Econ Quiz 1 Ch. 1

Great economists: Adam Smith

- considered by many founder of modern economics - "An Inquiry into the Nature and Causes of the Wealth of Nations" 1776 - claimed that coordination among all the actors in an economy (producers, transporters, sellers, consumers) might spontaneously arise, w/o any person/institution consciously attempting to create/maintain it - this could take place as a result of individuals pursuing their self-interest - invisible hand: individual promotes end that promotes society's interest without intending to - significant source of prosperity is the division of labor/specialization - targeted monopolies protected by governments

Einstein: 3 problems

1. Need to separate the thing we want to measure (changes or differences in amounts of goods and services) from things that are not relevant to the comparison, especially changes or differences in the prices of goods and services. 2. When comparing output in 1 country at 2 points in time, it's necessary to take into account differences in prices between 2 points in time. 3. When comparing output between 2 countries at a point in time , it's necessary to take into account differences in prices between the 2 countries.

Einstein: purchasing power parity (PPP)

A statistical correction allowing comparisons of the amount of goods people can buy in different countries that have different currencies.

Video

Data allows us to explore the mechanisms that give rise to a repeated finding, taxation provides data because of the legal & statistical categories it creates

Einstein: constant prices

Prices corrected for increases (inflation) and decreases (deflation) in prices so that a unit of currency represents the same buying power in different periods of time.

Einstein: Real GDP

Select a base year, ex. 2010. Define real GDP using 2010 prices as equal to nominal GDP that year. Following year, nominal GDP for 2011 is calculated as usual using prices prevailing in 2011. Next see what was happened to real GDP by multiplying 2011 quantities by 2010 prices. If using the base year prices, GDP has gone up, we can infer that real GDP has increased.

Einstein: Nominal GDP

When estimating market value of output in the economy as a whole for a given period, statisticians use the prices at which the goods and services are sold in the market. Multiplying the quantities of the vast array of different goods and services by their prices --> converted into money/nominal terms. --> price x quantity of goods and services pi: price of good i and qi is the quantity of good i

Question 1.4 Which of the following variables have followed the so-called 'hockey-stick' trajectory -- that is, little to no growth for most of history followed by a sudden and sharp change to a positive growth rate?

a. GDP per capita b. labor productivity c. inequality d. atmospheric CO2 ANSWER: a, b, d

Question 1.2 The GDP of Greece was $22,494 in 2012 and $21,996 in 2013. What was the growth rate of GDP between 2012 and 2012?

a. -2.40% b. 2.35% c. -2.35% d. -0.24% ANSWER: c

Question 1.7 Look at Figure 1.10, which shows a graph of GDP per capita for West & East Germany, Japan and Spain between 1950 and 1990. Which of the following statements is correct?

a. Having a much lower starting point in 1950 was the main reason for East Germany's poor performance compared to West Germany. b. The fact that Japan and West Germany have the highest GDP per capita in 1990 implies that they found the optimal economic system. c. Spain was able to grow at a higher growth rate than Germany between 1950 and 1990. d. The difference in East and West Germany's performance proves that capitalism always promotes rapid economic growth while central planning is a recipe for stagnation. ANSWER: c

Question 1.3 Imagine that the GDP per capita of a country had doubled every 100 years. You are asked to draw both linear and ratio scale graphs that plot GDP on the vertical axis, and the year on the horizontal axis. What will be the shapes of the curves?

a. LINEAR: an upward-sloping curve with increasing slope (convex shape) RATIO: an upward-sloping straight line b. LINEAR: an upward-sloping straight line RATIO: a straight horizontal line c. LINEAR: an upward-sloping straight line RATIO: an upward-sloping curve with decreasing slope (called concave shape) d. LINEAR: an upward-sloping convex curve RATIO: an upward-sloping convex curve ANSWER: a

Question 1.5 Which of the following are examples of private property?

a. computers belonging to your college b. a farmer's land in Soviet Russia c. shares in a company d. a worker's skills ANSWER: a, c

How Economists Learn From Facts: natural experiment

situation in which there are differences in something of interest (change in institutions for example) that are not associated with differences in other possible causes

Question 1.6 Which of the following are examples of markets?

a. wartime food rationing b. auction websites such as eBay c. touts selling tickets outside concert halls d. sale of illegal arms ANSWER: b, c, d

Question 1.1 What does UK GDP per capita measure?

a. the total output of London's economy b. the average disposable income of a UK national c. the total output of the UK nationals, divided by the number of the nationals d. the total output of the UK's economy, divided by the country's population ANSWER: d