Macro Chapter 10

Evaluate the following​ statement: ​"Saving money is not lending. How can it​ be? When I save my​ money, I put it in a bank. I​ don't loan it out to someone​ else." The statement is A. incorrect. The supply of loanable funds is determined by household saving. B. incorrect. The supply of loanable funds is determined by​ firms' willingness to borrow. C. correct. Depositing money in a bank is neither saving nor borrowing. D. correct. Depositing money in a bank is​ borrowing, not saving

A

Evaluate the following​ statement: ​"Saving money is not lending. How can it​ be? When I save my​ money, I put it in a bank. I​ don't loan it out to someone​ else." The statement is A. incorrect. The supply of loanable funds is determined by household saving. B. incorrect. The supply of loanable funds is determined by​ firms' willingness to borrow. C. correct. Depositing money in a bank is neither saving nor borrowing. D. correct. Depositing money in a bank is​ borrowing, not saving.

A

Following a long period of slow​ growth, the government of country X decided to open its economy and reduce trade barriers in order to boost economic growth. This provided the expected impetus to the economy as competition increased and the efficiency of domestic firms improved. A decade after opening the​ economy, the​ country's GDP is now growing at an average of​ 7-8 percent annually. A group of economists claim that the standard of living of the people has improved substantially during this period. They also expect this impressive growth to continue over the next five years. Which of the​ following, if​ true, will indicate that the country may not be able to maintain this average growth over the next few​ years? A. The central bank announced its intention to take appropriate measures to ensure that inflation stays within control. B. The government reduced FDI restrictions in many domestic industries. C. The investment in public infrastructure has steadily increased over the last four years. D. The domestic currency is expected to remain stable in the near future. E. Imports account for 12 percent of the​ country's GDP.

A

From a trough to a​ peak, the economy goes through A. the expansionary phase of the business cycle. B. falling real GDP. C. the recessionary phase of the business cycle. D. rising real​ GDP, but falling real GDP per capita.

A

In​ particular, the size of the health care sector in a developing country A. grows with economic prosperity as life expectancy increases. B. falls since the developing country depends more on the advanced countries for their medical needs. C. grows as the government provides more subsidy. D. falls with economic prosperity as life expectancy increases.

A

Purchases of which types of goods are business cycles most likely to​ affect? A. durable goods B. nondurable goods C. services D. goods the government purchases

A

What is the best use of the rule of 70 among those listed​ below? A. to judge how rapidly real GDP per capita is growing over long time periods B. to forecast the duration of recessions C. to find the average annual growth rate of real GDP D. to calculate the difference between the growth rate in real GDP and the growth rate in real GDP per capita

A

Which of the following changes does not cause an increase in the quantity of goods and services that can be produced by one​ worker, or in one hour of​ work? A. an increase in the number of workers. B. an increase in the quantity of capital per hour worked C. an increase in the literacy rate D. technological change

A

Which of the following factors determines the supply of loanable​ funds? A. the willingness of households and governments to save B. the number of financial intermediaries available C. changes in the interest​ rate, which cause firms to undertake more or fewer investment projects D. the quantity of stocks and bonds issued by firms

A

Firms that act as financial intermediaries match households that have excess funds with firms that want to borrow funds. What other key services does the financial system provide to savers and​ lenders? ​(Mark all that​ apply.) A. Provides an easy method of exchanging a financial security for money. B. Collects and communicates information about borrowers to savers C. Allows savers to spread their money among many financial investments. D. Insures assets up to​ $500,000. E. Offers fixed and stable interest rates. F. Insures investments against decreasing in value.

A,B,C

Technological progress is affected by A. entrepreneurship B. new software developments C. investment in capital D. private property rights E. population growth

A,B,C,D

Capital can be differentiated between physical capital and human capital. Human capital is. A. the energy use to bring together the factors of production to produce goods and services. B. the knowledge and skills workers acquire from education and training or from their life experiences C. the new developments in machinery and software. D. the goods manufactured to produce other goods and services.

B

Crowding out occurs when A. interest rates increase as firms spend a larger amount of resources on research and development. B. governments must borrow funds which causes interest rates to rise and thus private investment is reduced. C. interest rates increase because the Federal Reserve reduces that​ economy's money supply. D. firms borrow more to expand operations which results in an increase in interest rates.

