ECON 120 - chap 10
Between 1950 and the mid-1990s, the United States experienced a much larger increase in the standard of living than the Soviet Union. This difference can be most attributed to the fact that the U.S.
had a greater amount of technological change.
Real GDP per capita in the country of Arcadia grew from about $4,980 in 1900 to about $41,140 in 2008, which represents an annual growth rate of 1.97 percent. If Arcadia continues to grow at this rate, calculate the number of years when its real GDP per capita will double____ years
70/1.97 = 36 years
The National Bureau of Economic Research (NBER), a private group, is responsible for declaring when recessions begin and end. The Bureau of Economic Analysis (BEA), part of the federal government, might not want to take on this responsibility. Which one of the following is the most appropriate reason for the BEA's refusal?
Because it is part of the government, the BEA could be pulled into politics with the dating of recessions.
Following a long period of slow growth, the government of country X decided to open its economy and reduce trade barriers in order to boost economic growth. This provided the expected impetus to the economy as competition increased and the efficiency of domestic firms improved. A decade after opening the economy, the country's GDP is now growing at an average of 7-8 percent annually. A group of economists claim that the standard of living of the people has improved substantially during this period. They also expect this impressive growth to continue over the next five years. Which of the following, if true, will indicate that the standard of living has actually improved since the economy was opened?
Discretionary spending by domestic consumers increased during this time. An increase in discretionary spending would imply that people now have the ability to spend on the things they would like to buy.
Purchases of which types of goods are business cycles most likely to affect?
Durable Goods
Suppose you are discussing global trade with a friend who insists a country would be better off by restricting trade and investment with other countries. Which of the following economic responses would be the most logical for your discussion?
I am not sure I agree. Countries that allow more globalization have experienced higher rates of economic growth and typically can utilize greater levels of foreign direct investment to increase economic growth.
Use the graph to help determine which one of the following statements regarding fluctuations in real GDP is true:
In the first half of the twentieth century, real GDP had much more severe swings than in the second half of the twentieth century.
Along the per-worker production function, what happens to real GDP per hour worked as capital per hour worked increases?
Real GDP per hour worked increases at a decreasing rate.
Which of the following is a reason the U.S. experienced larger economic growth than the Soviet Union? (Check all that apply.)
The U.S. had a market economy that allowed for greater entrepreneurship to occur. The U.S. had a greater amount of private property rights.
Panel (a) shows movements in real GDP for each quarter from the beginning of 1999 through the beginning of 2017. Panel (b) shows movements in the sales of motor vehicles and gasoline for the same years. Use the graphs to determine which one of the following statements is true:
The effects of the recession on sales of motor vehicles are much more dramatic and long-lived than the effects on the economy as a whole.
Narnia, a developed open economy, has been experiencing double-digit inflation and a decelerating output growth for the last four quarters. Jonathan Mathews and Ben Hall, two market analysts, are discussing the various measures that can be adopted by the concerned authorities to curb inflation and boost production in the economy. Jonathan thinks that the central bank should raise the nominal interest rate to control inflation. This, he feels, will also contribute to an increase in the aggregate supply of funds available for investment in the economy. Ben however disagrees. According to him, an increase in the nominal interest rate will lower investment, leading to a decline in aggregate production by firms. This, in turn, will increase the shortage in the economy and prices will rise further. When the interest rate was actually increased, the aggregate supply of loanable funds in the economy did not increase as much as Jonathon expected. Which of the following, if true, would explain this outcome?
The government budget deficit increased by $10 billion this year.
Firm X, a leading manufacturer of rubber tires in country A, caters to almost one-third of the domestic tire market. The country was hit by a recession last year that caused the national output growth to be negative. Simon Reeds, the CEO of firm X, feels that these fluctuations in the business environment are short-lived and expects the economy to recover very soon. In spite of the recession, Simon feels that the firm can actually invest in expanding its facilities as it has sufficient cash flows to continue its operation during the crisis period. The firm's marketing head, Sandra Jones, counters this by saying that the firm is already losing sales due to the recession and they should not increase costs further by making large-scale investments in the present climate. Which of the following, if true, would support the CEO's claim?
