ECN Homeworks

A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move

raises GDP.

Accumulating capital

requires that society sacrifice consumption goods in the present.

By holding insurance a person

shares risk and so reduces the burden of risk

The length of time until a bond matures is called the

term

The inflation rate you are likely to hear on the nightly news is calculated from

the CPI.

Refer to Table 24-2. The cost of the basket in 2012 was

$225

Refer to Table 24-2. The cost of the basket in 2013 was

$235

Quality Motors is a Japanese-owned company that produces automobiles; all of its automobiles are produced in American plants. In 2008, Quality Motors produced $25 million worth of automobiles and sold $12 million in the U.S. and $13 million in Mexico. In addition, it sold $2 million from the previous year's inventory in the U.S. The transactions just described contribute how much to U.S. GDP for 2008?

$25 million

What is the future value of $375 at an interest rate of 3 percent one year from today?

$386.25

Suppose there are only two firms in an economy: Rolling Rawhide produces rawhide and sells it to Chewy Chomp, Inc., which uses the rawhide to produce and sell dog chews. With each $1 worth of rawhide that it buys from Rolling Rawhide, Chewy Chomp, Inc. produces a dog chew and sells it for $2.50. Neither firm had any inventory at the beginning of 2014. During that year, Rolling Rawhide produced enough rawhide for 2000 dog chews. Chewy Chomp, Inc. bought 90% of that rawhide for $1800 and promised to buy the remaining 10% for $200 in 2015. Chewy Chomp, Inc. produced 1800 dog chews during 2014 and sold each one during that year for $2.50. What was the economy's GDP for 2014?

$4,700

Refer to Table 24-12. Will's 2009 food expenditures in 2010 dollars amount to

$5,250

Refer to Table 24-12. To the nearest dollar, Will's 2010 food expenditures in 2009 dollars amount to

$5,524

Refer to Table 24-12. Suppose the consumer price index is 15.5 percent higher in 2011 than in 2009. Then Will's food expenditures for 2010 in 2011 dollars amount to

$6,380

David earned a salary of $43,500 in 1994 and $89,000 in 2010. The consumer price index was 148.2 in 1994 and 215.3 in 2010. David's 1994 salary in 2010 dollars is

$63,195.34

A worker received $5 for a daily wage in 1930. What is the value of that wage today if the CPI was 17 in 1930 and is 230 today?

$67.65

All else equal, which of the following would increase the unemployment rate? (i) an increase in the number of women who return to work after being stay-at-home mothers (ii) a preference among older men to retire early (iii) an increase in the maximum number of weeks for which someone can receive government unemployment benefits (iv) an increase in the number of previously unemployed women who stop looking for work and become discouraged workers

(ii) and (iii) only

If the nominal interest rate is 4 percent and the real interest rate is 7 percent, then the inflation rate is

-3 percent.

Refer to Table 24-2. If 2013 is the base year, then the CPI for 2013 was

100

Refer to table 24-2 If 2012 is the base year, then the CPI for 2012 was

100.0

Refer to Table 28-4. What is the adult female population in Meditor?

105 million

Refer to Table 28-4. What is the adult male population in Meditor?

135 million

Refer to Table 28-4. What is the adult labor force in Meditor?

160 million

Refer to Table 24-12. Suppose Will's 2010 food expenditures in 2011 dollars amount to $6,235. Then x, the consumer price index for 2011, has a value of

180.6

Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amount to $5,750. Then x, the consumer price index for 2011, has a value of

184

Of the following interest rates, which is the highest one at which the present value of $200 ten years from today is greater than $150?

2 percent

The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced

5.0 percent deflation between the first and second years, and 3.0 percent deflation between the second and third years.

Refer to Table 28-4. What is the adult unemployment rate in Meditor?

6.25%

Refer to Table 28-4. What is the adult female labor-force participation rate in Meditor?

66.7%

Refer to Table 28-4. What is the adult labor-force participation rate in Meditor?

66.7%

Refer to Table 28-4. What is the adult male labor-force participation rate in Meditor?

66.7%

Refer to Table 28-4. What is the adult female unemployment rate in Meditor?

7.1%

Refer to Table 28-4. What is the adult female labor force in Meditor?

