Economics Chapter 6-10
A mathematical approximation called the rule of 70 tells us how long it will take for something to double in size if it grows at a constant rate. The doubling time is approximately equal to the number 70 divided by the percentage rate of growth. Thus, if Panama's real GDP per person is growing at 7 percent per year, it will take about 10 years (= 70/7) to double. Apply the rule of 70 to solve the following problem: Real GDP per person in Panama in 2017 was about $15,000 per person, while it was about $60,000 per person in the United States. If real GDP per person in Panama grows at the rate of 5 percent per year, about how long will it take Panama's real GDP per person to reach the level that the United States was at in 2017? (Hint: How many times would Panama's 2017 real GDP per person have to double to reach the United States' 2017 real GDP per person?)
28 years
Unemployment rates in the United States from 2007 to 2018 were in the range of a. 4.1 percent to 9.3 percent. b. 1.5 percent to 4.5 percent. c. 1.5 percent to 4.5 percent. d. 12.5 percent to 15.7 percent.
a.
What annual growth rate is needed for a country to double its output in each of the following cases? a. In 7 years: b. In 35 years: c. In 70 years: d. In 140 years:
a. 10% b. 2% c. 1% d. 0.5%
(Last Word) Art Buchwald's article "Squaring the Economic Circle" humorously describes how a. a person's decision not to buy an automobile eventually reduces many people's incomes, including that of the person making the original decision. b. a price increase on a single product eventually leads to rapid inflation. c. an increase in imports eventually leads to a greater increase in exports. d. a government tax rate increase eventually results in the government collecting less tax revenue than before the tax rate hike.
a.
A high rate of inflation is likely to cause a a. high nominal interest rate. d. low nominal interest rate. c. low rate of growth of nominal GDP. d. decrease in nominal wages.
a.
Assume the marginal propensity to consume is 0.8. If consumer spending increases by $20 billion, then real GDP will a. increase by $100 billion. b. decrease by $100 billion. c. increase by $16 billion. d. not change.
a.
Firms that choose to use a fixed-price policy a. will tend to experience larger inventory changes than firms that follow a flexible-price policy. b. will tend to experience smaller inventory changes than firms that follow a flexible-price policy. c. find that their inventories do not respond to demand shocks. d. will not hold inventories.
a.
If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is a. 11% b. 33% c. 91% d. 10%
a.
Macroeconomics is primarily concerned with studying two broad topics: a. long-run economic growth and short-run business cycles. b. the price of oil and gas abroad and prices of energy in the domestic market. c. the stock market and the housing market. d. household incomes and firms' profits. Chapter 6 quiz
a.
Many economists studying the productivity-growth patterns in the U.S. believe that in the period 1995-2010, the productivity of labor in the nation a. benefited from a significant wave of technological advance, coupled with global competition. b. suffered severely from global competition and outsourcing. c. was not much affected by external and technological forces, continuing on at a steady rate as before. d. weakened from the rising economic powers of other nations like China and India.
a.
Prices tend to be sticky because a. firms are worried that frequent price changes would annoy consumers. b. most firms have agreements with each other to fix prices at profit-maximizing levels. c. government controls most prices. d. foreign competition discourages domestic firms from price changes.
a.
Refer to the diagram. Consumption equals disposable income when (Figure question 1 chapter 10 quiz) a. disposable income is B. b. disposable income is D. c. CD equals A. d. B equals CD.
a.
The figure depicts a situation where (Figure question 4 chapter 6 quiz) a. prices are sticky, but output is flexible. b. prices are flexible, but output is constant. c. prices and output are both flexible. d. prices are sticky and output is constant.
a.
The two topics of primary concern in macroeconomics are a. short-run fluctuations in output and employment and long-run economic growth. b. unemployment and wage rates in labor markets. c. monopoly power of corporations and small business profitability. d. oil prices and housing markets.
a.
Which of the following is a true statement? a. Economists who support economic growth say that it is the most practical route to the higher standards of living that the vast majority of people desire. b. Most economists believe that the recent rise in the average rate of productivity growth implies an end to the business cycle. c. Most economists believe that increases in real GDP actually produce decreases in overall economic well-being because of spillover costs. d. Mainstream economists disagree as to whether the rate of productivity growth was higher between 1995 and 2010 or between 1973 and 1995.
a.
