MacroEconomics
In the absence of well-defined property rights, we would likely find
people with fewer incentives to take risks.
Economic decision-making often focuses on how a one unit change will impact the system. This type of analysis is known as:
marginal analysis.
The behaviors that these firms are attempting to model are the subject of:
microeconomics.
The ceteris paribus assumption means
other things equal
According to new growth theorists, increased population growth rates can lead to faster economic growth because
the larger the market the more incentive there is to innovate.
The inverse relationship between price and quantity demanded is often referred to as:
the law of demand.
The rate of growth in the productivity of capital is 1 percent, the rate of growth of capital is 2 percent, the rate of growth of labor is 1 percent, and the rate of growth in the productivity of labor is 3 percent. From this we know that
the rate of economic growth is 7 percent.
Full employment means
there is a level of unemployment consistent with "normal" frictions in the labor market.
What is the economic effect of price ceilings?
An effective price ceiling will lead to a shortage.
Which of the following will generate an increase in aggregate demand?
Government spending for the onset of a war.
Inflation is more harmful to people:
living on fixed incomes.
If the average annual rate of economic growth is 4 percent, approximately how long will it take for the nation's per capita real GDP to double?
17.5 years
India will sell ___________ of rice from the government stockpiles.
5 million tons
Using the expenditures approach to national income accounting, which of the following would be counted as investment spending?
A person in California buys a new house.
Which of the following statements is false?
A society that wants more in the future should consume more of its capital today.
Which of the following will cause an outward (rightward) shift in supply?
A technological improvement.
Economic growth as it is currently measured
A. does not consider spiritual, cultural or social difficulties that may arise from growth. B. understates actual economic growth since it does not adjust for changes in leisure. C. does not account for how increased per capita income is distributed across income groups.
Specialization and comparative advantage
A. lead to international trade and overall gains for the nations involved. B. lead to greater output even if you can do everything better than someone else. C.lead to greater productivity.
Which of the following is a true statement about comparing world incomes?
Adjusting world incomes for purchasing power gives a more accurate view than using market foreign exchange rates.
Consider the following statement based on a positive economic analysis that assumes that all other things remain constant. Falling gasoline prices will result in additional vacation travel. Which of the following (initially assumed constant) could occur and thus offset the stated outcome?
An increase in hotel taxes at popular resorts
Which of the following is a true statement about self-interest as used in the study of economics?
Any action can be based on self-interest if the person has some reason for the action.
According to the article, ___________ is hiring an economist to help its team of economists use existing data to "reveal ways to improve the company's service for buyers and sellers."
EBay Inc.
What is economic growth?
Economic growth is increases in per capita real GDP measured by its rate of change per year.
Which of the following is not a true statement about the impact of immigration on economic growth?
Economists agree that population growth through immigration is a drain on the economy because it lowers per capita GDP.
Which of the following statements is true?
Everyone can benefit when people specialize where they have a comparative advantage and then trade with each other.
An innovation is the same thing as an invention.
False
In the United States, a patent gives the inventor of a product the exclusive right to make, use, or sell the product for 50 years.
False
Nations with high tariff barriers have tended to have higher average annual rates of real GDP per capita growth since 1965.
False
Real standards of living can only go up with positive economic growth.
False
Suppose a government official is trying to decide whether or not to allow more immigration. Which of the following is not an aspect of the economic way of thinking that would apply in this decision-making process?
Flipping a coin.
According to the circular flow of income and output, which of the following is not true?
Goods, services and money all flow in one direction since money pays for the goods and services.
Which of the following factors could cause the economy to experience supply-side inflation?
Government laws which say that the average work week must be reduced by one hour every year.
Assume the cost of aluminum used by soft-drink companies increases. Which of the following correctly describes the resulting effects in the market for canned soft drinks?
II and III. I. The demand for soft drinks decreases. II. The quantity of soft drinks demanded decreases. III. The supply of soft drinks decreases. IV. The quantity of soft drinks supplied decreases.
b. What types of policies might Brazil implement to improve its growth prospects?
