Chapter 15 Answers

1) Which of the following would be a useful way to increase the saving rate?
A) Tax breaks to increase the real return that savers receive
B) Increasing taxes if Ricardian equivalence holds
C) Increasing government spending
D) Increasing taxes on capital goods
Answer: A

2) Assume that the full-employment level of output is $5000 billion and the natural unemployment rate is 5%. Suppose the current unemployment rate is 8%. What would be the current level of output according to Okun's law (when the Okun's law coefficient is 2)?
A) $4500 billion
B) $4700 billion
C) $4900 billion
D) $5300 billion
Answer: B

4) Endogenous growth theory attempts to
A) replace the Solow model with a model in which money growth plays a key role.
B) explain how societies can more easily reach the "Golden Rule."
C) show how population growth reduces capital and output.
D) explain why productivity changes.
Answer: D

5) Which of the following would be a useful way to increase the saving rate?
A) Tax breaks to increase the real return that savers receive
B) Increasing taxes if Ricardian equivalence holds
C) Increasing government spending
D) Increasing taxes on capital goods
Answer: A

6) A developing country does not have enough taxes to cover its expenditures and is unable to borrow. This government would be most likely to cover its deficit by
A) purchasing government bonds from the public.
B) selling government bonds to the public.
C) selling newly issued government bonds directly to the central bank.
D) buying newly issued government bonds directly from the central bank.
Answer: C

8) Suppose the government provides a tax cut today that is matched by a tax increase in the future that's equal in present value to the tax cut. This causes a consumer's saving to
A) decrease.
B) increase.
C) remain unchanged.
D) increase if the person was a lender and decrease if the person was a borrower.
Answer: B

9) Steady state consumption per worker is
A)