Econ 101 Mid-Term 2 MC

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According to Robert Solow, better ideas are responsible for about ___ of our standard of living. A) 15 percent B) 25 percent C) 50 percent D) 75 percent

According to the Solow model countries with higher savings rates have higher levels of A) investment. B) output. C) per capita GDP. D) All of the answers are correct.

According to the Solow model, a country will grow faster when its capital stock is A) at the steady-state value. B) above the steady-state value. C) just below the steady-state value. D) far below the steady-state value.

According to the Solow model, an increase in the fraction of output that is saved will increase ___ in the long run. A) investment. B) output. C) per capita GDP. D) All of the answers are correct.

According to the quantity theory of money, an increase in the money supply causes an increase in A) production. B) the velocity of money. C) real GDP. D) prices.

According to the quantity theory of money, the major cause of inflation in the long run is an increase in A) the standard of living. B) the velocity of money. C) the growth of real GDP. D) the growth of the money supply.

At an interest rate of 8%, borrowers demand is $30 billion. At 4%, borrowers would want to borrow A) $20 billion. B) $25 billion. C) $30 billion. D) $45 billion

Communal returns to work often lead to low worker effort. Why does this happen? I. It happens because of the free rider problem. II. Since the final payout depends on the number of people in the pool rater than an individual worker's effort, a worker does not have much incentive to work. III. It happens because workers learned from seeing the Chinese experience during "The Great Leap Forward." A) I only B) II only C) III only D) I and II only

Countries that have high per capita GDP have A) high levels of physical capital per worker. B) high levels of human capital per worker. C) high levels of technology per worker. D) high levels of all three factors of production.

Countries with high per capita GDP have institutions that make it in people's self-interest to invest in A) physical capital. B) human capital. C) technology. D) Each of these answers is correct.

Debt monetization mean that a government pays off its debt by A) lowering inflation. B) raising tax revenues. C) borrowing from foreigners. D) increasing the money supply.

Enforced property rights are important to increase which of the following? A) physical capital B) human capital C) technological knowledge D) All of the factors listed are correct.

Farmers who use tractors instead of horse-drawn plow have greater yields. Which factor of production explains this result? A) organizational skills B) natural resources C) technical knowledge D) physical capital

GDP is qual to: A) consumption + investment + wages + new exports B) consumption + investment + wages + profits C) consumption + investment + rent +profits D) consumption + investment + government spending + net exports

How do insecure property rights break the links between savings and economic growth? A) If people think they may lose the money they save in banks, they will not save as much, leading to decreased investment and thus decreased economic growth. B) If governments tend to nationalize companies, then people will not buy stock in those companies, leading to decreased investment and decreased economic growth. C) If governments tend to nationalize companies, then investors will hesitate to invest, leading to lower physical capital stocks and decreased economic growth. D) Each of these answers is correct.

Human capital is similar to physical capital in that it A) is dependent on government investment. B) decreases the growth rate. C) does not depreciate. D) has diminishing returns.

If a country's GDP per capita rises, this means that I. the country has fewer poorer people. II. some people in the country have more wealth. III. the country's standard of living is rising. A) I only B) II only C) III only D) II and III only

If interest rate increases, then A) the quantity saved will decrease but the quantity supplied of loanable funds will increase. B) the quantity saved will increase but the quantity supplied of loanable funds will decrease. C) both the quantity saved and the quantity supplied of loanable funds will decrease. D) both the quantity saved and the quantity supplied of loanable funds will increase.

If the average wage is $9 in country X and $8 in country Y and both countries have similar elasticities of labor supply and demand, then a minimum wage of $4 in both countries will tend to A) make unemployment higher in country X than in country Y. B) make unemployment higher in country Y than in country X. C) make unemployment the same in both countries. D) have no effect in either country.

If two or more people can use a good at the same time without preventing others from using it, the good is said to be a(n) A) durable good. B) public good. C) investment good. D) nonrivalrous good.

If you want to compare real GDP in 2000 and 2008, what prices can you use? I. 2000 prices for the 2000 GDP and 2008 prices for the 2008 GDP II. 2000 prices for GDP in both years III. 2008 prices for GDP in both years A) I only B) II only C) III only D) either II or III

In a small country each labor hour has capital stock equal to 900 units. This year it produced 20 units of new capital goods, which a depreciation rate of 20%, and a production function of Y=K^1/2. What will its level of capital stock per labor hour be next year? A) 920 units B) 720 units C) 900 units D) 740 units

In economics, investment refers to A) saving. B) dissaving. C) the purchase of consumption goods. D) the purchase of capital goods.

Trading in the market for loanable funds determines the equilibrium A) level of savings. B) amount of borrowing. C) interest rate. D) It determines all three of these.

What do we call an increase in the average level of prices in an economy? A) recession B) stagflation C) deflation D) inflation

What do we call income the ti sNOT spent on consumption goods? A) investment B) profit C) asset retention D) saving

A computer chip that you purchase for use in your home computer is an example of A) a final good. B) an intermediate good. C) a service. D) economic growth.

A country increases technological knowledge by engaging in activities that improve ___. A) research and development B) education C) workers health D) physical capital

A developing country could buy (or be given) ___ and ___ more easily than ___. A) technological knowledge; physical capital; human capital B) physical capital; human capital; technological capital C) human capital; technological capital; physical capital D) human capital; work experience; technological capital

A small country has 400 units of capital for each labor hour. This year it will produce 20 units of new capital goods and depreciate 5% of its capital stock. Based on this information it should expect to have ___ growth over the next year if technological advancement occurs; other wise it should expect to have ___. A) positive; no growth B) positive; positive growth but less than the amount it would have with technological advancement C) no; negative growth D) negative; positive growth

According to the Fisher effect, a 5% decrease in the expected inflation rate results in A) a 5 percent decrease in the nominal interest rate. B) a more than 5 percent increase in the nominal interest rate. C) a 5 percent decrease in the real interest rate. D) a more than 5 percent increase in the real interest rate.

According to the Fisher equation, if the expected inflation rate is less than the actual inflation rate, then the actual interest rate will be A) lower than the equilibrium interest rate. B) higher than the equilibrium interest rate. C) the same as the equilibrium interest rate. D) higher or lower than the equilibrium interest rate, depending on the degree of money illusion.

According to the consumption-smoothing theory, a person typically saves the most A) during working years. B) during retirement years. C) as an infant. D) as a full-time student.

Adults who do not have a job but who are looking for work are A) unemployed. B) not part of the labor force. C) unwilling to accept employment. D) Each of these answers is correct.

All else being equal, a working-age person who has more patience tends to have A) more savings. B) fewer savings. C) more collateral. D) less investment.

All else equal, an increase in savings will cause investment to A) increase. B) decrease. C) remain unchanged. D) first increase and then decrease.

All else equal, time preference is the desire to 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.

All of the high income economies of the world have ___ that generally incentivize individuals' self-interest by using ___. A) institutions; profit-seeking motives B) government mandates; legal penalties C) central planners; profit-seeking motives D) institutions; legal penalties

American culture contributes to economic growth through the encouragement of new ideas by A) supporting entrepreneurship. B) encouraging a high level of personal savings. C) supporting a retirement income for all citizens. D) expecting a high level of government ownership of manufacturing firms.

An assumption of the quantity theory of money is that real GDP A) remains relatively constant. B) rises with increases in the money supply. C) rises with increases in the velocity of money. D) rises with increases in the price level.

An assumption of the quantity theory of money is that the velocity of money A) remains relatively constant. B) rises with increases in the money supply. C) rises with increases in real GDP. D) rises with increases in the price level.

An increase in unemployment benefits tends to A) lower the incentive to search for a job and raise structural unemployment. B) lower the incentive to search for a job and lower structural unemployment. C) raise the incentive to search for a job and raise structural unemployment. D) raise the incentive to search for a job and lower structural unemployment.

An investment tax credit will cause the interest rate to ___ and borrowing to ___. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

As country has 24 million people in the labor force and 21.5 million of them are employed. What is the unemployment rate in this country? A) 10.4 percent B) 2.5 percent C) 89.6 percent D) 21.5 percent

At a 8% interest rate, the quantity of savings is $250 billion. What would the quantity of savings be if the interest rate falls to 5%? A) $190 billion B) $250 billion C) $300 billion D) $500 billion

At the beginning of the 19th century, growth rates in per capita GDP for different countries began to A) diverge. B) converge. C) equalize. D) fall.

