ECO 231 EXAM 2

D. upward because an increase in the interest rate induces people to save more.

The supply of loanable funds slopes

D. diminishing returns.

The traditional view of the production process is that capital is subject to

technological knowledge

society's understanding of how the world works

Foreign portfolio investment

refers to an investment that is financed with foreign money but operated by domestic residents.

A. equal to investment.

In a closed economy, national saving is

A. Mexican GNP and U.S. GDP.

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

C. saver. Long term bonds have more risk than short term bonds.

A bond buyer is a

B. the quantity of loanable funds traded to increase.

A decrease in government spending and the enactment of an investment tax credit would definitely cause

FALSE

A forest is an example of a nonrenewable resource.

A. real GDP per person.

A nation's standard of living is best measured by its

D. private goods and proprietary knowledge.

Apple founder Steve Jobs received patents on many of his ideas. While the patents existed, his ideas were

A. receive income by selling resources to households, B. purchase resources from households, C. purchase the output produced by households

In a simple circular-flow diagram, firms

(Current/Base Year) X 100

CPI Formula

B. households and noncorporate businesses have left after paying taxes and non-tax payments to the government.

Disposable personal income is the income that

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

GDP is defined as the

C+I+G+(X-M)* *net exports*

GDP=

B. borrowing directly from the public.

If the Apple corporation sells a bond it is

C. there is a surplus and the interest rate is above the equilibrium level.

If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded,

B. increase by 60%

If your firm's production function has constant returns to scale and you increase all your inputs by 60%, then your firm's output will

A. housing, transportation, and food & beverages.

In the basket of goods that is used to compute the consumer price index, the three largest categories of consumer spending are

C. is equal to its domestic production.

Income generated by a nation's domestic production

C. using a law or contract to automatically correct a dollar amount for the effects of inflation.

Indexation refers to

100 X ((GDP Deflator Current/GDP Deflator Base))/GDP Deflator Base))

Interest rate using GDP deflator

D. riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

Long-term bonds are

A. her landscaping equipment, but not her knowledge of landscaping learned in college

Megan is a landscaper. Which of the following are included in her physical capital?

A. U.S. consumption purchases increase by $200 and U.S. GDP increases by $200.

Micah buys a used car for $10,000 and spends $200 on a new radio that is made in the U.S. The end result of these two transactions is

A. unmeasured quality change

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?

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

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

A. 2 rocking chairs per hour

Phoenix furniture uses 12 workers, each working eight hours, to produce 192 rocking chairs. What is Phoenix's productivity?

B. produced for each hour of a worker's time. It is linked to a nation's economic policies.

Productivity is the amount of goods and services

B. $30 million

Quality Motors is a Japanese-owned company that produces automobiles; all of its automobiles are produced in American plants. In 2010 Quality Motors produced $30 million worth of automobiles, with $17 million in sales to Americans, $9 million in sales to Canadians, and $4 million worth of automobiles added to Quality Motors' inventory. The transactions just described contribute how much to U.S. GDP for 2010?

Purchases of new structures, Inventory changes, Purchases of capital equipment, Household purchases of new housing

Refer to Table 23-3. What was Crete's investment in 2010?

B. $0.73.

Scenario 24-2 The price tag on a golf ball in 1975 read $0.20, and the price tag on a golf ball in 2005 read $2.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3. Refer to Scenario 24-2. The price of a 1975 golf ball in 2005 dollars is

A. 102.0.

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

B. $2 trillion, $2 trillion

Suppose a closed economy had public saving of -$1 trillion and private saving of $3 trillion. What are national saving and investment for this country?

A. the interest rate would rise and investment would fall.

Suppose in some country that the first $5,000 of interest income is exempt from income tax. If the government then removed this exemption

B. The consumer price index and the GDP deflator will both be unaffected.

Suppose that U.S. mining companies purchase German-made ore trucks at a reduced price. By itself, what effect will this purchase have on the GDP deflator and on the consumer price index?

D. foreign direct investment. American saving is used to finance Irish investment.

Suppose that an American company opens and operates a restaurant in Ireland. This is an example of

A. the interest rate would decrease and the quantity of loanable funds would increase.

Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits to 401(k) and 403(b) tax-deferred retirement accounts?

D. generally move together.

The CPI and the GDP deflator

D. the goods and services purchased by a typical consumer.

The CPI is a measure of the overall cost of

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

The logic behind the catch-up effect is that

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

The source of the supply of loanable funds

D. financial intermediaries

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

Foreign purchases of domestically produced goods-Domestic purchases of foreign goods

What were country A's net exports in 2010?

C. capital investment.

When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures

Y = C + I + G

Which of the following equations represents GDP for a closed economy?

C. purchases of natural gas by U.S. households

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

D. There is no ironclad rule for the declaration of recessions.

Which of the following statements about recessions is true?

B. Human capital per worker is a determinant of productivity.

Which of the following statements is correct?

A. Congress and the president pass an investment tax credit

Which of the following would shift the demand for loanable funds to the right?

GDP deflator

a measure of the price level calculated by dividing nominal GDP by real GDP and multiplying by 100

closed economy

does not trade with the rest of the world, and, thus, its net exports are zero. Therefore, in this case, GDP is the sum of consumption, investment, and government purchases.

the population part of the chart

how to determine GDP per person on chart

(current CPI-base CPI(-1)) / (base CPI-1)

inflation rate=

nominal GDP

measures the value of current output using current prices

real GDP

measures the value of output in the current year using prices from a base year

Y - C - G

national saving

p of year asked X q of year asked

nominal GDP=

Y - C - T

private saving

product/(workers X hours) *answer is in product units*

productivity formula

T - G

public saving

p of base year X q of year in question

real GDP=

nominal interest rate-rate of inflation

real interest rate=

Foreign direct investment

refers to a capital investment that is owned and operated by a foreign entity

price index

the cost of the market basket in the current year divided by the cost of the market basket in the base year, all multipled by 100.

Natural resources

the inputs into the production of goods and services that are provided by nature, such as land, bodies of water, forests, and mineral deposits.

human capital

the knowledge and skills that workers acquire through training, education, and experience

Physical capital

the stock of tools, machinery, equipment, and structures that are used to produce goods and services.

National saving

the total income in the economy that is left over after paying for consumption and government purchases.