Econ Unit 2 Test

If U.S. per capita GDP is $50,000 and grows at 5% per year, what will U.S. per capita GDP be in 70 years?

$1.6 million

(Table: Three-Good Economy II) Suppose an economy produces only the three final goods shown in the table. The table gives information on the quantities produced and the prices of goods sold in 2008 and 2009. If 2008 prices are used in the calculation of real GDP, then nominal GDP in 2009 is _____ and real GDP in 2009 is _____.

$34,310; $33,700

If U.S. per capita GDP is $50,000 and grows at 3% per year, what will U.S. per capita GDP be in 70 years?

$400,000

(Figure: Supply and Demand 4) Refer to the figure. If the good is purchased by those with the highest willingness to pay, what is the value of consumer surplus in the figure at the price ceiling of $8?

$54

(Table: iPhones) This table shows data for a country producing only iPhones. The growth rate of real GDP between 2000 and 2010 (in 2000 dollars) is:

-10%.

Which statement is TRUE about economic growth?

A country can grow and become wealthy, never grow, or grow and then begin to stagnate.

Which of these transactions occurring in 2011 would contribute to GDP for 2011?

Boeing sells a 787 aircraft produced in 2011 to a Korean airline.

If the GDP of country X is 4 times the GDP of country Y and if the GDP of country X remains constant while GDP of country Y grows at a rate of 7% per year, which of the following statements is true?

Country Y's GDP will be equal to country X's GDP in 20 years.

Which scenario would cause a speculator in chicken and beef futures to use a "buy low and sell high" strategy for chicken?

Cows are found to be infected with "Mad Cow Disease" and must be destroyed.

Futures contracts reduce future uncertainty. Which statement(s) show how this is achieved? I. Futures contracts allow the parties involved to mitigate possible shortages in quantities of the good. II. Futures contracts allow the parties involved to mitigate unexpected changes in price that could hurt earnings. III. Futures contracts always allow the seller to receive a price that is higher than the market price for the product.

I and II only

Suppose resources are directed by means of a central planner who receives information on all the different uses of these resources. Why might sellers have an incentive to not provide truthful information to the central planner?

In order to continue producing their product, sellers may overstate the importance of that product.

Which statement best describes the economic growth patterns in the world since World War II?

Japan and South Korea experienced rapid growth while Argentina and Nigeria experienced slow growth.

Two centrally planned economies in 2011 were:

North Korea and Cuba.

In a competitive market, what does it mean when a company goes out of business?

Resources are freed up to go to some other higher-valued use.

Which statement is correct regarding the restrictions on entry into the airline industry?

Resources were misallocated because low-cost airlines were kept out of the industry.

Brazil is the world's largest sugar cane producer and sugar cane can be used for producing sugar and the fuel ethanol for automobiles. Which sequence of events is correct?

Rising oil prices cause Brazilian producers to shift sugar cane production from sugar to the fuel ethanol. The decrease in sugar supply raises the price of candy bars.

(Figure: Supply and Demand 5 Price is in dollars and Quantity is in thousands) Refer to the figure. In the figure, representing a market for apartments, a rent-controlled price of $800 will cause:

a short-run shortage of 3,000 apartments.

If a minimum wage is posted in the labor market:

a surplus of labor would develop.

Which scenario has the greatest potential for free riding?

a system in which work effort and pay are not connected

Price ceilings set by the government:

are generally believed to cause reductions in product quality.

The shortages that result from imposing price controls:

are rarely recognized by the public as a result of the price controls themselves.

Which of the following would be most effective in reducing "free riding" in a communal farming system?

assigning property rights

Refer to figure. If, in this figure, the government enacts a price ______ by setting the good's price at $6, it will create a ______.

ceiling; shortage of 10 units

In the past 100 years, there has been a decline in the use of unpaid child labor on family farms. Therefore:

changes in GDP overstate the true increase in production over the past 100 years.

