Econ 2301 exam 2

The average U.S. growth rate since 2008 has been 1.5% per year. Using the rule of 72, how long will it take for the size of the U.S. economy to quadruple at this growth rate?

96.0

An increased in autonomous investment spending will likely cause ___________.

A multiplied increase in equilibrium GDP due to the spending multiplier

Which of the following is correct?

An increase in the tax on corporate profits may cause investment to decrease.

If taxes are increased by $50 billion, the effect on the economy will be ___________.

An ultimate decrease in consumption spending of more than $50 billion

i. Adam (who lives in England) shears wool from his sheep and sells it to Karl (who lives in Germany) for $1400ii. Karl uses the wool purchased from Adam to weave into cloth that he then sells to Leon (who also lives in Germany) for $1600.iii. Leon sells the wool to Alfred (who lives in England) for $2000.iv. Alfred then tailors a bespoke suit for John (who lives in England) for $5000.Suppose that these are the only transactions in the two countries, and that they all take place in the year 2017. The GDPs of the United Kingdom and Germany (measured in dollars), respectively, are:

$4400 and $600

Given the following information, which level of output is the equilibrium level (in billions)?

$8600

Which of the following would be counted as unemployed?

A lawyer who just resigned from her firm, and is looking for a new position

What is the real interest rate paid on a credit-card loan bearing 18 percent nominal interest per year, if the rate of inflation is 20 percent?

-2.0

If average income goes from $30,000 to $33,000 and consumption increases from $29,000 to $31,000, the marginal propensity to consume is ______________.

.67

Using the data from Question 8.32 and 8.33, what is the marginal propensity to consume?

0.75

In February of 2009, President Barack Obama signed the American Recovery and Reinvestment Act, which allocated a certain amount in stimulus to the economy to help the economy recover from the recession. If we assume the marginal propensity to consume was .6 at that time, how much in stimulus would the US have to allocate to cover a $1.25 trillion output gap (the difference between the current level of output and full employment level) in the economy?

0.75 trillion

Suppose that in 2015 national income is equal to $5 trillion and consumption is $4 trillion. In 2016, with income of $5.1 trillion, consumption increased to $4.1 trillion. Calculate the marginal propensity to consume.

1.00

The U.S. population is currently growing at 0.7% per year. Using the rule of 72, how long will it take the population to double at this rate?

102.9

What was the price of the 1977 Beetle in 1998 dollars?

11544.0

What is the real interest rate paid on a credit-card loan bearing 18 percent nominal interest per year, if the rate of inflation is 6 percent?

12.0

If import spending decreases by $200 billion at each level of output (and consumption spending does not change with the change in import spending), what will the new equilibrium output and income be? Exclude the dollar sign.

9400.0

If the Consumer Price Index for one year was 150.0 and the rate of inflation from that year to the next was 10 percent, what would be the Consumer Price Index in the second year?

165.0

The overall growth rate for real GDP between 1960 and 1973 was 4.2%. Using the rule of 72, how long does it take the economy to double in size if we grow at a 4.2 percent rate?

17.1

The natural rate of unemployment in your country is:

2%

China is currently reporting an annual growth rate of 6.1% in real GDP per capita. Using the rule of 72, how many years will it take for Chinese GDP per capita to quadruple at this rate of growth?

23.6

The overall growth rate for real GDP between 1973 and 1995 was 2.9%. Using the rule of 72, how long does it take to double if we grow at a 2.9 percent rate?

24.8

If the rate of inflation is 5% and the nominal rate of interest is 9%, what is the real rate of interest?

4%

If the rate of inflation is 6 percent and the current nominal interest rate is 10 percent, the real interest rate is:

4%

What is the unemployment rate in your country?

4%

The index in January 2007 was 202.416 and was 211.081 in January, 2008. What was the inflation rate for the 12 month period? Please answer in percent and round to one decimal place.

4.3

What did the 1977 Beetle cost in 1977 dollars?

4340.0

If the Consumer Price Index for one year was 124.0 and for the next year was 130.7, what was the approximate rate of inflation?

5.4%

China's average growth rate since 2008 has been 7.9% per year. Using the rule of 72, how long will it take for the size of the China's economy to double at this growth rate?

