Test 2 review

Imagine that Jack and Jill buy $500 worth of milk and $200 worth of crayons and coloring books each year for use in their day-care business. Jack and Jill also hire a day-care attendant at a salary of $14,000 per year. If Jack and Jill sell $100,000 worth of day care to parents each year, what is the contribution to GDP by Jack and Jill's day care?

$100,000

Tim buys a house from Betty in 2011 for $200,000. Betty receives $185,000 and $15,000 goes to Mary the real-estate agent. Betty originally purchased the house in 2007 for $240,000. What value is added to GDP in 2011 for this transaction?

$15,000

Based on the data in the table, what is interest income in the economy of Europia?

$2,800

Suppose an economy produces only the three final goods shown in the table. the table gives information on the quantities produced and the prices of goods sold in 2008 and 2009. if 2008 prices are used in the calculation of real gdp, then nominal GDP in 2009 is ___ and the real in 2009 is ___.

$34,310; $33,700

If U.S. per capita GDP is $50,000 and grows at 3% per year, what will U.S. per capita GDP be in 70 years?

$400,000

Suppose an economy produces only the four goods listed in this table. All of the country's tomatoes are used in the production of pizzas. What is the GDP in this country?

$7,200

suppose an economy produces only the 4 goods listed in the table. what is the GDP in this country?

$7,700

use the data in this table to calculate the contribution of rent and interest income in GDP.

$8,916 Billion

This table shows data for a country producing only iPhones. Its nominal GDP in 2010 is:

$9,900

suppose an economy produces only the 3 final goods shown int he table. The table gives information on the quantities produces and the prices of goods sold in 2008 and 2009. what is the growth rate of real GDP in 2009 if 2009 prices are used in the calculation of real GDP?

-2.94%

Suppose an economy produces only the three final goods shown in the table. The table gives information on the quantities produced and the prices of goods sold in 2008 and 2009. What is the growth rate of real GDP in 2009 if 2008 prices are used in the calculation of real GDP?

-3.71%

Consider a small country with a capital stock equal to 900 units. This year it produced 20 units of new capital goods, with a depreciation rate of 10% and a production function of Y = K1/2. If there is no technological advancement, what will the growth rate in this country be over the next year?

-3.97%

If a country's real GDP per capita in 1950 was $10,000, and it grew to $20,000 by year 2000, then the country's annual growth rate during this period would have been approximately

1.4%

If U.S. per capita GDP is $50,000 and grows at 5% per year, what will U.S. per capita GDP be in 70 years?

1.6 million dollars

If you received a constant annual rate of return of 7% on an investment of $10,000, how many years will it take before you have $20,000?

10 years

this table shows data for a country producing only iPhones. Based on the GDP deflator, the increase in prices between 2000 and 2010 was:

10%

this table shows data for a country producing only iPhones. The growth rate of real GDP between 200 and 2010 (in 2000 dollars) is:

10%

in 2010, real GDP was $13.2 trillion (using 2005 prices) and nominal GDP was $14.6 trillion. Based on the GDP deflator, prices in 2010 were about _______then prices in 2005.

10.6% HIGHER

Imagine an economy with production function Y = F(K) = and 400 units of capital. If the fraction of output invested in new capital increases from γ = 0.2 to γ = 0.5 and the depreciation rate is δ = .05, what is the new steady-state amount of capital?

100 units

If the average annual growth rate of a country increases from 2% to 3%, how much faster will its GDP double?

11 2/3 yrs faster

This table shows data for a country producing only iPhones. If 2000 prices are used in the calculation of real GDP, the GDP deflator for 2010 is:

110

Consider a country that produces only wheat and corn. Based on the data in the table, the country's GDP deflator for 2008 (using 2005 prices for the calculation of real GDP) is:

142

imagine an economy with production function Y=F(K) = square root of K and 400 units of capital. If the fraction of output invested in new capital is y=0.2 and the depreciation rate is q=0.5, what is the steady-state amount of capital?

16 units

Suppose a country's annual growth rate of real GDP per capita is approximately 2%. By which year would the country double its real GDP per capita from $10,000 in 1950 to $20,000?

1985

Refer to the figure. In this diagram of the Solow model, if output is 600, consumption equals:

200

If U.S. per capita GDP is $50,000 and grows at 2% per year, what will U.S. per capita GDP be in 70 years?

200,00

Real GDP for the year 2000 (measured in 2005 dollars) is equal to:

2005 prices * 2000 quantities

If the production function in a country is Y = K1/2, the investment rate equals 0.25, and the depreciation rate is 0.05, then the steady-state level of the capital stock is equal to:

25 units

consider a country that produces only wheat and corn. Based on the data in the table, the growth rate of nominal GDP from 2005 to 2006 is:

27%

GDP in the United States was $14,119 billion in 2009, and grew to $14,660.4 billion in 2010. This represents an annual growth rate of:

3.8%

imagine an economy with production function Y=F(K)=square root of K and 400 units of capital. If the fraction of output invested in new capitals is y=0.2 and the deprecation is q=.05, how much total capital will be available in the next period?

