Macro 251 Exam 1

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13 Kara can build two glass sculptures per day or she can design two full-page newspaper advertisements per day. Sara can build one glass sculpture per day or design four full-page newspaper ads per day.

Kara has a comparative advantage at glass sculptures and Sara has a comparative advantage at newspaper ads.

12 Kara can build two glass sculptures per day or she can design two full-page newspaper advertisements per day. Sara can build one glass sculpture per day or design four full-page newspaper ads per day.

Kara has an absolute advantage at glass sculptures and Sara has an absolute advantage at newspaper ads.

6 Which one of the following is included in the calculation of GDP?

Medicare

3 The world's average (mean) GDP per capita is $9,133. There are roughly 6 billion people in the world. About 20 percent of the world's population produces 50 percent of the world's total GDP. What is the average GDP per capita of the most productive 20 percent of the world's population?

about $22,900

11 The real cause of child labor is:

poverty.

12 Economists often refer to the "natural resource curse," by which they mean that large amounts of natural resources tend to create bad politics because as long as the oil keeps flowing, political leaders don't need to care much about what goes on in the rest of the country. Which of the five key institutions matters most to a leader of a resource-rich country?

political stability

2 The world's average (mean) GDP per capita is $9,133. There are roughly 6 billion people in the world. About 20 percent of the world's population produces 50 percent of the world's total GDP. How much GDP does the top 20 percent produce?

$27.5 trillion

1 The world's average (mean) GDP per capita is $9,133. There are roughly 6 billion people in the world. What is the world's total GDP?

$55 trillion

4 Around the world, about ________ people have incomes of less than $2 per day

1 billion

5 Practice with the rule of 70: If you inherit $10,000 this year and you invest the money so that it grows 7 percent per year, how many years will it take for your investment to be worth $20,000?

10 years

21 Solve Thinking and Problem Solving Question 7, Part c, on page 26. What exact number would you have to place in the empty cell of the table for it to be impossible that trade between the United States and South Korea could benefit both nations?

12.5

8 Use the rule of 70 to answer the question. Suppose that the annual growth rate of real GDP per capita is 5%. It will take _____ years for real per capita GDP to double from $40,000 to $80,000.

14

1 Erin has a choice between two activities: She can repair one transmission per hour or she can repair two fuel injectors per hour. The opportunity cost of repairing one transmission is:

2 fuel injectors

3 Deirdre has a choice between writing one more book this year or five more articles this year. The opportunity cost of writing half of a book this year, in terms of articles is:

2.5 articles

4 1995 GDP in 2005 Dollars = __________ × __________.

2005 Prices; 1995 Quantities

7 Practice with the rule of 70: If you inherit $10,000 this year and you invest your money so that it grows 7% per year, how many years will it take for your investment to be worth $160,000?

40 years

13 Let's figure out how long it will take for the average Indian to be as wealthy as the average Western European is today. Note that all numbers are adjusted for inflation. India's GDP per capita is $3,000, and let's say that real output per person there grows at 5 percent per year. Using the rule of 70, how many years will it take for India to reach Italy's current level of GDP per capita, about $24,000 per year?

42 years

6 Practice with the rule of 70: Suppose that you put your money into a savings account that grows at an inflation-adjusted return of 2 percent per year. How many years will it take for your money to quadruple?

70 years

2 Katie works at a customer service center and every hour she has a choice between two activities: answering 200 telephone calls per hour or responding to 400 emails per hour. The opportunity cost of responding to 400 phone calls is:

800 emails

1 Calculate the annual growth rate of nominal GDP in the following examples. Round to the nearest tenth of a percent for each (e.g., 1.2%, not 1% or 1.23%). If the number is negative, do not forget the negative sign. Nominal GDP in 1930: $97 billion. Nominal GDP in 1931: $84 billion.____% Nominal GDP in 1931: $84 billion. Nominal GDP in 1932: $68 billion. ____% Nominal GDP in 2000: $9,744 billion. Nominal GDP in 2001: $10,151 billion. ____%

Answer 1: -13.4 % Answer 2: -19.0 % Answer 3: 4.2 %

17 Solve Thinking and Problem Solving Question 5, Part b, on page 24. The opportunity cost of making one rotid in Mandovia is 0.5 taurons and 0.75 taurons in Ducennia.

