Macroeconomics Chapters 6-9

Growth in nominal GDP over time can be caused by: Question 4 options: a) an increase in prices over time. b) an increase in production over time. c) an increase in both prices and production over time. d) neither an increase in prices nor an increase in production over time.

an increase in both prices and production over time

In the Solow model, if a country's saving rate (γ) increased from 10% to 12% and it was operating at its steady state before the change, we would expect to see: Question 32 options: a) a decrease in both the capital stock and output. b) an increase in the capital stock only. c) an increase in output only. d) an increase in both the capital stock and output.

an increase in both the capital stock and output.

Nonmarket production is not counted in GDP because these activities: Question 12 options: a) are not priced. b) are considered intermediate goods. c) do not contribute to economic activity. d) happen inside the home.

are not priced

Which of the following would be most effective in reducing "free riding" in a communal farming system? Question 22 options: a) assigning property rights b) increasing supervision of workers c) increasing penalties for low production d) increasing physical capital

assigning property rights

When the government increases borrowing by issuing bonds, bond prices then _____ and interest rates _____. Question 53 options: a) increase; decrease. b) decrease; increase. c) increase; increase. d) decrease; decrease.

decrease; increase.

When business firms become more pessimistic about the state of the economy, the interest rate _____ and the quantity of borrowing and lending _____. Question 49 options: a) increases; increases b) increases; decreases c) decreases; decreases d) decreases; increases

decreases; decreases

The Solow growth model features _____ returns to physical capital. Question 30 options: a) decreasing b) constant c) increasing d) no

decreasing

Countries on the "cutting edge" grow primarily by: Question 28 options: a) adopting ideas already used by other countries. b) capital accumulation. c) developing new ideas. d) eliminating waste and inefficiency.

developing new ideas.

A shortage of savings in the loanable funds market will: Question 48 options: a) drive market interest rates down. b) drive market interest rates up. c) increase the supply of loanable funds. d) increase the demand for loanable funds.

drive market interest rates up.

A country increases its human capital by engaging in: Question 20 options: a) research and development. b) education and training. c) programs that improve workers' health. d) investment in physical capital.

education and training

In a steady state, the level of investment: Question 35 options: a) exceeds depreciation. b) is equal to depreciation. c) is less than depreciation. d) could be equal to, greater than, or less than depreciation.

equal to depreciation

The production function is a mathematical function that shows: Question 29 options: a) the most cost-efficient means of producing output. b) the relationship between output and the factors of production. c) how various inputs are produced. d) the most efficient level of output produced in an economy.

the relationship between output and the factors of production.

Why do more corrupt countries have lower levels of GDP per capita? Question 23 options: a) Corrupt countries have no rule of law. b) Corrupt countries have higher than average taxes. c) Corrupt countries provide less incentive to produce and create wealth. d) Corrupt countries follow the doctrine of communism.

Corrupt countries provide less incentive to produce and create wealth.

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, how much new capital will be created in the next period? Question 31 options: a) 2 b) 4 c) 6 d) 8

4

(Figure: Loanable Funds Market) Refer to the figure of the loanable funds market. This market will be in equilibrium when the interest rate is _____ and the quantity of loanable funds is _____. Question 47 options: a) 3%; $180 b) 4.5%; $180 c) 4.5%; $250 d) 6%; $500

4.5%; $250

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? Question 17 options: a) 7% b) 10% c) 20% d) 25%

7%

Which of the following is the best definition of a recession? Question 8 options: a) A period of two consecutive quarters of declines in the level of real GDP. b) A period of significant, widespread decline in real income and employment lasting more than a few months. c) A decline in the stock market of 10% or more over a period of one year. d) A period of increasing unemployment rates lasting more than a year.

A period of significant, widespread decline in real income and employment lasting more than a few months

(Table: Wheat and Corn) Consider a country that produces only wheat and corn. Based on the data in the table, the country's real GDP for year 2008 (in 2005 dollars) is: Question 7 options: a) $111,360 million. b) $128,800 million. c) $139,440 million. d) $141,640 million.

$139,440 Million

(Table: Wheat and Corn) Consider a country that produces only wheat and corn. Based on the data in the table, the country's nominal GDP for year 2008 is: Question 6 options: a) $111,360 million. b) $141,640 million. c) $163,840 million. d) $198,120 million.

$198,120 Million

At an average growth rate of 4%, approximately how long would it take for an economy to double its GDP? Question 16 options: a) 17.5 years b) 25 years c) 50 years d) 70 years

17.5

The most common measure of the size of an economy is: Question 2 options: a) its national wealth. b) its GDP. c) its GDP per capita. d) its population.

