ECON Exam 2

Issuing bonds

When a corporation borrows money from lenders in exchange for a fixed rate of return and a given maturity, the corporation is:

Aggregate expenditures curve will shift down, decreasing the income-expenditure equilibrium.

(Figure: Income-Expenditure Equilibrium) Look at the table Income-Expenditure Equilibrium. If investment spending decreases in this economy, then the:

Profit expectations for business investments become less optimistic.

(Figure: Loanable Funds) (Y)Interest Rate 6% (X) Quantity of loanable funds $100 Look at the figure Loanable Funds. Which of the following might produce a new equilibrium interest rate of 4% and a new equilibrium quantity of loanable funds of $75

supply; right; decrease

(Figure: The Market for Loanable Funds II) Look at the figure The Market for Loanable Funds II. Other things being equal, a decrease in taxes on savings and investment income will shift _____ to the _____ and _____ the interest rate.

False

If the consumption function is C = $100 million + 0.8 × YD, then the marginal propensity to consume is $100 million.

False

If the labor force becomes younger, the natural rate of unemployment will fall.

5.

If the marginal propensity to consume is 0.8, then the multiplier is:

2.

If the marginal propensity to save is 0.5, the multiplier is:

13 million

If the rate of unemployment is 10% and the labor force is 130 million, the number of unemployed workers is:

False

The convergence hypothesis says that international differences in real GDP per capita tend to increase over time.

Narrow

The convergence hypothesis states that international differences in real GDP per capita tend to _____ over time.

is mostly a function of buyers' beliefs about their future prices.

The demand for stocks:

4%

The economy has grown by 4% per year over the past 30 years. During the same period the labor force has grown by 1% per year and the quantity of physical capital has grown by 5% per year. Each 1% increase in physical capital per worker is estimated to increase productivity by 0.4%. Assume that human capital has not changed during the past 30 years. (Scenario: Productivity) Look at the scenario Productivity. How fast has physical capital per worker grown?

False

The expenses involved in actually putting together and executing a deal are called liquidity costs.

tax revenue is more than government spending.

The government saves when:

It could skip forward, or leapfrog, to use new-generation technology as it developed.

The main reason South Korea has grown so rapidly is that because it was so poor:

The slope.

The marginal propensity to consume is _____ of the consumption function.

Divided by

The real wage is the wage rate _____ the price level.

70 divided by the growth rate.

The rule of 70 states that a variable's approximate doubling time equals:

Does not count as investment spending.

This year, Alan purchases a home built in the 1950s. Alan's purchase:

is the amount of output produced from a given amount of factor inputs.

Total factor productivity:

7.6%

Total population: 200 million Population age 16 and older: 150 million Employed: 97 million (Table: Labor Force Data) Look at the table Labor Force Data. If the labor force participation rate is 70%, the unemployment rate is:

8 million.

Total population: 200 million Population age 16 and older: 150 million Employed: 97 million Look at the table Labor Force Data. Suppose the labor force participation rate is 70%. The number of unemployed adults is:

True

Underemployed people are counted as employed even though they are not fully using their skills.

Frictional unemployment

Unemployment due to the time workers spend in job search.

Frictional

Unemployment that is due to the time workers spend in job search is _____ unemployment.

Structural unemployment

Unemployment where more people are seeking jobs in a particular labor market than there are jobs available at the current wage rate

Life-cycle income hypothesis.

Vanessa tells people she is consuming more now and probably will continue to do so for some time, but she believes her consumption will smooth out over her lifetime. Vanessa's consumption pattern mirrors the _____:

Efficiency wages

Wages that employers set above the equilibrium wage rate

False

When the price level increases, everyone becomes wealthier.

Zimbabwe

Which country had the lowest growth rate of real GDP per capita between 1980 and 2010?

True

A rise in real GDP that is the same as the rate of population growth leaves the average standard of living unchanged.

Look up the current stock price.

According to the efficient markets hypothesis, if you are trying to find out what a stock is really worth, you should:

People try to smooth their consumption over the course of their lives.

According to the life-cycle hypothesis, wealth affects consumer spending because:

Natural resources.