Answer 1: 0.5 Answer 2: 0.75

19 Solve Thinking and Problem Solving Question 5, Part c, on page 25. Mandovia produces 10 million rotids and 5 million taurons. Ducennia produces 6.67 million rotids and 5 million taurons. As a whole, 16 million rotids and 10 million taurons are produced. If needed, round to the nearest hundredth of a million. For example, if the answer is 1,234,000, then your answer should be 1.23.

Answer 1: 10 Answer 2: 5 Answer 3: 6.67 Answer 4: 5 Answer 5: 16.67 Answer 6: 10

6 Calculate GDP in this simple economy: Consumer purchases: $100 per year Investment purchases: $50 per year Government purchases: $20 per year Total exports: $50 per year Total imports: $70 per year GDP: $ ___________ per year

Answer 1: 150

9 U.S. GDP is approximately $14 trillion. Currently 150,000 people in the United States earn over $1.5 million per year. If you could take their money and divide it up among the approximately 300 million other Americans, how much money could you give to each person every year? Note that $1.5 million is only the cutoff: On average, this group earns $3 million per year, so use that number in your calculations. You could give everyone $ ___________ per year

Answer 1: 1500

20 Solve Thinking and Problem Solving Question 5, Part d, on page 25. Total output amounts to 20 million rotids and 10 million taurons. Again, the unit of measurement is in millions (e.g., if your answer is "1,000,000," type "1").

Answer 1: 20 Answer 2: 10

7 We noted that "government purchases" don't include all government spending. A big part of what the U.S. government does is transfer money from one person to another. Social security (payments to retirees), and Medicare and Medicaid (paying for medical care for the elderly and the poor) make up most of these "government transfers." We'll look into this in more detail in Chapter 17, but right now, let's see how big "government transfers" are and how fast they've grown in the federal government's budget. The figures in this table are all in noninflation-adjusted dollars. Complete the table of Thinking and Problem Solving Question 3, on page 111. Round to the nearest one percent (e.g., 12%, not 12.3%). Transfers as percent of spending in 1950: ___________ % Transfers as percent of spending in 2000: ___________ % Growth in transfers: ___________ % Growth in federal spending: ___________ %

Answer 1: 32 Answer 2: 59 Answer 3: 7672 Answer 4: 4,107

2 In 2005 the U.S. economy produced approximately 12 million cars and light vehicles and 20 million personal computers. If the average price of a car was $28,000 and the average price of a computer was $1,000, the market value of the production of cars was $ 336 billion and the market value of computer production was $ 20 billion.

Answer 1: 336 Answer 2: 20

4 Using data from the Penn World Tables (the figure of Question 7 of Facts and Tools on page 132), calculate the annual growth rate of real GDP per person for China for 2001, 2002, 2003, and 2004. Make sure to round to the nearest tenth of a percent for each. You will receive zero points if you fail to round it correctly. 2001: ____% 2002: ____% 2003: ____% 2004: ____%

Answer 1: 9.7 Answer 2: 10.4 Answer 3: 9.8 Answer 4: 8.5

15 The primary topics of macroeconomics are ______________ and ______________. The concept of ______________ was developed to quantify the ideas of these two.

Answer 1: economic growth Answer 2: business fluctuations Answer 3: GDP

8 Corruption is a doubly bad tax because corruption makes it less profitable to be a(n) __________ at the same time as it makes it more profitable to be a corrupt __________.

Answer 1: entrepreneur Answer 2: politician/bureaucrat

13 2 / 2 pts Skip to question text. We increase _________ with education. We increase _________ with research and development.

Answer 1: human capital Answer 2: technological knowledge

3 Cars made in the United States at a Toyota factory are ___________ in U.S. GDP. Cars made in Germany at a General Motors factory are ___________ in U.S. GDP.

Answer 1: included Answer 2: not included

4 The price paid by a German tourist when staying at a New York hotel is ___________ in U.S GDP. The price paid by an American tourist staying at a Berlin hotel is ___________ in U.S. GDP.

Answer 1: included Answer 2: not included

4 In short, the key to producing and organizing the factors of production are __________ that create appropriate __________.

Answer 1: institutions Answer 2: incentives

2 Used textbooks sold at your college bookstore are ___________ in U.S. GDP. Used books sold at a garage sale are ___________ in U.S. GDP.

Answer 1: not included Answer 2: not included

11 The Industrial Revolution, centered in Great Britain, required a combination of multiple distinct advantages. Britain's status as an island, and the strong English Navy, protected the country against invaders and made __________ more secure. Labor markets had been relatively __________ for centuries and the ethic of the time encouraged commerce, entrepreneurship, and the accumulation of wealth. The growth of power of Parliament checked __________ and encouraged economic policies that allowed wealth to spread more widely.

