Econ Test 3

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Which of these statements about the benefits of economic growth is true?

Economic growth can help people at all income levels.

Which of these government policies can help economic growth?

Ensuring political stability and relatively little corruption

In the circular flow of expenditure and​ income, why must the total value of production in an economy equal the total value of​ income?

Every penny spent on a good or service must end up as someone's income

What happens if we measure GDP by adding up the value of every good and service produced in the​ economy?

GDP is overestimated because of double counting.

When a significant fraction of domestic production takes place in foreign-owned facilities, a country's difference between GDP and GNP is as follows:

GDP will be much larger than GNP

Why does the shadow economy​ matter?

Having a large shadow economy may be a sign that government policies are making it difficult for many businesses to operate openly

GDP is an imperfect measure of economic​ well-being because it fails to measure what types of​ production? Even if GDP included these types of production, why would it still be an imperfect measure of economic well being?

Household production and the underground economy. All of the above- Not crime adjusted- value of leisure not included- Not adjusted for pollution and unequal distribution

Which of these statements about interest rates and inflation is true?

If there is zero inflation, the nominal interest rate is equal to the real interest rate

The role of the entrepreneur becomes much more important in the new growth theoryLOADING...—the endogenous growth model—than in the traditional economic growth modelLOADING... because

In the new growth​ theory, entrepreneurs play a key role in the development and adoption of new and sometimes untried technologies.

When low income countries begin to experience economic​ growth, they often do so at rates much higher than current growth rates of industrial nations. Which of the following does not provide an explanation of this​ phenomenon?

Industrial countries have higher rates of growth in physical capital and developing countries are not able to invest in large quantities of capital.

Which of the following is not a cost created by high​ inflation

Inflation causes the real wage to fall which means that firms have to pay more for workers.

Which of these is not a shortcoming of GDP as a measure of welfare?

It only counts final goods and services and not intermediate goods

An article in the Wall Street Journal in​ mid-2019 noted,​ "Until now, Mexico has been seen as a winner in the trade dispute between the U. and​ China." ​Source: Santiago​ Pérez, "Trump's Mexico Tariff Threat Trips Up Manufacturers Shifting Out of​ China," Wall Street Journal​, June​ 2, 2019. What does the article mean by a​ "trade dispute"? How might Mexico gain from a trade dispute between the United States and​ China? Assuming the United States imposes tariffs on Chinese exports to the United​ States, Mexico benefits from the trade dispute because

It refers to the situation that occurs when two countries impose tariffs and​ non-tariff barriers on each other. only A and B are correct

Increases in the minimum wage will

increase unemployment among teenagers. lower; more stringent

Even though individuals earn interest on financial investments such as​ bonds, mutual​ funds, and certificates of​deposits, they may still hold wealth in checking accounts because

individuals need money that is available to be spent on goods and services

Which of these is (are) most likely to increase productivity?

investments in research and development

If inflation is anticipated, _________________.

it costs less to society than if unanticipated

The economic growth model predicts that the Have poor countries been catching up to rich​ countries?

level of per capita GDP in poor countries will increase faster than rich countries and the poor nations will catch up with the rich nations. There has been catch-up by some poor but industrialized countries

What is the relationship between investment and real interest rates, all other things being equal?

lower interest rates stimulate investment

The __________ the interest rate, the more investment projects firms can profitably undertake, and the __________ the quantity of loanable funds they will demand

lower; greater

In calculating the CPI, the _________________

market basket does not include large equipment purchased by firms

Which of these is a function that the financial system provides for savers and borrowers?

matching savers and borrowers

The consumer price index ___________________

measures the cost of an unchanging basket of goods and services

Which of these factors does not contribute to economic growth?

nationalization of foreign investments

Economic variables that are calculated in current year prices are referred to as __________ variables, while variables that have been corrected to account for the effects of inflation are __________ variables.