9.1

Suppose an increasing number of consumers become worried about job security. This may affect consumption spending and be most likely to subsequently cause which of the following?

A decrease in employment and perhaps a decrease in inflation

An increase in the marginal propensity to save will cause all of the following except __________.

A parallel shift down in the aggregate expenditure curve

The meaning of economic growth to an economist is best described in which of the following options?

A shift outward in the production possibilities frontier

Businesses become more optimistic about the future and decide to invest more. What will this do to aggregate demand?

Aggregate demand shifts right (more spending at any given price)

If regulations make it more costly for businesses to produce, what happens to aggregate supply?

Aggregate supply shifts left (less output at any given price)

Which of the following policies would not help us to have faster technological growth?

All of the above would help to generate faster technological growth

People tend to like higher incomes and lower prices. What kind of change in our model results in higher incomes and lower prices?

An increase in AS

An increase in government spending will likely cause which of the following?

An increase in GDP that is greater than the increase in government spending

A booming stock market may affect consumption spending and be most likely to cause which of the following?

An increase in employment and perhaps an increase in inflation

Assuming we are producing near full capacity, an increase in demand (a shift to the right in AD) will result in which of the following?

An increase in real GDP B An increase in the price level, movement along the AS curve

Suppose the federal government reduces taxes on the profits earned from investment in physical capital. According to our model, this policy will eventually result in:

An increase in real GDP and an ambiguous effect on prices

An increase in the MPC from 75% to 80% implies all of the following except which of the following?

An increase in the spending multiplier to .2

Why does the aggregate supply curve become very steep at high levels of real GDP?

At very high levels of production, capacity constraints become severe and more spending can only lead to higher prices.

Even though I lost my job, causing my income to drop significantly, I still continued to pay my rent. This spending is an example of _____________.

Autonomous consumer spending

Which of the following represents movement along the aggregate demand curve? Select all that apply.

B As the average price level falls¸ consumers have more financial wealth and decide to increase spending. C Falling prices decreases the demand for money¸ decreasing interest rates¸ and investment spending rises. people from around the world want to buy more Teslas as the price level in the U.S. falls.

A new automobile which is produced in the U.S. and purchased by an individual in the U.S.?Purchased by a company in the U.S.?By a government in the U.S.?

Consumption B Investment C Government

An increase in real GDP will be most likely to cause further increases in __________.

Consumption and investment, but a decrease in net exports

If GDP decreased, what would be the most probable effect on the other components of GDP?

Consumption, investment, and imports would decrease.

We have reached full employment when which of the following is true?

Cyclical unemployment is zero, but frictional and structural unemployment are positive.

What happens to the price level and GDP when we experience a technological improvement that allows workers and capital to produce more?

GDP rises, price falls

An increase in government spending will have which of the following effects on real GDP?

GDP will increase if nothing else changes

An increase in Aggregate Demand results in a ____________.

Higher GDP deflator and higher real GDP

Which of the following changes would cause a shift in the aggregate demand curve?I. Increase in investmentII. Decrease in productivityIII. Increase in consumption

I and III only

Use the AS AD model to predict how a fall in interest rates is likely to change investment, real GDP, prices, and employment in the short run.

Increase investment, real GDP, prices, and employment

To boost the economy, the government may propose a reduction in the income tax, which will _____________.

Increase the marginal propensity to consume, which will raise the consumption

Suppose that the demand for physical capital in the U.S. increased. What impact would this have on interest rates and on the amount of saving in the economy?

Interest rates would increase and savings would increase.

If aggregate expenditure is greater than real GDP, we could expect which of the following to occur?

Inventories to decline and real GDP to increase in the future

Which statement most accurately represents the effect of rising stock prices on aggregate expenditure?

It increases consumption but has less of an effect than the change in marginal propensity to consume.

A decrease in Aggregate Demand results in a _____________.

Lower GDP deflator and lower real GDP

If nothing else changes, an increase in interest rates will __________.

Lower investment spending because it raises the opportunity cost of funds

Indicate the effects of the following on the components of real GDP. An increase in the U.S. consumption of foreign-grown bananas as substitutes for U.S. grown oranges will cause:

No change in consumption and an increase in imports

If inventories are rising, we can assume that which of the following is true?