B

Even though individuals earn interest on financial investments such as​ bonds, mutual​ funds, and certificates of​ deposits, they may still hold wealth in checking accounts because A. the government says people must hold a portion of wealth as reserves. B. individuals need money that is available to be spent on goods and services. C. some individuals might not be rational. D. individuals are uncertain of how much interest is appropriate for different types of securities.

B

Following a long period of slow​ growth, the government of country X decided to open its economy and reduce trade barriers in order to boost economic growth. This provided the expected impetus to the economy as competition increased and the efficiency of domestic firms improved. A decade after opening the​ economy, the​ country's GDP is now growing at an average of​ 7-8 percent annually. A group of economists claim that the standard of living of the people has improved substantially during this period. They also expect this impressive growth to continue over the next five years. Which of the​ following, if​ true, will indicate that the standard of living has actually improved since the economy was​ opened? A. Overall exports increased because of a fall in domestic consumption during this period. B. Discretionary spending by domestic consumers increased during this time. C. The government pegged its currency to a foreign currency three years back. D. High interest rates have attracted a large amount of foreign investment over the last five years. E. Country​ X's leading trading partner reported a fall in the standard of living over the last two years.

B

Holding all else​ constant, a federal government budget deficit will A. decrease the supply of loanable funds and decrease the equilibrium real interest rate. B. decrease the supply of loanable funds and increase the equilibrium real interest rate. C. increase the demand for loanable funds and increase the equilibrium real interest rate. D. increase the supply of loanable funds and decrease the equilibrium real interest rate.

B

In determining whether to borrow​ funds, firms compare the rate of return they expect to make on an investment with A. the total amount of profit they expect to make from the investment. B. the interest rate they must pay to borrow the necessary funds. C. the initial cost of the investment. D. the revenue expected from the investment.

B

In its annual report for​ 2009, Corning noted declines in sales for most of its products. But it also noted that these declines were​ "offset somewhat by an increase in sales of Gorilla​ glass, a protective cover glass that is optimized for portable display devices. Sales of Gorilla glass have continued to increase as the Company moves to capitalize on market opportunities for this​ product." ​Source:​ Corning, Inc.,​ "Form 10-K"​ (Annual Report),​ 2010, p. 34. Gorilla glass is used on the screens of iPhones and many other portable electronic devices. Its sales may have been less affected by the business cycle than sales of some of the​ firm's other​ products, such as screens for LCD televisions or ceramics used in automobile emission​ systems, because A. television and automobile manufacturers increased the prices of their products at that time. B. the demand for portable electronic devices was less affected than the demand for televisions and automobiles. C. Corning reduced the price of Gorilla glass to increase its sales at that time. D. the demand for portable electronic devices was more affected than the demand for televisions and automobiles.

B

India has been able to experience rapid economic growth since 1991 despite poor educational and health care systems because A. the Indian people started to put aside their religious and cultural differences to make the country a better place. B. the government scaled back central​ planning, reduced​ regulations, and introduced​ market-based reforms. C. the British left a legacy of infrastructure including an efficient train system and world class ports. D. the government provided modern sewer systems serviced to the vast majority of it inhabitants

B

What is the general relationship between the business cycle and unemployment and​ inflation? A. During a​ recession, unemployment and inflation increase. B. During an​ expansion, unemployment falls and inflation increases. C. During an​ expansion, unemployment and inflation increase. D. During a​ recession, unemployment and inflation decrease

B

Which of the following changes will ensure that an economy experiences sustained economic​ growth? A. increasing the amount of labor B. technological change C. increasing the amount of capital D. increasing the amount of raw materials

B

Which of the following does NOT lead to long-run economic growth? A. Improved labor productivity B. Increase in average wages C. Technological change D. Increase in the capital stock

B

Between 1950 and the​ mid-1990s, the United States experienced a much larger increase in the standard of living than the Soviet Union. Which of the following is a reason the U.S. experienced larger economic growth than the Soviet​ Union? A. The U.S. had a greater amount of spending on physical capital. B. The U.S. had a greater amount of private property rights. C. The U.S. had a larger population than the Soviet Union. D. The U.S. had a market economy that allowed for greater entrepreneurship to occur. E. The U.S. had a more centrally planned economy allowing the government to direct resources to capital accumulation.

