PSU ECON 104 L05-L07

Countries with high rates of economic growth tend to have

a labor force that is more productive.

An unplanned decrease in inventories results from

actual investment that is less than planned investment

Because firms can free ride on the research and development of other firms

firms choose a level of research and development where the marginal cost of research is below the economy's marginal return of research.

Assume that, holding all else constant, taxes on businesses start to rise. If this is true, then

investment spending will fall.

The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as:

labor productivity

A good measure of the standard of living is

real GDP per capita

U.S. net export spending falls when

the value of the U.S. dollar increases relative to other currencies.

Because of diminishing returns, an economy can continue to increase real GDP per hour worked only if

there is technological change.

Technological advances generally result in

increased life expectancy

There has been catch-up among ________, but there has not been catch-up among ________.

industrialized countries such as Japan; all countries of the world

Technological change is illustrated in the per-worker production function in the graph above by a movement from:

Point B to Point C

Within a country, the impact of wars and revolutions and their subsequent destruction of capital is reflected in the per-worker production function in the graph above by a movement from:

Point C to Point A

If the U.S. economy is currently at point B, holding all else constant, which of the following could cause it to move to point D?

Government expenditures increase.

The fictitious country of World Campustan saw its GDP per-capita increase from $36,015 in 2017 to $37,944 in 2018. What was the growth rate in 2018? Enter percentage and round to 2 decimal places. Do not include the percent-sign. For example, if your answer is 5.347% you would enter 5.35

5.36 37,944 - 36,015 = 1,929 1,929 / 36,015 = 0.05356 x 100 = 5.36

Using the following data, calculate government purchases for a closed economy. Please round to 1 decimal place. Y = 13.8 C = 6.5 I = 1.7 TR = 1.3 T = 3.5

5.6

Using the following data, calculate private savings for a closed economy. Please round to 1 decimal place. Y = 13 C = 6.5 I = 2.6 TR = 1 T = 1.7

5.8

You're given the following two equations representing the market for loanable funds: QL = 12.7 + 3.3r QL = 94.5 - 3.2r What is the equilibrium quantity of loanable funds? Please round to 1 decimal place.

54.2

In this lesson, we used the terms ____________________ when talking about knowledge capital and physical capital.

ideas and objects

In early 2020, the world was faced with an outbreak of the Corona Virus which halted labor productivity around the globe, specifically in China. What impact would this have on the per-worker production function for the economy of China?

it shifted down.

Holding all else constant, if the economy's marginal propensity to save (MPS) decreases, the consumption function will:

shifts downwards

All of the following are components of aggregate expenditure except

actual investment spending

All of the following policies are ways for a country to promote long-run economic growth except

imposing stricter regulations to limit foreign direct investment.

The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as

labor productivity

High-income countries have growth rates that are consistent with the catch-up prediction in economic growth models. That is, Taiwan, Korea, and Singapore had ________ incomes in 1960 than the United States and Switzerland, and Taiwan, Korea, and Singapore grew ________ than the United States and Switzerland between 1960 and 2014.

lower; more rapidly

Knowledge capital is nonrival in the sense that

two people can use the same knowledge to develop and produce a product.

Which of the following policies is designed specifically to directly promote technological change in an economy?

government subsidization of research and development

Enforcing property rights in an economy will

raise the level of total investment and entrepreneurship in an economy.

Human capital refers to

the accumulated knowledge and skills workers acquire from education and experience

Which of the following represents the equation of the multiplier?

1 / MPS

Using the following data, calculate public savings for a closed economy. Please round to 1 decimal place. Remember, negative numbers are OK for public savings. Y = 12.6 C = 6.4 I = 2.6 TR = 0.9 T = 4

-0.5

Using the following data, calculate public savings for a closed economy. Please round to 1 decimal place. Remember, negative numbers are OK for public savings. Y = 12.9 C = 6.2 I = 1.5 TR = 0.7 T = 3

-2.9 FIND G FIRST Y = C + I + G 12.9 = 6.2 + 1.5 + G G = 5.2 Pub.S = T - G - TR Pub.S = 3 - 5.2 - 0.7 Pub.S = -2.9

Potential GDP equals $500 billion. The economy is currently producing GDP equal to $450 billion. If the MPC is 0.77, then autonomous spending must change by $_______ billion for the economy to move to potential GDP? Please round to two decimal places where needed.