Answer 1: property rights Answer 2: free Answer 3: royal tyranny

13 For each blank, choose "rise," "fall," or "stay the same." According to legend, some government employees do very little work. If this legend is true enough to be important, then we may be measuring GDP incorrectly. Officially, we say that these are "employed workers," but to a great extent, these "employees" are really unemployed in any useful task; they are receiving transfer payments and watching YouTube for 40 hours per week. If instead government statistics counted these YouTube-watching government employees as simply retired or unemployed, consumption would ___________, government purchases would ___________, and GDP would ___________.

Answer 1: stay the same Answer 2: fall Answer 3: fall

12 For each blank, choose "rise," "fall," or "stay the same." If U.S. government statistics counted people who are receiving unemployment benefits as people who are "government employees" hired to "search for work," consumption would ___________, government purchases would ___________, and GDP would ___________.

Answer 1: stay the same Answer 2: rise Answer 3: rise

11 For each blank, choose "rise," "fall," or "stay the same." If U.S. government statistics counted education spending by government as part of investment, consumption would ___________, investment would __________, and GDP would ___________.

Answer 1: stay the same Answer 2: rise Answer 3: stay the same

6 In the United States, we don't just have doctors - we have neurologists, cardiologists, gastroenterologists, gynecologists, and urologists. We also have dog walkers, closet organizers, and manicurists. It's common to dismiss the latter jobs as frivolous, but, from society's point of view, they are very important in producing the services offered by the medical specialists. Why?

Because dog walkers, closet organizers, and manicurists are the ones who give the neurologists the time they need to perfect their skills.

1 The key institutions promoting economic growth were property rights, honest government, political stability, a dependable legal system, and competitive and open markets. For every one of these institutions, the United States ranks higher than China. So why is China growing so much more rapidly than the United States?

China did not have to invent new ideas, technologies, or methods of management. All it had to do was adopt the ideas already developed in the rich countries.

7 Fit the following example into one of the reasons for trade. Former President Bill Clinton, a graduate of Yale Law School, hires attorneys who are less skilled than himself to do routine legal work.

Comparative advantage

14 Data can write 12 excellent poems per day or solve 100 difficult physics problems per day. Riker can write one excellent poem per day or solve 0.5 difficult physics problems per day.

Data has an absolute advantage at both.

1 There is debate about when the 2001 recession started. The official NBER starting date is March 2001, but data revisions have led many people to conclude that the recession actually started in late 2000. Why all the fuss about the timing?

Democrats want to show that the recession started in March 2001 while Republicans want to show that it started in late 2000.

6 Fit the following example into one of the reasons for trade. Two recently abandoned cats, Bingo and Tuppy, need to quickly learn how to catch mice in order to survive. If they also remain well groomed, they stand a better chance of surviving: Good grooming reduces the risk of disease and parasites. Each cat could go it alone, focusing almost exclusively on learning to catch mice. The alternative would be for Bingo to specialize in learning how to groom well and for Tuppy to specialize in learning how to catch mice well.

Division of knowledge

8 Before the rise of affordable automobiles and subways, many people used trolleys—small trains on rails that run along ordinary streets to get around in urban areas. On trolleys, there is a literal free-rider problem, since people could hop on and off very easily without paying. If free riders are a big problem, what will happen to the supply of trolley rides?

Fewer companies will offer trolley rides.

4 John Kay (1704-1780) invented the "flying shuttle" used in cotton weaving, the single most important invention launching the Industrial Revolution. Kay, however, was not rewarded for his efforts. For example:

His house was destroyed by "machine breakers," who were afraid that his invention would put them out of a job, Kay was forced to flee to France, and Kay died a poor man.

5 Of the three conditions that explain why a free market is efficient (from Chapter 4), which condition or conditions cease to hold in the case of a tariff on imported goods? I. The supply of goods is bought by the buyers with the highest willingness to pay. II. The supply of goods is sold by the sellers with the lowest costs. III. Between buyers and sellers, there are no unexploited gains from trade and no wasteful trades.

II and III

3 Ideas have some important and unusual properties. Which of the following is not a characteristic of ideas?

Ideas depreciate with greater use.

5 By definition, nominal GDP is ________ real GDP.

It depends on which year we choose as the base year.