According to the text, productivity is driven by all of the following EXCEPT:

$400

Aggregate expenditure (per year) $800 ~ Real GDp (per year) $3,200 = Equilibrium (Figure: Aggregate Expenditures Curve III) Look at the table Aggregate Expenditures Curve III. Suppose that the consumption function shifts upward by $100. Equilibrium real GDP will rise by:

Planned investment spending increases.

Aggregate spending increases when:

Works longer hours.

All of the following are reasons average workers in the United States today produce more than their counterparts a century ago EXCEPT that the modern worker:

Expectations about disposable income.

All of the following factors determine planned investment spending EXCEPT:

Liquid

An asset is _____ if it can be quickly converted into cash with relatively little loss of value.

Structural unemployment.

An effective minimum wage can lead to:

C = 150 + 0.8YD

Andy $150 / 950 (Table: Individual and Aggregate Consumption Functions) Look at the table Individual and Aggregate Consumption Functions. Which of the following represents Andy's individual consumption function?

False

Between 1990 and 2005 the price of oil was high relative to prices in the 1970s and 1980s, and consumers responded by buying small, fuel-efficient cars.

500

Consider the simple economy of Behr, whose government does not tax its citizens. The consumption function of Behr is given by C = 500 + 0.80Y, where Y is income. The autonomous consumer spending in this economy is:

France and Germany.

Convergence is most likely between:

decrease in private investment spending resulting from government deficit spending.

Crowding out results in a(n):

$1,200

Disposable= 2 billion Consumption= 1,200 billio (Figure: Consumption and Disposable Personal Income) Look at the figure Consumption and Disposable Personal Income. When disposable personal income is $2,000 billion, consumption is _____ billion.

Reducing risk

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:

falling; rising

For most of U.S. modern economic history, when the unemployment rate is _____, real GDP is _____.

True

Fundamentals are the underlying determinants of a company's future profits.

There will be unplanned increases in inventories.

If aggregate expenditures are lower than real GDP:

The economy is slowing down.

If overall inventories rise in a month because of unplanned inventory investment, most likely:

True

If planned aggregate spending rises by $10 billion and the marginal propensity to consume is 0.8, then the income-expenditure equilibrium increases by 50 billion.

False

If planned investment is $50 billion and unplanned inventory investment is $10 billion, then actual investment is $40 billion.

Unplanned inventory accumulation equals $300 billion.

If real GDP equals $700 billion and planned aggregate expenditures equal $400 billion:

Level of government interference.

In 1820, Mexico had a higher real GDP per capita than Japan. Yet now Japan is one of the richest countries in the world and Mexico is poor. Japan's high rate of economic growth can be explained by all of the following EXCEPT a high:

10.5%

In 2011, 10 million people did not have a job but were actively looking for employment, and 85 million people had either a full-time or a part-time job. The unemployment rate in 2011 was:

Decrease.

In an economy with no taxes or imports, if the marginal propensity to consume increases, the marginal propensity to save will:

There is no unplanned inventory investment.

In an income-expenditure equilibrium:

a deficit of $1.5 trillion

In an open economy GDP is $12 trillion this year. Consumption is $8 trillion, and government spending is $2 trillion. Taxes are $0.5 trillion. Exports are $1 trillion, and imports are $3 trillion. Reference: Ref 10-2 (Scenario: Open Economy S = I) Look at the scenario Open Economy S = I. What is the government budget balance?

Falling unemployment.

In general, expansions are characterized by:

Borrowers benefit, since they repay their loans in dollars with lower real value.

In periods of unexpected inflation:

23.3 years

India is growing at a rate of 9% per year, and its real GDP per capita is about $3,500, while the United States is growing at a rate of 3% per year, and its real GDP per capita is about $47,000. (Scenario: Growth Rates in Two Countries) Look at the scenario Growth Rates in Two Countries. How long will it take the United States to double its real GDP per capita?

Decrease in frictional

Internet employment agencies have simplified the job search for the applicants. They have also led to a(n) _____ unemployment.

Associated with an ability to find a job with relative ease.

Low unemployment rates are often:

True

More than 50% of the world's population lives in countries whose population is poorer than the United States population was a century ago.

Default

Occurs when a borrower fails to make payments

True

One factor contributing to a slow rate of economic growth in Latin America is that broad basic education has been underemphasized in most countries.

The recent proliferation of temporary employment agencies.

