Macroeconomics Test 2
An aggregate production function
shows the relationship between a country's GDP and its factors of production
The following scenario is an example of what The US demonstrated this between 1820 and 2007
sustained growth
Two countries have equal population. These countries will have equal income per capita in a particular year if?
the GDP of both the countries are equal in that year
The average American is so much richer than the average Indian due to differences in what?
the capital stock, technology and human capital
The income per worker of a country increases if?
the country's GDP increases, all other variables remaining constant
Japan's currency is called Yen. The value of Japan's income per capita in dollars is high if?
the dollar/yen exchange rate is high
Workers in an economy are likely to be more productive if?
the economy has a high capital stock
The productivity of workers in an economy is high if?
the economy has high levels of human capital
Xenonia has a larger supply of labor than Techland. If the labor supply in both the countries increases by the same amount while their capital stocks remain unchanged, what?
the increase in Xenonia's output will be more than the increase in Techland's output
economic growth is what?
the increase in income (GDP) per capita of an economy
Country A has a lower stock of capital than Country B, but the supply of labor in both the countries is equal.
the increase in output due an additional unit of capital will be larger in Country A than in Country B
Factors that help households decide whether to consume or save their income are what?
the interest rate, expectations of future income growth and expectations about taxes
The short run aggregate production function is subject to what if capital stock is increased, holding the total efficiency units of labor as constant.
the law of diminishing marginal product
Laborland has 1 million workers. Suppose 50,000 workers migrate from a neighboring country to join Laborland's workforce. What is likely to happen in this case if Laborland's capital stock remains unchanged?
the marginal contribution of labor to Laborland's output will fall
What did Malthus predict about economic growth?
the number of children per family would adjust so that income would remain close to subsistence level
Why was there no sustained economic growth before modern times, that is, before 1800?
the pace of technological change was much slower than in modern times and increases in aggregate income were offset by increases in population keeping per capita income low.
The GDP of Country X and Country Y were found to be equal in a particular year. However, the income per capita of Country X was higher than the income per capita of Country Y. This implies that?
the population of Country X is lower than the population of Country Y
The total efficiency units of labor are what?
the product of the total number of workers and the average human capital of each worker
Productivity is what?
the value of output that a worker generates for each hour of work
why is the intersection of the aggregate saving curve and depreciated capital line the steady-state equilibrium?
this is where the level of investment equals the depreciated value of physical capital, keeping the value of accumulated physical capital constant
Is it true or false that the exchange rate-based measures of income per capita differ from PPP-based measures of income per capita?
true
The income per capita of a country with a population of 50,000 is $4,500. Its gross domestic product is?
( 4500(50,000)=) 225,000,000
In Lutheria, there are 10,000 people in the age group of 0-14, 30,000 people are employed, and 2,000 people are unemployed. Lutheria's GDP, measured in luthers, is 1 billion. Income per worker in Lutheria is?
(1,000,000,000/30,000=)33,333
Countries:GDP:Total Population Ritzland:$10 million:5200 Neoland:$4 million:4000 Techland:$12 million:3100 Eduland:$7 million:3350 Which country has the highest income per capita?
(12,000,000/3100=3870.97) Techland
If the number of workers in a country is 12,000 and its income per worker is $380, its gross domestic product is?
(12,000x380=) 4560000
The price of a given basket of goods in Country 1 is 10 karls. The price of the same basket of goods in Country 2 is 25 ritz and $2 in the U.S. Country 1 has a income per capita of 3,200 karls and Country 2 has an income per capita of 5,500 ritz. The price of a basket of goods worth $1 in the US _________ in Country 1?
(2/10 =1/x =) 5 karls
The price of a given basket of goods in Country 1 is 10 karls. The price of the same basket of goods in Country 2 is 25 ritz and $2 in the U.S. Country 1 has a income per capita of 3,200 karls and Country 2 has an income per capita of 5,500 ritz. A basket of goods worth $1 in the US has a price of ________ in Country 2?
(2/25 = 1/x =) 12.5 ritz
If the income per capita of UK is 23,800 pounds and dollar/pound exchange rate (US $/pound) is 1.68 in 2014, the income per capita of UK in US dollars in the same year is?
(23,800x1.68=)39,984
The income per capita in Genovia is 38,333 Genovian dollars. If 1 Genovian dollar is equal to 0.78 US dollars, the income per capita in Genovia is US dollars is?
(38,333x.78=)29,899.74
Countries:GDP:Total Population Ritzland:$10 million:5200 Neoland:$4 million:4000 Techland:$12 million:3100 Eduland:$7 million:3350 The income per capita of Neoland is?
(4,000,000/4,000=) 1000
The gross domestic product of a small country is $4,150,000 and the size of its employed labor force is 5,000. The income per worker of the country is?
