Economic Test 2

A new assembly line robot with a price tag of $2.5 million is expected to depreciate by 3% at the end of next year. The real interest rate is 2.5%. What is the user cost of the robot for one year?

$62,500 $75,000 Correct! $137,500 $12,500

Henry Ford's $5 per day wage led to: (i) an increase in the number of workers willing to work at the Ford plant. (ii) workers who were more dedicated to their work. (iii) unemployment. (iv) lower total labor costs.

(i) and (ii) (ii) and (iii) (i), (ii), and (iv) Correct Answer (i), (ii), (iii), and (iv)

The aggregate production function Y = f(L, H, K) shows that economic growth can occur if: (i) labor force participation rates fall. (ii) human capital stays constant. (iii) education and worker skills improve. (iv) the depreciation rate increases.

(i) only (i) and (iv) (i), (ii), (iii), and (iv) Correct Answer (iii) only

Which people are not counted as part of the official measure of the labor force in the United States? (i) individuals under the age of 16 (ii) retirees (iii) institutionalized people (iv) those who are not working but getting job training

(i) only (ii) and (iii) (iii) only Correct! (i), (ii), and (iii)

Meredith has purchased a guaranteed income certificate (GIC) in Canada. This financial instrument pays her 1% interest per year. However, inflation during the same year is 2%. What was Meredith's nominal interest rate on her GIC?

3% -1% Correct Answer 1% 2%

You purchase a certificate of deposit that earns an advertised rate of 1.75% interest per year. What is your real rate of return if the actual inflation rate is 1.9%?

3.65% Correct! -0.15% 1.75% 0.15%

In May 2019, Texas reported a civilian labor force of 14,012,711. The number of employed people was 13,516,387. What was the unemployment rate?

4.9% 5.3% Correct! 3.5% 96.5%

Which of the following is an example of hyperinflation?

An economy experiences over 10% economic growth in one year. There is deflation of 20% in an economy. Correct! An economy experiences inflation of more than 7,500% in one year. Economic growth decreases by more than 15% in one year.

If the government lowers the corporate tax rate, then the ______ loanable funds shifts to the _______ .

Correct Answer demand for; right supply of; left demand for; left supply of; right

In Canada, the Ontario government provides a tax credit to firms that spend on scientific research and experimental development. This tax credit will:

Correct! shift these firms' production functions upward through innovation and creative ideas. reduce the amount of money firms spend on research and development. increase the marginal cost of producing each unit of output. shift these firms' production functions downward by the amount of the tax credit.

Kia Motors announces a plan to produce Kia automobiles in Pakistan. How does this change economic growth in Pakistan?

Economic growth is negatively affected. Economic growth increases due to an investment in education. Economic growth increases due to an increase in labor. Correct! Economic growth increases due to capital accumulation.

The law of diminishing returns means that:

additional investments in physical capital will significantly boost output in wealthier countries with already existing large capital stocks. the economic growth rates of wealthier countries must always exceed the economic growth rates of poorer countries. additional investments in physical capital are not as productive as additional investments in human capital. Correct! additional investments in physical capital do not boost output in wealthier countries with already existing large capital stocks.

In 1989, a four-year college degree would set you back $26,902. The consumer price index was 123.94 in January 1989. If the current consumer price index is 251.1, what is the cost of the four-year degree in current dollars?

$13,278.51 $26,902 $41,224.41 Correct! $54,502.92

What is Iceland's real GDP if its nominal GDP is $25.9 billion (in current US$) and the GDP deflator is 124.5?

$25.9 billion $24.5 billion Correct! $20.8 billion $32.2 billion

If the interest rate is 7% and the average inflation rate is 2.5%, what is the approximate future real value of $45,000 in five years?

$36,110 $47,700 $63,115 Correct! $56,078

In 1979, when the consumer price index was 72.58, men earned a median income of $11,779 per year. If the consumer price index in 2015 was 236.99, how much was $11,779 in 2015 dollars?

$42,959 $3,607 Correct! $38,461 $11,779

Structural unemployment can be caused by: (i) efficiency wages. (ii) union-determined wages. (iii) minimum wage laws. (iv) job protection regulations.

