econ 102 exam 1 HW questions

The International Property Rights Index (IPRI) scores countries based on the legal and political environment and how well property rights are protected. Countries with better property rights protection generally have (lower/higher/the same) income per person than those with poor property rights enforcement.

higher

Suppose that you were born in 2001. Also, suppose that your mother received a $100 baby shower gift at your birth. How much would it cost to buy a similar amount of goods and services in 2016, given that the CPI was 177.1 in 2001 and 240.0 in 2016? $73.79 $100.00 $135.52 $240.01

$135.52

A farmer grows wheat, which she sells to a miller for $90. The miller turns the wheat into flour, which she sells to a baker for $145. The baker turns the wheat into bread, which she sells to consumers for $155. Consumers eat the bread. Assume that these transactions account for all economic activity in this economy. GDP in this economy is: ______

$155

The CPI for "All Items" was 249.554 in March 2018, and 254.202 in March 2019. Over this period, the rate of inflation as measured by the rate of change of the CPI was _________

1.86%

A dozen eggs cost $0.96 in December 2000 and $2.75 in December 2015. The average wage for workers in private industries was $14.28 per hour in December 2000 and $21.26 in December 2015. By what percentage did the price of a dozen eggs rise? 65% 179% 186% By what percentage did the wage rise? 15% 49% 134%

186% 49%

What can the government of a relatively poor country do to promote economic prosperity? Check all that apply. Encourage transmission of knowledge by removing patents and copyrights. Encourage its officials to facilitate business operations and encourage investment by accepting bribes. Establish and enforce strong property rights. Promote free trade by reducing or removing tariffs on imports from foreign countries.

Establish and enforce strong property rights. Promote free trade by reducing or removing tariffs on imports from foreign countries.

International data show a positive correlation between income per person and the health of the population. True or False: Individuals with lower incomes are in worse health, but this leads to greater productivity because sicker workers have higher medical expenses.

False

Many workers hold large amounts of stock issued by the firms at which they work. True or False: Companies encourage their employees to hold stock in the company because it reduces the connection between employees' work effort and the companies' profits.

False

Most countries, including the United States, import substantial amounts of goods and services from other countries. True or False: In the long run, a country's production of goods and services and the standard of living of its citizens are independent of each other because countries have the opportunity to import goods and services.

False

Now imagine a measure of well-being that includes time spent working in the home and taking leisure. True or False: The change in this measure of well-being would be greater than the change in GDP.

False

Social Security benefits are increased each year in proportion to the increase in the CPI, even though most economists believe that the CPI overstates actual inflation. True or False: If the elderly consume the same market basket as other people, then Social Security would provide a decrease in their standard of living.

False

The participation of women in the U.S. labor force has risen dramatically since 1970. True or False: This rise likely decreased GDP in the United States.

False

True or False: A country may be overinvesting in human capital if people are not educated enough to fill existing job openings.

False

True or False: If the extra output produced from an additional unit of capital rises as the stock of capital rises, the country may be overinvesting in capital.

False

True or False: Transfer payments are accounted for in the consumption component of GDP.

False

In the 1990s and the first two decades of the 2000s, investors from the Asian economies of Japan and China made significant direct and portfolio investments in the United States. At the time, many Americans were unhappy that this investment was occurring. True or False: It was better for the United States not to receive this foreign investment because it shrank the capital stock. True or False: It's best for Americans that China and Japan, rather than Americans themselves, made the investment because Americans could receive the returns on the investment made by China and Japan.

