ECO2013 EXAM 2 SAMPLE QUESTIONS

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) If an economy that trades with others has a higher rate of savings than rate of investment, then it will also have a ________. A) trade surplus B) trade deficit C) fiscal deficit D) balanced budget

A Chinese worker started working in the United States and earned an income of $10,000 during a certain year. This is likely to have led to a(n) ________ in the same year. A) increase in the U.S. GDP B) increase in the U.S. GNP C) increase in China's GDP D) decrease in China's GDP

A bundle of goods that costs $1 in the United States is worth 5 units in Country A's currency. If Country A's GDP in its own currency is 5,000,000 units, Country A's GDP in PPP-adjusted dollars will be ________. A) $1,000,000 B) $2,500,000 C) $3,000,000 D) $50,000,000

A policymaker in Newlandia believes that the reason his country is poor is because there are not enough people who are entrepreneurs. To fix the issue, he proposes that 100 random graduates from the national university will be chosen and mandated to start a new company, though they will get a loan to do so. What might be a reason that this is NOT a good idea? A) The 100 randomly chosen individuals may not have not have a comparative advantage in entrepreneurship but rather a comparative advantage doing something else B) Entrepreneurship is not a reason why countries would differ in their productivity C) The 100 graduates, if they are successful, will make others try entrepreneurship which would result in too many people becoming entrepreneurs and not enough people working D) The mandate would reduce the total efficiency units of labor in the economy, reducing output

According to Malthus, when the standard of living in any economy is above subsistence, ________. A) couples tend to have more children B) couples tend to have fewer children C) consumption is more than saving D) saving is more than consumption

Adaeze currently saves 20% of her income each year. Which of the following would not be something that might make her decide to save more right now? A) An expected promotion which would pay her more B) A higher interest rate C) Slower expected economic growth in the future D) Higher taxes in the future

An economy in 2020 produces 100 apples and 100 oranges. Prices in 2020 were $5/apple and $5/orange. The GDP deflator for a particular base year is 125. Which of the following are possible prices for apples and oranges in the base year? A) $5/apple and $3/orange B) $6/apple and $4/orange C) $3/apple and $7/orange D) $1/apple and $5/.orange

An international agency uses the prices of iPads in different countries to compute the exchange rate between the currencies of these countries. Which of the following measures follows a similar approach? A) The Big Mac index B) The GDP deflator C) The midcap index D) The Human Development Index

Assume Industry Country relies more heavily on the use of capital and Farm Country relies more heavily on the use of labor in production. Holding labor constant, which country's output would be more negatively affected by a big storm that destroys large parts of the existing infrastructure? A) Industry Country B) Labor Country C) Both countries equally D) Both countries equally if their initial GDP is equal

Claude was recently laid-off from his job at the widget factory. He would be counted as unemployed if ________. A) he does not have a job, but wants one, and is actively looking for one B) he decides to retire early C) he finds another job the very next day D) he decides to stay home to take care of his kids while his partner works

Comparing GDPs over time requires the use of a ________. A) base year B) recession and boom period C) worker productivity index D) linear growth model

Consider the roles of capital depreciation, home production, and the underground economy in real production. When estimating the percentage of measured GDP that these three factors would make up, how much does real production possibly differ from measured GDP? A) Real production is about 46 percent higher than GDP. B) Real production is about 6 percent lower than GDP. C) Real production is about 14 percent higher than GDP. D) Real production is about 14 percent lower than GDP.

Double counting occurs when ________ included in the calculation of the GDP. A) inputs are B) unsold inventories are C) depreciation is D) household production is

During which period was the growth of U.S. GDP per hour worked the greatest? A) The 1950s and 1960s B) The 1970s and 1980s C) The 1990s and 2000s D) Growth was essentially equal during each of these periods.

Edwin grows potatoes on his farm. Part of the output is consumed by Edwin's family, and the remainder is sold in the market. Refer to the scenario above. Suppose that besides consuming all the potatoes grown on his farm, Edwin buys 5 pounds of potatoes at $0.80 per pound. What is likely to happen in this case? A) The $4 spent by Edwin will be included in GDP. B) The $4 spent by Edwin will be excluded from GDP. C) The value of Edwin's total output will be included in GDP. D) The value of Edwin's total output will increase

In a graph that measures output in the y-axis and the efficiency units of labor in the x-axis, which of the following causes an upward movement along the aggregate production function? A) An increase in the total efficiency units of labor B) A decrease in the physical capital stock C) An improvement in technology D) A decrease in the productivity of workers

In an aggregate production function with diminishing marginal product, if you double the capital stock K, then total output will _______. A) increase less than double B) double C) be cut in half D) stay the same

Fakeland has an aggregate production function Y = A . Last year, total output was USD 1000. This year, a storm hits Fakeland and destroys half of the country's total capital stock. On the other hand, improving education quadruples the average human capital of workers and there is a demographic boom that doubles the labor force. Assuming that there is no change to technology, what is TRUE of total efficiency units of labor and total output? A) Total efficiency units of labor is multiplied by 8; total output doubles. B) Total efficiency units of labor double; output remains the same. C) Total efficiency units of labor stay the same; output is cut in half. D) Total efficiency units of labor is multiplied by 3; total output doubles.

For the U.S. economy, on average, the growth resulting from technology is ________. A) greater than the growth resulting from human capital B) smaller than the growth resulting from physical capital C) equal to the growth resulting from human capital D) equal to the growth resulting from physical capital

From the perspective of individual households, income can only be consumed or saved, the latter of which become ________ utilized by firms. A) investment B) capital depreciation C) intellectual property D) interest rates

Frozen Cow Ice Cream Company buys sugar and milk to produce ice cream and energy drinks. At the end of a quarter, both its inventory of sugar and its inventory of energy drinks has increased, but their inventory of milk has decreased. Investment for the quarter will include ________. A) the increased inventory of sugar plus the increased inventory of energy drinks minus the decreased inventory of milk B) the increased inventory of sugar and decreased inventory of milk, but not the increased inventory of energy drinks C) the increased inventory of energy drinks, but not the increased inventory of sugar or decreased inventory of milk D) none of the changes of inventory

Given the production function Y = A × F(K,H) = A × K1/3 × H2/3, if you were to double just the total efficiency units of labor, output would ________, but if you doubled both total capital and total efficiency of units of labor, output would ________. A) Less than double; double B) More than double; double C) Double; double D) double; less than double

How does gross national product (GNP) differ from gross domestic product (GDP) in terms of definition? A) GNP includes production of all workers who typically reside in the country, even if some of their production occurs in another country. B) GNP only includes production by citizens of that country, while GDP includes the production by foreigners in the country. C) GNP includes production of all goods produced and consumed within the country and not the production of goods that are exported or imported. D) GNP includes production of all goods within a country's borders, while GDP includes production of good produced outside the boarders but owned by residents of the country

How does the expenditures measure of GDP differ from the production measure? A) It doesn't. The final value is the same. B) It is lower, because only purchased items are counted. C) It is higher due to the higher cost of a final good than of the inputs. D) It depends on the amount of inventories held at the beginning and end of the year.

How is income per capita calculated? A) Dividing a nation's aggregate income by the number of people in the country B) Averaging the individual incomes of all working people C) Dividing GDP by the number of households D) None of the above

If ________, the total efficiency units of labor will increase. A) The working age population increases B) the rate of unemployment increases C) the physical capital stock of an economy decreases D) the number of retired people in an economy increases

If a country increases its saving rate, the steady-state equilibrium level of ________. A) GDP will increase B) physical capital stock will decrease C) investment will decrease D) efficiency units of labor will increase

If a country's human capital improves, the country will have ________ for a given level of physical capital stock. A) a higher GDP B) a lower GDP C) more poverty D) more inequality

If a foreign company operating in a country changes work rules, resulting in a more flexible allocation of resources in the various sectors of the domestic economy, ________. A) the productivity of the domestic workers is likely to increase B) the productivity of the domestic workers is likely to decrease C) the GDP of the economy is likely to decrease D) the Human Development Index of the country is likely to decrease

If the CPI in 2017 was 100 and there was 3% inflation each year from 2017-2020, what would the CPI in 2020 be? A) 109.27 B) 88.53 C) 103 D) 105.24

If the aggregate income of an island country is $8 million and income per capita is $5,000, the total population of the island is ________. A) 1,600 B) 20,000 C) 40,000 D) 106,000

If the depreciation rate in an economy is 10 percent and the physical capital stock in the economy is $1,000, the level of investment required to keep the economy at a steady state is equal to ________. A) $100 B) $110 C) $250 D) $1,000

If the index of human capital sets h = .5 for 2 years of schooling, h = 1 for 6 years of schooling, and h = 2 for 16 years of schooling, how much more does a college graduate with 16 years of schooling, typically earn than a worker with 2 years of schooling? A) 4 times more B) 2 times more C) 8 times more D) 3 times more

In 2017, the US had a real GDP per capita (PPP) of USD 56,000 and had been growing at about 2.1% per year. In 2017, China had a real GDP per capita (PPP) of USD 13,000 and had been growing at about 6.4% per year. If this two countries continue to grow at these rates, how long would it take before China and the US had the same income level? (Hint: Use the growth formula and take logs or simulate this in a spreadsheet software.) A) ~35 years B) ~10 years C) ~20 years D) ~50 years

In Australia, the saving rate is 15 percent, while GDP is $1.34 trillion. Total saving in Australia is closest to ________. A) $200 billion B) $220 billion C) $240 billion D) $260 billion

In an economy there are three firms. Apple Farms Inc. sells 100 apples at $1/apple to Pie Corporation. Pie Corporation uses those apples to make 50 apple pies. It sells 25 pies at $5/pie directly to consumers. It also sells 25 pies at $5/pie to Grocer Mart. Grocer Mart then sells those 25 pies at $10/pie to its customers. What is total GDP in this economy? A) $375 B) $600 C) $500 D) $1000

In an economy, if three-fourths of national income goes to the human capital of workers and one-fourth to physical capital stock, the Cobb-Douglas production function for this economy will be ________, where Y denotes total output, A denotes the level of technology, K denotes the physical capital stock, and H denotes the efficiency units of production. A) Y = A × K1/4 × H3/4 B) Y = A × K4 × H3 C) Y = A × 1/4 × K × 3/4 × H D) Y = A × K1/3 × H2/3

In pre-industrial England there is a large pandemic. Which of the following tells a series of events consistent with a Malthusian trap? A) The pandemic kills off a large portion of the population. As a result real wages and living standards rise. As people have more income, they have more children and the population rises back. Incomes per capita and living standards return back to where they were. B) The pandemic kills off a large portion of the population. As a result real wages and living standards rise, and women enter the workforce. As they do fertility falls and people have fewer children and incomes continue to rise. C) The pandemic creates the incentive to invest in new technology. This creates economic growth and improves incomes. As they get richer, households have fewer children. D) The pandemic causes wages and living standards to fall. Since people are poorer they have more children. The population increases and GDP increases as well.

Income inequality in the United States was not constant throughout the twentieth century. When was it lowest? A) From the 1940s to the 1970s B) In the 1920s and 1930s C) From the 1980s onward D) From the 1900s to the 1930s

Inventia has 1 million workers. Suppose 50,000 workers migrate from a neighboring country to join Inventia's workforce. Which of the following will happen in this case if Inventia's physical capital stock remains unchanged? A) The marginal contribution of labor to Inventia's output will fall. B) The relationship between output and physical capital stock becomes negative. C) The total efficiency units of labor in the economy will decrease. D) The country's income per worker will increase.

John and Sue are married and live in the United States. John is a Canadian citizen and stays home with their two children, Micah and Madison; his caretaking is valued at $20,000 per child. He also programs video games from home in the evenings for a Japanese-based online poker site for $50,000 per year. Sue works as a high-powered lawyer for Berkshire Hathaway at their London branch for the U.S. dollar equivalent of $1,000,000 per year. Refer to the above scenario. How much does Sue contribute to U.S. GDP? A) $0 B) $40,000 C ) $1,000,000 D) $1,040,000

John and Sue are married and live in the United States. John is a Canadian citizen and stays home with their two children, Micah and Madison; his caretaking is valued at $20,000 per child. He also programs video games from home in the evenings for a Japanese-based online poker site for $50,000 per year. Sue works as a high-powered lawyer for Berkshire Hathaway at their London branch for the U.S. dollar equivalent of $1,000,000 per year. Refer to the above scenario. How much does John contribute to U.S. GNP? A) $0 B) $20,000 C) $40,000 D) $80,000

John is a U.S. citizen who bought a house in Canada. This purchase led to a(n) ________. A) increase in the GDP of Canada B) decrease in Canada's trade deficit C) increase in the U.S. GDP D) decrease in the U.S. GDP

Mike's housekeeper charges $30 for mowing his lawn. Refer to the scenario above. How much of the value for lawn mowing is counted in GDP if Mike decided to start his own lawn mowing business and mowed the lawns of 5 other people plus his own and charged those people $30 each? A) $150 B) $180 C) $120 D) $30

Movements away from equilibrium in the Solow model ________. A) are automatically corrected B) persist and cannot be corrected C) are corrected only through government intervention D) are corrected only when the country opens up to international trade

Mr. Clooney inherited a sum of $30,000 in 1990. If the price index was 100 for 1990 and 188 for 2014, the value of the money he inherited in 2014 dollars is ________. A) $56,400 B) $45,200 C) $38,800 D) $48,000

National income accounts measure the ________. A) level of aggregate economic activity in a country B) labor force participation rate in a country C) total amount of capital goods available in a country D) total money supply in a country

Newlandia and Oldia are two countries with the same production function and growth rate in technology and are initially at their steady-states. Oldia's savings rate increases. As a result, in the short to medium term, Oldia's growth rate will be ________ than Newlandia's because after the savings rate increase, Oldia's rate of capital accumulation will be ________ than capital depreciation until it reaches its new steady state. A) Higher; higher B) lower; higher C) same as; lower D) lower; lower

North Dakota's GDP per capita is $65,000, while South Dakota's GDP per capita is $48,000. Advances in technology increase North Dakota's GDP per capita over the following decade to $78,000. If South Dakota benefits in the same way from those technologies, what will South Dakota's GDP per capita be after a decade? A) $57,600 B) $61,000 C) $65,000 D) $78,000

On an average, growth in per capita income is associated with a ________. A) fall in poverty B) rise in poverty C) fall in inequality D) rise in inequality

Over the course of 10 years, a country's population doubles. During this time, its GDP increases from $10 trillion to $12 trillion. Pete, who lives in this country and buys the same goods and services every year, finds that he is still paying the same price for them. Which of the following would explain this? A) Productivity in this country has decreased. B) Purchasing power parity in this country has decreased. C) The country's workforce has more than doubled. D) Both A and B

Over the past 30 years, what has happened to the fraction of U.S. income received by the top 10 percent of income earners? A) It has increased. B) It has decreased. C) It has remained essentially constant. D) It decreased, then returned to its original level.

Over the past couple of decades, Brazil has (1) decreased its poverty rate, and (2) experienced positive growth in GDP per capita. How does this compare to the majority of nations over this time period? A) Both (1) and (2) are typical of the majority of nations over this period. B) Neither (1) nor (2) are typical of the majority of nations over this period. C) Only (1) is typical of the majority of nations over this period. D) Only (2) is typical of the majority of nations over this period.

Recall that GDP per capita in both Norway and the US is about the same at $65,000. However, due to inequality, the top 1% of households in the US earn 18.6% of total income, while the top 1% in Norway earn 8% of total income. What can you infer from this about the difference in earnings between the top 1% in the US vs Norway? A) Households in the top 1% in the US earn much more than households in the top 1% in Norway. B) Households in the top 1% in the US earn much less than households in the top 1% in the Norway. C) Households in the top 1% in the US earn the same as households in the top 1% in the Norway. D) Households in the top 1% in the US tend to start more businesses than those in Norway.