70 million

If you presently have $50,000 saved and earn 15 percent interest per year, about how many years will it take for your investment to triple?

8

Suppose interest of 5% for two years can be earned on $1,000 saved today with no risk. What is the least amount a person would need to have a 50% chance of winning to be willing to face a 50% chance of losing $1,000 today and be considered risk averse?

$1,102.51 to be paid in two years

In the economy of Talikastan in 2015, consumption was $700, exports were $200, government purchases were $300, imports were $150, and investment was $400. What was Talikastan's GDP in 2015?

$1450

Suppose a country has government expenditures of $3,500, taxes of $2,200, consumption of $9,000, exports of $2,500, imports of $2,700, transfer payments of $750, capital depreciation of $800, and investment of $3,000. GDP equals

$15,300.

The consumer price index is

a useful measure, but not a perfect measure, of the cost of living

Efficiency wages, minimum-wage laws, and unions all keep wages

above the equilibrium level, causing a surplus of labor.

John has been a sky diver for many years. When the company John works for offers its employees the option to purchase a life insurance policy, John purchases a policy. This illustrates the problem of

adverse selection

An economy's natural rate of unemployment is the

amount of unemployment that the economy normally experiences

Which of the following would increase productivity?

an increase in the physical capital stock per worker, an increase in human capital per worker, an increase in natural resources per worker

Refer to Figure 26-4. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 5 percent, then the equilibrium nominal interest rate is

between 11 percent and 13 percent

Refer to Figure 26-4. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 4 percent, then the equilibrium real interest rate is

between 6 percent and 8 percent.

When the consumer price index falls, the typical family

can spend fewer dollars to maintain the same standard of living

For the purpose of calculating GDP, investment is spending on

capital equipment, inventories, and structures, including household purchases of new housing.

The basic tools of supply and demand are

central to macroeconomic analysis as well as to microeconomic analysis

Sectoral changes in demand

create frictional unemployment, while firms paying wages above equilibrium to attract a better pool of candidates creates structural unemployment.

Which of the following is consistent with the catch-up effect? a. The United States had a higher growth rate before 1900 than after. b. After World War II the United States had lower growth rates than war-ravaged European countries. c. Although the United States has a relatively high level of output per person, its growth rate is rather modest compared to some countries. d. all of the above

d. all of the above

Refer to Figure 25-1. The curve becomes flatter as the amount of capital per worker increases because of

diminishing returns to capital

Macroeconomists study

economy-wide phenomena

Foreign saving is used for domestic investment when foreigners engage in

either foreign direct investment or foreign portfolio investment.

Because every transaction has a buyer and a seller,

every transaction contributes equally to an economy's income and to its expenditure.

Net exports equal

exports minus imports

In recent decades Americans have increased their purchase of stocks of foreign-based companies. The Americans who have bought these stocks were engaged in

foreign portfolio investment

People who are unemployed because of job search are best classified as

frictionally unemployed

The CPI and the GDP deflator

generally move together.

A transfer payment is a payment made by

government, but not in exchange for a currently produced good or service

In the United States, nominal interest rates were

high in the 1970s and low in the 1990s.

Sheri, a U.S. citizen, works only in Germany. The value she adds to production in Germany is included

in German GDP, but is not included in U.S. GDP.

Inward-oriented policies

include imposing tariffs and other trade restrictions.

U.S. GDP

includes production of foreigners working in the U.S. but excludes production by U.S. residents working in foreign countries.

When the overall level of prices in the economy is increasing, economists say that the economy is experiencing

inflation

The catch-up effect refers to the idea that

it is easier for a country to grow fast and so catch-up if it starts out relatively poor.

Short-term bonds are generally

less risky than long-term bonds and so they feature lower interest rates.

Municipal bonds pay a relatively

low rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax.

When a country saves a larger portion of its GDP than it did before, it will have

more capital and higher productivity.

An increase in capital will increase real GDP per person

more in a poor country than a rich country. The increase in real GDP per person will be the same whether the addition to capital is from domestic or foreign investment.

Compared to short-term bonds, other things the same, long-term bonds generally have

more risk and so they pay higher interest rates

Unemployment compensation is

not part of GDP because it is a transfer payment.

