Econ 2120 First Exam

A computer chip that you purchase and install on your laptop computer is an example of A) a final good. B) an intermediate good. C) a service. D) economic growth.

a

Countries with _______ population growth rates will tend to have a lower ______________. A) higher, steady-state level of per capita real GDP. B) higher, steady-state growth rate of per capita real GDP. C) lower, steady-state level of per capita real GDP. D) lower, steady-state growth rate of per capita real GDP. E) All of these can be true.

a

If a developing country wanted to increase its level of investment, which of these actions would directly lead to this goal? A) Strengthen and enforce private property laws. B) Provide a minimum level of food to all people in the country. C) Increase taxesto prevent corporations from keeping excess profits. D) Nationalize all foreign manufacturing facilities in the country.

a

Inclusive economic institutions I. protectprivate property rights, provide law and order, and allow for the enforcement of contracts. II. encourage participation of of individuals to undertake economic activities that best utilize their talents and skills. III. protect people from making economic mistakes. A) Only I and II are correct. B) Only I and III are correct. C) Only II and III are correct. D) I, II and III are correct. E) None of the choices are correct.

a

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

a

Institutions and incentives are ____________ causes and factors of productions are ________ causes of wealth of nations. A) ultimate; proximate B) proximate; ultimate C) ultimate; indirect D) proximate; direct

a

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

a

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

a

The idea that markets work efficiently: A) refers to the fact that self-interest can be aligned with social interest. B) means that trade-offs can be reduced through channeling greed toward good ends. C) suggests that there is never any need for government regulation, taxes, or subsidies. D) has been known for many centuries.

a

What is the most proximate (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

a

Which of the following statements reflects Adam Smith's important insight into marketplace behavior? A) Society benefits when people and firms pursue their ownself interests. B) Markets are usually an inefficient way of organizing economic activity. C) Greedy, self-interested behavior needs to be constrained to ensure strong economic growth. D) Trade restrictions on imported goods increase domestic employment.6

a

You are given a ticket to a Bob Dylan concert with a face value of $50. You only value the ticket at $40, sell it to a friend for $40 and attended a U2 concert priced at $60. The opportunity cost of attending the U2 concert is: A) $20 worth of alternative goods and services. B) $40 worth of alternative goods and services. C) $50 worth of alternative goods and services. D) $60 worth of alternative goods and services.

a

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

b

A firm that pays for workers to get an MBA is increasing its A) physical capital. B) human capital. C) gains from trade. D) technical knowledge.

b

Adam, Jill, and Sasha volunteered to paint at their community center. The center had already purchased the painting materials for the project from the local hardware store last year. The value of the community center's painting project A) does not involve any productive activities and for this reason it will not be included in GDP. B) will not be included in this year's GDP even though productive activities are involved. C) will only account for the market value of Adam, Jill, and Sasha's painting time. D) will be counted as the price charged by a professional painting firm, if it were to do the job.

b

Air travel from NYC to LA costs $800 and takes four hours. A bus ticket between the cities costs $100 and takes 104 hours. Other things constant, the minimum value of one's time that would induce a rational individual to fly rather than drive would be: A) $1 per hour. B) $7 per hour. C) $12 per hour. D) $120 per hour.

b

Countries with low levels of human and physical capital have a A) higher GDP per capita. B) lower GDP per capita. C) higher GDP growth rates. D)lower GDP growth rates.

b

If two countries have the same steady-state levels of output, the country that is ______ today will eventually ______ in per capita output. A) poorer; lag behind B) poorer; catch up C) richer; fall behind D) richer; be further ahead

b

Imposing the death penalty on rapists may increase the number of murders because: A) the death penalty is not a deterrent to the behavior of a rapist. B) once a victim is rapedthere is no additional penalty imposed for also killing the victim. C) rapists are irrational and place no value on the life of their victim. D) rapists do not think about the consequences of their actions.

b

In the Solow model, an increase in the investment rate will I. result in a higher steady-state per capita capital stock. II. permanently increase the growth rate of per capita real GDP. III. result in a higher steady-state level of per capita output. A) Only I and II are correct. B) Only I and III are correct. C) Only II and III are correct. D) I, II and III are correct.