nominal, real

An article in the Wall Street Journal contained the following​ observation: "Every​ month, millions of workers leave the job market because of​ retirement, to care for children or aging​ parents, to pursue more​ education, or out of discouragement. Millions of others jump in after​ graduating." ​Source: Josh​ Zumbrun, "Labor-Market Dropouts Stay on the​ Sidelines," Wall Street Journal​, December​ 28, 2014. The millions of workers leaving the job market for the reasons given are

not counted as unemployed in the BLS data because they are no longer actively looking for work. be counted as part of the labor force by the BLS if they are actively looking for work

Inflation can affect the distribution of income because

people with incomes rising faster than the rate of inflation enjoy an increasing purchasing​ power, while people with incomes rising more slowly than the rate of inflation are hurt by a decreasing purchasing power

Disposable personal income is equal to personal income minus:

personal tax payments

The new growth theory states that The new growth theory differs from the growth theory developed by Robert​ Solow, since

firms will add to an​ economy's stock of knowledge capital by engaging in research and development or by contributing to technological change. the Solow growth theory focuses on technological change and the quantity of capital available to workers whereas the new growth theory states that accumulation of knowledge capital is a key determinant of economic growth.

A patent is government protection that gives an inventor exclusive rights to profit from their invention __________.

for a period of 20 years

When a firm buys or builds facilities in a foreign country it is known as:

foreign direct investment

When an individual investor or another firm acquires more than 10 percent ownership in a foreign firm it is known as __________.

foreign direct investment

When the economy is at full employment, which types of unemployment remain?

frictional and structural

The short-term unemployment that arises from workers, in the process of changing jobs, is called __________.

frictional unemployment

The BLS defines a job quit as a​ "voluntary separation initiated by an​ employee." The BLS estimated that there were 5.4 million job quits in March 2019. ​Source: Bureau of Labor​ Statistics, "Job Openings and Labor Turnover Survey—March ​2019," May​ 7, 2019. Unemployment caused by an increase in job quits would be classified as An increase in the number of job quits would suggest that it is becoming

frictional unemployment easier to find jobs because employees who leave voluntarily are confident of finding another one

Crowding out occurs when

governments must borrow funds which causes interest rates to rise and thus private investment is reduced

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. Which of the following is a reason the U.S. experienced larger economic growth than the Soviet​ Union? ​(Check all that​ apply.)

had a greater amount of technological change The U.S. had a greater amount of private property rights. The U.S. had a market economy that allowed for greater entrepreneurship to occur.

Economic growth initially leads to __________.

higher living standards

Before capital accumulation can take place, __________.

household savings must be converted into business investment

In the circular flow model, who supplies factors of production in exchange for income?

households

The flow of funds from _____________ into the financial system makes it possible for government and firms to borrow

households

Of the eight categories in the CPI market basket, which three categories make up more than 75% of the basket?

housing, transportation, and food

Labor productivity can be increased through investments in __________.

human capital

Unanticipated deflation __________.

hurts net debtors

Which of these government policies can help economic growth?

promoting the existence of an efficient financial system

The GDP per capita is computed by dividing a country's:

real GDP by it's population

The defining characteristic of long-run economic growth is:

rising productivity

An International Monetary Fund Factsheet made the following observation regarding sound financial​ systems: "A​country's financial system . . .​ help[s] channel savings into​ investment, thereby supporting economic​ growth." ​Source: "Financial System​ Soundness," International Monetary Fund Factsheet​, March​ 27, 2019. a. Briefly explain how the financial system channels savings into investment.

savers provide funds to firms by buying the firms' stocks and bonds and by depositing funds in banks

Economic growth will Some economies are able to maintain high growth rates despite diminishing returns to capital by using

slow down or stop if more capital per hour is used because of diminishing returns to capital better or enhanced​ technology, along with accumulating​ capital; these economies are growing because​technology, unlike​ capital, is subject to increasing returns.

The total national income actually received by a country's residents is:

smaller than the value of GDP

Which of these factors contributes to economic growth?

technological progress

The application of mechanical power to the production process that started in England around 1750 is known as:

the Industrial Revolution

The cycle of short-term ups and downs in the economy is called:

the business cycle

If technological change increases the profitability of new investment to firms, which of these will occur?

the demand for loanable funds will increase

Consider the following relationship: Y = f(K, L, A). To measure technological progress, we observe:

the impact of changes in A on K and L.