14 What would happen to the incentive to produce new ideas if all countries imposed high tax rates on imports?

It would decrease because of the smaller markets.

8 Let's focus just on the lobbyists who are restricting trade. If the United States were to amend the Constitution to permanently ban all tariffs and trade restrictions, these lobbyists would lose their jobs, and they'd have to leave Washington to get "real jobs." Would this job change raise U.S. productivity or lower it? Which is more likely over time?

It would raise U.S. productivity.

1 The Japanese people currently pay about four times the world price for rice. If Japan removed its trade barriers so that Japanese consumers could buy rice at the world price, who would be better off and who would be worse off: Japanese consumers or Japanese rice farmers? If we added all the gains and losses to the Japanese, would there be a net gain or net loss?

Japanese consumers would be better off while Japanese rice farmers would be worse off. There would be a net gain.

18 Solve Thinking and Problem Solving Question 5, Part b, on page 24. Which country has a comparative advantage at manufacturing rotids? At making taurons?

Mandovia at rotids and Ducennia at taurons.

16 Solve Thinking and Problem Solving Question 5, Part a, on page 24. Which country has an absolute advantage at making rotids? At making taurons?

Mandovia has an absolute advantage at both.

9 In 30 minutes, Kana can either make miso soup or she can clean the kitchen. In 15 minutes, Mitchell can make miso soup; it takes Mitchell an hour to clean the kitchen.

Mitchell has a comparative advantage at miso soup and Kana has a comparative advantage at cleaning.

8 In 30 minutes, Kana can either make miso soup or she can clean the kitchen. In 15 minutes, Mitchell can make miso soup; it takes Mitchell an hour to clean the kitchen.

Mitchell has an absolute advantage at miso soup and Kana has an absolute advantage at cleaning.

14 The movement for "green accounting" has tried to reform GDP statistics to cover the environment more explicitly.

Most economists agree with the logic behind green accounting, but it is not done because environmental amenities are difficult to value.

8 The underground economy and other nonpriced production make it hard to accurately measure the precise level of GDP. If Ben Bernanke, the Federal Reserve chairman, is trying to find out whether the U.S. economy has gone into a recession, are the difficulties of measuring nonpriced production likely to be important problems for his purposes? (Though not required, make sure to explain your answer.)

No, they do not matter as much in measuring changes.

10 The textbook lists ____________, ____________, and ____________ as the primary factors of production.

Physical capital; human capital; technological knowledge

15 Data can write 12 excellent poems per day or solve 100 difficult physics problems per day. Riker can write one excellent poem per day or solve 0.5 difficult physics problems per day.

Riker has a comparative advantage at poetry and Data has a comparative advantage at physics.

6 Many people will tell you that, whenever possible, you should always buy U.S.-made goods. Some will go further and tell you to spend your money on goods produced in your own state whenever possible. (Just do a simple Google search for "Buy [any state]" and you'll find a Web site encouraging this kind of thinking.) The idea is that if you spend money in your state, you help the economy of your state, rather than the economy of some other state. By the same logic, shouldn't one buy only goods produced in one's own city? Or on one's own street? Where does this thinking lead to?

Self sufficiency

11 In one hour, Ethan can bake 20 cookies or lay the drywall for two rooms. In one hour, Sienna can bake 100 cookies or lay the drywall for three rooms

Sienna has a comparative advantage at baking cookies and Ethan has a comparative advantage at laying drywall.

10 In one hour, Ethan can bake 20 cookies or lay the drywall for two rooms. In one hour, Sienna can bake 100 cookies or lay the drywall for three rooms.

Sienna has an absolute advantage at both.

4 This chapter pointed out that trade restrictions on sugar cause U.S. consumers to pay more than twice the going world price for sugar. However, you are very unlikely to ever encounter bumper stickers that say things like "Out of money yet? Keep taxing foreign sugar!" or "Hungry? It's probably because domestic sugar is so expensive!" Why do you think it is that these bumper stickers are not popular?

The costs of the tariffs are relatively small for each individual as it is spread out among many, many people.

9 Let's focus just on the lobbyists who are restricting trade. If the United States were to amend the Constitution to permanently ban all tariffs and trade restrictions, these lobbyists would lose their jobs, and they'd have to leave Washington to get "real jobs." Would most of these lobbyists likely earn more or less right after the amendment was enacted?

The lobbyists would probably earn less.

