ECON103 Exam 2 Professor Soares

If Derek is a consumption smoother and has just signed a contract for a new job that will increase his salary by 14%, we can expect Derek to exhibit: A) a large change in consumption. B) a small change in consumption. C) zero change in saving. D) no change in MPC.

B) a small change in consumption.

If a short-lived recession is expected, a consumption smoother will exhibit _____ in consumption. A) a large increase B) no change C) a rising rate of increase D) a large decrease

B) No change

If the average marginal propensity to consume is 0.8, then a $10 million increase in total income will lead to a _____ increase in consumption. A) $80 million B) $0.8 million C) $8 million D) $2 million

C) $8 million

The table below shows data for Central African Republic (CAR). What was the economic growth rate between 2012 and 2013? A) 3.46% B) 3.44% C) -36.20% D) 4.63%

C) -36.20%

What is your permanent income marginal propensity to consume (MPC) if your income permanently changes by $50,000 and your consumption increases by $45,000? A) 0.1 B) 1.11 C) 0.9 D) 1.25

C) 0.9

Why is literacy important for economic growth? [SELECT ALL THAT APPLY] (i) Literacy develops human capital. (ii) Innovation and the development of new ideas are enhanced by literacy. (iii) The transfer of new ideas is enhanced by literacy. (iv) Without a literate population, an economy will experience negative economic growth.

(i), (ii), and (iii)

A group of people moves onto a forested piece of land (which has no established owner), cuts down all the trees, and acquires all the lumber on the land. Thereafter, the land is farmed until all the mineral properties of the soil are depleted. Ultimately, the land becomes a barren desert property. This is an example of: A) A lack of established property rights leading to the depletion of a resource. B) A lack of human capital leading to a depletion of a resource. C) inadequate capital stock. D) economic growth from agricultural innovation.

A) A lack of established property rights leading to the depletion of a resource.

If policy makers announce tax cuts, it is reasonable to expect that hand-to-mouth consumers will: A) increase spending. B) increase saving. C) not pay taxes. D) have less disposable income.

A) Increase Spending

The moral of the story of the Solow growth model is that: A) human capital growth does not lead to economic growth. B) capital accumulation is the key to sustained economic growth. C) technological advance cannot sustain continuous economic growth. D) capital accumulation alone cannot lead to sustainable economic growth.

B) capital accumulation alone cannot lead to sustainable economic growth -because solow growth model explains how population growth, technological progress and capital accumulation affects the level of output and growth of the economy.

If a short-lived recession is expected, a consumption smoother will exhibit _____ in consumption. A) a large increase B) no change C) a rising rate of increase D) a large decrease

B) no change

Refer to the table below, which shows data for the United Arab Emirates (UAE). What was the economic growth rate in UAE in 2010? A) -15.15% B) 2.26% C) -11.27% D) -5.91%

D) -5.91%

The table below shows data for Central African Republic (CAR). In which year, did this country experience a decline in the standard of living? A) 2010 B) 2011 C) 2012 D) 2013

D) 2013

Consider the production functions shown here, which show the output of a bakery over time. Suppose that the bakery institutes robotic baking, which greatly increases efficiency and productivity. Which of the movements reflects this scenario? A) B to C B) D to C C) A to C D) E to C

D) E to C

Which statement correctly describes the relationship between consumption and income? A) Consumption is always half of income. B) Consumption and income are positively related. C) Income is always less than consumption. D) Total consumption is independent of income.

B) Consumption and income are positively related

A firm that prepares and mails customer notices on behalf of banks has recently shifted from manually addressing letters to using a computer program that automatically inserts customer addresses and prepares letters. Thus, the production time for each letter has decreased from four minutes to just 30 seconds. This scenario is an example of: A) the effects of an investment tax credit. B) a rise in productivity causing an improvement in technology. C) an improvement in technology leading to a rise in productivity. D) a labor-intensive production method.

C) an improvement in technology leading to a rise in productivity.

True or False: The consumer's lifetime budget constraint says that the present value of consumption equals the present value of income.

False

Consider the following data. What is the marginal propensity to consume? Consumption: 3.1, 3.8, 4.5 Income: 4,5,6 A) 0.7 B) 1 C) 0.3 D) 0.45

A) 0.7

What is the marginal propensity to consume if a $10 million increase in total income leads to a $7.9 million increase in consumption? A) 0.79 B) 7.9 C) 0.079 D) 0.21

A) 0.79

The government passes a new investment tax credit initiative. Which input in the production function changes, and what is the effect on economic growth in the country? A) The capital stock increases, and economic growth is positively affected. B) The capital stock decreases, and economic growth is negatively affected. C) Human capital is enhanced, and economic growth is positively affected. D) Technological advance occurs, but there is no effect on economic growth.

A) The capital stock increases, and economic growth is positively affected.

A constant returns to scale production function means that if all inputs are increased by 75%, this should lead to output: A) rising by 75%. B) rising by more than 75%. C) falling by less than 75%. D) falling by more than 75%.

A) rising by 75%.

An increase in the real interest rate is an example of a A) pure substitution effect. B) substitution effect and a negative income effect. C) substitution effect and an income effect whose sign depends on whether the consumer is initially a borrower or a lender. D) substitution effect and a positive income effect.

C) substitution effect and an income effect whose sign depends on whether the consumer is initially a borrower or a lender.

Thomas Malthus's predictions about the earth did not come true because: A) population growth slowed to the lowest level in history. B) subsistence agriculture became the most important form of food production. C) technological advances in agriculture outpaced population growth rates. D) population growth exceeded the advent of technology in agriculture.

