Econ 103 Midterm Review
You lend $5,000 to a friend for one year at a nominal interest rate of 10%. Inflation during that year is 5%. As a result, you will receive ________ at the end of the year, but that money has a purchasing power of ________.
$5,500; $5,250
The CPI in 1990 was 131, and the CPI in 2010 was 218. If you earned a salary of $40,000 in 1990, what would be a salary with equivalent purchasing power in 2010?
$66,565
Refer to Table 8-11. Real GDP for Tyrovia for 2018 using 2009 as the base year equals
$690
Between 1950 and 2009, the average length of recessions in the United States was
11 months.
Refer to Table 8-11. Nominal GDP for Tyrovia in 2018 equals
$1,140
A recession often begins with a(n) ________ in spending by firms on capital goods and a(n) ________ in spending on durable goods by households.
decrease; decrease
The purchase or building by a corporation of a facility in a foreign country is called
foreign direct investment
The purchase by an individual or firm of stock or bonds issued in another country is called
foreign portfolio investment
From 1990-2016, productivity growth in the United States was ________ the growth rates of other high-income countries.
greater than
The largest component of the U.S. CPI market basket is
housing
The purchase of a new house is included in
investment expenditures
An unemployment insurance program has which of the following effects?
it increases the amount of time spent searching for a job
The United States has ________ social insurance programs, and generally has a ________ unemployment rate, as compared to Canada and Western Europe.
less generous; lower
Foreign direct investment declined worldwide during the recession of 2007-2009. The decline in foreign direct investment in developing countries can make it more difficult for these countries to break out of the vicious cycle of low economic growth and
low saving and investment
The stated interest rate on a loan is the
nominal interest rate
The Bureau of Labor Statistics would categorize a retiree who is not working as
out of the labor force
Which of the following is true about the consumer price index?
It assumes that consumers purchase the same amount of each product in the market basket each month.
Which of the following best explains why productivity growth in the United States has been faster than in other leading industrialized nations?
There are fewer government regulations in the United States regarding the way firms can hire and fire workers.
Cyclical unemployment is the result of
a slowdown in the economy
A successful market economy requires well defined property rights and
an independent court system to adjudicate disputes based on the law
The GDP deflator is a measure of the
average level of prices of final goods and services in the economy
In Venezuela, the government attempted to control rising food prices by implementing price ceilings in the market. These price ceilings were set ________ the market prices, which resulted in ________ of food.
below; shortages
When actual inflation is less than expected inflation
borrowers lose and lenders gain
Explanations for the low and declining real interest rate include:
both high savings rates of aging populations and regulatory/tax policies that limit profitability of investment
In theory, in comparison to a government that runs a balanced budget, when the government runs a budget deficit
business investment will fall
Investment, as defined by economists, would not include which of the following? Ford
buys US government bonds
In the article "Lifestyles of the US Poor" per person consumption of the poorest 20% of Americans
c) both a and c are true is higher than average per person consumption of at least half the countries in the OECD is 3 to 30 times higher than average per person consumption in developing nations
Which of the following government provisions would help increase the accumulation of
patents copyrights research subsidies
In 18th century Europe, guilds limits on production increased ________ but reduced _____ and reduced total _____, hence reduced gains from trade.
producer surplus....consumer surplus....economic surplus
To examine how the total production of an economy has changed over time, it would be better to examine
real GDP
Because of the productivity slowdown in the United States from the mid-1970s through the mid-1980s
real GDP per capita grew more slowly.
Suppose the labor force stays constant, and the working-age population stays constant, but a greater number of persons who were unemployed become employed. The labor force participation rate will
remain constant
Textbook examples of trade between two nations are simplified in order to show how two nations both benefit from trade. These examples are not completely realistic because
some individuals in both countries may be made worse off because of trade.
A lumberjack loses his job because timber cutting restrictions were imposed by the EPA to protect the spotted owl habitat. This lumberjack would be
structurally unemployed
When the price of gasoline rises, some consumers begin riding their bikes more frequently or riding the bus instead of driving their cars. The fact that the CPI does not fully account for such changes in consumer behavior is called
substitution bias
The broadest measure of the price level that includes all final goods and services is
the GDP deflators
Human capital refers to which of the following?
the accumulated knowledge and skills workers acquire from education and training or from their life experiences
One major reason that Mexico has experienced relatively low rates of economic growth is that
the country has problems with organized crime and corruption
Increases in the minimum wage are intended to raise the incomes of low-income workers. Many economists favor a different policy to achieve this goal, a policy that avoids the deadweight losses that result from the minimum wage. What is this policy?
the earned income tax credit for low-income tax filers
According to the text, economists consider full employment to occur when
the unemployment rate consists of only frictional and structural unemployment.