9 Before the rise of affordable automobiles and subways, many people used trolleys—small trains on rails that run along ordinary streets to get around in urban areas. On trolleys, there is a literal "free rider problem," since people could hop on and off very easily without paying. What could the trolley industry do to solve the problem of free riders?

The trolley companies might hire an employee to check people's tickets and The trolley companies might put gates on the entrances (like the door to a bus).

10 Economists use the term "human capital" to refer to education and job skills. How is education like a piece of physical capital?

There is delayed gratification.

7 In 1992, labor activists discovered that Walmart was selling clothing that had been made in Bangladesh by subcontractors who had employed some child workers. Senator Tom Harkin angrily introduced a bill in Congress to prohibit firms from importing any products made by children under the age of 15. Harkin's bill didn't pass, but in a panic the garment industry in Bangladesh dismissed 30,000 to 50,000 child workers. Where did these children go?

To a worse job such as prostitution

4 American workers are typically paid much more than Chinese workers. This is largely because American workers are typically more productive than Chinese workers.

True

5 Julia Child, an American chef (and World War II spy) who reintroduced French cooking to Americans in the 1960s, was paid much more than most American chefs. This was largely because Julia Child was much more productive than most American chefs.

True

11 A citizen of Mexico who works temporarily in the United States adds to ________. An American who works temporarily in Mexico contributes to ________.

U.S. GDP; Mexican GDP

13 Who often are the biggest lobbyists for bills to restrict trade on behalf of "oppressed foreign workers"?

U.S. labor unions

14 According to Youssef Boutros-Ghali, Egypt's former minister for trade, when do industrial countries start feeling concerned about third-world workers?

When third world labor has proved to be competitive

3 Which of the following questions does Chapter 7 try to answer?

Why are some nations wealthy, while others are poor? Why are some nations getting wealthier faster than others? Can anything be done to help poor nations become wealthy? Chapter 7 tries to answer all of the above.

4 To economists, which one is not considered as investment?

You buy IBM stock.

1 Which of the following does not add to GDP?

a computer chip

5 A government spending on building roads is considered as:

a government purchase.

2 Differences in technological knowledge explain:

a small fraction of the differences in the wealth of nations but they are important for growth at the world level.

8 In 2009, about 18% of all children aged 5-14 around the world worked for a significant number of hours. The vast majority of these children worked in ________, and not in ________. Restrictions on trade, therefore, ________ directly reduce the number of child workers.

agriculture; export industries; cannot

10 Indian shirts are usually made by hand in small shops of three or four tailors:

because, until recently, large-scale production was illegal.

13 If China and India were as wealthy as the United States, people in the United States ________ because of _________________________________.

benefit; increased incentives to invest in research and development

1 Trade increases productivity through specialization and the division of knowledge. In other words, workers become more productive because they __________________________. Trade increases productivity through comparative advantage. In other words, workers become more productive because they __________________________.

can concentrate on producing only a few things; can concentrate on what they are good at can concentrate on what they are good at; can concentrate on producing only a few things

2 Catch-up countries grow primarily through _______________ while growth on the cutting edge is primarily about _______________.

capital accumulation and the adoption of simple ideas; developing new ideas

12 In 1954 the U.S. government declared that mohair, the fleece of the Angora goat, was vital for national security (it can be used to make military uniforms). For nearly 40 years the producers received millions of dollars in annual payments. Finally, after much ridicule, the program was eliminated in 1993 . . . only to be reestablished in 2002. This example:

casts doubt on the argument for restricting free trade based on national security.

2 Which of the following does not tend to increase with economic growth?

civil wars and riots

13 What makes trade profitable is differences in ___________ advantage, and a country will always have some __________ advantage.

comparative; comparative

2 When Medicare pays your medical bill, it is considered to be:

consumption spending.

3 The Bureau of Economic Analysis categorizes private spending on education as:

consumption spending.

