Econ- Test 2 study guide

Which of the following pairs of terms refer to the same thing?

"capital" and "physical capital"

If you put $1,000 in the bank today at an interest rate of 6% what is its value in two years?

$1,000(1.06)^2

Which of the following transactions adds to U.S. GDP for 2015?

All of the above transactions add to U.S. GDP for 2015.

Dilbert's Incorporated produced 6,000,000 units of software in 2010. At the start of 2011 the pointy-haired boss raised employment from 10,000 total annual hours to 14,000 annual hours and production was 7,000,000 units. These number indicate that productivity

fell by about 16.7%.

In determining living standards, productivity plays a key role

for both nations and individuals.

Which of the following statistics is usually regarded as the best single measure of a society's economic well-being?

gross domestic product

An article in the textbook suggests that one method to correct the higher education inefficiency is to

have college students sell equity in themselves.

During the current quarter, a firm produces consumer goods and adds some of those goods to its inventory rather than selling them. The value of the goods added to inventory is

included in the current quarter GDP as investment.

If an economy's GDP falls, then it must be the case that the economy's

income and expenditure both fall.

An increase in the saving rate would, other things the same,

increase growth more for a poor country than for a rich country, but raise growth temporarily.

When the quality of a good improves while its price remains the same, the purchasing power of the dollar

increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.

When a country removes trade barriers and imports appliances and exports engineering services,

it is essentially transforming engineering services into appliances.

Suppose that twenty-five years ago a country had nominal GDP of $1,000, a GDP deflator of 200, and a population of 100. Today it has nominal GDP of $3,000, a GDP deflator of 400, and population of 150. What happened to the real GDP per person?

it was unchanged

If Congress instituted an investment tax credit

it would make buying capital goods more desirable, so the demand for loanable funds would shift.

Which of the following is not a characteristic of a bond?

its dividend yield

International data on GDP and socioeconomic variables

leave no doubt that a nation's GDP is closely associated with its citizens' standard of living.

International studies of the relationship between GDP per person and quality of life measures such as life expectancy and literacy rates show that larger GDP per person is associated with

longer life expectancy and a higher percentage of the population that is literate.

Educational attainment tends to be

low in countries with high population growth

In the United States in the late 1970s, nominal interest rates were high and inflation rates were very high. As a result, real interest rates were

low, and in some years they were negative.

The primary economic function of the financial system is to

match one person's saving with another person's investment.

The CPI is calculated

monthly

When we express Babe Ruth's 1931 salary in today's dollars and compare his salary to those of current New York Yankee players, we find that the current median salary of today's Yankees is

more than four times Ruth's salary.

In 2015, U.S. net exports were

negative and about 3 percent the size of GDP.

If there is a shortage of loanable funds, then

the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium.

The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. Refer to Table 24-5. If the base year is 2006, then the inflation rate in 2005 was

%12.5

Investment from abroad is a way for poor countries to learn the state-of-the-art technologies developed and used in richer countries. often requires removing restrictions that governments have imposed on foreign ownership of domestic capital. is viewed by economists as a way to increase growth.

All of the above are correct.

Which of the following is correct? Technological progress has made once-crucial natural resources less necessary. Once adjustment is made for inflation, the prices of most natural resources have been about steady or falling. All of the above are correct. Technological progress has allowed us to substitute renewable resources for some nonrenewable resources.

All of the above are correct.

The table below lists the per gallon prices of gas and milk for the months of April, May, and June. Assume that the typical consumer buys 60 gallons of gas and 4 gallons of milk each month, and that April is the base period. Month Price of Gas Price of Milk April $2.00 $3.50 May $3.50 $3.25 June $3.85 $3.58 Refer to Table 24-9. What is the consumer price index for May?

166

Which of the following statements about inputs is correct?

A forest is an example of a natural resource; it is also an example of a renewable resource.

Table 24-10 The table below shows the prices of baseballs and baseball bats for three years. Assume the typical consumer's basket consists of 6 baseballs and 2 baseball bats. Year Price of aBaseball Price of aBaseball Bat 2008 $3.25 $75 2009 $3.75 $82 2010 $4.50 $96 Refer to Table 24-10. If 2009 is the base year, then the consumer price index was

90.88 in 2008, 100.00 in 2009, and 117.43 in 2010.

Which of the following is not included in GDP?

All of the above are included in GDP.