Recall that Moore's Law (and its close cousins) says that the number of transistors on a microchip will double every 2 years. Based on the formulas on growth you have learned, what is annual growth rate in transistors that this implies? A) ~41% B) ~100% C) ~50% D) ~30%

Recall that prior to the 19th century, incomes per capita were probably somewhere close to $500. Imagine that it is the year 0 C.E. If incomes per capita had been $500 back then, and there had been sustained growth of just 0.3% per year since then, what would average incomes be today in 2020? A) ~$212,000 B) ~$50,000 C) ~$5,000 D) ~$1,000

Refer to the scenario above. How much of the value of childcare for Sarah's son gets counted in GDP? A) $12,000 B) 0 C) $6,000 D) $18,000

Refer to the scenario above. If the depreciation rate in Kenya is 10 percent, what must be the saving rate in Kenya? A) 8 percent B) 10 percent C) 12.5 percent D) 15 percent

Several houses built in a country during a certain year were mildly damaged because of an earthquake. Which of the following is likely to happen in this case? A) The market value of the damage will not be included in the calculation of the country's GDP. B) The market value of the damage will be deducted from the country's GDP. C) The market value of the damage will be included in the calculation of the country's trade deficit. D) The market value of the houses will not be included in the calculation of the country's GDP

Singapore had a GDP per capita of $395 in 1960. It then started taking advantage of knowledge and technologies already invented in other technologically advanced countries. In 2013, its GDP per capita had increased to $52,918. The growth in Singapore's average per capita GDP is considered to be ________ growth. A) catch-up B) sustained C) instant D) disguised

Suppose production in an economy is represented by a Cobb-Douglas production function. If each worker in the economy becomes more productive, while the number of workers in the economy, the physical capital stock, and the state of technology remain unchanged, ________. A) the GDP of the economy will increase B) the income per capita in the economy will decrease C) the inflation rate in the economy will decrease D) the exchange value of its currency will increase in the foreign exchange market

Suppose that instead of Greg not mowing his lawn, he pays his son $10.00 cash. How much of this transaction is counted in GDP? A) $10 B) $5 C) 0 D) $20

Suppose that instead of Greg usually buying his lunch at a fast-food restaurant for $15.00, he buys $5 worth of food at the grocery store and spends an hour of his time creating his lunch. How much of Greg's daily lunch is counted in GDP? A) $5 B) $15 C) $10 D) $2

Suppose the annual growth rate of an economy is expected to be 3 percent. This implies that the economy's ________ is expected to ________ by 3 percent annually. A) GDP per capita; increase B) price level; increase C) capital stock; increase D) unemployment rate; decline

Suppose the working-age population of a country doubles because of immigration. The country, however, neglects investment in research and development (R&D), and hence, its level of technology remains stagnant. Which of the following statements will be TRUE of this economy? A) The economy cannot achieve sustained growth. B) The economy will experience steady economic growth. C) The economy's output will rise at an increasing rate over time. D) The saving rate will remain stagnant over the years

Sustained growth refers to a growth process in which ________. A) GDP per capita grows at a positive and steady rate for long periods of time B) GDP per capita grows at a rate of more than 20 percent per year for long periods of time C) growth in GDP per capita is primarily attributed to public sector firms and enterprises D) growth in GDP per capita is translated into an equal increase in welfare for all citizens in a country

The GDP deflator of a country in the base year was 100, and it is 130 in the current year. This implies that the prices of final goods and services produced in the country have increased by ________ between the two years. A) 30 percent B) 3 percent C) 10 percent D) 0.1 percent

The GDP of Ritzland during a particular year was $120,000. If the expenditure on investment was $16,000, the expenditure incurred by the government was $35,000, the value of exports was $10,000, and the value of imports was $22,000, then the expenditure on consumption was ________. A) $81,000 B) $19,000 C) $37,500 D) $44,000

The ________ in output due to each additional unit of a factor of production is ________ when other factors are held constant. A) increase; smaller B) increase; larger C) decrease; smaller D) decrease; larger

What are the two categories of income payments and what fraction of total income payments do they each make up? A) Labor income, two-thirds and capital income, one-third B) Skilled-labor income, three-fourths and unskilled-labor income, one-fourth C) Labor income, one-third and capital income, two-thirds D) Skilled-labor income, one-half and unskilled-labor income, one-half

The aggregate production function of Ritland is Y = A × K0.3 × H0.7, where Y denotes total output, A denotes the level of technology, K denotes the physical capital stock, and H denotes the efficiency units of production. The total output produced in Ritland in a certain year was worth $135,000. The technology used in the country improved over the next 10 years, while the physical capital stock and the efficiency units of labor remained approximately the same. Which of the following is likely to be TRUE in this case? A) The GDP of the country is likely to increase. B) The GDP of the country is likely to decrease. C) The Human Development Index of the country is likely to improve. D) The inflation rate in the country is likely to decrease.

The average years of schooling of workers in Argonia has increased. Which of the following is likely to be TRUE if all other variables remain unchanged? A) The efficiency units of labor in Argonia is likely to increase. B) The income per worker in Argonia is likely to decrease. C) The unemployment rate in Argonia is likely to increase. D) The price level in Argonia is likely to decrease.

The difference between ________ is known as the trade balance. A) exports and imports B) production and exports C) consumption and imports D) investment and consumption

The implication of the Solow model is that economic growth is sustainable when ________. A) There is consistent technological change B) the ratio of physical capital stock to GDP decreases as the economy grows over time C) the ratio of saving rate to depreciation rate remains constant as the economy grows over time D) the ratio of saving rate to depreciation rate increases as the economy grows over time

The income per capita in Baltonia is 64,163 in Baltonian currency. If the price of a basket of goods worth $1 in the United States is 5.50 units of Baltonian currency, Baltonia's income per capita in PPP is ________. A) $11,666 B) $2,832 C) $10,257.48 D) $15,624.50

The income per worker in a country increases if ________. A) the country's GDP increases, all other variables remaining constant B) the country's GDP falls, all other variables remaining constant C) the number of children in the country younger than 15 increases D) the number of retired people in the country increases

The population of Potentia doubled in 20 years, while its income per capita remained unchanged during the same period of time. This implies that ________. A) its GDP also doubled B) its price level halved C) its GDP remained constant D) its price level doubled

The saving rate indicates ________. A) the fraction of income that households save B) the difference between household consumption and savings C) the rate of return households earn on their savings D) the difference between government revenue and government expenditure

The short-run aggregate production function is subject to ________ if capital stock is increased, holding the total efficiency units of labor constant. A) the Law of Diminishing Marginal Product B) decreasing opportunity cost of production C) increasing opportunity cost of production D) increasing returns to scale

The subsistence level of income is the minimum level of income per person that is generally necessary to ________. A) obtain enough calories, shelter, and clothing to survive B) save for retirement C) contribute meaningfully to the advancement of society D) obtain a middle-class lifestyle in whatever country they live in

The total value of inputs used in the production of 100,000 units of a good manufactured in a country is $150,000. Assume that the country produces this good and enough inputs for producing this good (i.e., it produces nothing else) and each unit of the final good sells for $10. What is the GDP of the country? A) $1,000,000 B) $1,150,000 C) $150,000 D) $250,000

The value of Japan's income per capita in dollars will increase if ________. A) the dollar per yen exchange rate increases B) the dollar per yen exchange rate decreases C) the U.S. income per capita increases D) the value of Japan's income per capita in yen decreases

The value of a vacation home in Italy to its American owner will increase if the ________. A) euro to dollar exchange rate changes from 2 euros/dollars to 1 euro/dollar B) income per capita in Italy increases C) purchasing power parity (PPP) is relatively greater in the United States D) PPP-adjusted income is relatively greater in Italy

The value of production generated by a country's factors of production in foreign countries during a particular year was $51,000, and the value of production generated by foreign factors of production in the country during that year was worth $80,000. Which of the following is likely to be TRUE in this case? A) The GDP of the country is higher than its GNP. B) The GDP of the country is lower than its GNP. C) The GDP of the country equals its GNP. D) The GDP of the country equals its trade balance

This is the process that enables the economy to achieve a higher level of GDP for given levels of its factors of production, physical capital stock, and total efficiency units of labor. A) technological change B) output multiplication C) economic facilitation D) offshoring

Two countries A and B have the same aggregate production function Y = A . In addition, they have the same level of technology and same level of output. However, if country A adds one more unit of capital, it will have a larger increase in output than if country B were to do the same. What can you infer from this? A) Country A has a lower level of capital stock K than country B. B) Country A and country B have the same level of total efficiency units of labor H. C) Country A has a higher level of capital stock K than country B. D) Country A and country B have the same level of capital stock K.

Two countries, Rhodia and Rubium, have identical production functions in the form Y = A × K0.25 × H0.75, where Y denotes total output, A denotes the level of technology, K denotes the physical capital stock, and H denotes the efficiency units of production. Both countries have the same amount of physical capital stock and use the same technology. However, the total efficiency units of labor in Rhodia is higher than that in Rubium. Which of the following is likely to be TRUE in this case? A) The GDP of Rhodia is higher than that of Rubium. B) The GDP of Rubium is higher than that of Rhodia. C) The Human Development Index of Rhodia is lower than that of Rubium. D) The poverty rate in Rhodia is likely to be higher than that in Rubium.

What explains why technological change rather than physical and human capital accumulation is the cause of sustained growth? A) Technological change is an exponential process, building on past knowledge in constant proportion which means that new technology can continue to create growth even at high income levels. B) Technological change is easier to accomplish for countries than rapid physical or human capital accumulation. C) Technological change, unlike physical capital accumulation, does not require savings from households for investment. D) Physical and human capital have increasing returns.

When current growth builds on past growth, growth is ________. A) exponential B) linear C) logarithmic D) negative

When the World Bank reports that World GDP in 2019 was 84.944 trillion constant 2010 dollars, it is measuring the world's ________. A) Real GDP B) Nominal GDP C) GDP Deflator D) Consumer Price Index

Which of the following is NOT a dimension of how technology (A) might be different across countries? A) Differences in investment in physical infrastructure like roads B) Differences in R&D investment that lead to more or less knowledge C) Misallocation of factors of production (like workers in the wrong sector) D) Monopolies and barriers to entry for new firms and entrepreneurs

Which of the following is NOT a way that the level of technological knowledge manifests itself in an economy? A) In a larger, younger population and workforce B) In the knowledge and ability of human capital (i.e., workers) to perform complex tasks with new technology C) In physical capital as new devices or inventions that can make production more efficient D) In advances in new innovations, ideas, or science which expands what a society can do

Which of the following is a macroeconomic concept? A) The income per capita of a country B) The average revenue earned by a firm C) The degree of responsiveness of the quantity supplied of a good to its price D) The total satisfaction derived from the consumption of a good

Which of the following is an alternative measure of exchange rate proposed by The Economist magazine? A) The Big Mac index B) The Consumer Price Index C) The GDP deflator D) The midcap index

Which of the following is considered a final good or service? A) An airline ticket purchased to go on a business trip B) The flour used by a baker to make bread C) The bread purchased by a sub shop to make sandwiches D) The steel used to make a car

Which of the following is likely to lead to an increase in the GDP of a country? A) An increase in the physical capital stock of the country B) An increase in the unemployment rate in the country C) An increase in the tax rates in the country D) An increase in the interest rates in the country

Which of the following is likely to reduce the total efficiency units of labor in an economy? A) An earthquake that kills several people B) A boom that increases labor demand C) An increase in the price level D) A decrease in the price of capital

Which of the following is the correct way to convert GDP per capita into productivity? A) Divide GDP per capita by avg, hours worked per worker and the employment to population ratio B) Multiply GDP per capita by total population and unemployment rate C) Divide GDP per capita by employment to population ratio and total population D) Multiply GDP per capita by avg. hours worked, unemployment rate, and total population

Which of the following pairs of countries has used catch-up growth over the past few decades to achieve incomes that are now comparable to that of the United States? A) Singapore and South Korea B) Mexico and Brazil C) The United Kingdom and France D) Kenya and Rwanda

Which of the following questions can be answered using the concepts of macroeconomics? A) Why does the rate of economic growth fluctuate from year to year? B) What is the difference between demand and quantity demanded? C) What is the effect of an increase in price on the supply of a good? D) Why do some firms produce differentiated goods?

Which of the following questions cannot be answered using the concepts of macroeconomics? A) What price should fast food restaurants charge to maximize profits? B) Why does the rate of economic growth fluctuate from year to year? C) What is the unemployment rate in a country? D) How does the inflation rate relate to economic growth?

Which of the following statements identifies a correct reason for demographic transition? A) The dependence on child labor is negligible in urban families compared to rural families. B) The increase in the migration of labor from urban to rural areas reduces fertility. C) The cost of rearing children is lower for urban families compared to rural families. D) The transition from a rural economy to an urban economy reduces income below the subsistence level, reducing fertility and the size of families.

Which of the following statements is TRUE of economic growth and GDP across the world before 1800? A) There was a lack of sustained growth because the pace of technological change was slow. B) The income per capita in all countries throughout the world was less than $500 per capita. C) The income per capita in all countries throughout the world was more than $1,000 per capita. D) There was sustained growth because whatever improvements in GDP were realized were invested in capital equipment.

Which of the following statements is TRUE of the Industrial Revolution? A) It was a gradual process. B) It was a period of rapid disruption. C) It started in the United States. D) It started in the capital goods industry.

Which of the following statements is TRUE of the U.S. economy over the past 200 years? A) Its GDP per capita has increased. B) Its GDP per capita has decreased. C) There has been no contraction in the economy. D) The growth rate of GDP has been more than 10 percent per year.

Which of the following statements is TRUE? A) An extremely high saving rate can be counterproductive for an economy. B) The greater the saving rate in an economy, the slower the rate of physical capital accumulation. C) For positive growth, the consumption in an economy should always be less than the saving. D) The greater the consumption expenditure in an economy, the faster the physical capital accumulation.

Which of the following statements is TRUE? A) Higher interest rates typically encourage more savings. B) The savings of households are independent of tax rates. C) Households that expect an increase in future earnings are likely to save more. D) An increase in the consumption of households increases the savings of the households.

Which of the following statements is TRUE? A) If households expect higher taxes in the future, they will increase their current saving rate. B) If households expect higher taxes in the future, they will decrease their current saving rate. C) The saving rate of households is dependent only on current consumption expenditure. D) The saving rate of households is dependent only on planned future consumption expenditure.

Which of the following statements is TRUE? A) Physical capital accumulation will be high in the current year if the physical capital stock of the previous year was high. B) Physical capital accumulation will be high if the physical capital stock of the previous year was low. C) The rate of depreciation will be low in the current year if the investment on physical capital the previous year was high. D) The rate of depreciation will be high in the current year if the investment on physical capital the previous year was low.

Which of the following statements is TRUE? A) The amount of physical capital accumulation increases with a decrease in the depreciation rate of capital. B) The amount of physical capital accumulation increases with an increase in the depreciation rate of capital. C) The depreciation rate of physical capital increases with an increase in the investment in capital. D) The depreciation rate of physical capital increases with a decrease in the investment in capital.

Which of the following will be included in the calculation of GDP using the income-based method of national accounting? A) A worker's retirement benefits B) A firm's expenditure on raw materials C) A consumer's expenditure on an imported car D) A student's expenditure on education

Which of the following would be included in a calculation of GDP? A) Consumer expenditure on phones in their own country B) Consumer expenditure on souvenirs in a foreign country C) Health effects of pollution in a local river D) Volunteer community work

Why is physical capital accumulation alone unlikely to result in sustained growth? A) Because of the diminishing marginal product of physical capital B) Because of the diminishing marginal product of labor C) Because of the eventual need to replace existing physical capital D) Because high levels of physical capital will tempt other countries to steal that capital

Zara and Cirillo are new parents who are trying to figure out childcare for their family. In which of the following scenarios, would the value of childcare be included in calculating GDP? A) Zara and Cirillo put their child in a professional daycare at $15,000 dollars a year. B) Zara and Cirillo take extended parental leave to stay home and take care of their child. C) Zara and Cirillo share childcare responsibilities with their neighbors who also have a child. D) Zara and Cirillo convince their parents to help them out with babysitting for free.

