Ch 3

In high-income countries, many central banks run highly expansionary policies that are successful in the short run. What is the interest rate associated with these policies?

0%

High-income countries both earn the majority of the world income and represent the highest percentage of the global population. True False

False

In an aggregate production function, GDP is commonly a primary input to production. True False

False

The government spending component of GDP only accounts for federal spending.

False

We call the economy's movement from peak to trough and trough to peak the depression cycle. True False

False

Why has it been politically challenging for governments to refocus efforts on new technology, education, and physical capital investment since the 2008-2009 recession? They have focused on short-term recovery, but not enough on the long-term. They have focused on long-term recovery, but not enough on the short-term. Efforts have instead been directed towards keeping the exchange rate constant. High-income countries do not prioritize the development of new technology, education, or physical capital investments.

They have focused on short-term recovery, but not enough on the long-term.

Low-income countries are those with at most $1,025 GDP per capita per year. True False

True

The total value of a nation's output is equal to the total value of a nation's income. True False

True

Within an economy's business cycle, what is the lowest point of a recession called? peak recovery trough upswing

trough

Domino's Pizza decides to buy a larger oven, which allows workers to produce more pizza in the same amount of time. This is an example of economies of scale increasing _______________. customer satisfaction human capital innovation worker productivity

worker productivity

Political instability within a country causes foreign direct investment to decrease dramatically, causing the economy to enter a recession, and decreasing real GDP from $80,000 to $50,000. What is the percent change in real GDP? Round your answer to the nearest tenth.

-37.5 50-80/80 100x-.375

How much of the world population do high-income countries represent? 1% 12% 25% 62%

12%

What percent of the global population do low income countries represent? 7% 12.5% 18.5% 33%

18.5%

How much of the world income do high-income countries earn? 31% 68% 87% 93%

68%

Which of the following statements is not always true? GDP has nothing to say about the level of inequality in society. A rise in GDP is representative of economic progress. GDP does not reflect all technology and products that are available. GDP accounts for production exchanged in the market.

A rise in GDP is representative of economic progress.

Although expansionary fiscal policies seem to work in the short-run in Japan, some experts argue that it's public debt is expected to approach what percentage of GDP?

According to the Economist, with public debt "expected to approach 240% of GDP," (as of 2012 it was 226 of GDP) printing money and public-works spending were only short-term solutions.

What are shortcomings of using GDP to measure the standard of living? GDP ignores all social aspects of life. GDP does not account for all kinds of work. GDP does not take into account environmental degradation. All of the above.

All of the above.

Which of the following is a reason that low-income countries are at a disadvantage? They save too much, disallowing for investments into physical and human capital. They all suffer from extreme hyperinflation. Any income earned are spent immediately on necessities such as food. They do not have strong alliances with high-income countries.

Any income earned are spent immediately on necessities such as food.

What is always true in a period of trade surplus? Domestic investment is greater than savings. Exports exceed imports. Government spends more than it collects in taxes. The value of domestic currency falls.

Exports exceed imports.

Depression and recession can be used interchangeably. True False

False

Economists believe that the single most important factor in labor productivity is the quantity of available labor. True False

False

After employing short-term solutions such as printing money and public-works spending, what percentage of Japan's GDP was public debt in 2012?

In 2012, Shinzo Abe, then newly-elected Prime Minister of Japan, unveiled a plan to pull his country out of its two-decade-long slump in economic growth. It included both fiscal stimulus and an increase in the money supply. The plan was quite successful in the short run. However, according to the Economist, with public debt "expected to approach 240% of GDP," (as of 2012 it was 226% of GDP) printing money and public-works spending were only short-term solutions.