The government recently announced a plan to offer incentives to buyers in the car and household appliances market.
A recent industry report concluded that the global demand for the good X is expected to increase. Based on the demand projections given in the report Colaba, a firm that produces and sells X, is contemplating hiring more labor to increase production. Maria Williams and Christopher Lockhart, both stock market analysts, are discussing the prospects of the firm. Maria thinks that Colaba is a good stock to buy because she expects their profits to increase. Christopher's opinion differs. He says that an increase in Colaba's workforce will only increase the wage bill and reduce its profits. Colaba decided to increase the size of its workforce by 5 percent, expecting profits to increase. However, the firm's profits dipped considerably in the next quarter. Which of the following can best explain this outcome?
The government recently lowered import barriers on good X.
The country Panjim has been growing at the rate of 8 percent annually following a series of economic reforms. Adelphia, a neighboring country, is also growing rapidly, but at a rate that is slightly lower than Panjim's. Elaine Mack and Prisca Baresi, who live in Adelphia, are discussing whether Adelphia's economy will surpass Panjim soon. Elaine is of the opinion that the high level of sales of capital goods indicates that growth in Adelphia will only increase further. Prisca however reminds Elaine that the working population in Adelphia is shrinking, which will actually reduce its growth prospects. Which of the following, if true, will weaken Prisca's view that Adelphia does not have good growth prospects?
The number of highly-skilled workers migrating from Adelphia to foreign countries has fallen.
Dan Demaar and Rob Runten are working on a class assignment on economic growth. Dan collects the GDP growth data for the country Fanez, which is located in the Middle East. He states that the standard of living in Fanez must have increased remarkably over the past ten years because it has a total GDP of $1,049 million, which is twice its GDP ten years back. Rob does not fully agree that the situation has improved substantially over these 10 years. He looks at the data and points out, that growth in Fanez was in fact very slow during this time. Its annual growth rate, while always positive, never exceeded 1.2 percent. Which of the following, if true, is likely to strengthen Dan's argument?
The population density in Fanez, as measured by number of persons per square mile, has reduced in the last 15 years.
As the economy nears the end of an expansion, which of the following typically occurs?
Wages are usually rising faster than prices. Interest rates are usually rising. The profits of firms will be falling. (ALL OF ABOVE)
The financial system of a country is important for long-run economic growth because
firms need the financial system to acquire funds from households.
The government policy that does not increase economic growth is
foreign trade policy that favors imposing a high tariff on imported high-tech goods.
Evaluate the following statement: "Saving money is not lending. How can it be? When I save my money, I put it in a bank. I don't loan it out to someone else."The statement is.....
incorrect. The supply of loanable funds is determined by household saving..
Government policy can increase the accumulation of knowledge capital in all the following ways except by:
investing in capital accumulation.
What is the rule of 70?
is a mathematical formula that is used to calculate the number of years it takes real GDP per capita or any other variable to double.
The computation of the average annual growth rate of real GDP
is more complex when examining data for a long period of time than when examining data for only a few years.
At the macro-economy level,
knowledge capital exhibits increasing returns and physical capital exhibits decreasing returns.
Firms are likely to underinvest in research and development, which slows the accumulation of knowledge capital, slowing economic growth, because
knowledge capital is both nonrival and nonexcludable; other firms can freely access the research and development of one particular firm.
The average annual growth rate is the____between 2007 and 2017, and the total percentage increase in real GDP is the_____
rate at which GDP must grow on average each year percentage increase in real GDP between the two years 2007 and 2017
What term describes the relationship between real GDP per hour worked and capital per hour worked, holding the level of technology constant?
the per-worker production function
What is the best use of the rule of 70 among those listed below?
to judge how rapidly real GDP per capita is growing over long time periods
Recessions cause the inflation rate to _________, and the unemployment rate to _________.
decrease; increase