False False

Investment can be increased both by reducing taxes on private saving and by reducing the government budget deficit. True or False: It is possible to implement both of these policies at the same time because reducing taxes on private spending has the effect of decreasing the government budget deficit. What would you need to know in order to judge which of these two policies would be a more effective way to raise investment? Check all that apply. The response of private saving to changes in the government budget deficit The elasticity of private saving with respect to the after-tax real interest rate The responsiveness of private saving to increases in investment

False The response of private saving to changes in the government budget deficit The elasticity of private saving with respect to the after-tax real interest rate

Suppose that a borrower and a lender agree on the nominal interest rate to be paid on a loan. Then inflation turns out to be lower than they both expected. True or False: The real interest rate on this loan is lower than expected. The lender (gains/loses) from this unexpected lower inflation, and the borrower (gains/loses) under these circumstances. Inflation during the 1970s was much higher than most people had expected when the decade began. Homeowners who obtained fixed-rate mortgages during the 1960s (benefited from/were harmed) the unexpected higher inflation (with regard to their mortgages), and the banks that made the mortgage loans(benefitted from/were harmed).

False gains , loses benefitted from , were harmed

Which of the following situations illustrate the problem of substitution bias in the construction of the CPI? The introduction of airbags in cars Greater use of fuel-efficient cars after gasoline prices increase More scoops of raisins in each package of Raisin Bran Increased personal computer purchases in response to a decline in their price The invention of cell phones

Greater use of fuel-efficient cars after gasoline prices increase Increased personal computer purchases in response to a decline in their price

Societies choose what share of their resources to devote to consumption and what share to devote to investment. Some of these decisions involve private spending; others involve government spending. Consumption or Investment? People buying washing machines Laundromats buying washing machines People buying food Firms buying automobiles for delivery services Firms buying soft drinks for a holiday party People buying clothes Firms buying computers People buying houses Building tunnels Buying medical equipment Building airports Payment for public safety employees Paying workers to administer government programs Building hospitals Building roads Buying military equipment

People buying washing machines (consumption) Laundromats buying washing machines (investment) People buying food (consumption) Firms buying automobiles for delivery services (investment) Firms buying soft drinks for a holiday party (consumption) People buying clothes (consumption) Firms buying computers (investment) People buying houses (investment) Building tunnels (investment) Buying medical equipment (investment) Building airports (investment) Payment for public safety employees (Consumption) Paying workers to administer government programs (consumption) Building hospitals (investment) Building roads (investment) Buying military equipment (investment)

Consumption, Investment, Government Purchases, Net Exports, or more than 1? The federal government sends your grandmother a Social Security check. Honda expands its factory in Ohio. Ford sells a Mustang from its inventory to the Martinez family. Texas hires public middle school teachers. Uncle Paul pays a domestic contractor for renovating his home. You buy a new Toshiba computer. Your parents buy a new house from a local builder. You pay a domestic plumber for fixing a leak in your bathroom. Uncle John orders 10 new computers for his finance business Ford manufactures a Focus and adds it to its inventory. Aunt Polly buys a new air conditioner from a domestic manufacturer. New York hires workers to plow snow after a snowstorm. Uncle John receives a check from the federal government for unemployment insurance benefits. You purchase a box of Belgian chocolate. Your parents pay an accountant to file their tax returns. The Jackson family buys an old Victorian house from the Walker family. Dell sells a desktop computer from its inventory to the Johnson family. You pay a hairdresser for a haircut. Your parents buy a bottle of French wine. California hires workers to repave Highway 101. Ford manufactures a Focus and sells it to Avis, the car rental company.

The federal government sends your grandmother a Social Security check. (none) Honda expands its factory in Ohio. (investment) Ford sells a Mustang from its inventory to the Martinez family. (consumption and investment) Texas hires public middle school teachers. (gov't purchases) Uncle Paul pays a domestic contractor for renovating his home. (consumption) You buy a new Toshiba computer. (consumption and net exports) Your parents buy a new house from a local builder. (investment) You pay a domestic plumber for fixing a leak in your bathroom. (consumption) Uncle John orders 10 new computers for his finance business (consumption & investment) Ford manufactures a Focus and adds it to its inventory. (investment) Aunt Polly buys a new air conditioner from a domestic manufacturer. (consumption) New York hires workers to plow snow after a snowstorm. (gov't purchases) Uncle John receives a check from the federal government for unemployment insurance benefits. (none) You purchase a box of Belgian chocolate. (consumption & net exports) Your parents pay an accountant to file their tax returns. (consumption) The Jackson family buys an old Victorian house from the Walker family. (none) Dell sells a desktop computer from its inventory to the Johnson family. (consumption & investment) You pay a hairdresser for a haircut. (consumption) Your parents buy a bottle of French wine. (consumption & net exports) California hires workers to repave Highway 101. (gov't purchases) Ford manufactures a Focus and sells it to Avis, the car rental company. (investment)