Capital can be differentiated between physical capital and human capital. Human capital is

the knowledge and skills workers acquire from education and training or from their life experiences

Gross domestic product is best defined as the:

the market value of all final goods and services produced in a country during a period of time

The labor force participation rate is calculated by

the percentage of the​ working-age population that is in the labor force or Labor forceWorking−age population×100.

When population growth results in a lower output per worker, it is an illustration of which key principle in economics?

the principle of diminishing returns

As the economy nears the end of an​ expansion, which of the following typically​ occurs?

the profits of firms will be falling, wages are usually rising faster than prices, interest rates are usually rising

Which of the following is included in the economist's definition of investment?

the purchase of new machines, factories, or houses

Which of the following is included in the​ economist's definition of​ investment?

the purchase of new​ machines, factories, or houses

The natural rate of unemployment is When the economy is at full​ employment, unemployment is equal to

the sum of frictional and structural unemployment the natural rate of unemployment

Which of these groups is included in the labor force?

the unemployed

Real GDP is:

the value of goods and services evaluated at base year prices

The type of inflation that is a greater problem to society is

unanticipated​ inflation, since it causes greater redistribution of income between those making payments and those awaiting payments in the future

The buying a selling of goods and services that is hidden from the government in order to avoid taxes and/or regulation is known as the:

underground economy

The natural rate of unemployment is the _______________

unemployment rate that results when the economy produces the potential level of real GDP

When​ Ségolène Royal was running unsuccessfully for president of​ France, she proposed that workers who lost their jobs would receive unemployment payments equal to 90 percent of their previous wages during their first year of unemployment. ​Source: Alessandra Galloni and David​ Gauthier-Villars, "France's Royal Introduces Platform Ahead of​Election," Wall Street Journal​, February​ 12, 2007, p. A.8. If this proposal were​ enacted, the unemployment rateLOADING... in France

would have gone up as the opportunity cost of job search would have decreased.

What are the four major components of expenditures in​ GDP?

​Consumption, Investment, Government​ Purchases, and Net Exports

Which of the following statements about compounding is​ correct?

Compounding magnifies even small differences in interest rates or growth rates over long periods of time.

To obtain prices of a representative group of goods and services, the Bureau of Labor Statistics (BLS) conducts a monthly survey of __________ households nationwide on their spending habits. The results of this survey are used to construct a market basket of __________ types of goods and services purchased by the typical urban family of four.

14,000; 211

If real GDP equals​ $11,567 billion in 2006 and​ $11,916 billion in​ 2007, and assuming population is constant over those two​ years, how many years will it take for real GDP per capitaLOADING... to​ double? 23.323.3 years. ​(Enter your response as a real number rounded to one decimal​ place.)

23.3

Which letter best represents the demand for factors of production in this circular flow model?

C

Which of the following is not counted as final goods and used in the GDP calculation?

Intermediate goods

An article in the Wall Street Journal has the headline​ "What Is the Shadow Economy and Why Does It​ Matter?" ​Source: Simon​ Constable, "What Is the Shadow Economy and Why Does It​ Matter?" Wall Street Journal​, March​ 5, 2017. Briefly answer the two questions asked in the headline. What is the shadow​ economy?

It is the part of the economy where the buying and selling of goods and services is concealed from the government.

Which of the following is the best example of human​ capital?

a worker gets a college degree

The process by which competition for monopoly profits leads to technological progress is called:

creative destruction

At full employment, ________________

cyclical unemployment is zero

The "normal or natural" underlying level of unemployment in the economy is the __________.

full employment rate of unemployment

Property rights have been determined to be a major factor that helps countries sustain economic growth. Governments can change laws and policies in order to give individuals and firms more freedom. By doing​ so, government can help promote growth because greater property rights

give entrepreneurs more incentive to take risks that create new​ products, ideas, and more technology.

