ECO 230 Quiz: Chapter 10
f real GDP equals $11,567 billion in 2006 and $11,916 billion in 2007, and assuming population is constant over those two years, how many years will it take for real GDP per capita LOADING... to double?
23.2 years
When tax revenue exceeds government spending (government purchases and transfer payments) there is When tax revenue equals government spending there is a When tax revenue is less than government spending there is
A budget surplus A balanced budget A budget deficit
Long-run growth GDP is determined by Technological progress is affected by
Capital, labor productivity, and technology Entrepreneurship New software developments Investments in capital
What is the general relationship between the business cycle and unemployment and inflation?
During an expansion, unemployment falls and inflation increases.
Crowding out occurs when
Governments must borrow funds which causes interest rates to rise and thus private investment is reduced.
Between 1950 and the mid-1990s, the United States experienced a much larger increase in the standard of living than the Soviet Union. This difference can be most attributed to the fact that the U.S. Which of the following is a reason the U.S. experienced larger economic growth than the Soviet Union?
Had a greater amount of technological change The U.S. had a greater amount of private property rights. The U.S. had a market economy that allowed for greater entrepreneurship to occur
During the expansion phase of the business cycle, production, employment, and income During the recession phase of the business cycle, production, employment, and income
Increase Decrease
What would be expected to happen to each of the following variables during a recession? Unemployment would be expected to Durable goods production, such as automobiles, would be expected to The inflation rate would be expected to
Increase Decrease Decrease
The ease with which a financial security can be exchanged for money is referred to as Even though individuals earn interest on financial investments such as bonds, mutual funds, and certificates of deposits, they may still hold wealth in checking accounts because
Liquidity Individuals need money that is available to be spent on goods and services
Potential GDP
Measures the maximum that a firm is capable of producing Increases over time as technological change occurs Increases over time as the labor force grows
In a closed economy, the values for GDP, consumption spending, investment spending, transfer payments, and taxes are as follows: Y =$12 trillion C =$9 trillion I =$3 trillion TR =$2 trillion T =$3 trillion Using the information above, what is the value of private saving and public saving?
Private saving equals $2 trillion and public saving equals $1 trillion.
Which of the following contribute(s) to shorter recessions, longer expansions, and less severe fluctuations in real GDP?
Social Security benefits Fiscal policy A service-based economy
Narnia, a developed open economy, has been experiencing double-digit inflation and a decelerating output growth for the last four quarters. Jonathan Mathews and Ben Hall, two market analysts, are discussing the various measures that can be adopted by the concerned authorities to curb inflation and boost production in the economy. Jonathan thinks that the central bank should raise the nominal interest rate to control inflation. This, he feels, will also contribute to an increase in the aggregate supply of funds available for investment in the economy. Ben however disagrees. According to him, an increase in the nominal interest rate will lower investment, leading to a decline in aggregate production by firms. This, in turn, will increase the shortage in the economy and prices will rise further. When the interest rate was actually increased, the aggregate supply of loanable funds in the economy did not increase as much as Jonathon expected. Which of the following, if true, would explain this outcome?
The government budget deficit increased by $10 billion this year.
Capital can be differentiated between physical capital and human capital. Human capital is Which of the following is best example of human capital?
The knowledge and skills workers acquire from education and training or from their life experiences A worker gets a college degree
Following a long period of slow growth, the government of country X decided to open its economy and reduce trade barriers in order to boost economic growth. This provided the expected impetus to the economy as competition increased and the efficiency of domestic firms improved. A decade after opening the economy, the country's GDP is now growing at an average of 7-8 percent annually. A group of economists claim that the standard of living of the people has improved substantially during this period. They also expect this impressive growth to continue over the next five years. Which of the following, if true, would weaken the economists' claim that the standard of living has improved?
The majority of wealth creation was concentrated in the highest income level.
Firm X, a leading manufacturer of rubber tires in country A, caters to almost one-third of the domestic tire market. The country was hit by a recession last year that caused the national output growth to be negative. Simon Reeds, the CEO of firm X, feels that these fluctuations in the business environment are short-lived and expects the economy to recover very soon. In spite of the recession, Simon feels that the firm can actually invest in expanding its facilities as it has sufficient cash flows to continue its operation during the crisis period. The firm's marketing head, Sandra Jones, counters this by saying that the firm is already losing sales due to the recession and they should not increase costs further by making large-scale investments in the present climate. Which of the following questions is most relevant to answer in order to determine the accuracy of the CEO's claim?
What are consumer expectations of future growth?
"Saving money is not lending. How can it be? When I save my money, I put it in a bank. I don't loan it out to someone else." The statement is
incorrect. The supply of loanable funds is determined by household saving.