It should implement programs narrowly focused on promoting a higher literacy rate and broadly focused on a greater average educational attainment by its residents.
Which of the following will increase labor productivity?
Labor has more physical capital to work with.
The comparative advantage in meal preparation is held by
Mike
Which of the following measures will lower the natural rate of unemployment?
More high school graduates enter college without looking for employment right away.
Which of the following statements is not true?
Property rights encourage people to take fewer risks, making the economy more secure.
Using the expenditures approach to national income accounting, which of the following would be counted as consumption?
Residents of New York City buy food every week.
Brazil has a population of about 200 million, with about 145 million over the age of 15. Of these, an estimated 25 percent, or 35 million people, are functionally illiterate. The typical literate individual reads only about two nonacademic books per year, which is less than half the number read by the typical literate U.S. or European resident. Answer the following questions solely from the perspective of new growth theory: a. Which of the following best explains the implications of Brazil's literacy and reading rates for its growth prospects in light of the key tenets of new growth theory.
Since the development of human capital is an important determinant of economic growth, Brazil's literacy and reading rates suggests its potential economic growth rate is lower.
Why are politicians and economists concerned about the economic growth rate in the U.S.?
Small differences in the rate of economic growth can make large differences in the standard of living over time.
Steve can wash, fold, and iron a basket of laundry in two hours and prepare a meal in one hour. His roommate Mike can wash, fold, and iron a basket of laundry in three hours and prepare a meal in one hour. The absolute advantage in laundry is held by
Steve
According to economist Paul Romer, ideas are what drive economic growth.
True
According to new growth theory, more technological advances will occur when the rewards are greater.
True
In general, the more securely private property rights are assigned, the more capital accumulation there will be.
True
On a national basis, higher saving rates eventually mean higher living standards in the long run, all other things held constant.
True
Population growth can have both a positive and a negative impact on economic growth.
True
There are predictions that computers may become as powerful as the human brain by 2030.
True
The three fundamental economic questions that a nation addresses in order to allocate society's scarce resources include all of the following except:
Why will the items be produced?
An increase in the LRAS curve that is larger proportionately than an increase in the AD curve will lead to
a decrease in the price level and an increase in output.
Entrepreneurship functions better when
a system of private property rights permits entrepreneurs to capture the rewards from their entrepreneurial activities.
The expenditure approach to tabulating GDP
adds up the total amount spent on newly produced domestic goods and services during the year.
The development of modern rich nations can be characterized by three stages:
agricultural stage, followed by manufacturing stage, and lastly the tertiary stage.
Typically, modern developed countries have gone through three stages Initially countries have most of the population involved in Secondly, much of the population moves to Finally, there is a shift toward
agriculture Industry services
The economic way of thinking is best described as
an analytical framework enabling one to reach informed conclusions.
A simplified representation of a complex system dealing with economics is known as:
an economic model.
If prices fall for a particular good then consumers will:
buy more units. demand arrow goes down
Economics is the study of:
choices made when scarcity exists.
One of the most important factors for economic growth to take place is that a society must
consume less than they produce.
According to the text, firms encounter rising costs when they attempt to produce more in the same time period. As a consequence, they must be offered a higher price to be willing to incur these higher costs. The resulting relationship between price and quantity supplied is
direct (or positive) and is called the law of supply.
Labor productivity is normally measured by
dividing total real domestic output by the number of workers or by the number of labor hours.
Population growth generally
encourages technological progress that increases economic growth.
Mexico has a more open economy (lower tariff barriers) than Nigeria Thus it would be expected that the average annual per capita growth rate of real GDP would be higher in Mexico. Free trade encourages economic growth by
encouraging the more rapid spread of technology.
A country that saves a larger percentage of GDP than another country will, ceteris paribus
experience higher rates of economic growth since there will be more investment.
Economic goods are
goods that are scarce.
The knowledge and skills that people in the workforce acquire through education, on-the-job training, and self-teaching is referred to as
human capital.