(Figure: Speculation) Today, speculators anticipating trouble in the Middle East will ______ the current supply of oil, causing the price of oil to _______.

decrease; rise from B to A

Like a tango, it takes two to make a futures contract. But unlike the tango, the participants in a futures contract:

disagree about the future.

Which would MOST LIKELY result after setting a price ceiling on automobiles?

fewer safety features

If a central planner had the power to solve the great economic problem:

his incentive would be to use that power to enrich himself, not to solve the problem.

If there are 100 tickets to a concert and 200 fans who would like to go to the concert, each placing a slightly different value on the tickets, is it more efficient to hold an auction for the tickets or to hold a random drawing for the tickets?

hold an auction

Deregulation of the airline markets reduced waste, increased efficiency, and:

improved allocation of resources.

New housing takes some time to build, so rent control creates larger shortages in the:

long run than in the short run because long-run supply is more elastic.

Which is NOT an example of an institution that creates incentives aligning self-interest with the interest of society?

low inflation

Price controls cause resources to be ________ not just geographically, but also across different ________ of those resources.

misallocated; uses

Which is NOT an example of physical capital?

money

When they guess correctly about price movements, speculators:

move goods from periods of low-use value to periods of high-use value, making society better off.

Property rights encourage:

saving and investment in both physical and human capital.

Price ceilings reduce quality because:

sellers facing excess demand cannot raise prices to increase profit.

A country that has enforceable property rights, a noncorrupt political system, abundant factors of production, and a change in leadership and form of government every few years should suspect that economic growth will be _____ because _____.

slow; of uncertainty due to an unstable political system

Which is NOT an important institution for growth?

strong regulation of religious belief

Labor unions are composed of high-skilled workers, but generally support minimum wage laws that typically affect only low-skilled workers. Their support makes more sense by considering that low-skilled labor is a ______ for high-skilled labor, and minimum wages ______ the quantity demanded of low-skilled labor.

substitute; decrease

Which are immediate causes of the wealth of nations?

technical knowledge and human capital

A developing country could buy (or be given) _____ and _____ more easily than _____.

technological knowledge; physical capital; human capital

The key reason for China's growth miracle beginning in the late 1970s was:

the assignment of private property rights.

History has shown that when collective property rights are converted to private property rights:

work effort, investment, and productivity all increase.

(Figure: Costs of Price Ceilings 2) Refer to the figure. What is the dollar amount of lost producer surplus after the price ceiling of $4 has been implemented?

$10

Imagine that Jack and Jill buy $500 worth of milk and $200 worth of crayons and coloring books each year for use in their day-care business. Jack and Jill also hire a day-care attendant at a salary of $14,000 per year. If Jack and Jill sell $100,000 worth of day care to parents each year, what is the contribution to GDP by Jack and Jill's Day Care?

$100,000

(Figure: Price Ceilings and Consumer Surplus) Refer to the figure. There is a price ceiling of $20. What is the value of consumer surplus if all the goods are allocated randomly?

$120

Tim buys a house from Betty in 2011 for $200,000. Betty receives $185,000 and $15,000 goes to Mary, the real-estate agent. Betty originally purchased the house in 2007 for $240,000. What value is added to GDP in 2011 for this transaction?

$15,000

(Figure: Price Ceilings and Consumer Valuation) Refer to the figure. Suppose a price ceiling of $3 goes into effect. If the goods sold are allocated only to the highest-value users, the total consumer surplus in the market would be:

$150.

(Figure: Costs of Price Ceilings) Refer to the figure. What is the dollar amount of the value of wasted time if a price ceiling of $4 is implemented?

$160

If U.S. per capita GDP is $50,000 and grows at 2% per year, what will U.S. per capita GDP be in 70 years?

$200,000

(Figure: Supply and Demand 4) Refer to the figure. If the good is randomly allocated between those with the highest and lowest willingness to pay, what is the value of consumer surplus at the price ceiling of $8?

$36

(Figure: Price Ceilings and Consumer Valuation) Refer to the figure. Suppose a price ceiling of $3 goes into effect. What is the loss of consumer surplus due to the random allocation of price-controlled goods compared to the allocation only to the highest-value users?

