Indicate whether each of the following statements is true or false. If it is fal
ID: 1129104 • Letter: I
Question
Indicate whether each of the following statements is true or false. If it is false, you must explain (you can use equations as part of an explanation when needed) why is it false. Not explaining is the same thing as not answering. If it is true, no explanation is needed:
a. When the growth rate of both, the nominal GDP and the real GDP, are the same, it means that the inflation rate is also the same as this growth rate.
b. When the only source of wage “rigidity” is the existence of a minimum wage policy, it means that an increase in labor demand doesn´t have any effect over the wages in the economy.
c. The short run fluctuation and the cyclical unemployment have a positive correlation.
d. In the world of ideas, there should by at least some level of market power in order to have increasing returns to scale.
e. The Romer model performs better than the Solow growth model to explain the process of economic growth of any economy.
f. In the long run, the actions from the central bank (increasing or decreasing the money supply), don´t have any real effect on the economy.
g. If the investors around the world perceive a higher risk of a new crisis in Europe, the net exports of the US will increase.
h. If the German bonds yield 5% per year, and the French bonds yield 4.5%, then the investors will necessarily prefer to buy the German bonds.
i. If the FED decreases the interest rate, then the US net exports will increase.
j. If Saudi Arabia decides to sharply cut their oil supply, the Phillips curve will shift to the right.
Explanation / Answer
Answer : a. When the growth rate of both, the nominal GDP and the real GDP, are the same, it means that the inflation rate is also the same as this growth rate : False .
Because, inflation = nominal GDP - real GDP. If nominal and real GDP growth rate are same then inflation rate is zero.
b. When the only source of wage “rigidity” is the existence of a minimum wage policy, it means that an increase in labor demand doesn´t have any effect over the wages in the economy : True.
c. The short run fluctuation and the cyclical unemployment have a positive correlation : False.
As short run Philips curve is downward sloping hence there is negative relationship between short run fluctuations and unemployment.
d. In the world of ideas, there should by at least some level of market power in order to have increasing returns to scale : True.