Refer to Table 23-3. What was Crete's investment in 2010?

$1491

If in some year nominal GDP was $18 billion and the GDP deflator was 120, what was real GDP?

$15 billion

The table below contains data for country A for the year 2010. Household purchases of durable goods$1293Household purchases of nondurable goods$1717Household purchases of services$301Household purchases of new housing$704Purchases of capital equipment$310Inventory changes$374Purchases of new structures$611Depreciation$117Salaries of government workers$1422Government expenditures on public works$553Transfer payments$777Foreign purchases of domestically produced goods$88Domestic purchases of foreign goods$120 Refer to Table 23-2. What were country A's government purchases in 2010?

$1975

In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If the inflation rate in 2007 was 16 percent, then how much did a magazine cost in 2007?

$2.08

Imagine that two years ago you inherited $20,000 and put it into an account paying a fixed 8 percent annual interest rate. How much money do you have in your account now?

$23,328.00

In the economy of Talikastan in 2015, consumption was $3000, exports were $1200, GDP was $8000, government purchases were $1200, and imports were $600. What was Talikastan's investment in 2015?

$3200

If the nominal interest rate is 6 percent and the rate of inflation is 10 percent, then the real interest rate is

-4 percent

Last year the imaginary nation of Freedonia had a population of 2,800 and real GDP of 16,800,000. This year it had a population of 2,700 and real GDP of 15,390,000. About what was the growth rate of real GDP per person between last year and this year?

-5 percent

Longview Corporation has a stock price of $60, has issued 1,000,000 shares of stock, has retained earnings of $3 million dollars, and a dividend yield of 5 percent. The price-earnings ratio for Longview stock is

10, which is low compared to historical standards of the market.

Table 24-1 The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. Year Consumer Price Index Inflation Rate 2005 100 2006 115 B 2007 125 C 2008 140 D 2009 A 10% 2010 160 E Refer to Table 24-1. What belongs in space D?

12 percent

If nominal GDP is $10 trillion and real GDP is $8 trillion, then the GDP deflator is

125, and this indicates that the price level has increased by 25 percent since the base year.

Table 23-9 A country produces only ice cream and pie. Quantities and prices of these goods for the last several years are shown below. The base year is 2008. Prices and Quantities Year Price of Ice Cream Quantity of Ice Cream Price of Pie Quantity ofPie 2008 $2.50 40 $5.00 20 2009 $3.00 50 $6.00 25 2010 $4.00 40 $6.00 30 Refer to Table 23-9. This country's inflation rate from 2009 to 2010 to the nearest tenth was

13.3%

Table 23-9A country produces only ice cream and pie. Quantities and prices of these goods for the last several years are shown below. The base year is 2008. Prices and Quantities Year Price of Ice Cream Quantity of Ice Cream Price of Pie Quantity ofPie 2008 $2.50 40 $5.00 20 2009 $3.00 50 $6.00 25 2010 $4.00 40 $6.00 30 Refer to Table 23-9. This country's inflation rate from 2009 to 2010 to the nearest tenth was

13.3%

Suppose the interest rate is 5 percent. Consider three payment options:1. $500 today.2. $520 one year from today.3. $550 two years from today. Which of the following is correct?

2 has the lowest present value and 1 has the highest.

Over the last century, U.S. real GDP per person grew at a rate of about

2 percent per year, so that it is now 8 times as high as it was a century ago.

If the nominal interest rate is 8 percent and the real interest rate is 5.5 percent, then the inflation rate is

2.5 percent

Countries that grew the fastest over the last 100 or so years had average growth rates of real income per person of about

2.5 percent per year.

Hit-It produces 320 baseball bats per day using 2 workers who each work 8 hours per day. What is Hit-It's productivity?

20 baseball bats per hour

Dobson Construction has an investment project that would cost $150,000 today and yield a one-time payoff of $167,000 in three years. Among the following interest rates, which is the highest one at which Dobson would find this project profitable?

3 pecent

The price index was 136 in one year and 142 in the next year. What was the inflation rate between the two years?

4.41 percent

Suppose you win a small lottery and you are given the following choice: You can receive (1) an immediate payment of $5,000 or (2) two annual payments, each in the amount of $2,700, with the first payment coming one year from now, and the second payment coming two years from now. You would choose to take the two annual payments if the interest rate is

5 percent, but not if the interest rate is 6 percent.