(i), (ii), and (iv) (ii) and (iii) Correct Answer (i), (ii), (iii), and (iv) (ii), (iii), and (iv)

Refer to the following statistics. Based on these statistics, the level of business investment is: Inventories: $12 million Housing: $400 million Equipment: $500 million Business structures: $350 million Intellectual property: $700 million

Correct! $1,550 million. $500 million. $1,562 million. $1,050 million.

You open a savings account that pays 1.67% interest a year. What is your real rate of return if the actual inflation rate is 1.67%?

Correct! 0% -1.75% 1.67% 3.34%

A bank run can happen when:

a bank lends only to creditworthy borrowers. Correct! people believe that a bank run is likely. a bank is increasing in size. a bank is owned by the government.

You run a factory that makes leather shoes. You opt to pay your workers twice the going wage in order to reduce tardiness and shirking and to increase workers' morale and effort. This scenario is an example of:

a minimum wage. Correct! an efficiency wage. discouraged workers. cyclical unemployment.

The CPI changes from 100 to 125. This means that:

consumers are now able to purchase 25% more goods and services. Correct! overall prices are now 25% higher than they used to be. the base year index has changed from 100 to 125. the GDP deflator has also risen from 100 to 125

Even though deposit insurance existed, the United States experienced a major financial crisis from 2007 to 2009 because:

banks refused to honor the deposit insurance scheme. the deposit insurance system failed during that time. Correct! there was a run on shadow banks, which were not covered by deposit insurance. there was excess competition from other countries.

The steady state in the Solow growth model occurs when:

depreciation reaches zero. savings increases in the economy. Correct! investment equals depreciation. capital accumulation begins.

An involuntarily part-time worker is one who:

is marginally attached to the labor force. has taken a part-time job in order to go to school full-time. works full-time but wants to find a part-time job. Correct! works part-time but wants to find a full-time job.

Banks spread the risk of lending money across many borrowers by:

lending only to risky borrowers in the market. borrowing from the government. Correct! lending to a diverse array of borrowers. charging high-interest rates to cover the risk of any loan defaults.

Which of the following encourages the development of new ideas and inventions?

negative economic growth Correct! patents capital accumulation government control of resources

The U.S. Department of Education sponsors the i3 program (Investing in Innovation), which provides grants to educational institutions and schools that have a proven track record of high student achievement. This is an example of a government program designed to build:

physical capital. labor resources. Correct! human capital. physical factories and plants.

In the loanable funds market, the supply of loanable funds is positively sloped because the higher the real interest rate, the:

smaller the benefits of saving. lower the profitability of investment projects. higher the profitability of investment projects. Correct Answer greater the benefits of saving.

A firm that prepares and mails customer notices on behalf of banks has recently shifted from manually addressing letters to using a computer program that automatically inserts customer addresses and prepares letters. Thus, the production time for each letter has decreased from four minutes to just 30 seconds. This scenario is an example of:

the effects of an investment tax credit. a rise in productivity causing an improvement in technology. Correct! an improvement in technology leading to a rise in productivity. a labor-intensive production method.

Technological advancement is NOT represented by which of the following?

the invention of robotic meal preparation the invention of the light bulb Correct! the adoption of an existing technology by new firms the creation of new apps designed to enhance efficiency and reduce wastage in production lines

Suppose that a CPI basket includes avocadoes, pineapples and oranges. Avocadoes become very expensive, and consumers substitute away from avocadoes and buy hummus instead. If the CPI basket does not change to reflect the move away from avocados, the result is:

understated inflation. the failure to capture real variables versus nominal variables. Correct! substitution bias. quality bias.

David is looking for a full-time job in the insurance industry. He is able to find only a 10-hour per week job as a fill-in insurance agent. Davis can be described as:

unemployed. a discouraged worker. a marginally attached worker. Correct! an involuntary part-time worker.

WinSun, a Chinese firm, began producing 3-D printed houses in late 2013. These houses were produced in a fraction of the time it would take to produce a house in the regular way and at a much lower cost. This is an example of:

Correct! an advance in technology leading to a rise in productivity. a rise in productivity causing an advance in technology. a movement to the left along the same production function. a movement to the right along the same production function.