________ refers to the "wear and tear" that an equipment or structure goes through, eventually making it obsolete. A) Depreciation B) Capital tear C) Creative destruction D) Intertemporal loss

What are the features of a Cobb-Douglas production function?

A Cobb-Douglas production function is an equation of the form Y = A × Ka × Hb, where Y denotes total output, A denotes the level of technology, K denotes the physical capital stock, and H denotes the efficiency units of production. The coefficients of K and H show the percentage of contribution of each factor of production to the GDP. These coefficients always add up to 1. This ensures that the production function exhibits constant returns to scale.

What is Moore's Law?

A long-term trend of rather remarkable regularity in the development of computer microprocessors has been observed since 1965. It is called Moore's Law after Intel co-founder Gordon Moore, who predicted in that year that the number of transistors on a chip would double approximately every 2 years. The number of transistors per chip is a key determinant of how fast a computer processor is. Thus, Moore's Law implies that computer processor power should double approximately every 2 years. Several other measures of technological advances in computing have also behaved according to Moore's Law. For example, the number of pixels in digital cameras and RAM storage capacity has also doubled every 2 years or so, while power consumption of computer nodes and hard disc storage costs appear to have been halved approximately every 2 years.

What is the physical capital accumulation equation used by Solow?

According to Solow, the physical capital in the current year (Kcurrent year) is equal to the physical capital of last year (Klast year) less the depreciated physical capital (Kdepreciated) plus the level of investment (I). This implies: Kcurrent year = Klast year − Kdepreciated + I, or Kcurrent year = Klast year − (Depreciation rate × Klast year) + I, or Kcurrent year = (1 − Depreciation rate) × Klast year + I

Explain why there is nothing predetermined about the relationship between time and progress in technology that would make Moore's Law into an actual law.

Accordingly to Moore's Law, technological advances should double every 2 years. However, there is nothing predetermined about the relationship between time and progress in technology that would make this into an actual law of nature. This progress results from the investments of several companies in new computer technologies, which are in turn driven by the profitability of these investments. It also relies on government support for university and private research and on the ability of the United States and other advanced and developing nations to attract increasing numbers of young, talented students into science, engineering, and related fields. Things can change in the future, halting this rapid progress in technology. Fewer college students could choose to major in science and engineering in the future, or governments could decide to limit or even stop their support for private or university research, weakening incentives for further technological advances. Moreover, even without a major cutback in funding or a change in the profitability of research in this area, the rate of advance may slow down from its current breakneck pace.

If the saving rate in an economy is 30 percent and the level of investment in the economy is $400, the GDP of the economy must be ________. A) $1,111.22 B) $1,333.33 C) $1,750.50 D) $1,900.25

How does an increase in competition in an industry usually affect productivity?

An increase in competition in an industry changes work rules in a way that allows for a more flexible allocation of labor across tasks and better utilization of resources. This leads to a significant increase in productivity in the industry.

Among the two countries, country B is more likely to experience sustained growth. This is because its approach to growth involves improving production technology, while country A's approach involves increasing the total efficiency units of labor. Holding all other factors of production constant, if a country increases its workforce, every additional worker will increase GDP by less and less because of diminishing marginal product of total efficiency units of labor. In contrast, investment in R&D is likely to increase the level of technology available in country B. Technology is a factor of production that exhibits exponential growth. This is because new technology builds on existing technology. Since the growth in technology is exponential, it is the only factor of production where improvements do not necessarily run into diminishing marginal product. For this reason, country B, which is investing in technology, is more likely to experience sustained growth.

How can technology developed in a wealthy country be used to increase the standard of living in poorer countries?

As in the example of the wireline telephone industry, innovations developed in one country can supplant dominant technologies in poorer countries that are maintained by state control or private monopoly. In replacing more expensive technologies, productivity is increased at a lower cost, raising the standard of living.

If the value of the output generated by a country's factors of production within the borders of foreign countries is higher than the value of the output generated by foreign factors of production within its borders, ________. A) the GDP of the country is higher than its GNP B) the GDP of the country is lower than its GNP C) the GDP of the country equals its GNP D) the GDP of the country equals its trade balance

) The aggregate production function shows a(n) ________ relationship between ________ and output. A) decreasing; physical capital stock B) increasing; physical capital stock C) constant; labor D) decreasing; labor

10 percent of the total food grains produced in a country during a year gets damaged due to poor storage. Which of the following will happen in this case? A) The market value of the damaged food grains will be deducted from the country's GDP for that year. B) The market value of the damaged food grains will not be considered while calculating the country's GDP for that year. C) The country's trade surplus will increase. D) The country's imports will fall.

A Bozeman, Montana, household receives a Social Security check for $800, which it uses to purchase a $599 television made in Korea by a Korean firm, as well as pay a local mechanic $191 to fix the family car. The household spends the remaining $10 on ice cream from Town and Country. How much do these transactions contribute to US GDP? A) 0 B) $201 C) $800 D) $1,001

A ________ occurs when a country's exports exceed its imports. A) trade deficit B) trade surplus C) budget surplus D) fiscal deficit

A country has an aggregate production function of the form Y = A × K1/3 × H2/3, where Y denotes total output, A denotes the level of technology, K denotes the physical capital stock, and H denotes the efficiency units of production. Which of the following is likely to happen if the physical capital stock and the efficiency units of labor available to the country increase by 10 percent over a span of 5 years, while the state of technology used in the country remains the same? A) Output will increase by 5 percent. B) Output will increase by 10 percent. C) Output will increase by 1 percent. D) Output will double.

A country's physical capital stock decreases after a war while its labor supply remains constant. Which of the following will happen in this case if output is a function of physical capital stock and the efficiency units of labor? A) Its total output will remain constant. B) Its total output will decrease. C) Its per capita output will increase. D) Its per capita output will remain constant.

A country's unemployment rate fell from 6 percent to 5 percent during a year. If the country's total population, physical capital stock, and output remain unchanged, ________. A) its income per capita will fall B) its income per worker will fall C) its income per capita will increase D) its income per worker will increase

A macroeconomics class is likely to discuss ________. A) the relationship between the price of a good and its quantity demanded B) the annual growth rate of an economy's output C) the average revenue and cost curves of a firm D) the relationship between the utility derived from a good and the number of units consumed

A steady-state equilibrium refers to an equilibrium in which ________ remains constant over time. A) the GDP per capita B) the stock of physical capital C) inequality D) the poverty rate

An apparel manufacturer bought raw materials worth $60,000 in a particular year and earned a total revenue of $90,000. If the manufacturer had no other expenditure, it added a value of ________ to the production process. A) $12,000 B) $30,000 C) $90,000 D) $150,000

An economy with better technology is likely to ________. A) use more labor than capital B) achieve higher productivity C) have a small physical capital stock D) have lower levels of human capital

Approximately how long ago did the Industrial Revolution occur? A) 100 years ago B) 200 years ago C) 300 years ago D) 400 years ago

As societies moved from rural living to living in cities, human fertility decreased. Why? A) The polluted environments of cities made it harder to raise children to maturity. B) Children were more expensive to rear in cities, and child labor was less beneficial. C) In cities, there was too little food to ensure that children would survive to adulthood. D) Children working in the newly invented factories of the Industrial Revolution tended to have shorter lifespans.

By the end of the twentieth century, the share of U.S. income received by the top 10 percent of earners was about ________. A) 90 percent B) 50 percent C) 30 percent D) 25 percent

Catch-up growth is characterized by disparities in growth levels, magnified by the ________ nature of economic growth. A) disproportionate B) exponential C) homogeneous D) linear

Consider a closed economy without a government. If the GDP of the economy is $25,000 and the saving rate in the economy is 25 percent, the aggregate saving in the economy is ________. A) $3,320 B) $6,250 C) $8,000 D) $8,650

Suppose that a nation's GDP per capita grows at a constant 4 percent per year. You graph the nation's GDP per capita on a graph with 1) a linear time scale on the x-axis, and 2) a proportional GDP per capita scale on the y-axis. What will the nation's GDP per capita look like on the graph? A) A horizontal line B) A straight upward-sloping line C) A curve that is sloped upward, and increasing in slope D) A curve that is sloped upward, and decreasing in slope

Consider two countries, Country A and Country B, that are alike in most respects. However, the saving rates in the two countries differ. Country A's saving rate is greater than Country B's saving rate. Which of the following statements is TRUE? A) The rate of physical capital accumulation will be the same in both economies. B) Physical capital accumulation will occur faster in Country A than in Country B. C) Physical capital accumulation will occur faster in Country B than in Country A. D) The growth rate in Country B is likely to be higher than the growth rate in Country A in the long run.

Countries with a higher income per capita are likely to have a ________. A) lower Human Development Index B) higher Human Development Index C) lower life expectancy at birth D) higher rate of unemployment

Country A has a smaller stock of capital than Country B, but the supply of labor in both countries is equal. What does this imply? A) The increase in output due to the use of an additional unit of capital will be smaller in Country A than in Country B. B) The increase in output due to the use of an additional unit of capital will be larger in Country A than in Country B. C) The use of an additional unit of capital will increase output in Country A only if there is an increase in the total efficiency units of labor. D) The use of an additional unit of capital will increase output in Country B only if there is an increase in the total efficiency units of labor.

Country A's GDP per capita is 80 percent of Country B's GDP per capita. If both countries experience growth of 5 percent, Country A's GDP per capita will be what percentage of Country B's GDP per capita? A) 75 percent B) 80 percent C) 85 percent D) 90 percent

Country A's income per capita is higher than that of Country B. Country A is likely to have ________. A) a higher unemployment rate B) a higher life expectancy at birth C) a lower life expectancy at birth D) a higher exchange rate

Country X exports 10 million tons of wheat to Country Y. Which of the following will happen in this case? A) Country X's GNP will decrease. B) Country X's GDP will increase. C) Country Y's GDP will increase. D) Country Y's GNP will increase.

Country X produces only one good. It produced 12,500 units of a good during a particular year. If the price of the good during that year was $100 and the price of the good during the base year was $95, the nominal GDP of the country is ________. A) $1,187,500 B) $1,250,000 C) $875,000 D) $2,450,000

Cross-country comparison of GDP per capita between 1960 and 2010 shows that countries such as ________ have grown at negative rates during this period. A) Mexico and Brazil B) Nicaragua and the Democratic Republic of Congo C) India and China D) South Korea and Singapore

Edwin grows potatoes on his farm. Part of the output is consumed by Edwin's family, and the remainder is sold in the market. Refer to the scenario above. Suppose Edwin consumes the total output produced instead of selling part of it. How much of Edwin's potato growing is counted in GDP? A) $200 B) 0 C) $100 D) $50

GDP is a measure of ________, not a measure of ________. A) sales to consumers; production B) production; sales to consumers C) sales to consumers; consumption D) income; production

GDP per capita in New Zealand grew from $15,000 to $25,000 over 10 years. What formula should you use to find New Zealand's average growth rate (g) over these 10 years? A) g = (25,000 - 15,000)/10 B) 15,000 × (1 + g)10 = 25,000 C) 25,000 × (1 + g)10 = 15,000 D) g10 = (25,000 - 15,000)

How does the income approach to measuring GDP compare to the production and expenditure approach to measuring GDP? A) It is lower, because some of the revenue from selling goods goes back into the production of more goods. B) It is the same, because all revenues are either payed to workers at the company or to the owners of the company. C) It is higher, because there are multiple stages along the production process where income is earned. D) It is higher if the economy is in a time of strong economic growth, and it is lower in times of recession.

How much of the growth in U.S. GDP per hour worked over the past 60 years can be attributed to technological progress? A) Almost all of it B) At least half, but not all C) Less than half, but not none D) Essentially none of it

If GDP per capita in year T is represented by YT and the GDP per capita in the following year is represented by YT + 1, then the formula for calculating the growth rate between these two years is ________. A) (YT + 1/YT)/100 B) (YT + 1 − YT )/YT C) (YT + 1 + YT)/YT D) (YT + 1 + YT)/YT + 1

If a country is growing at an annual rate of 5 percent, what will be its GDP after 5 years? A) 1.8 times the current GDP B) 1.28 times the current GDP C) 3.21 times the current GDP D) 5 times the current GDP

If s denotes the saving rate, I denotes aggregate investment, and Y denotes GDP, then which of the following equations is correct? A) Y = s × I B) I = s × Y C) I = s/Y D) I = Y/s

If the aggregate saving in an economy is $1,750 and the GDP of the economy is $55,000, then the saving rate in the economy is ________. A) 1.8 percent B) 3.18 percent C) 8.96 percent D) 10 percent

If the investment on physical capital stock in an economy during a year is $40,000, the existing capital stock in the economy is $80,000, and the depreciation rate of capital during the year is 10 percent, the physical capital accumulated during the year is ________. A) $40,000 B) $112,000 C) $124,000 D) $184,000

If the number of workers in a country is 12,000 and its income per worker is $380, its GDP is ________. A) $1,240,000 B) $4,560,000 C) $524,000 D) $618,000

If the population of a country increases, GDP remaining constant, then its ________. A) income per capita will remain unchanged B) income per capita will decrease C) trade deficit will decrease D) gross national product will increase

If the saving rate in an economy is 30 percent and the GDP of the economy is $1,000, then the level of investment in the economy will be ________. A) $150 B) $300 C) $330 D) $600

In Fiji, total saving is $560 million, while GDP is $4.4 billion. In Papua New Guinea, total saving is $2.4 billion, while GDP is $16.9 billion. Which of the following is TRUE? A) Fiji's saving rate is at least one percentage point higher than that of Papua New Guinea. B) Papua New Guinea's saving rate is at least one percentage point higher than that of Fiji. C) Fiji and Papua New Guinea have exactly the same saving rate. D) Fiji and Papua New Guinea have saving rates that are less than one percentage point apart, but are not exactly equal.

In New Zealand, Total saving = $17 billion, while GDP = $150 billion. What is the New Zealand saving rate, to the nearest percentage point? A) 10 percent B) 11 percent C) 12 percent D) 13 percent

In the United States, ________ percent of its GDP is spent on R&D every year. A) 55.2 B) 2.79 C) less than 0.5 D) 14.3

In which of the following countries would an economist describe income inequality as being greatest? A) Half of the country's citizens earn $50,000 per year, and half earn $10,000 per year. B) Half of the country's citizens earn $30,000 per year, and half earn $3,000 per year. C) Half of the country's citizens earn $10,000 per year, and half earn $3,000 per year. D) Half of the country's citizens earn $100,000 per year, and half earn $50,000 per year.

Income per capita is gross domestic product (GDP) divided by ________. A) total units of all goods produced B) total population C) total labor force D) total amount of capital used

John and Sue are married and live in the United States. John is a Canadian citizen and stays home with their two children, Micah and Madison; his caretaking is valued at $20,000 per child. He also programs video games from home in the evenings for a Japanese-based online poker site for $50,000 per year. Sue works as a high-powered lawyer for Berkshire Hathaway at their London branch for the U.S. dollar equivalent of $1,000,000 per year. Refer to the above scenario. Accounting for non-market based economic production, how much does John contribute to U.S. GDP? A) $0 B) $40,000 C) $1,000,000 D) $1,040,000

John and Sue are married and live in the United States. John is a Canadian citizen and stays home with their two children, Micah and Madison; his caretaking is valued at $20,000 per child. He also programs video games from home in the evenings for a Japanese-based online poker site for $50,000 per year. Sue works as a high-powered lawyer for Berkshire Hathaway at their London branch for the U.S. dollar equivalent of $1,000,000 per year. Refer to the above scenario. How much non-market based economic production occurs in the United States? A) $0 B) $40,000 C) $1,000,000 D) $1,040,000

Mike's housekeeper charges $30 for mowing his lawn. Refer to the scenario above. How much of the value for lawn mowing is counted in GDP if Mike decided to mow his own lawn? A) $30 B) 0 C) $45 D) $15

One bag of flour is sold for $1.00 to a bakery, which uses the flour to bake two loaves of bread that are sold for $3.00 each to consumers. A second bag of flour is sold for $1.00 to a grocery store, which sells it to a consumer for $2.00. Taking these transactions into account, what is their contribution to GDP? A) $5.00 B) $8.00 C) $7.00 D) $9.00

Part of a bridge built by the government of Ritzland collapsed in the same year it was constructed. If the total cost of building the bridge was $4 million, and then it costs $3 million to repair it, which of the following will happen in this scenario, everything else remaining unchanged? A) Ritzland's GDP will decrease by $4 million. B) Ritzland's GDP will increase by $3 million. C) Ritzland's GDP will increase by $7 million. D) Ritzland's GDP will increase by $1 million.

