ECONS exam 1
Disposable personal income is equal to
personal income minus personal tax payments.
Do producers tend to favor price floors or price ceilings? Why? Producers favor
price floors because, when binding, price floors increase price above the equilibrium and may increase producer surplus
Industries that produce
durable goods are more affected by recessions than is the economy as a whole.
Some economists argue that if we look beyond income to other measures of the standard of living, we can see that
even the poorest countries have made significant progress in recent decades.
The short-term unemployment that arises from the process of matching workers with jobs is called
frictional unemployment.
Crowding out occurs when
governments must borrow funds which causes interest rates to rise and thus private investment is reduced.
When examining the circular-flow diagram,
households can use some of their income to purchase goods from foreigners as imports.
The BLS surveys 30,000 households on their spending habits. The results are used to construct a market basket of goods and services purchased by the typical urban family of four. Which of the following categories make up the largest percentage of the market basket?
housing
Real GDP per hour worked is determined by
human capital, physical capital, and technology.
In the circular-flow diagram showing how a market system works,
income flows to firms through product markets.
Unemployment rates are
lower for college graduates than for people without a high school degree, and vary greatly among ethnic groups.
If inflation is expected to increase,
the nominal interest rate will increase.
According to BLS data, between November and December 2020, the unemployment rate in Georgia fell from 5.7 percent to 5.6 percent, while the number of people employed in the state fell by more than 25,000. Source: U.S. Department of Labor, Bureau of Labor Statistics, "State and Metro Area Employment, Hours, & Earnings." The state's unemployment rate could have decreased at the same time that employment in the state was decreasing because
the number of discouraged workers and other people not previously counted as unemploymed increased.
According to Joseph Schumpeter, which of the following factors provides entrepreneurs with the most important incentive to bring the factors of production together to start new firms and to introduce new goods and services?
the profits entrepreneurs hope to earn
The primary difference between a quota and a voluntary export restraint (VER) is that
the quota is unilaterally imposed by one nation on the other while the VER is the result of negotiations between nations.
When examining economic growth rates throughout history,
the world experienced little to no growth until the industrial revolution, after which some economies began to experience real economic growth.
a. The difference between microeconomics and macroeconomics is
microeconomics studies smaller parts of the economy such as markets and individuals, while macroeconomics studies the economy as a whole.
One of the lessons from the economic growth model presented in this chapter is that technological change is
more important than increases in physical capital in explaining long-run growth.
A politician makes the following argument: "The economy would operate more efficiently if frictional unemployment were eliminated. Therefore, a goal of government policy should be to reduce the frictional rate of unemployment to the lowest possible level." Eliminating all frictional unemployment
will not be good for the economy since the presence of frictional unemployment increases economic efficiency.
Consider the following statement: "An increase in supply decreases the equilibrium price. The decrease in price increases demand." The statement is
false: decreases in price affect the quantity demanded, not demand.
An article in the Wall Street Journal asks the question, "How can inflation be low when everything is so expensive?" The article also notes that "the CPI shows that prices are the highest they've ever been." Source: Josh Zumbrun, "5 Things You Always Wanted to Know about Inflation Statistics," Wall Street Journal, May 15, 2014. Is there a contradiction between a low inflation rate as measured by the CPI and the observations that prices are "the highest they've ever been" and everything is "so expensive"?
No, because the CPI and inflation measure only changes in the price level, not the absolute level of prices
Former President Barack Obama once described a trade agreement reached with the government of Colombia as a "'win-win' for both our countries." Source: Kent Klein, Obama: Free Trade Agreement a 'Win-Win' for US, Colombia, voanews.com, April 7, 2011. Is everyone in both countries likely to win from the agreement? Part 2
No, workers employed at companies that are less efficient than foreign companies will lose jobs.
Your father earned $34,000 per year in 1984. To the nearest dollar, what is that equivalent to in 2014 if the CPI in 2014 is 215 and the CPI in 1984 is 104?
$70,288
Prior to 1750 and the onset of Industrial Revolution, very little economic growth occurred in the world. What marks the beginning of the Industrial Revolution?
Adding mechanical power to the production process increased the quantity of goods each worker could produce. Your answer is correct.
