Midterm #1: Multiple Choice Questions – Version A
Multiple Choice
Identify the choice that best completes the statement or answers the question.
1. Consider the production function, Y = F(K, L) = A ×K +B ×L where A > 0 and B > 0 are two
positive real numbers. Assuming markets for input factors are perfectly competitive, the real wage is:
a. A.
b. B/(A +B).
c. A +B.
d. B.
e. AK.
2. Consider the production function, Y = F(K, L) = A ×K +B ×L where A > 0 and B > 0. Denote k =
K/L. The labor share is:
a. Ak.
b. B/(Ak + B).
c. Ak + B.
d. Bk.
e. A.
3. Consider the Solow growth model with the production function, Y = F(K, L) = A ×K +B ×L where A >
0 and B > 0. Denote k = K/L. Let d denote the depreciation rate and the saving rate. There exists a positive steady state (with k>0) :
a. Always
b. Never
c. If A > B.
d. If d > A.
e. If d <
4. Consider the production model with the per worker production function, y = f(k). The real wage is w and
the rental price of capital is r. The following relationship holds:
a. y < w + rk b. y > w + rk c. y = w + rk d. y > wk + r e. y < wk + r
5. Consider the production model with the (per worker) production function, y = f(k). The
relationship between the real wage, w, and k is: (HINT: Use the question above and the expression for the rental price of capital, r, as a function of k.)
a. w = f I (k)
b. w = f I (k)k
c. w = f(k) - f I (k) d. w = k - f I (k)
e. w = f(k) - f I (k)k
6. Consider the Solow growth model with aggregate production function F(k, L) = k1/3L2/3 and saving rate
= 0.5. The economy is initially at a steady state. A change of the saving rate from = 0.5 to = 1/3 leads to:
a. An increase in consumption at all future dates.
b. A decrease in consumption at all future dates
c. An increase in consumption in the short run and a decrease in consumption at the new steady state.
d. A decrease in consumption in the short run and an increase in consumption at the new steady state.
e. An increase in consumption in the short run and no change in consumption at the steady state.
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7.
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Among the following production functions, which one is consistent with the US stylized fact for labor and capital shares:
a. Y = k1/3L2/3
b. Y = A ×k +B ×L
c. Y = A ×k ×L/(k + L) d. Y = k(1 - e 一(L/K))
e. None of the above.
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8.
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According to the production model total factor productivity explains of the differences in per capita GDP across countries.
a. 0 d. Two thirds
b. One third e. all
c. One half
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9. In the Solow model, the equation of capital accumulation is:
a. kt+1 = kt +Yt - dkt
b. kt+1 = It +(1 - d)kt
c. kt+1 = kt +It +dkt
d. kt+1 = kt +dkt - It
e. kt +It = kt+1
10. Consider the Solow growth model. The economy is initially at a steady state. Unexpectedly, 10% of the
population dies from a heat wave. Afterwards, population remains permanently lower. In the immediate
aftermath of the shock per capita GDP and it afterwards.
a. increases; grows d. decreases; shrinks
b. decreases; grows e. Does not change; grows
c. increases; shrinks
11. Consider the Solow growth model with aggregate production function F(k, L) = k1/2L1/2 . Per capita GDP
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at the steady state is y=Y/L=
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a. (/)2 .
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d.
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2 / .
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̅ ̅
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b. (/)2 .
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e.
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A/d.
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̅ ̅
c. d/A.
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12. Consider the Solow model where the production function is F(k, L) = AkL. For simplicity we normalize the labor force to L=1. Moreover, we assume > . The growth rate of the capital stock is
̅ ̅ ̅
a. - d d. A/d
̅ ̅ ̅ ̅
b. A - d e. A/d
̅
c. +d
13. In the Solow growth model, the saving rate
a. is exogenous and constant
b. Increases with the capital stock c. Decreases with the capital stock
d. Is equal to the depreciation rate e. Is equal to TFP
14. Consider the Solow growth model. At the Golden Rule for capital accumulation, when steady-state
consumption is maximum, the marginal product of capital is equal to:
a. The saving rate d. one
b. TFP e. zero
c. The depreciation rate
15. In the Mortensen-Pissarides model of unemployment, if labor productivity falls permanently then market
tightness and unemployment .
a. Falls; decreases d. Increases; increases
b. Falls; increases e. Doesn’t change; decreases
c. Increases; decreases
16. Consider the production model with F(k, L) = kaLb. The production function has increasing returns to
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scale if
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a.
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a = 1, b = 0
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d. a > b
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b.
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a + b > 0
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e. a = 0, b = 1
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c.
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a + b > 1
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17. Consider the production model with constant returns to scale production function. The model predicts that per
capita GDP population size.
a. Increases with d. Is independent of
b. Decreases with e. Is proportional to
c. Is equal to
18. The unemployment rate is defined as divided by .
a. Number of individuals out of labor force; d. Number of unemployed; labor force
Labor force
b. Number of individuals out of labor force; e. Number of unemployed; Number of employed
Number of employed
c. Number of individuals without jobs; Number of employed