b

In the national spending approach to GDP accounting, the purchase of a new home would count as part of A) consumption. B) investment. C) government spending. D) net exports. E) your civic duty.

b

Suppose the BMW plant in Spartanburg imports $600 worth of tires from a Michelin production facility in France and installsthem on a X4 Sports Activity Coupe that is purchased from a BMW dealership by a recent Clemson graduate for $40,000. Using theexpenditure approach to GDP, I. the tire purchase increases net exports by $600. II. the purchase of the BMW counts as $40,000 toward consumption. III. the total contribution to GDP is $40,000. A) Only I is correct. B) Only II is correct. C) Only I and II are correct. D) Only II and III is correct. E) I, II and III are correct.

b

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

b

The marginal product of capitalI. 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

b

The theory known as __________ ___________ model suggests that initially poor countries will grow faster and eventually catch-up to the countries that were is initially rich. A) Locational Convergence B) Absolute Convergence C) Fractal Convergence D) Conditional Convergence

b

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.

b

Theoretically, why should the expenditure and income approaches to calculating 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

b

What is a plausible explanation as to why braille dots are commonly found on drive-up automatic teller machines? A) Blind people must be able use such machines, due to government regulations requiring such dots on the keys under the Americans with Disabilities Act. B) The marginal cost of making two different types of keypads is substantial, and the benefit of providing keypads without the Braille dots is a mere inconvenience to ATM users. C) The marginal cost of making the keys with the Braille dots is less than making the keys without the Braille dots. D) There is no economic concept that explains why the keypads have Braille dots.3

b

When calculating GDP, what is the term for GDP when we hold prices fixed for some base year? A) annual GDP B) nominal GDP C) real GDP D) aggregate GDP

b

When investment (saving) is less than what is necessary to keep pace with population growth and depreciation, A) the per capita capital stock increases. B) the per capital capital stock decreases. C) the percapita capital stock remains constant. D) real per capita GDP no longer becomes a useful measure of economic performance.

b

Which of the definitions best defines GDP? 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.

b

Which of the following choices shows a good or service (produced in the current period) that is NOT counted in GDP for this year? a) a personal computer b) wood used for making furniture c) an oven for installation in a bakery d) flour sold in a grocery story

b

Why do some economists think that GDP may underestimate the actual level of economic activity in an economy? I. There is no adjustment for underground activity. II. There is no adjustment for pollution. III. There is not adjustment for increased leisure. A) Only I and II are correct. B) Only I and III are correct. C) Only II and III are correct. D) I, II and III are correct.

b

Countries with _______ saving rates will tend to have a lower ______________. A) higher, steady-state level of real per capita GDP. B) higher, steady-state growth rate of real per capita GDP. C) lower, steady-state level ofreal per capita GDP. D) lower, steady-state growth rate of real per capita GDP. E) All of these are true.

c

In the Solow model, what is 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.

c

Suppose economies A and B have the same initial level of GDP per capita at $15,000, and each economy begins with a constant growth rate of 1 percent per year. (Neither country has good institutions for economic growth at first.) Then Country A enters an era of political stability, establishes property rights, and installs incentives for entrepreneurship. Country A's economic growth rate consequently improves to 5 percent. Assuming population growth rates remain unaffected, how much longer will it take Country B to double its per capita GDP level compared to Country A? A) 70 years B) 14 years C) 56 years D) 28 years

c

Suppose the teacher finishes class 30 minutes early on the day before an exam. They indicate that you can leave or stay for an optional study period. You should: A) always choose to stay for the study period, since you have already paid for the class time. B) only choose to stay if you like Professor Baier, since the value obtained is higher than if you disliked the Baier. C) only choose to stay if the benefits gained from the extra study session exceed the cost of another 30 minutes in class. D) onlychoose to stay for the study session if you do not plan to study on your own for the exam.

c

Susan quits her administrative job, when pays $40,000 a year, to finish her four-year college degree. Her annual college expenses are $8,000 for tuition, $900 for books, and $2,500 for food. The opportunity cost of attending college for the year is: A) $11,400. B) $8,900. C) $48,900. D) $51,400.

