ECON 202 Midterm

Each of the following ideas is central to economics, EXCEPT:

"good institutions can eliminate economic trade-offs."

Birmingham Steel sells steel to Winston Golf Club Manufacturers for $300,000. Winston sells its golf clubs to Academy Sports for $1,000,000. Academy Sports sells these golf clubs to consumers for $1,500,000. How much is added to GDP?

$1,500,000

If a country produced nothing but 20 smartphones and 10 Blu-ray players in 2017, priced at $100 per smartphone and $200 per Blu-ray player, its GDP in 2017 would be:

$4,000.

An economy has $10 trillion in consumption, $2.5 trillion in investment, $3 trillion in government purchases, $1 trillion in exports, and $1.5 trillion in imports. What is GDP in this economy?

(10+2.5+3+1-1.5) $15 trillion

The overall population for Region A is 93 million people. The labor force contains 47 million people, 32 million people are employed, and 15 million are unemployed. What is the unemployment rate? Round your answer to two decimals.

(15/47)= 31.90%

The table shows employment statistics for a fictional country. Use the information to answer the questions. Round your percentages to two decimal places. Employed 5505,Unemployed 482, Not in the labor force 571 What is the total labor force? What is the labor force participation rate? What is the unemployment rate? Suppose 256 of the 482 unemployed people have been unemployed for so long that they stop looking for work. What is the new labor force? What is the new labor force participation rate? What is the new unemployment rate?

(5505+482)= 5987 (5987/(5987+571))= 91.3% (482/5987)= 8.10% (5505+226)= 5731 (5731/(5731+827))= 87.40% (226/5731)= 3.90%

How many years does it take for output to double if the growth rate is 7% per year?

(70/7)=10

If a country has 5% real GDP growth and 5% population growth, what is the growth rate of real GDP per capita?

0%

The value of a car produced and sold in 2000 and sold again to a second owner in 2008 would be included in GDP for:

2000 only.

Use the production function of the hypothetical economy represented in the graph to answer the questions. What is the steady-state level of output? Suppose there is a natural disaster and the capital stock decreases to 100. What is most likely to occur to the growth rate of output per capita as the country begins to rebuild?

500 units increase as the country benefits from high marginal product of capital.

If nominal GDP is $6,250 and the GDP Deflator is 125, then real GDP = ?

5000

Which of the following choices best illustrates the concept of Adam Smith's "invisible hand"?

A Vietnamese farmer grows rice, an exporter ships it to the United States, and a grocer in New York sells it to a customer.

What is Smokey Mountain?

A garbage dump

Which of the following is the more important factor leading to economic growth and development?

Access to water-borne trade

Which of the following has contributed the most to "secular stagnation" of the economy?

Aging populations

How is the unemployment rate related to the opportunity cost of college?

As the unemployment rate increases, the opportunity cost of attending college falls because fewer opportunities for employment exist.

The hypothetical data in the table below displays the percentage that unemployment benefits replace take-home pay for workers in different countries. CountryFirst yearSecond yearAfter five yearsBelgium75%,70%,61%Finland70%,60%,55%Italy54%,50%,22% Australia40%25%10% Which country would you expect to have the lowest long-term unemployment rate?

Australia

In the article that I asked you to read, Pope Francis expressed disapproval of which of the following?

Capitalism

Which of the following statements correctly differentiates catching-up growth from cutting-edge growth?

Catching-up growth comes primarily from capital accumulation, while cutting-edge growth comes from technological development.

Which statement best explains why growth in China has been so rapid recently?

China began with very little capital, so its marginal product of capital was very high.

"Purchasing Power Parity" is used to adjust for which of the following?

Differences in the cost of living in different countries

Please classify the given groups of people as either employed, unemployed, or not in the labor force.

Employed those who worked during the previous week people temporarily away from their jobs due to illness people temporarily away from their jobs due to vacation Unemployed people who do not have a job but actively looked in the last four weeks Not in labor force full-time students people in active military service full-time home-makers people in prison retirees who neither have a job nor are looking for a job mental patients confined in institutions people who actively looked for a job during the last 12 months, but not the last four weeks

Which of the following creates the biggest "problem" when comparing GDP per-capita in the US to GDP per-capita in Europe?

Europeans "consume" much more leisure than Americans

Which transaction is not included in gross domestic product?

Francis receives her social security check.

Which of the following best explains economists' concern over their understanding the determinants of economic wealth?

Higher levels of wealth tend to generate better health and human rights outcomes across countries.

Securitization contributing to the Great Recession occurred in which market?

Home mortgages

The incorrect fundemental assumption that contributed to the financial crisis in 2008 was:

Housing prices would always rise

Deng Xioping was noted for which of the following?