Business cycles are short-term movements in real GDP around A) real GDP's long-term trend. B) nominal GDP's long-term trend. C) real GDP per capita's long-term trend. D) inflation's long-term trend.

Consumption: 875.5 Investment: 415.5 Wages and salaries: 794.8 Rent: 300.2 Profit: 391 Government Purchases: 380 Interest: 345 Exports: 520 Imports: 360 Use the factor income approach to national income accounting to calculate GDP for this country. A) $1,831 B) $2,651 C) $2,191 D) $1,911.7

Consumption: 875.5 Investment: 415.5 Wages and salaries: 794.8 Rent: 300.2 Profit: 391 Government Purchases: 380 Interest: 345 Exports: 520 Imports: 360 Use the spending approach to national income accounting to calculate GDP for this country. A) $1,831 B) $2,651 C) $2,191 D) $1,911.7

Consumption: 875.5 Investment: 415.5 Wages and salaries: 794.8 Rent: 300.2 Profit: 391 Government Purchases: 380 Interest: 345 Exports: 520 Imports: 360 What is the level of net exports in this country? A) $160 B) $520 C) $360 D) $1,831

Due to economies of scale, average costs decline as A) production levels increase. B) physical capital increases. C) human capital increases. D) technology increases.

Economists prefer using real GDP because other things held constant, increases in ___ represent true increases in the standard of living. A) production B) prices C) trade balances D) consumer spending

GDP per capita is GDP divided by A) population. B) the price level. C) the inflation rate. D) the unemployment rate.

Gross Domestic Product uses ___ to account for differences in the ___ final good and services. A) market prices; value of B) market prices; demand for C) quality measures; value of D) quality measures; demand for

Higher GDP growth A) decreases the unemployment rate. B) increases the unemployment rate. C) leaves the unemployment rate unchanged. D) makes the unemployment rate fluctuate randomly.

Higher unemployment benefits tend to A) increase the unemployment rate. B) reduce the unemployment rate. C) have no impact on the unemployment rate. D) increase, decrease, or leave the unemployment rate unchanged. It's not possible to tell without further information.

How might changes in the money supply be non-neutral in the short run? A) As the amount of money circulating in the economy changes before prices respond, consumers' purchases change accordingly, which leads producers to change production levels. B) When money supply changes in the short run, it will affect nominal, but not real, variables in the short run. C) As money growth increases at a faster rate, it will cause real GDP to grow at an equally faster rate. D) If producers expect inflation to increase, they will increase supply in order to sell before the arrival of inflation.

Identify the "bad" that is not counted in GDP. A) a decrease in water quality B) the purchase of a smokestack scrubber required by environmental regulation C) an increase in influenza vaccines D) a decrease in the average number of hours in the work week

If a national government improves its unemployment benefits, its unemployment rate will most likely A) increase. B) decrease. C) remain the same. D) follow the global trend, regardless of national policy.

If real GDP per capita in the US is currently $50,000 and grows at 2.5% per year, how many years will it takes t reach $200,000? A) approximately 56 years B) approximately 28 years C) approximately 84 years D) approximately 112 years

In a small country each labor hour has capital stock equal to 900 units. This year it produced 20 units pf new capital goods, with a depreciation rate of 10%, and a production function of Y-K^1/2. If there is no technological advancement, what will the growth rate in this country be over the next year? A) -3.96 percent B) 10 percent C) 2.4 percent D) -4.13 percent

In a small economy, the quantity of money circulating in the economy is $2.5 million≥ Real GDP for the current year is $5 million, and the price level is 2. What is the velocity of money? A) 4 B) 2 C) 2.5 D) 5

In the Solow model production function, an increase in capital stock with all other variables held constant will ___ the country's real Gross Domestic Product but at a(n) ___ rate. A) increase; decreasing B) decrease; decreasing C) increase; increasing D) decrease; increasing

In the Solow model, an increase in the investment rate will ___ the amount of capital needed to achieve a steady state of output. A) increase B) decrease C) not affect D) equal

In the loanable funds market, an increase in government borrowing will most likely A) decrease bond prices and increase interest rates. B) increase bond prices and decrease interest rates. C) increase both bond prices and interest rates. D) decrease both bond prices and interest rates.

In the quantity theory of money, the growth of ___ is the cause of inflation. A) the money supply B) velocity C) real GDP D) the CPI

Increases in the level of political stability in a country tent to A) increase per capita GDP. B) decrease per capita GDP. C) have no impact on per capita GDP. D) increase per capita GDP at lower levels of stability, but decrease per capita GDP at higher levels of stability.

Increasing the amount of physical capital tends to ___ output per hour of workers and ___ the value of workers. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

Long-term unemployment tends to be higher when the government I. raises job security. II. raises hiring and firing costs. III. lowers restrictions for firms to adjust work hours. A) I and II only B) II and III only C) I and III only D) I, II, and III

Maria normally earns $48,000 a year, in 12 installments of $4,000 each. From 2008 onwards, she has decided to work only nine months of the year. She also decided togo on a holiday and purchases a domestic airline ticket for $300. What is Maria's contribution to national GDP for the year 2008? A) $36,300 B) $36,000 C) $48,000 D) $72,300

Over one billion of the world's people liv eon less than ___ per day. A) $2.00 B) $5.00 C) $10.00 D) $12.00

Physical capital is the A) stock of tools including machines, structures, and equipment. B) productive knowledge and skills that workers acquire through education, training, and experience. C) knowledge about how the world works that is used to produce goods and services. D) organizational skills of business owners.

Problems in the banking and financial systems can remove the bridge between lenders and borrowers. Which of the following would be a consequence? A) Banking fees and other costs of intermediation rise. B) Consumers decide to become savers. C) There is decreased insider trading. D) Each of these answers is correct.

Product: Quantity(2008) Price(2008) Quantity(2009) Price(2009) Computers: 30 1,000 28 995 Pizzas: 100 10 150 15 Burgers: 200 20 210 20 Suppose an economy produces only three final goods listed in the table. If 2008 is the base year, then the nomination GDP in 2009 is ___ and the real GDP in 2009 is A) $34,310; $33,700. B) $35,350; $34,310. C) $33,700; $35,000. D) $35,000; $33,700.

Recessions can be defined as I. significant and widespread declines in real GDP and rising unemployment. II. significant and widespread declines in nominal GDP. III. a significant and widespread decline in economic activity with falling real GDP, falling unemployment, falling production, and falling sales. A) I only B) II only C) III only D) I and III only

Someone who recently moved of Florida because of its warmer climate will need to spend some time looking for a new job. This is an example of A) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) underemployment.

Structural unemployment is more persistent in France than in the US because A) French workers have less incentive to quickly seek a new position since their unemployment benefits are much higher. B) France's labor regulations require a mandatory waiting period before a worker can reapply for a new job. C) American workers have many more job opportunities than French workers. D) Labor unions are weaker in France than they are in the United States.

Suppose the money supply equals $100 million, the price level equals 40, and real GDP equals $50 million. Given this information, the velocity of money equals A) 20. B) 80. C) 100. D) 125.

Suppose you accept a job in Mexico after college, your income will be part of GDP in A) Mexico only. B) the United States only. C) both Mexico and the United States. D) neither Mexico nor the United States.

The Fisher effect indicates that an increase in the expected inflation rate will cause the real rate of interest to A) remain relatively constant. B) increase by the same amount. C) decrease by the same amount. D) become unpredictable.

The Solow model suggests that initially poor countries with steady-state levels of output ___ richer countries will grow ___ richer countries. A) similar to; faster than B) similar to; slower than C) lower than; at the same rate as D) higher than; slower than

The argument that "money is neutral in the long run" means that an increase in the money supply can A) increase real GDP only temporarily. B) decrease real GDP only temporarily. C) increase real GDP permanently. D) decrease real GDP permanently.

The common price indexes for measuring inflation include the I. consumer price index. II. GDP deflator. III. commodity price index. A) I and II only B) II and III only C) I and III only D) I, II, and III

The difference between nominal and real GDP is that nominal GDP is values in ___ year prices and real GDP is values in ___ year prices. A) current; base B) base; current C) current; average current D) average base; inflated current

The labor force participation rate of a country tens to be higher if the government A) allows retirees to work and receive government pension without penalty. B) allows retirees to work only if they give up government pensions. C) allows retirees to work only when they pay higher income taxes than younger workers. D) does not allow retirees to work at all.