Part of a bridge built by the government of Ritzland collapsed in the same year it was constructed. If the total cost of building the bridge was $4 million, which of the following will happen in this scenario, everything else remaining unchanged? A) Ritzland's GDP will decrease by $4 million. B) Ritzland's GDP will increase by $4 million. C) Ritzland's trade deficit will increase by less than $4 million. D) Ritzland's trade surplus will increase by more than $4 million.

Refer to the scenario above. Sarah's husband earns a salary of $70,000 per year. What is the value of childcare for Sarah and her husband's son if her husband, instead of Sarah, quits his job to look after their son? A) $12,000 B) 0 C) $60,000 D) $48,000

Refer to the scenario above. What will be the GDP per capita of Country A at the beginning of year 3? A) $2,410.26 B) $2,546.16 C) $2,760.24 D) $2,800.00

Refer to the scenario above. Which of the following statements is TRUE? A) The gap between the GDP per capita of both countries will converge over time. B) The gap between the GDP per capita of both countries will diverge over time. C) The gap between the GDP per capita of both countries will remain the same over time. D) In 30 years, the GDP per capita of Country A is likely to be higher than that of Country B.

Refer to the scenario above. Which of the following will happen if she keeps the dress for herself? A) The GDP of her country will increase by $180. B) The GDP of her country will remain unchanged. C) The trade deficit of her country will decrease. D) The trade surplus of her country will decrease.

Refer to the scenario above. Which of the following will happen if she sells it for $200 and the total cost incurred by her in making the dress was $150? A) GDP will increase by $180. B) GDP will increase by $50. C) GDP will remain unchanged. D) Trade surplus will increase by $200.

Suppose GDP per capita is $2,500 in 1912 and $2,550 in 1913. The growth rate of GDP per capita from 1912 to 1913 is ________. A) 0.02 percent B) 2 percent C) 5 percent D) 50 percent

Suppose an economy has the production function Y = A × K1/4 × H3/4, where Y denotes total output, A denotes the level of technology, K denotes the physical capital stock, and H denotes the efficiency units of production. Which of the following is TRUE of this economy? A) Production in this economy exhibits increasing returns to scale. B) Production in this economy exhibits constant returns to scale. C) Production in this economy exhibits decreasing returns to scale. D) Production in this economy decreases when the price level increases.

Suppose that instead of Greg not mowing his lawn, he pays a lawn care business $20.00. He had to buy $5 in gas and took 1 hour of his time when he did it himself. How much of this transaction is counted in GDP? A) $0 B) $20 C) $5 D) $15

Suppose the average productivity of workers in Country A is equal to that of workers in Country B. If Country A has higher total efficiency units of labor than Country B, it implies that ________. A) Country B has a larger supply of workers B) Country A has a larger supply of workers C) Country A has a larger stock of capital D) Country B has a larger stock of capital

Suppose the growth in GDP per hour worked resulting from physical capital in an economy is 1 percent and the growth resulting from human capital is 2 percent. If the annual growth rate of GDP per hour worked is 5 percent, the growth resulting from technology equals ________. A) 1 percent B) 2 percent C) 3 percent D) 4 percent

The GDP of Country X in a particular year was $820,000. The value added by U.S. workers in the production of various goods and services in Country X during that year was worth $150,000. The value added by the workers of Country X in the production of various goods and services in other countries during that year was worth $130,000. What was the GNP of Country X during that year? A) $135,000 B) $800,000 C) $1,140,000 D) $8,235,000

The GDP of Richland during a particular year was $672,500. If the expenditure on consumption during that year was $220,000, the expenditure on investment was $250,000, the expenditure incurred by the government was $100,000, and the value of exports was $182,000, then the value of imports was ________. A) $40,000 B) $79,500 C) $21,500 D) $100,750

The GDPs of Country X and Country Y were found to be equal in a particular year. However, the income per capita in Country X was higher than the income per capita in Country Y. This implies that ________. A) the population of Country X is higher than the population of Country Y B) the population of Country X is lower than the population of Country Y C) the number of workers in Country X is higher than the number of workers in Country Y D) the number of workers in Country X is lower than the number of workers in Country Y

The Human Development Index combines ________, life expectancy, and measures of education to measure the standard of living in a country. A) income per worker B) income per capita C) GDP D) gross national product

The Power of Economic Growth 1) Real GDP refers to GDP adjusted for changes in ________. A) tax rates B) prices C) net imports D) ruling political party

The ________ can be described as the arrival of new machines and methods of production in Britain, starting in textile manufacturing and thereafter spreading into other sectors. A) Colonial Period B) Industrial Revolution C) Urban Migration D) Great Importation

The ________ nature of economic growth is one of the major reasons there are large differences in GDP per capita across countries. A) linear B) exponential C) logarithmic D) quadratic

The advantage of using real GDP over nominal GDP is that it ________. A) is easier to calculate B) allows you to take changes in prices into account C) takes the distribution of income into account D) takes into account changes in the ruling political party

The annual growth rate of U.S. real GDP per capita over the past 60 years has averaged around ________. A) 0 percent B) 2 percent C) 4 percent D) 6 percent

The countries that have experienced fast growth in GDP per capita over the past 50 years are mostly located where? A) Central America B) East Asia C) West Africa D) South America

The currency used in Spain is the euro, and the currency used in the U.S. is the dollar. Which of the following will lead to a decrease in the value of Spain's income per capita in dollars? A) An increase in the dollar per euro exchange rate B) A decrease in the dollar per euro exchange rate C) A decrease in the income per capita in the United States D) An increase in the value of Spain's income per capita in euros

The growth process whereby relatively poorer nations increase their income by taking advantage of knowledge and technologies already invented in other, technologically more advanced countries is known as ________ growth. A) transfer B) catch-up C) trade-based D) innovative

The income per capita of a country for a particular year is determined by ________ during that year. A) dividing its GDP by the total number of goods produced B) dividing its GDP by the total population of the country C) multiplying its GDP by the total number of goods produced D) multiplying its GDP by the total population of the country

The main reason income per capita and income per worker vary across countries is because ________. A) prices vary across countries B) productivity varies across countries C) currencies vary across countries D) interest rates vary across countries

The price of a 3-pound chicken has fallen about 20 percent per decade over the past 70 years. This is an example of the ________. A) linear effect of technological change B) exponential effect of technological change C) linear effect of physical capital accumulation D) exponential effect of physical capital accumulation

The price of a given basket of goods in Year 1 was $1,300. The price of the same basket of goods in Year 2 was $1,560. Taking Year 1 as the base year, the Consumer Price Index for Year 2 is ________. A) 101 B) 120 C) 156 D) 100

The price of a house in Year 1 was $50,000. If the Consumer Price Index is 101 for Year 1 and 202 for Year 2, the value of the house in Year 2 is ________. A) $55,000 B) $100,000 C) $150,000 D) $75,000

The production-based method of national accounting sums up the ________. A) expenditure incurred by domestic and foreign economic agents on domestic products B) value that is added by each domestic firm in the production process C) income earned by each factor of production by participating in the production process D) total revenue earned by all the firms in the economy

The rates of return that households expect on their savings are determined by ________. A) Labor income tax rates B) interest rates C) exchange rates D) the level of government expenditure

The total efficiency units of labor in a country is 6,000. If the average efficiency of each worker in the economy doubles, the efficiency units of labor in the country will be ________, everything else remaining unchanged. A) 300 B) 12,000 C) 36,000 D) 48,500

The total efficiency units of labor in an economy increases if ________. A) each worker earns a lower wage B) each worker becomes more productive C) the average number of hours worked by each worker decreases D) the amount of capital available to each worker diminishes

The total number of workers in two different countries is equal. However, workers in Country A are three times more productive than workers in Country B. Which of the following is TRUE in this case? A) The total efficiency units of labor in Country A is one-third the total efficiency units of labor in Country B. B) The total efficiency units of labor in Country A is three times more than the total efficiency units of labor in Country B. C) The physical capital stock in Country B is three times more than the physical capital stock in Country A. D) The total efficiency units of labor in Country B is six times more than the total efficiency units of labor in Country B.

The value of a country's exports during a particular year was $120,000 and the value of its imports was $85,000. Which of the following is TRUE? A) The country ran a trade deficit of $35,000 during that year. B) The country ran a trade surplus of $35,000 during that year. C) The country ran a budget surplus of $205,000 during that year. D) The country ran a fiscal deficit of $205,000 during that year.

The value of all equipment and structures in an economy is referred to as its ________. A) national income B) physical capital stock C) wealth D) asset value

Two countries Newlandia and Oldia have the same production function, but Newlandia has a higher growth rate. According to the Solow Model, which of these is NOT a reason why this might be the case? A) Newlandia is to the left of its steady-state and so is experiencing catch-up growth B) Both countries are at their steady state but Newlandia has a higher savings rate C) Newlandia is improving technology at a faster rate D) Oldia is to the right of its steady-state and experiencing negative growth

Two countries, Baltonia and Polonia, have aggregate production functions in the form Y = A × K1/3 × H2/3, where Y denotes total output, A denotes the level of technology, K denotes the physical capital stock, and H denotes the number of efficiency units of production. Both countries have the same number of efficiency units of labor and use the same technology. However, Baltonia has a smaller physical capital stock than Polonia does. Which of the following is likely to be TRUE in this case? A) The GDP of Baltonia is higher than that of Polonia. B) The GDP of Baltonia is lower than that of Polonia. C) The Human Development Index of Baltonia is higher than that of Polonia. D) The poverty rate in Baltonia is lower than that in Polonia.

Two variables are related by an identity when ________. A) the two variables have a positive relationship B) the two variables are mathematically identical C) the two variables have a negative relationship D) the values of the variables are always equal but have opposite signs

What is the income per capita of Genovia if its GDP is $4,000,000 and its total population is 20,000? A) $100 B) $200 C) $400 D) $120

What percentage of U.S. GDP is typically made up by government expenditures? A) 10 percent B) 20 percent C) 30 percent D) 50 percent

When was the only time in the past 100 years that consumption failed to make up more than 50 percent of U.S. GDP? A) World War I B) World War II C) Vietnam War D) The Great Recession in 2008

Which of the following equations captures the aggregate physical capital stock of an economy in the current year, Kcurrent year? A) Kcurrent year = (1 + Depreciation rate) × Klast year + I B) Kcurrent year = (1 − Depreciation rate) × Klast year + I C) Kcurrent year = (1 − Depreciation rate) × Klast year × I D) Kcurrent year = (1 − Depreciation rate) × Klast year − I

Which of the following events opened the way for the rapid and steady technological changes that underpinned modern economic growth? A) The American Civil War B) The Industrial Revolution C) The agricultural revolution D) Demographic transition in the Western world

Which of the following identifies the correct reasons for sustained growth in the Western world after the nineteenth century? A) Demographic transition and the American Civil War B) Demographic transition and the Industrial Revolution C) The agricultural revolution and the Industrial Revolution D) The American Civil War and the Industrial Revolution

Which of the following is NOT a component of macroeconomics? A) Unemployment rate B) The profits of a large corporation C) Inflation rates D) Gross domestic product

Which of the following is NOT an example of short-run fluctuations in economic activity a macroeconomist might study? A) Changes in unemployment during the Covid-19 Pandemic B) Growth in the entire population over 10 years C) Changes in output during the 2007-2009 Global Financial Crisis D) Decline in US GDP during the Great Depression

Which of the following is TRUE of the growth in the U.S. economy from 1950 to 2007? A) Growth resulting from technology > growth resulting from human capital > growth resulting from physical capital B) Growth resulting from technology > growth resulting from physical capital > growth resulting from human capital C) Growth resulting from physical capital > growth resulting from technology > growth resulting from human capital D) Growth resulting from human capital > growth resulting from technology > growth resulting from physical capital

Which of the following will be included in the calculation of GDP using the expenditure method? A) A worker's wage B) A foreign consumer's purchase of domestic goods C) A firm's payment of employee bonuses D) A bank's payment of interest to its customers

Which of the following is TRUE? A) Exchange-rate-based measures of income per capita are identical to PPP-based measures of income per capita. B) Exchange-rate-based measures of income per capita differ from PPP-based measures of income per capita. C) The gap between the income per capita in the United States and the income per capita in poorer countries is large when PPP-based measures are used. D) The gap between the income per capita in the United States and the income per capita in poorer countries is small when exchange-rate-based measures are used.

Which of the following is TRUE? A) The income per worker in a country is lower than its income per capita. B) The income per worker in a country is higher than its income per capita. C) The income per worker in a country increases when the amount of capital available in the country diminishes. D) The income per capita in a country increases when there is an increase in the number of workers.

Which of the following is a good measure of the productivity of employed people in a country? A) Income per capita B) Income per hour worked C) GDP D) Gross national product

Which of the following is an example of capital income? A) The wage paid to a worker B) The interest earned on money lent out C) The free lunch coupon given to an employee D) The waiver on parking fees at the office parking lot

Which of the following is an example of physical capital in agricultural production? A) A new method for growing crops B) A tractor C) Better property rights D) A farmer

Which of the following is likely to be included in a country's GDP for a particular year? A) The total amount of steel used in the production of automobiles in that year B) An unsold inventory of automobiles produced in that year C) An unused stock of goods produced in the previous year D) The total amount of flour used by bakeries to make bread in that year

Which of the following is likely to happen if a German company opens a production unit in New York? A) Germany's GDP will increase. B) Germany's GNP will increase. C) U.S. GDP will decrease. D) U.S. GNP will increase

Which of the following is likely to happen if there is an increase in entrepreneurial activity in an economy? A) The income per capita in the economy will fall. B) The productivity of the economy will increase. C) The inflation rate in the economy will decrease. D) The exchange rate of its currency in the foreign exchange market will increase.

Which of the following questions have a macroeconomic focus? A) How does a monopolist decide how much to produce? B) What is the unemployment rate in your country? C) How does the demand for a good change when there is an increase in a consumer's income? D) How does a consumer choose which goods to consume given his or her income?

Which of the following should be used to compare the productivity of workers in countries with equal populations but different unemployment rates? A) Gross national product B) Income per hour worked C) An exchange-rate-based measure of income per capita D) A PPP-based measure of income per capita

Which of the following statements is TRUE of Malthus's theory? A) Malthus suggested that income levels will grow exponentially in the long run. B) Malthus suggested that income levels will remain close to the subsistence level in the long run. C) Malthus suggested that the fertility of the population will remain constant over time. D) Malthus suggested that the life expectancy of the population will remain constant over time.

Which of the following statements is TRUE? A) A nation with a high saving rate will accumulate capital slowly. B) A nation with a high saving rate will accumulate capital rapidly. C) In a closed economy, government spending equals zero. D) In a closed economy, aggregate consumption equals zero.

Which of the following statements is TRUE? A) After the demographic transition in the nineteenth century, there were recurrent Malthusian cycles. B) Until the demographic transition in the nineteenth century, there were recurrent Malthusian cycles. C) The demographic transition of the nineteenth century led to an increase in fertility across the Western world. D) The demographic transition of the nineteenth century led to a decrease in life expectancy across the Western world.

Which of the following statements is TRUE? A) Countries with lower investment in research and development are likely to have higher standards of living. B) Countries with higher investment in research and development are likely to have higher standards of living. C) The Industrial Revolution started in the United States and spread to other parts of the world. D) The Industrial Revolution started in South America and spread to other parts of the world.

Which of the following statements is TRUE? A) Growth in technology is linear in nature. B) Growth in technology is exponential in nature. C) Growth in labor productivity is exponential in nature. D) Growth in land productivity is exponential in nature.