Production is greater than consumption and investment, suggesting output will fall

What will an increase in the price of substitute goods produced in foreign countries do?

Raise the level of exports and lower the trade deficit

Which of the following options will be most likely to help real GDP per capita grow in the long run?

Research and development of new technology

Investment is driven by all of the following except ____________.

The buying of stocks and bonds on the open market

Compare the effects on this year's consumption spending of:(1) A permanent ten percent cut in income taxes versus(2) A ten percent cut that will last only for one year.

The increase in consumption from (1) would be more than the increase from (2).

Aggregate demand slopes down because ______________.

The price level affects the real value of currency and deposits C The price level affects interest rates D The price level affects imports and exports

If everything else remains the same, a rise in the GDP deflator (a measure of the average price level) should cause _______________.

The real value of currency and deposits to fall B The demand for money to rise C Interest rates to rise D Consumption spending to fall

What is the effect of an increase in investment spending on the overall price level in the income-expenditure model?

There is no effect because prices are not changing by assumption

Given an announcement of increased numbers of unemployed individuals, what must be happening to the unemployment rate? The unemployment rate:

Will decrease if employment rises more rapidly than unemployment

People really dislike falling income and rising prices. What kind of change in our model will make people really unhappy?

a decrease in AS

What will an increase in the tax rate cause?

a decrease in the spending multipliers

Each of the following can increase the amount of spending in the economy. Which of them does not represent an outward shift in the PPF?

a decrease in unemployment

In 2007, the price of houses fell dramatically across the country. As a result, the wealth of most households fell substantially. How would we model the effect of this change in terms of AS/AD?

a shift in the AD curve to the left

How would we model the effect of a new costly regulation on businesses?

a shift left of the AS curve

How would we model an increase in the amount of capital available in an economy?

a shift to the right of the AS curve

What will an increase in U.S. prices likely cause?

an increase in U.S imports

Which of the following would likely cause a decrease in consumption in the economy?

an increase in interest rates

Which determinant of productivity can help to explain the slowdown in growth since 2008, but not the slowdown from 1973 to 1995?

capital

A Toyota made in Tennessee and sold in the U.S. is _________.

consumption

A college education purchased by an individual is

consumption

A concert produced by a nonprofit corporation is __________.

consumption

The monthly apartment rent is _______________.

consumption

The value of plumbing an individual does in her neighbor's house for which she is paid is ___________.

consumption

Which of the following spending components of GDP will be affected by a change in the average price level?

consumption, investment, net exports

A BMW made in Germany sold to an individual in the U.S. is _____________.

consumption, net exports, does not affect Toal GDP

If the average price of US items (measured by the GDP deflator) rises, what will happen to US exports?

decrease

When interest rates rise, how does business investment spending respond?

decrease

When the price level rises, what happens to the amount of stuff you can buy with money?

decrease

If the economy is on the production possibilities frontier, which of the following might allow the economy to increase its capacity?

decrease exports

Suppose U.S. prices increase more than foreign prices. U.S. exports would ______________. GDP would ______________.

decrease; decrease

Suppose that incomes in the U.S. rise and foreign incomes fall. U.S. exports will ______________. U.S. imports will ______________.

decrease; increase

What term refers to income after all taxes are paid?

disposable income

Indicate what category the purchase of services of a U.S. lawyer in the U.S. by a Japanese citizen in Japan would fall under in regards to the U.S. GDP.

exports

U.S. prices are rising. If European prices are rising more rapidly than U.S. prices, we would expect U.S. net exports to change as follows:

exports up; imports down

A new school building paid for with state and federal money is ________.

government

A policeman's salary

government

Which component of GDP is not directly affected by a change in interest rates?

government purchases

An decrease in Aggregate Supply results in a __________.

higher GDP deflator and lower real GDP

A price index that is used to measure inflation will do which of the following?

hold quantities constant

What can the unemployment rate you found above tell you about the economy? It is:

in a bust

A decrease in the savings rate will likely cause an ______________ in the slope of the consumption function in the income expenditure model.

increase

How does an increase in income in the U.S. affect the level of U.S. imports?