National income differs from net national because

of a statistical discrepancy.

Consider the following three items of spending by the government: (i) the federal government pays a $500 unemployment benefit to an unemployed person; (ii) the federal government makes a $2,000 salary payment to a Navy lieutenant; (iii) the city of Bozeman, Montana makes a $10,000 payment to ABC Lighting Company for street lights in Bozeman. Which of these payments contributes directly to government purchases in the national income accounts?

only items (ii) and (iii)

People who buy stock in a corporation such as General Electric become

part owners of General Electric, so the benefits of holding the stock depend on General Electric's profits

When economists talk about growth in the economy, they measure that growth as the

percentage change in real GDP from one period to another.

The economy's inflation rate is the

percentage change in the price level from the previous period

The slope of the supply of loanable funds curve represents the

positive relation between the real interest rate and saving.

The utility function of a risk-averse person has a

positive slope but gets flatter as wealth increases.

Mutual funds

provide diversification. Shareholders assume all of the risk associated with the mutual fund.

In a simple circular-flow diagram, firms

purchase resources from households

Consumption consists of spending by households on goods and services, with the exception of

purchases of new houses.

Frictional unemployment is thought to explain relatively

short spells of unemployment, while structural unemployment is thought to explain relatively long spells of unemployment.

Most spells of unemployment are

short, but most unemployment observed at any given time is long term.

Cyclical unemployment refers to

short-run fluctuations around the natural rate of unemployment.

An understanding of the best ways to produce goods and services is called

technology

Economists use the term inflation to describe a situation in which

the economy's overall price level is rising.

Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amount to $5,670. Then

the inflation rate in 2011 was 8 percent.

Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amounted to $5,670. Suppose also that the real interest rate in 2011 was 3 percent. Then, in 2011,

the inflation rate was 8 percent and the nominal interest rate was 11 percent.

Refer to Figure 26-4. The position and/or slope of the Supply curve are influenced by

the level of public saving, the level of national saving, decisions made by people who have extra income they want to save and lend out

Which of the following headlines is more closely related to what microeconomists study than to what macroeconomists study?

the price of gasoline rises due to rising oil prices.

Refer to Figure 25-1. Choose a point anywhere on the curve and call it point A. If the economy is at point A in 2011, then it will definitely remain at point A in 2012 if, between 2011 and 2012,

the quantity of physical capital doubles; the number of workers doubles; and human capital, natural resources, and technology remain constant.

Refer to Figure 26-4. If the equilibrium quantity of loanable funds is $50 billion and if the equilibrium nominal interest rate is 8 percent, then

the rate of inflation is approximately 2 percent.

Refer to Table 24-12. If the nominal interest rate was 8 percent in 2010, then

the real interest rate in 2010 was 3 percent.

Refer to Figure 26-4. Regard the position of the Supply curve as fixed, as on the graph. If the real interest rate is 4 percent, the inflation rate is 2 percent, and the market for loanable funds is in equilibrium, then the position of the demand-for-loanable-funds curve must be

to the left of D1

The consumer price index is used to

turn dollar figures into meaningful measures of purchasing power

Diminishing marginal utility of wealth implies that the utility function is

upward-sloping and has decreasing slope

GDP is defined as the

value of all final goods and services produced within a country in a given period of time

In the national income accounts, depreciation is called

"consumption of fixed capital."

What is the present value of a payment of $1,000 two years from now if the interest rate is 6%?

$1000/(1.06)2

For an economy as a whole,

income must equal expenditure

In a small closed economy investment is $50 billion and private saving is $45 billion. What are public saving and national saving?

$5 billion and $50 billion

Refer to Scenario 28-1. What is the unemployment rate?

10.7%

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $51; and in 2016, the basket's cost was $52. The value of the CPI in 2014 was

102

The price index was 128 in 2013, and the inflation rate was 24 percent between 2012 and 2013. The price index in 2012 was

103.2

Refer to Table 24-2. If 2012 is the base year, then the CPI for 2013 was

104.4

Refer to Table 28-4. What is the adult population in Meditor?

240 million

Refer to Scenario 28-1. What is the total labor force?