The natural unemployment rate consists of A) frictional and structural unemployment. B) frictional and cyclical unemployment. C) structural and cyclical unemployment. D) frictional, cyclical, and structural unemployment.

The natural unemployment rate is defined as the A) structural plus frictional unemployment rates. B) structural plus cyclical unemployment rates. C) frictional plus cyclical unemployment rates. D) frictional plus cyclical plus structural unemployment rates.

The short-term unemployment caused by the ordinary difficulties of matching employee to employer is called A) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) seasonal unemployment.

The supple of savings function is A) upward sloping. B) downward sloping. C) vertical. D) horizontal.

The supply o loanable funds comes from ___ and the demand for loanable funds comes from ___. A) saving; investment B) investment; saving C) saving; consumption D) investment; consumption

The value of a car produced and sold in 2000, and sold again in 2008, should be included in GDP for A) 2000 only. B) 2008 only. C) both 2000 and 2008. D) either 2000 or 2008, but not both.

Tim buys a house from Betty in 20011 for $200,000. Betty receives $185,000 and $15,000 goes to Mary, the real-estate agent. Betty originally purchases the home in 2007 for $240,000. What value is added to GDP in 2011 for this transaction? A) $15,000 B) -$40,000 C) $200,000 D) -$65,000

Wealthier nations tend to have A) better educational opportunities. B) lower infant survival rates. C) lower life expectancy rates. D) None of the answers is correct.

Wha population categories go into the formula for the unemployment rate? A) unemployed and employed B) civilian, military, and unemployed C) adults not in labor force, employed, and unemployed D) None of the answers is correct.

What defines the "rules of the game" that structure economic incentives? A) institutions B) economic laws C) property rights D) open markets

What does crowding out mean? A) Government borrowing causes private investment and consumption to decrease. B) Too many private lenders make it difficult for the government to borrow. C) Too many private savers compete for higher rates of return. D) The government gives tax breaks to many segments of the economy at one time.

What is meant by a nonrivalrous good? A) Additional people can consume a good without diminishing another's consumption. B) There exists a perfectly competitive market for the good. C) There is only a single consumer of the good. D) None of these answers is correct.

What is the most promote (or direct) cause of growth in real GDP per capita? A) the factors of production B) institutions C) political system in the economy D) incentives

What of the following has the greatest potential for solving free rider problems? A) property rights B) stable political system C) education D) rule of law

When industries are limited by the size of the domestic market, opening trade to the world markets will likely lead to ___ and ___ real GDP per capita in the domestic country. A) economies of scale; increase B) economies of scale; decrease C) diseconomies of scale; increase D) diseconomies of scale; decrease

When the Communist Party took over China, they instituted "The Great Leap Forward" as a system of reforms to encourage the growth of agricultural production in China. Yet, during this time, thousands of farmers starved. Why did this occur? A) Farmer self-interest was not aligned with social interest. B) The land and its output were assigned to individuals. C) The farmers had violated government policy. D) The farmers were being jailed.

When workers lose their jobs and become officially unemployed, the labor force participation rate A) remains constant. B) increases. C) decreases. D) becomes difficult to predict.

When workers lose their jobs and become officially unemployed, the number of people in the labor force A) remains constant. B) increases. C) decreases. D) becomes difficult to predict.

Which index measured price increases that typical American consumers face when shopping? A) CPI B) PPI C) GDP deflator D) GDP inflator

Which of the following are underground goods and services not counted in GDP? A) prostitution activities in Atlanta B) volunteering in classrooms in Seattle C) strip clubs on Bourbon Street in New Orleans D) None of these answers is correct.

Which of the following is NOT a governmental program that would encourage technological advancement? A) requiring banks to offer no-money-down incentives for loans to buy homes B) creation and enforcement of patent and copyright laws C) providing loans to people to obtain higher education in the basic sciences D) providing a tax credit for businesses that conduct research and development

Which of the following is NOT directly related to human capital? A) a life-saving drug B) work experience C) schooling D) an understanding of chemistry

Which of the following is an example of an increase in human capital? A) an increase in the training of bone cancer researchers B) an increase in the use of bone cancer research centers C) the discovery of a cure for bone cancer D) an increase in the number of scientists working on curing bone cancer

Which of the following is an example of money illusion assuming that inflation is 5%? A) You receive a 5 percent raise on your part-time job and start spending extra money on entertainment every weekend. B) You receive a 5 percent raise on your part-time job, but do not increase or decrease your spending. C) You do not receive a raise on your part-time job, but cut out some expenses as you notice some prices rising. D) None of the answers is correct.

Which of the following is correct? A) If investment > depreciation, the nation's capital stock will grow. B) If investment < depreciation, the nation's capital stock will grow. C) If investment = depreciation, the nation's capital stock will grow. D) If investment > depreciation, the nation's capital stock will stay constant.

Which of the following would be most effective in reducing free ridership on a communal farming system? A) assigning property rights B) increasing supervision of workers C) increasing penalties for low production D) increasing physical capital

Why do rating agencies rate bonds? A) to indicate the chance of a bond being repaid B) to show a bond's probable rate of return C) to validate the amount of collateral involved D) Each of these answers is correct.

Why will growth in China slow down? I. The productivity of its capital will decline. II. There are problems within its systems of government, banking, and education. III. It has too many people to sustain this level of production. A) I and II only B) I and III only C) II and III only D) I, II, and III

If a nation doubles its GDP per capita in 20 years, what is its annual growth rate? A) 3.5 percent B) 4.2 percent C) 6.5 percent D) 7 percentq

A 2. A 3. B 4. C 5. B 6. D 7. A 8. D 9. A 10. A 11. A 12. A 13. A 14. D 15. A 16. B 17. D 18. A 19. C 20. B 21. C 22. D 23. B 24. A 25. C 26. A 27. C 28. B 29. C 30. B 31. D 32. D 33. A 34. D 35. B 36. B 37. C 38. A 39. D 40. C 41. D 42. B 43. C 44. D 45. C Page 15 46. A 47. D 48. D 49. A 50. D 51. D 52. A 53. A 54. D 55. C 56. B 57. B 58. B 59. D 60. A 61. C 62. A 63. C

Which of the following illustrates the principle of free riding? A) a real estate agent who is consistently late to appointments B) a student who uses scholarship money to pay all college tuition and fees C) a member of a club who refuses to do fund-raising for club activities D) Each of these is an example of free riding.

A 2. A 3. B 4. C 5. B 6. D 7. A 8. D C

A computer chip sold to Dell is an example of A) a final good. B) an intermediate good. C) a service. D) economic growth.

A country increases human capital by engaging in activities that improve ___. A) research and development B) education C) income distribution D) physical capital

A country that has enforceable property rights, a non-corrupt political system, abundant factors of production, and a bloody coup every few years, should suspect that economic growth will be ___ because ___. A) slow; of a lack of a dependable legal system B) slow; of uncertainty due to an unstable political system C) high; most of the institutions needed for growth are in place D) high; once a group comes to power all the institutions needed for growth exist

A country's GDP (in billions) was $5,690 in 2010 and $5,899 in 2011. What is the nominal growth rate of GDP? A) 3.54 percent B) 3.67 percent C) 9.64 percent D) None of the answers is correct.

A decrease in investment demand A) results in the same equilibrium as an increase in savings. B) decreases both the amount saved and the interest rate. C) increases the amount saved but decreases the interest rate. D) increases the demand for loanable funds.

A small country has an aggregate production function per hour of labor given by Y=K^1/2. Its depreciation rate is 1% and its investment rate is 10%. What is its steady-state level of capital? A) 10 B) 100 C) 1 D) You need to know the steady-state level of RGDP to answer this question.

A worker who works past retirement age but loses retirement benefits A) is practicing consumption smoothing. B) is essentially being taxed for working. C) usually has a greater net gain from working. D) Each of these answers is correct.

According to the Fisher equation, the nominal interest rate equals the expected inflation rate A) less the equilibrium real interest rate. B) plus the equilibrium real interest rate. C) multiplied by the equilibrium real interest rate. D) divided by the equilibrium real interest rate.

