Macroeconomics HW#3 and HW#4

When incomes rise faster in the United States than in other counties,

U.S. net exports will fall.

An economy that does not experience increases in technological progress

can experience economic growth by increasing capital, however, this will eventually stagnate and the economy will not continue to grow.

Suppose the economy is currently in a recession and that economic forecasts indicate that the economy will soon enter an expansion. As a results,

expected profitability of new investment in plant and equipment increases and the demand for loanable funds rises.

For each of the following policies, indicate whether it will or will not increase the rate of economic growth in the United States. a. Congress passes an investment tax credit, which reduces a firm's taxes if it installs new machinery and equipment. It is likely that the rate of economic growth will _______.

increase

How would an increase in the growth rate of GDP in the BRIC nations (Brazil, Russia, India, and China) affect U.S. net exports? An increase in the growth rate of GDP in the BRIC nations (Brazil, Russia, India, and China)

increase U.S. net exports by increasing exports to these countries.

Net exports usually ________ when the U.S. economy is in a recession and ________ when the U.S. economy is expanding.

increase;decrease

If inflation in the United States is lower than inflation in other countries, then U.S. exports _______ and U.S. imports________, which _________.

increase;decrease;increases

When borrowers and lender believe that the forecast of economic expansion is accurate, the equilibrium real interest rate _________, the equilibrium quantity of loanable funds _________, and the quantity of saving and investment _________.

increases;increases;increases

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.

If real GDP per capita in Ireland is estimated to be $7,400 in 2014, what will real GDP per capita be in 2019 if real GDP per capita grows at a annual rate of 2.8% A.) $ 20,720 B.) $ 9,472 C.) $ 7,607 D.) $ 8,496

$7,400x(1+.028)^5 D.) $ 8,496

If real GDP per capita in the United States is $8,00, what will real GDP per capita in the United States be after 5 years at an annual growth rate of 3.2%? A.) $10,560 B.) $9,280 C.) $8,520 D.) $9,360

$8,000x(1+.032)^5 D.) $9,360

If real GDP per capita in the United States is $8,00 in 2013, and if real GDP per capita is $12,000 in 2023, what is the average annual percent change in the growth rate of GDP per capita between 2013 and 2023? A.) 4.1% B.) 85% C.) 33% D.) 15%

((12000/8000)^(1/10) -1) x 100 A.) 4.1%

Suppose your bank talks you into opening a saving account with them. The bank promises that if you put $10,000 in your account today, you will have $14,000 in your saving account 5 years from now. The average interest rate that the bank will pay you over this 5-year period is A.) 4% B.) 7% C.) 28% D.) 40%

((14000/10000)^(1/5) -1) x 100 B.) 7%

If CPI was 237 in 2015 and 151 in 1995, what was the average inflation rate over this 20-year period? A.) 2.3% B.) 57% C.) 7.8% D.) 9.2%

((237/151)^(1/20) -1) x 100 A.) 2.3%

If the marginal propensity to consume is 0.80, by how much will an increase in planned investment spending of $400 billion shift up the aggregate expenditure line? If planned investment spending increase by $400 billion, it will shift the aggregate expenditure line up by $___ billion. By how much will it increase equilibrium real GDP? Equilibrium real GDP will increase by $ ___ billion.

(1/1-.8)x400 400;2000

Refer to the diagram to the right. Suppose that investment spending increase by $10 million, shifting up the aggregate expenditure line and GDP increases from GDP1 to GDP2. If the MPC is 0.9, then what is the change in GDP? A.) $10 million. B.) $100 million. C.) $90 million. D.) $9 million.

(1/1-.9)x10 B.) $100 million

If labor productivity increased by 4%, technological progress was 3%, by how much must have the capital-to-labor ratio increased that year? A.) 2% B.) 1% C.) 4% D.) 3%

(4-3/(1/3)) D.) 3%

If disposable income falls by $50 billion and consumption falls by $40 billion, then the slope of the consumption function is A.) 1.20. B.) 0.80. C.) 0.70. D.) 0.10.

(40/50) B.) 0.80.

Use the following data to answer the question: Y = $8,000 C = $6,200 I = $1,500 G = $1,500 NX = -$500 The unplanned change in inventories is _____ and real GDP will ________.

-$700;increase

If the MPC is 0.5, then a $10 million increase in disposable income will increase consumption by A.) $5 million. B.) $50 million. C.) $15 million. D.) $2 million.

.5x10 A.) $5 million

Real GDP per capita in the United States grew from about $6,000 in 1900 to about $48,951 in 2008, which represents an annual growth rate of 1.96 percent. *Real-time data provided by Federal Reserve Economic Data (FRED), Federal Reserve Bank of Saint Louis If the United States continues to grow at this rate, it will take ____ years for real GDP per capita to double. If government economic policies meant to stimulate economic growth result in the annual growth rate increasing to 2.81 percent, it will take ____ years for real GDP per capita to double.