(4150000/5000 =) 830
A bundle of goods that costs $1 in the U.S. is worth 5 units in Country A's currency. If Country A's GDP in its own currency is 5,000,000 units, Country A's GDP in purchasing power parity-adjusted dollars is?
(5,000,000/5=) 1,000,000
The gross domestic product of a country is $500,000. If its income per worker of the population is $100, the size of its employed labor force is?
(500,000/100=) 5,000
Suppose the price of an iPad is $500 in the U.S. and 30,000 rupees in India. If an iPad is representative of average prices within a country, then the price of a basket of a goods worth $1 in the U.S. costs?
(500/30,0000 = 1/x =) 60 rupees in India
The gross domestic product of a small country which has a population of 200,000 is $56,000,000. The income per capita of the country is?
(56,000,000 / 200,000 =) 280
A country has 6000 total efficiency units of labor. If the average efficiency of each worker in the economy doubles, the country will have how many efficiency units of labor, everything else remaining unchanged?
(6000x2=)12,000
The income per capita in Baltonia is 64,163 in Baltonian currency. If the price of a basket of goods worth $1 in the US is 5.50 units of Baltonian currency, Baltonia's income per capita in purchasing power parity is?
(64163/5.5=)11,666
The average income per capita of a country in its own currency is 75,000 units. If one US dollar is worth 20 units of its currency, the income per capita of the country in dollars is?
(75,000 /20=) 3750
The price of a given basket of goods in Richland is 75 ritz. If the same basket of goods cost $10 in the US, the price of a basket of goods worth $1 in the US is?
(75/10 = x/1 = ) 7.5 ritz
If the aggregate income of an island country is $8 million and income per capita is $5,000, the total population of the island is?
(8,000,000/5,000=) 1,600
What are the disadvantages of using Big Macs to measure purchasing power parity?
Big Macs represent only a very small fraction of people's consumption and the Big Mac index simply compares a bundle consisting of only one good
What does Moore's Law predict?
Computer processing power would double approximately every 2 years
The price of a given basket of goods in Country 1 is 10 karls. The price of the same basket of goods in Country 2 is 25 ritz and $2 in the U.S. Country 1 has a income per capita of 3,200 karls and Country 2 has an income per capita of 5,500 ritz. Which country has a higher purchasing power parity-adjusted income per capita?
Country 1 is higher than that of country 2
the following four countries have equal GDPs Country : Number of people employed Country 1: 100,000 Country 2: 52,000 Country 3: 45,000 Country 4: 125,000 Which country has the highest income per worker?
Country 3
Suppose the average productivity of workers in Country A is equal to that of workers in Country B. If Country A has higher total efficiency units of labor than Country B, it implies what?
Country A has a larger supply of workers
What measure should be used to compare the incomes of countries with equal population but different unemployment rates?
Income per worker
Countries:GDP:Total Population Ritzland:$10 million:5200 Neoland:$4 million:4000 Techland:$12 million:3100 Eduland:$7 million:3350 Which country has the lowest income per capita?
Neoland
Countries:GDP:Total Population Ritzland:$10 million:5200 Neoland:$4 million:4000 Techland:$12 million:3100 Eduland:$7 million:3350 Which country is likely to have lowest life expectancy at birth?
Neoland
Countries:GDP:Total Population Ritzland:$10 million:5200 Neoland:$4 million:4000 Techland:$12 million:3100 Eduland:$7 million:3350 Which country is likely to have the highest rate of poverty?
Neoland
In the 1980s, the saving rate in Japan was extremely high. The saving rate ranged between 30 percent and 32 percent. Since saving leads to investment, is a very high saving rate always good for the economy?
No a high saving rate cannot lead to sustained economic growth because there is a maximum amount of aggregate income that an economy can achieve by increasing saving, since the economy can never exceed a saving rate of 100 percent
What is best to use when comparing the incomes of countries with huge differences in cost of living?
PPP-based measure of income per capita
Countries:GDP:Total Population Ritzland:$10 million:5200 Neoland:$4 million:4000 Techland:$12 million:3100 Eduland:$7 million:3350 Which country is likely to have the highest Human Development Index
Techland
An international agency uses the prices of iPads in different countries to compute the exchange rate between the currencies of these countries. Which measure is based on a similar idea?
The Big Mac Index
What is an alternative measure of exchange rate proposed by The Economist magazine?
The Big Mac index
The income per capita of two neighboring countries for a particular year were equal. However, Country 1 had a higher income per worker than Country 2. Which of the following is likely to be true?
The number of people employed is higher in Country 2 than in Country 1
SUppose you are comparing the income per capita in the US & Ghana. You try two approaches. In the first approach, you convert the Ghana values into US dollars using the current exchange rate between the US dollar and the Ghanaian cedi. In the second approach, you also convert both values to US dollars using the purchasing power parity-adjusted exchange rate. Which approach is likely to give you a more accurate picture of the living standards in both countries?