Which of the following contribute(s) to shorter recessions, longer expansions, and less severe fluctuations in real GDP?
All of the above
In the diagram to the right, point C indicates an A. inefficient result. B. unattainable result. C. efficient result.
C. efficient result
If you were attempting to forecast the level of consumer spending by households, which measure of total production or total income might be most helpful in making your forecast?
Disposable personal income
What is the general relationship between the business cycle and unemployment and inflation?
During an expansion, unemployment falls and inflation increases.
Consider the supply of crude oil on the world market. In August 2011, the price of oil was roughly $80 per barrel. Which of the following changes would increase the supply of oil? Part 2 The oil supply curve would shift to the right if
Future oil prices were expected to be lower. Your answer is correct.
Which of the following does NOT lead to long-run economic growth
Increase in average wages
Since 1948, which of the following best describes the trend in the labor force participation rate
It is decreasing for men and increasing for women.
In a closed economy, the values for GDP, consumption spending, investment spending, transfer payments, and taxes are as follows: Y = $11 trillion C = $8 trillion I = $2 trillion TR = $1 trillion T = $2 trillion Using the information above, what is the value of private saving and public saving?
Private saving equals $2 trillion and public saving equals $0 trillion.
Which of the following can give an early warning of future increases in the price level?
Producer price index
In 2021, an article in the Wall Street Journal noted that the Chinese economy was experiencing "a trend of declining growth of productivity." The article also noted that declining productivity "poses a challenge to the leadership's goal of elevating China into the ranks of rich nations and lifting its living standards." Source: Linglin Wei, "China's Economic Recovery Belies a Lingering Productivity Challenge," Wall Street Journal, January 17, 2021. Why would a decline in productivity growth have the consequence the article describes?
Productivity growth increases a nation's per capita GDP which is a measure of a nation's standard of living.
What can low-income countries do in order to increase the amount of loanable funds available to firms for investment projects such as new factories or improved technology?
Provide savings incentives
As of 2021, 19 countries in Europe had adopted the euro as their common currency. These countries are called the euro zone. According to an article in the Wall Street Journal, "The eurozone's gross domestic product contracted by 0.7% in the three months through December from the previous quarter, resulting in an annual decline of 6.8% for the bloc in 2020, the EU's [European Union's] statistics agency said on Tuesday." Source: Tom Fairless, "Europe's Economy Falls Further Behind U.S. and China. 'It's Getting Desperate.'," Wall Street Journal, February 2, 2021. Is it likely that the article is referring to the change in nominal GDP or the change in real GDP?
Real GDP, because it shows how the economy's overall production of goods and services changes over time.
What effect do labor unions have on the unemployment rate?
Since few non-government workers are unionized, there is no significant effect on the unemployment rate.
Which of the following statements about the consumption component of GDP is not correct?
Spending on services is smaller than the amount of consumption spending on durable and nondurable goods.
Below are both a demand schedule and a demand curve. Which one is best suited to find the quantity demanded at a price of $4.00?
The demand schedule
Who is harmed when individual nations move from autarky to free trade?
The owners of the firms that went out of business.
Briefly explain whether you agree or disagree with the following statement: "If there is a shortage of a good, it must be scarce, but there is not a shortage of every scarce good."
The statement is correct because every good (except undesirable things) is scarce.
In The Wealth of Nations, Adam Smith discussed what has come to be known as the "diamond and water paradox": "Nothing is more useful than water: but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it." It is possible for the price of water to be much lower than the price of diamonds if which of the following is true?
The supply of water is greater than the supply of diamonds.
Suppose that the only good you purchase is premium bottled water and that at the beginning of the year, the price of a bottle is $2.00. Suppose you lend $1,000 for one year at an interest rate of 12.5 percent. At the end of the year, the price of premium bottled water has risen to $2.02. Part 2 Calculate the real interest rate on the loan. [11.5%]. (Enter your response as a percentage rounded to one decimal place.)
[11/5%]
a. The opponents of globalization contend that b. The use of trade barriers to shield domestic companies from foreign competition is call
a. globalization destroys cultures. b. protectionism.
