Econ Exam 3

create a shortage of savings.

A ceiling on interest rates can:

temporary monopoly rights

A patent is a government grant of:

private marginal benefit is greater than the marginal cost.

A profit-maximizing firm invests in research and development so long as the:

imports

A tariff is a tax on:

imported

A trade quota restricts the quantity of goods that can be:

finished

A(n) _____ good is one that is sold to the end user and then consumed or held in personal inventories.

borrow when young.

According to the life cycle theory of savings, people tend to:

supply of funds in the loanable funds market will decrease.

All else equal, if consumers decide to save less, the:

supply of funds in the loanable funds market will increase.

All else equal, if consumers decide to save more, the:

raise prices above competitive levels.

An argument against patents is that they:

numerical limit on imports.

An import quota is a:

reduces private consumption.

An increase in government borrowing:

liabilities; assets

An insolvent firm has _____ in excess of its _____.

$910

Assume that the Candyland economy produced approximately 150 candy bars, 80 bags of caramels, and 30 solid chocolate bunnies. If the average price of candy bars is $3, the average price of caramel bags is $2, and the average price of chocolate bunnies is $10, the GDP for Candyland's economy is:

cooking and cleaning done by a homemaker.

Assuming that each option refers to the United States and the current year, the calculation of GDP excludes the:

can, perversely, lead to an increase in child labor in poor countries.

Bans on child labor:

business fluctuations

Business cycles are also called:

business cycles

Business fluctuations are also called:

not counted as part of gdp

Buying stock is:

both the supply of savings and the demand to borrow.

Consumption smoothing is useful for explaining:

a major issue, with approximately 50 percent of banks failing.

During the Great Depression, the number of bank failures was:

has no overall effect on the number of U.S. jobs.

Economists generally believe that trade:

an increase in the politicization of lending.

Financial intermediation may fail if something causes:

can reduce child labor.

Free international trade generally:

takes place

GDP is added to wherever the production

divided by population

GDP per capita is GDP:

finished goods and services produced by a country's permanent residents, wherever located, in a year.

Gross national product (GNP) is the market value of all:

patents, tax breaks on research and development expenditures, and subsidies for research and development

How can the government increase production of new ideas?

both nominal and real GDP.

If 2010 is the base year, then nominal GDP in 2010 is calculated using the base year's prices, so it is also real.

GDP increases

If a wealthy woman marries her gardener, stops paying him, and does not hire a new firm to perform the work, then:

6 to 18 months

If the Fed acts to reduce interest rates today, it may take _____ before aggregate demand and economic growth begin to respond significantly.

Human capital has declined, which will cause economic growth to decrease.

Imagine that a country loses its best-educated and most-skilled workers, who depart the country to pursue better opportunities elsewhere. How would this affect economic growth?

heavily taxed or forbidden.

Imports beyond a trade quota are:

shadow banking system, and those investments are not government guaranteed.

Investment banks are part of the:

private spending on tools, plant, and equipment used to produce future output.

Investment is:

time preference

It has been said that consumers often want immediate satisfaction and therefore must be compensated for saving their money. Which preference best captures this phenomenon?

currency, checkable deposits, savings deposits, money market mutual funds, and small-time deposits.

M2 includes:

makes innovations take longer to spread throughout the economy.

Monopoly power created by patents:

too much risk, hoping that the Fed and regulators will later bail them out.

Moral hazard occurs when banks and other financial institutions take on:

added to U.S. GDP.

Nissan has decided to open a factory in Missouri in an effort to avoid tariffs. The cars produced in that plant are:

not been adjusted for inflation.

Nominal variables have:

Investment borrowing decreases.

Of the events that might occur as a part of the Fed's use of monetary policy, which would probably NOT occur if the Fed's goal was to increase aggregate demand?

the bank gets more liquid.

One of the benefits to a bank of securitizing its loans is that:

increasing

Over the past 10,000 years, growth in per capita world GDP has been:

the stock of tools including machines, structures, and equipment.

Physical capital is defined as:

that pits one interest group against another.

Protectionism tends to create a society:

Not included in GDP

Purchases of stocks and bonds are:

decrease aggregate demand.