Implementing economic reforms that raised millions out of poverty

Which of the choices is the best example of creative destruction? The typewriter industry goes bankrupt and lays off all its workers. In sharp contrast, the burgeoning electronic word processing industry hires 10,000 workers that same year. This type of unemployment resulting from the shift in industries would best be categorized under

In the past month, there were 20,000 layoffs but 22,000 new hires. structural unemployment.

Firms in the country of Merka, which experiences varying levels of unemployment over time, face a very competitive labor market. Classify the given events according to how each would affect Merka's unemployment rate.

Increase in the unemployment rate Increase in the minimum wage increase in union's influence Decrease in the unemployment rate decreased unemployment benefits introduction of employment-at-will doctrine

The textbook authors argue that which of the following will lead to increased rates of growth in the future?

Increased global wealth and population

Saying that we have the "best economy ever" is a normative statement because:

It cannot be tested empirically

Which of the following led Professor Gwartney to conclude that capitalism is a moral or ethical system?

It rewards service to others

Which of the following is most accurate?

Now is not a good time to buy a bond because interest rates are low and bond prices are high

Which statement about the effects of patents is TRUE?

Patents increase the incentive to research and develop new products but also increase monopoly power once the products are created.

Which of the following is TRUE about the life-cycle theory of savings?

People tend to borrow during the early years of their lifetimes, save during their prime working years, and dissave during their retirement years.

Why is saving so minimal in nations with a high population of AIDS victims?

People with a short life expectancy tend to save less.

Gwartney and Pope Francis have opposing opinions about capitalism. From what I asked you to read, what is at the root of their disagreement?

Pope Francis believes the "purpose" of an economy is to create a more equitable society while Gwartney believes the purpose is to increases consumer satisfaction.

From where do investment banks get their funds?

Private investors

Which of the following best describes the US economy for the 8-10 years BEFORE 2020?

Real GDP growth was slow but positive

Which of the following can be defined as saving, according to economics?

Sandra purchases a certificate of deposit from a bank.

Which of the following countries suffers from the "Resource Curse"?

Saudi Arabia

Which of the following are in the correct order?

Scarcity implies Choice implies Cost

Which of the following is one of the "Asian Tiger" economies that experienced rapid growth over the past several decades?

South Korea

Which of the following is an important economic principle that relies on the ability to trade?

Specialization

Adjustments for Purchasing Power Parity are made to account for which of the following?

Spending power

What was the basic message in the stories about Smokey Mountain?

Sweatshops have been a factor in promoting economic growth

Which of the following is most important in determining the interest earned on a long term bond?

The coupon value of the bond

Gini coefficients are used to measure which of the following?

The distribution of income

Employment laws can vary significantly by country. For instance, in the United States, many jobs are governed by the principle of employment at-will. Employment at-will is rarer in certain countries in Europe, such as Portugal. Regulation and collective bargaining impact labor markets to a larger extent in Europe than in the United States. How do European labor markets compare to the labor market in the United States as a result of these varying labor laws?

The labor market in Europe is less flexible than in the United States.

The Flying Geese model is used to describe which of the following?

The pattern of economic development accross countries

Dependency Ratios can be used to measure which of the following?

The percentage of the population supporting the economy

The Keystone Pipeline presents an example of which of the following?

The trade-off between protecting the environment and energy independence

What is a result of a high level of government corruption?

There are few entrepreneurs.

Which of the following would be included in GDP for the United States?

Toyota, a Japanese car company, producing cars in the United States

Which of the following is NOT one of the basic economic questions?

Why?

Insecure property rights in bank account deposits typically lead to:

a decrease in the supply of savings.

What are the institutions that help foster the appropriate incentives for economic growth?

a dependable legal system, property rights, and competitive and open markets

Adam Smith coined the term "invisible hand" to mean:

a metaphorical hand that leads individuals to promote social interest by pursuing self-interest.

Which is NOT an institution that leads to sustained long-term economic growth?

a more equal income distribution

(Figure: The Solow Model) If the production function shifts from Y1 to Y2 in the accompanying graph of the Solow model, then:

a new steady state will occur at K2.

According to the national spending approach, which of the following is counted in investment?

a restaurant buys a new wood-fired oven for baking pizzas

The cost of negative externalities that harm the environment, such as pollution costs:

are not included in GDP.

When two people voluntarily trade with each other:

both of them will be better off.

Crowding out occurs because the government increases the demand for loanable funds, drives up interest rates, and causes:

consumption and private investment to fall.

Conditional convergence refers to the tendency for:

countries with similar steady-state levels of output to grow faster when they're poor than when they're rich until their per capita GDP levels converge.

A leverage ratio is the ratio of:

debt and equity

Suppose that a baby boom occurs between the years 2025-2030, similar to the baby boom following World War II. What do you expect to happen to the labor force participation rate in the year 2090-2100, holding all else constant? The labor force participation rate will

decrease since the baby boomers will opt for more leisure.

An increase in government borrowing will cause the:

demand for borrowing to shift outward.