384 units

If the production function in a country is Y = K1/2, the investment rate equals 0.25, and the depreciation rate is 0.05, then the steady-state level of output is equal to:

5 units

If GDP was $10 billion in 2010 and $11 billion in 2011 and the population grew 5% between 2010 and 2011, the growth rate of GDP per capita between 2010 and 2011 was:

5%

according to the diagram of the Solow model, the steady state level of the capital stock is:

50 units

If real GDP per capita in the United States is currently $50,000 and grows at 2.5% per year, it will take approximately how many years to reach $200,000?

56 years

Suppose economies A and B have the same initial level of GDP per capita at $15,000, and each economy begins with a constant growth rate of 1% per year. (Neither country has good institutions for economic growth at first.) Then Country A enters an era of political stability, establishes property rights, and installs incentives for entrepreneurship. Country A's economic growth rate consequently improves to 5%. Assuming population growth rates remain unaffected, how much longer will it take Country B to double its per capita GDP level compared to Country A?

56 years

if the deprecation rate is .03 and the capital stock is 200, how many units of capital will depreciate this period?

6 units

Suppose a country's real GDP per capita was $9,000 in 1990, and it grew to $18,000 by 2000. What is the annual growth rate of the country's real GDP per capita during this period?

7%

Consider a small country with a capital stock equal to 900 units. This year it produced 20 units of new capital goods, with a depreciation rate of 20% and a production function of Y = K1/2. What will its capital stock be next year?

740 units

consider a country that produces only wheat and corn. Based on the data in the table, the growth rate of real GDP from 2007 to 2008 (in 2005 dollars) is:

8.3%

Roughly what percent of the world's population live in countries with per capita GDP lower than the average world per capita GDP?

80%

Which statement is TRUE about economic growth?

A country can grow and become wealthy, never grow, or grow and then begin to stagnate.

Refer to the figure. Which of these production functions exhibits diminishing returns?

D

which of the following statements is TRUE about GDP?

GDP does not account for the distribution of income in a country.

which of the following is TRUE in the calculation of GDP?

GDP does not include goods and service produced privately inside the home

in nations that have large underground, or illegal, sectors:

GDP will underestimate total production in the country

Which statement best describes the economic growth patterns in the world since World War II?

Japan and South Korea experienced rapid growth while Argentina and Nigeria experienced slow growth.

which of the following activities is counted as part of a U.S GDP?

Jeff stays in a hotel in Colorado while on a skiing trip.

In the Solow model, if a country's depreciation rate increased from 1% to 2% and it was operating at its steady state before the change, we would expect to see:

a decrease in both the capital stock and output

Countries A and B have similar levels of technology and physical capital, but country B has twice as much human capital as country A. If diminishing returns apply to all inputs, country B should grow at ______ country A.

a lower rate than

If the production function shifts from Y1 to Y2 in the accompanying graph of the Solow model, then:

a new steady state will occur at K2

which scenario has the greatest potential for free riding?

a system in which work effort and pay are not connected

Growth in nominal GDP over time can be caused by:

an increase in BOTH prices and production over time

In the Solow model, an increase in investment leads to

an increase in growth rates in the short run but a return to zero growth in the long run as the economy converges to a new, higher steady state.

in the Solow model, an earthquake that destroys half of a nation's catial stock will cause:

an increase in the country's growth ate in the years following the earthquake

a set of tires installed on a vehicle in an automobile factory is counted as:

an intermediate good and its market price is not part of GDP

Which of the following would be most effective in reducing "free riding" in a communal farming system?

assigning property rights

Around the world, about one _____ people have incomes of less than $2 per day

billion

which of these transactions occuring in 2011 would contribute to GDP for 2011?

boeing sells a 787 aircraft produced in 2011 to a korean airline

Which is an example of an increase in technological knowledge?

bone cancer researchers discover a cure for bone cancer

In the past 100 years, there has been a decline in the use of unpaid child labor on family farms. therefore:

changes in GDP overstate the true increase in production over the past 100 years

the most promising idea for creating a growth miracle in a country is:

changing the institutions in the country

which is NOT likely an ultimate cause of economic growth around the world?

communal resources

if the GDP of country x is 4 times the gdp of country y and if the gdp of country x remains constant while gdp of country y grows at a rate of 7% per year, which of the following statements is true?

country y gdp will be equal to country x's gdp in 20 yrs

GDP includes the:

current market value of government purchases of good and services

the growth that results from better ideas or technological knowledge is:

cutting-edge growth

decreases in the level of political stability in a country tend to :

decrease per capita GDP

the Solow growth model features ______ returns to physical capital.

decreasing

among countries with similar Solow steady states, poorer countries tend to grow _______ rich countries.

faster than

Gross domestic products is the market value of all:

final goods and services produced within a country in a year.

