ECON 210 Exam 3 practice

Suppose an economy produces only the three final goods shown in the table. The table gives information on the quantities produced and price of goods sold in 2008 and 2009. What is the nominal GDP in 2009?

$31,400

Suppose the government enacts a $2 tariff; the total deadweight loss, from distortions of consumption and production that result from the tariff, is:

$350 million.

Refer to the figure. Suppose the local government is going to borrow 90 billions of dollars from the public. What will be the growth rate of the private investment:

-24%.

If the production function in a country follows Y = K2/3, the investment rate equals 0.20, and the depreciation rate is 0.05, then the steady-state level of output is equal to

16

The economy was in a steady state prior to period 7. What could have happened at that time to produce the changes shown in output, consumption and investment after period 7?

A natural disaster destroyed part of the capital stock.

What is meant by a nonrivalrous good?

Additional people can consume a good without diminishing another's consumption.

The primary reason that children are employed as labor worldwide is:

poverty in the child's family.

Creative destruction is similar to openness to foreign imports in all of the following ways except:

Both tend to decrease aggregate employment.

Refer to the bond price table, which bond yields the highest rate of return?

C

Refer to the figure. In the figure representing the market for leather, domestic suppliers are the high-cost producers of leather. However, import restrictions push domestic prices up to $100. Which area represents the value of wasted resources in production?

C

Commercial banks make profits primarily through:

the interest differential between deposits and loans.

Recent research (Fajgelbaum, et al. "The Return to Protectionism") on the 2018 U.S. import tariffs estimated, ". . . complete pass-through of tariffs to duty- (tariff-)inclusive prices." This finding is:

Consistent with the model studied in class, in which consumers bear the burden when import supply is perfectly elastic

Refer to the figure. In the figure representing the market for leather, domestic suppliers are the high-cost producers of leather. However, import restrictions push the domestic price up to $100. Which area represents the deadweight loss of consumption that results?

D

In economics, investment refers to:

the purchase of capital goods.

. The OECD's "Better Life Index," a social welfare measure studied in class, weight is put on all the following factors EXCEPT,

Income equality.

What has happened to the worldwide income distribution during the last 40 years or so?

It has shifted to the right ("richer") and become more equal.

Which panel shows the changes in output, consumption, and investment that would result from a one-time technological innovation without subsequent innovations?

Panel C.

. If a government wants to encourage its population to increase investment and entrepreneurship, it should do all of the following except:

Tax the returns on investment.

. Which of the following functions is NOT performed by commercial banks?

They organize initial public offerings for firms.

(Table: Small-Town GDP) Which of the four towns in this table has the lowest standard of living?

Town C

. Why are transfer payments not counted as part of GDP?

Transfer payments do not involve the purchase of a final good or service.

A car produced by the American company GM in a plant located in Canada would be included in:

U.S. GNP, but not U.S. GDP.

"The Solow model predicts that economic growth in poor countries should grow faster than rich countries." This statement is:

Uncertain. Growth rates depend, ceteris paribus, on how far or close countries are from the steady state.

Lehman Brothers, one of the largest investment banks in the United States, was one of the largest companies to go bankrupt in the 2008 financial crisis. Economists have identified that one of the main reasons it went bankrupt was because it

Was ultra-leveraged.

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

almost nonexistent.

A sound system produced by a supplier to Ford Motor Company, who installs it in one of its trucks, is an example of:

an intermediate good.

The theory of comparative advantage, recommending specialization in goods at which you have lower opportunity cost, applies to gains from trade:

at both the international level and the local level.

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

consumption and investment to fall.

The monetary base (MB) refers to:

currency plus total reserves held at the Fed.

Higher interest rates typically _____ borrowing, ceteris paribus

decrease

As a city rebuilds after a hurricane destroys most of its physical capital, the Solow model would predict growth in this region to be:

higher than average in the short run, but return to normal levels in the long run.

Suppose the reserve ratio is 20% for all banks. If the Fed increases bank reserves by $200, then the money supply will:

increase by $1,000.

A real dollar value, e.g., in GDP calculations, is one that corrects for:

inflation.

Capital growth is the difference between:

investment and depreciation

A bank is considered illiquid if:

it has short-term liabilities greater than its short-term assets, but overall assets greater than liabilities.

According to the Solow model, a higher saving- and investment rate leads to:

more capital and more output.

Trade:

moves jobs from import-competing industries to export industries.

In a steady state, the capital stock:

neither increases nor decreases.

A tractor built in 2001 and still in operation today is:

part of today's national wealth but not part of today's GDP.

. Which is NOT a function of the Federal Reserve?

providing loans to small businesses

If the Fed wants to increase the money supply, it will typically:

purchase additional government bonds.

Economic growth and improved standards of living are best measured by the growth rate of:

real GDP per capita

Financial intermediaries:

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

Relative to Japan, Argentina was _____ in 1950 and _____ in 2000.

rich; poor

When a person's income is greater than her spending on consumption goods, then she is:

saving.

When individuals become more willing to save, the:

supply of loanable funds shifts outward.

(Figure: Loanable Funds Market) Refer to the figure of the loanable funds market. At an interest rate of 6% in this market, there is a _____ of loanable funds of _____.

surplus; $320

The Fed loaned money to (investment bank) J.P. Morgan and (insurance company) AIG in 2008 because it was concerned about:

systemic risk, should these banks fail.

Economists advocate focusing subsidies on "basic science" because __________________ is their primary criterion for subsidizing research and development of new technologies.

the size of positive spillovers

Institutions and incentives are _____ causes, and factors of productions are _____ causes of the wealth of nations.

ultimate; immediate