In the Solow model with constant technological knowledge (A), if investment exceeds depreciation:

economic growth will occur.

Which of the following is NOT a reason for the financial crisis of 2007-2008?

excessive confidence about the stock market

Gross domestic product is the market value of all:

finished goods and services produced within a country in a year.

The natural rate of unemployment equals

frictional unemployment plus structural unemployment

A grocery store is running a "buy-one-get-another-at-one-half-off" promotion on a dozen doughnuts. So the first dozen is $6, and the second would be $3. A person would buy the second dozen if their marginal benefit from the second dozen doughnuts is:

greater than $3.

In the Solow model with constant technological knowledge (A), when the economy reaches a steady state:

growth stops.

The 2003 Iraq War destroyed large amounts of capital. Later, insurgent activity continued to destroy capital and created instability in the government. Today, hostilities have waned and the government has become more stable. According to the Solow growth model, over the next few years we would expect to see growth rates in Iraq _____ those of high-income countries with similar institutions, followed by growth rates that are _____ the growth rates in those countries.

higher than; similar to

Both Gordon (Headwinds) and the Solow Model view which of the following as the key to continued economic growth?

ideas and innovation

Which of the following defines the "rules of the game" that structure economic incentives?

institutions

Economists speculate that China's rapid growth will eventually slow as:

its capital stock rises.

The buyer of a bond is a:

lender

Ideas are not rivalrous, meaning that:

many people can benefit from an idea at the same time.

The difference between nominal GDP and real GDP is that nominal GDP:

measures a country's production of finished goods and services at current market prices, whereas real GDP measures a country's production of finished goods and services at the same prices in all years.

Extensive growth comes from ________ while intensive growth comes from _______.

more resources; improved technology

The key to escaping the "iron logic" of diminishing returns in the Solow model is:

new ideas.

Classify each scenario according to whether it is an example of an active employment at-will doctrine. A tenured organic chemistry professor who cannot be fired despite being a horrible teacher. Cathy quits her job as a babysitter despite having only been hired three weeks ago, because she feels watching over eight toddler-sat once will cause her to lose too much sleep. Katherine, a waitress, gets fired from her job after spilling a hot bowl of French onion soup on a customer's shoe. Alex has a clause in his worker's contract stating that if he gets fired during a recession, he gets a severance package of half his salary paid for up to six months. Brian, who works for an educational software company, quits. He is not allowed to work for a competing software company for six months due to a clause in his contract. Wei-Cheng gets fired from his company for no reason other than that he is the only Asian worker.

no yes yes no no yes

The value of volunteer services is:

not included in GDP, but should be because a service is produced.

Bond prices and bond interest rates move:

opposite directions

Factors of production that contribute to growth in per capita GDP include:

physical capital, human capital, and technological knowledge.

Which of the following has the greatest potential for solving free-rider problems?

property rights

Among the most powerful institutions for supporting good incentives are:

property rights.

To compare levels of production from different years, the appropriate measure to use is:

real GDP.

Which of the choices is most directly related to cyclical unemployment?

recessions

Financial intermediaries:

reduce the costs of moving savings from savers to borrowers and investors.

A country increases its technological knowledge by engaging in:

research and development.

One of the best explanations for why some countries are rich and others are poor is that:

rich countries organize their factors of production more efficiently than poor countries do.

The process of bundling loans together and selling them on the market as financial assets is called:

securitization.

(Figure: Loanable Funds Market) Refer to the figure of the loanable funds market. At an interest rate of 3% in this market, there is a _____ of loanable funds of _____.

shortage; $320

Physical capital is the:

stock of tools, including machines, structures, and equipment, used to produce output.

Figure: Increased Production In the accompanying graph, which of the following events could cause the upward shift of the production function?

technological advancement

Which of the factors would decrease the rate of frictional unemployment? When the economy is doing well, a significant share of unemployment is frictional.

the advent of the Internet, which makes finding available jobs easier true

Diminishing returns to capital implies that _____ diminishes as more capital is added.

the marginal product of capital

Which of the following is an "institution" that promotes" new ideas" in the Solow Model?

the patent system

The production function is a mathematical function that shows:

the relationship between output and the factors of production.

The opportunity cost of a choice is:

the value of the opportunities lost

Which of the following is NOT a reason individuals typically choose to save?

to increase investment

The great economic problem is how to arrange our scarce resources:

to satisfy as many of our wants as possible.

According to modern monetary theory, increased government budget deficits:

will have little or no impact on the economy

Which agency is responsible for computing GDP?

Bureau of Economic Analysis

One benefit of trade is that it:

allows for increased specialization and mass-production techniques that lower per unit costs of production.

For most of recorded human history, long-run economic growth was:

almost nonexistent.

In the Solow model, if a country's saving rate (γ) increased from 10% to 12% and it was operating at its steady state before the change, we would expect to see:

an increase in both the capital stock and output.