Which of the following is correct? a. During the Great Recession, unemployment rates for men rose above those of women. b. Unemployment rates for African-American and White workers are approximately the same. c. Teenagers experience approximately the same unemployment rates as do adults. d. Laborers are less vulnerable to unemployment than are professional workers.
a.
Suppose that work hours in New Zombie are 200 in year 1, and productivity is $8 per hour worked. a. What is New Zombie's real GDP? b. b. If work hours increase to 210 in year 2 and productivity rises to $10 per hour, what is New Zombie's rate of economic growth?
a. $1,600 b. 31.25%
Assume that a national restaurant chain called BBQ builds 10 new restaurants at a cost of $1 million per restaurant. It outfits each restaurant with an additional $200,000 of equipment and furnishings. To help partially defray the cost of this expansion, BBQ issues and sells 200,000 shares of stock at $30 per share. a. What is the amount of economic investment that has resulted from BBQ's actions? b. How much purely financial investment took place?
a. $12 million b. $6 million
Assume that the hypothetical economy of Econoland has 10 workers in year 1, each working 2,000 hours per year (50 weeks at 40 hours per week). The total input of labor is 20,000 hours. Productivity (average real output per hour of work) is $10 per worker. a. What is real GDP in Econoland? b. b. Suppose work hours rise by 1 percent to 20,200 hours per year and labor productivity rises by 4 percent to $10.40. In year 2, what will be Econoland's real GDP? c. c. Between year 1 and year 2, what will be Econoland's rate of economic growth?
a. $200,000 b. $210,080 c. 5.04%
The annual output and prices of a three-good economy are shown in the table below. (Figure question 1 chapter 7 homework) a. What was the economy's nominal GDP in year 1? b. What was its nominal GDP in year 2?
a. $21 b. $30
Use the table below to solve this problem. (Figure question 3 chapter 10 homework) Suppose the wealth effect is such that $10 changes in wealth produce $1 changes in consumption at each level of income. a. If real estate prices tumble such that wealth declines by $80, what will be the new level of consumption at the $340 billion level of disposable income? b. What will be the new level of saving?
a. $316 b. $24
Below is a list of domestic output and national income figures for a certain year. All figures are in billions. The questions that follow ask you to determine the major national income measures by both the expenditures and the income approaches. (Figure question 2 chapter 7 homework) a. Using the above data, determine GDP by both the expenditures approach and the income approach. Then determine NDP. GDP using the expenditures approach = GDP using the income approach = NDP = b. Now determine NI in two ways: first, by making the required additions or subtractions from NDP (method 1); and second, by adding up the types of income and taxes that make up NI (method 2). Method 1 = Method 2 = c. Adjust NI (from part b) as required to obtain PI. PI = d. Adjust PI (from part c) as required to obtain DI. DI =
a. $388 billion; 388 billion; 361 billion b. $357 billion; 357 billion c. $291 billion d. $265 billion
The data for the country of Upper Mongoose are given below. All figures are in billions of dollars. (Figure question 4 chapter 7 homework) a. What is Upper Mongoose's GDP for the year? b. What is the size of the underground economy as a percentage of GDP? c. By what percentage would GDP increase if the value of the services of stay-at-home spouses were included in GDP?
a. $500 billion b. 15% c. 5%
Suppose that Glitter Gulch, a gold mining firm, increased its sales revenues on newly mined gold from $100 million to $200 million between one year and the next. a. Assuming that the price of gold increased by 100 percent over the same period, by what percentage did Glitter Gulch's real output change? b. If the price of gold had not changed, what would have been the change in value of Glitter Gulch's real output?
a. 0 percent b. $100 million
Suppose that an initial $10 billion increase in investment spending expands GDP by $10 billion in the first round of the multiplier process. Also suppose that GDP and consumption both rise by $6 billion in the second round of the process. a. What is the MPC in this economy? b. What is the size of the multiplier? c. If, instead, GDP and consumption both rose by $8 billion in the second round, what would have been the size of the multiplier?