The Industrial Revolution led to: (i) increased intellectual pursuits. (ii) increased production of food. (iii) economic growth. (iv) a rise in inventions.

(iii) only (i) and (ii) (iii) and (iv) Correct! (i), (ii), (iii), and (iv)

The government passes a new investment tax credit initiative. Which input in the production function changes, and what is the effect on economic growth in the country?

Correct! The capital stock increases, and economic growth is positively affected. The capital stock decreases, and economic growth is negatively affected. Human capital is enhanced, and economic growth is positively affected. Technological advance occurs, but there is no effect on economic growth.

The GDP deflator is an index that tracks the:

price that businesses pay over time for the inputs used in the production process. average price that consumers pay over time for a representative basket of goods and services. highest prices consumers pay over time for imported goods and services. Correct! price of all goods and services produced domestically

You've graduated from college and are now working in an investment firm where you advise clients on investment decisions. Here is the information on the proposed project. Up-front cost: $250,000 Next year's revenue: $25,000 Real interest rate: 4% Depreciation rate: 6% What is the present value of the stream of payments from this project?

Correct $250,000 $0 $275,000 $625,000

Small differences in economic growth rates can lead to large differences in standards of living. Why is this the case?

Correct! Because of the cumulative effects of small differences in growth rates on real GDP over hundreds of years. It is due to accounting errors. Over time, small differences in growth rates do not lead to large differences in real GDP per person. It follows from convergence theory.

Deposit insurance is:

Correct! a guarantee that you will get your money back, even if the bank collapses. a method by which banks rank borrowers based on their credit scores. personal insurance you can buy to ensure that you can pay back any loans you take from a bank. insurance that is sold by banks.

With the advent of cloud computing, different units within a business now share data much more easily. The sharing of data with their suppliers and distributors is also much more streamlined. This is an example of:

Correct! a rise in technology leading to an increase in efficiency. a rise in productivity causing an improvement in technology. a rise in human capital leading to an increase in capital accumulation. reduced inefficiency in production.

Even if inflation exists, your purchasing power from one period to the next will stay intact if:

you do not receive a pay rise. Correct! your pay rise exactly matches the rate of inflation. the rate of inflation is less than 1%. you buy the same goods and services that you bought last year

Southeast Asian countries experience high temperatures and high humidity during the monsoon seasons. This makes working conditions difficult. Because air conditioners are expensive and consume a lot of electricity, an alternative air cooler called an Eco-cooler was invented. This device does not use electricity, is made from readily available soda bottles, and works by funneling air into a room. This scenario is an example of:

Correct! a technological innovation that can increase labor productivity and thus increase economic growth. a rise in productivity causing an increase in technology. a decrease in the labor force participation rate in Southeast Asian countries. the development of human capital

One of the important tasks that banks perform is to:

Correct! create long-term loans from short-term deposits. provide high-interest returns on deposits and charge low-interest rates on loans. raise the risk that interest rates will change over time. print new money for the government.

One of the reasons that ideas can lead to sustainable and long-term economic growth is that they:

Correct! do not depreciate with use. cannot be copied. are always copyrighted to their inventors. can be shared only within the domestic borders of a country

The user cost of capital is the:

Correct! extra cost associated with using one more machine next year. real interest rate. price of the machine plus forgone interest. total cost of purchasing one more machine next year.

Holding everything else equal, the _____ the interest rate on saving, the _____ the future value of that saving.

Correct! higher; greater higher; lower lower; greater lower; the more negative

Maturity transformation occurs when banks:

provide payment services. assess the creditworthiness of borrowers. use long-term loans to create short-term deposits. Correct! use short-term loans to create long-term loans.

Banks solve information problems by:

Correct! finding out the necessary details about a borrower's creditworthiness. providing daily news updates to lenders. removing all chances of loan defaults. clearly explaining interest rate charges on loans.

The equilibrium interest rate in the loanable funds market is at the neutral interest rate when the economy is:

Correct! in neutral. experiencing very high inflation. above its potential. below its potential.

A constant returns to scale production function means that if all inputs are increased by 75%, this should lead to output:

Correct! rising by 75%. rising by more than 75%. falling by less than 75%. falling by more than 75%.