According to the quantity theory of money, a nation that increases its money supple by 30% should expect its price level to increase by approximately A) 15 percent. B) 30 percent. C) 45 percent. D) 60 percent.

According to the quantity theory of money, an increase in the money supply will cause the price level to A) remain relatively constant since money is neutral. B) increase by the same percentage as the money supply. C) increase by a greater percentage than the money supply. D) increase by a smaller percentage than the money supply.

According to the textbook, Joseph Schumpeter's "creative destruction" results in A) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) underemployment.

Account: Amount Consumption expenditures: 9,000 Business profits: 2,500 Exports: 800 Imports: 1,000 Wages and Salaries: 8,000 Government expenditures on final goods and services: 3,000 Rent receipts: 500 Investment expenditures: 2,000 Calculate the value of GDP from the information in this table. A) $13,000 B) $13,800 C) $14,800 D) $26,800

An increase in the rent you pay for your apartment will A) contribute to GDP as an investment. B) contribute to GDP as a purchase of goods and services. C) not contribute to GDP. D) only contribute to GDP if you are a U.S. citizen.

Approximately how many prices of good and services are measured by the CPI? A) 800,000 B) 80,000 C) 800 D) 80

Assume that a country's production function changes from Y=2√(K) to Y=3√(K). Which of the following could explain the change in this production function? A) the disappearance of diminishing returns from the production function B) the arrival of robotic technology in production C) greater capital accumulation D) less depreciation due to better capital stock maintenance.

Average Annual Growth Rate of Per Capita GDP Country: 1950-1960 1980-1990 Germany: 6.6% 1.9% Japan: 6.8% 3.4% US: 1.2% 2.3% The table shows growth rates for Germany, Japan, and the US in both the post-WWII period from 1950-1960 and then again from 1980-1990. Which of the following explains why Germany and Japan experienced such high growth rates just after the Second World War? A) Trade agreements between Germany and Japan greatly enhanced economic growth. B) High MPK levels contributed to significant per capita output growth. C) Their technological advances at this time were higher than those of the United States. D) All of the answers are correct.

Between 1978 and 1983, food production in China rose by 50% and 170 million people rose above the international poverty line. This occurred because of A) the institution of the "it is glorious to be rich" policy. B) the return to private property rights in farming. C) the fall of communism in China. D) the teaching of Mao Zedong.

Both ___ and ___ reduce the quantity of labor demanded. A) minimum wages; unemployment benefits B) minimum wages; union wages C) union wages; unemployment benefits D) retraining programs; union wages

Considering the incentives for the private market to conduct research and development, we expect that the amount of research and development conducted by the private sector would be ___ the efficient level because of the ___ property of new knowledge. A) equal to; rivalrous B) less than; nonrivalrous C) more than; rivalrous D) more than; nonrivalrous

Decreases in the level of political stability in a country tend to A) increase per capita GDP. B) decrease per capita GDP. C) have no impact on per capita GDP. D) increase per capita GDP at lower levels of stability, but decrease per capita GDP at higher levels of stability.

During recessions the unemployment rate A) decreases. B) increases. C) remains relatively constant. D) fluctuates randomly.

Final goods are goods A) used to produce other goods. B) consumed or held in personal inventories. C) used up in the production process. D) that cannot be exported.

Frictional unemployment is best defined as A) long-term unemployment caused by changing features of an economy. B) short-term unemployment caused by difficulties of matching employees to employers. C) unemployment caused by cyclical conditions of an economy. D) a normal level of unemployment caused by high wages.

Human capital is the A) stock of tools including machines, structures, and equipment. B) productive knowledge and skills that workers acquire through education, training, and experience. C) knowledge about how the world works that is used to produce goods and services. D) organizational skills of business owners.

Hyperinflation refers to the case in which inflation A) remains relatively constant. B) is extremely high. C) is extremely low. D) is extremely unpredictable.

I the government raises taxes on investment returns, then A) the demand for loanable funds will increase, and the equilibrium interest rate will increase. B) the demand for loanable funds will decrease, and the equilibrium interest rate will decrease. C) the supply of loanable funds will decrease, and the equilibrium interest rate will increase. D) the supply of loanable funds will increase, and the equilibrium interest rate will decrease.

If expected inflation is higher than actual inflation, then A) wealth will be redistributed from lenders to borrowers. B) wealth will be redistributed from borrowers to lenders. C) both borrowers and lenders will gain wealth. D) both borrowers and lenders will lose wealth.

If government legislation requires businesses to switch to a different method of production that generates 50% fewer greenhouse gas emissions, compliance to this policy (assuming no other changes) can be illustrated in the Solos model by ___ the aggregate production function that leads to a ___ level of real GDP per person. A) a shift up of; higher B) a shift down of; lower C) a movement to the right on; higher D) a movement to the left on; higher

If output in an economy is 500, and the investment function is 0.25Y, A) 125 units of output are being consumed. B) 375 units of output are being consumed. C) 100 units of output are being consumed. D) 400 units of output are being invested.

If the interest rate rises from 5% to 9%, the number of new businesses will A) increase. B) decrease. C) remain the same. D) sharply increase, then level off.

If the velocity of money and real GDP are fixed, then the quantity theory of money implies that the price level will A) increase at a lower rate than the growth in the money supply. B) increase at the same rate as the growth in the money supply. C) increase at a higher rate than the growth in the money supply. D) be unrelated to the growth in the money supply.

In 2010, real GDP was $13.2 trillion and the GDP delator was 110.6. What was nominal GDP for that year? A) $14.3 trillion B) $14.6 trillion C) $12.1 trillion D) $11.9 trillion

Increases in the level of corruption in an county tend to A) increased per capita GDP. B) decreased per capita GDP. C) have no impact on per capita GDP. D) increased per capita GDP at lower levels of corruption, but decreased per capita GDP at higher levels of corruption.

Inflation generally causes the taxes paid by individuals and business firms to A) remain relatively constant. B) increase. C) decrease. D) become less of a burden.

Insecure property rights typically lead to A) an increase in the supply of savings. B) a decrease in the supply of savings. C) an increase in the demand to borrow. D) a decrease in the demand to borrow.

Institutions A) are unimportant in market economies. B) provide structure for economic incentives. C) matter only when backed by law. D) Each of these answers is correct.

Long waits and expenses in starting a business occur mostly in what countries? A) wealthy countries B) poor countries C) countries with large quantities of natural resources D) countries with just and equitable legal systems

Member nations of the Organization for Economic Co-Operation and Development (OECD) with a lower GDP per capita in 1960 experienced what sort of growth during the subsequent 40 years? A) relatively lower growth than higher GDP per capita countries B) relatively faster growth than higher GDP per capita countries C) no growth at all D) similar growth as countries with a high 1960 GDP per capita

One of the indicators of a country's economic well-being is infant mortality. Most of the world's children live in countries with an infant mortality rate that is A) about the same as the infant mortality rate in the United States. B) well above the infant mortality rate in the United States. C) below the infant mortality rate in the United States. D) close to zero.

Product: Quantity(2008) Price(2008) Quantity(2009) Price(2009) Computers: 25 800 30 1,000 Pizzas: 90 9.00 100 10.00 Burgers: 180 1.80 200 2.00 Suppose an economy produces only these three final goods. The table gives information on the quantities produced and price of goods sold in the current year, 2009, and the previous year, 2008. If the base year is 2008, what is the real GDP in 2008? A) $25,260 B) $21,134 C) $26,260 D) You cannot answer the question without the quantities of the goods in the base year.

R&D spillovers A) reward research and development. B) are nonrivalrous. C) only benefit the inventor. D) keep ideas within a country.

South Korea's high investment rate of 35% in the late 1990s helped ensure that ___ would be higher, even thought its ___ slowed. A) population; education rate B) GDP; growth rate C) growth rate; GDP D) growth rate; savings rate

Suppose a country has real GDP of $10,000 at the beginning of the year 2005. Each year the economy grows by 5%. By how much will GDP rise by the end of 2007? A) $500 B) $1,576.25 C) $1,500 D) $1,025

Suppose you accept a job in Mexico after college, you income will be part of GNP in A) Mexico only. B) the United States only. C) both Mexico and the United States. D) neither Mexico nor the United States.