If the nominal interest rate is 9 percent and the real interest rate is 3 percent, then the inflation rate is

6 percent

When he was 18, Hussam put $100 into an account at an interest rate of 8 percent. He now has $158.69 in this account. For how many years did Hussam leave this money in his account?

6 years

At which interest rate is the present value of $80.25 one year from today equal to $75 today?

7 percent

If you presently have $50,000 saved and earn 15 percent interest per year, about how many years will it take for your investment to triple?

8

Melissa offers you $1,000 today or $1,500 in 5 years. You would prefer to take the $1,500 in 5 years if the interest rate is

8 percent

Susan put $375 into an account and one year later had $405. What interest rate was paid on Susan's deposit?

8 percent

If the inflation rate is 2 percent and the real interest rate is 7 percent, then the nominal interest rate is

9 percent

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $3 trillion

C = $7 trillion, G = $1 trillion

GDP is not a perfect measure of well-being; for example,

GDP fails to account for the quality of the environment.

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. Refer to Figure 26-1. Which of the following events would shift the supply curve from S1 to S2?

In response to tax reform, households are encouraged to save more than they previously saved.

You are expecting to receive $750 at some time in the future. Which of the following would unambiguously decrease the present value of this future payment?

Interest rates rise and you have to wait longer for the payment.

Use the following table to answer the following questions.Table 26-2 Stock Sym Yld % P/E Vol 1000s Hi Lo Close NetChg. Boeing Co. BA 1.90 19.83 10,325 105.65 103.10 101.87 -1.99 Eli Lily and Co. LLY 3.80 12.41 1,794 51.72 51.17 51.45 0.02 Kraft Foods Group KRFT 3.50 21.42 1,078 56.51 57.75 56.69 0.04 Kellogg Co. K 2.60 26.18 680 66.25 66.69 66.50 0.12 Refer to Table 26-2. Which company had the lowest dollar dividend per share?

Kellogg Co.

The information below for 2008 in millions was reported by the World Bank. On the basis of this information, which list below contains the correct ordering of GDP per person from highest to lowest? CountryGDP (Constant US$)GDP(Current US$)PopulationGhana7,69016,65323.35Kenya17,56930,35438.76Tanzania15,39420,49041.276

Kenya, Tanzania, Ghana

Which of the following restrictions implies that saving and investment are equal for a closed economy?

No restriction is necessary; saving and investment are equal for all closed economies.

Jennifer lives in a home that was newly constructed in 2011 for which she paid $240,000. In 2014 she sold the house for $260,000. Which of the following statements is correct regarding the sale of the house?

The 2014 sale affected neither 2014 GDP nor 2011 GDP.

Which of the following is not correct?

The consumer price index is used to measure the quantity of goods and services that the economy is producing.

Which of the following events could explain an increase in interest rates together with a decrease in investment?

The government budget went from surplus to deficit.

Which of the following statements about recessions is true?

There is no ironclad rule for the declaration of recessions.

Upland has a population of 15,000, of whom 9,000 work 8 hours a day to produce real output of $342,000. Lowland has a population of 8,000, of whom 7,000 work 7 hours a day to produce real output of $171,500.

Upland has higher productivity and higher real GDP per person than Lowland.

Which of the following is not a question addressed by macroeconomists?

What is the impact of foreign competition on the U.S. auto industry?

In which of the following countries did real GDP per person fall by about 13% from 2000 to 2014?

Zimbabwe

When the relative price of a good increases, consumers respond by buying

a smaller quantity of that good and a larger quantity of substitutes for that good.

All else equal, which of the following would tend to cause real GDP per person to rise? change from inward-oriented policies to outward-oriented policies an increase in investment in human capital strengthening of property rights.

all of the above

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. Refer to Figure 26-4. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 4 percent, then the equilibrium real interest rate is

between 6 percent and 8 percent.

Which of the following is a certificate of indebtedness?

bonds but not stocks

Scenario 26-3. Assume the following information for an imaginary, open economy. Consumption = $1,000; investment = $200; net exports = -$50;taxes = $230; private saving = $225; and national saving = $150. Refer to Scenario 26-3. This economy's government is running a

budget deficit of $75.

Over time, people have come to rely more on market-produced goods and services and less on goods and services they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has

caused measured GDP to rise.