Suppose that the GDP deflator for the United States increases from 115 to 120 between 2021 and 2022. Briefly explain what this information tells you about: i. The percentage change in the overall price level between the two years. Between 2021 and 2022, the overall price level measured by the GDP deflator increased by [4.35] percent. (Enter your response rounded to two decimal places.) ii. The percentage change in the real GDP between the two years. a. Between 2021 and 2022, the percentage change in real GDP between the two years was
[4.35] a. More information, such as the value for nominal GDP, is needed to answer this question.
Assume the figure to the right illustrates the market for houses for sale in a small city. Part 2 Suppose the market price of houses is $250,000. How large will the resulting surplus be? Part 3 At a price of $250,000, there will be 800800 surplus houses. (Enter your response as a whole number.) Part 4 What is the equilibrium price of houses? The equilibrium price is $150000150000. (Enter your response as a whole number.)
[800] [150000]
[Consumer] surplus is the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. This component of economic surplus is illustrated in the diagram by area [A]
[Consumer] [A]
Indicate which component of GDP will be affected by each of the following transactions involving General Motors. a. You purchase a new Chevrolet Silverado pickup from a GM dealer. [Consumption Expenditure] b. You purchase a 2019 (preowned) Chevrolet Silverado from a friend. [Not included in GDP calculation] c. GM purchases door handles for the Silverado from an auto parts manufacturer in Indiana. [Not included in GDP calculation] d. GM produces 1,000 Silverados in a factory in Flint, Michigan, and ships them to a car dealer in Shanghai, China. [Net Export Expenditure] e. GM purchases new machine tools to use in its Flint factory. [Investment Expenditure] f. The state of Michigan builds a new highway to help improve access to GM's Flint plant. [Government Expenditure]
[Consumption Expenditure] [Not included in GDP calculation] [Not included in GDP calculation] [Net Export Expenditure] [Investment Expenditure] [Government Expenditure]
Briefly explain how international trade increases a country's consumption. By specializing in the production of the goods and services in which they have [a comparative] advantage, countries allocate resources more efficiently. In other words, goods and services are produced at their lowest [opportunity] cost and world output increases. Since countries are producing goods and services at different opportunity costs, [terms of trade] can be negotiated that will allow all countries to consume more with trade than in autarky.
[a comparative] [opportunity] [terms of trade]
Consider the per-worker production function. Equal increases in the quantity of capital per hour worked lead to [diminishing] increases in output per hour worked.
[diminishing]
Some economists argue that the development of information technology (IT) caused the [higher] productivity growth that began in the mid-1990s.
[higher]
If the market price 'Pmkt' is below the price 'P0', then quantity supplied is [less than] quantity demanded and the market is in [shortage].
[less than] [shortage]
A production possibilities frontier (PPF) is
a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.
Which of the following events would shift the supply of smartphones to the right?
a decrease in the price of inputs used to produce smartphones
Consider the following data for a closed economy: Y = $12 trillion C = $8 trillion I = $1 trillion TR = $2 trillion T = $3 trillion Use the data to calculate the following. (Enter your responses as integers.) a. Private saving: (BLANK) trillion. b. Public saving: (BLANK) trillion. c. Government purchases: (BLANK) trillion. d. The government budget balance is (BLANK) trillion and as a result the government budget is in deficit.
a. 3 b. -2 c. 3 d. -2
In early 2020, before the arrival of the Covid-19 pandemic in Mexico, an article in the Wall Street Journal noted that real GDP had declined by 0.1 percent during 2019 and that some economists blamed the policies of Mexican President Lopez Obrador for the decline. The article quoted an analyst at the Goldman Sachs investment bank as stating that "Mexico, well managed and providing the needed incentives for domestic and foreign investment, could grow 3% to 4% easily." Source: Anthony Harrup, "Mexican Economic Output Shrank in 2019, Data Confirm," Wall Street Journal, February 25, 2020. a. Why would the Goldman Sachs analyst consider investment the key to Mexico increasing its rate of economic growth? b. Is foreign investment also a key to U.S. economic growth?
a. Government policies that encourage investment, both domestic and foreign, will result in higher economic growth rates. b. Yes, U.S. investors gain diversification benefits when U.S. firms engage in foreign investment in other countries.
a. All of the following are correct except b. Which component of gross domestic income is the largest?
