ECON EXAM 2
Strong property rights are important for modern economic growth because
people are more likely to invest if they don't fear that others can take their returns on investment without compensation.
The largest expenditure component of GDP is
personal consumption expenditures.
Factors other than disposable income that can affect the amounts that households will consume and save include all but which of the following?
planned inventory changes
If the growth trend of labor productivity is 3 percent per year, the number of years that it will take for the standard of living to double will be about
23 years
Nominal GDP is less than real GDP in an economy in both Year 1 and Year 2. In Year 3, nominal GDP is equal to real GDP. In Year 4, nominal GDP is slightly greater than real GDP. In Year 5, nominal GDP is significantly greater than real GDP. Which year is the base year being used to calculate the price index for this economy?
3
An $18 billion increase in spending creates $18 billion of new income in the first round of the multiplier process and $13.5 billion in the second round. The multiplier in the economy is
4
Suppose that new computer software for accounting and analysis at a business has a useful life of only one year and costs $200,600 before it needs to be upgraded to a new version. The revenue generated by this software is expected to be $280,000. The expected rate of return from this new computer software is
40 percent.
The total population of an economy is 175 million, the labor force is 125 million, and the number of employed workers is 117 million. The unemployment rate for this economy is
6.4 percent.
Retailers that attempt to keep prices stable and predictable cause
price inflexibility.
Suppose that an economy's labor productivity fell by 3 percent and its total hours of work remained constant between Year 1 and Year 2. We could conclude that this economy's
real GDP declined.
Suppose that an economy's output increases from one year to the next, but the price level does not change. What happens to real GDP?
real GDP increases.
If a positive demand shock affects many goods and services across the economy and lasts for an extended period of time, economists would expect
real GDP to rise.
When economists refer to "investment," they are describing a situation where
resources are devoted to increasing future output.
Suppose that a person's nominal income rises from $11,000 to $13,000 and the Consumer Price Index rises from 100 to 105. The person's real income will
rise by about 13 percent.
Government purchases in national income accounts would include payments for
salaries for current U.S. military officers.
If households consume less at each level of disposable income, they are
saving more.
The two topics of primary concern in macroeconomics are
short-run fluctuations in output and employment and long-run economic growth.
The business cycle depicts
short-run fluctuations in output and employment.
In economics, the word "shocks" refers to
situations where firms' expectations are not met.
The national income account, proprietors' income, consists of the net income of
sole proprietorships, partnerships, and other unincorporated businesses.
If Trent's MPC is 0.80, this means that he will
spend eight-tenths of any increase in his disposable income.
Economic growth rates in follower countries
tend to exceed those in leader countries because followers can cheaply adopt the new technologies that leaders developed at relatively high costs.
At the point where the consumption schedule intersects the 45-degree line,
the APC is 1.00.
If actual GDP is less than potential GDP
the actual unemployment rate will be higher than the natural unemployment rate.
Which of the following do national income accountants consider to be investment?
the purchase of a new house
If intermediate goods and services were included in GDP,
then GDP would be overstated.
Labor productivity is defined as
total output ÷ hours of work.
If a negative demand shock affects many goods and services across the economy and lasts for an extended period of time, economists would expect
unemployment to rise.
Before the Industrial Revolution, living standards in the world
were relatively stagnant for long periods of time.
In what circumstances would lenders most benefit?
when there is an unanticipated decrease in inflation
What has been the range of the decline in real output during recessions in the U.S. between 1950 and 2020?
−0.2 percent to −10.1 percent
If a $50 billion decrease in investment spending causes income to decline by $50 billion in the first round of the multiplier process and by $25 in the second round, the multiplier in the economy is
2
Which of the following is used to compare the average standard of living across countries?
GDP Per Person
Which of the following is correct?
MPC + MPS = APC + APS.
(Consider This) Which of the following is an example of economic investment?
New Balance buys a new machine that increases shoe production.
Which statement about inflation is correct?
The redistributive effects of inflation are arbitrary with respect to people and groups in society.
Which of the following is not an argument made by proponents of economic growth?
There is a direct relationship between a growing real GDP and rising pollution.
(LAST WORD) Rising real wages for women in the U.S. workforce since the 1960s have
increased the opportunity cost of staying at home.
If both the real interest rate and the nominal interest rate are 3 percent, then the
inflation premium is zero.
Suppose that an economy is initially operating at a point on its PPC. If it then experiences an expansion in its production capacity, but its total spending does not rise as fast as its capacity, the economy will end up
inside its production possibilities curve.
Society can increase its output and income by increasing basically one or both of two factors?
its resources and the productivity of the resources
Computation of GDP by the expenditures method would include the purchase of
land by the U.S. Department of Interior.
The following are examples of final goods in national income accounting, except
lumber and steel beams purchased by a construction company.
Modern Economic Growth
makes a country's output per person rise at a compounded rate.
In an economy, for every $1,600 decrease in income, spending falls by $1,200. It can be concluded that the
marginal propensity to save is 0.25.
Other things equal, a decrease in the real interest rate will
move the economy downward along its existing investment-demand curve.
Real GDP is preferred to nominal GDP as a measure of economic performance because
nominal GDP uses current prices and thus may over or understate true changes in output.
The sale of a used automobile would not be included in GDP of the current year because it is a
nonproduction transaction.
According to the Bureau of Labor Statistics, to be officially unemployed a person must
not only want a job but also be actively seeking employment.
By summing the dollar value of all monetary transactions in the economy, we would
obtain a sum substantially larger than GDP.