Technological advances are generally expected to have ___ spillovers. A) negative B) positive C) no D) both positive and negative

The Fisher effect indicates that an increase in the expected inflation rate will cause the nominal rate of interest to A) remain relatively constant. B) increase by the same amount. C) decrease by the same amount. D) become unpredictable.

The actual real rate of feature for lenders is equal to A) the nominal rate of return plus the inflation rate. B) the nominal rate of return minus the inflation rate. C) the nominal rate of return times the inflation rate. D) the nominal rate of return divided by the inflation rate times 100.

The argument that "inflation is always and everywhere a monetary phenomenon" is consistent with A) the theory of price confusion. B) the quantity theory of money. C) the theory of money illusion. D) the Fisher effect.

The books "inflation parable" refers to the fact that an unexpected change in the money supply affects A) real GDP only in the long run. B) real GDP only in the short run. C) real GDP in both the short run and the long run. D) only inflation in the short run.

The demand to borrow function is A) upward sloping. B) downward sloping. C) vertical. D) horizontal.

The labor force includes persons who are I. in prison. II. recently laid off and have given up looking for work. III. unemployed. A) II only B) III only C) II and III only D) I, II, and III

The larger the spillovers the stronger the argument for A) research and development. B) government subsidies. C) government taxation of excess profits. D) economic growth.

The lifecycle theory of savings predicts individuals will save during A) the early years of life. B) the middle years of life. C) the later years of life. D) all phases of life.

The marginal product of capital I. refers to the cost of purchasing one extra unit of capital. II. is expected to be higher for very poor countries relative to wealthy countries. III. increases as capital accumulation occurs. A) I only B) II only C) II and III only D) III only

The natural unemployment rate includes the rates of I. cyclical unemployment. II. structural unemployment. III. frictional unemployment. A) I and II only B) II and III only C) I and III only D) I, II, and III

The optimal private investment in R&D would likely be ___ the optimal social investment.A) the same as B) less than C) greater than D) half of

The persistent, long-term unemployment caused by long-lasting shocks or permanent features of an economy is called A) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) seasonal unemployment.

The preference is the desire to A) save for a time when income will be reduced. B) have goods and services sooner rather than later. C) maximize return on investment in the shortest amount of time. D) increase longevity in order to have a greater income.

The quantity theory of money describes the relationship between A) prices, employment, money, and production. B) money velocity, money, real output, and prices. C) GDP, money, consumption, and savings. D) None of the answers is correct.

The quantity theory of money is a theory of A) money growth in the United States. B) inflation. C) economic growth. D) the growth of tax burdens.

The reason that the US has experienced sustained economic growth for over 200 year is mostly due to which of the following? A) timely replacement of physical capital B) continued advances in technological knowledge C) steady increases in population D) strategic government planning

The situation in which the government pays off its debts by printing money is called A) a money illusion. B) monetizing the debt. C) disinflation. D) the quantity theory of money.

The value of volunteer services is A) included in GDP, but should not be because nothing tangible is produced. B) not included in GDP, but should be because a service is produced. C) included in GDP and should be because a service is produced. D) not included in GDP and should not be because nothing tangible is produced.

Theoretically, why should the expenditure and income approaches to calculation GDP give us the same results? A) because they have the same components B) because every dollar spent is a dollar earned C) because of accounting errors D) because theoretically consumption equals the sum of all factor incomes

Type: 1995 2005 Frictional: 1.5 1 Cyclical: 3.4 4.7 Structural: 2.5 1.9 What is the natural unemployment rate for this country in the year 1995? A) 1.5 percent B) 4 percent C) 3.4 percent D) 2.5 percent

Wha tis the potential of a bond lender not being able to repay the bond holder called? A) moral hazard B) default risk C) payment jeopardy D) repayment peril

What are the components of the National Spending Approach to calculating GDP? A) consumption expenditures, transfer payments, and government investment B) private investment, sale of new and used goods, net exports, and transfer payments C) consumption goods and services, investment goods, government purchases, and net exports D) wages, rent, interest, and profit

What effect will an investment tax credit have on interest rates and the quantity of savings? A) None, investment tax credits only affect the amount of taxes paid by firms. B) Both interest rates and the quantity of savings will increase. C) Interest rates will decrease and the quantity of savings will increase. D) Interest rates will not change, but the quantity of savings decreases.

What has led to the high growth rate in China's economy over the last twenty-five years? A) an increasing population B) improved worker productivity C) better government planning D) a decrease in interest rates

What is the largest stock exchange in the world? A) the Börse in Frankfurt B) the NYSE C) the NASDAQ in New York D) the Tokyo Stock Exchange

What is the most harmful consequence to GDP from interest rate ceilings? A) Lenders cannot earn a normal market return. B) Investment falls, dragging down GDP and future growth. C) Consumption increases and savings get too high. D) Each of these answers is correct.

What is the term for workers who have given up toking fro a job but would still like one? A) jobless workers B) discouraged workers C) laid off workers D) discarded workers

What type of laws affects young, minority, and unemployed workers most negatively? A) employment-at-will B) employment protection C) constructive discharge D) fair labor

When a person's income is greater than her spending on consumption goods, then she is A) dissaving. B) saving. C) investing. D) disinvesting.

When business firms become more pessimistic about the state of the economy, the A) demand to borrow shifts outward. B) demand to borrow shifts inward. C) supply of savings shifts outward. D) supply of savings shifts inward.

When the US government borrows, it sells A) federal paper. B) treasury bonds. C) government stocks. D) Each of these answers is correct.

When workers lose their jobs and become officially unemployed, m the unemployment rate A) reamins constant. B) increases. C) decreases. D) becomes difficult to predict.

Which of the definitions below best defines Gross Domestic Product? A) Gross Domestic Product is the market value of all final goods and services sold within a country in a year. B) Gross Domestic Product is the market value of all final goods and services produced within a country in a year. C) Gross Domestic Product is the market value of all goods and services produced within a country in a year. D) Gross Domestic Product is the market value of all final goods and services produced by a country's permanent residents, wherever located, in a year.

Which of the following best defines a nation's labor force? A) the total number of persons between the ages of 16 and 65 B) the total number of employed and unemployed persons C) the total number of persons working full time and part time D) the total number of persons who are willing and able to work but cannot find a job

Which of the following individuals can be counted as part of the labor force? A) someone who retired four months ago B) someone who is collecting unemployment benefits C) someone who just celebrated a fifteenth birthday D) someone who is on active military duty in Afghanistan

Which of the following is NOT shown in the Solow growth model? A) Growth will be faster the further away a country's capital stock is below its steady state value. B) The reasons that some countries might devote a larger share of output to investment. C) Capital accumulation cannot explain long-run economic growth. D) Countries that devote a larger share of output to investment will be wealthier.

Why do some economists think that GDP may overestimate the actual level of economic activity in an economy? A) There is no positive adjustment for the underground economy. B) There is no negative adjustment for pollution. C) It does not account for the distribution of income in a country. D) There is no positive adjustment for leisure and well-being.

Why has technology lowered frictional unemployment over time? I. Many people who used to be frictionally unemployed are now employed in the technology sector. II. The Internet has made it easier and faster for people to search for jobs that require their particular skill sets. III. The Internet has made posting jobs easier and faster for employers. A) I and II only B) II and III only C) I and III only D) I, II, and III

Why us real GDP not seen as a perfect measure of production in an economy? A) because it is only an estimate and contains accounting errors B) because it does not count the underground economy or nonmarket production C) because it is negatively adjusted for leisure, but not for environmental impacts D) All of the answers are correct.

With additional education, the marginal product of human capital A) increases at an increasing rate. B) increases at a decreasing rate. C) is relatively constant. D) decreases and then increases.

Workers ability to use various tools is known as ___. A) technological knowledge B) human capital C) knowledge D) experience

You sell you old bedroom set to your roommate for $1,800 and buy brand new custom built furniture for $16,000. How much is added to GDP? A) $1,800 B) $16,000 C) $17,800 D) None of these answers is correct.

A saver buys a $10,000 zero-coupon government bond for $9,375. When it matures a year from now, what will be the approximate implied interest rate? A) 625 percent B) 6.25 percent C) 6.67 percent D) 12.67 percent

A corporation is planning to finance the construction of new offices but has limited funds. The corporation is likely to A) supply loanable funds by selling bonds. B) supply loanable funds by buying bonds. C) demand loanable funds by selling bonds. D) demand loanable funds by buying bonds.