$60

(Table: Prices and Quantities in a 4-Good Economy) Suppose an economy produces only the four goods listed in this table. All of the country's tomatoes are used in the production of pizzas. What is the GDP in this country?

$7,200

(Table: Prices and Quantities in a 4-Good Economy) Suppose an economy produces only the four goods listed in this table. What is the GDP in this country?

$7,700

(Table: iPhones) This table shows data for a country producing only iPhones. Its nominal GDP in 2010 is:

$9,900.

(Figure: Price Ceilings and Consumer Valuation) Refer to the figure. Suppose a price ceiling of $3 goes into effect. If the goods sold are allocated to buyers randomly, what is the total consumer surplus in this market?

$90

(Table: Three-Good Economy II) Suppose an economy produces only the three final goods shown in the table. The table gives information on the quantities produced and the prices of goods sold in 2008 and 2009. What is the growth rate of real GDP in 2009 if 2009 prices are used in the calculation of real GDP?

-2.94%

(Table: Three-Good Economy II) Suppose an economy produces only the three final goods shown in the table. The table gives information on the quantities produced and the prices of goods sold in 2008 and 2009. What is the growth rate of real GDP in 2009 if 2008 prices are used in the calculation of real GDP?

-3.71%

If a country's real GDP per capita in 1950 was $10,000, and it grew to $20,000 by year 2000, then the country's annual growth rate during this period would have been approximately:

1.4%.

If you received a constant annual rate of return of 7% on an investment of $10,000, how many years will it take before you have $20,000?

10 years

(Table: iPhones) This table shows data for a country producing only iPhones. Based on the GDP deflator, the increase in prices between 2000 and 2010 was:

10%.

In 2010, real GDP was $13.2 trillion (using 2005 prices) and nominal GDP was $14.6 trillion. Based on the GDP deflator, prices in 2010 were about _____ than prices in 2005.

10.6% higher

(Figure: Price Floor) Refer to the figure. How much unemployment results from the imposition of a price floor set at $10?

100 units

If the average annual growth rate of a country increases from 2% to 3%, how much faster will its GDP double?

11 2/3 years faster

(Table: iPhones) This table shows data for a country producing only iPhones. If 2000 prices are used in the calculation of real GDP, the GDP deflator for 2010 is:

110.

(Table: Wheat and Corn) Consider a country that produces only wheat and corn. Based on the data in the table, the country's GDP deflator for 2008 (using 2005 prices for the calculation of real GDP) is:

142.

Suppose a country's annual growth rate of real GDP per capita is approximately 2%. By which year would the country double its real GDP per capita from $10,000 in 1950 to $20,000?

1985

Real GDP for the year 2000 (measured in 2005 dollars) is equal to:

2005 prices × 2000 quantities.

(Table: Wheat and Corn) Consider a country that produces only wheat and corn. Based on the data in the table, the growth rate of nominal GDP from 2005 to 2006 is:

27%.

GDP in the United States was $14,119 billion in 2009, and grew to $14,660.4 billion in 2010. This represents an annual growth rate of:

3.8%.

If GDP was $10 billion in 2010 and $11 billion in 2011 and the population grew 5% between 2010 and 2011, the growth rate of GDP per capita between 2010 and 2011 was:

5%.

If real GDP per capita in the United States is currently $50,000 and grows at 2.5% per year, it will take approximately how many years to reach $200,000?

56 years

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% 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%. 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?

56 years

Suppose a country's real GDP per capita was $9,000 in 1990, and it grew to $18,000 by 2000. What is the annual growth rate of the country's real GDP per capita during this period?

7%

Uni-Trax Publishers allows its sales team to buy and sell shares that pay out $1 only if the sales in the future fall within a certain range. Suppose that, currently, shares for sales between 1,000 textbooks and 2,000 textbooks are selling for 10 cents each. Shares for sales between 2,000 and 3,000 textbooks are selling for 30 cents each. Shares for sales between 3,000 and 4,000 textbooks are selling for 40 cents each. Based on this information, what is the probability of Uni-Trax Publishers selling between 2,000 and 4,000 textbooks?

