Econ 252 - Exam 1

The world's average (mean) GDP per capita is $10,515. There are roughly 7 billion people in the world. About 20% of the world's population produces 50% of the world's total GDP. How much GDP does the top 20% produce? $37 trillion $3.7 trillion $15 trillion $1.5 trillion

$37 trillion

The world's average (mean) GDP per capita is $10,515. There are roughly 7 billion people in the world. What is the world's total GDP? $73,600 $73.6 billion $73.6 trillion $736 trillion

$73.6 trillion

Calculate the annual growth rate of nominal GDP in the following examples. Round to the nearest tenth of a percent for each (e.g., 1.2%, not 1% or 1.23%). If the number is negative, do not forget the negative sign. Nominal GDP in 1930: $97 billion. Nominal GDP in 1931: $84 billion. ____% Nominal GDP in 1931: $84 billion. Nominal GDP in 1932: $68 billion. ____% Nominal GDP in 2000: $9,744 billion. Nominal GDP in 2001: $10,151 billion. ____%

-13.4,-19,4.2

Practice with the rule of 70: If you inherit $10,000 this year and you invest the money so that it grows 7 percent per year, how many years will it take for your investment to be worth $20,000? ______years

10

Solve Thinking and Problem Solving Question 6, Part c, on page 24. What exact number would you have to place in the empty cell of the table for it to be impossible that trade between the United States and South Korea could benefit both nations?

12.5 (with margin: 0)

Calculate GDP in this simple economy: Consumer purchases: $100 per year Investment purchases: $50 per year Government purchases: $20 per year Total exports: $50 per year Total imports: $70 per year GDP: _______$ per year

150

U.S. GDP is approximately $14 trillion (as of this writing). Currently 150,000 people in the United States earn over $1.5 million per year. If you could take their money and divide it up among the approximately 300 million other Americans, how much money could you give to each person every year? Note that $1.5 million is only the cutoff: On average, this group earns $3 million per year, so use that number in your calculations. Do not type "$" in the box. _______

1500

Erin has a choice between two activities: She can repair one transmission per hour or she can repair two fuel injectors per hour. The opportunity cost of repairing one transmission is:

2 fuel injectors

Deirdre has a choice between writing one more book this year or five more articles this year. The opportunity cost of writing half of a book this year, in terms of articles is:

2.5 articles

We noted that "government purchases" don't include all government spending. A big part of what the U.S. government does is transfer money from one person to another. Social security (payments to retirees), and Medicare and Medicaid (paying for medical care for the elderly and the poor) make up most of these "government transfers." We'll look into this in more detail in Chapter 17 (or 36), but right now, let's see how big "government transfers" are and how fast they've grown in the federal government's budget. The figures in this table are all in noninflation-adjusted dollars. Complete the table of Thinking and Problem Solving, Question 3 on page 113 (or 507). Round to the nearest percent (e.g., 12%, not 12.3%). Transfers as percent of spending in 1950: _____% Transfers as percent of spending in 2000: _____% Growth in transfers: _____% Growth in federal spending: _____%

32,59,7672,4107

Practice with the rule of 70: If you inherit $10,000 this year and you invest your money so that it grows 7% per year, how many years will it take for your investment to be worth $160,000? ____years

40

Practice with the rule of 70: Suppose that you put your money into a savings account that grows at an inflation-adjusted return of 2 percent per year. How many years will it take for your money to quadruple? _____years

70

Katie works at a customer service center and every hour she has a choice between two activities: answering 200 telephone calls per hour or responding to 400 emails per hour. The opportunity cost of responding to 400 phone calls is:

800 emails

Using data from the Penn World Tables (the figure of Question 7 of Facts and Tools on page 134 or 528), calculate the annual growth rate of real GDP per person for China for 2001, 2002, 2003, and 2004. Make sure to round to the nearest tenth of a percent for each. You will receive zero points if you fail to round it correctly. 2001: _____% 2002: _____% 2003: _____% 2004: _____%

9.7,10.4,9.8,8.5

Before the rise of affordable automobiles and subways, many people used trolleys—small trains on rails that run along ordinary streets to get around in urban areas. On trolleys, there is a literal "free rider problem," since people could hop on and off very easily without paying. What could the trolley industry do to solve the problem of free riders? A. The trolley industry might be managed by the government. B. The trolley companies might hire an employee to check people's tickets. C. The trolley companies might put gates on the entrances (like the door to a bus). D. b and c.

