ECON 2

Justine buys a $500,000 home by making a down payment of $25,000 and borrowing the rest. Her owner's equity is

$25,000

Two countries start with the same real GDP per capita. Country A's real GDP per capita is growing at 4% and after 140 years, it is 16 times larger than country B's. What was country B's growth rate?

2%

Qatar has a higher GDP per capita than the United States. In fact, Qatar has a GDP per capita that is roughly _______ times larger than Central African Republic's GDP per capita.

250

Since 1800, real GDP per capita in the United States has doubled roughly every

35 years

Suppose two countries start with a real GDP per capita level of $2,000, but country A is growing at 2% per year and country B is growing at 3% per year. After 140 years, country B will have a real GDP per capita that is roughly ________ times higher than country A. (Hint- you may want to review the "Rule of 70" )

4

In the United States in 2012, the number of researchers, or idea creators, per 1000 people was approximately

4.0

Suppose that 100 financial 'experts' were to flip a coin at the start of each new year. Those who flip 'heads' will say the market is going up this year and those who flip 'tails' will say the market is going down this year. Assuming the market has a 50% chance of being either up or down, what percent of these experts would successfully predict the market's direction at least 2 out of the 3 years by simply flipping a coin? (Hint: this question is tricky!)

50%

In the United States, about ____ of all engineers and scientists work for private firms.

70%

Two countries start with the same real GDP per capita. Country A is growing at 7% and country B is growing at 4%. After 70 years, how much larger is country A?

8 times larger

Between 1950 and 1970, Japan doubled its GDP per capita every 8.2 years. Using the Rule of 70, calculate Japan's approximate annual growth rate during that time period.

8.5% per year

In addition to improved access to education and reliable energy sources, what other changes do scholars cite as a reason(s) why we experienced the recent, rapid increase in human prosperity?

A & C only

On Oct. 3, 2008 the FDIC temporarily raised the insured amount on a bank account from $100,000 to $250,000 (since made permanent). Why did the FDIC raise the insured amount at this time?

A run was developing at investment banks and the FDIC wanted to make sure that the panic didn't extend to commercial banks

To what rapid increase is the tale of "the hockey stick of human prosperity" referring

B & C only

Project Cost Break-even interest rate A$100 million/8% B$50 million/12% C$150 million/10%

B only

Which bond will usually pay a higher interest rate?

Bond rated BBB

GDP includes

Both final goods and final services.

Two countries start with the same real GDP per capita. After 210 years, country B is 3 times larger than country A. What was country A's growth rate

Can not be determined with the given information

Suppose you'd like to invest in a company and you've narrowed your choice down to three firms: Company A is offering a zero-coupon bond with a face value of $1000 to be repaid in 1 year for $963. Company B has the same face value and maturity date but sells for $871. And company C also has the same face value and maturity but sells for $985. In which would you rather invest?

Cannot be determined with the given information.

Which countries will likely be growing faster: cutting-edge countries or catching-up countries?

Catching up

Japan's and Germany's economic growth after World War II are both examples of

Catching-up growth.

Adam Smith argued in 1776 that central Africa was resistant to growth because

Central Africa lacked large rivers flowing to the coasts.

Which bond will usually pay a higher interest rate?

Citibank bond that gets repaid in 30 years.

An insolvent firms has

Debts that exceed its assets

According to the Solow model, when a country is in steady state,

Depreciation = investment.

Which of the following is counted in US GDP?

Drill purchased by a construction company

The Solow model is a simple model to explain

Economic growth.

Sometimes, in supply and demand models, it's not clear who "supplies" and who "demands." For instance, in the labor market, it's individual workers (not firms) who supply labor. In the loanable funds market, who is usually the supplier and who is usually the demander?

Entrepreneurs demand loanable funds and savers supply loanable funds.

True or False: Government purchases includes all of the following: social security payments, government employee wages, and tanks purchased by the government.

False

True or false. Actively managed mutual funds usually have lower fees than passively managed mutual funds.

False

True or false: All countries shifted from the handle to the blade portion of the hockey stick (of human prosperity) at about the same time.

False

True or false: John Kay invented the flying shuttle during the Industrial Revolution and was financially rewarded for this innovation.

False

True or false: if a country's nominal GDP increases, it means the country is producing more goods and services.

