87
Barro
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.
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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.
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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.
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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.
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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
d.
all of the above.
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a seasonal job.
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).
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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?
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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?
ANS: