the above.

32. Unemployment can exist in a market clearing model, if:
a. all workers are identical. c. the labor supply curve is upward sloping.
b. it takes some search time for workers to find jobs. d. all of the above.

33. A worker will accept a job offer, if the real wage offer is above:
a. the worker’s effective real income when unemployed, . c. the worker’s reservation wage.
b. the wage the worker earned in their last job. d. the average wage in the economy.

34. An increase in a worker’s effective real income while unemployed, , will cause the worker’s:
a. real wage offers to increase. c. real reservation wage to increase.
b. real wage offers to decrease. d. real reservation wage to decrease.

35. We expect that an increase in the effective real income while unemployed ,
a. will reduce the job-finding rate. c. increase real wage offers.
b. will increase the job-finding rate. d. decrease real wage offers.

36. A decrease in workers’ effective real incomes while unemployed, , will:
a. lower the job finding rate and raise the expected duration of unemployment. c. raise the job finding rate and lower the expected duration of unemployment.
b. lower the job finding rate and the expected duration of unemployment. d. raise the job finding rate and the expected duration of unemployment.

37. A negative shock to productivity, A, will:
a. lower the job finding rate and raise the expected duration of unemployment. c. raise the job finding rate and lower the expected duration of unemployment.
b. lower the job finding rate and the expected duration of unemployment. d. raise the job finding rate and the expected duration of unemployment.

38. Job separations can be due to:
a. an adverse shock to the firm’s production function. c. a change in a worker’s circumstances such as changing locations.
b. the job being temporary from the start like a seasonal job. d. all of the above.

39. Job separations can be due to:
a. a positive shock to the firm’s production function. c. a change in a worker’s circumstances such as changing locations.
b. an increase in technology. d. all of the above.

40. Job separations can be caused by:
a. an adverse shock to the firm’s production function. c. increased technology, A.
b. foreign competition. d. all of the above.

41. In the Barro model, the natural rate of unemployment is the unemployment rate:
a. where job findings equal job separations. c. the job separation rate equals the job finding rate.
b. job findings are maximized. d. job separations are minimized.

42. If the job separation rate is 0.02 and the job finding rate is 0.3, then the natural rate of unemployment is:
a. 6.25% c. 6.67%
b. 15% d. none of the above.

43. If the job separation rate is 0.03 and the job finding rate is 0.7, then the natural rate of unemployment is:
a. 4.2% c. 23.3%
b. 4.1% d. none of the above.

44. In the Barro model, the natural rate of unemployment is:
a. positively related to that job separations rate. c. fixed.
b. zero. d. positively related to the job finding rate.

45. In the Barro model, the natural rate of unemployment is:
a. negatively related to that job separations rate. c. fixed.
b. zero. d. negatively related to the job finding rate.

46. In US data vacancies from 1954 to 2006 as measure by the help-wanted index are:
a. procyclical as the model predicts. c. procyclical the opposite the model predicts.
b. countercyclical as the model predicts. d. countercyclical the opposite the model predicts.

47. Discouraged workers are:
a. those that are unemployed. c. those who have dropped out of the labor force.
b. those that are underemployed. d. those who are under paid.

48. The job-finding rate is:
a. the number of hires per month divided by the number unemployed. c. the number of hires per month divided by the unemployment rate.
b. the number of hires per month divided by the number employed. d. the number of hires per month divided by the employment rate.

49. The US data from December 2000 to February 2006 shows that the job finding rate is:
a. acyclical. c. procyclical.
b. countercyclical. d. exogenous.

50. The US data from December 2000 to February 2006 shows that the job separation rate is:
a. acyclical. c. procyclical.
b. countercyclical. d. exogenous.

51. Owners of capital choose the utilization rate to
a. maximize their net real income from supplying capital services. c. minimize their net real income from supplying capital services.
b. maximize their net real costs from supplying capital services. d. minimize their net real rental payments from supplying capital services.

52. When the Barro model allows for variable capital utilization rates, the result is that an increase in the technology level causes
a. a decrease in the capital utilization rate. c. a decrease in the quantity of capital services.
b. an increase in the capital utilization rate. d. no change in the quantity of capital services.

53. When the technology level increases,
a. the demand for capital services shifts to the left. c. the demand for capital services shifts to the right.
b. the supply of capital services shifts to the right. d. both (b) and (c).

54. When the technology level increases, the market for capital services
a. fails to clear. c. clears at the original real rental price.
b. clears at a lower real rental price. d. clears at a higher real rental price.

55. When the technology level increases, the market for capital services
a. clears at a higher quantity of capital services. c. clears at the original quantity of capital services.
b. clears at a lower quantity of capital services. d. fails to clear.

56. On a graph of the capital services market, the supply of capital services
a. slopes down because an increase in the real rental price raises the capital utilization rate. c. slopes up because an increase in the real rental price lowers the capital utilization rate.
b. slopes up because an increase in the real rental price raises the capital utilization rate. d. slopes down because an increase in the real rental price lowers the capital utilization rate.

57. On a graph of the capital services market, the demand for capital services shifts out when
a. the technology level decreases, which increases the marginal product of capital for any give amount of capital input. c. the technology level increases, which increases the marginal product of capital for any give amount of capital input.
b. the technology level decreases, which decreases the marginal product of capital for any give amount of capital input. d. the technology level increases, which decreases the marginal product of capital for any give amount of capital input.

58. U.S. data show that the labor force is
a. strongly countercyclical. c. strongly procyclical.
b. acyclical. d. weakly procyclical.

59. U.S. data show that the employment rate is
a. strongly procyclical. c. strongly countercyclical.
b. acyclical. d. weakly countercyclical.

60. An increase in unemployment insurance payments from the government will
a. increase a person’s effective real income while unemployed. c. have no effect on a person’s effective real income while unemployed.
b. decrease a person’s effective real income while unemployed. d. either (a) or (c).

61. An increase in unemployment insurance payments from the government will
a. decrease a person’s duration of unemployment. c. have no effect on a person’s duration of unemployment.
b. increase a person’s duration of unemployment. d. either (a) or (c).

62. An increase in unemployment insurance payments from the government will
a. increase the job finding rate. c. decrease the job-finding rate.
b. have no effect on the job-finding rate. d. either (a) or (b).

63. The job-separation rate is likely to be high among workers who are
a. inexperienced and difficult to evaluate. c. in industries where there are frequent shocks to product demand.
b. likely to experience changes in job preferences. d. all of the above.

64. At the natural rate of unemployment,
a. the job-separation rate is positive. c. the job-finding rate equals zero.
b. the job-separation rate equals zero. d. both (b) and (c).

65. At the natural rate of unemployment,
a. the job-separation and job-finding rates are each zero. c. tthe job-separation and job-finding rates are both negative.
b. the job-separation and job-finding rates are both positive. d. the job-separation rate is zero and the job-finding rate is positive.

SHORT ANSWER

1. How does the capital utilization enter the production function?

2. How does the capital utilization rate affect the depreciation rate and why?

3. How can there be unemployment in a market clearing model?

4. How does the Barro model define the natural rate of unemployment and what does the natural rate of unemployment depend on.

5. What is the reservation wage?

6. How does an increase in technology affect the market-clearing real rental price of capital services?