a. 0.6 b. 2.5 c. 5
Suppose that the linear equation for consumption in a hypothetical economy is C = 40 + 0.8Y. Also suppose that income (Y) is $400. Determine the values for the following: a. MPC: b. MPS: c. Level of consumption: d. APC: e. Level of saving: f. APS:
a. 0.8 b. 0.2 c. $360 d. 0.9 e. $40 f. 0.1
Suppose that the nominal interest rate is 7 percent and the real interest rate is 5 percent. a. What is the inflation premium? b. Given the level of inflation, how many years will it take for the price level to double?
a. 2% b. 35 years
Suppose that the nominal interest rate is 4 percent and the inflation premium is 2 percent. a. What is the real interest rate? b. Alternatively, assume that the real interest rate is 1 percent and the nominal interest rate is 6 percent. What is the inflation premium?
a. 2% b. 5%
Suppose that the annual rates of growth of real GDP in Econoland over a five-year period were as follows: (figure Question 1 Chapter 6 homework) a. What was the average of these growth rates in Econoland over these five years? b. What term would economists use to describe what happened in year 3? c. If the growth rate in year 3 had been a positive 2 percent rather than a negative 2 percent, what would have been Econoland's average growth rate over the five years?
a. 2.2 percent b. Recession c. 3 percent
Assume the following data for a country: (Figure question 1 chapter 9 quiz) a. What is the size of the labor force? b. What is the official unemployment rate?
a. 230 million b. 10%
How long would it take for the price level to double if inflation persisted at the following percentages? a. 2 percent per year: b. 5 percent per year: c. 10 percent per year:
a. 35 years b. 14 years c. 7 years
Consider the following data for a particular country. (Figure question 4 chapter 8 homework) a. What is the growth rate of real GDP from year 1 to year 2? b. What is the growth rate of real GDP per capita from year 1 to year 2?
a. 50% b. 25%
Suppose that in 1994 the total output in a single-good economy was 7,000 buckets of chicken. Also suppose that in 1994 each bucket of chicken was priced at $10. Finally, assume that in 2015 the price per bucket of chicken was $16 and that 22,000 buckets were produced. a. What is the GDP price index for 1994, using 2015 as the base year? b. By what percentage did the price level, as measured by this index, rise between 1994 and 2015? c. What were the amounts of real GDP in 1994 and 2015? In 1994, real GDP = In 2015, real GDP =
a. 62.5 b. 60% c. $112,000; $352,000
Refer to the figure below and assume that the values for points a, b, and c (the combined value of consumer goods and capital goods) are $10 billion, $20 billion, and $18 billion, respectively. (Figure question 2 chapter 8 homework) a. If the economy moves from point a to point b over a 10-year period, what must have been its annual rate of economic growth? b. If, instead, the economy was at point c at the end of the 10-year period, by what percentage did it fall short of its production capacity?
a. 7% b. 10%
Suppose the town of Boone has a total population of 50,000 people. Of those, 45,000 people are employed. There are 1,000 full-time students who are not employed or actively seeking work. The rest of the people are out of work but have been actively seeking work within the past four weeks. a. What is the official unemployment rate? b. Suppose there are 2,000 people who are unemployed because of cyclical unemployment and another 1,000 people unemployed due to structural unemployment. How many people are unemployed from frictional unemployment?
a. 8.2% b. 1,000 people
Refer to the figures below and assume that price is fixed at $37,000 and that Buzzer Auto needs 5 workers for every 1 automobile produced. (Figure Question 5 Chapter 6 homework) a. If demand is DM and Buzzer wants to perfectly match its output and sales, how many cars will Buzzer produce? How many workers will it hire? b. If, instead, demand unexpectedly falls from DM to DL, how many fewer cars will Buzzer sell? How many fewer workers will it need if it decides to match production to these lower sales?
a. 900 cars; 4500 workers b. 200 cars; 1000 workers
(Last Word) Behavioral economics incorporates culture and the studies of a. sociology and economics. b. psychology and economics. c. mathematics and economics. d. finance and economics. e. None of these choices are correct.
b.
Assume that for the entire business sector of a private closed economy, there are $0 worth of investment projects that will yield an expected rate of return of 25 percent or more. But there are $15 worth of investments that will yield an expected rate of return of 20-25 percent, another $15 with an expected rate of return of 15-20 percent, and an additional $15 of investment projects in each successive rate of return range down to and including the 0-5 percent range. The expected rate of return curve a. shows a direct relationship between the interest rate and investment. b. is also the investment demand curve. c. is indeterminate. d. implies a direct (positive) relationship between the interest rate and the level of GDP.
b.