11.5

According to the graph above, which point indicates that aggregate expenditure is greater than GDP?

A

Using the notation from this lesson and assuming we are in a closed economy, which of the following equations reflects investment?

Y - C - G

The Congressional Budget Office reported that federal budget deficits in the United States were likely to increase in future years, and these higher deficits might "pose a threat to the economy by crowding out business investment and threatening a spike in interest rates." This higher budget deficit would be represented graphically by

a shift in the supply curve for loanable funds to the left

If a $592 increase in autonomous investment causes a $4,938 increase in GDP, what is the MPS? Please round to two decimal places where needed.

0.12

If a $759 increase in autonomous investment causes a $3,872 increase in GDP, what is the MPS? Please round to two decimal places where needed.

0.2 759 / 3,872 = 0.2

An economy sees consumption increase by $684.8million when disposable income increases by $999.1. Assuming the marginal propensity to consume remains constant, what is the marginal propensity to save? Please round to the closest two decimal places.

0.31 999.1 - 684.8 = 314.3 314.3 / 999.1 = 0.31

An economy sees consumption increase by $595.3million when disposable income increases by $948.9. Assuming the marginal propensity to consume remains constant, what is the marginal propensity to save? Please round to the closest two decimal places.

0.37

You're given the following two equations representing the market for loanable funds: QL = 15.2 + 3.2r QL = 95.4 - 2.5r What is the equilibrium real interest rate? Please round to 1 decimal place.

14.1

Potential GDP equals $500 billion. The economy is currently producing GDP equal to $450 billion. If the MPC is 0.62, then autonomous spending must change by $_______ billion for the economy to move to potential GDP? Please round to two decimal places where needed.

19 1 / 1 - MPC = 2.63157... 500 - 450 = 50 50 / 2.63157.. = 19

Suppose that autonomous consumption is 2,209, government purchases are 553, taxes are 0, planned investment spending is 616, net exports are -200, and the MPC is 0.71. What is the value of autonomous spending? Round your answer to the closest 2 decimal places if needed. Do not enter dollar signs ($) in your answer.

3,178 2,209 + 553 + 616 - 200 = 3,178

If MPC in an economy is 0.62 and government spending increases by 1,366, what will overall GDP increase by? Please round to two decimal places where needed.

3,594.74 1 / 1 - 0.62 = 2.63157.. 1,366 x 2.63157 = 3,594.74

Suppose Apple plans to produce 10.4 million iPhones this year. The company expects to sell 8.1 million. Suppose that at the end of the year, Apple has sold 7.2 million iPhones. What is the level of actual inventories? Please round to the nearest one-decimal and enter as millions. For example, if your answer was 4,500,000 you would enter the number 4.5

3.2

Using the following data, calculate government purchases for a closed economy. Please round to 1 decimal place. Y = 13.6 C = 7.3 I = 2.5 TR = 2 T = 3.8

3.8 Y = C + I + G 13.6 = 7.3 + 2.5 + G G = 3.8

Suppose Apple plans to produce 9.9 million iPhones this year. The company expects to sell 8.3 million. Suppose that at the end of the year, Apple has sold 6 million iPhones. What is the level of actual inventories? Please round to the nearest one-decimal and enter as millions. For example, if your answer was 4,500,000 you would enter the number 4.5

3.9 9.9 - 6 = 3.9

Using the following data, calculate private savings for a closed economy. Please round to 1 decimal place. Y = 13.1 C = 7.8 I = 2.5 TR = 1.4 T = 2.8

3.9 Pri.S = Y + TR - T - C = 13.1 + 1.4 - 2.8 - 7.8 = 3.9

You're given the following two equations representing the market for loanable funds: QL = 15.1 + 2.4r QL = 55.1 - 3.1r What is the equilibrium quantity of loanable funds? Please round to 1 decimal place.

