macro exam 2

Why might it be a good thing for the United States if more people in India and China start dying of cancer and heart disease instead of malnutrition and preventable disease?

Companies will invest more in curing cancer and heart disease.

Gross domestic product (GDP) is the market value of:

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

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.

In the national spending approach, investment spending involves the acquisition of which of the following? (a) stocks and bonds (b) capital goods (c) money (d) any of a number of financial instruments

b

Which of the following is TRUE in the calculation of GDP? (a) GDP includes a positive adjustment for leisure activities, even if no purchase is required. (b) GDP does not include goods and services produced privately inside the home. (c) GDP is negatively adjusted to account for environmental damage caused by businesses. (d) GDP is positively adjusted to include production in the underground economy.

b

Crowding out occurs because the government increases the demand for loanable funds, drives up interest rates, and causes:

consumption and investment to fall

What is the most immediate (or direct) cause of growth in real GDP per capita?

factors of production

Which best describes the growth process from its ultimate to its immediate causes? factors of production → incentives → institutions → real GDP per capita institutions → incentives → factors of production → real GDP per capita incentives → institutions → factors of production → real GDP per capita factors of production → institutions → incentives → real GDP per capita

institutions → incentives → factors of production → real GDP per capita

In a steady state, the level of investment:

is equal to depreciation.

Business cycles are short-term movements in:

real GDP around its long-term trend.

a recession is a period of significant, widespread declines in:

real income and employment

income that is not spent on consumption goods.

savings

if the interest rate in the market for loanable funds is below the market-clearing rate, then:

there will be a shortage of savings, and demanders will bid the interest rate up as they compete to borrow.

Suppose the production function is defined as Y equals 5 over 3 square root of K. In terms of gamma and delta, what is the steady state level of output?

(25/9)(g/d)

If income and consumption are equal, saving must be:

0

imagine an economy with production function Y = F(K) = square root of k and 400 units of capital. If the depreciation rate is partial differential= .05, how much capital will deteriorate in the next period?

20 units

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

A country's GDP (in billions) was $5,690 in 2010 and $5,899 in 2011. What is the growth rate of GDP?

3.67

If U.S. per capita GDP is $50,000 and grows at 2% per year, what will U.S. per capita GDP be in 105 years?

400,000

Suppose you spend half the summer building a garage in your back yard. You purchase tools that cost $350 and wood that cost $4,000. A contractor would charge $25 per hour for the 40 hours of work necessary to build the garage. After you build the garage, your mother gives you a present of $500 in stocks. How much will GDP rise as a result of these activities?

4350

Why does South Korea have a higher level of real GDP per capita than North Korea?

South Korea has a better system of incentives than North Korea.

If individuals become more impatient, what will happen in the market for loanable funds?

The supply of loanable funds will decrease, interest rates will rise, and the quantity of saving and borrowing will decrease.

The main reason people save during their working years is:

a preference toward a smooth consumption path overtime.

The two types of economic growth are:

cutting-edge and catching-up.

if the interest rate rises from 5% to 9%, the number of new businesses will:

decrease

Assume that a country's production function changes from Y = 2square root of K to Y = 3square root of K. Which of the following events could explain the change in this production function?

development of new technology in production

Gross domestic product is the market value of all:

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

in 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

Because of spillovers, the social benefit of research and development:

greater than private benefits

Countries with more human capital tend to have a :

higher gdp per capita

When bond prices increase, interest rates:

must decrease

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.

An increase in government borrowing will cause the interest rate to:

rise and private spending to fall

The factor income approach to calculating GDP states that GDP is equal to:

wages + rent + interest + profit

Suppose the production function is defined as Y equals 5 over 3 square root of K. In terms of gamma and delta, what is the steady state level of capital?

(25/9)(g/d)2

Birmingham Steel sells steel to Winston Golf Manufacturers for $300,000. Winston sells its golf clubs to Academy Sports for $1,000,000. Academy Sports sells Winston golf clubs for $1,500,000. How much is added to GDP?

1,500,000

What makes a bigger contribution to GDP, 12 million cars sold at $28,000 each or 20 million computers sold at $1,000 each?

12 mill

If output in an economy is 20 and the investment function is 0.25Y, then:

15 units of output are being consumed

Suppose the production function is defined as Y equals square root of K. If gamma equals.3 and delta equals.075, what is the steady state level of capital?