70%

(Table: Wheat and Corn) Consider a country that produces only wheat and corn. Based on the data in the table, the growth rate of real GDP from 2007 to 2008 (in 2005 dollars) is:

8.3%.

Roughly what percent of the world's population live in countries with per capita GDP lower than the average world per capita GDP?

80%

A retail outlet sells bottled water. Which scenario would cause them to use a "buy low and sell high" strategy with bottled water?

A hurricane is expected to arrive within one week.

Refer to the figure. Which statement is correct?

A price floor set at W 2 would cause a labor surplus best labeled by A.

Because of government price controls, a business must now sell soft-serve ice cream at half its original price. This business might respond by:

All of the answers are correct.

How are oil prices and sugar prices related?

As oil prices increase, producers divert sugar cane from sugar production to ethanol production.

Which statement is TRUE in a market with a price ceiling?

Buyers and sellers experience unexploited gains from trade.

At a price ceiling of $1 per loaf of bread, quantity supplied is 99 loaves, which is less than quantity demanded. What must be true for the 100th loaf of bread?

Consumers value the 100th loaf of bread more than it costs producers to make it.

From the chapter discussion, why did increased ethanol production and consumption in Brazil result in higher sugar prices?

Farmers reallocated sugar cane to ethanol production, decreasing the production of sugar, and leading to higher sugar prices.

Which of the following statements is TRUE about GDP

GDP does not account for the distribution of income in a country.

Which of the following is TRUE in the calculation of GDP?

GDP does not include goods and services produced privately inside the home.

In nations that have large underground, or illegal, sectors:

GDP will underestimate total production in the economy.

Which statement(s) is TRUE? I. Price floors are legally established minimum prices for goods and services. II. Price floors create surpluses, whereas price ceilings create shortages. III. Price floors reduce quality of goods and services.

I and II only

When the price ceilings on oil and gas were lifted in January 1981: I. the price of oil rose immediately. II. the price of oil continued to rise more than 2 years after the controls were eliminated. III. higher prices gave an incentive to suppliers to increase supply, thus leading eventually to lower prices.

I and III only

Which of the following activities is counted as part of U.S. GDP?

Jeff stays in a hotel in Colorado while on a skiing trip.

John and Tom enter into a futures contract in which John agrees to deliver 500 crates of coffee to Tom one year from now. Tom agrees to pay a price of $200 per crate. A year from now, John and Tom find that the market price of coffee is $210 per crate. How might they make a cash settlement on the contract?

John will offer $5,000 to Tom and not deliver any crates of coffee.

The locovore movement encourages eating locally produced food to reduce the greenhouse gases emitted from transporting food long distances, placing upward pressure on local land prices as farmland becomes more valuable. Which statement reflects what will likely occur as a result?

Local forests become less common.

During World War II, natural rubber (from rubber trees) became incredibly scarce. Some even feared its complete exhaustion. The development of synthetic rubber staved off this doomsday scenario. Explain why, just when the Allies needed it most, this turn in good fortune was likely not a coincidence?

Scarcity raised the price of natural rubber, creating the incentive to invent a substitute.

Which scenario would cause a speculator to "buy low and sell high"?

The government is expected to pass legislation making it mandatory for all vehicles to use corn-based fuels within one year.

Why did so many Chinese farmers and workers starve under "The Great Leap Forward"?

The incentive to work hard was low since the rewards were so minimal.

Land used to grow corn can also grow soybeans. As the demand for corn used in ethanol began to increase the price of corn, what happened to the price of soybeans?

The price of soybeans rose since farmers began planting corn instead of soybeans, thus decreasing the supply of soybeans.