Selling bonds in an open market operation would:

5.97

Suppose the production function for an economy is Y = √K, and that γ = 0.25 and δ = 0.05. If the present capital stock is equal to 36, in the next period, output will be equal to:

16.2

Suppose the production function for an economy is Y = √K, γ = 0.25, and δ = 0.05. If the present capital stock is equal to 16, in the next period, the capital stock will equal:

2.1 percent

Suppose the real GDP growth rate is 3.5 percent and the growth rate of the population is 1.4 percent. The real GDP growth per capita must be equal to:

nominal; real

Suppose your weekly earnings (the number on your paychecks) decrease by 2 percent over the course of a year and prices in the economy fall by 3 percent. In this case, your _____ earnings have decreased and your _____ earnings have increased.

risen; fallen

Suppose your weekly earnings (the number on your paychecks) increase by 2 percent over the course of a year and prices in the economy rise by 3 percent. In this case, your nominal earnings have _____ and your real earnings have _____.

the world supply curve up by the amount of the tariff.

Tariffs shift:

the monetary base only.

The Fed has direct control over:

the government and private banks.

The Federal Reserve's customers are:

productivity of capital and labor, physical capital, and human capital

The Solow model assumes that output is based on all of these

the Federal Reserve.

The bank account of the U.S. Treasury is maintained by:

small increase in prices leads to large profits.

The benefit of a high leverage ratio to a firm is that a:

arbitrage

The buying and selling of equally risky assets that ensures those assets earn equal returns is called:

greater than depreciation

The capital stock grows when investment is:

crowding out

The decrease in private consumption and investment that occurs when government borrows more is called:

national spending approach to GDP calculation.

The equation Y = C + I + G + NX is referred to as the:

the money multiplier.

The factor of increase in the money supply that occurs with each dollar of increase in reserves is called:

production is rising or falling over time.

The growth rate of GDP tells us how rapidly the country's:

multiplying the tariff rate by the quantity of the imports.

The revenues collected by the government from imposing a tariff are measured by:

double

The rule of 70 states that if the annual growth rate of GDP per capita is x%, it will take (70 ÷ x) years for it to:

increased demand for high-skilled American workers and decreased demand for low-skilled workers, with as many jobs being created as were lost.

The six-fold increase in imports to the United States from China between 1996 and 2006 led to:

not fixed but depends on how much of their assets banks want to hold as reserves.

The size of the money multiplier is:

reducing poverty in countries where child labor is prevalent.

To reduce child labor, people should focus on:

increasing wealth in countries that use child labor.

Trade can reduce the amount of child labor around the world by:

money multiplier

What does (1 ÷ RR) equal?

reserve ratio

What does RR stand for?

It decreases both M1 and M2.

What effect does a decrease in reserves have on the money supply?

An increase in reserves increases both M1 and M2.

What effect does an increase in reserves have on the money supply?

the rate at which new ideas are created

What is given in the textbook as a factor leading to new ideas that will be important for future economic growth?

consumption

What is not a variable in the factor income approach to GDP calculation?

to influence aggregate demand

What is the Fed's ultimate goal in undertaking monetary policy?

an initial public offering (IPO), and it is done so that the company can raise capital.

When a company decides to go public and issues stock for the first time, this is called:

fractional reserve banking.

When banks hold only a fraction of their deposits in reserve and lend the rest, this practice is called:

capital stock grows

When investment is greater than depreciation, the:

A(ideas) = population × incentives × ideas per hour

Which equation is used in the textbook to illustrate the sources of new ideas that will be important for the future of economic growth?

accordions

Which industry is NOT mentioned in the textbook as having been protected in the name of national security?

GDP does not count non-priced production.

Which statement is given in the textbook as a problem associated with using GDP as a measure of output and welfare?

capital and ideas that increase productivity.

Y = A√K represents a production function that supposes economic growth is based on:

Selling; aggregate demand

_____ bonds in an open market operation would decrease _____.

currency

_____ is paper bills and coins held by people and nonbank firms.

a US dollar

also known as a Federal Reserve note?

spending by all levels of government on finished goods and services.

government purchases are:

get the benefit of new ideas

imitators don't have to pay the costs of development, but they:

protectionism

is the economic policy of restraining trade though quotas, tariffs, or other regulations that burden foreign producers but not domestic producers.

prices at the time of sale

nominal gdp is calculated using

a base year's prices

real gdp is calculated using

rent, employee compensation, and interest

what is a variable in income approach to GDP calculation?