28 million

Refer to Scenario 28-1. How many people are unemployed?

3 million

If 2013 is the base year, then the inflation rate in 2013 was

4.4 percent

Refer to Table 24-2. If 2012 is the base year, then the inflation rate in 2013 was

4.4 percent

Refer to Table 28-4. What is the adult male unemployment rate in Meditor?

5.6%

Refer to Table 24-12. Suppose Will's 2009 food expenditures in 2011 dollars amount to $5,750. Then the inflation rate for 2011 is about

9.52 percent

Refer to Table 28-4. What is the adult male labor force in Meditor?

90 million

Refer to Scenario 28-1. What is the labor-force participation rate?

93.3%

Refer to Table 24-2. If 2013 is the base year, then the CPI for 2012 was

95.7

A risk-averse person has

A utility function whose slope gets flatter as wealth rises. This means they have diminishing marginal utility of wealth.

Which of the following best illustrates moral hazard?

After a person obtains life insurance, she takes up skydiving.

Measuring unemployment is the job of the

Bureau of Labor Statistics

On a production function, as capital per worker increases, output per worker

increases. This increase is smaller at larger values of capital per worker.

Refer to Figure 26-4. Regard the position of the Supply curve as fixed, as on the graph. If the real interest rate is 8 percent, the inflation rate is 3 percent, and the market for loanable funds is in equilibrium, then the position of the demand-for-loanable-funds curve must be

D2

Frictional unemployment is inevitable because

Frictional unemployment is inevitable because

How does U.S. gross domestic product (GDP) differ from U.S. gross national product (GNP)?

GNP = GDP + income earned by U.S. citizens abroad - income that foreign citizens earned in the U.S.

A Mexican oil field service company works on oil rigs in the U.S. The value of the company's services produced by Mexican citizens and the equipment they own is included in

Mexican GNP and U.S. GDP.

Refer to Figure 25-1. The shape of the curve is consistent with which of the following statements about the economy to which the curve applies?

Returns to capital become increasingly smaller as the amount of capital per worker increases.

for an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total income in the economy that is left after paying for consumption and government purchases, then for an open economy, it is true that

S = I + NX.

The consumer price index and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct?

The CPI reflects a fixed basket of goods and services; the GDP deflator reflects current production of goods and services.

The real interest rate is the

interest rate corrected for inflation.

Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from investmentD1 to D2

The tax code is reformed to encourage greater investment

Which of the following statements about recessions is true?

There is no ironclad rule for the declaration of recessions.

When a U.S. citizen buys $500 of Chinese-made parts for a motorcycle,

U.S. consumption increases by $500, U.S. net exports decline by $500, and U.S. GDP remains the same.

If foreign citizens earn less income in the U.S. than U.S. citizens earn in foreign countries,

U.S. net factor payments from abroad are positive, and its GNP is larger than its GDP.

Crowding out occurs when investment declines because

a budget deficit makes interest rates rise

Which of the following is a financial intermediary? a.a mutual fund b.the stock market c. a U.S. government bond d. a wealthy individual who regularly buys and holds large quantities of government bonds

a. a mutual fund

Which of the following is an example of human capital? a. a student loan b. knowledge learned from reading books c. training videos for new corporate employees d. All of the above are correct

b. knowledge learned from reading books

An economist claims that changes in information technology and unemployment insurance have reduced unemployment. Which of these changes affect frictional unemployment?

both the changes in information technology and unemployment insurance

Which of the following is not correct? a. GNP equals net national product plus losses from depreciation. b. For most countries, including the United States, GDP and GNP are nearly the same. c. GDP and GNP typically move in opposite directions. d. Personal income equals disposable personal income plus personal taxes plus certain nontax payments.

c. GDP and GNP typically move in opposite directions.

Which of the following is an example of a renewable natural resource? a. the knowledge possessed by scientists b. carpenters' labor services c. lumber d. all of the above are correct

c. lumber

According to the circular-flow diagram GDP

can be computed as either the revenue firms receive from the sales of goods and services or the payments they make to factors of production

Which of the following is a determinant of productivity? a. human capital per worker b. physical capital per worker c. natural resources per worker d. All of the above are correct.

d. All of the above are correct.