.7/.0196= 35.71 .7/.0281= 24.91 35.71;24.91

Suppose that government spending increases, shifting up the aggregate expenditure line. GDP increases from GDP1 to GDP2, and this amount is $200 billion. If the MPC is 0.8, then what is the distance between N and L or by how much did government spending change? A.) $16 billion B.) $40 billion C.) $200 billion D.) $1,000 billion

200/(1/1-.8) B.) 40 billion

Suppose real GDP grows by 8% this year. If labor increases by 6%, capital increases by 3%, how much is technological progress? A.) 1% B.) 2% C.) 3% D.) 0%

8-(2/3(6)+1/3(3)) C.) 3%

Refer to the diagram to the right. According to the diagram, at what point is aggregate expenditure greater than GDP? A.) L B.) J C.) K D.) None of the above.

B.) J

If the government changes its tax policy and taxes only real interest payment and not nominal interest A.) saving increases buy investment decreases. B.) both saving and investment increases. C.) both saving and investment decreases. D.) saving decreases buy investment

B.) both saving and investment increases.

Which of the following events marks the beginning of significant economic growth in the world economy? A.) the Bolshevik Revolution B.) the Industrial Revolution in England C.) the victory of Mao Zedong and the Communist Party in China in 1949 D.) the American Revolution of 1776

B.) the Industrial Revolution in England

For each of the following policies, indicate whether it will or will not increase the rate of economic growth in the United States. b. Congress pass a law that allows taxpayers to reduce their income taxes by the amount of state sales taxes they pay. It is likely that the rate of economic growth will _______.

increase

For each of the following policies, indicate whether it will or will not increase the rate of economic growth in the United States. c. Congress provides more funds for low-interest loans to college students. It is likely that the rate of economic growth will _______.

increase

The best measure of a country's standard of living is

GDP per capita.

If the U.S. economy is currently at point K, which of the following could cause it to move to point N?

The price level in the United States falls relative to the price level in other countries.

Suppose that the level of GDP associate with point K is potential GDP. If the U.S. economy is currently at point N,

the economy is in a expansion.

If firms are more pessimistic and believe that future profits will fall and remain weak for the next few years, then

investment spending will fall.

How would an increase in interest rates affect investment?

Real investment spending declines.

Consider two countries, A and B. In country A, real GDP per capita is $6,000. In country B, real GDP per capita is $9,000. Based on the economic growth model, what would you predict about the growth rates in real GDP per capita across these two countries?

The growth rate of real GDP per capita will be higher in country A than it is in country B.

If the marginal propensity to consume is 0.6, the marginal propensity to save is A.) 0.4. B.) 0.6. C.) 1. D.) 1.5.

A.) 0.4.

Which of the following policies would not help promote economic growth? A.) A law requiring that the funds in a individual retirement account be taxed. B.) A law restricting elected officials from accepting expensive gifts and trips from private individuals. C.) A law that subsidizes research in nanotechnology. D.) A law that funds prenatal care for all expectant mothers.

A.) A law requiring that the funds in a individual retirement account be taxed.

How can economic growth help a country combat "brain drain"? A.) Economic growth opens up opportunities for better jobs and higher incomes for skilled workers. B.) Economic growth allows highly skilled persons to earn more in a foreign country than in their native country. C.) Economic growth increases the incomes of low - skilled workers relative to high - skilled workers. D.) Economic growth combined with decreasing returns to human capital require workers to achieve steadily higher and higher levels of education over time.

A.) Economic growth opens up opportunities for better jobs and higher incomes for skilled workers.

Which of the following is not a main determined of net exports? A.) Expectations of future profitability in the United States. B.) The growth rate of GDP in the United States relative to the growth rates of GDP in other countries. C.) The exchange rate between the dollar and other currencies. D.) The price level in the United States relative to price level in other countries.

A.) Expectations of future profitability in the United States.

Which of the following does NOT lead to long-run economic growth? A.) Increase in average wages B.) Technological change C.) Improved labor productivity D.) Increase in the capital stock

A.) Increase in average wages

When aggregate expenditure is less than GDP, which of the following is true? A.) There was an unplanned increase in inventories. B.) Firms spent more on capital goods than they anticipated. C.) Households bought more new homes than they anticipated. D.) All of the above must be true when aggregate expenditure is less than GDP.

A.) There was an unplanned increase in inventories.

All of the following policies are ways for a country to promote long-run economic growth except A.) imposing stricter regulations to limit foreign direct investment. B.) increasing vaccinations against infectious diseases. C.) undergoing political reform to decrease corruption. D.) enacting stronger laws to protect property rights.

A.) imposing stricter regulations to limit foreign direct investment.

Refer to the diagram to the right. Based on the "catch-up line", poorer countries are more likely to be at a point like _, where growth in GDP is relatively ____, while richer countries are more likely to be at a point like _, where growth in GDP is relatively ___.

A;high;B;low

Capital can be differentiated between physical capital and human capital. Human capital is A.) the new development in machinery and software. B.) the knowledge and skills workers acquire from education and training or from their life experiences. C.) the energy use to bring together the factors of production to produce goods and services. D.) the goods manufactured to produce other goods and services.