What is not included in GDP

Intermediate goods, nonproduction transactions, non-market and illegal activities

____________________ have a per capita GDP between $1,025 and $12,475. High-income countries Middle-income countries Low-income countries

Middle-income countries

The figure below shows an index of output per hour, with 2009 as the base year (when the index equals 100). Based on the graph, which of the following describes the change in productivity in the U.S. economy since 1960? Productivity dropped in the 1960s and rose quickly in the 1970s and 1980s. Productivity rose quickly in the 1960s and 1990s compared to the 1970s and 1980s. The average U.S. worker produced less per hour in 2014 than in the 1970s. The average U.S. worker produced over twice as much per hour in 2014 as in the 1970s

Productivity rose quickly in the 1960s and 1990s compared to the 1970s and 1980s. The average U.S. worker produced over twice as much per hour in 2014 as in the 1970s

In high-income countries, how much of the GDP comes from agriculture? about 2% about 10% about 22% about 18%

about 2%

Which of the following conditions contributed to the modern economic growth of the last two centuries? advances in technology lack of education decreased income levels increased income levels

advances in technology increased income levels

Which of the following factors have a large impact on the standard of living in various places around the world, in addition to GDP? health education human rights all of the above

all of the above

What is included in GDP?

consumption, investment, government spending, net exports

A(n) ______ is an especially lengthy period, where real GDP experiences a severe drop. recession economic boom stagnation depression

depression

GDP is the current value of all final goods and services produced in a nation in a year. What are final goods? all the income produced in a year goods that go into producing other goods goods at the furthest stage of production at the end of a year none of the above

goods at the furthest stage of production at the end of a year

Which of the following groups of workers are not included when measuring dollar value per hour contributed to output? farmers workers in the non-profit sector government workers economists

government workers farmers

Heavy investments in which of the following areas enabled economic success for many middle-income countries like China? physical capital financial capital human capital research and development

human capital

The accumulated skills and education of workers is called _____________. human capital physical capital labor force intellectual property

human capital

In a trade deficit, ________. exports are greater than imports imports are greater than exports exports and imports are equal exports and imports have no impact on GDP

imports are greater than exports

Which of the following is not a component of demand used to measure GDP? consumption government spending income taxes net exports

income taxes

The goals of the U.S. Federal Reserve's macroeconomic policy include which of the following?

lower inflation decrease unemployment

An aggregate production function can be thought of as a(n) _______________ production function. accumulated macroeconomic microeconomic per capita

macroeconomic

All of the following are inputs for the aggregate production function with GDP as its output except: human capital technology physical capital per person workforce

physical capital per person

Which of the following is a common feature of low-income countries that inhibits raising overall income levels? insufficient technology political instability lack of access to education insufficient human capital

political instability

Which of the following does not reflect a goal of macroeconomic policy? encourage economic growth in a nation keep rates of unemployment low rapidly increase the overall level of prices prevent high rates of inflation

rapidly increase the overall level of prices

Which term refers to the value of a good or service after adjusting for changes in inflation? real value nominal value standard of living nominal gross domestic product

real value

A moderate decline in real GDP that lasts two or more consecutive quarters is known as a __________. depression economic boom recession fluctuation

recession

What does the rule of 72 approximate? the annual growth rate the time it takes to increase GDP by 50% the time it takes to double income the rate of return on capital

the time it takes to double income

Which of the following descriptions best fits the term nominal value? the amount of all income earned in a nation the value of all goods and services produced within a country in a year based on market prices the value of a good or service actually announced at the time and not adjusted for inflation the value of what is produced domestically and what is produced by domestic labor and business abroad in a year

the value of a good or service actually announced at the time and not adjusted for inflation

Why do some middle-income governments who aim to increase economic growth, sometimes select certain industries to receive low-interest loans or government subsidies? to exercise greater control over market forces and reduce firm participation in global markets to better control research and development and keep technology improvements in-house to increase market-oriented incentives for firms and workers to show interest in domestic businesses

to increase market-oriented incentives for firms and workers

Knowing that economic growth works best in a stable and market-oriented economic climate, why might high-income countries utilize monetary policy? to keep inflation low to minimize the risk of exchange rate fluctuations to lower the unemployment rate to reduce outflows of foreign capital

to keep inflation low to minimize the risk of exchange rate fluctuations

Why did many middle-income governments send students and government commissions abroad to look at the most efficient industrial operations elsewhere? to improve education and garner a broader perspective of educational techniques used in other nations to seek out better employment opportunities for graduates overseas to improve relations with businesses around the world and increase FDI to seek out applicable technology

to seek out applicable technology