Which of the following is not correct? a. the consumer price index gives economists a way of turning dollar figures into meaningful measures of purchasing power b. The consumer price index is used to monitor changes in the cost of living over time. c. The consumer price index is used by economists to measure the inflation rate. d. The consumer price index is used to measure the quantity of goods and services that the economy is producing.

d. The consumer price index is used to measure the quantity of goods and services that the economy is producing.

Which of the following is an example of physical capital? a. the strength of workers b. on the job training c. financial assets like cash and bonds d. the equipment in a factory

d. the equipment in a factory

According to the theory of efficiency wages, if a firm stops paying efficiency wages it is likely to see a(n)

decrease in the number of job applicants and a decrease in how long workers stay on the job.

Other things equal, relatively poor countries tend to grow

faster than relatively rich countries; this is called the catch-up effect.

Which of the following items is included in U.S. GDP?

final goods and services that are purchased by the U.S. federal government, intermediate goods that are produced in the U.S. but that are unsold at the end of the GDP accounting period, goods and services produced by foreign citizens working in the U.S.

Financial intermediaries are

financial institutions through which savers can indirectly provide funds to borrowers

An increase in the quantity of loanable funds traded means that

firms are borrowing more and investment increases.

Investment from abroad

is a way for poor countries to learn the state-of-the-art technologies developed and used in richer countries, is viewed by economists as a way to increase growth, and often requires removing restrictions that governments have imposed on foreign ownership of domestic capital.

By definition, equity finance

is accomplished when firms sell shares of stock.

The slope of the production function with capital per worker on the horizontal axis and output per worker on the vertical axis

is positive and gets flatter as capital per worker rises

The source of the supply of loanable funds

is saving and the source of demand for loanable funds is investment.

National saving

is the total income in the economy that remains after paying for consumption and government purchases

If the government currently has a budget deficit, then

it does not necessarily have a debt its debt is increasing. government expenditures are greater than taxes.

Christopher is an unpaid, stay-at-home father who works as a volunteer at the local Habitat for Humanity chapter. Currently, Christopher is not looking for a paid job. The Bureau of Labor Statistics counts Christopher as

neither in the labor force nor unemployed.

The logic behind the catch-up effect is that

new capital adds more to production in a country that doesn't have much capital than in a country that already has much capital.

Suppose an economy produces only cheese and fish. In 2010, 20 units of cheese are sold at $5 each and 8 units of fish are sold at $50 each. In 2009, the base year, the price of cheese was $10 per unit and the price of fish was $75 per unit. For 2010,

nominal GDP is $500, real GDP is $800, and the GDP deflator is 62.5

In a particular production process, if the quantities of all inputs used double, then the quantity of output doubles as well. This means that

the relevant production function has the constant-returns-to-scale property.

A policy that induces people to save more shifts

the supply of loanable funds rightward and increases investment.

It is claimed that a secondary advantage of mutual funds is that

they give ordinary people access to the skills of professional money managers

Which of the following is a way to compute GDP?

total income earned, total expenditures on final goods, add up the market values of all final goods and services

Which of the following is adverse selection?

a high-risk person being more likely to apply for insurance

Workland has a population of 10,000, of whom 7,000 work 8 hours a day to produce a total of 224,000 final goods. Laborland has a population of 5,000, of whom 3,000 work 7 hours a day to produce a total of 105,000 final goods.

Workland has lower productivity but higher real GDP per person than Laborland.

Which of the following is not a correct statement about the growth of real GDP in the U.S. economy?

Growth was steady between 1965 and 2009.

Refer to Figure 25-1. The shape of the curve is consistent with which of the following statements about the economy to which the curve applies?

In the long run, a higher saving rate leads to a higher level of productivity, In the long run, a higher saving rate leads to a higher level of income.and In the long run, a higher saving rate leads to neither a higher growth rate of productivity nor a higher growth rate of income

You have been promised a payment of $400 in the future. In which of the following cases is the present value of this payment the lowest?

You receive the payment 5 years from now and the interest rate is 5 percent.

Which of the following is not a question addressed by macroeconomists?

What is the impact of foreign competition on the U.S. auto industry?