2 In the 1980s when the U.S. price was four times the world price because of the U.S. tariff on sugar, Canadian entrepreneurs started _____________________ and exported it to the United States.

creating super-high-sugar iced tea

11 Which of the following is not an example of physical capital?

desks cell phones a GPS (global positioning system) receiver All of the above are examples of physical capital

2 In his book The Choice, economist Russ Roberts asks how voters would feel about a machine that could convert wheat into automobiles. This machine would ________ jobs in the auto industry and ________ jobs in other industries. Economists call this machine, "___________"

destory; create; international trade

3 Which of the following can explain the huge differences in wealth between North Korea and South Korea?

differences in institutions

13 The destruction of water aquifers, the accumulation of carbon dioxide in the atmosphere, or declining supplies of natural resources ________ the official GDP figure.

does not change

10 The Interstate Bakeries Corporation buys wheat flour to make into Wonder Bread. The purchase of wheat flour ____________ GDP.

does not change the value of

7 On eBay, you sell your collection of Pokémon cards. Your sale __________ GDP.

does not change the value of

10 The lesson of Figure 19.4 on page 425 is that __________ reduces child labor.

economic growth

1 To prevent the deaths of the children from diarrhea, Malaria, measles, other diseases in the developing world, what we need is one thing:

economic growth.

5 The phonograph destroyed jobs in the piano industry, CDs destroyed jobs in the record industry, and today MP3s are destroying jobs in the CD industry. With all these jobs being destroyed:

employment and the standard of living keep trending upward.

7 What's surprising about human history is that:

everyone in the past was poor.

11 Measured GDP will ________ if people decide not to work to consume more leisure.

fall

11 The theory of comparative advantage not only explains trade patterns but it also tells us something remarkable: A country (or a person) will always be the low-cost seller of some good. The reason is clear: The greater the advantage a country has in producing A, the ___________ the cost to it of producing B. If you are a great pianist, the cost to you of doing anything else is very ______.

greater; high

13 Throughout most of human history, a failure to grow ________.

is normal

8 Nations that have greater levels of corruption and higher tax rates usually have ________ levels of underground transactions. Therefore, their official GDP figures ________ the amount of production.

higher; understate

12 The typical person in the United States has about 12 years of schooling, while in Pakistan the typical person has less than 5 years of schooling. From this fact, we can say that the United States has more ___________ than Pakistan does.

human capital

8 The good aspect of imitation or spillovers is that _________________________. The bad aspect of imitation or spillovers is that _________________________.

ideas can be freely shared; the originator of an idea doesn't get all the benefits.

4 Trade does not eliminate jobs—it moves jobs from ________ industries to ________ industries.

import-competing; export

7 Patents ________ the incentive to research and develop new products, _______________ monopoly power once the products are created.

increase; but also increase

2 Sam was going to trash the old Fisher Price garage that his kids no longer play with. Instead, Sam sells it on eBay to Jen who pays $65.50. What had been worth nothing is now worth at least $65.50. The total value in society has ___________.

increased.

9 Studies have shown that more openness to trade ________ income and ________ child labor.

increases; reduces

15 A real variable is one that corrects for ________.

inflation

5 The United States is a leader in artistic, economic, and scientific innovations mainly because:

it has a very good cultural and commercial infrastructure for supporting new ideas and their conversion into usable commercial products.

9 If the United States did have the world's best climate for growing sugar:

it would make sense for the United States to design iPads and import sugar from Brazil if the United States had a bigger advantage in designing iPads than it did in growing sugar.

7 Economic growth in the modern era is primarily due to the creation of new _____________.

knowledge

9 In the United States, the portion of women who are in the official labor force has almost doubled since 1950, rising from 34% to about 60% today. As a result, mothers spend ______ time working at home than in 1950, but there are ______ nannies and house cleaners in the economy today. Therefore, the official GDP figure of 1950 ________ the amount of production relative to that of today.

less; more; understates

17 Workers in the United States often fear trade because they think that they cannot compete with _________ in other countries. Meanwhile, workers in low-wage countries fear trade because they think that they cannot compete with ________ countries like the United States.

low-wage workers; high-productivity

14 In the Soviet Union, especially in the early decades under Lenin and Stalin, the official doctrine was Communism, and the use of incentives was considered a form of treason. One important exception was the _____________ sector. Consider why it was important.

military equipment

8 A country has an absolute advantage in producing a good if it can produce _________ using ________________ another country.

more of it; less inputs than more of it; the same amount of inputs as the same amount of it; less inputs than Correct Answer All of the above.