Which of the following statements is TRUE? A) The GDP per capita in most of the Western world has almost been constant since the beginning of the twentieth century. B) The GDP per capita of a nation at a particular point of time is not the same as the income of all individuals in that nation. C) GDP per capita is a useful tool to study the disparities in the standards of living in a country. D) GDP per capita decreases with a decrease in population and increases with an increase in population, GDP remaining unchanged.

Which of the following statements is TRUE? A) To depict variables that have exponential growth, it is more convenient to use an axis with a linear scale. B) To depict variables that have exponential growth, it is more convenient to use an axis with a proportional scale. C) Exponential growth refers to growth by the same amount in every time period. D) Linear growth refers to growth by the same proportion in every time period.

Which of the following tools is used to compare the income per capita across countries? A) The production possibilities frontier B) The purchasing power parity (PPP) C) The headcount index D) The GDP deflator

Which of the following transactions will be included in the calculation of GDP using the expenditure method? A) The sale of a used car by a consumer B) The purchase of a private jet by the CEO of a company C) The purchase of a treasury bond by an investor D) The payment made to a construction worker

Which of the following will be included in the calculation of GDP using the expenditure method? A) Interest earned on money loaned out B) Investments in machinery C) Dividend earned on shares D) Value added in the production of a good

Which of the following will be included in the calculation of GDP using the income-based method of national accounting? A) The money spent by foreigners on domestically produced food grains B) Health insurance provided to a worker by the employer C) The value added by a worker in the production of a good D) The money paid to a pharmacist for medicines

Which of the following will lead to a decrease in the GDP of a country, all other variables remaining unchanged? A) An increase in exports B) An increase in imports C) An increase in the expenditure on consumption D) An increase in the expenditure on investment

Which of the following will lead to an increase in the GDP of a country, all other variables remaining unchanged? A) An increase in imports B) An increase in consumption expenditure C) A fall in the expenditure on investment goods D) A fall in the expenditure incurred by the government

Which of the following will lead to an increase in the GDP of a country? A) An increase in imports B) An increase in expenditure on investment goods C) A fall in the expenditure on consumption D) A fall in the expenditure incurred by the government

Which of the following will result in an upward shift of the aggregate production function? A) An increase in the rate of taxation in the economy B) An increase in productivity due to the discovery of an advanced technology C) An increase in the aggregate price level in the economy D) An increase in the number of educated people in the economy

Which statement about the Malthusian model is correct? A) The Malthusian model applies today only in third-world nations. B) The Malthusian model was thought to be a good representation of the world before 1800. C) The Malthusian model applies today only in developed nations. D) The Malthusian model was a poor representation of the world before 1800.

Which statement best describes the role of the saving rate in the Solow Model? A) An increase in the saving rate results in higher steady-state GDP and faster sustained growth. B) An increase in the saving rate results in higher steady-state GDP but not faster sustained growth. C) An increase in the saving rate results in lower steady-state GDP but faster sustained growth. D) An increase in the saving rate results in higher steady-state GDP but lower sustained growth.

Widespread mobile phone use has helped to reduce poverty in many poor nations. What is the best explanation for this? A) People are now able to call for help more easily when they are victims of crime. B) People can access markets and services that they had no access to previously. C) People can write apps for phones and sell them, allowing them to earn their way out of poverty. D) People have more access to knowledge, allowing them to gain information and education like never before.

Workers in an economy are likely to be more productive if ________. A) the size of the population is high B) the economy has a large physical capital stock C) the unemployment rate in the economy is low D) the rate of inflation in the economy is high

Xenonia has a larger supply of labor than does Inventia. If the labor supply in both countries increases by the same amount while their physical capital stocks remain unchanged, ________. A) the increase in Xenonia's output will be more than the increase in Inventia's output B) the increase in Inventia's output will be more than the increase in Xenonia's output C) Xenonia's income per capita will increase, while Inventia's income per capita will decrease D) Xenonia's income per capita will decrease, while Inventia's income per capita will increase

________ is the market value of production generated by the factors of production possessed or owned by the residents of a particular nation. A) GDP B) GNP C) Net domestic product D) Total market value

________ is the market value of the final goods and services produced in a country during a particular period of time. A) GNP B) GDP C) Net product value D) Total product

________ is the total value of final goods and services produced within the borders of a country, using market prices from a specific base year to determine the value of each unit that is produced. A) Nominal GDP B) Real GDP C) GNP D) Total product

________ will lead to an increase in the GDP of a country, all other variables remaining constant. A) An increase in imports B) An increase in exports C) A fall in the expenditure on investment goods D) A fall in the expenditure incurred by the government

________ will lead to an increase in the GDP of a country, all other variables remaining unchanged. A) An increase in imports B) An increase in expenditure incurred by the government C) A fall in the expenditure on consumption D) A fall in the expenditure on investment goods

30 percent of the electric bulbs produced in a factory in Xenonia during a year were found to be defective. Which of the following is likely to hold TRUE in this scenario if everything else remains unchanged? A) Xenonia's GDP will reflect the value lost due to the defect. B) Xenonia's GDP will be underestimated. C) Xenonia's GDP will be overestimated. D) Xenonia's trade surplus will increase

A French tourist spent $1,200 in the United States this year. This transaction led to a(n) ________. A) increase in the GDP of France B) decrease in France's trade deficit C) increase in the U.S. GDP D) decrease in the U.S. GDP

A German citizen buys an automobile produced in the United States by a Japanese company. As a result, ________. A) U.S. net exports increase, U.S. GDP is unaffected, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected B) U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, German GNP is unaffected, and German GDP decreases C) U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected D) U.S. net exports and GDP are unaffected; Japanese GNP increases; and German net exports, GNP, and GDP decrease

A Japanese businessman opened an automobile showroom in Singapore this year. His income led to a(n) ________. A) increase in the GDP of Japan B) decrease in the GDP of Japan C) increase in the GDP of Singapore D) decrease in the GDP of Singapore

A ________ traces out the behavior of the economy over time. A) comparative equilibrium B) steady-state equilibrium C) dynamic equilibrium D) static equilibrium

A drug dealer earned $85,000 during a year by selling illegal drugs. His income will ________. A) cause the GDP of his country to increase B) cause the GDP of his country to decrease C) not affect the calculation of his country's GDP D) lead to an increase in his country's exports

A factory in Techland could not sell 20 percent of its output during a certain year due to a decrease in the demand for its product. Which of the following would be TRUE if it produced 20 percent less? A) Techland's GDP for that year would have been higher. B) Techland's GDP would have remained the same. C) Techland's GDP for that year would have been lower. D) Techland's income per capita for that year would have been higher.

A new coal-fired power plant will increase aggregate production. Which element of the aggregate production function Y = A × F(K, H) will this power plant increase? A) A B) F C) K D) H

A retailer buys goods worth $15,000 from a manufacturer and sells them for $18,250. The retailer adds a value of ________ to the production process. A) $18,250 B) $15,000 C) $3,250 D) $33,250

According to the Solow model, given the levels of total efficiency units of labor and technology, ________. A) increases in the saving rate is the sole reason for sustained economic growth B) increases in the rate of physical capital accumulation can be the sole reason for sustained economic growth C) there is a maximum fixed level of GDP that an economy can achieve by increasing saving D) the physical capital stock does not play any role in the determination of the steady-state equilibrium level of GDP

An Indian student paid $16,000 for a course at a university in the United States. This transaction led to a(n) ________. A) increase in the GDP of India B) decrease in India's trade deficit C) increase in the U.S. GDP D) decrease in the U.S. GDP

Approximately when did the Industrial Revolution begin? A) The end of the sixteenth century B) The end of the seventeenth century C) The end of the eighteenth century D) The end of the nineteenth century

Assuming all else equal, if the production technology available to a nation improves, its ________. A) GDP decreases B) stock of physical capital decreases C) GDP increases D) population increases

China's GDP per capita is currently lower than that of Japan. If Japanese GDP per capita grows at 2 percent per year, how fast must Chinese GDP per capita grow to eventually catch up to Japanese GDP per capita? A) At least 5 percent per year B) At least 3 percent per year C) Any rate above 2 percent per year D) Any positive rate

Consider a closed economy without a government. If the GDP of the economy is $63,000 and the consumption in the economy is $45,000, the saving rate in the economy is ________. A) 16.86 percent B) 24 percent C) 28.57 percent D) 35.75 percent

Consider a closed economy without a government. If the saving rate in the economy is 20 percent and the aggregate saving is $10,000, the aggregate consumption in the economy is ________. A) $10,000 B) $37,000 C) $50,000 D) $45,000

Decreases in the standard of living are associated with what sort of economic growth? A) Slow economic growth B) Sustained economic growth C) Negative economic growth D) Zero economic growth

For a given level of GDP, a decrease in the size of the population will cause ________. A) life expectancy to increase B) life expectancy to decrease C) GDP per capita to increase D) GDP per capita to decrease

For the U.S. economy, on average, the growth resulting from ________. A) technology is smaller than the growth resulting from human capital B) technology is smaller than the growth resulting from physical capital C) physical capital is greater than the growth resulting from human capital D) physical capital is smaller than the growth resulting from human capital

For the physical capital stock of an economy to remain constant over time, the amount of investment must ________. A) exceed the depreciated value of the physical capital stock B) be less than the depreciated value of the physical capital stock C) be equal to the depreciated value of the physical capital stock D) be equal to the depreciated value of the physical capital stock times the saving rate of the economy

GDP per capita in Australia is $50,000. If Australian GDP per capita grows 6 percent per year for 2 years, which formula shows its GDP per capita after 2 years? A) $50,000 × 1.06 B) $50,000 × 1.12 C) $50,000 × 1.06 × 1.06 D) $50,000 × 1.06 × 1.12

How are inventories included in the calculation of the expenditure measure of GDP? A) They are not included until they are purchased by a consumer. B) They are counted as soon as they are produced. C) They are counted as being purchased and owned by the firm if they are not sold to a consumer. D) The value of the inputs to create the inventory is used until the inventories are purchased.

How does savings relate to investment using the national income accounting identity? A) Savings = Investment + Government spending B) Savings = Investment - Government spending C) Savings = Investment + Exports - Imports D) Savings = Output - Investment

If Dell buys a computer from a foreign producer for $500 and sells it to Best Buy for $800, who then sells it to a consumer for $1,200, what is Dell's value added, Best Buy's value added, and the computer's contribution to GDP? A) $300, $400, and $1,200 B) $300, $700, and $1,000 C) $300, $400, and $700 D) $800, $1,200, and $400

If the effects of the growth in a variable are approximately linear, then the growth is likely to be ________. A) linear B) negligible C) exponential D) logarithmic

If the level of investment in an economy is $4,000 and the GDP of the economy is $10,000, the saving rate in the economy must be ________. A) 20 percent B) 30 percent C) 40 percent D) 44 percent

Improvements in knowledge and technology in rich nations (such as the United States, Japan, and Germany) have helped reduce poverty. Which nations' people have benefited from this? A) Mostly the rich nations B) Mostly the poor nations C) Both rich and poor nations D) Neither rich nor poor nations

In a closed economy without a government, ________. A) consumption equals savings B) consumption equals investment C) saving equals investment D) saving equals net exports

In a closed economy, ________ equal to zero. A) investment is B) consumption is C) net exports are D) government spending is

In a particular year, if the real GDP of Country Y is $400,000 and the nominal GDP of Country Y is $450,000, the GDP deflator is ________. A) 115 B) 102 C) 112.5 D) 0.17

In early 2010, Molly paid $200,000 for a house built in 2000. She spent $30,000 on new materials to remodel the house. Although Molly lived in the house after she remodeled it, its rental value rose. Which of the following contributed to real GDP in 2010? A) The price of the house, the cost of remodeling materials, and the increase in rental value B) The price of the house and the cost of remodeling materials, but not the increase in rental value C) The cost of the remodeling materials and the increase in rent, but not the price of the house D) Only the costs of the remodeling materials, not the price of the house or increase in rental value

In which of the following ways can national savings be calculated? A) By deducting investment and government expenditure from total output B) By deducting net exports and government expenditure from total output C) By deducting consumption and government expenditure from total output D) By deducting consumption and investment from total output

It is found that a one-unit increase in capital leads to a higher increase in the production of good X in Farm Country than in Industry Country. Why might this be the case if both countries have the same amount of total efficiency units of labor? A) Physical capital stock is smaller in Farm Country. B) Increase in output is greater if more capital is used in production. C) Physical capital stock is greater in Farm Country. D) Increase in output is smaller if less capital is used in production.

Jack exported a rare painting illegally. This transaction will ________. A) cause the GDP of his country to increase B) cause the GDP of his country to decrease C) not affect the calculation of his country's GDP D) cause an increase in the GDP of the country he has exported it to

John and Sue are married and live in the United States. John is a Canadian citizen and stays home with their two children, Micah and Madison; his caretaking is valued at $20,000 per child. He also programs video games from home in the evenings for a Japanese-based online poker site for $50,000 per year. Sue works as a high-powered lawyer for Berkshire Hathaway at their London branch for the U.S. dollar equivalent of $1,000,000 per year. Refer to the above scenario. How much does John contribute to Japanese GDP? A) $0 B) $20,000 C) $50,000 D) $80,000

John and Sue are married and live in the United States. John is a Canadian citizen and stays home with their two children, Micah and Madison; his caretaking is valued at $20,000 per child. He also programs video games from home in the evenings for a Japanese-based online poker site for $50,000 per year. Sue works as a high-powered lawyer for Berkshire Hathaway at their London branch for the U.S. dollar equivalent of $1,000,000 per year. Refer to the above scenario. How much does John contribute to U.S. GDP? A) $0 B) $20,000 C) $50,000 D) $90,000

Macroeconomics is the study of ________. A) the choices made by individuals in an economy B) various political groups within an economy C) economic aggregates and the economy as a whole D) the statistical methods used in economics

Rebecca, a U.S. citizen, imported a watch from Switzerland. This transaction led to a(n) ________. A) increase in the U.S. GDP B) increase in the U.S. GNP C) increase in the GDP of Switzerland D) decrease in the GDP of Switzerland

Refer to the scenario above. If the saving rate in Kenya is 10 percent, what must be the depreciation rate in Kenya? A) 8 percent B) 10 percent C) 12.5 percent D) 15 percent

Refer to the scenario above. What is the value of childcare that gets counted in GDP if Sarah opens a day care and takes care of five children, in addition to her son, charging $12,000 per year for each child? A) $12,000 B) $48,000 C) $60,000 D) $2,400

Refer to the scenario above. What will be the GDP per capita of Country B at the beginning of year 3? A) $2,450.65 B) $2,555.15 C) $2,646.00 D) $2,882.85

Refer to the scenario above. What will be the difference in the GDPs per capita of both countries at the beginning of year 3? A) $8.99 B) $30.39 C) $99.84 D) $339.69

Suppose a country's labor supply increases in a year while its physical capital stock remains constant. Which of the following is likely to happen in this case if output is a function of capital and the total efficiency units of labor? A) Its output per capita will decrease. B) Its total output will decrease. C) Its total output will increase. D) Its total output will remain constant.

