EC 111 CHAPTER 15

Dilbert's Incorporated produced 5,000,000 units of accounting software in 2010. At the start of 2011 the pointy haired boss reduced total annual hours of employment from 10,000 to 8,000 and production was 4,800,000. These numbers indicate that productivity a. fell by 4%. b. fellby20%. c. rose by 12%. d. rose by 20%.

. rose by 20%

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500 consumption equals 7,500 and government purchases equal 2,000. What are private saving, public saving, and national saving?

1,000, 500, and 1,500, respectively

From 2013 to 2014, the CPI for medical care increased from 150 to 159. What was the inflation rate for medical

6%

What would happen in the market for loanable funds if the government were to increase the tax on interest income?

Interest rates would rise

Which of the following statements is not correct? The catch-up effect is based on the assumption of diminishing returns to capital. b. Investmentinpoorcountriesbycitizensofrichcountriesisonewaypoorcountriescanlearn new technologies. c. Malthus argued that charity and government aid was an effective way to reduce poverty. d. Peace and justice are keys to growth.

Malthus argued that charity and government aid was an effective way to reduce poverty.

The consumer price index tries to gauge how much incomes must rise to maintain

a constant standard of living.

Two of the economy's most important financial intermediaries are

banks and mutual funds

Consider two people who are currently out of work. Tim is not looking for work because there have been many job cuts where he lives and he doesn't think it likely that he will find work. Bev is not currently looking for work, but she would like a job and she has looked for work in the past. The Bureau of Labor Statistics considers

both Tim and Bev to be marginally attached workers

Assume most athletic apparel bought by U.S. consumers is imported from other nations. If all else is constant, an increase in the price of foreign-made athletic apparel will cause the U.S.

consumer price index to increase more than the GDP deflator.

The deviation of unemployment from its natural rate is called

cyclical unemployment

Given that a country's real output has increased, in which of the following cases can we be sure that its productivity also has increased? a. The total number of hours worked rose. b. The total number of hours worked stayed the same. c. The total number of hours worked fell. d. Both b and c are correct.

d. Both b and c are correct.

Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills is called

frictional unemployment

The Eye of Horus incense company has $10 million in cash which it has accumulated from retained earnings. It was planning to use the money to build a new factory. Recently, the rate of interest has increased. The increase in the rate of interest should

make it less likely that The Eye of Horus will build the factory because the opportunity cost of the $10 million is now higher

Unemployment that results because the number of jobs available in some labor markets may be insufficient to give a job to everyone who wants one is called

structural unemployment

Economists would predict that, other things the same, the more generous unemployment compensation a country has,

the longer the duration of each spell of unemployment, and the higher the unemployment rate.

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate

would decrease and investment would increase

5. Suppose the price index was 105 in 2017, 126 in 2018, and the inflation rate was lower between 2018 and 2019 than it was between 2017 and 2018. This means that

the price index in 2019 was lower than 151.2

Assuming the market for loanable funds is in equilibrium, use the following numbers to determine the quantity of loanable funds supplied. GDP $8.7 trillion Consumption Spending $3.5 trillion Taxes Net of Transfers $2.7 trillion Government Purchases $3.0 trillion

$2.2 trillion

Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year. In 2013, the basket's cost was $80; in 2014, the basket's cost was $86; and in 2015, the basket's cost was $90. The value of the CPI in 2015 was

104.6 and the inflation rate was 4.6%.

Alexis and Tara both mine salt. Alexis mines 300 pounds in 20 hours. Tara mines 400 pounds in 40 hours. Which of the following is correct? a. Alexis's productivity is greater than Tara's. This difference could be explained by Alexis having more physical capital than Tara. b. Alexis'sproductivityisgreaterthanTara's.Thisdifferencecannotbeexplainedby a difference in the physical capital each has. c. Tara's productivity is greater than Alexis's. This difference could be explained by Tara having more physical capital than Alexis. d. Tara's productivity is greater than Alexis's. This difference cannot be explained by a difference in the physical capital each has.

Alexis's productivity is greater than Tara's. This difference could be explained by Alexis having more physical capital than Tara.

Country A has a population of 1,000, of whom 800 work 8 hours a day to make 128,000 final goods. Country B has a population of 2,000, of whom 1,800 work 6 hours a day to make 270,000 final goods.

Country A has lower productivity and lower real GDP per person than country B

T OR F: Constant returns to scale is the point on a production function where increasing inputs will no longer increase output.

FALSE

T OR FTwo countries with the same saving rates must have the same growth rate of real GDP per person.

FALSE

t or f:If it could increase its growth rates slightly, a country with low income would catch up with rich countries in about ten years.

False

In general, if a consumer good is produced domestically and consumed domestically, an increase in its price will have which of the following effects?

The consumer price index will increase relatively more than will the GDP deflator.

Suppose that Congress were to institute an investment tax credit. What would happen in the market for loanable funds

The demand for loanable funds would shift right

In which of the following cases would it necessarily be true that national saving and private saving are equal for a closed economy?

The government's tax revenue is equal to its expenditures

Suppose a country has a consumption tax that is similar to a state sales tax. If its government were to eliminate the consumption tax and replace it with an income tax that includes an income tax on interest from savings, what would happen?

The interest rate would increase and saving would decrease

Some persons are counted as out of the labor force because they have made no serious or recent effort to look for work. However, some of these individuals may want to work even though they are too discouraged to make a serious effort to look for work. If these individuals were counted as unemployed instead of out of the labor force, then

both the unemployment rate and labor-force participation rate would be higher

Suppose that because of the popularity of the low-carb diet, bakeries need fewer workers and steak houses need more workers. This is an example of

frictional unemployment created by sectoral shifts

Suppose the price of a quart of milk rises from $1.00 to $1.20 and the price of a T-shirt rises from $8.00 to $9.60. If the CPI rises from 150 to 195, then people likely will buy

more milk and more T-shirts.

Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year.

Daisy is the newly appointed CEO of a company that manufactures CD drives on an assembly line. Her staff has told her that the output the firm produces, given the number of workers employed, indicates that some workers may be shirking. According to efficiency wage theory, what should she do?

pay all workers more than the equilibrium wage rate

An important difference between the GDP deflator and the consumer price index is that

the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers.

Suppose government expenditures on goods and services and net taxes both decrease, and expenditures fall by more than net taxes. The effects of these changes on the budget deficit cause

the equilibrium interest rate to fall and the equilibrium quantity of loanable funds to rise

Other things the same, if a country raises its saving rate, then in the long run

the level of real GDP is higher but the growth rate of real GDP is unchanged.

Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant?

unmeasured quality change