The basic tools of supply and demand are

central to macroeconomic analysis as well as to microeconomic analysis

Daniel owns a coffee kiosk. All of his employees work 8 hours per day. In 2011, he employed 6 people who produced a total of 912 cups of coffee each day. In 2012, he hired a seventh employee and production increased to 1008 cups of coffee each day. In Daniel's kiosk, productivity

decreased by about 5.3 percent

The traditional view of the production process is that capital is subject to

diminishing returns

In the actual economy, households

divide their income among spending, taxes, and saving

Other things the same, which of the following could explain an increase in productivity?

either an increase in human capital or an increase in physical capital

U.S. GNP

excludes production of foreigners working in the U.S. but includes production by U.S. citizens working in foreign countries

Suppose an economy produces only iPhones and bananas. In 2010, 1000 iPhones are sold at $300 each and 5000 pounds of bananas are sold at $3 per pound. In 2009, the base year, iPhones sold at $400 each and bananas sold at $2 per pound. For 2010,

nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 76.83.

Suppose an economy produces only eggs and ham. In 2009, 100 dozen eggs are sold at $3 per dozen and 50 pounds of ham sold at $4 per pound. In 2010, the base year, eggs sold at $1.50 per dozen and ham sold at $5 per pound. For 2009,

nominal GDP is $500, real GDP is $400, and the GDP deflator is 125.

The inflation rate is defined as the

percentage change in the price level from the previous period.

An increase in the government's budget surplus means

public saving is greater than $0 and increasing.

An increase in the government's budget deficit means

public saving is less than $0 and decreasing.

If real GDP doubles and the GDP deflator doubles, then nominal GDP

quadruples.

In some countries it is time consuming and costly to establish ownership of property. Reforms to reduce these costs would likely

raise real GDP and productivity.

Suppose that a new government is elected in Eurnesia. The new government takes steps toward improving the court system and reducing government corruption. The citizens of Eurnesia find these efforts credible and outsiders believe these changes will be effective and long lasting. These changes will probably

raise real GDP per person and productivity in Eurnesia.

A country reported a nominal GDP of $85 billion in 2010 and $100 billion in 2009. It also reported a GDP deflator of 100 in 2010 and 105 in 2009. Between 2009 and 2010,

real output and the price level both fell.

A U.S. Treasury bond is a

store of value, but not a common medium of exchange.

A U.S. firm produces sweatshirts in the first quarter of 2010 and adds them to its inventory. In the second quarter of 2010 the firm sells the sweatshirts to consumers. In which quarter(s) does(do) these transactions raise consumption?

the second but not the first

Which of the following is an example of human capital?

the things you have learned this semester

You are given three options. You may have the balance in an account that has been collecting 5 percent interest for 20 years, the balance in an account that has been collecting 10 percent interest for 10 years, or the balance in an account that has been collecting 20 percent interest for five years. Each account had the same original balance. Which account now has the lowest balance?

the third one

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

their investments are being financed by someone else's saving.

Janet is a farmer. Which of the following are included in her human capital?

what she's learned from experience but not her tractor

Rapid population growth

may depress economic prosperity by reducing the amount of capital which each worker has to work with

In a closed economy, what remains after paying for consumption and government purchases is

national saving.

The inputs into production of goods and services that are provided by nature, such as land, rivers, and mineral deposits are called

natural resources

A COLA automatically raises the wage when

the consumer price index increases

Human capital is

the knowledge and skills a worker gains through education and experience

For an economy as a whole,

the market value of production must equal expenditure

The following table shows the prices of good X and good Y for 2013-2015. In addition, assume the basket of goods used to compute the Consumer Price Index consists of 3 units of good X and 4 units of good Y. ​ YearPrice of Good X ($)Price of Good Y ($)20132.001.0020143.002.0020154.003.00 ​ Refer to Table 24-15. The inflation rate in 2015 was approximately

​41%.

​In the simple circular-flow diagram, with households and firms, GDP can be computed

​as the income received by households, in the form of wages, rent and profit.

​Bob's new startup goes public and sells shares of future profits. Bob's startup is best described as a

​borrower or as a demander of funds.

The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. Year Price of aPillow Price of aHotdog 2009 $40 $3 2010 $45 $4 2011 $50 $3 Refer to Table 24-6. If the base year is 2011, then the economy's inflation rate in 2011 was

-3.3 percent

The information below for 2008 in millions was reported by the World Bank. On the basis of this information, which list below contains the correct ordering of GDP per person from highest to lowest?

Argentina, Peru, Bolivia