One factor that reduces the natural rate of unemployment is:

Decrease transaction costs.

One reason financial institutions become very large is to:

John Maynard Keynes

Person responsible for Keynesian economics.

True

Research and development is what we call spending to develop and implement new technologies.

-$300

Scenario: Consumption Spending Suppose that the consumption function is C = $500 + 0.8 × YD, where YD is disposable income. (Scenario: Consumption Spending) Look at the scenario Consumption Spending. If disposable income is $1,000, savings is:

$1,600

Scenario: Consumption Spending Suppose that the consumption function is C = $500 + 0.8 × YD, where YD is disposable income. (Scenario: Consumption Spending) Look at the scenario Consumption Spending. If income increases by $2,000, consumption will increase by:

$4 trillion

Scenario: Open Economy S = I In an open economy GDP is $12 trillion this year. Consumption is $8 trillion, and government spending is $2 trillion. Taxes are $0.5 trillion. Exports are $1 trillion, and imports are $3 trillion. Reference: Ref 10-2 (Scenario: Open Economy S = I) Look at the scenario Open Economy S = I. How much is investment spending?

False

Shoe-leather costs may be especially important in the tax system when inflation distorts the measures of income on which taxes are collected.

0%

Southlandia: Investment spending as a percentage of GDP: 30% Private savings as a percentage of GDP: 35% Capital inflow as a percentage of GDP: -5% (Table: Investment Spending, Private Spending, and Capital Inflows) What is the budget balance as a percentage of GDP in Southlandia?

Fluctuations in the business cycle.

Structural unemployment can be caused by all of the following EXCEPT:

If the bank charges 8% and the inflation rate is less than 3%, then the bank will have earned a higher rate of return than expected.

Suppose that a bank wishes to make a 5% rate of return on a one-year loan but expects inflation over the course of the loan to be roughly 3%. Which of the following is TRUE?

$1.8 trillion

Table: National Income Accounts (Trillions) GDP $15.9 Consumption 11.3 Government spending 3.0 Exports 2.2 Imports 2.7 Budget balance -1.2 (Table: National Income Accounts) Look at the table National Income Accounts. The value of tax revenue is:

1.1%

Table: Price Levels 2011: 221.3 2012: 227.7 2013: 232.2 2014: 234.8 (Table: Price Levels) Look at the table Price Levels. What is the rate of inflation from 2013 to 2014?

a discouraged worker.

The Bureau of Labor Statistics calls a person who is out of work, would like to work, but has given up looking for work:

Intervening governments with lots of regulations.

The East Asian countries have exhibited tremendous economic growth during the past 40 years because of all of the following EXCEPT:

Disposable income, expected disposable income, and wealth.

The aggregate consumption function depends on:

Positive and negative multiplier effects.

The changes in the economy of Ft. Myers, Florida, between 2003 and 2010 provide an example of:

Households expect an increase in the minimum wage.

The consumption function will shift up if:

Because of diminishing returns, increasing the amount of physical capital per worker will eventually bring smaller and smaller increases in productivity.

Which of the following accurately describes what is happening along a typical aggregate production function?

Spending on physical capital

Which of the following do economists view as investment spending?

A common language between the two countries

Which of the following factors is NOT necessary for convergence between two countries?

GDP = C + I + G + X - IM

Which of the following is TRUE of an open economy?

People tend to make more transactions.

Which of the following is a LIKELY response to inflation?

An autoworker is laid off because a recession has caused a decline in sales.

Which of the following is an example of cyclical unemployment?

The availability of jobs falls.

Which of the following situations is likely to lead to an increase in discouraged workers?

Job training and employment subsidies

Which pair of policies is likely to reduce the natural rate of unemployment?

10%

You receive an email from a firm proposing the following business deal. The firm will send you $1,000 now, and in exchange you will send it $1,100 in one year. You will just break even if the annual interest rate is:

$41

Your textbook costs $90, and you can resell it in one year for $45. If the annual interest rate is 10%, then the present value of the textbook's resale value (to the nearest dollar) is:

Liability

a requirement to pay income in the future.

Cyclical unemployment

is the deviation of the actual rate of unemployment from the natural rate due to downturns in the business cycle.

Shoe-leather costs

the increased costs of transactions caused by inflation.