a. Gross domestic income does not include health insurance benefits received by the employees. b. wages
a. Briefly define secular stagnation. b. Economists who forecast a future of secular stagnation believe that the [demand] for loanable funds may be low in coming years because c. As a result, the real interest rate that brings equality to the loanable funds market will be very [low] so investment spending will be very [low] .
a. It is an extended period of slow growth. b. the price of capital, particularly information technology goods such as computers, has been falling relative to the prices of other 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. a. What is the shadow economy? b. Why does the shadow economy matter?
a. It is the part of the economy where the buying and selling of goods and services is concealed from the government. b. Having a large shadow economy may be a sign that government policies are making it difficult for many businesses to operate openly.
a. Define "creative destruction." b. Briefly explain the role that it plays in economic growth. When creative destruction occurs,
a. It refers to the process of new technologies advancing living standards while destroying many existing firms. b. new products and new technologies may be created that improve worker productivity, ultimately increasing the growth rate of the economy in the long run.
In an opinion column in the Wall Street Journal, economist Douglas Irwin of Dartmouth College, noted that "the arrival of the pandemic has had a devastating impact on economic activity around the world. Global trade [during 2020] has shrunk accordingly, by 9.2%." Source: Douglas A. Irwin, "Globalization in Retreat," Wall Street Journal, December 16, 2020. a. Which people and industries around the world were likely hurt the most by this reduction in trade? b. Are there any people and industries who benefit when world trade declines?
a. Labor-intensive industries that exported goods from developing nations to developed nations. b. Yes, firms and individuals working in domestic industries that compete with imports will benefit from the reduced competition of declining trade.
According to an article on crainsnewyork.com, in 2018, the Metropolitan Museum of Art (the Met) in New York City had record attendance of 7.36 million, an increase of 5 percent over the previous year. During 2018, the Met had also increased the price of attendance. Source: Miriam Kreinin Sinclair, "Met Museum Attendance, Revenue up a Year After Imposing Fee," crainsnewyork.com, January 4, 2019. a. Can we conclude from this information that the demand curve for visiting the Met is upward sloping? b. The article also explained that New York City experienced an increase in the number of tourists during 2018 and that during the year, the Met offered several exhibitions that received good reviews. Does this additional information help you answer the question in part (a)?
a. No, it is much more likely that during 2018 there was an increase in demand for visits to the Met. b. Yes, this additional information reinforces the increase in demand for visits to the Met in part (a).
During the Covid-19 pandemic, local governments ordered some businesses, including restaurants, gyms, and movie theaters to close, resulting in those businesses laying off workers. An article in the Wall Street Journal noted that some of these employees had decided to go into business for themselves, primarily in a "wide array of service businesses, including home improvement, food, beauty and health." They noted that some of these new businesses were "part of an underground economy—often one-person, cash operations." Source: Kim Mackrael, "In the Covid Economy, Laid-Off Employees Become New Entrepreneurs," Wall Street Journal, November 18, 2020. a. What does the article mean by stating that these businesses were part of "an underground economy"? b. How did the existence of these businesses affect the measurement of U.S. GDP during the pandemic?
a. People are hiding the buying or selling of goods and services from the government. b. It would understate the U.S. GDP by even more than normal.
An article on cnbc.com in 2019 noted that some stock market investors had a "'late-cycle' psychology that says time and productive capacity are running low for this expansion." Source: Michael Santoli, "A 'Baby Bear' Market Scared the Fed into Pausing and History Shows That Can Lead to Big Comebacks," cnbc.com, February 4, 2019. a. What measure do economists use for the productive capacity of the economy? b. What were these investors assuming about the relationship between real GDP and potential GDP in 2019?
a. Potential GDP b. They assumed that real GDP was at or above potential GDP and expected it to start falling below potential GDP
In October 2020, Apple introduced the iPhone 12, which it sold for a higher price than the iPhone 11 it replaced. The iPhone 12 had a faster processor and a better camera than the iPhone 11, and the iPhone 12 was able to connect to the latest 5G mobile network, which the iPhone 11 could not. a. Because the new iPhone 12 replaced the older iPhone 11 in the basket of goods used to calculate the CPI, how did the higher price of the new iPhone 12 affect the CPI? b. if the iPhone 12 and iPhone 11 had had the same price, how would the introduction of the iPhone 12 have affected the CPI?
a. The CPI does not change. b. The CPI would have decreased.
