Econ 201 Test 2

In 2018, the GDP of the U.S. economy reached $20 trillion. The population of the U.S. was approximately 400 million, and the labor force was approximately 250 million, and the unemployment rate was 4%. Suppose that the GDP of the U.S. economy grew from $20 trillion in 2018 to $21 trillion in 2019, with the other figures remaining essentially the same. What was the U.S.'s GDP per capita in 2018? $ What was the growth rate of GDP between 2018 and 2019?

- 50,000 - 5 %

US (nominal) GDP can be defined as the _______ value of _________ legally produced __________ within a given ________.

- market - all final goods and services - within the territorial boundaries of the United states - year

You purchase a new Chevrolet Silverado pickup from a GM dealer.

Consumption

____________________ refers to growth experienced by already rich nations like the United States. It is driven primarily by the generation of ______________.

Cutting edge growth; more technological knowledge

An article in the Wall Street Journal referred to "gross domestic product - the value of all goods and services produced in the U.S." Source: Harriet Tory, "U.S. Economy Grew at 3.2% Rate in First," Wall Street Journal , April 26, 2019. Briefly explain whether you agree with this definition of GDP.

Disagree, because GDP measures the value of all final goods and services produced in an economy, not all the goods and services produced.

Which of the following is a problem with how GDP is calculated?

GDP doesn't count underground economic activity, non-priced production, "bads", measure the distribution of income. All of the above are problems with how GDP is calculated

The state of Michigan builds a new highway to help improve access to GM's Flint plant.

Government

GM purchases new machine tools to use in its Flint factory.

Investment

Which of the situations is an example of the crowding-out effect on investment as it pertains to macroeconomics?

Jack wants to borrow money to create a cowboy-themed inflatable bounce house for kids called "Wild Wild West." However, the government is running a deficit which has increased interest rates so much that Jack can no longer afford to borrow the money.

GM produces 1,000 Silverados in a factory in Flint, Michigan, and ships them to a car dealer in Shanghai, China

Net exports

GM purchases door handles for the Silverado from an auto parts manufacturer in Indiana.

Not included in GDP

You purchase a 2017 (preowned) Chevrolet Silverado from a friend.

Not included in GDP

Angus buys a new tractor for his wheat farm

Physical capital

Cecile buys textbooks and notebooks, so she is ready for the new school year.

Physical capital

Clear laws regarding the transfer of property from one person to another _____________ economic growth.

Promote

As interest rate decrease, what happens to the quantity of loanable funds demanded?

Quantity demanded will increase

A _______________ is a significant, widespread decline in real GDP and employment.

Recession

How does the inclusion of "ideas" in the Solow model change the graph of the model?

The output curve and investment curve both pivot upward.

The figure shows real GDP per capita over time in different regions of the world. The figure shows that:

Wealth is a relatively recent phenomena in human history, and not all nations have experienced it equally.

An increase in savings

decreased the interest rate for loanable funds

If the production function shifts from Y1 to Y2 in the accompanying graph of the Solow model, then:

growth from both capital accumulation and better ideas will occur.

Better ideas increase output directly because of _____ and indirectly due to _____.

higher productivity; more capital accumulation

A patent provides the developer of a new idea, product, or process with a:

window of time to recover development expenses and profits from the idea, product, or process.

Due to an increase in revenues after a tax hike, the United States is able to eliminate the deficit and begins to maintain a balanced budget for the first time in several decades.

shift in demand

What does the investment component of GDP measure?

spending on goods to be used in future production

Toyota, a Japanese company, manufactures cars in San Antonio,

increases GDP in the United States

An decreasing in investor optimism

decreases the interest rate for loanable funds

A price control imposed on milk _______ economic growth

inhibits

Government confiscation of farmland ____________ economic growth

inhibits

The ________ represents the price of a loan

interest rate

Which of the terms acts as the "price" in the market for loanable funds

interest rate

A good produced in the current time period but put into a firm's inventory instead of being sold

is considered unsold inventory and counted as a part of investment in current GDP.

The source of the _______ for loanable funds is investment.

demand

Bruce goes back to school to learn a new computer programming language

human capital

Daniel is hired to work at a local sugar factory and is trained in use of the processing machinery

human capital

Ethel learns to use a keyboard so she can produce her weekly newspaper column faster than she did when she wrote it by hand

human capital

Toyota, a japanese company, manufactures cars in Toronto, Ontario

increase GDP in Canada

ATI Technologies, a Canadian company, operates in Alberta.

increases GDP in Canada

Starbucks,a US company, opens a store in New York state

increases GDP in the United States

Tim Hortons, a Canadian company, opens coffee shops in New England.

increases GDP in the United states

An increase in large investments

increases the interest rate for loanable funds

An investment tax credit

increases the interest rate for loanable funds

Regulations that make creating small businesses difficult ____________ economic growth

inhibit

A commitment by a nation's Central bank to print money to pay for government expenditures _________ economic growth

inhibits

What is the catch‑up effect concerning developed and developing countries? Developing countries

may grow faster than developed countries because they lack the most basic tools and capital investment leads to higher productivity growth.

Which of the following events would NOT shift the production function from Y1 to Y2 in the accompanying diagram of the Solow model?

physical capital accumulation

A law preventing industrial espionage _________ economic growth

promotes

The use of competitive markets to allocate goods and services __________ economic growth

promotes

What effect will an increase in interest rates have on the quantity of loanable funds supplied?

quantity supplied will increase

If workers worked less but produced the same amount, GDP would ____________________, and living standards would ___________.

remain unchanged rise

As a result of a stock market boom, individuals begin to feel richer and spend more while also saving less.

shift in supply

China decides to reduce its capital investment in the United States, as it expects low returns due to a weak U.S. economy.

Shift in supply

Select the definition of consumption smoothing.

borrowing in periods of low income and saving in periods of high income to make consumption less variable than income

Calopolis, a college town in Northern California, has for many years banned the presence of fast food restaurants in city limits. As of 2012, however, the city will allow several fast food companies to open franchised locations.

shift in demand

Which of the statements is the best description of a business cycle?

short-run movements (i.e. "fluctuations") in real GDP around its long-term trend

The source of the _______ for loanable funds is saving.

supply

Identify an example of consumption smoothing.

taking student loans, acquiring a mortgage to purchase a house, and depositing a portion of one's salary into a retirement account

If the projected rate of return for a project is less than the interest rate for a loan that is necessary to complete the project, how will the borrowing business act?

the business will not take out the loan

If school quality were to increase as a result of parental involvement, GDP would _________________________, and living standards would ________________.

remain unchanged rise

If volunteers cleaned a river used for swimming, GDP would _______________ , and living standards would ______________.

remain unchanged rise

f. Assume people dislike inequality. If income inequality decreases, GDP would ____________________, and living standards would ________________.

remain unchanged rise

If unpaid housework were formalized in GDP, GDP would _______, and living standards would ___________.

rise remain unchanged

Suppose the black market shrinks because firms shift to the formal sector, but production remains the same. GDP would ___________, and living standards would ________________

rise remain unchanged

Given improved production technologies, GDP would __________, and living standards would __________.

rise rise

If school quality increased as a result of the procurement of new equipment, GDP would ___________________, and living standards would _________________.

rise rise