Suppose that 50 percent of the national income in an economy goes to labor. If this economy has a Cobb-Douglas production function, ________ of its national income should go to capital. A) 20 percent B) 30 percent C) 50 percent D) 15 percent

Suppose that a nation's GDP per capita grows at a constant 4 percent per year. You graph the nation's GDP per capita on a graph with 1) a linear time scale on the x-axis, and 2) a linear (non-proportional) GDP per capita scale on the y-axis. What will the nation's GDP per capita look like on the graph? A) A horizontal line B) A straight upward-sloping line C) A curve that is sloped upward and increasing in slope D) A curve that is sloped upward and decreasing in slope

Suppose the price of an iPad is $500 in the United States and 30,000 rupees in India. If an iPad is representative of the average prices in a country, then the price of a basket of goods worth $1 in the United States costs ________ rupees in India. A) 0.17 B) 2 C) 60 D) 100

Suppose we graphed the change in the poverty rate against the average growth rate of GDP per capita for each of the 50 U.S. states over the past century. What would we expect to find? A) A strong positive relationship B) A weak positive relationship C) A weak negative relationship D) A strong negative relationship

The GDP of a country is $500,000. If its income per worker is $100, the size of its employed labor force is ________. A) 200 B) 2,500 C) 5,000 D) 8,000

The average income per capita in a country in its own currency is 75,000 units. If U.S. $1 is worth 20 units of its currency, the income per capita in the country in dollars is ________. A) $1,850 B) $2,500 C) $3,750 D) $15,000

The circular flow diagram implies that if accounting is done correctly, the market value of ________ the market value of ________. A) production must exceed; expenditure B) income must exceed; production C) expenditure must equal; income D) expenditure must exceed; income

The expenditure on consumption in Berylia during a particular year was $310,000, the expenditure on investment was $180,000, the expenditure incurred by the government was $75,000, the expenditure of foreign economic agents on domestic products was $80,000, and the domestic expenditure on foreign produced goods was $103,000. What was the GDP of Berylia during that year? A) $530,000 B) $479,000 C) $542,000 D) $645,000

The implied growth rate for a country between 1960 and 2010 was 6 percent. This implies that ________. A) the country grew by at least 6 percent in any of the 50 years between 1960 to 2010 to reach the level of GDP in 2010 starting at the 1960 level B) the growth rate of GDP in the country was above 6 percent between 1960 and 2010 C) the country grew at an average rate of 6 percent per year between 1960 and 2010 to reach the 2010 level of GDP starting at the 1960 level D) the country grew at rates above 6 percent per year between 1960 and 2010 to reach the 2010 level of GDP starting at the 1960 level

The income per capita was equal in two neighboring countries in a particular year. However, Country 1 had a higher income per worker than Country 2. Which of the following is likely to be TRUE? A) The number of retired people will be higher in Country 2 than in Country 1. B) The number of children younger than 15 will be higher in Country 2 than in Country 1. C) The number of people employed will be higher in Country 2 than in Country 1. D) The number of people unemployed will be lower in Country 1 than in Country 2.

The introduction of the assembly line allowed GDP per hour worked to increase substantially. This is an example of an improvement in what? A) Human capital B) Physical capital C) Technology D) Education

The market value of domestic production is equal to the total expenditure on domestic agents plus ________. A) the expenditure of foreign agents on exports minus gross investment by foreign firms B) domestic expenditure on imports C) the expenditure of foreign agents on exports minus domestic expenditure on imports D) domestic expenditure on imports minus the expenditure of foreign agents on exports

The prices of final goods and services in Eduland have increased by 23 percent between Year 1 and Year 2. If Eduland's GDP deflator for Year 1 was 100, its GDP deflator for Year 2 would be ________. A) 103 B) 50 C) 123 D) 112

The process by which a quantity grows at a constant proportion in every time period is called ________ growth. A) linear B) catch-up C) exponential D) logarithmic

The process by which the stock of equipment and structures available to an economy is increased by investment is referred to as ________. A) investment growth B) output expansion C) physical capital accumulation D) autonomous growth

The productivity of workers in an economy will be high if the economy has ________. A) a large working age population B) a negative rate of inflation C) high levels of human capital D) a small physical capital stock

The second half of the twentieth century has seen substantial increases in international trade. What effect has this had on worldwide poverty? A) Poverty has decreased in most nations, at similar rates. B) Poverty has increased in most nations at similar rates. C) Poverty has decreased in most nations, particularly the poorer ones. D) Poverty has decreased in most nations, particularly the richer ones.

The term "demographic transition" refers to the ________ in fertility and number of children per family that many societies undergo as they transition ________. A) increase; from industry to agriculture B) increase; from agriculture to industry C) decrease; from agriculture to industry D) decrease; from industry to agriculture

The top 10 percent of income earners in the United States receive a large fraction of U.S. aggregate income. How does this fraction compare today with the time of the Great Depression? A) It is much greater today. B) It is much smaller today. C) It is about the same today as during the Great Depression. D) Nobody knows, because records from the Great Depression do not exist.

There is only one firm in a small island country. The firm produced 1,000 units of Good X during a particular year, out of which it could sell 900 units. If each unit of the good sells for $500, what is the GDP of the country? A) $40,000 B) $450,000 C) $500,000 D) $150,000

Tom is a U.S. citizen. He moved to the United Kingdom after starting a new job there. This is likely to have led to a(n) ________. A) increase in the U.K. GNP B) decrease in the U.K. GDP C) increase in the U.S. GNP D) increase in the U.S. GDP

Which group of industries was first affected by the Industrial Revolution? A) Farming and fisheries B) Mining and forestry C) Manufacturing D) Banking and financial services

Which of the following correctly identifies a Malthusian cycle? A) An increase in GDP will increase GDP per capita above subsistence, which will cause a decrease in the size of the population, which will reduce pressure on resources and further increase GDP per capita. B) An increase in GDP will increase GDP per capita above subsistence, which will cause an increase in the size of the population, which will increase pressure on resources and that will further increase GDP per capita. C) An increase in GDP will increase GDP per capita above subsistence, which will cause an increase in the size of the population, which will increase pressure on resources and eventually reduce GDP per capita. D) A decrease in GDP will decrease GDP per capita below subsistence, which will cause an increase in the size of the population, which will increase pressure on resources and eventually reduce GDP per capita.

Which of the following forms the largest share of GDP in the United States when measured using the expenditure method? A) Investment B) Government expenditure C) Consumption D) Foreign expenditure on domestic goods

Which of the following holds TRUE in a circular flow diagram? A) Factor flows are represented by drawing arrows from the firm sector to the household sector. B) Income flows are represented by drawing arrows from the household sector to firms. C) Production flows are represented by drawing arrows from the firm sector to the household sector. D) Expenditure flows are represented by drawing arrows from the firm sector to the household sector.

Which of the following is TRUE of the expenditure-based method of national accounting? A) It does not track the purchase of services by households. B) It does not track the purchase of goods and services by the government. C) It tracks the purchase of investment goods by firms and households. D) It only tracks the purchase of goods and services by the government.

Which of the following is a limitation of using arithmetic averages to calculate growth rates? A) Arithmetic averages are difficult to calculate. B) Arithmetic averages cannot be used when growth is negative. C) Arithmetic averages do not capture the exponential nature of growth and thus are not suitable for long-run predictions. D) The calculation of growth using arithmetic averages requires more data than other methods require.

Which of the following is a reason for the rise in U.S. trade over the past 80 years? A) Falling consumption expenditure B) Rising government expenditure C) Improved transportation technology D) Improved bureaucracy

Which of the following is an example of a macroeconomic aggregate? A) The total cost incurred by a firm B) The income earned by a household C) The annual inflation rate in an economy D) The profit earned by an entrepreneur

Which of the following is an example of financial capital? A) A factory B) A check book C) A bond D) A house

Which of the following is an example of labor income? A) The dividend received by a shareholder B) The rent paid to a landlord C) The bonus paid to a worker D) The profit earned by an entrepreneur

Which of the following is an example of physical capital? A) A stock B) A bond C) A factory D) A worker

Which of the following is likely to increase the total efficiency units of labor in an economy? A) An increase in the inflation rate in the economy B) An increase in the amount of capital available to each worker in the economy C) An increase in the level of education attained by each worker in the economy D) An increase in the unemployment rate in the economy

Which of the following is omitted in the calculation of GDP? A) Pension paid to retired workers B) Interest paid on bank deposits C) Physical capital depreciation D) Export of goods

Which of the following statements is TRUE of the U.S. economy before 1800? A) There were no major achievements in arts in the U.S. economy. B) There were no major achievements in science and technology in the U.S. economy. C) Sustained economic growth was rare or absent in the U.S. economy. D) The U.S. economy was growing at an average rate of more than 6 percent per year.

Which of the following will be included in the calculation of GDP using the expenditure method? A) Dividends paid by firms to shareholders B) Wages paid to labor by firms C) Services purchased by the government D) Interest paid by households for loans

Which of the following will be included in the calculation of GDP using the income-based method? A) The earnings from the sale of an old house B) The money paid to a grocer C) The earnings retained by a corporation D) The scholarship offered to a student by a university

Which of the following will lead to a decrease in the GDP of a country, all other variables remaining unchanged? A) An increase in exports B) A decrease in imports C) A decrease in the expenditure incurred by the government D) An increase in the expenditure on investment

Which of the following would a macroeconomist study? A) The total cost incurred by a firm B) The income earned by a household C) The annual inflation rate in an economy D) The profit earned by an entrepreneur

Which of the following would be included in the investment category of GDP? A) A stock B) A bond C) A new tractor D) A worker

Which of the following would constitute empirical evidence that higher interest rates encourage more saving? A) A mathematical model in which there was a positive relationship between the interest rate and the saving rate B) A mathematical model in which there was a negative relationship between the interest rate and the saving rate C) A cross-country study showing a positive relationship between the interest rate and the saving rate D) A cross-country study showing a negative relationship between the interest rate and the saving rate

Which statement best describes the effect of the Great Depression on U.S. growth? A) The Great Depression reversed all growth that had been experienced over the previous 100 years. B) The U.S. economy grew at the same rate during the Great Depression as during the rest of the twentieth century. C) The Great Depression temporarily reversed U.S. growth, but the U.S. economy grew steadily before and after it. D) The Great Depression led to slow growth in the U.S. for the following 50 years.

While countries like Botswana and Singapore have experienced rapid growth rates since 1960, the growth of the Democratic Republic of the Congo is best described as ________. A) steady B) slow C) negative D) linear

Why might we want to use the Human Development Index to compare standards of living between countries? A) Because countries may have different currencies, so that we cannot compare GDP per capita. B) Because we need to adjust for purchasing power parity between countries. C) Because other factors, such as schooling and life expectancy, might vary between countries even if they have the same GDP per capita. D) Because GDP per capita is inaccurate when there is income inequality in a country.

________ imposed by wealthy nations is one way to increase gains in international trade for poorer nations. A) Increasing environmental standards B) Increasing labor standards C) Reducing tariffs D) Increasing tariffs

________ is likely to result in an increase in the total efficiency units of labor in the economy. A) An increase in the unemployment rate in an economy B) A decrease in the labor force participation rate in an economy C) An increase in the years of schooling of each worker in an economy D) A decrease in the capital-labor ratio in an economy

________ will lead to a decrease in the GDP of a country, all other variables remaining unchanged. A) An increase in exports B) A decrease in imports C) A decrease in the expenditure on investment D) An increase in the expenditure on investment

he GNP of a country for a certain year was $340,000. If the contribution of its factors of production to the production of various goods and services in other countries was worth $140,000 and the contribution of foreign factors of production in the production of goods and services in this country was worth $50,000, the GDP of the country for that year was ________. A) $430,000 B) $160,000 C) $250,000 D) $480,000

A person is officially unemployed if he or she ________. A) does not have a job B) has actively looked for work in the prior 4 weeks C) is currently available for work D) meets all the above conditions

How does the concept of catch-up growth explain the diminishing income gap between developing economies and developed economies?

Catch-up growth refers to the process whereby relatively poorer nations increase their incomes by taking advantage of knowledge and technologies already invented in other, technologically more advanced countries. Developing economies undergoing catch-up growth do so mostly by benefiting from technologies that are already available in developed economies. In addition to using technology transfers, if these economies increase their saving rates, efficiency units of labor, and efficiency of production, they can catch up with the developed economies. Many economies have been doing so, and over time, this process has caused the income gap between the developing economies and developed economies to diminish.

"Catch-up growth" refers to a process where relatively poorer nations increase their incomes by ________. A) working harder than more advanced nations B) extracting more natural resources than more advanced nations C) having higher birthrates than more advanced nations D) using technologies from more advanced nations

A ________ occurs when a country's imports exceed its exports. A) fiscal deficit B) budget surplus C) trade surplus D) trade deficit

A shoe retailer does not give a bill for shoes purchased from her store and does not report her income correctly to evade taxes. If she is paid $50, ________. A) the GDP of her country will increase B) the GDP of her country will fall C) the trade surplus of her country will increase D) the GDP of her country will remain unchanged

According to the Solow model, which of the following factors can lead to the sustained growth of a nation? A) An increase in the saving rate B) An increase in physical capital stock C) An improvement in the quality of human capital D) An improvement in technology

Activities that firms, universities, and governments undertake to increase their knowledge base are referred to as ________. A) primary activities B) secondary activities C) tertiary activities D) research and development

An electrician accepts payment only in cash to avoid taxes. If he is paid $100, ________. A) the GDP of his country will increase B) the GDP of his country will fall C) the trade surplus of his country will increase D) the GDP of his country will remain unchanged

Around the end of the eighteenth century in Britain, innovations in production resulted in greatly increased output. This period is known as the ________. A) Malthusian cycle B) Scottish Enlightenment C) demographic transition D) Industrial Revolution

California's GDP per capita is $60,000, while Nevada's GDP per capita is $40,000. If both grow at 2 percent per year, how long will it take for the two states to have the same GDP per capita? A) 25 years B) 35 years C) 50 years D) They will never have the same GDP per capita.

Clara says that international trade can reduce poverty in developing nations by opening up new markets for them to trade in. Bella says that international trade can reduce poverty in developing nations by allowing the transfer of technology to those nations. Who is correct? A) Clara B) Bella C) Neither Clara nor Bella D) Both Clara and Bella

Consider a closed economy without the government. If the saving rate in the economy is 15 percent and the aggregate saving is $6,000, the GDP of the economy is ________. A) $15,000 B) $27,000 C) $30,000 D) $40,000

Continuous increase in investment in ________ is most likely to cause sustained growth. A) land B) labor C) physical capital D) technology

Country A and Country B happen to have the same GDP per capita. The standard of living is said to be higher in Country A than in Country B. This could be because ________. A) the workforce in Country A is relatively bigger B) productivity is relatively greater in Country A C) the same goods and services are relatively more costly in Country A D) high income disparity in Country B prevents its GDP per capita from giving a full picture of the well-being of its people

Country A has experienced a greater average growth rate in GDP per capita than has Country B. Based only on this, what would you predict about how the poverty rates changed in the two countries? A) More than likely, the poverty rate in Country A has decreased faster than that of Country B. B) Perhaps the poverty rate in Country A has decreased faster than that of Country B. C) More than likely, the poverty rate in Country B has decreased faster than that of Country A. D) Perhaps the poverty rate in Country B has decreased faster than that of Country A.

Cross-country interactions produced by international trade can facilitate the transfer of ________. A) exponential growth B) income inequality C) poverty D) technology

Economic growth refers to an increase in ________. A) prices B) tax rates C) population D) GDP per capita

Exponential growth implies that ________. A) growth rates can only be positive B) growth rates will alternate between positive and negative values in every consecutive time period C) relatively large differences in growth rates will translate into small differences in the level of a quantity after many years of growing D) relatively small differences in growth rates will translate into large differences in the level of a quantity after many years of growing

Fertility refers to ________. A) the average period that an individual may be expected to live B) the ability of an individual to read or write in at least one language C) the ratio of deaths in an area to the population of the area D) the number of children per adult or per woman of childbearing age

For the United States from 1929 to 2015, what has been the general relationship between the saving rate and the investment rate? A) They are always the same. B) The saving rate has generally been slightly higher than the investment rate. C) They have been random and totally uncorrelated. D) The investment rate has generally been slightly higher than the saving rate.