Mobile homes are housing units installed on a permanent foundation owned by a landlord. Although a resident owns the home, she rents the foundation from the landlord. In theory, owners of mobile homes can transfer their home to a different foundation if the rent becomes too steep, but uninstalling, transporting, and reinstalling the mobile home is usually prohibitively expensive. This "lock-in" effect encourages state legislatures to create rent controls for mobile home foundations. Which statement is a plausible, unintended consequence of these laws?

There are few new mobile home foundations constructed.

(Table: Small-Town GDP) Which of the four towns in this table has the highest standard of living?

Town B

Refer to the figure. In the diagram, a minimum wage of $7 causes a deadweight loss of:

X + Z.

Can speculators who expect prices to rise actually cause those prices to rise in the short run?

Yes, if they buy up enough of the good, they will increase demand and thus raise the price of the product.

Which scenario shows how the Russian concept of blat works during a beef shortage?

a politician acquires some steak through his friendship with the owner of the beef factory

Growth in nominal GDP over time can be caused by:

an increase in both prices and production over time.

A set of tires installed on a vehicle in an automobile factory is counted as:

an intermediate good and its market price is not part of GDP.

If the value of a heap of asphalt to be used on one's driveway is greater than the opportunity cost of using the heap elsewhere, then the asphalt will:

be used on the driveway.

With speculation, prices:

become less volatile than they otherwise would be.

(Table: The HP Stock Exchange) The HP Stock Exchange lets members of HP's sales team buy and sell shares that pay off when sales fall within a certain range. A typical security would pay out $1, if and only if future sales fell within the specific range of that share. Accordingly, the trading prices given in the table suggest that the probability of selling:

between 15,000 and 25,000 units is 60%.

If people suddenly expect that a severe drought will reduce the supply of grain, the price of grain futures will be:

bid higher.

Around the world, about one _____ people have incomes of less than $2 per day.

billion

If quantity supplied equals 80 units and quantity demanded equals 85 units under a price control, then it is a:

binding price ceiling.

If quantity supplied equals 85 units and quantity demanded equals 80 units under a price control, then it is a:

binding price floor.

A United States. manufacturer arranges to purchase parts from a German supplier for 500,000 euros in six months. The United States manufacturer is concerned that the dollar will depreciate against the euro, meaning the dollar cost of the 500,000 euros will rise. The United States manufacturer should:

buy a futures contract that fixes the dollar cost of 500,000 euros in six months.

After the September 11 th attacks, one division of the Pentagon began to set up a Policy Analysis Market (PAM), a prediction market for political events in the Middle East. United States senators cancelled the program after discovering that it would allow futures contracts for assassinations and terrorist attacks. Had the PAM survived, how might it have helped the United States government?

by aggregating dispersed information about political events into a single, readable signal

How do speculators mitigate shortfalls in the equilibrium quantities traded in markets?

by buying up items in advance of rising prices, and then selling them in the market when prices increase

The most promising idea for creating a growth miracle in a country is:

changing the institutions in the country.

Which is NOT likely an ultimate cause of economic growth around the world?

communal resources

GDP includes the:

current market value of government purchases of goods and services.

Speculation tends to ______ volatility in prices over time.

decrease

Decreases in the level of political stability in a country tend to:

decrease per capita GDP.

If a seller facing excess demand is unable to raise the price of the good due to a price ceiling, the seller might:

decrease the level of service for that product.

Price controls cause resources to be misallocated by:

distorting the signals of demanders' willingness to pay and eliminating the incentives for suppliers to supply.

Gross domestic product is the market value of all:

final goods and services produced within a country in a year.

To avoid double accounting, the value of:

final goods only are included in GDP.

If the minimum wage is lowered and closer to the market level, the:

gains from trade would increase, compared to a higher minimum wage.

Which of the following is an ultimate cause of economic growth among countries around the world?

geography

If 2009 prices are used in the calculation of real GDP and inflation occurs between 2009 and 2010, then nominal GDP will be ____ real GDP in 2010.

greater than

To what does the Russian concept of blat refer?

having connections that one can use to get favors

Countries that have high per capita GDP tend to have:

high levels of all three factors of production.