B and C

Fit the following example into one of the reasons for trade. Former President Bill Clinton, a graduate of Yale Law School, hires attorneys who are less skilled than himself to do routine legal work. Division of knowledge Comparative advantage

Comparative advantage

Data can write 12 excellent poems per day or solve 100 difficult physics problems per day. Riker can write one excellent poem per day or solve 0.5 difficult physics problems per day. Data has an absolute advantage at both. Riker has an absolute advantage at both. Data has an absolute advantage at poetry and Riker has an absolute advantage at physics. Riker has an absolute advantage at poetry and Data has an absolute advantage at physics.

Data has an absolute advantage at both.

Fit the following example into one of the reasons for trade. Two recently abandoned cats, Bingo and Tuppy, need to quickly learn how to catch mice in order to survive. If they also remain well groomed, they stand a better chance of surviving: Good grooming reduces the risk of disease and parasites. Each cat could go it alone, focusing almost exclusively on learning to catch mice. The alternative would be for Bingo to specialize in learning how to groom well and for Tuppy to specialize in learning how to catch mice well. Division of knowledge Comparative advantage

Division of knowledge

Before the rise of affordable automobiles and subways, many people used trolleys—small trains on rails that run along ordinary streets to get around in urban areas. On trolleys, there is a literal free-rider problem, since people could hop on and off very easily without paying. If free riders are a big problem, what will happen to the supply of trolley rides? More companies will offer trolley rides. Fewer companies will offer trolley rides. The supply of trolley rides will stay the same. None of these answers.

Fewer companies will offer trolley rides.

Of the three conditions that explain why a free market is efficient (from Chapter 4), which condition or conditions cease to hold in the case of a tariff on imported goods? I. The supply of goods is bought by the buyers with the highest willingness to pay. II. The supply of goods is sold by the sellers with the lowest costs. III. Between buyers and sellers, there are no unexploited gains from trade and no wasteful trades. I I and II II and III I, II, and III

II and III

Cars made in the United States at a Toyota factory are ____________in U.S. GDP. Cars made in Germany at a General Motors factory are _____________ in U.S. GDP. Included/Not included

Included, Not included

The price paid by a German tourist when staying at a New York hotel is___________ in U.S GDP. The price paid by an American tourist staying at a Berlin hotel is ___________ in U.S. GDP. The price paid by a German tourist when staying at a New York hotel is included in U.S GDP. The price paid by an American tourist staying at a Berlin hotel is not included in U.S. GDP. Included/not included

Included, not included

By definition, nominal GDP is ________ real GDP. higher than lower than the same as It depends on which year we choose as the base year.

It depends on which year we choose as the base year.

Let's focus just on the lobbyists who are restricting trade. If the United States were to amend the Constitution to permanently ban all tariffs and trade restrictions, these lobbyists would lose their jobs, and they'd have to leave Washington to get "real jobs." Would this job change raise U.S. productivity or lower it? Which is more likely over time? It would raise U.S. productivity. It would lower U.S. productivity. It would not change U.S. productivity.

It would raise U.S. productivity.

The Japanese people currently pay about four times the world price for rice. If Japan removed its trade barriers so that Japanese consumers could buy rice at the world price, who would be better off and who would be worse off: Japanese consumers or Japanese rice farmers? If we added all the gains and losses to the Japanese, would there be a net gain or net loss? Japanese consumers would be better off while Japanese rice farmers would be worse off. There would be a net gain. Japanese consumers would be better off while Japanese rice farmers would be worse off. There would be a net loss. Japanese rice farmers would be better off while Japanese consumers would be worse off. There would be a net gain. Japanese rice farmers would be better off while Japanese consumers would be worse off. There would be a net loss.

Japanese consumers would be better off while Japanese rice farmers would be worse off. There would be a net gain.

Kara can build two glass sculptures per day or she can design two full-page newspaper advertisements per day. Sara can build one glass sculpture per day or design four full-page newspaper ads per day. Kara has a comparative advantage at both. Sara has a comparative advantage at both. Kara has a comparative advantage at glass sculptures and Sara has a comparative advantage at newspaper ads. Sara has a comparative advantage at glass sculptures and Kara has a comparative advantage at newspaper ads.

Kara has a comparative advantage at glass sculptures and Sara has a comparative advantage at newspaper ads.

Kara can build two glass sculptures per day or she can design two full-page newspaper advertisements per day. Sara can build one glass sculpture per day or design four full-page newspaper ads per day. Kara has an absolute advantage at both. Sara has an absolute advantage at both. Kara has an absolute advantage at glass sculptures and Sara has an absolute advantage at newspaper ads. Sara has an absolute advantage at glass sculptures and Kara has an absolute advantage at newspaper ads.

Kara has an absolute advantage at glass sculptures and Sara has an absolute advantage at newspaper ads.