Suppose the president is attempting to decide whether the federal government should spend more on research to find a cure for heart disease. a. What is the opportunity cost of spending more money to find a cure for heart disease? b. How should policymakers determine the amount of money that should be allocated for research curing heart disease? They should base their decision on
a. The reduction in funding for research to cure other diseases. b. whether the last dollar devoted to research on heart disease results in more benefit than the last dollar spent on research for curing other diseases.
In an opinion column in the Wall Street Journal, Alan Greenspan, former chair of the Federal Reserve, and Adrian Wooldridge, an editor at the Economist, argue, "The key to America's success lies in its unique toleration for 'creative destruction,' the destabilizing force described by the economist Joseph Schumpeter in 1942." Source: Alan Greenspan and Adrian Wooldridge, "How to Fix the Great American Growth Machine," Wall Street Journal, October 12, 2018. a. What is the success that the authors are referring to? b. Why might creative destruction be the key to that success? c. Why does "creative destruction" need to be tolerated? If it leads to a country's success, shouldn't everyone in the country support it? Briefly explain.
a. They are referring to the sustained growth in labor productivity and real GDP per capita over many decades. b. A majority of U.S. economic growth can be attributed to the introduction and the adoption of new technology. c. While creative destruction leads to a country's success, not everyone benefits from it. It can create opportunities for some firms but wipe out the markets for the products of other firms.
Deirdre McCloskey, an economist at the University of Illinois at Chicago, argues that: "A poor country that adopts thoroughgoing innovation...can get within hailing distance of the West...in about two generations." Source: Deirdre N. McCloskey, Bourgeois Dignity: Why Economics Can't Explain the Modern World, Chicago: University of Chicago Press, 2010, p. 122. a. What does McCloskey mean by a country adopting "thoroughgoing innovation"? b. What does she mean by a country getting within "hailing distance of the West"? c. A generation is usually considered to be about 25 years. In 2019, real GDP per capita in Italy was about $35,680 (measured in 2010 U.S. dollars), and real GDP per capita in Haiti was about $1,245. If Haiti adopted thoroughgoing innovation and as a result its average annual growth rate over the next 50 years increased to 6.5 percent, would Haiti end up with the level of real GDP per capita that Italy enjoyed in 2019? Hint: Use the following equation: Real GDP per capita2019×(1+g)50=Real GDP per capita2069, where g is the average annual growth rate expressed as a decimal. With a 6.5 percent growth rate, Haiti's real GDP per capita [would not] catch up with Italy as measured in 2019. Part 4 McCloskey also notes that: "[My previous observation] does not mean that catch-up is inevitable." d. Which of the following does not explain why low-income countries catching up with high-income countries isn't inevitable?
a. This refers to a country adopting the latest technologies. b. McCloskey means reaching a standard of living closer to the level of high-income countries. d. Globalization.
During an interview with a reporter, former Microsoft CEO Steve Ballmer discussed the data compiled on the usafacts.org Web site. Ballmer asked if the reporter knew how many people the government employed and provided the answer: "Almost 24 million. Would you have guessed that?" Source: Andrew Ross Sorkin, "Steve Ballmer Serves Up a Fascinating Data Trove," New York Times, April 17, 2017. a. Is local, state, and federal government spending on salaries and benefits for these employees considered production as measured by GDP? b. The federal government's Social Security Administration makes payments to retired and disabled people. In 2020, data from usafacts.org indicated that the average recipient received a payment of $1,470.60 per month. Is this federal government spending considered production as measured by GDP?
a. Yes, because the government purchases component of GDP includes spending on salaries and benefits for government employees. b. No, because Social Security payments do not result in the production of new goods and services.
