ECON 2301 Exam 2

Financial markets spread the potential gains and losses of borrowing and lending operations among many individuals, therefore decreasing the overall uncertainty. This is an example of:

reducing risk.

All of the following lead to more rapid economic growth EXCEPT

restricting international trade

In macroeconomic long run

the economy is at full employment. real GDP equal potential GDP. regardless of the price level, the economy is producing at potential GDP.

Savers are willing to lend out money because ___________.

they prefer to spend money in the future rather than today

Refer to the figure above. If the government increases sales taxes (which decreases consumption spending), the supply for loanable funds curve will shift from _____ to _____ and the new equilibrium will be at point ________, holding demand constant at D0

S0; S1; B

The price of making a telephone call has fallen dramatically over the past 100 years. This is best explained by improvements in what?

Technology

The University of Central Florida (UCF) wanted "to create a town center where students can live, eat, study and revel in college traditions like football." In addition, the university needed funding to build dorms that would house 2000 students. UCF was able to secure financing by promising to pay a lender a specific amount of money on specific dates. This transaction takes place in the ________ market for _________ capital.

bond; financial

From the standpoint of economic growth, banks are important to:

channel saving into investment.

When talking about aggregate supply, it is necessary to

distinguish between long-run aggregate supply and short-run aggregate supply.

Consider a BMW automobile plant. If the price of BMW's increase by 10 percent and the nominal wage rate and other costs __________, there will be _________.

do not change; an increase in BMW's production and profit

Last year, in a nation far to the South, real GDP was $90 million and 900,000 workers were employed. This year real GDP is $100 million, 950,000 workers are employed, and the number of hours each worker works per year did not change. Hence, labor productivity

has increased.

The reason differences in the growth stories of North Korea and South Korea can be viewed as a natural experiment or an experiment of history is that ________.

institutions in both countries were changing radically, while geography and culture remained largely unchanged

In November 2008, Grand Canyon Education chose to finance expansion by offering ownership in it firm. These owners of Grand Canyon Education are entitled to a share of the firm's profits. This financing is an example of

issuing stock.

The more education that workers have, the _______ is their human capital and the _______ is their productivity

larger; higher

Refer to the figure above. Assume the economy depicted in the figure above is in long-run equilibrium, where the aggregate demand curve is AD0 and the short-run aggregate supply curve is SRAS0. If there is a supply shock, such as a drastic increase in the price of oil, this will cause a ______ and a movement to a short-run equilibrium at point _______.

leftward shift of SRAS to SRAS2; A

Along a short-run aggregate supply curve, a decrease int he price level means that

less output is produced as firms decrease production.

The country of Kemper is on its aggregate production function at point W in the above figure. The government of Kemper passes a law that makes 4 years of college mandatory for all citizens. After all citizens have their education, the economy will

move to point such as Z.

The process by which the stock of equipment and structures available to an economy is increased by investment is referred to as __________.

physical capital accumulation

The Great Depression, in which real GDP fell and unemployment rose, can be characterized as a

recessionary gap.

If a firm wants to borrow $10 million and the real interest rate increases from 5 percent to 6 percent, then the cost of the investment has increased by

$100,000 per year.

Bill's Lawn service starts the year with 20 lawn mowers. During the year, 3 mowers break and are not worth fixing. Bill also expands his business and buys 10 more mowers. Bill's gross investment is ________ mowers.

10

Suppose a country is producing $20 million of real GDP. If the economy grows at 10 percent per year, approximately how many years will to take for real GDP to grow to $80 million?

14

Bill's Lawn service starts the year with 20 lawn mowers. During the year, 3 mowers break and are not worth fixing. Bill also expands his business and buys 10 more mowers. Bill's capital at the end of the year is _________ mowers.

27

Refer to the table above. The standard of living between 2003 and 2006 increased by

32.7 percent.

Bill's Lawn service starts the year with 20 mowers. During the year, 3 mowers break and are not worth fixing. Bill also expands his business and buys 10 more mowers. Bill's net investment is _________ mowers.

7

Which of the following statements is true?

Countries with higher investment in research and development are likely to have higher standards of living.

Refer to the figure above. Which of the following may be an explanation for the shift in aggregate demand from line A to line B?

Interest rates fall and boost investments.

_______ increases the quantity of capital, and ________ decreases the quantity of capital.

Investment; depreciation

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?

Physical capital accumulation will occur faster in Country A than in Country B

Refer to the figure above. Assume that the loanable funds market initially is in equilibrium at point A. If substantial tax credits are promised to firms that invest in domestic facilities, how will the equilibrium change?

Will shift to point C

Refer to the figure above. In the figure above, the economy is at an equilibrium with real GDP of $16 trillion and a price level of 110. At this point there is

a recessionary gap.

In the marcoeconomic short run

actual real GDP may be less than or more than potential GDP.

The expansion and discovery of new technologies _________, therefore, ________.

are not subject to diminishing returns; they shift the productivity curve upward