Unemployment arising from a persistent mismatch between the skills and characteristics of workers and job requirements is called __________.

structural unemployment

Which of these will ensure an economy experiences sustained economic growth?

technological change

Which market basket specifically targets intermediate goods?

the basket used by the producer price index

Why do economists believe that setting a goal of zero percent unemployment is not feasible or​ desirable? Creating a goal of zero percent unemployment for an economy is not feasible nor is it desirable because

the economy needs short-term unemployment in order to allow for better matching of jobs with workers that possess the proper skill sets

To calculate personal income from national income, which of the following must be done by the BEA?

Add government transfer payments

Which of these demographic groups typically suffers from higher unemployment rates?

African Americans

If the CPI was 207 in 2007 and 225 in 2011, what pay raise would someone who earned $50,000 in income in 2007 have to receive in order to keep her purchasing power constant in 2011?

$4,348

Suppose the CPI in 2008 was 215.3 and the CPI in 2009 was 214.6, what was the inflation rate between 2008 and 2009?

-0.3 percent

Recessions cause the inflation rate to​ _________, and the unemployment rate to​ _________.

decrease, increase

Which measures of GDP represents changes in quantity of goods and services produced in the economy, holding prices constant?

Real GDP

An article in the Wall Street Journal ​notes, "Productivity improvements are a key ingredient for the U.S. economy to maintain a​ 3% growth​ rate, a goal of the Trump​ administration." ​Source: Eric​ Morath, "U.S. Worker Productivity Advances at Best Rate since​ 2010," Wall Street Journal​, May​ 2, 2019. a. What economic variable was the Trump administration hoping would grow at a rate of 3 percent per​ year? b. What is the connection between productivity growth and growth in the variable you identified in part​ (a)? Productivity refers to​ ____________, and increases in productivity are a key determinant of this​ variable's growth rate.

Real GDP he quantity of goods and services that can be produced per worker or per hour of work

In calculating​ GDP, which levels of government spending are included in government​ purchases?

Spending by federal, state, and local governments

Which of these will ensure that an economy experiences sustained economic growth?

Technological change

In measuring changes in the standard of living of a country, economists rely heavily on comparisons over time of real GDP per capita because:

despite its well-known flaws, it is the best means we have of comparing the performance of an economy over time

As the value of a country's real GDP increases, the country is likely to:

devote more resources to pollution reduction

The best measure of the income households actually have available to spend is

disposable personal income

Purchases of which types of goods are business cycles most likely to​ affect?

durable goods

Which of these government policies can help economic growth

ensuring political stability and relatively little corruption

A period of real economic growth, where production and employment are both moving higher is known as:

expansion

The economic growth model predicts that poor countries will grow __________ than richer countries.

faster

Which of these determines the supply of loanable funds?

The willingness of households and governments to save

In the 1961 edition of his​ best-selling introductory economics​ textbook, the late Nobel laureate economist Paul​Samuelson, noted that Soviet GDP might become larger than U.S. GDP by 1984. ​Source: Paul A.​ Samuelson, Economics​, New​ York: McGraw-Hill,​ 1961, Figure​ 37.1, as reproduced in David M. Levy and Sandra J.​ Peart, "Soviet Growth and American​ Textbooks: An Endogenous​ Past," Journal of Economic Behavior and Organization​, Vol.​ 78, No.​ 1-2, April​ 2011, p. 115. In​ 1961, why might a leading economist have expected the Soviet economy to eventually have become larger than the U.S.​ economy? Briefly explain why the Soviet economy failed to overtake the U.S. economy.

There were rapid increases in capital per hour​ worked, which led to rapid increases in real GDP per hour worked. The Soviet Union experienced diminishing returns to capital and a slower rate of technological advance.

Why does inflation make nominal GDP... a poor measure of the increase in total production from one year to the​ next? How does real GDP... deal with the problem inflation causes with nominal​ GDP?

When nominal GDP increases from year to​ year, the increase is due partly to changes in prices and partly to changes in quantities. All of the above

Which equation represents the relationship between GDP and the four major expenditure​ components?

