Macro test 1
If there are diminishing returns to capital
increases in the capital stock increase output by ever smaller amounts.
When the government runs a budget deficit,
investment is lower
A nation's standard of living is determined by
its productivity
Kathleen is considering expanding her dress shop. If interest rates rise she is
less likely to expand. This illustrates why the demand for loanable funds slopes downward.
Which of the following is considered human capital?
the things you have learned this semester
Ralph is a plumber. Which of the following are included in his physical capital?
the tools he uses, but not the knowledge he learned on the job
The Economic Development Minister of a country has a list of things she thinks may explain her country's low growth of real GDP per person relative to other countries. She asks you to pick the one you think most likely explains her country's low growth. Which of the following contributes to low growth?
poorly enforced property rights
For an imaginary closed economy, T = $5,000; S = $11,000; C = $50,000; and the government is running a budget deficit of $1,000. Then
private saving = $12,000 and GDP = $67,000.
Both Tom and Jerry work eight hours a day. Tom can produce six baskets of goods per hour while Jerry can produce four baskets of the same goods per hour. It follows that Tom's
productivity is greater than Jerry's. output is greater than Jerry's. standard of living is higher than Jerry's.
Consumption consists of spending by households on goods and services, with the exception of
purchases of new houses.
Suppose that a new government is elected in Tempestia. The new government takes steps toward improving the court system and reducing government corruption. The citizens of Tempestia find these efforts credible and outsiders believe these changes will be effective and long lasting. These changes will probably
raise real GDP per person and productivity in Tempestia.
A larger budget deficit
raises the interest rate and reduces investment.
The supply of loanable funds slopes
upward because an increase in the interest rate induces people to save more.
Price saving equation
y-t-c
Input labor productivity equals
y/l
national income identity account
y=c+i+g+nx
Scenario 1. Assume the following information for an imaginary, closed economy. GDP = $120,000; consumption = $70,000; private saving = $9,000; national saving = $12,000. Refer to Scenario 13-1. For this economy, government purchases amount to
$38,000.
An American company operates a fast food restaurant in Paris, France. Which of the following statements is accurate?
The value of the goods and services produced by the restaurant is included in French GDP, but not in U.S. GDP.
If the demand for loanable funds shifts left, the equilibrium interest rate
and quantity of loanable funds fall.
Natural resources
are inputs provided by nature. include land, rivers, and mineral deposits. take two forms: renewable and nonrenewable.
Changes in nominal GDP reflect
both changes in prices and changes in the amounts being produced.
Macroeconomists study
economy-wide phenomena.
For an economy as a whole, income must equal expenditure because
every dollar of spending by some buyer is a dollar of income for some seller.
Social Security payments are
excluded from GDP because they do not reflect the economy's production.
Which of the following examples of household spending is categorized as investment rather than consumption?
expenditures on new housing
government budget deficit
G-T= - public saving
Scenario 1. Assume the following information for an imaginary, closed economy. GDP = $120,000; consumption = $70,000; private saving = $9,000; national saving = $12,000. Refer to Scenario 1. For this economy, investment amounts to
$12,000.
In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If the inflation rate in 2007 was 16 percent, then how much did a magazine cost in 2007?
$2.08
Assuming the market for loanable funds is in equilibrium, use the following numbers to determine the quantity of loanable funds supplied. GDP $8.7 trillion Consumption Spending $3.2 trillion Taxes Net of Transfers $2.7 trillion Government Purchases $3.0 trillion
$2.5 trillion
In the economy of Ukzten in 2010, consumption was $5300, GDP was $8800, government purchases were $1800, imports were $500, and investment was $2000. What were Ukzten's exports in 2010?
$200
James owns two houses. He rents one house to the Johnson family for $10,000 per year. He lives in the other house. If he were to rent the house in which he lives, he could earn $12,000 per year in rent. How much do the housing services provided by the two houses contribute to GDP?
$22,000
Scenario 1. Assume the following information for an imaginary, closed economy. GDP = $120,000; consumption = $70,000; private saving = $9,000; national saving = $12,000. Refer to Scenario 13-1. For this economy, taxes amount to
$41,000.