What is the opportunity cost of investing in human capital? The goods or resources that could be produced if the resources to produce them were not invested in human capital Improved technology that leads to faster growth Lower taxes

The goods or resources that could be produced if the resources to produce them were not invested in human capital

What is the opportunity cost of investing in capital? Higher taxes The loss of consumption that results from redirecting resources toward investment Improved technology that leads to faster growth

The loss of consumption that results from redirecting resources toward investment

In many developing nations, young women have lower enrollment rates in secondary school than do young men. Which of the following observations are consistent with greater educational opportunities for young women leading to faster economic growth in these countries? Check all that apply. The opportunity cost of having a child is lower. There are external benefits associated with greater knowledge in a country. Increased human capital reduces productivity.

There are external benefits associated with greater knowledge in a country.

Adam Smith wrote, "Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things." True or False: Peace would promote economic growth because it provides investors the confidence that property rights will be respected and upheld in the future.

True

As the chapter states, GDP does not include the value of used goods that are resold. True or False: If GDP included goods that are resold, it would double-count goods that were sold more than once.

True

Goods and services that are not sold in markets, such as food produced and consumed at home, are generally not included in GDP. True or False: As a result, you would expect that GDP per person in India and the United States will differ by more than their actual comparative economic well-being.

True

Healthcare costs have risen faster than overall inflation. True or False: If the elderly consume a market basket that includes more healthcare than other people, then Social Security would have an uncertain impact on their standard of living.

True

True or False: When one calculates a single rate of inflation using the CPI for "All Items," it does not necessarily mean that all categories of goods and services experienced the same rate of price change over that period.

True

Suppose that Intel is considering building a new chip-making factory. Assume that Intel needs to borrow money in the bond market. It is less likely for Intel to build the new factory if interest rates (increase/decrease) True or False: If Intel has enough of its own funds to build the new factory without borrowing, an increase in interest rates would not affect Intel's decision about whether to build the factory.

increase false

Saving or Investment? This occurs when a person or firm purchases new capital. This occurs when a person's income exceeds his consumption Your family takes out a mortgage and buys a new house. You use your $200 paycheck to buy stock in AT&T. Your roommate earns $100 and deposits it in his account at a bank. You borrow $1,000 from a bank to buy a car to use in your pizza delivery business.

investment saving investment saving saving investment

You would expect a bond of the U.S. government to pay a (lower/higher) interest rate as compared to a bond of an Eastern European government. You would expect a bond that repays the principal in year 2040 to pay a (lower/higher) interest rate as compared to a bond that repays the principal in year 2020. You would expect a bond from Coca-Cola to pay a (lower/higher) interest rate as compared to a bond from a software company you run in your garage. You would expect a bond issued by the federal government to pay a (lower/higher) interest rate as compared to a bond issued by New York State.

lower higher lower higher

Suppose that society decided to increase consumption and reduce investment. Less investment leads to (slower/faster) economic growth in the long run. Which of the following statements are true about groups in society that would benefit from or be hurt by this change? Check all that apply. - Some people will have higher incomes as the result of faster economic growth. - There might be a transition period in which workers and owners in investment-goods industries would receive higher incomes. - There might be a transition period in which workers and owners in consumption-goods industries would receive higher incomes.

slower - There might be a transition period in which workers and owners in consumption-goods industries would receive higher incomes.