Macroeconomics Exam 1

The economy's production function relates __________ to output

the factors of production

Table: Economic Data Component of GDP Amount Consumption $900 Investment 500 Wages and salaries 650 Rent 350 Government Purchases 450 Interest 450 Exports 300 Imports 500 Version 5 Page 4 Version 5 17. (Table: Economic Data) Using the expenditure approach to national income accounting, calculate the GDP of this country.

$1,650

Economists prefer using real GDP because, other things held constant, increases in _____ are true increases in the standard of living.

production

The growth rate of GDP tells how rapidly the country's _____ is rising or falling over time.

production

Which of the following is the best measure of a country's standard of living?

real GDP per capita

Business cycles are short-term movements in real GDP around

real GDP's long-term trend

In a steady state, the capital stock

remains constant.

Physical capital is the

stock of tools including machines, structures, and equipment.

GDP per capita is GDP divided by

the unemployment rate

Capital is output that is

used to produce other goods

A computer chip sold to Dell is an example of

an intermediate good.

Part of investment spending, when considering the national income approach to calculating GDP, is the acquisition of which of the following?

capital goods

Table: GDP Table Product Price Quantity Shovels $20 40 Books 50 500 Tomatoes 1 500 Pizzas 10 120 3. (Table: GDP Table) 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 and all of its shovels are purchased by foreign firms that produce landscaping services only in their country. What is the value of GDP in this country?

$27,000

Table: Three-Product Economy Product Quantity (2008) Price (2008) Quantity (2009) Price (2009) Computers 30 $1,000 28 $995 Pizzas 100 10 150 15 Burgers 200 200 210 20 23. (Table: Three-Product Economy) Suppose an economy produces only the three final goods listed in the table above. What is the real GDP in 2009 if 2009 is the base year?

$34,310

A country has a 2008 growth rate of 5.7% and a 2007 GDP of $9,222 (in billions). What was the GDP in 2008?

$9,748

A small country has an aggregate production function per hour of labor given by Y = K1/2. Its depreciation rate is 1% and its investment rate is 10%. What is its steady state level of capital?

100

If the depreciation rate is .04 and the capital stock is 300, how many units will depreciate?

12

Consider the economy of a small country. It has capital stock equal to 1600 units and a production function of Y = K1/2. If the depreciation rate is 15% and the investment rate is 25%, what will the level of capital stock be next year for this small country?

1370 units

If per capita real GDP was $34,000 in the year 2000 and $39,000 in 2001, the growth rate of per capita GDP in 2001 was approximately

14.7%.

(Figure: Capital Depreciation) The figure above shows the depreciation function for an economy. The depreciation rate is

2.5%.

A small country has an aggregate production function per hour of labor given by Y = K1/2. Its depreciation rate is 5% and its investment rate is 15%. What is its steady state level of real GDP?

3

Consider the following production function: Y K = . When capital stock is 36, output is

6

If a nation doubles its GDP per capita in 10 years, what is its annual growth rate?

7%

If output in an economy is 30, and the investment function is 0.3Y,

9 units of output are being consumed

Why are transfer payments not counted as part of GDP?

Counting transfer payments would constitute double-counting as transfer payments will be used by the recipients to purchase final goods and services.

What are the factors of production in the Solow model of economic growth?

physical capital, human capital, and productivity/ideas/technology

Which of the following is correct?

If investment > depreciation, the nation's capital stock will grow

Table: Small Town GDP Town Real GDP (U.S. Dollar) Population A 4,859,307 250 B 1,000,050 175 C 6,000,000 320 D 3,549,289 90 11. (Table: Small Town GDP) Which of the four towns in this table has the highest standard of living? Be careful to choose the SCANTRON option that corresponds with the Town!

Town D

Over time, capital wears out. The official term for this is

depreciation

Private spending on tools, plant, and equipment that are used to produce future output is called

investment

The production function expresses a relationship between

output and the factors of production

Table: Economic Data Component of GDP Amount Consumption $900 Investment 500 Wages and salaries 650 Rent 350 Government Purchases 450 Interest 450 Exports 300 Imports 500 (Table: Economic Data) What is the level of net exports in this country?

-$200

If nominal GDP is $6.82 (in billions) in 2007 and in the year 2008 the level of nominal GDP is $5.11 (in billions), what is the growth rate of nominal GDP?

-25.07%

Consider the economy of a small country. It has capital stock equal to 400 units and a production function of Y = K1/2. If the depreciation rate is 15% and the investment rate is 10% of output, what will the level of investment be for this small country?

2 units of capital

If a country's initial real GDP is $10,000 and its yearly growth rate of GDP is 3.5%, use the Rule of 70 to determine approximately how many years it would take for this economy to double its GDP.

20 years

GDP is equal to:

consumption + investment + government spending + net exports

All else equal, an increase in savings will cause investment to

increase

In the Solow model, an increase in the investment rate will _____ the amount of capital needed to achieve a steady state of output.

increase

All other things equal, increases in capital will cause output to

increase at a decreasing rate.

The marginal product of capital is the increase in

output when one more unit of capital is added.