The second approach, because it takes into account the relative costs for each country
Is Moore's Law borne out by historical data?
Yes, Moore's prediction has been remarkably accurate
Which of the following will lead to a decrease in the value of Spanish income per capita in dollars?
a decrease in dollar/euro exchange rate
household savings decisions impact investment in the economy by having what?
a direct impact on investment, as saving is correlated with investment
The number of people employed in a country increased. Everything else remaining unchanged, this will lead to what?
a fall in the country's income per worker
Countries with higher income per capita are likely to have?
a higher Human Development Index
Country A's income per capita is higher than that of Country B. Country A is likely to have?
a higher life expectancy at birth
What is an example of a physical capital in agricultural production?
a tractor
An economy with better technology is likely to what?
achieve higher productivity?
What is likely to reduce the total efficiency units of labor in an economy?
an earthquake that kills several people
over the past 200 years, the U.S. economy has shown what?
an increase in income per capita, albeit not an entirely steady one
What is likely to lead to an increase in the gross domestic product of a country?
an increase in the capital stock of the economy
What is likely to increase the total efficiency units of labor in an economy?
an increase in the level of education attained by each worker
What is likely to increase the productivity of workers in an economy?
an increase in the number of years of training that each worker receives
what is likely to result in an increase in the total efficiency units of labor in an economy?
an increase in the productivity of each worker in the country
In a graph with output in the Y axis and efficiency units of labor in the X axis, which of the following causes a rightward movement along the aggregate production function?
an increase in the total efficiency units of labor
What causes an economy to move rightward along the aggregate production function?
and increase in the productivity of workers
What is the following scenario an example of? South Korea, which by 1970 had become poorer relative to the US but over the last 40 years grew faster than the US, closing the gap that had opened up previously
catch-up growth
the _________ in output due to each additional unit of a factor of production is _____________ when other factors held constant.
decrease;larger
Total efficiency units of labor in an economy increases if what?
each workers becomes more productive
The average number of years of schooling of workers in Argonia has increased. What is likely to increase if all other variables remain unchanged?
efficiency units of labor
A country's unemployment rate fell from 6% to 5% during a year. If its total population, capital stock and output remain unchanged, does income per worker fall or increase?
fall
What would cause an increase in total efficiency units of labor?
firms hire more workers
the saving rate in an economy is defined as the what?
fraction of total income that households save
Is the income per worker of a country higher or lower than its income per capita?
higher
Productivity varies across countries because what?
human capital per worker varies substantially from country to country, the level of technology differs across countries, the quantity of physical capital that workers can access varies greatly across countires
According to the aggregate production function, GDP increases when a nation what?
improves its technology, its stock of physical capital and the human capital of its workers
The Human Development Index combines life expectancy, measures of education and what to measure the standard of living?
income per capita
If the population of a country increases, while GDP remaining constant, then?
income per capita will decrease
What will happen if the GDP of a country increases and the population remains constant?
income per capita will increase
What is the best measure of the productivity of employed people in a country?
income per worker
If a country's GDP increases and all other variables remains constant, will income per worker increase or decrease?
increase
The relationship between the total efficiency units of labor and human capital is described as an increase in the average worker's level of human capital will, all else equal, ___________ the total efficiency units of labor in an economy.
increase
Based on your understanding of the chapter, poverty can best be reduced by what?
increasing international trade and improving the knowledge and technologies available in the world economy
the aggregate production function shows a(n) _____________ relationship between _____________ and output.
increasing;capital stock
What factors explain the dramatic increases in life expectancy that we saw in most countries in the twentieth century
innovations in disease control, including the use of DDT against malaria, the establishment of simply but effective medical and public health practices, scientific breakthroughs leading to the development of antibiotics and vaccines
The population of Potentia doubled within 20 years while its income per capita remained unchanged during the same period of time. This implies that?
its gross domestic product also doubled
a country's capital stock decreased after a war while its labor supply remained constant. What will happen in this case if output is a function of capital and efficiency units of labor
its total output will decrease
Suppose a country's labor supply increases in a year while its capital stock remains constant. What is likely to happen in this case if output is a function of capital and total efficiency units of labor
its total output will increase
Did Malthus predictions come true?
no, because he failed to account for the demographic transition and the impact of the Industrial Revolution
Total efficiency units of labor is what?
obtained by multiplying the total number of workers in the economy by the average efficiency of each worker
Catch-up growth is the what?
process by which relatively poorer nations increase their incomes by taking advantage of the knowledge and technologies already invented in other technologically advanced nations
sustained growth is the what?
process where GDP per capita grows at a positive and relatively steady rate for long periods of time
The main reason why income per capita and income per worker varies across countries is because?
productivity varies across countries
Which of the following tools is used to compare the income per capita across countries?
purchasing power parity