Suppose that you are available to go to work but have not looked for a job for at least the last four weeks because you believe that there aren't any jobs available. a. You would be counted as b. Which of the following is the correct formula for calculating the unemployment rate?
a. a discouraged worker. b. (number of unemployed/labor force)* 100
Imagine that the curves shown in the accompanying figure represent two demand curves for traditional wings (basket of six) at Buffalo Wild Wings. Further assume that wings are a normal good. a. The movement from point A to B on D1 is caused by b. indicate which of the following could cause a movement from point A to C. (Check all that apply.)
a. an increase in the price of baskets of traditional wings. b. A rise in vegetarianism. AND A fall in the number of buyers.
a. Household production and the underground economy b. According to most economists, is it a serious shortcoming of GDP that it does not count household production or production in the underground economy?
a. are not accounted for in the Bureau of Economic Analysis' estimates of GDP. b. Most economists would answer "no" because these types of production do not affect the most important use of the GDP measure, which is to measure changes in total production over short periods of time.
According to an article in the Wall Street Journal, both the quantity of organic milk sold and the price per half gallon have been falling. Source: Heather Haddon and Benjamin Parkin, "Dairies Are Awash in Organic Milk as Consumers Jump to Alternatives," Wall Street Journal, January 2, 2018. a. Briefly explain whether the scenario can account for this outcome. The demand for organic milk and the supply of organic milk have both been decreasing. This scenario b. The demand for organic milk has been increasing, while the supply of organic milk has been decreasing. This scenario
a. can account for the price and quantity of organic milk both falling if the decrease in demand is large enough relative to the decrease in supply. b. can't account for the outcome of the price and the quantity of organic milk both falling because an increase in demand and a decrease in supply will both push the price of organic milk higher.
a. Which of the following is not a reason that the economy is considered to have been more stable in the 1950-2007 period than in other periods? b. During the last half of the twentieth century, the U.S. economy experienced
a. continually falling oil prices b. long expansions, interrupted by relatively short recessions.
A Wall Street Journal article noted that a study by the U.S. Congressional Budget Office "estimated raising the minimum wage to $10.10 an hour would reduce U.S. employment by 500,000 but lift 900,000 Americans out of poverty." Source: Julie Jargon and Eric Morath, "As Wage Debate Rages, Some Have Made the Shift," Wall Street Journal, April 8, 2014. a. The minimum wage might reduce employment because b. The minimum wage might raise some people out of poverty because c. These estimates influence the normative analysis of the minimum wage because they
a. employer costs would increase. b. it would increase the incomes of people who had minimum wage jobs previously. c. influence the judgement of policymakers and members of the general republic regarding this issue.
a. When a corporation purchases or builds a facility in a foreign country, it is called b. Which countries have experienced faster economic growth?
a. foreign direct investment. b. countries that have been generally more open to foreign trade and investment
The BLS defines a job quit as a "voluntary separation initiated by an employee." The BLS estimated that in December 2019, 3.5 million people quit their jobs, and in December 2020, 3.3 million people quit their jobs. Source: Bureau of Labor Statistics, "Job Openings and Labor Turnover Survey—December 2020," February 9, 2021. a. Unemployment caused by an increase in job quits would be classified as b. A decrease in the number of job quits would suggest that it is becoming
a. frictional unemployment. b. more difficult to find jobs because employees who leave voluntarily are less confident of finding another one.
Between 1950 and the mid-1990s, the United States experienced a much larger increase in the standard of living than the Soviet Union. a. This difference can be most attributed to the fact that the U.S. b. Which of the following is a reason the U.S. experienced larger economic growth than the Soviet Union? (Check all that apply.)
a. had a greater amount of technological change. b. the following: -The U.S. had a market economy that allowed for greater entrepreneurship to occur. -The U.S. had a greater amount of private property rights.
Consider the effect of each of the following on the unemployment rate: a. The minimum wage law b. The effect of labor unions on overall unemployment is [small] since only a [small] percentage of the labor force outside the government is unionized. c. An efficiency wage
a. has only a small effect on the unemployment rate since only a small part of the labor force earns the minimum wage. b. [small] [small] c. increases the unemployment rate since firms pay a higher-than-market wage that increases the quantity of labor supplied.
a. Which of the following are the two key groups of participants in the circular flow of income? b. In a simple circular-flow model, there are flows of _________ and flows of _________.