False

True or false: nominal GDP is always larger than real GDP.

False

The following diagram appeared in the Physical Capital and Diminishing Returns video; what does portion B represent?

Function

i. They evaluate business ideas to see to whom it's worth lending. ii. They spread an investment's risk among many different projects. None of these functions are unique to banks. In the following anecdote, which function is the person performing? Frances subscribes to Consumer Reports to decide which washing machine to buy.

Function i

i. They evaluate business ideas to see to whom it's worth lending. ii. They spread an investment's risk among many different projects. None of these functions are unique to banks. In the following anecdote, which function is the person performing? In Maria's family, she's the one who everyone asks for restaurant recommendations.

Function i

i. They evaluate business ideas to see to whom it's worth lending. ii. They spread an investment's risk among many different projects. None of these functions are unique to banks. In the following anecdote, which function is the person performing? Emmanuel donates a little money to five different charities, in the hopes that at least one of them will do some good in the world.

Function ii

i. They evaluate business ideas to see to whom it's worth lending. ii. They spread an investment's risk among many different projects. None of these functions are unique to banks. In the following anecdote, which function is the person performing? Scooter wants a good education, so he takes a variety of different classes: some history, some economics, some physics.

Function ii

Which bond will usually pay a higher interest rate?

General Motors bond

During the Great Depression banking panics led people to pull their money from the banking system. Which of the following would NOT be an effect of a banking panic?

Greater savings

Which of the following is not a reason why countries have good institutions?

Hard work

The market has some known anomalies such as the January effect mentioned in this video. Given these known anomalies, should you try to beat the market?

No

Which of the following is counted in US GDP?

None of the above

Ideas are

Nonrivalrous.

Today, the main reason that North Korea has far fewer lights when viewed from outer space than South Korea is that

North Korea has different institutions than South Korea.

In the equation Y=f(k), Y equals

Output, GDP

The typical savings supply curve has a positive slope. If a nation's saving supply curve is perfectly vertical, what would that mean?

People in this country save the same amount no matter what the interest rate is.

The following institution(s) promote(s) economic growth:

Property rights

Government bonds and corporate stocks are

Substitutes.

If savers don't feel safe putting their money in banks or buying bonds, which of the following best summarizes what's happening in the market for loanable funds?

Supply of savings falls and the interest rate rises.

Which of the following is a factor of production and best defined as knowledge about how the world works?

Technological knowledge

Measuring GDP using the national spending approach includes

a & b only

Real GDP per capita is usually used to compare the standard of living of

a & c only.

To encourage the creation of ideas, governments use

a and b only.

Human capital has which of the following properties:

a and c only

Measuring GDP using the factor income approach includes

a, b, c

Real GDP per capita in the US ____________ during the great recession of 2009.

decreased

In 1967, the Suez Canal suddenly closed and remained closed for 8 years, temporarily shutting down a major trade route for many countries. Based on the facts from the video, this temporary canal closure

decreased the GDP per capita of countries most reliant on the canal

Select the order of symbols below that mimics the following order: human capital, physical capital, ideas.

eL, K, A

True or false: Given that China has far fewer researchers per 1000 citizens than the United States, they are not yet playing an important role in the world's production of ideas.

false

All of the following are key institutions of economic growth except

good incentives.

The Solow model predicts that countries with similar _________ will eventually converge to similar levels of output.

institutions

Suppose some damaging information comes out about company Y this morning. The stock has been trading for a few hours today. When the bad news came out about the stock, what probably happened to the stock price after a few minutes?

it went down

Patents give entrepreneurs a _____________ on their ideas.

monopoly

Which investment is typically the riskiest?

stocks

Which one gives you an ownership, or "share," in a company?

stocks

Gwen is a real estate agent, and she knows that she will have some good years and some bad years, but she wants to smooth her consumption over time. She figures that half the time she'll earn $90,000 per year, and half the time she'll earn $20,000 per year. These numbers are after taxes and after saving for retirement, so these numbers are all she has to worry about. How many dollars will she borrow during the bad years? (Note: "Borrowing," in this context, is basically the same as "pulling money out of savings.")