B,D

Firm​ X, a leading manufacturer of rubber tires in country​ A, caters to almost​ one-third of the domestic tire market. The country was hit by a recession last year that caused the national output growth to be negative. Simon​ Reeds, the CEO of firm​ X, feels that these fluctuations in the business environment are​ short-lived and expects the economy to recover very soon. In spite of the​ recession, Simon feels that the firm can actually invest in expanding its facilities as it has sufficient cash flows to continue its operation during the crisis period. The​ firm's marketing​ head, Sandra​ Jones, counters this by saying that the firm is already losing sales due to the recession and they should not increase costs further by making​ large-scale investments in the present climate. Which of the​ following, if​ true, would support the​ CEO's claim? A. The government introduced a floor price in the market for natural rubber last year. B. Some of firm​ X's competitors have slashed the prices of their products in an attempt to boost sales. C. The government recently announced a plan to offer incentives to buyers in the car and household appliances market. D. The tire industry reported good growth in profits until the recession began. E. Crude oil prices are increasing steadily.

C

Potential GDP is A. always less than actual real GDP. B. the level of GDP that would be produced when firms are operating below capacity. C. sometimes​ greater, sometimes​ less, and sometimes equal to actual real GDP. D. always greater than actual real GDP.

C

Recessions cause the inflation rate to​ _________, and the unemployment rate to​ _________. A. ​increase; increase B. ​decrease; decrease C. ​decrease; increase D. ​increase; decrease

C

The agency that identifies a recession is the A. BLS—Bureau of Labor Statistics. B. BEA—Bureau of Economic Analysis. C. NBER—National Bureau of Economic Research. D. Federal Reserve.

C

The computation of the average annual growth rate of real GDP A. is the same for shorter periods of time as for longer periods of time. B. involves simply averaging the growth rate for each​ year, but only if data for many years are available. C. is more complex when examining data for a long period of time than when examining data for only a few years. D. involves computing the percentage change in real GDP between the first year and the last year for the period being examined.

C

The ease with which a financial security can be exchanged for money is referred to as A. loanable funds. B. retained earnings. C. liquidity. D. capital.

C

What will be the effect of an increase in business taxes on the quantity of investment by firms and the​ economy's capital stock in the​ future? A. The quantity of investment will increase and the​ economy's future capital stock will decrease. B. The quantity of investment will decrease and the​ economy's future capital stock will increase. C. The quantity of investment will decrease and the​ economy's future capital stock will decrease. D. The quantity of investment will increase and the​ economy's future capital stock will increase.

C

Which of the following equals the amount of public​ saving? A. The sum of government purchases and government tax​ revenue, minus transfer payments to households. B. The sum of government tax​ revenue, government​ purchases, and government transfer payments to households. C. Government tax revenue minus the sum of government purchases and transfer payments to households. D. Government transfer payments to household minus the sum of government tax revenue and government purchases.

C

Which of the following is the best example of human​ capital? A. a worker pays less taxes B. a manager buys workers more personal computers C. a worker gets a college degree D. a manager devotes more spending to research and development

C

Which of the following is the best measure of the standard of living of the typical person in a​ country? A. the unemployment rate B. the inflation rate C. real GDP per person D. real GDP

C

​Narnia, a developed open​ economy, has been experiencing​ double-digit inflation and a decelerating output growth for the last four quarters. Jonathan Mathews and Ben​ Hall, two market​ analysts, are discussing the various measures that can be adopted by the concerned authorities to curb inflation and boost production in the economy. Jonathan thinks that the central bank should raise the nominal interest rate to control inflation.​ This, he​ feels, will also contribute to an increase in the aggregate supply of funds available for investment in the economy. Ben however disagrees. According to​ him, an increase in the nominal interest rate will lower​ investment, leading to a decline in aggregate production by firms.​ This, in​ turn, will increase the shortage in the economy and prices will rise further. ​Ben's claim that a higher interest rate will increase the shortage in the economy fails to recognize the possibility​ that: A. the unemployment level in the economy is low. B. interest rates in other countries have increased even more. C. a higher interest rate induces consumers to increase saving. D. the nationalized banks in this country have no history of default. E. the​ country's agricultural output was severely affected by drought two years back.

C

A government that collects more in taxes than it spends experiences A. a budget deficit. B. a budget balance. C. an increase in the national debt. D. a budget surplus.