5 Real GDP calculations become trickier, the longer the period we compare. In 1925, for example, what was the price of a computer? Economists and statisticians involved in computing real GDP must worry about the value of ________ goods and changes in the ________ of old goods. The more years that pass, the more difficult it is to determine how to adjust for those changes.

new; quality

3 When the media report that fourth-quarter 2006 GDP growth in annual terms was 2.2%, we are typically being told about the growth rate of ________ GDP. If we want to compare GDP over time, we should always compare ________ GDP, that is, GDP calculated using ________ prices in all years.

nominal; real; the same

6 Poverty is even more ________ when we think about human history.

normal

5 The distribution of world income tells us that poverty is ________ and wealth is ________.

normal; unusual

7 Some people argue for protectionism by pointing out that other countries with whom we trade engage in "unfair trade practices," and that we should retaliate with our own protectionist measures. One such policy is the policy of some countries to subsidize exporting industries. India, for example, subsidizes its steel industry. Obviously, U.S. steel producers are hurt by this policy and would like to restrict imported steel from India. For the U.S. economy as a whole, restricting imported steel from India is:

not a good policy because the losses suffered by steel buyers and other industries outweigh the benefits gained by the U.S. steel industry.

12 In the United States, the average workweek has fallen by 10% since 1964 (from 38 hours to about 34.5 hours per week). Individuals in other developed nations such as France, Germany, and the United Kingdom work less. Since leisure time is ________ to GDP, other things equal, the longer workweek will make the official U.S. GDP figure ________ the true standard of living compared with Europe.

not added; overstate

10 In India, women make up only 28% of the labor force, compared with 46% for the U.S. The output of the other 72% of Indian women is __________ in Indian GDP. Indian GDP statistics, therefore, __________ the real production of goods and services in India.

not included; understates

10 If Martha Stewart was the world's best ironer, she should:

not iron her clothes because the loss of not running her business due to ironing was greater and not iron her clothes because she did not have a comparative advantage in ironing her clothes.

5 In a primitive agricultural economy in which each person or household farms for themselves, each person has about the same knowledge as the person next door. In this case, the combined knowledge of a society of one million people barely exceeds that of ______________.

one person

6 The world's first MP3 player was the Eiger Labs's MP-Man introduced in 1998. Eiger Labs lost out in the race to innovate because:

other firms quickly copied the idea, other firms have the benefit of new ideas without having to pay the costs of development, and imitators have lower costs so they tend to drive innovators out of the market unless some barrier prevents quick imitation.

7 U.S. imports contribute to the GDP of _________. In GDP for the United States, we include U.S. ________ but subtract U.S. ________.

other nations; exports; imports

9 A tractor built in 2002 and still operating today is ________ of U.S. wealth ________ of today's GDP.

part; but not part

1 South Korea has a per capita GDP nearly 20 times higher than that of North Korea mainly because South Korea has more ____________________ per worker than North Korea.

physical and human capital

11 Economists often refer to the "natural resource curse," by which they mean that large amounts of natural resources tend to create bad politics because as long as the oil keeps flowing, political leaders don't need to care much about what goes on in the rest of the country. Which factor of production do you think matters most to a leader of a resource-rich country?

physical capital

14 GDP in 2005 was $12.4 trillion and GDP in 1995 was $7.4 trillion. Should we celebrate this roughly 70% increase in GDP? Before we celebrate, we would like to know whether the increase was due mostly to greater ________ —more cars and computers—or to increases in ________ between 1995 and 2005.

production; prices

4 Why can we get so much more food through trade than through personal production? The reason is that specialization greatly increases ___________.

productivity

15 In the model of Mexico and the United States in the chapter, after specialization and trade, the wage in Mexico is lower than the wage in the United States, both before and after trade, because the ________________ is lower in Mexico.

productivity of labor

5 What kinds of institutions encourage investment and the efficient organization of the factors of production? Understanding institutions is an important area of research in economics, and there is considerable agreement that among the key institutions are property rights, honest government, political stability, a dependable legal system, and competitive and open markets. Much of this textbook is about _______________ and the benefits of _______________.

property rights; competitive and open markets

8 Growth in ___________ is usually the best reflection of changing living standards.

real GDP per capita

9 Patents ________ spillovers and thus ________ the incentive to produce new ideas. They ____________ the spread of new ideas.

reduce; increase; slow down

6 Which of the following is counted in the calculation of GDP?

sales of newly built houses

6 Trade restrictions:

save visible jobs but destroy jobs that are harder to see.

12 Which of the following is not counted in the calculation of GDP?

services of real estate agents who sell old houses, services of used-car salespeople, and services of stock brokers all count in the calculation of GDP.

9 The rule of 70 is just a mathematical approximation, but it bears out the key concept that:

small differences in growth rates have large effects on economic progress.