a. households and firms b. Both (a) and (b) are correct. (A. factors of production; goods and services B. funds received from the sale of factors of production; spending on final goods and services)
A Wall Street Journal article pointed out that China's rapidly increasing investment in residential property, particularly apartment houses, may "boost economic growth but restrain the country's long-term potential." Source: Mike Bird, "China's New GDP Data Shows the Economy's Biggest Vulnerability is Growing," Wall Street Journal, April 17, 2019. a. How might spending on building residential property increase economic growth in the short run? High rates of spending on residential property will lead to economic growth in the short run because b. Why might investment in residential property not lead to long-term economic growth? Investment in residential property might not lead to long-term economic growth due to __________ returns to capital. c. How is investment in residential property different from the type of investment that is required for long-term economic growth? To answer this question, determine whether the following statement is true or false. "Investment in residential property represents an increase in capital, whereas technological change is needed to sustain economic growth in the long run."
a. increases in capital per hour worked can lead to relatively large increases in real GDP per hour worked. b. diminishing c. True, because technological change allows an economy to produce more real GDP per hour worked with the same quantity of capital per hour worked.
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. a. During an economic expansion, we would normally expect the employment-population ratio to increase as the unemployment rate falls because b. During the recovery from the 2007-2009 recession, the employment-population ratio did not increase as much as it might have been expected to because
a. more people are likely to be employed. b. the recovery was sluggish and employment did not expand as rapidly.
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. a. The millions of workers leaving the job market for the reasons given are b. Even if they don't find a job right away, people entering the job market after graduating from high school or college will
a. not counted as unemployed in the BLS data because they are no longer actively looking for work. b. be counted as part of the labor force by the BLS if they are actively looking for work.
a. All of the following are problems in measuring the unemployment rate except that b. When there are part−time workers , the official BLS measure of the unemployment rate [understates] the true degree of unemployment. How accurate was the official unemployment rate during the early months of the Covid-19 pandemic? The official unemployment data for these months are likely to be [underestimates] of the true unemployment rate.
a. people on active military service are included as unemployed. b. [understates] [underestimates]
a. Producer surplus is b. How does producer surplus change as the equilibrium price of a good rises or falls? As the price of a good rises, producer surplus [increases], and as the price of a good falls, producer surplus [decreases].
a. the difference between the lowest price a firm would be willing to accept and the price it actually receives.
a. The law of demand is the assertion that b. An increase in the price of a product causes a decrease in quantity demanded because of the income and substitution effects. More specifically,
a. the quantity demanded of a product is inversely related to its price. b. the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods and the income effect is the decrease in quantity demanded owing to the decline in consumers' purchasing power.
a. What are private property rights? Private property rights are: b. What role do they play in the working of a market system? Private property rights: c. Why are independent courts important for a well-functioning economy? Independence is necessary for courts:
a. the rights individuals and firms have to the exclusive use of tangible, physical property and intellectual property. b. both a and b (A. encourage a significant number of people to be willing to risk funds by investing them in business. B. encourage firms to spend money on research and development.) c. all of the above
a. Long-run growth in GDP is determined by b. Technological progress is affected by (check all that apply)
a. capital, labor productivity, and technology. b. all of the following: -investment in capital -entrepreneurship -private property rights -new software developments
From a trough to a peak, the economy goes through
the expansionary phase of the business cycle.
a. The three types of unemployment are b. The type of unemployment most likely to result in hardship for the people who are unemployed is
a. frictional, structural, and cyclical unemploment. b. structural because this type of unemployment requires retraining to acquire new job skills.
The primary difference between absolute and comparative advantage is
absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost.
A country's rate of economic growth is important because
an economy that grows too slowly fails to raise the living standards of its citizens.
Online peer-to-peer rental sites
provide landlords and tenants another way to avoid rent controls.
Which of the following is the best measure of the standard of living of the typical person in a country?
real GDP per person
Potential GDP is
sometimes greater, sometimes less, and sometimes equal to actual real GDP.
When a firm increases output by either replacing existing capital with more productive capital or by reorganizing how production takes place, that firm is experiencing
technological change.
One of the great benefits of trade is
that it makes it possible for society to become better off by increasing its consumption.
Which of the following events marks the beginning of significant economic growth in the world economy?
the Industrial Revolution in England
Tax incidence is
the actual division of the burden of a tax between buyers and sellers in a market.
What is value added and how is it calculated? Value added refers to
the additional market value a firm gives to a product and is calculated as the difference between the sale price and the price of intermediate goods.