GDP

Which of the following represents the factor income approach to splitting GDP? Question 11 options: a) GDP = wages + profit. b) GDP = wages + rent + interest. c) GDP = wages + rent + profit. d) GDP = wages + rent + interest + profit.

GDP = wages + rent + interest + profit

Which of the following statements is TRUE about GDP? Question 13 options: a) GDP includes all known goods and services in the underground economy. b) GDP includes a negative adjustment for damage caused by pollution. c) GDP does not account for the distribution of income in a country. d) GDP includes a positive adjustment for the value of leisure and well-being.

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

Why is the demand for loanable funds downward sloping? Question 45 options: a) People save less when the interest rate is low. b) More people borrow money when interest rates are low than when they are high. c) Fewer investment projects have returns that can beat higher interest rates, so people are more willing to invest at higher interest rates. d) People save more when the interest rate is high.

More people borrow money when interest rates are low than when they are high.

Since 1950, the portion of U.S. GDP created by services has: Question 3 options: a) remained relatively constant. b) fallen by a half. c) more than doubled. d) increased slightly.

More than doubled

Which of the following chains of logic explain the functions of banks in the process of economic growth? Question 51 options: a) Savers deposit their savings in banks. Banks direct these funds to firms that invest and engage in capital accumulation that furthers economic growth. b) Savers deposit their savings in banks. Banks engage in capital accumulation, which plays an important role in economic growth. c) Firms borrow from stock and bond markets issued through banks. These funds are used for investment, which leads to the capital accumulation that furthers economic growth. d) The demand for loanable funds is determined by banks and that demand fuels investment that in turn furthers economic growth.

Savers deposit their savings in banks. Banks direct these funds to firms that invest and engage in capital accumulation that furthers economic growth.

Why are transfer payments not counted as part of GDP Question 9 options: a) Transfer payments do not involve the purchase of a final good or service. b) Transfer payments are not spent within the United States. c) Spending by the unemployed and senior citizens is not included in GDP. d) Transfer payments are not counted because they must ultimately be paid back.

Transfer payments do not involve the purchase of a final good or service

Which of the following represents the national spending approach to splitting GDP? Question 10 options: a) Y = C + G + NX - M b) Y = C + I + G c) Y = C + I + G + NX d) Y = C + I + G - NX

Y = C + I + G + NX

In the Solow model, if a country's depreciation rate (δ) increased from 1% to 2% and it was operating at its steady state before the change, we would expect to see: Question 33 options: a) a decrease in both the capital stock and output. b) a decrease in the capital stock only. c) a decrease in output only. d) an increase in both the capital stock and output.

a decrease in both the capital stock and output.

Consumption smoothing means: Question 44 options: a) never borrowing. b) borrowing every year to consume more than one earns. c) borrowing to consume more than one's income in high-income years and consuming less than one's income in low-income years. d) borrowing to consume more than one's income in low-income years and consuming less than one's income in high-income years.

borrowing to consume more than one's income in low-income years and consuming less than one's income in high-income years.

Corruption is like a "tax" on firms because: Question 24 options: a) firms can file for a refund for the money paid as bribes. b) bribes add to a firm's production costs. c) firms usually pay bribes to avoid paying corporate taxes. d) firms have to pay a certain percentage of their profits at the end of the fiscal year as bribes.

bribes add to a firm's production costs.

Stock shares represent _____ and bonds represent _____. Question 50 options: a) corporate debt; corporate ownership b) corporate debt; corporate debt c) corporate ownership; corporate ownership d) corporate ownership; corporate debt

corporate ownership; corporate debt

The "iron logic" of diminishing returns in the Solow model means that: Question 38 options: a) eventually output will cease growing even though capital is still growing. b) eventually capital will cease growing even though output is still growing. c) capital and output will continue to grow indefinitely, but at a diminishing rate. d) eventually capital and output both will cease growing.

eventually capital and output will cease growing

In the long run, catching-up growth: Question 39 options: a) can continue indefinitely. b) eventually stops when the economy reaches its steady state. c) can explain an economy's growth in the very long run. d) keeps the capital stock growing indefinitely, but not output.

eventually stops when the economy reaches its steady state.

The principle of diminishing returns to capital implies that a country that loses much of its capital during a war will: Question 34 options: a) experience a slower growth rate than before the war. b) never catch up to its level of output before the war. c) never be able to replace the capital lost during the war. d) experience a faster growth rate than before the war.

experience a faster growth rate than before the war.