Y = C + I + G + NX

Would the services of a real estate agent who helped sell​ (or helped​ buy) the house be included in GDP for​ 2021?

Yes. GDP for 2021 includes the market value of final goods and services. This includes real estate services.

What advice for finding a job would you give someone who lost his or her job because of machine​ learning? According to the​ BLS, in what category of unemployment would that person​ belong? If someone lost his or her job because of machine​ learning, that person would be considered

You should tell the worker that he or she needs to learn new skills or move to another city to find a job. structurally unemployed

What is a​ "tax perk"?

a "tax perk" is a decrease in a firm's tax obligation

Which of these is a financial intermediary?

a bank

Suppose you are available for work but have not looked for a job for at least the last four weeks because you believe that no jobs are available. You would then be counted as __________.

a discouraged worker

Which of the following goods or services would be excluded from personal consumption expenditures in the Bureau of Economic Analysis (BEA) statistics?

a new house

Which of these factors will cause the quantity of goods and services that can be produced by one worker, or in one hour of work, to increase?

a technological change

Which of these factors inhibit technological progress and growth?

closed economies

Which is the largest component of GDP?

consumption

How does the Bureau of Economic Analysis of the U.S. Department of Commerce measure GDP?

By adding the value in dollar terms of all the final goods and services produced domestically

Which of these do we subtract from GDP to obtain national income?

Depreciation

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

Suppose that the economy enters into a recession and​ that, as a​ result, Rusty Z. Wrench loses his job as a delivery truck mechanic and remains unemployed. When the economy​ recovers, Rusty's previous employer rehires him. What is the best classification for his time as an unemployed truck​ mechanic?

cyclically unemployed

The average German worker worked more than 400 fewer hours per year and earned nearly​ $13,000 less than did the average worker in the United States. Can we conclude anything about the​ well-being of the average German worker versus the​ well-being of the average worker in the United States from these​ data? What other measures would you like to see in evaluating the​ well-being of workers in these two​ countries? Can we conclude anything about the​ well-being of the average German worker versus the​ well-being of the average worker in the United States from these​ data? What measures besides average number of hours worked and real per capita GDP would you like to have to evaluate the​ well-being of workers in OECD​ countries?

No, because although the German worker earned less per​ year, they also worked less per year. Indicators of​ pollution, crime and other social​ problems, and the distribution of income.

Some economists argue that the apparent slowdown in productivity growth in the United States in recent years is a measurement problem resulting from the failure of GDP to capture the effects of many recent​ innovations, such as cloud computing. James​ Manyika, head of technology at McKinsey​ & Company, argues that for many of these​innovations, "we have all these benefits but​ we're not paying for​ them." ​Source: Timothy​ Aeppel, "Silicon Valley​ Doesn't Believe U.S. Productivity Is​ Down," Wall Street Journal​, July​16, 2015. Before the arrival of the​ Internet, people looking for​ facts, such as the population of France or the salary of the president of the United​ States, had to go to the library to look them up. Now people can find that information in a few seconds with a Google search. Are the benefits to you of being able to do a Google search included in​ GDP? It has been argued that the slowdown in U.S. productivity growth in recent years is just a measurement problem. Is your answer above consistent with that​ argument?

No, because the benefits are diffused throughout the economy. Yes, because the benefits are difficult to measure.

Suppose a house is built and sold in the year 2010. If the house is resold in the year​ 2021, is the value of the house included in Gross Domestic ProductLOADING... ​(GDP) for​ 2021?

No. GDP for 2021 includes only production that occurs during 2021

The role of technological progress in determining economic growth can be described by which statement?

Per capita output will rise when we discover new and more effective uses of capital and labor.