c

There is more support in the data for ____________ ____________. A) Absolute Convergence B) Fractal Convergence. C) Conditional Convergence. D) Emergence Convergence. E) Locational Convergence.

c

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 US citizen A) United States B) United States and Canada C) Canada D) Canada and Korea

c

What are the institutions that help foster the appropriate incentives for economic growth? A) regulated labor and credit markets; and unions B) communal property rights and absence of a profit-loss system C) a dependable legal system, property rights, and competitive and open markets D) production and export quotas; and supply and demand

c

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

c

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.

c

Which cannot be inferred from growth facts listed in class? I. Using per capita GDP as our measure of income, there has always been a high degree of income inequality. II. Once a country becomes rich the growth process is irreversible. III. Over time, the growth miracles growth disasters help to account for the income disparity we see today. A) Only I is correct B) Only II is correct C) Only I and II are correct D) Only I and III are correct E) Only II and III are correct.

c

Which facts are true about consumption? I. Consumption is typically about two-thirds of GDP. II. Consumption is more volatile than GDP. III. Consumption is pro-cyclical. A) Only I and II are true. B) Only II and III are true. C) Only I and III are true. D) I, II and III are true.E) None are true.

c

Why is 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 the positive adjustments for leisure do not accord with the implied wages paid to non-production workers. C) because it does not count the underground economy or non market production D) All of the answers are correct.

c

f real GDP per capita in the United States is currently $25,000 and grows at 2.5 percent per year, how many years will it take to reach $200,000? A) approximately 56 years B) approximately 28 years C) approximately 84 years D) approximately 112 years

c

you spend half the summer building a garage. you purchased tools that cost $350 and wood that costs $4000. a contractor would charge $25 per hour for 40 hours of work necessary to build the garage. after you build it, your mother gives 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

c

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

d

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 rather 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

d

How can "good institutions" foster growth? I. They provide incentives for entrepreneurs to create and innovate. II. They provide financial support for organizations to acquire human and physical capital. III. They establish property rights, functioning legal systems, and open markets. A) I and II only B) II and III only C) III only D) I and III only

d

In the national spending approach for GDP, government purchases include which of the following? 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

d

Suppose the BMW plant in Spartanburg purchases $600 worth of tires from a Michelin production facility in Greenville and installsthem on a X4 Sports Activity Coupe that is purchased from a BMW dealership by a recent Clemson graduate for $40,000. Using the expenditure approach to GDP, I. the tire purchase increases net exports by $600. II. the purchase of the BMW counts as $40,000 toward consumption. III. the total contribution to GDP is $40,000. A) Only I is correct. B) Only II is correct. C) I and II only are correct. D) II and III only are correct. E) I, II and III are correct.

d

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.

d

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

d

When it comes to getting the flu shot, most people consider _______, not _________. A) the social interest; their self-interest B) their public interest; their social interest C) their costs; their benefits D) their self-interest; the social interest

d

Which facts are true about investment I. Investment is typically about 18 percent of GDP. II. Investment is more volatile than GDP. III. Investment is pro-cyclical. A) Only I and II are correct. B) Only II and III are correct. C) Only I and III are correct D) I, II and III are correct. E) None of these are correct.

d

Which of the following correctly and fully defines conditional convergence? Conditional convergence refers to the tendency for A) poorercountries to grow faster than richer countries, but only if they receive sufficient foreign direct investment so that their steady-state capital stocks converge. B) richer countries to grow faster than poorer countries given similar steady-state capital stocks. C) poorer countries to grow faster than richer countries given similar steady-state capital stocks. D) countries with similar steady-state levels of output to grow faster when they're poor than when they're rich until their per capita GDP levels converge.

d

Inclusive Political Institutions I. distribute power broadly in society. II. vestpowers broadly to uproot extractive economic institutions that expropriate resources, erect barriers, and suppress markets. III. allow for centralized power to enforce law and order and support market activity. A) Only I is correct. B) Only I and II are correct C) Only II and III are correct D) Only 1 and III are correct E) I, II, and III are correct.

e