Which of the following cause the unemployment rate as measured by the Bureau of Labor Statistics to overstate the true extent of joblessness?
unemployed persons falsely report themselves to be actively looking for a job
If the minimum wage is set above the market wage
unemployment will rise
Firms free ride on the research and development of other firms when they
use knowledge other firms have developed without paying for that knowledge
Nominal GDP is GDP in a given year
valued in the prices of that year
Real GDP is GDP in a given year
valued in the prices of the base year
Which of the following are not considered part of government purchases?
welfare benefits
In the article "A Sensible Anti-Covid Strategy", the concept of opportunity cost is applied to
whether more lives are lost with or without lockdowns
If Norwegian workers are more productive than Albanian workers, then trade between Norway and Albania
will take place so long as each country has a comparative advantage in a good or service that buyers in the other country will want
Which of the following equations correctly measures GDP in an economy?
GDP = C + I + G + NX
If consumers decide to be more frugal and save more out of their income, then this will cause
a shift in the supply curve for loanable funds to the right.
If property rights are not well enforced, all of the following are likely to occur except
a significant number of people will be willing to risk their funds by investing them in local businesses
all of the following are sources of comparative advantage except
a strong foreign currency exchange rate
Which of the following would cause both the equilibrium price to decrease and equilibrium quantity of oil to increase?
a technological advancement in the production of oil
) Refer to Figure 10-1. Which of the following is consistent with the graph depicted above?
Regulatory change increases the profitability of new investment.
Assume prices of commercial airline tickets have fallen in recent months. Over this same period, the price of jet fuel has risen and consumer incomes have fallen. Which of the following best explains the falling prices of airline tickets?
The demand curve for airline tickets has shifted to the left more than the supply curve has shifted to the left.
If the nominal interest rate is 6% and the inflation rate is 9%, then the real interest rate is
-3%
If nominal GDP is $5 trillion and real GDP is $4 trillion, the GDP deflator is
125
The GDP deflator in year 2 is 105, using year 1 as the base year. This means that, on average, the cost of goods and services is
5% higher in year 2 than in year 1
Trade restrictions are often motivated by a desire to save domestic jobs threatened by competition from imports. Which of the following counter-arguments is made by economists who oppose trade restrictions?
Through higher prices consumers pay a high cost for jobs saved through trade restrictions.
In the long run, a country will experience an increasing standard of living only if it experiences
continuous increases in labor productivity through innovation and technological change.
The response of investment spending to an increase in the government budget deficit is called
crowding out
In the article "Lifestyles of the US Poor" the main points of the article are that the poorest 20% of Americans
d) all of the above consume more than 20% of the poorest in any other country consume more than the average person in 64% of other wealthy countries in the OECD. underreport income and non-income benefits, thus making consumption a more reliable measure of poverty.
According to the article "The Growth Dilemma" the costs of an anti-growth agenda include
fewer opportunities for young workers more social upheaval caused by stagnation of lower and middle class incomes fewer funds to clean up the government
In 1986, an Apple IIe computer with 65 kilobytes of memory cost around $1,500. Today, a $1,500 iMac computer (also made by Apple) comes with 8 gigabytes of memory. This illustrates the potential for what kind of bias in CPI calculations?
increase in quality bias
Because minimum wage is a price floor
it will create a deadweight loss.
A country with a large supply of unskilled workers and relatively little capital is likely to have___wages and ____profit margins than industrialized countries
lower ...higher.
The demand for loanable funds is downward sloping because the ________ the interest rate, the ________ the number of profitable investment projects a firm can undertake, and the ________ the quantity demanded of loanable funds.
lower; greater; greater
In a competitive market equilibrium the ________ equals the ________ of the last unit sold.
marginal benefit; marginal cost
Textbook examples of trade show how two nations both benefit from trade in goods. These examples are not completely realistic because factors of production may instead move across borders in response to differences in wages and profits. A country with a large supply of unskilled workers and relatively little capital is likely to have___ of workers and ____of investors vis-a-vis industrialized countries.
outflows...inflows
The increase in unemployment in the United States that resulted from the China shock (entry of China into the World Trade Organization in 2000)
recovered at a much slower pace than it had from import increases in previous decades
India's rapid growth can be explained by
reduced regulations and market-based reforms
Anti-growth policies, according to "The Growth Dilemma' include:
rules that limit the development of inexpensive energy environmental regulation that limits/prohibits consumption and investment anti-competitive regulation pushed by corporate cronies
Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid?
3 percent
If you want to earn a real interest rate of 3% on money you lend and you expect that inflation will be 2%, what nominal rate of interest will you charge?