15 In the world today, the number of scientists and engineers is relatively ________, which indicates a ________ potential for the creation of new ideas and economic growth.

small; large

3 Why does the government support the U.S. sugar tariff when U.S. consumers lose much more than U.S. producers gain? One clue is that the costs of the sugar tariff are spread over millions of consumers so the costs per consumer are ________. The benefits of the tariff, however, flow to a small number of producers, each of whom benefits by ___________. As a result, the producers support and lobby for the tariff much more actively than consumers oppose the tariff.

small; millions of dollars

7 According to the authors, what was the greatest antipoverty program in the history of the world?

switching to individual farming in China

10 Which of the following will not encourage the production of new ideas?

taxing R&D expenditures

14 U.S. farms today produce more than two and half times as much output as they did in 1950 and they do so using less land. Which of the following has been the primary factor for this increase in productivity?

technological knowledge

15 Suppose that an invention of the GPS technology has greatly increased agricultural production. All of the three primary factors of production have increased in the process: New knowledge of identifying locations (technological knowledge) is embodied in the GPS receivers (physical capital) and farmers need to learn how to use the receivers (human capital). Economists would probably argue that the main contributor to this increased output is:

technological knowledge

Use the table for Thinking and Problem Solving Question 7 on page 25 and the answer to the previous question. Any number less than the number in the previous question will give __________ the comparative advantage in airplanes. Any number higher than the number in the previous question will give __________ the comparative advantage in airplanes.

the United States; South Korea

12 Imagine that there are two diseases that, if left untreated, are equally deadly. One of the diseases is rare, the other one is common. If you had to choose, you would rather be afflicted with:

the common disease because pharmaceutical firms are more likely to develop drugs for it due to greater potential profits.

15 The biggest factor in the productivity boom of the 1990s in the United States was not a Silicon Valley high-tech firm but improvements in the retail and wholesale sector. Walmart alone was responsible for one-eight of these productivity gains. This example illustrates:

the difficulty of determining which industry is a key industry.

16 Ultimately, what determines the wage rate?

the productivity of labor

10 During World War II, the government did a good job measuring nominal GDP. But if the price level was calculated incorrectly, we might get a completely wrong idea about what happened with real GDP. During World War II, price ceilings were in place. That means that some things that would've been expensive were artificially cheap instead. Within a few years of the war's end, price controls finally ended, and the price level spiked up about 20%. If the true price level during the war was actually 20% higher than reported, that would mean that real GDP was ____________ the official number during the war.

the same as

11 Thomas S. Monaghan made a billion dollars producing pizza (he's the founder of Domino's), while mathematicians Ron Rivest, Adi Shamir, and Leonard Adleman didn't make nearly so much on their RSA algorithm even though their algorithm is used to encrypt data sent over the Internet and thus forms the backbone for all Internet commerce. The fact that __________ created more net social benefits indicates that we have _____ financial incentives to maximize net social benefits. This is the basis for ________ basic science.

the three mathematicians; less; subsidizing

9 In India, residents who purchase land often have to do so two or three times from different parties because:

there exists no reliable record of true ownership.

12 When people fear that a country can be outcompeted in everything:

they are wrong because it is impossible.

12 When the Pilgrims landed at Plymouth Rock, they established a system of collective farming in which all corn production was shared. Under the system:

they suffered from low agricultural productivity.

6 The Great Leap Forward in China was actually a great leap backward—agricultural land was less productive in 1978 than it had been in 1949 when the Communists took over. In 1978, however, farmers in the village of Xiaogang held a secret meeting. The essence of the farmers' agreement was:

to privatize the land.

3 What makes specialization possible?

trade

1 In September 1995, Pierre Omidyar, a 28-year old computer programmer, finished the code for what would soon become eBay. Searching around for a test item, Omidyar grabbed a broken laser pointer and posted it for sale with a starting price of $1. The laser pointer sold for $14.83. The main point of this example is that:

trade makes people better off.

14 In the model of Mexico and the United States in the chapter, after specialization and trade, the wage in Mexico has gone ____ and the wage in the United States has gone _____.

up; up

3 Spend some time driving in Detroit, MI—the Motor City—and you're sure to see bumper stickers with messages like "Buy American" or "Out of a job yet? Keep buying foreign!" or "Hungry? Eat your foreign car!" Domestic auto companies and their workers are hurt by imported automobiles, but _______________ benefit(s).

workers at the foreign auto companies, domestic buyers, and other industries in the U.S.


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