ECO 230 Quiz: Chapter 10

f real GDP equals​ $11,567 billion in 2006 and​ $11,916 billion in​ 2007, and assuming population is constant over those two​ years, how many years will it take for real GDP per capita LOADING... to​ double?

23.2 years

When tax revenue exceeds government spending (government purchases and transfer payments) there is When tax revenue equals government spending there is a When tax revenue is less than government spending there is

A budget surplus A balanced budget A budget deficit

Long-run growth GDP is determined by Technological progress is affected by

Capital, labor productivity, and technology Entrepreneurship New software developments Investments in capital

What is the general relationship between the business cycle and unemployment and inflation?

During an expansion, unemployment falls and inflation increases.

Crowding out occurs when

Governments must borrow funds which causes interest rates to rise and thus private investment is reduced.

Between 1950 and the​ mid-1990s, the United States experienced a much larger increase in the standard of living than the Soviet Union. This difference can be most attributed to the fact that the U.S. Which of the following is a reason the U.S. experienced larger economic growth than the Soviet Union?

Had a greater amount of technological change The U.S. had a greater amount of private property rights. The U.S. had a market economy that allowed for greater entrepreneurship to occur

During the expansion phase of the business cycle, production, employment, and income During the recession phase of the business cycle, production, employment, and income

Increase Decrease

What would be expected to happen to each of the following variables during a​ recession? Unemployment would be expected to Durable goods​ production, such as​ automobiles, would be expected to The inflation rate would be expected to

Increase Decrease Decrease

The ease with which a financial security can be exchanged for money is referred to as Even though individuals earn interest on financial investments such as​ bonds, mutual​ funds, and certificates of​ deposits, they may still hold wealth in checking accounts because

Liquidity Individuals need money that is available to be spent on goods and services

Potential GDP

Measures the maximum that a firm is capable of producing Increases over time as technological change occurs Increases over time as the labor force grows

In a closed​ economy, the values for​ GDP, consumption​ spending, investment​ spending, transfer​ payments, and taxes are as​ follows: Y​ =$12 trillion C​ =$9 trillion I​ =$3 trillion TR​ =​$2 trillion T​ =$3 trillion Using the information​ above, what is the value of private saving and public​ saving?

Private saving equals ​$2 trillion and public saving equals ​$1 trillion.

Which of the following​ contribute(s) to shorter​ recessions, longer​ expansions, and less severe fluctuations in real​ GDP? ​

Social Security benefits Fiscal policy A service-based economy

Narnia, a developed open​ economy, has been experiencing​ double-digit inflation and a decelerating output growth for the last four quarters. Jonathan Mathews and Ben​ Hall, two market​ analysts, are discussing the various measures that can be adopted by the concerned authorities to curb inflation and boost production in the economy. Jonathan thinks that the central bank should raise the nominal interest rate to control inflation.​ This, he​ feels, will also contribute to an increase in the aggregate supply of funds available for investment in the economy. Ben however disagrees. According to​ him, an increase in the nominal interest rate will lower​ investment, leading to a decline in aggregate production by firms.​ This, in​ turn, will increase the shortage in the economy and prices will rise further. When the interest rate was actually​ increased, the aggregate supply of loanable funds in the economy did not increase as much as Jonathon expected. Which of the​ following, if​ true, would explain this​ outcome?

The government budget deficit increased by $10 billion this year.

Capital can be differentiated between physical capital and human capital. Human capital is Which of the following is best example of human capital?

The knowledge and skills workers acquire from education and training or from their life experiences A worker gets a college degree

Following a long period of slow​ growth, the government of country X decided to open its economy and reduce trade barriers in order to boost economic growth. This provided the expected impetus to the economy as competition increased and the efficiency of domestic firms improved. A decade after opening the​ economy, the​ country's GDP is now growing at an average of​ 7-8 percent annually. A group of economists claim that the standard of living of the people has improved substantially during this period. They also expect this impressive growth to continue over the next five years. Which of the​ following, if​ true, would weaken the​ economists' claim that the standard of living has​ improved?

The majority of wealth creation was concentrated in the highest income level.

Firm​ X, a leading manufacturer of rubber tires in country​ A, caters to almost​ one-third of the domestic tire market. The country was hit by a recession last year that caused the national output growth to be negative. Simon​ Reeds, the CEO of firm​ X, feels that these fluctuations in the business environment are​ short-lived and expects the economy to recover very soon. In spite of the​ recession, Simon feels that the firm can actually invest in expanding its facilities as it has sufficient cash flows to continue its operation during the crisis period. The​ firm's marketing​ head, Sandra​ Jones, counters this by saying that the firm is already losing sales due to the recession and they should not increase costs further by making​ large-scale investments in the present climate. Which of the following questions is most relevant to answer in order to determine the accuracy of the​ CEO's claim?

What are consumer expectations of future growth?

​"Saving money is not lending. How can it​ be? When I save my​ money, I put it in a bank. I​ don't loan it out to someone​ else." The statement is

incorrect. The supply of loanable funds is determined by household saving.