An article by Gary Burtless of the Brookings Institution​ noted, "From the perspective of​ workers, the U.S. unemployment insurance​ (UI) system is one of the least generous in the industrialized world. . . . The distinctive feature of the U.S. system is that benefits do not last very​ long." ​Source: Gary​ Burtless, "When the Next Recession​ Hits, Will Unemployment Benefits Be Generous​ Enough?" brookings.edu​, November​ 28, 2018. a. What are the costs and benefits to the U.S. economy of paying unemployment benefits for only a few months compared with paying benefits for a longer​ period, as Canada and countries in Western Europe​ do? Are the costs and benefits you discussed in part​ (a) different during an economic expansion than during an economic​ recession? Briefly explain

The benefit is that it increases the incentive for workers to find a job more​ quickly; however, workers may be forced to take jobs for which their skills are not well suited Yes, if unemployment insurance payments are available for only a short time during a​ recession, workers are likely to suffer large drops in income and the economy would suffer the results of the decrease in consumption spending.

The financial system—either financial markets or financial intermediaries—provides savers and borrowers with all of the following​ except:

The financial system provides security to savers by warranting that their funds are fully insured against loss.

We often use real GDP per capitaLOADING... as a measure of a​ country's well-being. Review the definition of real GDP per capita before answering the following question. ​Today, the typical American works fewer than 40 hours per week. In​ 1890, the typical American worked 60 hours per week. Would the difference between the real GDP per capita in 1890 and the real GDP per capita today understate or overstate the difference in the​ population's economic​ well-being?

The increase in real GDP per capita between 1890 and today understates​ well-being because the value of leisure is not included in GDP.

An article on the brookings.edu website quotes Akinwumi​ Adesina, the president of the African Development​ Bank, as asserting that​ "Africa is not going to be developed by aid. It will be developed by​ investment." ​Source: Landry​ Signé and Witney​ Schneidman, "Placing Investment at the Center of​ Africa's Development​ Strategy," brookings.edu​, December​ 3, 2018. a. What type of aid was Adesina referring to? b. What type of investment was he referring to? c. Why might he believe that investment would be more important to the development of African countries than would aid?

a. Cash transfers or​ low-interest loans from foreign countries. b. Foreign direct and foreign portfolio investment. c.It would give Africa access to technology and funds that otherwise would not be​ available, which is a key factor to economic growth.

The producer price index tracks the prices firms receive for goods and services at:

all stages of production

If a firm increases its use of capital while holding constant the number of workers employed, the firm is said to experience:

an increase in the physical capital

What does Levy mean by​ "contract enforcement"?

binding, and individuals and businesses that do not fulfill their end of the bargain will face repercussions.

An alternating period of economic contraction and economic expansion measured over time with real GDP is known as the:

business cycle

​Long-run growth in GDP is determined by

capital, labor productivity, and technology

The prediction that the per capita GDP of poor nations will eventually grow at a more rapid pace than the per capita GDP in rich nations is known as:

catch-up

In an interview with the Wall Street​ Journal, Prime Minister Narendra Modi of India stated​ that: ​"In two​ years, we have done a lot to position India to thrive in the changing​ world." He mentions that under his administration restrictions on foreign investment into India have been loosened. ​Source: Raymond​ Zhong, "India's Economic Growth Picks Up​ Pace, Accelerating to​ 7.6%," Wall Street Journal​, May​ 31, 2016. All of the following are reasons that would explain why loosening restrictions on foreign investment help position India to thrive except

if restrictions on foreign investment were​ loosened, it would decrease the need for Indian firms to save and invest.

If the inflation rate is anticipated, _______________________

inflation may not be a big problem

In discussing the labor market during the recovery from the​ 2007-2009 recession, Federal Reserve Chair Janet Yellen noted that​ "the employment-to-population ratio has increased far less over the past several years than the unemployment rate alone would​ indicate, based on past​ experience." ​Source: Janet L.​ Yellen, "Labor Market Dynamics and Monetary​ Policy," Speech at the Federal Reserve Bank of Kansas City Economic​ Symposium, Jackson​Hole, Wyoming​, August​ 22, 2014. During an economic​ expansion, we would normally expect the​ employment-population ratio to increase as the unemployment rate falls because

more people are likely to be employed the recovery was sluggish and employment did not expand as rapidly.

In an economy with rising​ prices, compared to the base​ year,

nominal GDP is larger than real GDP in years after the base year


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