A country has a 2008 growth rate of 4.2% and a 2007 GDP of $8,222 (in billions). What was the GDP in 2008? A) $7,876 B) $8,355 C) $8,567 D) $8,635

A country has a population of 160 million. Thirty million of its people are under the age of 16, and 10% of the population is either in the military or institutionalized. Seventy million people have jobs and 5 million are looking for work. What is the labor force participation rate in you country? A) 52 percent B) 62 percent C) 66 percent D) 70 percent

A major problem with inflation is that after it starts A) it always stops quickly because the economy always corrects itself naturally. B) it is easy to stop as long as it is fully expected. C) it is difficult to stop without experiencing high unemployment. D) it can never be stopped with any government policy

A patent I. provides temporary monopoly power to the company that receives it. II. usually does not expire. III. is issued by the government. A) II only B) I and II only C) I and III only D) I, II, and III

A recession is a significant, widespread decline in A) interest rates and inflation B) employment and inflation C) employment and real income D) inflation and real income

A rural village in a developing country has an economy based on agriculture. Then the government of the country provides the village with newly developed hybrid seeds that more than double the agricultural yield per acre. This story illustrates the growth of per capita GDP in the village through which factor(s) of production? A) physical capital B) human capital C) technological knowledge D) both human capital and technological knowledge

A small economy has a current real GDP per capita level of $2,000 and a GDP growth rate of 2%. Use the Rule of 70 to estimate how long it would take for this economy to quadruple its GDP per capita. A) 10 years B) 14 years C) 70 years D) 35 years

All other things equal, increases in capital will cause output to A) increase at an increasing rate. B) increase at a constant rate. C) increase at a decreasing rate. D) remain constant.

As more units of capital are added, output A) increases at an increasing rate. B) increases at a constant rate. C) increases at a decreasing rate. D) remains constant.

As more units of capital are added, the marginal product of capital A) increases. B) decreases at first, then increases. C) decreases. D) remains constant.

Changing demographics, cultural attitudes about women, and government tax policies all affect A) frictional unemployment. B) the unemployment rate. C) the labor participation rate. D) None of the answers is correct.

Compared to the US, unemployment rates in Western Europe tend to be A) lower because of more labor regulations. B) lower because of fewer labor regulations. C) higher because of more labor regulations. D) higher because of fewer labor regulations.

Crowding out occurs because the government increases the demand for loanable funds, drives up interest rates, and I. stops private savers from saving. II. causes investment to fall. III. causes consumption to fall. A) I only B) II only C) II and III only D) I and III only

Employment protection laws tend to A) I and II only B) II and III only C) I and III only D) I, II, and III

Financial intermediation can break down as a result of I. low and stable inflation II. government controls on interest rates III. bank failures A) I and II only B) I and III only C) II and III only D) I, II, and III

For a given nominal interest rate, an increase the inflation rate will cause real interest rates to A) remain relatively constant. B) increase. C) decrease. D) become unpredictable.

GDP can be defined as the A) market value of all final goods and services produced within a country. B) market value of all goods and services produced within a country in a given year. C) market value of all final goods and services produced within a country in a given year. D) market value of all final goods produced within a country in a given year.

Higher implicit tax rates tend to cause labor force participation rates to A) remain constant. B) increase. C) decrease. D) behave unpredictably.

How do banks engage in specialization and division of labor? A) Banks are the only avenue for savers to save their money and for borrowers to borrow for projects. B) Banks specialize in lending to risky borrowers. C) Banks coordinate the collection of lenders' funds and employ specialists in risk assessment to assure their safety. D) Banks specialize in the use of ATM cards.

If a country is at its stay-state level of capital stock, which of the following will NOT result in economic growth in future years, ceteris paribus? A) a technological advancement B) an increase in the savings rate C) producing capital at its current rate D) a decrease in the depreciation rate

If a country's saving preference increased from 10% to 12% of disposable income and it was operating at its steady state before the change, we would expect to see which of the following? I. a decrease in capital stock II. a decrease in real GDP III. an increase in real GDP IV. an increase in capital stock A) I and II only B) II and III only C) III and IV only D) I and III only

If a price index increased from 400 to 440 over the course of a year, then the inflation rate is A) 4 percent. B) 9 percent. C) 10 percent. D) 40 percent.

If consumers expect to have shorter life expectancy and desire to save less, then the A) demand for loanable funds will increase, and the equilibrium interest rate will increase. B) demand for loanable funds will decrease, and the equilibrium interest rate will decrease. C) supply of loanable funds will decrease, and the equilibrium interest rate will increase. D) the supply of loanable funds will increase, and the equilibrium interest rate will decrease.

If nominal GDP rose in 2008, we can conclude that A) production rose in 2008. B) the price level rose in 2008. C) either production or the price level, or both, rose in 2008. D) neither production nor the price level rose in 2008.

If output in an economy is 20, and the investment function is 0.25Y, A) 16 units of output are being consumed. B) 25 units of output are being invested. C) 15 units of output are being consumed. D) 20 units of output are being invested.

If the annual growth rate of a nation is 5%, how many years would it take for the GDP per capita to double? A) 10 B) 12 C) 14 D) 17.5

If the depreciation rate is 0.03 and the capital stock is 200, how many units will depreciate? A) 2 B) 3 C) 6 D) 12

If the price level in the year 2000 is 100, and the price level i noted year 2001 is 110, what is the inflation rate in 2001? A) 100 percent B) 110 percent C) 10 percent D) 9 percent

If, in an economic panic people decide to hold their money rather than spend it, the velocity of money will A) remain relatively constant. B) increase. C) decrease. D) become unpredictable.

In 2010, real GDP was $13.2 trillion and nominal GDP was $14.6 trillion. What was the GDP deflator for that year? A) 90.4 B) 192.7 C) 110.6 D) There is not enough information to calculate the GDP deflator.

In a small economy, the rate of money growth for the current year is 2%. Velocity of money circulation is stable. Inflation is expected to be about 1.5% over the current year. What is the short run economic growth rate? A) 3.5 percent B) 1.5 percent C) 0.5 percent D) 2 percent

In a steady state, the capital stock A) increases. B) decreases. C) remains constant. D) becomes unimportant.

In the Spending Approach to GDP, consumption expenditures are A) government and private spending on final goods and services. B) private spending during all stages of production of goods and services. C) private spending on all final goods and services excluding investment purchases. D) private spending on tools, plants, and equipment used for future production.

Inflation rates Year: Predicted Actual 2000: 3 3 2001: 3 2 2002: 7 9 2003: 5 4 2004: 4 7 Assume that all loan contracts had fixed nominal interest rates of 10% and matured after one year. In which year given below did borrowers gain relative to lenders? A) 2000 B) 2001 C) 2002 D) 2003

Inflation rates Year: Predicted Actual 2000: 3 3 2001: 3 2 2002: 7 9 2003: 5 4 2004: 4 7 Assume that all loan contracts had fixed nominal interest rates of 10% and matured after one year. In which year given below did lenders gain relative to borrowers? A) 2000 B) 2001 C) 2002 D) 2003

Junk bonds are bonds A) issued by garbage companies. B) backed by subprime mortgages. C) rated lower than BBB-. D) that mature 30 years into the future.

Madonna: 12,056989 14,002050 Gwen: 10,067,900 12,300,500 Ozzy: 25,080,700 45,200,200 Axel: 7,450,060 7,000,050 Which of these four individuals has contributed the most to the rise in the standard of living in this economy? A) Madonna B) Gwen C) Ozzy D) Axel

Real GDP 2000: 20,000 Real GDP 2001: 20,200 Real GDP 2002: 20,402 What is the anneal growth rate in this economy? A) 10% B) 5% C) 1% D) 2.01%

Real GDP per capita is calculated at the total A) nominal GDP divided by the population. B) real GDP divided by the nominal GDP. C) real GDP divided by the population. D) real GDP in a given year.

Suppose the average level of prices increased from 100 to 110 between 2007 and 2008, and from 110 to 115 between 2008 and 2009, there was A) deflation. B) hyperinflation. C) disinflation. D) inflation in the real price of everything.