Suppose you spent $10,000 in 2010 remodeling your house, which you originally built for $200,000 in 2000. As a result, GDP in 2010 would:

increase by $10,000.

Suppose speculators expect that the supply of oil will decrease next year and as a result, buy up oil today and put it into storage. This should cause the value of that oil to:

increase.

When gasoline prices are high, oil refiners have an incentive to pull every last drop of gasoline out of a barrel of crude. This implies that an increase in the demand for gasoline will cause a(n) ______ quantity supplied of gasoline and ______ the supply of the remaining crude oil products.

increased; reduce

A barrel of oil can be used to produce both gasoline and asphalt. If the price of gasoline falls, the supply of asphalt ________ and asphalt prices ________.

increases; decrease

Which would be most effective in ensuring sustained long-term economic growth?

increasing technological knowledge

Both ethanol and sugar are made from sugar cane and ethanol can be used as a substitute for oil. As the price of oil increases, Brazilians shift sugar cane from sugar production to ethanol production, thereby:

increasing the price of sugar.

High-income economies generally have _____ that incentivize individuals' self-interest by using _____.

institutions; profit-seeking motives

Which of the following is (are) NOT an institution of economic growth?

labor unions

Ultimately, repealing the price controls on gasoline and oil:

led to a higher supply of gasoline and lower prices.

GDP is calculated by:

multiplying the quantity of all goods and services by their prices and adding together the results.

What would be the LEAST likely result of a price floor in the market for airline travel?

narrow seats and basic meals like peanuts or chips with a coffee or soda

The value of volunteer services is:

not included in GDP, but should be because a service is produced.

Using the national spending approach to measuring GDP, the social security checks the government sends retirees each month get included in GDP as part of:

nothing; they are not included as part of GDP.

The value of a country's GDP exceeds that of the country's GNP if the value of the:

output produced by foreign workers in the country exceeds the value of output produced by the country's permanent residents in other countries.

Property rights are important institutions for encouraging investment because:

people won't invest if they feel their property is at risk and that they may not realize a return on their investment.

Which is considered an immediate cause of economic growth?

physical capital

An increase in the futures price of milk is an indication that the:

price of milk is expected to rise.

When the price of pizza increases, consumers have an incentive to:

purchase substitute goods, such as Chinese food.

In situations of excess demand, sellers might decrease service levels when they are unable to raise prices because they wish to:

raise their profit levels.

For most of recorded human history, real GDP per capita has:

remained about the same.

Markets have the advantage over central planning as the method of resource allocation because:

resources travel to their highest-value uses.

Which statement is an example of speculation?

selling stocks in Microsoft after hearing a rumor about a promising new Google product

Orrin mines iron ore, which he sells to Thorin, who turns iron ore into steel. The steel is sold to Gorin, who turns the steel into battle axes. The battle axes are sold by a merchant in the city to adventurers. Which of the following would be considered a final good?

the battle axes sold to the adventurers

The advantages of prediction markets include:

the fact that such markets encourage sales teams and traders at firms to divulge the true information on expected outcomes.

In a free market, the price of a good is equal to:

the good's value if employed in its next highest-valued use.

(Table: The HP Stock Exchange) The HP Stock Exchange lets members of HP's sales team buy and sell shares that pay off when sales fall within a certain range. A typical security would pay out $1, if and only if future sales fell within the specific range of that share. Accordingly, the trading price given in the table between 15,000 and 20,000 units implies that:

the probability of selling between 15,000 and 20,000 units is believed to be 40%.

After a hurricane knocks out power to thousands of households, the price of electric generators increases threefold. According to economists:

this discourages the use of electric generators in low-value uses, making them more readily available for high-value uses.

When an economic system changes from using a collective property rights system to something closer to private property rights, the immediate effect is:

to increase investment, work effort, and productivity.

Institutions and incentives are _____ causes, and factors of productions are _____ causes of the wealth of nations.

ultimate; immediate

Which of the following is NOT considered a government purchase?

unemployment checks