32.6 15.1+2.4r = 55.1-3.1r r = 7.2727... Plug r into first equation 15.1 + 2.4(7.3) = 32.6

The fictitious country of World Campustan is expected to have an average annual growth rate of GDP per-capita of 2.09% for the foreseeable future. How many years will it take World Campustan's GDP per-capita to double? Please round to 2 decimal places.

33.49

The fictitious country of World Campustan saw it's GDP per-capita increase from $6,382 in 1975 to $37,533 in 2018. What was the average annual growth rate over this time? Enter percentage and round to 2 decimal places. Do not include the percent-sign. For example, if your answer is 5.347% you would enter 5.35

4.21

The fictitious country of World Campustan saw it's GDP per-capita increase from $6,330 in 1975 to $37,707 in 2018. What was the average annual growth rate over this time? Enter percentage and round to 2 decimal places. Do not include the percent-sign. For example, if your answer is 5.347% you would enter 5.35

4.24 37,707 / 6,330 = 5.9568... 5.9568...^(1/43) - 1 = 0.04237... x 100 = 4.24

The fictitious country of World Campustan saw its GDP per-capita increase from $36,238 in 2017 to $38,479 in 2018. What was the growth rate in 2018? Enter percentage and round to 2 decimal places. Do not include the percent-sign. For example, if your answer is 5.347% you would enter 5.35

6.18

The fictitious country of World Campustan is expected to have an average annual growth rate of GDP per-capita of 1.15% for the foreseeable future. How many years will it take World Campustan's GDP per-capita to double? Please round to 2 decimal places.

60.87 Rule of 70 70 / 1.15 = 60.87

You're given the following two equations representing the market for loanable funds: QL = 12.9 + 3.4r QL = 72.3 - 3.7r What is the equilibrium real interest rate? Please round to 1 decimal place.

8.4 12.9+3.4r = 72.3-3.7r r = 8.4

At point C in the figure above, which of the following is true?

Actual inventories are greater than planned inventories.

What would you expect to be true if firms find that consumers are purchasing more than expected?

Aggregate expenditure will likely be greater than GDP.

If the price level in the United States is changing at a faster rate than the price level in other countries, what will be the effect on net exports for the United States?

Net exports will decrease as U.S. exports decrease.

Using the notation from this lesson and assuming we are in a closed economy, public saving is equal to which of the following?

T - G - TR

Assume that the real interest rate rises. Which of the follow scenarios do you believe is most likely?

The economy experiences a lower level of consumers' purchasing durable goods.

If inventories decline by less than people predict they will decline, this implies that

actual investment spending was equal to than planned investment spending.

The multiplier is calculated as the

change in real GDP divided by change in autonomous expenditure

Assuming no change to the federal budget deficit, if the government lets tax incentives expire on research and development, we would expect the ________ curve for loanable funds to shift to the ________ and the equilibrium real interest rate will ________.

demand; left; fall

Assuming no change to the federal budget deficit, if firms expect the economy to enter an expansion in the upcoming year, the ________ curve for loanable funds will shift to the ________ and the equilibrium real interest rate will ________.

demand; right; rise

According to the World Bank, Albania does one of the worst jobs as a country enforcing the rule of law. The consequence of a weak rule of law is

difficulty in attracting investment and low economic growth.

If the economy witnesses an unplanned decrease in inventories, we would expect to see production ___________ and employment ____________, moving the economy towards macroeconomic equilibrium.

increase; increase

Assuming no change to the federal budget deficit, an increase in taxes on consumption will shift the ________ curve for loanable funds to the ________ and the equilibrium real interest rate will ________.

supply; right; fall

Assuming no change to the federal budget deficit, if the government passes legislation that prohibits banks from charging fees on savings accounts, the ________ curve for loanable funds will shift to the ________ and the equilibrium real interest rate will ________.

supply; right; fall