16

At an average growth rate of 4%, approximately how long would it take for an economy to double its GDP?

17.5 yr

The value of a car produced and sold in 2005 and sold again in 2011 is included in:

2005s gap only

imagine an economy with production function Y = F(K) = square root of k and 400 units of capital. If the fraction of output invested in new capital is γ = 0.2 and the depreciation rate is partial differential = .05 , how much total capital will be available in the next period?

384 units

Imagine an economy with production function Y = F(K) = √K and 400 units of capital. If the fraction of output invested in new capital is γ=.2, how much new capital will be created in the next period?

4

suppose the production function is defined as Y equals square root of K. If gamma equals.3 and delta equals.075, what is the steady state level of output?

4

Which of the following would be included in GDP for the United States? a tire manufacturer making and selling tires to Ford to be used in their new cars Jane's purchase of a used car after her old car is destroyed in an accident Toyota, a Japanese car company, producing cars in the United States a U.S. professor taking a year off to teach at the London School of Economics

Toyota

In the Solow model, if a country's depreciation rate ( partial differential ) increased from 1% to 2 % and it was operating at its steady state before the change, we would expect to see:

a decrease in both the capital stock and output.

Which scenario has the greatest potential for the free riding? a system in which work effort and pay are not connected secure property rights an unstable political system a dishonest government that promotes corruption

a system in which work effort and pay are not connected

Which of the following would NOT be included in the calculation of GDP as an investment expenditure? You purchase $5,000 in shares of Apple stock. A contractor purchases a new circular saw. Ford Motor Company builds a new manufacturing plant. Your community college spends $200,000 to upgrade its computer labs.

apple stock

Which of the following explains why the supply of savings is upward sloping (a) An increase in the interest rate leads to an increase in the opportunity cost of saving. (b) An increase in the interest rate leads to an increase in the quantity of saving. (c) An increase in time preference leads to an increase in the quantity of saving. (d) An increase in investment leads to an increase in the level of saving.

b

In financial markets, which group best represents the demand side of the market? (a) borrowers (b) banks (c) stock markets (d) savers

borrowers

if interest rate increases,

both the quantity saved and the quantity supplied of loanable funds will increase.

Which statement is NOT an explanation for why Germany and Japan both grew faster than the United States following World War II? Both countries had strong incentive to put new capital stock into place. Both countries were experiencing cutting-edge growth at the time. Both countries had a high marginal product of capital after the war. Both countries had very little capital stock remaining after the war.

cutting edge growth

Which of the following is NOT considered a government purchase? (a) new rifles for the military (b) salaries for public school teachers (c) levees built by the Army Corps of Engineers (d) unemployment checks

d

A real variable is one that:

includes a correction for inflation

Which is NOT a key institution for economic growth? income equality political stability honest government property rights

income equality

in the Solow model, if the first unit of capital increases output by one unit, then the second unit of capital will cause total output to:

increase but by less than one unit

If the supply of loanable funds increases and the demand for loanable funds increases at the same time, interest rates will:

increase, decrease, or remain the same

If individuals become less impatient (or more patient), what will happen to: supply of lovable funds interest rates quantity of saving and borrowing

increase, fall, increase.

An investment tax credit will cause the interest rate to _____ and borrowing to _____.

increase, increase

An investment tax credit will cause the interest rate to _________ and borrowing to_____________ .

increase, increase

the purchase of new capital goods.

investment

When a given bond's price increases, we know that the interest rate on this bond:

must decrease

Due to economies of scale, average costs decline as

production levels increase

In a steady state, the capital stock:

remains constant

Which of the following would NOT be included in this year's GDP for the United States? The U.S government distributes $10 million in social security payments. A foreign country purchases $2 billion worth of U.S exports A U.S. business spends $100 million to build a new factory in South Carolina. U.S. consumers spend $40 million on domestically produced medical services.

social security

Individual savings contributes to:

supply of loanable funds

if consumers expect to have a shorter life expectancy and desire to save less, then the:

supply of loanable funds will decrease and the equilibrium interest rate will increase.

A rural village in a developing country has an economy based on agriculture. Then the government of the country provides the village with newly developed hydrid seeds that more than double the agricultural yield per acre. This story illustrates the growth of per capita GDP in the villages through which factor(s) of production?

technological knowledge

the production function is a mathematical function that shows:

the relationship between output and the factors of production.