Price wars among firms
occur when one firm lowers its price and rival firms react by lowering their prices.
Proponents of economic growth say that pollution
occurs, not because of growth, but because common resources are treated as free goods.
Suppose that real GDP increases by 9 percent while the population of a country increases by 8 percent. In this situation,
output per person necessarily increases.
an example of intermediate goods would be
paper and ink bought by a publishing company
A statement that is often used to describe demand-pull inflation is
"Too much spending chasing too few goods."
If the average level of nominal income in a nation is $44,000 and the price level index is 175, the average real income would be about
$25,143.
Answer this question based on the given information for an economy in some year. 1. Dollar value of resource extraction activity = $20 billion 2. Dollar value of production activity = $50 billion 3. Dollar value of distribution activity = $80 billion 4. Dollar value of final output = $110 billion Gross output for this economy equals
$260 Billion
If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is
$320 billion.
A business buys $1,000 worth of inputs from other firms in order to produce a product. The business makes 500 units of the product and each of them sells for $3. The value added by the business to these products is
$500
Real per-capita GDP in the United States in 2021 was approximately
$58,481.
A firm buys components from a supplier that they use to make 1,200 units of product. They later sell their output for $5 each, making the firm $6,000. If the value added amount from their production is $2,400, how much did they pay for the inputs?
$6,000
If potential GDP is $800 billion and there is a positive GDP gap of $40 billion, actual GDP is
$840
If, in an economy, a $200 billion increase in consumption spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the marginal propensity to consume and the multiplier are, respectively,
0.8 and 5.0.
In an economy, the total expenditures for a market basket of goods in Year 1 (the base year) were $9,600 billion. In Year 2, the total expenditure for the same market basket of goods was $10,200 billion. What was the GDP price index for the economy in Year 1?
100
If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is
12 percent.
If Fred's annual real income rises by 8 percent each year, his annual real income will double in about
8 to 9 years
If the rate of inflation is 8 percent per year, the price level will double in about
8.8 years
Which of the following is the best example of economic investment?
A construction company buys new landmoving equipment.
Which of the following is most likely to indicate higher unemployment?
A decrease in real GDP
During the Great Depression of the 1930s
All of the answers are correct.
Which of the following statements about modern economic growth is incorrect?
Although regions around the world were at very different income levels in 1820, today all regions have income levels that are about equal.
Economy A: gross private domestic investment equals depreciation Economy B: depreciation exceeds gross investment Economy C: gross private domestic investment exceeds depreciation Other things equal, the information suggests that the production capacity in Economy
B is shrinking but Economy C is expanding.
In which of the following cases would real income rise?
Nominal income rises by 2 percent, and the price level remains unchanged.
Unemployment describes the condition where
a person cannot get a job but is willing to work and is actively seeking work.
The 45-degree line on a graph relating consumption and income shows
all the points at which consumption and income are equal.
Adding the market value of all final and intermediate goods and services in an economy in a given year would result in
an amount greater than GDP for that year.
Given the expected rate of return on all possible investment opportunities in the economy,
an increase in the real rate of interest will reduce the level of investment.
Economic growth can be portrayed as
an outward shift of the production possibilities curve.
The number of total hours of work that are available in an economy is determined by which of the following?
answers a and b
In situations of sticky prices and negative demand shocks, we would expect firms to
build up inventories before reducing production.
A factory installs a new wireless network increasing
capital goods expenditures and therefore gross private domestic investment.
The largest component of national income is
compensation of employees.
Decisions about saving and investment are
complicated by the fact that the future is uncertain.
Kara's Kittens typically produces and sells at its optimal (lowest per-unit cost) level of 34 scratching posts per week. Kara's does not maintain an inventory. If prices are flexible and there is a positive demand shock this week, we would expect Kara's to
continue to produce 34 scratching posts per week and raise the price.
Some economists prefer to use the term business fluctuations rather than business cycles to describe the historical growth record in the United States because
cycles imply regularity, while fluctuations do not.
The following factors tend to make the real GDP growth rate understate the growth of economic well-being, except
debasement of the environment.
Given the expected rate of return on all possible investment opportunities in the economy, a(n)
decrease in the real rate of interest will tend to increase the level of investment.
The number of years required for real GDP to double can be found by
dividing 70 by the annual growth rate.
The term "shock"
does not tell us whether what has happened is unexpectedly bad or unexpectedly good.
Dr. Homer Simpson, an economics professor, decided to take a year off from teaching to run a commercial fishing boat in Alaska. That year, Professor Simpson would be officially counted as
employed.
A college graduate using the summer following graduation to search for a job would best be classified as
frictionally unemployed.
Final goods and services refers to
goods and services purchased by ultimate users, rather than for resale or further processing.
Government purchases include government spending on
government consumption goods and public capital goods.
Higher rates of unemployment are linked with
higher crime rates, as the unemployed seek to replace lost income.
(Advanced analysis) The equation C = 35 + 0.75Y, where C is consumption and Y is disposable income, shows that
households will consume $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.
Assume the marginal propensity to consume is 0.80. If consumer spending increases by $35 billion, then real GDP will
increase by $175 billion.
The shift of labor out of agriculture and into industry in the United States has tended to
increase labor productivity.
Harry's Pizza Parlor produced 10,000 large pizzas last year that sold for $10 each. This year Harry's produced 11,000 large pizzas (identical to last year's pizzas) but sold them for $12 each. Based on this information, we can conclude that Harry's production of large pizzas
increased both nominal and real GDP from last year.
Historically, the total amount of capital per worker in the United States has
increased significantly and made labor more productive.