C) technological advances in agriculture outpaced population growth rates.

The government passes a new initiative to provide a tax credit on research and innovation by firms. What is the impact on the production function, and what is the effect on economic growth in the country? A) Human capital is enhanced, and economic growth is positively affected. B) The capital stock decreases, and economic growth is negatively affected. C) The capital stock increases, and economic growth is positively affected. D) Technological advancement occurs, and economic growth occurs.

D) Technological advancement occurs, and economic growth occurs.

If Frank is a hand-to-mouth consumer and he has just received a permanent 10% increase in salary, we can expect Frank to exhibit: A) a large change in consumption. B) a small change in consumption. C) a large change in saving. D) no change in MPC.

A) a large change in consumption.

If Larry is a hand-to-mouth consumer and has just received a gift of $350, we can expect Larry to exhibit: A) a large change in consumption. B) a small change in consumption. C) a large change in saving. D) no change in MPC.

A) a large change in consumption.

A temporary increase in income today leads to A) a small increase in current consumption. B) a large increase in current consumption. C) a small decrease in future consumption. D) a large decrease in future consumption.

A) a small increase in current consumption

If there is _____ rise in income, a consumption smoother will exhibit a small change in consumption. A) a temporary B) an announced C) a permanent D) an anticipated

A) a temporary

A constant returns to scale production function is one where increasing all inputs by a certain proportion leads to output rising by: A) Exactly double the proportion. B) The same proportion. C) A smaller proportion. D) A larger proportion.

B) The Same Proportion

A permanent decrease in taxes leads to A) a small increase in current consumption. B) a large increase in current consumption. C) a small decrease in future consumption. D) a large decrease in future consumption.

B) a large increase in current consumption.

The rational rule of consumption is to consume more today if the: A) price of consumption today exceeds the dollar-plus-interest in the future. B) marginal benefit of a dollar of consumption today is greater than (or equal to) the marginal benefit of spending a dollar plus interest in the future. C) marginal benefit of a dollar of consumption today is less than the marginal benefit of spending a dollar plus interest in the future. D) real interest rate in the future is expected to be higher than the real interest rate today.

B) marginal benefit of a dollar of consumption today is greater than (or equal to) the marginal benefit of spending a dollar plus interest in the future.

The law of diminishing returns states that: A) When all inputs are held constant, there is an upper limit to the amount of output that can be produced. B) When one input is held constant, while other inputs are increased, eventually output will increase by smaller and smaller amounts. C) The lower the level of human capital in an economy, the lower the economic growth rate D) The level of capital accumulation is directly related to the level of human capital in an economy.

B) when one input is held constant, while other inputs are increased, eventually output will increase by smaller and smaller amounts.

The law of diminishing returns means that: A) additional investments in physical capital will significantly boost output in wealthier countries with already existing large capital stocks. B) the economic growth rates of wealthier countries must always exceed the economic growth rates of poorer countries. C) additional investments in physical capital are not as productive as additional investments in human capital. D) additional investments in physical capital do not boost output in wealthier countries with already existing large capital stocks.

D) additional investments in physical capital do not boost output in wealthier countries with already existing large capital stocks.

Refer to the table below that shows data for Panama. What was Panama's economic growth rate between 2003 and 2004? A) 3.18% B) 0.29% C) 5.54% D) 5.23%

C) 5.54%

If there is _____ rise in income, a hand-to-mouth consumer will exhibit no change in consumption. A) a temporary B) an announcement about a future C) a permanent D) an anticipated

B) an announcement about a future

New ideas can generate unlimited economic growth because they: A) are exclusive to the inventor and can be patented. B) can be freely shared, do not depreciate, and can generate further ideas. C) are similar to physical capital. D) cannot be replicated or copied.

B) can be freely shared, do not depreciate, and can generate further ideas.

Consider the data in the table below. In 2018, the country with the highest economic growth rate was: A) Denmark. B) United States. C) Spain. D) Iceland.

C) Spain.

If there is news of a future rise in income, a consumption smoother will exhibit _____ in consumption, and a hand-to-mouth consumer will exhibit _____ in consumption. A) a small increase; a large increase B) a large increase; a large increase C) no change; a large increase D) a large increase; no change

D) a large increase; no change

A rise in population in a country: A) boosts real GDP but not necessarily real GDP per person. B) always raises the standard of living in a country. C) leads to an increase in the level of technology in an economy. D) leads to a downward shift of the aggregate production function.

A) boosts real GDP but not necessarily real GDP per person.

Thomas Malthus believed that: A) food production would not exceed population growth and that this would lead to continuous subsistence living. B) population growth was the key to economic growth. C) technology in food production was the key to economic growth. D) Food production would require fewer and fewer resources in the future.

A) food production would not exceed population growth and that this would lead to continuous subsistence living.

An increase in expected future output while holding today's output constant would: A) increase today's desired consumption and decrease desired national saving. B) decrease today's desired consumption and increase desired national saving. C) decrease today's desired consumption and decrease desired national saving. D) increase today's desired consumption and increase desired national saving.

A) increase today's desired consumption and decrease desired national saving.

If there is a permanent rise in income, a consumption smoother will exhibit _____ in consumption, and a hand-to-mouth consumer will exhibit _____ in consumption. A) a small increase; a large increase B) a large increase; a large increase C) no change; a large increase D) a large increase; no change

B) a large increase; a large increase