In 30 minutes, Kana can either make miso soup or she can clean the kitchen. In 15 minutes, Mitchell can make miso soup; it takes Mitchell an hour to clean the kitchen. Kana has a comparative advantage at both. Mitchell has a comparative advantage at both. Kana has a comparative advantage at miso soup and Mitchell has a comparative advantage at cleaning. Mitchell has a comparative advantage at miso soup and Kana has a comparative advantage at cleaning.

Mitchell has a comparative advantage at miso soup and Kana has a comparative advantage at cleaning.

In 30 minutes, Kana can either make miso soup or she can clean the kitchen. In 15 minutes, Mitchell can make miso soup; it takes Mitchell an hour to clean the kitchen. Kana has an absolute advantage at both. Mitchell has an absolute advantage at both. Kana has an absolute advantage at miso soup and Mitchell has an absolute advantage at cleaning. Mitchell has an absolute advantage at miso soup and Kana has an absolute advantage at cleaning.

Mitchell has an absolute advantage at miso soup and Kana has an absolute advantage at cleaning.

The underground economy and other nonpriced production make it hard to accurately measure the precise level of GDP. If Jerome Powell, the Federal Reserve head, is trying to find out whether the U.S. economy has gone into a recession, are the difficulties of measuring nonpriced production likely to be important problems for her purposes? (Though not required, make sure to explain your answer.) Yes, they cause serious problems. Yes, though the problems are somewhat reduced by the fact that the U.S. has relatively reliable data on its GDP. No, they do not matter as much in measuring changes.

No, they do not matter as much in measuring changes.

Data can write 12 excellent poems per day or solve 100 difficult physics problems per day. Riker can write one excellent poem per day or solve 0.5 difficult physics problems per day. Data has a comparative advantage at both. Riker has a comparative advantage at both. Data has a comparative advantage at poetry and Riker has a comparative advantage at physics. Riker has a comparative advantage at poetry and Data has a comparative advantage at physics.

Riker has a comparative advantage at poetry and Data has a comparative advantage at physics.

Many people will tell you that, whenever possible, you should always buy U.S.-made goods. Some will go further and tell you to spend your money on goods produced in your own state whenever possible. (Just do a simple Google search for "Buy [any state]" and you'll find a Web site encouraging this kind of thinking.) The idea is that if you spend money in your state, you help the economy of your state, rather than the economy of some other state. By the same logic, shouldn't one buy only goods produced in one's own city? Or on one's own street? Ultimately, where does this thinking lead to? Free trade Government intervention Self sufficiency Protectionism

Self sufficiency

In one hour, Ethan can bake 20 cookies or lay the drywall for two rooms. In one hour, Sienna can bake 100 cookies or lay the drywall for three rooms. Ethan has a comparative advantage at both. Sienna has a comparative advantage at both. Ethan has a comparative advantage at baking cookies and Sienna has a comparative advantage at laying drywall. Sienna has a comparative advantage at baking cookies and Ethan has a comparative advantage at laying drywall.

Sienna has a comparative advantage at baking cookies and Ethan has a comparative advantage at laying drywall.

In one hour, Ethan can bake 20 cookies or lay the drywall for two rooms. In one hour, Sienna can bake 100 cookies or lay the drywall for three rooms. Ethan has an absolute advantage at both. Sienna has an absolute advantage at both. Ethan has an absolute advantage at baking cookies and Sienna has an absolute advantage at laying drywall. Sienna has an absolute advantage at baking cookies and Ethan has an absolute advantage at laying drywall.

Sienna has an absolute advantage at both.

This chapter pointed out that trade restrictions on sugar cause U.S. consumers to pay more than twice the going world price for sugar. However, you are very unlikely to ever encounter bumper stickers that say things like "Out of money yet? Keep taxing foreign sugar!" or "Hungry? It's probably because domestic sugar is so expensive!" Why do you think it is that these bumper stickers are not popular? The sugar industry is very large relative to other industries and it suppresses most opinions against it. Sugar is not that important for buyers of sugar. The costs of the tariffs are relatively small for each individual as it is spread out among many, many people. All of the above.

The costs of the tariffs are relatively small for each individual as it is spread out among many, many people.

Let's focus just on the lobbyists who are restricting trade. If the United States were to amend the Constitution to permanently ban all tariffs and trade restrictions, these lobbyists would lose their jobs, and they'd have to leave Washington to get "real jobs." Would most of these lobbyists likely earn more or less right after the amendment was enacted? The lobbyists would probably earn more. The lobbyists would probably earn less. The lobbyists would probably earn about as much.

The lobbyists would probably earn less.

American workers are typically paid much more than Chinese workers. This is largely because American workers are typically more productive than Chinese workers.