To avoid double accounting, the value of:

final goods only are included in GDP

Which of the following is an ultimate cause of economic growth among countries around the world?

geography

The larger the spillovers, the stronger the argument for:

government subsidies

if 2009 prices are used in the calculation of real GDP and inflation occurs between 2009 and 2010, then nominal GDP will be ______real GDP in 2010.

greater than

In the Solow model, if a country increases its saving rate:

growth increase as the economy moves toward a new, higher steady-state capital stock

Continued long-run economic growth requires that economies:

have institutions in place that encourage research and development of new ideas.

countries that have higher per capita GDP tend to have:

high level of all 3 factors of production

The 2003 Iraq War destroyed large amounts of capital. Later, insurgent activity continued to destroy capital and created instability in the government. Today, hostilities have waned and the government has become more stable. According to the Solow growth model, over the next few years we would expect to see growth rates in Iraq _____ those of high-income countries with similar institutions, followed by growth rates that are _____ the growth rates in those countries.

higher than; similar to

suppose you spent $10,000 in 2010 remodeling your house, which you originally built for $200,000 in 2000. As a result, GDP in 2010 would:

increase by $10,000

In the accompanying graph of the Solow model, if the production function shifts from Y1 to Y2 while capital remains at K1, then the capital stock will:

increase until it reaches the new steady-state level.

In the Solow model, an increase in the capital stock with all other variables held constant will _____ the country's real GDP but at a(n) _____ rate.

increase; decrease

Which would be most effective in ensuring sustained long-term economic growth?

increasing technological knowledge

High-income economies generally have _____ that incentivize individuals' self-interest by using _____.

institutions; profit-seeking motives

Imagine an economy with production function Y = F(K) = and 400 units of capital. If the fraction of output invested in new capital is γ = 0.2, the depreciation rate is δ = .05, and the economy starts with output of 20, what does the Solow model predict will happen to output in the long run?

it will decline

Which of the following is (are) NOT an institution of economic growth?

labor union

consider an economy with production function Y=K1/2, an investment rate equal to 0.25, and a depreciation rate of 0.05. If K=1,000 this period, the capital stock next period will be:

less than 1,000

The number of new ideas does NOT depend on the:

level of capital invested

Which is NOT an example of an institution that creates incentives aligning self-interest with the interest of society?

low inflation

Which is NOT an example of physical capital?

money

GDP is calculated by...

multiplying the quantity of all goods and services by their prices and adding together the results

According to this diagram of the Solow model, if the current capital stock is 70, then economic growth will be:

negative

the key to keeping the economy growing in the long run is:

new ideas

the value of volunteer services is:

not included in GDP, but should be because a service is produced

Using the national spending approach to measuring GDP, the social security checks the government sends retirees each month get included in GDP as part of:

nothing; they are not included as part of GDP

the value of a country's GDP exceeds that of the country's GNP if the value of the:

output produced by foreign workers in the country exceeds the value of output produced by the country's permanent residents in other countries.

Property rights are important institutions for encouraging investment because:

people won't invest if they feel their property is at risk and that they may not realize a return on their investment.

Which is considered an immediate cause of economic growth?

physical capital

Which of the following events would NOT shift the production function from Y1 to Y2 in the accompanying diagram of the Solow model?

physical capital accumulation

The formula that represents the generation of ideas (A) is:

population × incentives × ideas per hour.

In the United States, most scientists who research and develop new products work for:

private farm

For most of recorded human history, real GDP per capita has:

remained about the same

property rights encourage

saving and investment in bot physical and human capital

A country that has enforceable property rights, a noncorrupt political system, abundant factors of production, and a change in leadership and form of government every few years should suspect that economic growth will be _____ because _____.

slow; of uncertainty due to an unstable political system

Which policy does NOT promote idea-based economic growth?

strengthening the spillover effects of innovations

Which is NOT an important institution for growth?

strong regulation of religious belief

Which are immediate causes of the wealth of nations?

technical knowledge and human capital

A developing country could buy (or be given) _____ and _____ more easily than _____.

technological knowledge; physical capital ; human capital

the key reason for China's growth miracle beginning in the late 1970 was:

the assignment of private property rights

Orrin mines iron ore, which he sells to Thorin, who turns iron ore into steel. The steel is sold to Gorin, who turns the steel into battle axes. The battle axes are sold by a merchant in the city to adventurers. Which of the following would be considered a final good?

the battle axes sold to the adventurers

The fact that the United States has grown steadily on average over the past two centuries is consistent with:

the concept that better ideas result in economic growth in the long run

why did so many Chinese farmers and workers starve under "the great leap forward"

the incentive to work hard was low since the reward were so minimal.

Better ideas or technological knowledge causes:

the production function to shift upward

What is meant by the "steady-state" level of capital?

there is no new net investment or any growth

Solow estimated that better ideas are responsible for about _____ of the U.S. standard of living.

three-forths

When an economic system changes from using a collective property rights system to something closer to private property rights, the immediate effect is:

to increase investment, work effort and productivity

With possible spillover of ideas, there will be:

too little investment in r&d

which of the 4 town in this able has the highest standard of living?

town B

Institutions and incentives are _____ causes, and factors of productions are _____ causes of the wealth of nations.

ultimate; immediate

which of the following in NOT considered a government purchase?

unemployment checks

History has shown that when collective property rights are converted to private property rights:

work effort, investment, and productivity all increase