5%
If government purchases are $400 million, taxes are $700 million, and transfers are $200 million, which of the following is true?
Public saving is $100 million.
Sarah is a full-time student who is not looking for work. What kind of unemployment is Sarah experiencing?
Sarah is not experiencing unemployment of any kind, because she is not currently part of the labor force.
Economist Steve Landsburg has pointed out that Ebenezer Scrooge's change in behavior from miser to spender might actually be detrimental to the economy because
Scrooge's miserly saving helped contribute to the production of investment goods rather than consumption goods.
Which of the following is a consequence of minimum wage laws?
Some employers will be reluctant to hire as many workers as they would without a minimum wage.
Let T = taxes, TR = transfers, and G = government spending on goods and services. When the government borrows, we say that government saving is negative. If government saving is negative, then
T - TR < G.
You earned $30,000 in 2009, and your salary rose to $90,000 in 2018. If the CPI rose from 80 to 200 between 2009 and 2018, which of the following is true?
The purchasing power of your salary increased between 2009 and 201
China has developed a comparative advantage in the production of children's toys. The source of this comparative advantage is
a large supply of unskilled workers and relatively little capital.
Structural unemployment is the result of
a persistent mismatch between the skills and characteristics of workers and the requirements of the jobs.
The minimum wage is an example of
a price floor
According to Joseph Schumpeter, economic growth is achieved through
a process termed "creative destruction" wherein firms develop new products that replace old products
in 18th century Europe, governments gave guilds legal authority to limit production of goods. This authority reduced economic efficiency by allowing guilds to prevent from coordinating the decisions of producers and consumers.
demand and supply
Refer to Table 9-1. The labor force participation rate for this simple economy equals
(1,100/15,000) × 100.
Refer to Table 9-1. The unemployment rate for this simple economy equals
(100/1,100) × 100
The Soviet Union's economy grew rapidly in terms of GDP per hour worked in the 1950s, but eventually this growth slowed. Why did this occur?
Capital per hour worked grew rapidly from 1950 to 1980 Innovation and technological change grew very slowly or not at all. Increasing capital per hour worked eventually suffered diminishing marginal returns.
Which of the following statements is true about the U.S. economy?
Each year, many new jobs are created and many existing jobs are destroyed.
Which of the following is an example of the way the financial markets in the United States can encourage technological progress more efficiently than other countries?
Even when entrepreneurs cannot secure sufficient funding for projects from banks, venture capital firms may be willing to lend money.
Suppose there are two cities that have rent controlled apartments. In one city (Albany) all apartments are subject to rent control; in the other city (Halftrack) one-half of the apartments are rent controlled. Which of the following is most likely to be true?
It will be difficult to find a rent-controlled apartment in Albany or Halftrack; rents for the Halftrack apartments not subject to controls will be higher than they would be without rent control.
Which of the following can explain why some countries have not experienced relatively high growth rates in real GDP per capita despite relatively low initial levels of real GDP per capita?
Many of these developing countries do not have a functioning court system that can fairly and consistently enforce laws. Countries are more likely to experience wars and revolutions. Countries are likely to have corrupt governments.
Labor unions cause unemployment when the union contract wage is set
above the market wage, causing a surplus of labor
'Secular stagnation' refers to the idea that low real interest rates are a result of:
aging populations and low birthrates
The nominal GDP of the U.S. in 2016 was approximately $18.6 trillion. This means that
all of the above the value of output in 2016 was around $18.6 trillion. total income in 2016 was around $18.6 trillion. total spending in 2016 was around $18.6 trillion.
Which of the following would you expect to increase the equilibrium interest rate?
an increase in the budget deficit
If the government implements a binding price ceiling on insulin, this will
decrease the quantity of insulin manufacturers will be willing to supply
What would happen in the market for knee replacement surgery if insurance companies started to cover a smaller portion of the cost of the surgery?
demand will decrease, but this will not shift the supply curve
Borrowers are ________ of loanable funds, and lenders are ________ of loanable funds.
demanders; suppliers
According to the World Bank, Albania does one of the worst jobs as a country enforcing the rule of law. The consequence of a weak rule of law is
difficulty in attracting investment and low economic growth.
Which of the following cause the unemployment rate as measured by the Bureau of Labor Statistics to understate the true extent of joblessness?
discouraged workers
The real wage equals the nominal wage ________ the CPI, all times 100.
divided by
Technological improvements are more likely to occur if
entrepreneurs are compensated with higher profits for taking risks
The natural rate of unemployment is the amount of unemployment
equal to frictional plus structural unemployment.
Which factors explain labor productivity?
technological change; the quantity of capital per hour worked
Under the Soviet system of communism
technological progress was slow because managers had little incentive to develop new technologies