GDP per capita in Fiji grew from $5,000 to $13,000 over 20 years. Its average growth rate over this time is closest to ________. A) 2 percent B) 3 percent C) 4 percent D) 5 percent

How does the calculated value of GNP compare to that of GDP for the United States in 2015? A) GDP was 2 percent higher. B) GDP was 1 percent higher. C) GNP was 2 percent higher. D) GNP was 1 percent higher

How much did the U.S. stock market drop from September 1929 to July 1932? A) 30 percent B) 52 percent C) 73 percent D) 87 percent

If a country's GDP increases and all other variables remain constant, ________. A) its gross national product will fall B) its trade surplus will increase C) its income per capita will fall D) its income per worker will increase

If d is the depreciation rate and K is the physical capital stock, the amount of investment required to keep the economy in a steady state is given by ________. A) I = d/K B) I = d + K C) I = d − K D) I = d × K

If the income per capita in United Kingdom is £23,800 and the dollar per pound exchange rate is 1.68 in 2014, then income per capita in the United Kingdom in U.S. dollars in the same year is ________. A) $12,812 B) $22,829 C) $30,400 D) $39,984

In 2015, which category made up the smallest share of U.S. GDP? A) Consumption B) Investment C) Government spending D) Net exports

In France and Spain, a Big Mac costs 1 euro. Yet the standard of living is higher in ________. A) Spain if a Big Mac is only a small part of people's consumption and Spain's GDP per capita is higher B) France if its exchange rate is higher C) Spain if all other goods are cheaper in Spain than in France D) France if all other goods also cost the same in Spain and France but the GDP per capita is higher in France

In Lutheria, there are 10,000 people in the age group of 0-14 years, 30,000 people are employed, and 2,000 people are unemployed. Lutheria's GDP, measured in luthers, is 1 billion. Income per worker in Lutheria is ________ luthers. A) 10,000 B) 23,667 C) 28,999 D) 33,333

In a closed economy without a government, income equals aggregate ________. A) consumption B) saving C) saving plus aggregate investment D) saving plus aggregate consumption

In the United States, GDP is calculated by the ________. A) Census Bureau B) Chief Financial Officers Council C) Council of Economic Advisors D) Bureau of Economic Analysis

Initially Country A has a greater GDP per capita than Country B, but the growth rate in Country A is only 1 percent, while it is 2 percent in Country B. If these growth rates continue forever, which of the following is correct? A) Country A will always have a higher GDP per capita than Country B. B) Country B will not be able to sustain such a high growth rate. C) The GDP per capita in Country B will eventually catch up to, but not overtake, that of Country A. D) The GDP per capita in Country B will eventually overtake that of Country A.

Machinery used in a factory is a(n) ________ good. A) inferior B) public C) club D) capital

Michael currently saves 5 percent of his income. Which of the following would likely lead Michael to save more of his income than he currently does? A) If the interest rate Michael could earn on his savings fell B) If Michael learned he had just earned a promotion and a large increase in salary C) If Michael anticipated that the tax rate on income in the future would fall D) If Michael learned that his wife would have to stop working a year from now

Most of the growth in GDP per hour worked in the United States over the past several decades can be attributed to growth resulting from ________. A) physical capital B) human capital C) government policies D) technology

Rapid population growth in Malthus's theory is constrained through ________. A) higher fertility and mortality B) reduced fertility and mortality C) higher fertility and reduced mortality D) reduced fertility and higher mortality

Suppose the number of people employed in a country increases. Everything else remaining unchanged, this will lead to a fall in the country's ________. A) GDP B) gross national product C) consumer price index D) income per worker

Suppose we know that a nation has experienced sustained growth. What does this mean about the standard of living for the poorest members of that nation? A) Their standard of living must have risen. B) Their standard of living must have at least stayed constant. C) Their standard of living must have fallen. D) None of the above statements are correct.

Sustained growth is best achieved through which of the following? A) Physical capital accumulation B) Population increases C) Increases in the quality and amount of education D) Technological progress

The GDP of a small country is $4,150,000, and the size of its employed labor force is 5,000. The income per worker in the country is ________. A) $213 B) $445 C) $620 D) $830

The GDP of a small country with a population of 200,000 is $56,000,000. The income per capita in the country is ________. A) $50 B) $100 C) $200 D) $280

The Solow growth model is a tool that is used for studying ________. A) how net exports are determined B) how aggregate demand is determined C) how aggregate supply is determined D) how aggregate income is determined

The World Bank measure of absolute poverty, equivalent to about ________ per day, is a condition that leads to serious economic, health, and social problems. A) $5.85 B) $0.15 C) $6.20 D) $1.90

The aggregate production function used in the Solow model expresses GDP as a function of ________. A) physical capital and level of technology only B) physical capital and total efficiency units of labor only C) level of technology and total efficiency units of labor only D) physical capital, level of technology, and total efficiency units of labor

The expenditure-based method of national accounting ________. A) tracks the purchase of goods and services by firms only B) tracks the purchase of goods and services by the government only C) does not track the purchase of investment goods by firms and households D) tracks the purchase of all goods produced in the domestic economy only

The income per capita in a country with a population of 50,000 is $4,500. Its GDP is ________. A) $54,500 B) $900,000 C) $120,000,000 D) $225,000,000

The minimum level of income per person that is generally necessary for the individual to obtain enough calories, shelter, and clothing to survive is referred to as the ________. A) safety level of income B) minimum wage rate C) survival wage rate D) subsistence level of income

The price of making a telephone call has fallen dramatically over the past 100 years. This is best explained by improvements in what? A) Human capital B) Education C) Physical capital D) Technology

The saving rate in France is currently 6 percent. Which event would most likely decrease the current saving rate? A) The interest rate in France decreases. B) Economists forecast slowing growth in France next year. C) The income tax rate in France is expected to increase next year. D) French people anticipate strong future growth in France's economy.

The saving rate in an economy equals ________. A) GDP minus aggregate consumption B) GDP divided by aggregate saving C) aggregate saving multiplied by GDP D) aggregate saving divided by GDP

The total efficiency units of labor is obtained by ________. A) dividing the total physical capital stock of an economy by the total number of workers B) multiplying the total population of an economy by the average amount of capital available to each worker C) dividing the total number of workers in an economy by their average level of human capital D) multiplying the total number of workers in an economy by their average level of human capital

U.S. GDP per capita has increased approximately 2 percent per year over an extended period. This is a good example of what sort of growth? A) Catch-up growth B) Power growth C) Linear growth D) Sustained growth

What framework is used to measure the level of aggregate economic activity in a country? A) National economic index B) Measure of economic efficiency C) Aggregate income totals D) National income accounts

What is necessary for an economic downturn to be classified as a recession? A) The unemployment rate reaches 10 percent. B) Negative inflation for one year C) Negative economic growth for one year D) Aggregate economic output falls for two consecutive quarters.

What is the correct national income accounting identity in an open economy? A) Y = C + I + G B) Y = C + I + G + X + M C) Y = C + I + G - X + M D) Y = C + I + G + X - M

Which equality is NOT guaranteed by the circular flow diagram? A) The market value of production must equal the market value of expenditure. B) The market value of expenditure must equal the market value of income. C) The income paid to factors of production must equal the market value of expenditure. D) All of the above are guaranteed by the circular flow diagram.

Which of the following causes an economy's aggregate production function to shift up? A) A decrease in the physical capital stock B) An increase in the price level C) An increase in the total efficiency units of labor D) An improvement in technology

Which of the following causes the aggregate production function to shift up? A) An increase in physical capital stock B) A decrease in the productivity of workers C) An increase in the total efficiency units of labor D) An improvement in technology

Which of the following characterized the U.S. economy in the decades following the Great Depression? A) The price level has decreased steadily over time. B) Despite fairly constant growth, major economic downturns have produced net negative growth. C) The economy was permanently and irreparably damaged by the events of the Great Depression. D) Longer-run movements have indicated sustained and steady growth.

Which of the following describes the effect of the Great Depression on economic growth? A) The Great Depression resulted in permanently lower growth rates for the United States. B) The Great Depression halted permanently the United States' sustained growth. C) The Great Depression began the United States' sustained growth. D) The Great Depression was a temporary event that did not inhibit future economic growth.

Which of the following factors of production is least likely to exhibit diminishing marginal product? A) Land B) Labor C) Physical capital D) Technology

Which of the following is TRUE? A) The share of consumption expenditure in the GDP of the United States has increased over the past 80 years. B) The share of government expenditure in the GDP of the United States has fallen over the past 80 years. C) The share of exports in the GDP of the United States has fallen in absolute value over the past 80 years. D) The share of exports in the GDP of the United States has grown in absolute value over the past 80 years.

Which of the following is TRUE? A) The sum of the coefficients of capital and the total efficiency units of labor in a Cobb-Douglas production function is greater than 1. B) The sum of the coefficients of capital and the total efficiency units of labor in a Cobb-Douglas production function is less than 1. C) The Cobb-Douglas production function exhibits increasing returns to scale. D) The Cobb-Douglas production function exhibits constant returns to scale.

Which of the following is a problem associated with extreme levels of poverty? A) High literacy B) Low fertility C) High life expectancy D) High infant mortality

Which of the following is likely to increase the productivity of workers in an economy? A) An increase in the price level B) A storm that destroys crops C) An increase in the labor force participation rate in the economy D) An increase in the number of years of training that each worker receives

Which of the following is most likely TRUE during the year there is a war that destroys a country's stock of physical capital to a level below the steady-state equilibrium? A) The GDP of this country will be equal to the steady-state equilibrium level of GDP. B) The GDP of this country will be higher than the steady-state equilibrium level of GDP. C) The investment in physical capital will offset the depreciating physical capital. D) The investment in physical capital will be lower than the amount required to replenish the depreciating physical capital.

Which of the following national priorities would be most likely to result in sustained growth? A) Building new factories and infrastructure B) Encouraging a high birthrate C) Increasing the age at which students may leave school D) Encouraging new knowledge creation

Which of the following should be used to compare the incomes of countries with huge differences in the cost of living? A) Gross national product B) Income per working age population C) Exchange-rate-based measures of income per capita D) PPP-based measures of income per capita

Which of the following statements is TRUE of inequality in the U.S. economy? A) Inequality had increased throughout the twentieth century. B) Inequality had decreased throughout the twentieth century. C) Inequality is now lower than what it was in 1950. D) Inequality is now higher than what it was in 1950.

Which of the following statements is TRUE of world GDP before 1800? A) Most of the countries were growing at a rate of more than 6 percent per year. B) The GDP per capita in all nations across the world was less than $500. C) The entire world population was living above the subsistence level of income. D) An increase in GDP resulted in an increase in consumption but not investment.

Which of the following statements is TRUE? A) Economic growth always reduces poverty. B) Economic growth always reduces inequality. C) Economic growth is ineffective in reducing both poverty and inequality. D) Economic growth can reduce poverty only if it is not associated with a significant rise in inequality.

Which of the following statements is TRUE? A) Economic growth is the direct cause of declining poverty. B) Economic growth is the direct cause of declining inequality. C) Growth in unemployment is the direct cause of declining poverty. D) There are some countries for which growth and poverty have both increased.

Which of the following statements is TRUE? A) Using either the arithmetic or geometric average to compute average growth rates gives similar answers for long periods. B) When the arithmetic average is used to calculate the growth rate, the exponential nature of growth is taken into consideration. C) When the geometric average is used to calculate the growth rate, the exponential nature of growth is not taken into consideration. D) Using either the arithmetic or geometric average to compute average growth rates gives similar answers for short periods

Which of the following would not be included in the calculation of GDP? A) The purchase of ice cream by a student at a store B) The purchase of a new car by a family C) The purchase of a steak by a customer at a restaurant D) The purchase of a cow by a restaurant to turn into steaks

Why was there essentially no sustained growth before modern times? A) Because frequent world wars made it impossible for growth to take hold B) Because government policies prevented growth from taking place C) Because there was no widespread public education D) Because the pace of technological change was very slow

World War II resulted in the destruction of much of the United Kingdom's physical capital stock. Assuming the country was in steady-state equilibrium before the war and nothing else changed, what does the Solow Model predict about the years following World War II in the United Kingdom? A) A new steady-state equilibrium would emerge, with the current level of physical capital. B) A new steady-state equilibrium would emerge, with a level of physical capital between the current level and the pre-war level. C) The economy would never again reach a steady-state equilibrium. D) The economy would eventually return to the old steady-state equilibrium, with the original level of physical capital.

________ experiences a growth pattern similar to that of an economy. A) Savings rate B) Consumption rate C) Efficiency units of labor D) Technology

What is meant by the term demographic transition? How is it responsible for modern growth?

Demographic transition refers to the decline in fertility and number of children per family that many societies undergo as they transition from agriculture to industry. Demographic transition is a central ingredient to modern growth, because it enabled the economies that experienced reduced fertility to break away from the Malthusian cycle of sustained low GDP per capita.

Which characteristic of economic growth is responsible for the large differences in GDP per capita across countries?

Economic growth is exponential in nature, and this is one of the major reasons for the large differences in GDP per capita across countries. When an economy grows exponentially, new growth builds on past growth and the effects of growth compound. Thus relatively modest differences in growth rates translate into large differences in the level of GDP per capita after many years of growing.

What does a circular flow diagram show?

Economists have designed a system of national accounts that measures GDP in four equivalent ways—production, expenditure, income, and factors of production. The circular flow diagram provides a simple visual way of remembering the relationships among these four equivalent systems. Firms (shown on one side of a circular flow diagram) produce goods and services (production). Households (shown on the other side of the diagram) pay to buy those goods and services (expenditure). Firms pay households to use households' capital and labor (income). Capital and labor are put to use by firms (factors of production). The accounting system is set up so that all four sets of flows are equal in value.

What is the limitation of using exchange-rate-based measures as indicators of the standards of living across countries?

Exchange rates convert currencies into the same units but fail to account for the fact that the prices of many goods and services differ across countries. Fluctuations in exchange rates have little to do with changes in prices in different countries and are unable to account for the differences in the cost of living. Therefore, if exchange rates are used to compare the income per capita in different countries, there is a possibility that the income per capita in a country will be overestimated.

What is the relationship between the GDP of a country and the level of life satisfaction in the country?

GDP turns out to be an excellent predictor of life satisfaction. It has been found that a robust relationship exists between GDP and life satisfaction in a large sample of countries. The countries with higher levels of GDP per capita report higher levels of life satisfaction

Why is home ownership a source of capital income?

Home ownership is one important source of (implicit) capital income. A person who owns a home does not need to pay rent. Economists consider this "non-payment" to be a form of capital income. The income from home ownership is the amount of money the owner would have needed to spend had he or she been renting the same kind of home or apartment from a landlord.

What is human capital?

Human capital is each person's stock of ability to produce output or economic value.

Industria and Agraria are two neighboring countries. Suppose Good X is the only good produced in both countries and its production is a function of physical capital and the efficiency units of labor. It is found that a one-unit increase in capital leads to a higher increase in the production of Good X in Agraria than in Industria. Explain this outcome if both countries have the same number of efficiency units of labor.

If the number of efficiency units of labor is constant, an increase in physical capital stock leads to an increase in output. However, the increase in output is higher if less capital is used in production. Thus, a one-unit increase in capital causes a higher increase in output if the physical capital stock is smaller. This implies that the physical capital stock in Agraria is smaller than the physical capital stock in Industria.

Country A's GDP per capita at the beginning of 2005 was $22,150. At the beginning of 2006, it increased to $27,600. Calculate Country A's growth rate of GDP per capita between 2005 and 2006.

In this case, the growth rate of GDP per capita of Country A = ($27,600 − $22,150)/$22,150 = 0.2460 = 24.60 percent.

How does the presence of negative externalities affect the calculation of GDP?

Negative externalities arise when one person's action makes somebody else worse off. Externalities are also omitted from the calculation of GDP. Sometimes negative externalities even get counted as positive contributors to economic output. For example, property crimes, like theft, lead people to purchase locks and other security devices. In some cases, property owners hire guards to safeguard their possessions. All of this preventive activity counts as a positive contribution to GDP.

What role does research and development (R&D) play in increasing productivity?

R&D refers to the activities directed at improving scientific knowledge, generating new innovations, or applying existing knowledge to production to improve the technology of a firm or an economy. Since an improvement in technology increases productivity, R&D facilitates increases in productivity.

What is a key shortcoming of the Big Mac index?

The Big Mac index is a simple example of a PPP adjustment. Its shortcoming is that instead of a bundle of diverse goods, this index only compares a bundle consisting of a single good, the Big Mac, which is only a small fraction of people's consumption. Thus, this index will not reflect the true cost-of-living differences across countries.