True

Julia Child, an American chef (and World War II spy) who reintroduced French cooking to Americans in the 1960s, was paid much more than most American chefs. This was largely because Julia Child was much more productive than most American chefs.

True

The world's average (mean) GDP per capita is $10,515. There are roughly 7 billion people in the world. About 20% of the world's population produces 50% of the world's total GDP. What is the average GDP per capita of the most productive 20% of the world's population? about $52,000 about $15,000 about $37,000 about $26,000

about $26,000

In his book The Choice, economist Russ Roberts asks how voters would feel about a machine that could convert wheat into automobiles. This machine would ________ jobs in the auto industry and ________ jobs in other industries. Economists call this machine, "___________" create; destroy; international trade create; destroy; dream technology destroy; create; international trade destroy; create; dream technology

destroy; create; international trade

During World War II, the government did a good job measuring nominal GDP (i.e., we assume nominal GDP was correctly measured). But if the price level was calculated incorrectly, we might get a completely wrong idea about what happened with real GDP. During World War II, price ceilings were in place. That means that some things that would've been expensive were artificially cheap instead. Within a few years of the war's end, price controls finally ended, and the price level spiked up about 20%. If the true price level during the war was actually 20% higher than reported, that would mean that real GDP was ____________ the official number during the war. higher than lower than the same as

lower than

Some people argue for protectionism by pointing out that other countries with whom we trade engage in "unfair trade practices," and that we should retaliate with our own protectionist measures. One such policy is the policy of some countries to subsidize exporting industries. India, for example, subsidizes its steel industry. Obviously, U.S. steel producers are hurt by this policy and would like to restrict imported steel from India. For the U.S. economy as a whole, restricting imported steel from India is: a good policy because it benefits the U.S. economy as a whole. a good policy because it protects the U.S. steel industry which is crucial to the U.S. economy. not a good policy because Indian steel is better than the U.S. steel. not a good policy because the losses suffered by steel buyers and other industries outweigh the benefits gained by the U.S. steel industry.

not a good policy because the losses suffered by steel buyers and other industries outweigh the benefits gained by the U.S. steel industry.

Used textbooks sold at your college bookstore are __________ in U.S. GDP. Used books sold at a garage sale are ___________in U.S. GDP. included/not included.

not included for both.

Economists often refer to the "natural resource curse," by which they mean that large amounts of natural resources tend to create bad politics because as long as the oil keeps flowing, political leaders don't need to care much about what goes on in the rest of the country. Which factor of production do you think matters most to a leader of a resource-rich country? physical capital technology honest government property rights

physical capital

Economists often refer to the "natural resource curse," by which they mean that large amounts of natural resources tend to create bad politics because as long as the oil keeps flowing, political leaders don't need to care much about what goes on in the rest of the country. Which of the five key institutions matters most to a leader of a resource-rich country? property rights honest government political stability a dependable legal system competitive and open markets

political stability

For each blank, choose "rise," "fall," or "stay the same." According to legend, some government employees do very little work. If this legend is true enough to be important, then we may be measuring GDP incorrectly. Officially, we say that these are "employed workers," but to a great extent, these "employees" are really unemployed in any useful task; they are receiving transfer payments and watching YouTube for 40 hours per week. If instead government statistics counted these YouTube-watching government employees as simply retired or unemployed, consumption would _____ , government purchases would ______ , and GDP would ________ .

stay the same, fall, fall

For each blank, choose "rise," "fall," or "stay the same." If U.S. government statistics counted people who are receiving unemployment benefits as people who are "government employees" hired to "search for work," consumption would __________ , government purchases would ________ , and GDP would ________ .

stay the same, rise, rise

For each blank, choose "rise," "fall," or "stay the same." If U.S. government statistics counted education spending by government as part of investment, consumption would _____ , investment would _____ , and GDP would __________ .

stay the same, rise, stay the same

Use the table for Thinking and Problem Solving Question 6 on page 24 and the answer to the previous question. Any number less than the number in the previous question will give __________ the comparative advantage in airplanes. Any number higher than the number in the previous question will give __________ the comparative advantage in airplanes. the United States; the United States United States; South Korea South Korea; the United States South Korea; South Korea

the United States; South Korea

Spend some time driving in Detroit, MI—the Motor City—and you're sure to see bumper stickers with messages like "Buy American" or "Out of a job yet? Keep buying foreign!" or "Hungry? Eat your foreign car!" Domestic auto companies and their workers are hurt by imported automobiles, but _______________ benefit(s). no one workers at the foreign auto companies workers at the foreign auto companies and domestic buyers workers at the foreign auto companies, domestic buyers, and other industries in the U.S.

workers at the foreign auto companies, domestic buyers, and other industries in the U.S.