increase

If the average price of US items (measured by the GDP deflator) rises, what will happen to US imports?

increase

Suppose the U.S. government increased its spending on infrastructure and paid for this increased spending with a tax on consumption. How would this policy affect economic growth?

increase economic growth

Given the following policies, which is most likely to increase economic growth in the long run? Consider only the direct effects.

increase educational spending

Which of the following would cause AD to decrease, that is, shift to the left?

increase in income taxes

An increase in wealth ______________ autonomous consumption. A tax rate increase ______________autonomous consumption.

increase; does not change

An increase in prices abroad while prices are stable here will cause our net exports to _______. In turn, this change in net exports will cause our real GDP to _______.

increase; increase

An increase in net exports will cause GDP to ______________. Assume that the marginal propensity to consume increases from .9 to .95. An increase in net exports will now have a ______________ effect on GDP.

increase; larger

You are given the following data. The average price level from one year to the next has increased by 3 %.The average level of income has increased by 5 %. Real income has:

increased by 2%

Which of the following is included in investment spending?

inventories

Given the output and aggregate expenditure information below, if income is currently $1,800, we would expect:

inventories to decline

A new baseball glove that is not sold is __________.

investment

A new house purchased from the builder is ______________.

investment

An increase in the marginal propensity to consume will make the spending multiplier ______________. An increase in taxes as a portion of income will make the spending multiplier ______________.

larger; smaller

Which of the following is true in an economy with a high and rising rate of inflation?

lenders are hurt

As spending increases, there will be upward pressure on the price of inputs including wages. As the marginal cost of production rises, businesses start to increase prices as they attempt to produce more. This scenario best describes _____________.

movement along the aggregate supply curve

A Chevrolet produced in Detroit sold to an Argentine company is ___________.

net exports

Which item is included in the calculation of U.S. GDP?

new housing construction

How does an increase in income in the U.S. affect the level of U.S. exports?

no change

If at an average salary of $ 33,000, consumption increases to $ 32,000 due to an increase in wealth, what has happened to the marginal propensity to consume?

no change

A Social Security payment is _________.

not included

A house purchased from another family is ___________.

not included

A share of IBM stock purchased from IBM is ____________.

not included

A share of stock purchased from another individual on the New York Stock Exchange

not included

Pollution of a river by a factory which results in the company saving money is ____________.

not included

The cost of pollution produced by automobiles is ____________.

not included

The value of plumbing an individual does herself in her house is __________.

not included

Which factor best explains changes in the productivity of U.S. workers since 1960?

output per hour

A 401k is a retirement plan that provides tax benefits intended to encourage people to save for retirement. Suppose that the U.S. removed the tax benefit associated with 401k plans. Which determinant of productivity growth would be impacted by this policy?

physical capital

Suppose that a developing country successfully implements reforms to decrease corruption in the court system. Which determinant of economic growth will this impact most directly?

physical capital

What is the primary determinant of Government spending?

politics

Which of the following would not increase real GDP per capita?

population growth

The economy is initially in equilibrium. Labor laws become more restrictive: minimum wage rises, employers required to provide more health care, have more work place regulations to comply with. At the new equilibrium, what has happened to real GDP and price?

price rises, GDP falls

In the previous question, what would be the impact on productivity?

productivity would increase.

In which of the following situations would spending on investment be encouraged?

real GDP is rising

The long-run effect of an increase in investment spending will be a shift of the aggregate demand curve to the ______________ and ______________ shift of the aggregate supply curve.

right; a rightward

An increase in income taxes will affect the marginal propensity to consume and the spending multiplier in which of the following ways? It will make the MPC ______________ and the spending multiplier ______________.

smaller; smaller

Which of the following is not considered part of investment in the calculation of GDP?

stock ownership in a company

Changes in which of the following is most responsible for the slower economic growth in the period from 1973 to now as compared to 1960 to 1973?

technology

There are 100,000 citizens able to participate in the workforce in the land of Productivia. If 75,000 people are working, what is the unemployment rate in Productivia?

unable to determine

Which one of the following is the largest part of national income?

wages

Suppose that the U.S. government began to pay for a portion of everyone's college education, and it paid for this by increasing taxes on business investment. How would this policy affect economic growth?

we cannot tell