D

Amartya​ Sen, a professor of economics at Harvard and a Nobel​ Laureate, has​ argued: ​"For India to match China in its range of manufacturing capacity... it needs a​ better-educated and healthier labor force at all levels of​ society." ​Source: Amartya​ Sen, "Why India Trails​ China," Wall Street Journal​, June​ 19, 2013. Education and health care are important for economic growth because A. the average diet in India is far less healthy than in China. B. it is unfair when some people have better education and health care than others. C. jobs are being outsourced from India to China as a result of faster internet technology. D. a​ well-educated and healthy workforce has higher productivity.

D

An insurance company is A. a financial intermediary because they take deposits and make mortgages and car loans. B. not a financial intermediary because financial intermediaries act as a​ go-between for borrowers and lenders. C. not a financial intermediary because they do not take direct deposits and do not make loans. D. a financial intermediary because they take premiums and use them to purchase financial securities.

D

As the economy nears the end of an​ expansion, which of the following typically​ occurs? A. The profits of firms will be falling. B. Wages are usually rising faster than prices. C. Interest rates are usually rising. D. All of the above occur.

D

Between 1950 and the​ mid-1990s, the United States experienced a much larger increase in the standard of living than the Soviet Union. This difference can be most attributed to the fact that the U.S. A. had a much larger amount of capital accumulation. B. experienced a greater increase in the amount of population growth. C. was more centrally planned than the Soviet Union. D. had a greater amount of technological change.

D

During the last half of the twentieth​ century, the U.S. economy experienced A. long​ recessions, interrupted by relatively short expansions. B. an inflation rate that increased during both recessions and expansions. C. much more severe swings in real GDP than in the first half of the twentieth century. D. long​ expansions, interrupted by relatively short recessions.

D

Which of the following is not a reason that the economy is considered to have been more stable in the 1950-2007 period than in other​ periods? A. the use of active government policies to stabilize the economy B. the establishment of unemployment insurance programs C. the increasing importance of services and the declining importance of goods D. continually falling oil prices

D

Which of the following​ contribute(s) to shorter​ recessions, longer​ expansions, and less severe fluctuations in real​ GDP? A. a service-based economy B. Unemployment insurance C. Monetary policy D. All of the above E. A and C only

D

which one of the following statements regarding unemployment and business cycles is true. A. The unemployment rate was not affected by the recession in November 2001. B. The unemployment rate fell right after the end of the recession in November 2001. C. The unemployment rate fell right the beginning of the recession in November 2001. D. The unemployment rate usually continues to rise even after the recession has ended.

D

​Long-run growth in GDP is determined by A. labor​ productivity, capital, and government expenditures. B. consumption, investment, and government expenditures. C. technology, investment, and consumption D. ​capital, labor​ productivity, and technology.

D

Following a long period of slow​ growth, the government of country X decided to open its economy and reduce trade barriers in order to boost economic growth. This provided the expected impetus to the economy as competition increased and the efficiency of domestic firms improved. A decade after opening the​ economy, the​ country's GDP is now growing at an average of​ 7-8 percent annually. A group of economists claim that the standard of living of the people has improved substantially during this period. They also expect this impressive growth to continue over the next five years. Which of the​ following, if​ true, would weaken the​ economists' claim that the standard of living has​ improved? A. The inflation level in country X has traditionally been low. B. Country X is a mixed economy. C. The bulk of government spending during this time was on social welfare. D. Borrowing costs in country X are low. E. The majority of wealth creation was concentrated in the highest income level.

E

Potential GDP A. measures the maximum that a firm is capable of producing. B. increases over time as technological change occurs. C. increases over time as the labor force grows. D. All of the above. E. B and C only.

E

When tax revenue equals government spending there is

a balanced budget

When tax revenue is less than government spending there is

a budget deficit

When tax revenue exceeds government spending​ (government purchases and transfer​ payments) there is?

a budget surplus

During the recession phase of the business​ cycle, production,​ employment, and income?

decrease

When business taxes​ increase, the equilibrium interest rate ________ and the equilibrium quantity of loanable funds _________.

decreases, decreases

During the expansion phase of the business​ cycle, production,​ employment, and income?

increase

The size of the health care sector in a less developed country is __________ the size of the health care sector of a developed country.

smaller than