ECON 104 Exam 2

In the long run, a country will experience an increasing standard of living only if it experiences

a high rate of technological change

Countries with high rates of economic growth tend to have

a labor force that is more productive

Which of the following policies would not help promote economic growth?

a law requiring that the funds in an individual retirement account be taxed

Which of the following will cause a direct increase in consumption spending?

an increase in disposable income

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

decrease; decrease

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

decrease; decrease

Assume that, coming out of a recession, firms are more optimistic that future profits will rise and remain strong for the next few years. If this is true, then

investment spending will rise.

If the per-worker production function shifts down,

it now takes more capital per hour worked to get the same amount of real GDP per hour worked

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

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

there is technological change.

The per-worker production function shows diminishing marginal returns to capital, meaning the function is increasing at an increasing rate.

False

If inventories decline by more than analysts predict they will decline, this implies that

actual investment spending was less than planned investment spending

An unplanned increase in inventories results from

actual investment that is greater than planned investment.

Ideas are

nonrival

If labor productivity growth slows down in a country, this will

slow down the increase in real GDP per capita

Actual investment spending does not include

spending on consumer durable goods.

Endogenous growth theory

states that the rate of technological change is caused by economic incentives.

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 individuals expect their wealth to decrease in the upcoming year, the ________ curve for loanable funds will shift to the ________ and the equilibrium real interest

supply; right; fall

Assuming no change to the federal budget deficit, if individuals expect their wealth to decrease in the upcoming year, the ________ curve for loanable funds will shift to the ________ and the equilibrium real interest rate will ________ .

supply; right; fall

Assuming no change to the federal budget deficit, if individuals expect their wealth to decrease in the upcoming year, the ________ curve for loanable funds will shift to the ________ and the equilibrium real interest rate will ________.

supply; right; fall

Economic growth models predict that

the level of real GDP per capita in poor countries will grow faster than in rich countries

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

actual investment spending was greater than planned 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

Not enforcing property rights in an economy will

lower the level of investment.

Which of the following represents the equation of the multiplier?

1/MPS or 1/(1-MPC)

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

actual investment that is greater than planned investment.

An unplanned increase in inventories results from

Another name for the New Growth Theory is:

Endogenous Growth Theory

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

Net exports will rise as U.S. exports increase.

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

government subsidization of research and development

We used the terms ____________________ when talking about knowledge capital and physical capital.

ideas and objects

Which of the following policies to promote economic growth did we not discuss in this lesson?

Enacting term limits on politicians

The catch-up prediction of economic growth models predicts that ________ across countries will converge over time.

GDP per capita

The economic growth model predicts that

GDP per capita of poor countries will grow more rapidly than in rich countries.

In a small European country, it is estimated that changing the level of capital from $8 million to $10 million will increase real GDP from $2 million to $3 million. What level of GDP would you expect the economy to be able to reach if spending on capital continued to rise to $12 million, assuming no technological change and no change in the hours of work?

GDP would increase further, but by less than $1 million.

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.

A good measure of the standard of living is

Real GDP per capita

When production in an economy grows more quickly than the population in that economy, which of the following must be occurring?

Real GDP per capita is rising

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

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

Using the notation from lesson 5 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

Which of the following is not one of the three sources of technological change?

additional amounts of existing capital

Suppose that an increase in capital per hour worked from $15,000 to $20,000 increases real GDP per hour worked by $500. If capital per hour worked increases further to $25,000, by how much would you expect real GDP per hour worked to increase if there are diminishing returns?

by less than $500

Technological advances generally result in

increased life expectancy

Suppose Apple plans to produce 10.8 million iPhones this year. The company expects to sell 7.4 million. Suppose that at the end of the year, Apple has sold 8.4 million iPhones. What is the level of actual inventories?

2.4

In the early 1900s, Henry Ford revolutionized the automotive manufacturing industry by instituting the assembly line. What impact did the assembly line method for producing automobiles have on the per-worker production function for Ford?

It shifted up

In the early 1900s, Henry Ford revolutionized the automotive manufacturing industry by instituting the assembly line. What impact did the assembly line method for producing automobiles have on the perworker production function for Ford?

It shifted up.

Empirical evidence from 1960 to 2014 shows that convergence in economic growth is occurring in which of the following cases?

Low-income industrial countries are catching up to high-income industrial countries.

Empirical evidence from 1960 to 2014 shows that convergence in economic growth is occurring in which of the following cases?

Low-income industrial countries are catching up to high-income industrial countries.

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.

All of the following are true statements about the spending multiplier except

The spending multiplier makes the economy less sensitive to changes in autonomous expenditure.

A technological advancement results in an upward shift in the per-worker production function.

True

If aggregate expenditure is more than GDP, then inventories fall and GDP rises.

True

In an open economy, there is interaction with other economies in terms of both trading of goods and services and borrowing and lending.

True

One reason why many low-income countries experience low rates of growth is because of poor public education and health.

True

Political stability is an example of a social institution.

True

The year-over-year growth rate is simply calculated by taking the percentage change in real GDP or real GDP per capita.

True

In a closed economy, which of the following equations reflects investment?

Y − C − G

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

become flatter

Holding all else constant, if the economy's marginal propensity to consume (MPC) increases, the consumption function will:

become steeper

Knowledge capital is

both nonrival and nonexcludable.

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

decrease; decrease

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.

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.

Which of the following increases labor productivity?

inventions of new machinery, equipment, or software

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

investment spending will fall

Which of the following government provisions would help increase the accumulation of knowledge capital?

patents, copyrights, education subsidies

The ___________ shows the relationship between capital per hour worked and real GDP per hour worked, holding technology constant.

per-worker production function

Enforcing property rights in an economy will

raise the level of investment.

Disease, poor nutrition, and substandard health care in developing nations can reduce growth in an economy by

reducing human capital.

Which of the following government provisions would not help increase the accumulation of knowledge capital?

tax breaks for consumption

Human capital refers to

the accumulated knowledge and skills workers acquire from education and experience