How is leisure treated in the calculation of the GDP of an economy? Does such a calculation imply that GDP is a good measure of well-being? Why or why not?

The GDP accounts give an economy no credit for producing leisure. However, most people would agree that leisure is a key ingredient in human well-being. For example, in time-use surveys, people report that they are happiest when they are with friends socializing. Likewise, people report that they are the least happy when they are commuting to and from work. Of course, the goal in life is not to maximize income by working every possible moment. If that were our goal, nobody would ever retire or take a vacation. A more reasonable goal is to maximize human well-being. This is another example of optimization. GDP tells us how many material goods are being produced by an economy, but it does not tell us whether all of those material achievements are being used to optimize human happiness

What is the relationship between the GDP of a country and its GNP?

The GDP of a country is the market value of all final goods and services produced in a country, while the GNP is the final value of all goods and services produced by a country's factors of production during a particular year. Therefore, to calculate GNP, the production of domestic factors of production within foreign borders needs to be added and the production of foreign factors of production within domestic borders needs to be subtracted from GDP.

Why are the values of inputs not included in the calculation of the GDP?

The GDP of a country is the market value of the final goods and services produced in the country during a particular year. As the market value of final goods includes the value of raw materials, counting inputs separately would result in double counting.

Consider two economies: Barylia and Lithasia. The GDP per capita in Lithasia is $6,000, while the GDP per capita in Barylia is $12,000. Both countries grow exponentially at an annual rate of 10 percent. How will their GDPs vary over the next year? Is there any limitation to comparing the absolute levels of GDP per capita of both countries over the next years? If yes, what is a plausible solution?

The GDP per capita of Lithasia after 1 year will be $6,000 + $600 = $6,600. The GDP per capita of Barylia after 1 year will be $12,000 + $1,200 = $13,200. Initially, the gap between the GDP per capita of both countries was $12,000 − $6,000 = $6,000. A year hence, the gap between the GDP per capita of both countries will be $13,200 − $6,600 = $6,600. Hence, over 1 year, the gap between the GDP per capita of both countries will increase by $600. The ratio of GDP per capita of Barylia to that of Lithasia after 1 year = $13,200/$6,600 = 2. Hence, even after a year, the GDP per capita of Barylia will still be twice that of Lithasia. This implies that the relative GDPs of both nations will remain stable although the absolute gap will increase. Thus, comparing absolute levels of GDP per capita will not lead us to an accurate conclusion. In the presence of exponential growth, even though relative GDPs remain stable, the absolute gaps in the GDPs of both countries can increase. For this reason, a better statistic to be considered is the ratio of the two countries' GDP per capita.

What does the Law of Diminishing Marginal Product state?

The Law of Diminishing Marginal Product states that the marginal contribution of an input to output is smaller when more of this input is being used in production.

Describe the Malthusian Cycle.

The Malthusian cycle refers to the pre-industrial pattern in which increases in aggregate income lead to an expanding population, which in turn reduces income per capita and puts a downward pressure on population. The cycle starts with an increase in GDP above the subsistence level, which in turn fuels population growth, increasing the pressure on existing resources and reducing GDP per capita.

Explain the concept of PPP.

The PPP framework is used to convert aggregate incomes into common units. The idea is to adjust aggregate incomes so that a dollar can purchase the same bundle of commodities in any country. To perform this adjustment, one can choose a representative bundle of commodities and calculate what it costs in different countries. Then, using the cost of the bundle in each country relative to its cost in the United States, one can obtain a measure of each country's aggregate income in PPP-adjusted U.S. dollars.

What are the factors that affect GDP according to the aggregate production function used by Solow?

The aggregate production function used by Solow expresses GDP as a function of three factors of production: i) physical capital ii) total efficiency units of labor iii) level of technology

Explain the differences between real GDP and nominal GDP.

The difference between real GDP and nominal GDP is that real GDP measures the final value of a country's output using the prices in a base year, while nominal GDP measures the final value of a country's output using current market prices.

What are the drawbacks (that is, the categories not accounted for) in the calculation of the GDP of a country?

The first major drawback of GDP is the omission of depreciation. The second major drawback is the omission of home production. Another drawback is that black market transactions are not included in the GDP. Externalities and the value of leisure are also omitted from the calculation of GDP.

The total consumption expenditure in Polonia during a certain year was $135,000, total expenditure on investment was $44,000, and total expenditure incurred by the government was $50,000. Polonia exported goods worth $10,000 during that year and imported goods and services worth $12,000. Calculate the GNP of Polonia if foreign factors of production added a value of $14,000 to the production of goods and services in Polonia while Polonian workers living abroad added a value of $8,000 to the production process in those countries.

The formula for calculating the GNP of a country is: GNP = GDP + Production of domestic factors of production in foreign countries − Production of foreign factors within domestic borders. The formula for calculating GDP is: GDP = C + I + G + X - M, where C denotes consumption expenditure, I denotes investment expenditure, G denotes government expenditure, X denotes exports, and M denotes imports. Therefore, GDP = $135,000 + $44,000 + $50,000 + $10,000 − $12,000 = $227,000. Thus, GNP = $227,000 + $8,000 − $14,000 = $221,000.

Why is investing in technology as a means to sustained growth a better option than investing in labor or capital?

The main reason investing in technology as a means to sustained growth is a better option than investing in labor or capital is that investing in labor and capital is subject to diminishing marginal product. This implies that the additional output generated by investing in an extra unit of capital or labor diminishes with increasing capital and labor. Hence, growth cannot be sustained by investing only in labor or capital. In contrast, investment in technology builds on previous stocks of technology. Hence, technological growth is exponential in nature.

Explain how saving equals investment in a closed capitalist economy.

The national income identity is given by Y = C + I + G + NX, where C is consumption expenditure, I is investment expenditure, G is government spending, and NX is net exports. In a closed capitalist economy, G = NX = 0; hence, Y = C + I. In other words, GDP is the sum of aggregate consumption expenditure and investment. It is also true that all the income generated in a closed economy without government spending will be either consumed or saved. Hence, Y = C + S. Since Y = C + S, Y = C + I, implying that S = I.

Consider two countries. In the first country, there are 1,000 individuals; among them, 500 earn $20,000 per month and the remaining 500 earn $400 per month. In the second country, there are 1,000 people; among them, 500 earn $12,000 per month and the remaining 500 people earn $600 per month. Which of the two countries has more inequality and which country is the poorer of the two?

The per capita income in the first country is equal to (500 × 20,000 + 500 × 400)/1,000 = $10,200. The per capita income in the second country is equal to (500 × 12,000 + 500 × 600)/1,000 = $6,300. From the per capita income figures, we can conclude that the second country is poorer than the first country. The ratio of rich-to-poor incomes in the first country is 10,000,000/20,000 = 50. The same ratio in the second country is 6,000,000/30,000 = 20. Therefore the ratio of rich-to-poor incomes is much higher in the first country. Thus, inequality is greater in the first country.

Genovia produced 10 million tons of wheat in a particular year. Of this, 1 million tons had to be thrown away because of a pest infestation. How would this affect the calculation of the GDP of the country for that year?

The quantity of wheat that had to be thrown away would not affect the calculation of GDP as depreciation is not included in the calculation of GDP.

Why is the value added by each producer included in the calculation of GDP instead of its sales revenue?

The revenue or final value of a good includes the value added at each stage of the production process. It is not possible to measure the contribution of each producer in the production process if only the revenue earned by the firm selling the final good is tracked. Therefore, the value added by each producer is included in the calculation of GDP.

Define saving rate. If the aggregate saving in an economy is $10,000 and the aggregate income in the economy is $70,000, what is the saving rate in the economy?

The saving rate refers to the fraction of income that households save. It can be obtained by dividing aggregate saving by aggregate income. In this case, the saving rate = 10,000/70,000 = 0.1428 = 14.28 percent.

Define subsistence level. What happens if the income in an economy exceeds the subsistence level according to the Malthusian cycle?

The subsistence level is the minimum level of income per person that is generally necessary for the individual to obtain enough calories, clothing, and shelter to survive. If the income in an economy exceeds the subsistence level, the fertility in the economy increases, which in turn increases the size of the population of the economy.

What is the Industrial Revolution? How did it contribute to modern economic growth?

The term "Industrial Revolution" is used to describe the series of innovation and their implementation in the production process that began at the end of the eighteenth century in Britain. The Revolution contributed to modern economic growth by opening the way for more steady and rapid technological changes. It started a wave of industrialization that spread to many other countries around the world.

What were the major reasons for the lack of sustained growth before modern times?

The two main reasons for the lack of sustained growth before modern times are as follows: i) The pace of technological change before 1800 was slow and almost stagnant compared to what came thereafter. ii) Whatever improvements in income or GDP that were realized went to feeding an increasing population rather than attempting to increase the GDP per capita.

Rita cooked a meal, which would have been worth $100 at the nearest eatery, for her family. What impact would this have on the calculation of GDP? Explain your answer

This activity would not affect the calculation of GDP, because home production is excluded from the calculation of GDP. However, the value of the groceries she used to cook the meal is included in the calculation of GDP

The income per capita in Ruberia in a certain year was 7,240 rubies, and the income per capita in the United States in the same year was $48,000. A bundle of goods that costs 100 rubies in Ruberia has a price of $1,250 in the United States. Using the PPP-based method, determine which country has a higher income per capita.

To compare the income per capita in the two countries, one needs to use the PPP to convert Ruberia's income per capita into U.S. dollars. The price of a bundle of goods that costs 100 rubies in Ruberia is $1,250 in the United States. Thus, 1 ruby buys the same amount of goods that $1,250/100 = $12.50 buys in the United States. Therefore, 1 ruby is worth $12.50. The income per capita in Ruberia in U.S. dollars is calculated as 7,240 rubies × 12.50 = $90,500. Thus, Ruberia has the higher income per capita.

Mr. Smith earned a salary of $5,000 in 1980, while his son earned a salary of $8,000 in 2010. If the price index was 100 for 1980 and 198 for 2010, whose salary was worth more? Explain your answer.

To find out whose salary was higher, we need to convert Mr. Smith's salary into 2010 dollars. The value of Mr. Smith's salary in 2010 can be obtained by using the formula: Value in 2010 = (Price Index for 2010 / Price Index for 1980) × Value in 1980 = (198/100) × $5,000 = $9,900 Therefore, Mr. Smith's salary was worth more in 1980 than his son's salary was worth in 2010.

Explain the concept of an identity.

Two variables are related by an identity when the two variables are mathematically identical.

Can unionization in an industry adversely affect productivity? Explain your answer.

Unionization of labor in an industry can adversely affect productivity if it prevents an efficient allocation of labor across different tasks. It can also affect productivity adversely if it does not allow a reduction in the number of workers or wages when required.

Aquaria is a small island country that specializes in the production of yachts. It has a Cobb-Douglas aggregate production function. a) How will the production of yachts be affected if the technology used in the production of yachts in Aquaria improves? b) How will Aquaria's output be affected if both the efficiency units of labor and the physical capital stock increase by 12.5 percent, but the level of technology remains unchanged?

a) A Cobb-Douglas production function is of the form Y = A × Ka × Hb, where Y denotes total output, A denotes the level of technology, K denotes the physical capital stock, and H denotes the efficiency units of production. A higher value of A denotes better technology. Thus, if the technology used in the production of yachts in Aquaria improves, A will increase. As a result, Aquaria's production of yachts will increase. b) A Cobb-Douglas production function exhibits constant returns to scale. Therefore, a 12.5 percent increase in both the efficiency units of labor and the physical capital stock in Aquaria will lead to a 12.5 percent increase in output.

Billy is a plumber. He earns $15 per hour. One morning, just before leaving for work, he found a leaky pipe in his kitchen. He spent 2 hours repairing the pipe. a) How would this affect the calculation of GDP? b) If Billy had spent 2 hours working for one of his clients, what would have been the effect of his activity on the calculation of GDP?

a) Billy would not receive any monetary payment for the 2 hours he spent on repairing the pipe in his kitchen. This is an example of home production. As a result, his activity would not affect the calculation of GDP. b) If Billy had spent 2 hours working for his clients, GDP would have increased by $15 × 2 = $30.

What will happen to the steady-state equilibrium level of output and physical capital stock in an economy if a) there is an increase in the saving rate b) there is a deterioration of human capital

a) If there is an increase in the saving rate in an economy, it will have a steady-state equilibrium with a higher level of capital stock and income than the initial steady-state equilibrium level. b) If there is deterioration of human capital in an economy, it will have a steady-state equilibrium with a lower level of physical capital stock and income than the initial steady-state equilibrium level.

Ritzland produces only one good. 10,000 units of the good were produced in Ritzland during a certain year and were sold at $42 per unit. The price of each unit of the good 2 years before was $37. a) Find the real and nominal GDPs of Ritzland taking $37 as the base price. b) Calculate the GDP deflator for Ritzland for the year in question.

a) Real GDP is the total value of a country's output using base year prices. In this case, real GDP is 10,000 × $37 = $370,000. Nominal GDP is the total value of a country's output at current prices. In this case, it is 10,000 × $42 = $420,000. b) GDP deflator is 100 times the ratio of nominal GDP to real GDP. In this case, it is ($420,000/$370,000) × 100 = 113.5.

Consider two economies with the same GDP per capita: Barylia and Lithasia. The saving rate in Barylia is 20 percent, while the saving rate in Lithasia is 60 percent. a) Which of these two countries is likely to accumulate physical capital faster? b) The government in Barylia decides to provide incentive to its citizens to increase the saving rate further to 80 percent as a means of improving standards of living. Will the increase in saving translate into improvements in the standard of living?

a) The amount of physical capital accumulation in an economy is equal to the physical capital stock of the previous year minus depreciated capital plus the level of investment in an economy. Hence, as the level of investment increases, the amount of physical capital accumulation increases. The investment in an economy equals I = Saving rate × GDP per capita. Therefore, it can be inferred that the higher the saving rate is in an economy, the higher the investment will be in the economy. Hence, the higher the saving rate is in an economy, the higher the physical capital accumulation will be. Lithasia is likely to accumulate capital faster compared to Barylia. b) The total amount of income in an economy is either consumed or saved. The standard of living in any country is dependent on consumption and not on saving. Hence, if the government encourages households to save more, increase in investment and output may not translate into improvements in living standards of the people in the country.

The GDP of Neonland is 450,000 neons. It has a total population of 1,500; 30 percent of the total population in Neonland comprises retired workers, 50 percent of the population is employed, and the remaining are unemployed children. a) Calculate the income per capita in Neonland. b) What is the income per worker in Neonland? c) Is there a difference between the two measures? If yes, explain the reason for this difference.

a) The formula for calculating the income per capita in a country is: Income per capita = Gross domestic product/Total population. In this case, GDP is 450,000 neons, while total population is 1,500. Therefore, the income per capita in Neonland is 450,000 neons/1,500 = 300 neons. b) The formula for calculating income per worker is: Income per worker = Gross domestic product/Number of people who are employed. In this case, 50 percent of the population is employed. Therefore, income per worker is 450,000 neons/750 = 600 neons. c) There is a difference of 600 neons 300 neons = 300 neons between the two measures. Income per capita is higher, because the number of people employed is less than the total population.

In a certain year, the income per capita in Country 1 was 1,800 in its domestic currency, while that of Country 2 was 32,000 in its domestic currency. a) If 1 unit of Country 1's currency is worth 6.5 units of Country 2's currency, which country has a higher income per capita? b) Which country is likely to have a higher Human Development Index and why?

a) To determine which country has a higher income per capita, one converts Country 1's income per capita into Country 2's currency. One unit of Country 1's currency is worth 6.5 units of Country 2's currency. Therefore, Country 1 has an income per capita of 1,800 × 6.5 = 11,700 in Country 2's currency. Therefore, Country 2 has a higher income per capita. b) The United Nations' Human Development Index is a composite index that combines income per capita, life expectancy, and measures of education to more holistically measure the standard of living. There is a strong association between income per capita and this measure of the standard of living. A country with a higher income per capita is likely to have a higher Human Development Index. Therefore, Country 2 is likely to have a higher Human Development Index.

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