The 2003 Iraqi war destroyed large amounts of capital. Later, insurgent activity continued to destroy capital and created instability in the government. Today, hostilities have waned and the government has become mer stable. according to the Solow growth model, over the next few years we would expect to see growth rates in Iraq to be ___ those of high-income countries with similar institutions followed by growth rates that are ___ the growth rates in those countries. A) higher than; much higher than B) lower than; about the same as C) higher than; about the same as D) about the same as; lower than

The Chinese land experiments between 1978 and 1983 proves that I. collective farms are a good system of farming. II. farming techniques cannot overcome the free-rider problem. III. establishing property rights leads to growth of per capita GDP. A) I only B) II only C) III only D) I and III only

The correlation between infant mortality and per capita GDP is A) zero. B) positive. C) negative. D) unpredictable.

The factor income approach to calculating GDP can be summarized as the summation of A) consumption, investment, government purchases, and exports. B) consumption, investment, government purchases, and net exports. C) wages, interest, rent, and profit. D) wages, investment, rent, and profit.

The labor force participation rate is highest among those A) under 16 years of age. B) between 16 and 19 years of age. C) between 25 and 54 years of age. D) over 65 years of age.

The marginal product of capital is the increase in A) employment when one more unit of capital is added. B) unemployment when one more unit of capital is added. C) output when one more unit of capital is added. D) the number of machines when one more unit of capital is added.

The presence of discouraged workers causes the measured unemployment rate to be A) correctly stated. B) overstated. C) understated. D) either overstated, understated, or correctly stated.

This summer you have a paid internship for Kia Motors in Canada. For which nation, or nations, are you contributing to GDP? Assume you are a U.S. citizen. A) United States B) United States and Canada C) Canada D) Canada and Korea

Town: Real GDP Population A: 4,859,307 250 B: 10,000,050 175 C: 6,000,000 320 D: 3,549,289 90 Which of the four towns has the lowest standard of living? A) Town A B) Town B C) Town C D) Town D

Type: 1995 2005 Frictional: 1.5 1 Cyclical: 3.4 4.7 Structural: 2.5 1.9 For the year 2005, what is the natural unemployment rate? A) 1 percent B) 4.7 percent C) 2.9 percent D) 1.9 percent

Unemployment correlated with the business cycle is called A) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) seasonal unemployment.

What data are used to calculate GDP? A) quantities of goods B) prices of goods C) both quantities and prices of goods D) costs of producing goods

What i meant by the steady-state level of capital? A) All of a nation's capital is reinvested back into that country. B) Positive net capital investment continues to drive growth at a steady rate. C) There is no new net investment, or any growth. D) Investment eventually exceeds depreciation.

What is a service that banks specialize in providing? A) providing the highest return available in the market B) seeking to pass all of the returns on investment to the savers C) evaluating the quality of investment opportunities D) making sure all funds are distributed in the most equitable fashion

What is key to growth for countries on the cutting edge such as the US and Japan? A) more physical capital investments B) investments in human capital C) new ideas D) larger institutions

What is the method used for approximating the length of time necessary for GDP per capita to double? A) rule of 50 B) rule of 60 C) rule of 70 D) rule of 80

What is the term for GDP when price changes are not included in its calculation? A) annual GDP B) nominal GDP C) real GDP D) aggregate GDP

What is true about a recession? A) It can be concentrated only in a single geographic area, but must be widespread across many sectors of the economy. B) It must be a significant decline in economic activity for at least three years in a row. C) It is a significant decline in economic activity lasting more than a few months and must be widespread geographically. D) None of these answers is correct.

When a given bond's price increases, we know that the interest rate on this bond A) remains unchanged. B) must increase. C) must decrease. D) could increase, decrease, or remain unchanged.

When investment is equal to depreciation, the capital stock A) increases. B) decreases. C) remains constant. D) becomes unimportant.

When the government monetizes its debt, the results are A) higher inflation and benefits for holders of government bonds. B) lower inflation and benefits for holders of government bonds. C) higher inflation and losses for holders of government bonds. D) lower inflation and losses for holders of government bonds.

When the price of a good in Russia increases from 20 rubies to 20 million rubies in a single year, the nation is experiencing A) deflation. B) falling GDP per capita. C) hyperinflation. D) high disinflation.

Which of the following combinations contains only good that can be counted towards consumption? A) steel for use in factories, tar for building roads, and MP3 players B) personal computers, new home purchases by households, and building materials C) video game consoles, MP3 players, your college tuition, and cakes D) national defense equipment, army fatigues, tractors, and building materials

Which of the following individuals can be counted as unemployed? A) a woman who works only part time B) a temp worker, who is currently responding to job advertisements from the newspaper C) a man who was laid off from an auto manufacturing plant in Detroit D) Each of these answers is correct.

Which of the following is NOT a reason that world GDP per capita could grow even faster than its current rate? A) The number of scientists and engineers is increased. B) Consumers become richer. C) Government spending has decreased. D) Barriers to international trade are lowered.

Which of the following is an example of an unemployed person? A) a retiree working as a volunteer in a hospital B) a worker who is willing to work more hours if available C) a recent college graduate looking for her first job D) a full-time student working part time at night

Which of the following scenarios provides an example of a good institution that is conductive to economic growth? A) In Haiti it takes an average of 203 days to start a business. B) In Zimbabwe, nationalization of private property can occur without warning. C) Entrepreneurs can invest more than $200,000 in Indian garment factories. D) In Peru it only takes 72 days and 32.5 percent of income per capita to start a business.

Which of the following statements highlights the difference between the CPI (consumer price index) and the GDP delator? A) The CPI measures the average prices of inputs in the production process, whereas the GDP deflator measures the average prices of goods purchased by consumers. B) The CPI measures the average prices of retail goods, whereas the GDP deflator measures the average prices of wholesale goods. C) The CPI measures the average prices of typical goods consumed by consumers, whereas the GDP deflator measures the average prices of all goods consumed by all agents in the economy. D) The CPI measures the average prices of all final goods consumed by consumers, whereas the GDP deflator measures the average prices of all inputs used in the economy.

Which price index comprises the prices of all final goods and services produced within the economy? A) the consumer price index B) the GDP inflator C) the GDP deflator D) the producer price index

Which price index measures the average price received by producers? A) the consumer price index B) the GDP deflator C) the producer price index D) the wholesale price index

Which type of unemployment is likely to be higher when real GDP growth is lower? A) structural unemployment B) frictional unemployment C) cyclical unemployment D) natural unemployment

Why did so many Chinese farmers and workers starve under "The Great Leap Forward"? A) The number of workers on communes was reduced. B) The Chinese people did not know how to farm in certain geographic areas. C) The incentive to work hard was low since the rewards were so minimal. D) Each of these explanations is correct.

Why is there such a great difference between the GDP per capita of North Korea and South Korea? A) South Korea has greater natural resources. B) North Korea invested heavily in its industries. C) South Korea uses markets to organize production. D) North Korea has a 100% literacy rate.

Year: CPI 1999: 110 2000: 115 2001: 117 2002: 115 Which of the following years did this country experience disinflation? A) 1999 B) 2000 C) 2001 D) 2002

You spent half the summer building a garage. You purchased tools that cost $350 and and wood that cost $4,000. A contractor would charge $25 per hour for the 40 hours of work necessary to build the garage. After you build the garage, you mother give you a present of $500 in stocks. As a result of these activities, how much does GDP rise for the current year? A) $5,350 B) $5,850 C) $4,350 D) $4,850

A country experiencing high GDP growth and low population growth will have A) low real GDP growth rate. B) low nominal GDP growth rate. C) low per capita GDP growth rate. D) high per capita GDP growth rate.

A nation's real per capita GDP is $7,788 in 2004 and $8,080 in 2005. What is the growth rate of real GDP per capita? A) 2.75 percent B) 3.5 percent C) 3.61 percent D) 3.75 percent

A bond is a(n) A) liability for the issuer. B) asset for the purchaser. C) promise by the issuer to pay. D) Each of these answers is correct.

A car engine produced by a supplier to Ford Motor Company is an example of A) an inferior good. B) a final good. C) a common good. D) an intermediate good.

In order to be binding, an interest rate ceiling must A) shift the supply of savings function outward. B) shift the demand to borrow function outward. C) be placed above equilibrium. D) be placed below equilibrium.