GDP can be calculated by summing a. personal consumption, investment, government purchases, exports, and imports. b. personal consumption, investment, government purchases, and net exports. c. personal consumption, investment, wages, and rents. d. personal consumption, investment, government purchases, and imports.
b.
In an economy, for every $10 million increase in disposable income, saving increases by $2 million. It can be concluded that the a. slope of the saving schedule is 2. b. slope of the consumption schedule is 0.8. c. marginal propensity to consume is 0.2. d. average propensity to save is 0.2.
b.
In which of the following cases would real income rise? a. Nominal income rises by 8 percent, and the price level rises by 10 percent. b. Nominal income rises by 2 percent, and the price level remains unchanged. c. Nominal income falls by 4 percent, and the price level falls by 2 percent. d. Real income will rise in all of these cases.
b.
Labor productivity is measured by a. the ratio of capital to labor. b. real output per worker-hour. c. real output per capita. d. the ratio of worker-hours to real GDP.
b.
Only three goods are produced in an economy in the following amounts: A = 10, B = 30, C = 5. The current year per-unit prices of these three goods are A = $2, B = $3, and C = $1. Nominal GDP in the current year is a. $110 b. $115 c. $45 d. $90
b.
Strong property rights are important for modern economic growth because a. they allow governments to extract the gains from private citizens' investments. b. people are more likely to invest if they don't fear that others can take their returns on investment without compensation. c. they ensure an equitable distribution of income. d. business cycle fluctuations will be smaller and less likely to disrupt investment patterns.
b.
The dramatic slowdown in productivity growth experienced after the Great Recession a. is believed by most economists to be a permanent shift in the economy. b. is still debated among many economists as to whether it represents a permanent shift in the economy. c. suggests that prospects for lasting increases in productivity growth are rather poor. d. suggests that productivity growth can occur without raising the nation's standard of living.
b.
The investment demand curve portrays an inverse (negative) relationship between a. investment and real GDP. b. the real interest rate and investment. c. the nominal interest rate and investment. d. the price level and investment.
b.
The term "recession" describes a situation where a. inflation rates exceed normal levels. b. output and living standards decline. c. an economy's ability to produce is destroyed. d. government takes a less active role in economic matters.
b.
The unemployment rate in an economy is 6 percent. The total population of the economy is 290 million, and the size of the civilian labor force is 150 million. The number of unemployed workers in this economy is a. 6 million b. 9 million c. 12 million d. 24 million
b.
The unemployment rate is interpreted as the percentage of the a. adult population who are unemployed. b. labor force that are not employed. c. able-bodied population who are not working. d. workforce that have been laid off.
b.
When a recession begins and unemployment begins to rise, the demand for goods and services will fall. If the decline in demand is precipitous, which of the following will occur? a. hyperinflation b. deflation c. rising interest rates d. rising inflation
b.
When economists refer to "investment," they are describing a situation where a. people are buying shares of corporate stock. b. resources are devoted to increasing future output. c. money is saved in a bank account. d. financial assets are purchased in the hope of a monetary gain.
b.
Which of the following do national income accountants consider to be investment? a. the purchase of an automobile for private, nonbusiness use b. the purchase of a new house c. the purchase of corporate bonds d. the purchase of gold coins
b.
Which of the following is included in GDP? a. welfare payments received by some households b. fees received by stockbrokers c. cash gifts from relatives during the holidays d. payments received from selling stocks in one's portfolio
b.
Which phase of the business cycle would be most closely associated with an economic contraction? a. peak b. recession c. trough d. recovery
b.
The table below lists all of the investment opportunities available for the businesses of a small island country. (Figure question 5 chapter 10 homework) b. If the nominal interest rate for investment borrowing is 12 percent and the expected inflation rate is 5 percent, what will be this country's level of investment?
b. $16 million
Data for output (real income) and saving are presented in the table below. (Figure question 1 chapter 10 homework) b. What is the break-even level of income in the table? What is the term that economists use for the saving situation shown at the $240 level of income? c. For each of the following items, indicate whether the value in the table is either constant or variable as income changes: The MPS: The APC: The MPC: The APS:
b. $260; Dissaving c. constant; variable; constant; variable
An Increase in the overall level of prices in an economy is called a. growth b. expansion c. inflation d. nominal GDP growth
c.
