Question

In the Phillips curve equation, which of the following will NOT cause an increase in the current inflation rate?

A a reduction in the unemployment rate

B an increase in the markup of prices over wages

C a decrease in the strength of the effect of unemployment on the wage, α.

D an increase in the expected inflation rate

E a decrease in the catch-all variable z

22.Suppose there are two countries that are identical with the following exception. The saving rate in country A is greater than the saving rate in country B. According to Solow model without technological progress, we know that in the long run

A the growth rate of output per capita will be greater in B than in A.

B the growth rate of output per capita will be the same in both countries.

C more information is needed to answer this question.

D the capital-labor ratios (K/N) will be the same in both countries.

E the growth rate of output per capita will be greater in A than in B.

Why do banks maintain a certain level of bank capital?

A These precautionary funds are held against the illiquidity risks of loans and bonds.

B These funds are set aside for taxation purposes.

C These are funds to be invested in emerging market economies.

D These funds are reserved as salary bonuses for top management.

E These funds are required to satisfy shareholders in annual statements.

Answer 1

Q) The correct option is E i.e. a decrease in the catch all variable z.

Q22) The correct option is E. The growth rate of output per worker is greater in Country A than in country B.

Solow model shows that the saving rate is the key determinant of the steady-state capital stock. Higher saving rate will have a higher level of output in the steady state and vice versa.

Q) Why do banks maintain a certain level of bank capital?

The correct option is A. These Precautionary funds are held against the illiquidity risks of bonds and loans.