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

What is the meaning of the 45˚ line in the 45˚-line diagram? In the 45˚-line diagram, the 45˚line shows A.) the equality of real consumption spending and real GDP. B.) real aggregate expenditure for varying levels of real GDP. C.) all the points where aggregate expenditure equals real GDP. D.) real consumption spending for varying levels of real GDP.

C.) all the points where aggregate expenditure equals real GDP.

You are an economic advisor to the president. You are asked to recommend a policy to promote long term economic growth in the economy. Which of the following policies would you choose? A.) a reduction in sales taxes B.) a reduction in taxes on luxury yachts C.) an investment tax credit D.) all of the above

C.) an investment tax credit

When aggregate expenditure is greater than GDP, A.) inventories rise, and GDP and employment decrease. B.) inventories are unchanged, and the economy is in macroeconomic equilibrium. C.) inventories fall, and GDP and employment increase. D.) There is not enough information to determine what will happen to inventories and GDP.

C.) inventories fall, and GDP and employment increase.

If Ebenezer Scrooge spends rather than saves his vast wealth he will A.) promote economic growth because he is increasing the amount of funds available for investment. B.) slow economic growth because he is increasing the amount of funds available for investment. C.) slow economic growth because he is reducing the amount of funds available for investment. D.) promote economic growth because hi is decreasing the amount of funds available for investment.

C.) slow economic growth because he is reducing the amount of funds available for investment.

Refer to the diagram to the right. Potential GDP equals $100 billion. The economy is currently producing GDP1 which is equal to $90 billion. If the MPC is 0.8, then how much must autonomous spending change for the economy to move to potential GDP? A.) -$18 billion B.) $18 billion C.) -$2 billion D.) $2 billion

D.) $2 billion

Why do economic growth rates matter? A.) High levels of sustained economic growth reduce infant mortality. B.) When a country sustains high growth rates, life expectancy at birth increases. C.) High growth rates coincide with improved living standards. D.) All of the above. E.) A and C only.

D.) All of the above.

Refer to the diagram to the right. Technological change is illustrated in the per - worker production function by a movement from A.) B to A. B.) D to C. C.) A to B. D.) B to C.

D.) B to C.

If a country's real GDP is rising by 3% per year while its population is rising at 5% per year, which of the following is true? A.) Growing in nominal GDP is less than the growth in the population. B.) The country's standard of living is rising. C.) Growth in nominal GDP outweighs growth in the population. D.) The country's standard of living is falling.

D.) The country's standard of living is falling.

Which one of the following is not a determinate of consumption spending? A.) Current disposable income. B.) Household wealth. C.) The interest rate. D.) The growth rate in the United States relative to the growth rates in other countries.

D.) The growth rate in the United States relative to the growth rates in other countries.

Which of the following is the best example of human capital? A.) a manager buys workers more personal computers B.) a manager devotes more spending to research and development C.) a worker pays less taxes D.) a worker gets a college degree

D.) a worker gets a college degree

The most important determinant of consumption spending is A.) household wealth. B.) the interest rate. C.) expected future income. D.) current personal disposable income.

D.) current personal disposable income.

A rise in stock prices and housing prices A.) reduces consumption due to increase in prices and causes the consumption function to shift downward. B.) increases household wealth which in turn increases consumption and leads to an upward movement along the consumption function. C.) does not affect consumption because they do not have any direct impact on disposable income. D.) increases household wealth which in turn increases consumption and leads to an upward shift of the consumption function.

D.) increases household wealth which in turn increases consumption and leads to an upward shift of the consumption function.

What are the four main determinants of investment?

Expectations fo future profitability, interest rates, taxes and cash flow.

What is the effect on inventories, GDP, and employment when aggregate expenditure (total spending) exceeds GDP?

Inventories decrease, GDP increases, and employment increases.

Refer the diagram to the right. If the economy is at point L, what will happen?

Inventories have risen above their desired level, and firms decrease production.

Based on the table to the right, which country has a higher standard of living and why? Country Sweden $3.85 9.05 Irland $2.23 4.21

Ireland has a higher standard of living because their GDP per capita is higher.

Find equilibrium GDP using the following macroeconomic model C = 1,500 + 0.50Y I = 1,500 G = 1,250 NX = -250 The equilibrium level of GDP is ____ billion.

Y = 4000 + .50Y Y - .50Y = 4000 (1 - .50)Y = 4000 Y = 4000/(1 - .50) Y = $8000

Consider the following data for a closed economy: *Y* = $14 trillion *C* = $8 trillion *I* = $1 trillion *TR* = $1 trillion *T* = $4 trillion Use the data to calculate the following. a. Private savings: __ trillion b. Public saving: __ trillion c. Government purchases: __ trillion d. The government budget balance is __ trillion and as a result the government budget is in _______.

a. 14+1-8-4 = 3 b. 4-1-(14-8-1) = -2 c. 14-8-1=5 d. -2;deficit