$35,000

Gwen is a real estate agent, and she knows that she will have some good years and some bad years, but she wants to smooth her consumption over time. She figures that half the time she'll earn $90,000 per year, and half the time she'll earn $20,000 per year. These numbers are after taxes and after saving for retirement, so these numbers are all she has to worry about. How many dollars will she save during the good years?

$35,000

Gwen is a real estate agent, and she knows that she will have some good years and some bad years, but she wants to smooth her consumption over time. She figures that half the time she'll earn $90,000 per year, and half the time she'll earn $20,000 per year. These numbers are after taxes and after saving for retirement, so these numbers are all she has to worry about. If we ignore interest costs just to keep things simple, how much should Gwen consume in an average year?

$55,000

The Solow model predicts ____ economic growth in the steady state.

0%

According to a study referenced in the video, of the top 25% of actively managed mutual funds in 2012, what percent were also ranked in the top 25% of performance 5 years later?

1%

Which graph below is drawn with a ratio scale?

1-32 and 1-6

We also learned that Argentina doubled its GDP per capita only once from 1950-2015. Using the Rule of 70, calculate Argentina's approximate annual growth rate during that time period

1.1% per year

Assume that your mutual fund grows at an average rate of 7% per year—before subtracting the fees. Using the rule of 70: Approximately how many years will it take for your money to double if fees are 0.5% per year?

10.8 years

Suppose that 100 financial 'experts' were to flip a coin at the start of each new year. Those who flip 'heads' will say the market is going up this year and those who flip 'tails' will say the market is going down this year. Assuming the market has a 50% chance of going up or down, roughly what percent of these experts would have a perfect prediction streak 3 years in a row?

12%

Assume that your mutual fund grows at an average rate of 7% per year—before subtracting the fees. Using the rule of 70: Approximately how many years will it take for your money to double if fees are 1.5% per year (not uncommon in the mutual fund industry)?

12.7 years

When did the world begin to shift from the handle to the blade section of the hockey stick (of human prosperity)?

18th century

Justine buys a $500,000 home by making a down payment of $25,000 and borrowing the rest. Her leverage ratio is

19

Warren Buffet tells his children to invest

In index funds.

The number of countries investing heavily in research and development (i.e. idea creation) is

Increasing

When Korea split into two countries in 1945, the northern and southern portions were similar if not identical in all of the following except

Institutions

The purpose of the FDIC is to

Insure bank deposits to prevent widespread panics

If financial intermediation breaks down, what category of GDP will probably fall the most:

Investment

In the Solow model, the capital stock doesn't change when

Investment = Depreciation.

When governments outlaw high interest rates and the ceiling is binding, what likely happens to the total amount of money borrowed?

It falls because savers aren't willing to lend as much money at this lower interest rate.

True or false: Patents have costs and benefits when it comes to encouraging idea creation and adoption.

True

True or false: real GDP is always larger than real GDP per capita.

True

Mexico and Bulgaria have roughly the same GDP per capita in 2014. Based on what you've learned in the video, is Bulgaria closer in GDP per capita to the United States or to Central African Republic?

United States

Idea production, or ideas created per hour, is subject to

Unknown.

In 2008, Warren Buffet and a money management firm (Protege Partners) made a million-dollar betLinks to an external site.. Warren Buffet bet that a passive, low-fee mutual fund of his choosing could outperform an actively managed investment portfolio by a team of financial wizards. Buffett picked a boring S&P 500 index fund, like this video recommends. Protege Partners chose a "portfolio of funds of hedge funds." The bet concluded in 2018 (after the video was recorded). Who do you think won the bet?

Warren buffett and his boring S&P 500 index fund.

Real GDP per capita is positively correlated with all of the following except

a. malaria cases per capita.

Which of the following countries' economies fell further behind in the 20th century?

b & c only

Ideas are fostered by

b and c only

Cutting-edge growth occurs primarily because of increases in

b. Ideas

Which form of investment usually spreads your money over the largest number of investment projects?

bank account

Which one usually lets you "withdraw" part of your investment at any time, for any reason?

bank account

Which is a corporate IOU

bonds

Which one is offered by the U.S. government as well as by private corporations?

bonds

Which of the following would be the least financially risky thing for you to do if you work as a real estate agent (someone who makes money helping people buy and sell their homes)?

c. Marry a doctor.

Real GDP controls for

changes in prices.