One major economic benefit of global competition is a. lower unemployment b. increased protection of domestic firms. c. pressure to innovate. d. more leisure opportunities.
c.
Over a 10-year period, the Consumer Price Index doubled. Based on this information and using the rule of 70, we can say that the average annual rate of inflation over this period was approximately a. 10% b. 9% c. 7% d. 5%
c.
Refer to the accompanying graph. It suggests that the GDP price index during the period shown was generally (Figure question 10 chapter 7 quiz) a. constant b. decreasing c. increasing d. positive
c.
Refer to the given saving schedule. The break-even income would be level (Figure question 7 chapter 10 quiz) a. 0 b. 1 c. 2 d. 3
c.
The amount of new output produced per year for both consumption and additions to capital stock is measured by a. GDP b. net investment c. NDP d. net exports
c.
Which of the following trends have we not seen in the U.S. in the past six decades or so? a. The average length of the workweek remained relatively constant. b. The size of the labor force expanded. c. Rising birthrates kept the native-born population growing at a steady rate. d. Women's labor-force participation rate surged.
c.
Which would be considered an investment according to economists? a. A fishing-company owner buys Google shares. b. A fishing company buys a few used boats from another fishing company that was closing out. c. A fishing company buys new fishing gear. d. A fishing-company owner buys fuel to run the boats.
c.
A firm invests in a new machine that costs $5,000 a year but which is expected to produce an increase in total revenue of $5,200 a year. The current real rate of interest is 7 percent. The firm should a. undertake the investment because the expected rate of return of 10 percent is greater than the real rate of interest. b. undertake the investment because the expected rate of return of 8 percent is greater than the real rate of interest. c. not undertake the investment, because the expected rate of return of 6 percent is less than the real rate of interest. d. not undertake the investment, because the expected rate of return of 4 percent is less than the real rate of interest.
d.
If the economy adds to its inventory of goods during some year, a. gross investment will exceed net investment by the amount of the inventory increase. b. this amount should be ignored in calculating that year's GDP. c. this amount should be subtracted in calculating that year's GDP. d. this amount should be included in calculating that year's GDP.
d.
In year 1, Trailblazer Bicycle Company produced a mountain bike that was delivered to a retail outlet in November of that same year. The bicycle was sold to E.Z. Ryder in March of the next year, year 2. This bicycle is counted as a. consumption in year 1 and as negative investment in year 2. b. negative investment in year 1 and as consumption in year 2. c. negative investment in year 1 and as investment in year 2. d. investment in year 1 and as negative investment in year 2.
d.
Patents and copyrights foster the flow of a. saving and investment. b. spending and income. c. resources and products. d. inventions and ideas.
d.
Suppose a small economy produces only MP3 players. In year one, 10,000 MP3 players are produced and sold at a price of $100 each. In year two, 12,000 MP3 players are produced and sold at a price of $80 each. Which of the following statements is true? a. Real GDP and nominal GDP both increase. b. Real GDP increases, while nominal GDP remains constant. c. Real GDP decreases, while nominal GDP increases. d. Real GDP increases, while nominal GDP decreases.
d.
The figure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the highest marginal propensity to consume? (Figure question 5 chapter 10 quiz) a. 1 b. 2 c. 3 d. 4
d.
The full-employment rate of unemployment is also called the a. potential rate of unemployment. b. cyclical rate of unemployment. c. frictional rate of unemployment. d. natural rate of unemployment.
d.
When gross investment is positive, net investment a. is always zero. b. must be negative. c. must be positive. d. may be either positive or negative.
d.
Which of the following is not a supply factor in economic growth? a. the stock of capital b. technological advance c. the size and quality of the labor force d. aggregate expenditures of households, businesses, and government
d.
Which of the following statements is correct? a. The U.S. population has increased more rapidly than real GDP in recent decades. b. Improved education and training of labor is the most important source of U.S. productivity growth. c. The average American factory worker has about 16 years of formal education. d. The amount of real capital used per worker has increased historically in the United States.
d.