A farmer sells $50,000 of apples to individuals who take them home to eat and $75,000 of apples to a company that uses them all to produce cider. How much of the farmer's sales will be included as apples in GDP?
$50,000
In the economy of Ukzten in 2010, consumption was $6000, exports were $1000, GDP was $10,000, government purchases were $2000, and imports were $600. What was Ukzten's investment in 2010?
. $1600
4 components of GDP
1. consumption 2. investment 3. government purchases 4. net exports
In one day Alpha Cabinet Company made 40 cabinets with 320 hours of labor. What was Alpha Cabinet Company's productivity?
1/8 cabinet per hour
. In the base year, the GDP deflator is always
100
The CPI in any year equals
100 x (cost of basket in current year/cost of basket in base year)
Jake loaned Elwood $5,000 for one year at a nominal interest rate of 10 percent. After Elwood repaid the loan in full, Jake complained that he could buy 4 percent fewer goods with the money Elwood gave him than he could before he loaned Elwood the $5,000. From this, we can conclude that the rate of inflation during the year was
14 percent.
Suppose that in a closed economy GDP is equal to 11,000, Taxes are equal to 2,500, Consumption equals 7,000, and Government purchases equal 3,000. What are private saving and public saving?
1500 and -500
A country's real GDP rose from 500 to 550 while its nominal GDP rose from 600 to 770. What was this country's inflation rate?
16.7%
Last year real GDP in the imaginary nation of Oceania was 561.0 billion and the population was 2.2 million. The year before, real GDP was 500.0 billion and the population was 2.0 million. What was the growth rate of real GDP per person during the year?
2 percent
If the consumer price index was 88 in 2009, 95 in 2010, and 100 in 2011, then the base year must be
2011.
The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts, and 2 pairs of pants. In 2005, bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost $6.00 each, and pants cost $10.00 per pair. In 2006, bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each, and pants cost $12.00 per pair. Using 2005 as the base year, what was Aquilonia's inflation rate in 2006?
24.4 percent
If the inflation rate is 2 percent and the real interest rate is 3 percent, then the nominal interest rate is
5 percent.
If the consumer price index was 100 in the base year and 107 in the following year, then the inflation rate was
7 percent
In 2005, Freedonia had a population of 2,700 and real GDP of about 11,610,000. In 2004 (a year before) it had a population of 2,500 and real GDP of about 10,000,000. What was the approximate growth rate of real GDP per person in Freedonia between 2004 and 2005?
7.5 percent
Suppose that an economy produces 40,000 units of good A which sells at $4 a unit and 20,000 units of good B which sells at $5 per unit. Production of good A contributes
8/5 times as much to GDP as the production of good B.
If real GDP is 5,100 and nominal GDP is 4,900, then the GDP deflator is
96.1 so prices are lower than in the base year.
From 1960 to 1998 real GDP per capita grew by a factor of 2.5 in the United States and by a factor of 10 in Korea. Which of the following best explains why Korea experienced faster growth than the United States?
At the start of the comparison, 1960, Korea was much poorer than the United States.
CPI from preceding period inflation rate equals
CPI this year - CPI last year/ CPI last year x 100
Country A has a population of 1,000, of whom 800 work 8 hours a day to make 128,000 final goods. Country B has a population of 2,000, of whom 1,800 work 6 hours a day to make 270,000 final goods.
Country A has lower productivity and lower real GDP per person than country B.
Real GDP per person is $30,000 in Country A, $20,000 in Country B, and $11,000 in Country C. Saving per person is $1,000 in all three countries. Other things equal, we would expect that
Country C will grow the fastest.
Adam and Doug both build birdhouses. Adam works 20 hours a week and produces 12 bird houses. Doug works 30 hours a week and produces 15 bird houses. Which of the following is correct?
Doug's production is higher than Adam's, but Adam's productivity is higher than Doug's.