In the National Spending Approach for calculating GDP, government purchases include which of the following government outlays? I. the payment of Social Security benefits II. the allowance of Earned Income Tax Credits III. purchase of a new automobile by the state department A) I only B) I, II, and III C) II only D) III only

In the long run, money A) always increases GDP. B) will not affect prices. C) will lift the standard of living for everyone in a nation. D) is neutral.

Individual: Real income 2007 Real income 2008 Madonna: 12,056989 14,002050 Gwen: 10,067,900 12,300,500 Ozzy: 25,080,700 45,200,200 Axel: 7,450,060 7,000,050 GDP is seen as an imperfect measure of economic activity for several reasons. Which of the four reasons below is illustrated through the data in the table? A) GDP does not count nonmarket production. B) GDP does not make a positive adjustment for leisure. C) GDP does not account for environmental costs. D) GDP does not measure the distribution of income.

Labor Data Adult Population: 200 million Labor force: 150 million Employed persons: 138.75 million Discouraged Workers: 10.5 million According to the accompanying labor data, the unemployment rate it ___ and the labor force participation rate is ___. A) 7 percent; 60.4 percent B) 0.7 percent; 99.3 percent C) 5.6 percent; 69.4 percent D) 7.5 percent; 75 percent

Pharmaceutical companies tend to concentrate on drugs for common diseases because A) more people can be helped. B) spillovers are smaller. C) they are more likely to be granted patents. D) potential profits are larger.

Poor countries are poor because they A) lack physical capital. B) lack human capital. C) use the capital they have inefficiently. D) Each explanation is correct.

Product: Quantity(2008) Price(2008) Quantity(2009) Price(2009) Computers: 30 1,000 28 995 Pizzas: 100 10 150 15 Burgers: 200 20 210 20 Suppose an economy produces only three final goods listed in the table. What is the growth rate of real GDP in 2009 if 2009 is the base year? A) -3.71 percent B) 1 percent C) -1.97 percent D) -2.94 percent

Savings is A) the purchase of new capital goods. B) the purchase of new consumption goods. C) income that is not spent on capital goods. D) income that is not spent on consumption goods.

The actual employment rate varies around the A) frictional employment rate. B) structural employment rate. C) cyclical employment rate. D) None of these answers is correct.

The cost of inflation include I. wasted resources in association with price confusion. II. higher tax burdens. III. wealth redistribution from private citizens to the government. A) I and II only B) II and III only C) I and III only D) I, II, and III

The development of new and better ideas leads to A) more output. B) more consumption and investment. C) more capital accumulation. D) All of the answers are correct.

The economy's production function related ___ to output. A) real GDP B) the inflation rate C) the unemployment rate D) the factors of production

The growth rate of GDP tells how rapidly the country's level of ___ is rising or falling over time. A) spending B) trade activity C) investment D) production

The institutions of economic growth include A) property rights. B) a dependable legal system. C) competitive and open markets. D) Each of these answers is correct.

The most important factor that contributes to China's rapid growth at the end of the 1970s and early 1980s was A) physical capital. B) human capital. C) technology. D) property rights.

The production function expresses a relationship between A) capital stock and risk. B) output and growth. C) inflation and growth. D) output and the factors of production.

The rule of 70 indicates that if the growth rate of a variable is X percent per year, the variable will double in A) 70 + X years. B) 70 - X years. C) 70 × X years. D) 70 ÷ X years.

The supply of savings function shows the relationship between saving and A) consumption. B) income. C) age. D) the interest rate.

The velocity of money is A) how fast the price level is rising. B) how fast the inflation rate is rising. C) the average number of times a dollar is spent on consumer goods and services. D) the average number of times a dollar is spent on final goods and services.

What is a frequent temporary government solution to combat the decreased the investment demand during a recession? A) decrease government spending B) reduce regulation affecting firms C) sell more bonds D) offer an investment tax credit

What is the unemployment rate for a nation with 6 million employed and 2 million unemployed? A) 10 percent B) 15 percent C) 20 percent D) 25 percent

What term do economists use to describe the growth rate of GDP per capita? A) national growth B) aggregate growth C) real growth D) economic growth

When a country is at its steady state, I. capital is neither increasing nor decreasing. II. net investment is 0. III. economic growth is 0. A) I only B) II only C) I and II only D) I, II, and III

When changes in nominal prices are confused with changes in real prices, people experience A) consumer bias. B) inflationary delusion. C) cyclical price confusion. D) money illusion.

When governments freeze band accounts, they fail to A) regulate the banking industry. B) guarantee savings accounts. C) promote consumption and spending. D) secure property rights.

When the money supply and the demand for goods increase at the same time: A) producers understand how to react, but consumers are confused. B) consumers act rationally, but producers cannot read the market signals. C) the government is able to clarify how the markets will be affected. D) both consumers and producers can often become confused.

Which of the following elements increases structural unemployment? A) active labor market policies B) bonuses for early employment C) job-search assistance programs D) employment protection laws

Which of the following individuals can be counted as unemployed? A) Hannah and Harold, who are serving time for armed robbery B) Jason and Jill, who have not looked for work for the last two years C) Stewart and Susan, who are currently housed in a mental institution D) None of these answers is correct.

Which of the following is NOT an example of physical capital? A) tractor B) cell phone C) computer D) a share of Caterpillar Inc. stock

Which of the following is NOT an institution that leads to sustained long-term economic growth? A) a dependable legal system B) a stable political system C) an honest government D) an equitable income redistribution system

Which of the following scenarios illustrates the "free-rider problem"? A) Three classmates working on a group project all know they will receive the same grade and one of the students contributes very little effort into the project. B) Local residents on a small island pay taxes to have its beaches cleaned. Tourists visiting the island leave garbage on the beaches because they know that the beaches are cleaned regularly. C) The servers at a restaurant agree to split all of the tips equally and some diners receive bad service. D) Each of these scenarios illustrates a form of free riding.

Which of the following tend to increase unemployment? A) unemployment benefits B) minimum wages C) labor unions D) Each of these answers is correct.

Which of the following would be the most likely to cause an increase in the demand for loanable funds? A) a decrease in the interest rate B) an increase in savings C) a decrease in consumption D) an increase in government borrowing

Which variable is determined in the market for lovable funds? A) income B) consumption C) investment D) the interest rate

Why do economists use different methods for splitting GDP? A) They provide opportunities for checking calculations. B) Splitting GDP by different methods can answer different questions. C) They allow examination of the economy from multiple angles. D) Each of these answers is correct.

Why do people borrow? A) to engage in consumption smoothing B) to sustain themselves through periods of unemployment C) to fund unexpected expenditures D) Each of these answers is correct.

Why do people save during their working lifetimes? A) So they do not have to drastically reduce their consumption once they retire. B) To consume later in life. C) To take precautionary measures in case of job loss. D) Each of these answers is correct.

Why do some economists think that economic growth due to ideas will be faster in the future? A) an increasing number of scientists and researchers B) globalization leads to increased market size for firms C) increased economic growth in countries like China and India that translate into more scientists and larger markets D) All of these answers are correct.

Why doe inflation increase you tax burden, at least in the short run? I. Inflation bloats stock prices, which leads to a capital gains tax burden. II. The market value of financial assets rises with inflation and the U.S. tax system assesses taxes on such gains, even if the "real" value of such assets remains the same. III. Consumers pay higher sales taxes when the prices of goods and services increase due to inflation. A) I and II only B) II and III only C) I and III only D) I, II, and III

Why does South Korea have a higher level of real GDP per capita than North Korea? A) South Korea has more human capital than North Korea. B) South Korea has more physical capital than North Korea. C) South Korea has a better system of incentives for producers than North Korea does. D) Each of these answers is correct.

Year: CPI 1999: 110 2000: 115 2001: 117 2002: 115 Which of the following years did this country experience deflation? A) 1999 B) 2000 C) 2001 D) 2002

Year: CPI 2005: 195.3 2006: 201.6 2007: 207.3 2008: 215.3 2009: 214.5 2010: 218.1 In which years did the country experience delation? I. 2007 II. 2008 III. 2009 IV. 2010 A) I, II, and III only B) I only C) I and III only D) III only

Year: CPI 2005: 195.3 2006: 201.6 2007: 207.3 2008: 215.3 2009: 214.5 2010: 218.1 What was the approximate inflation rate over the period 2009 to 2010? A) 3.60 percent B) 18.10 percent C) 21.81 percent D) 1.68 percent

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