Inflation that is higher than 50% per month is known as:
hyperinflation
Economic growth is positively related to all of the following except
import tariffs
For every 1 percent increase in the stock of research and development in the United States, productivity in the rest of the world
increases by about 0.25 percent.
In the long run, persistent deflation in a growing economy can occur if
increases in the LRAS are proportionately larger than the increases in AD.
Limiting the immigration of highly educated professionals hurts U.S. economic growth because
it restricts the supply of high human capital workers and the new ideas they could potentially generate. it restricts the knowledge base of the workforce.
According to the new growth theory
knowledge about how to produce goods and services is an important source of economic growth.
Improvements in ______ productivity, all other things being equal, lead to _________ economic growth and higher living standards. One fundamental determinant of the rate of growth is the rate of _________ . To have more consumption in the future, we have to __________ rather than consume. In general, countries that have had higher rates of _______ have had higher rates of growth in per capita real GDP.
labor; greater; saving; save; saving
According to Julian Simon,
legal and illegal immigrants have a positive effect on the welfare of American citizens.
To encourage economic development a country should do all of the following except
limit the amount of imports allowed in to the country.
Economic growth can be defined as the increase in _____ real GDP, measured by its rate of change per year. The _____ of economic growth are reductions in illiteracy, poverty, and illness and increases in life spans and political stability. The costs of economic growth may include environmental pollution, alienation, and urban congestion. Small percentage-point differences in growth rates lead to ______ differences in per capita real GDP over time.
per capita; benefits; costs; large
Total capital is the sum of
physical capital and human capital.
High levels of inflation can lead to:
political unrest.
Farmer McDonald has 100 acres of land on which he can grow soybeans or corn. An acre of land yields 200 bushels of soybeans or 100 bushels of corn or some combination of both. The accompanying figure refers to farmer McDonald's
production possibilities curve.
The economic development of a country is dependent on all of the following except
promoting protectionist barriers.
Government enforced property rights are crucial to economic growth because they
provide incentives for capital accumulation and entrepreneurial activity. B. encourage people to save knowing their wealth will not be arbitrarily confiscated. C. make the returns to risk-taking relatively more certain.
An economy's rate of economic growth equals
rate of growth of capital plus rate of growth of labor plus rate of growth in the productivity of capital and labor.
According to the real-balance effect, an increase in the price level
reduces an individual's expenditures due to a decrease in the real value of cash balances.
For economic growth to take place, a country must save. But, for saving to actually generate economic growth,
saving must be channeled into investment.
Other things remaining equal, the law of demand says that higher prices will lead to a
smaller quantity demanded and lower prices to a larger quantity demanded.
The division of productive activities among persons and regions so that no one individual or region is totally self-sufficient is known as
specialization.
The new growth theory argues that
technology must be considered a separate factor of production that is sensitive to economic incentives.
One reason that economists use microeconomics as the basis of macroeconomic analysis is
that all choices are made by individuals and firms.
An economic model is developed from a set of assumptions about consumer behavior and predicts that people will buy less of a good the higher the price of the good. Empirical testing of this model would involve
the collection of data to evaluate the usefulness of the model.
People may appear to use rules of thumb, as suggested by the assumption of bounded rationality, even though they may really be behaving in a manner suggested by the rationality assumption if
they face persistently predictable range of choices for a period of time.
New growth theory differs from traditional growth theory in that
traditional theory did not explain what causes improvements in technology, but new growth theory does.
Ph.D. economists have traditionally been hired by:
universities. government agencies. Wall Street firms.
All of the following are benefits of economic growth except
urban congestion
All of the following pairs of goods are substitutes except
we observe the price of bacon increases and the demand for eggs decreases.
All of the following pairs of goods are complements except
we observe the price of coffee decreases and the demand for tea decreases.
To which of the following household-type(s) does the phrase "unlimited wants and limited resources"
I, II, and III. A low-income household II. A middle-income household III. A high-income household