Economies more open to foreign trade are more efficient in production partly because: Question 26 options: a) more open economies tend to receive more foreign aid. b) foreign producers are more productive than domestic producers. c) free trade opens a country up to new ideas and innovation. d) property rights are less important in a more open economy.

free trade opens a country up to new ideas and innovation.

All else equal, time preference is the desire to: Question 42 options: a) have goods and services sooner rather than later. b) delay the purchase of goods and services. c) have goods and services in retirement years. d) have goods and services that are made in the current year.

have goods and services sooner rather than later.

What are the four factors of production that combine to contribute to the wealth of nations? Question 18 options: a) incentives, institutions, organization, and technical knowledge b) international trading partners, natural resources, efficient government, and low taxes c) human capital, physical capital, technical knowledge, and organization d) property rights, honest government, political stability, and a dependable legal system

human capital, physical capital, technical knowledge, and organization

In recent years, real GDP in China has grown: Question 27 options: a) at about the same rate as real GDP in the United States. b) much faster than real GDP in the United States. c) much slower than real GDP in the United States. d) faster than real GDP in the United States in some years, slower than real GDP in the United States in other years.

much faster than real GDP in the United States.

(Figure: Depreciation and Investment) According to this diagram of the Solow model, if the current capital stock is 70, then economic growth will be: Question 37 options: a) positive. b) zero. c) negative. d) in a steady state.

negative

The key to escaping the "iron logic" of diminishing returns in the Solow model is: Question 40 options: a) investment in physical capital. b) education and training to build human capital. c) new ideas. d) foreign investment.

new ideas

Increases in real GDP are considered the best measure of increases in living standards, because they measure: Question 5 options: a) only increases in prices. b) only increases in production. c) both increases in prices and increases in production. d) only increases in the cost of living.

only increases in production

The supply of savings is positively sloped because: Question 43 options: a) firms borrow more when interest rates are low. b) people are enticed to forgo consumption when interest rates are higher. c) when people have more incomes they save more. d) of time preference.

people are enticed to forgo consumption when interest rates are higher.

When economists speak of "long-run economic growth," they mean increasing the: Question 14 options: a) real GDP of a country. b) per capita real GDP of a country. c) geographic size of a country. d) population of a country.

per capita real GDP of a country

Countries with high GDP per capita tend to have a lot of: Question 21 options: a) physical capital per worker. b) human capital per worker. c) technological knowledge per worker. d) physical capital, human capital, and technological knowledge per worker.

physical capital, human capital, and technological knowledge per worker.

In economics, investment refers to the: Question 41 options: a) purchase of new capital goods. b) purchase of stocks and bonds. c) amount of personal savings in a bank. d) fund used to settle a debt.

purchase of new capital goods.

A country increases its technological knowledge by engaging in: Question 19 options: a) research and development. b) education. c) programs that improve workers' health. d) investment in physical capital.

research and development

One of the best explanations for why some countries are rich and others are poor is that: Question 25 options: a) technological knowledge is more advanced in rich countries than in poor countries. b) rich countries organize their factors of production more efficiently than poor countries. c) rich countries may have simply gotten lucky and poor countries remain unlucky. d) rich countries have far greater natural resources than poor countries.

rich countries organize their factors of production more efficiently than poor countries.

When investment exceeds depreciation, the capital stock: Question 36 options: a) falls and output falls. b) falls and output rises. c) rises and output falls. d) rises and output rises.

rises and output rises

(Figure: Loanable Funds Market) Refer to the figure of the loanable funds market. At an interest rate of 3% in this market, there is a _____ of loanable funds of _____. Question 46 options: a) shortage; $320 b) surplus; $250 c) shortage; $250 d) surplus; $320

shortage; $320

Which of the following best explains the crowding-out effect? Question 52 options: a) the decrease in the supply of loanable funds that results from an increase in budget deficits b) an increase in consumption amongst households that crowds out savings c) the decrease in investment opportunities for small businesses resulting from increased borrowing by larger corporations d) the decrease in investment from higher interest rates that results from increased government borrowing to finance larger budget deficits

the decrease in investment from higher interest rates that results from increased government borrowing to finance larger budget deficits

For most of recorded history, economic growth has been: Question 15 options: a) about the same as today. b) virtually nonexistent. c) a source of continuously rising living standards. d) a way to equalize the distribution of wealth around the world.

virtually non-existent