Sam, an American citizen, prepares meals for his family at home. Ellen, a Canadian citizen, commutes to the U.S. to help prepare meals at a restaurant in Idaho. Whose value of services preparing meals is included in U.S. GDP?
Ellen's but not Sam's.
Which of the following statements about GDP is correct?
GDP is to a nation's economy as household income is to a household.
Investment from abroad:
Increases the stock of capital and therefore can increase productivity Causes some of the income earned from the investment to exit the country Can bring new technologies to poorer countries
What would happen in the market for loanable funds if the government were to increase the tax on interest income?
Interest rates would rise
Martin, a U.S. citizen, travels to Mexico and buys a newly manufactured motorcycle made there. His purchase is included in
Mexican GDP, but it is not included in U.S. GDP.
closed economy equation
NX=0: Y = C + I + G
GDP deflator formula
Nominal GDP/Real GDP x 100
national saving equation
S = (Y - T - C) + (T - G)= y-c-g
Public Saving Equation
T-G
government budget surplus
T-G=Public saving
The consumer price index (CPI) and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct?
The CPI reflects a fixed basket of goods and services; the GDP deflator reflects current production of goods and services.
Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005. However, the inflation rate was higher between 2004 and 2005 than it was between 2003 and 2004. Which of the following scenarios is consistent with this assumption?
The CPI was 100 in 2003, 105 in 2004, and 130 in 2005.
Which of the following is consistent with the catch-up effect?
The United States had a higher growth rate before 1900 than after. After World War II the United States had lower growth rates than war-ravaged European countries. Although the United States has a relatively high level of output per person, its growth rate is rather modest compared to some countries.
If a U.S. citizen buys a television made in Korea by a Korean firm, then
U.S. net exports decrease and U.S. GDP is unaffected.
The production function
Y = A F(L, K, H, N)
GDP formula
Y=C+I+G+NX
Which of the following is not an example of a nondurable good?
a microwave
Which of the following is a financial intermediary?
a mutual fund
Which of the following is included in GDP?
both the market value of rental housing services and the market value of owneroccupied housing services
Scenario 1. Assume the following information for an imaginary, closed economy. GDP = $120,000; consumption = $70,000; private saving = $9,000; national saving = $12,000. Refer to Scenario 1. This economy's government is running a
budget surplus of $3,000.
The inflation rate is calculated
by determining the percentage increase in the price index from the preceding period.
Which of the following is not included in GDP?
carrots grown in your garden and eaten by your family
A U.S. citizen buys a tea kettle manufactured in China by a company that is owned and operated by U.S citizens. In which of the following components of U.S. GDP is this transaction accounted for?
consumption and imports
Which of the following lists correctly identifies the four expenditure categories of GDP?
consumption, government purchases, investment, net-exports
Which of the following is included in the consumption component of GDP?
household purchases of appliances. household purchases of medical care. household purchases of food.
Susan switches from going to Speedy Lube for an oil change to changing the oil in her car herself. Which of the following is correct? The value of changing the oil is
included in GDP if Susan pays Speedy Lube to change it but not if she changes it herself.
Thomas, a U.S. citizen, works only in Canada. The value of the output he produces is
included in U.S. GNP, but it is not included in U.S. GDP.
For a given year, productivity in a particular country is most closely matched with that country's
level of real GDP divided by hours worked over that year.
The primary economic function of the financial system is to
match one person's saving with another person's investment.
GDP excludes most items that are produced and sold illegally and most items that are produced and consumed at home because
measuring them is so difficult.
When a country saves a larger portion of its GDP, it will have
more capital and higher productivity.
The logic behind the catch-up effect is that
new capital adds more to production in a country that doesn't have much capital than in a country that already has much capital.
real interest rate formula
nominal interest rate - inflation rate
Changes in real GDP reflect
only changes in the amounts being produced.
If Congress instituted an investment tax credit, the interest rate would
rise and saving would rise.
The supply of loanable funds would shift to the right if either
tax reforms encouraged greater saving or the budget deficit became smaller.
The term inflation is used to describe a situation in which
the overall level of prices in the economy is increasing.
