ECON 201 6,7,9&10 Questions
If Greenville's GDP doubled over 5 years, what was the approximate annual growth rate (using the rule of 70)?
14%
If you inherit $10,000 this year and you invest your money so that it grows 7% per year, how many years will it take for your investment to be worth $40,000? (Note: Investments in stocks have grown at an average inflation-adjusted rate of 7% per year since the U.S. Civil War.)
20 Using the rule of 70, it will take (70/7%) 10 years for your investment to double from $10,000 to $20,000. Then it will take another 10 years for your investment to double again, from $20,000 to $40,000. That's a total of 20 years: 10 years to double from $10,000 to $20,000 and another 10 years to double from $20,000 to $40,000.
If Canada's GDP doubled over 17.5 years, what was the approximate annual growth rate?
4% Using the rule of 70, the number of years to double equals 70 divided by the growth rate. If it takes 17.5 years to double, rearranging the rule of 70 equation result in the growth rate is equal to (70/17.5) = 4%.
Suppose that, instead, you put your money into a savings account that grows at an inflation-adjusted return of 2% per year. How many years will it take to be worth $40,000? (Note: Bank deposits have grown at roughly this rate over the last 50 years in the United States.)
70 Using the rule of 70, it will now take (70/2%) 35 years to double your money. In 35 years it will double from $10,000 to $20,000, and in another 35 years it will double from $20,000 to $40,000, for a total of 70 years
Which statement is TRUE about economic growth?
A country can grow and become wealthy, never grow, or grow and then begin to stagnate.
Which of the following countries is considered a growth disaster?
Argentina is a growth disaster Japan and North Korea are growth miracles.
Suppose two countries, Country A and Country B, have a similar real GDP per capita. Country A has an average economic growth rate of 2% and Country B has an average economic growth rate of 3.2%. In the long run, what can we predict about living standards in the two countries?
Country B's living standards will increase much more rapidly in the long run
Which of the following statements is TRUE about GDP?
GDP does not account for the distribution of income in a country.
GDP per capita growth rate
GDP per capita per each year: (GDP/population) Growth rate: [(New GDP per capita - Old GDP per capita ) / Old GDP per capita] x 100
Define productivity as...
GDP per worker
In nations that have large underground, or illegal, sectors:
GDP will underestimate total production in the economy
Which statement regarding economic growth is supported by the histories of the listed countries?
Growth is not guaranteed, even when a country has experienced it in the past.
Included in US GDP or not? Honda's assembly and sale of cars in the U.S.
Included in US GDP
Included in US GDP or not? Old Navy purchases mannequins to display clothes
Included in US GDP
Which is considered an ultimate cause of economic growth?
Institutions
What are ultimate causes of the wealth of nations?
Institutions In this textbook technical knowledge and human capital are classified as "immediate causes" of the wealth of nations.
GDP deflator =
Nominal GDP / Real GDP x 100
What is the difference between real and nominal gross domestic product (GDP)?
Nominal GDP for a given year is measured in dollars of that year, whereas real GDP is measured in dollars of some base year.
Included in US GDP or not? GM's assembly and sale of cars in Mexico
Not included in US GDP
Included in US GDP or not? Ocean Spray purchases plastic to make bottles
Not included in US GDP
Included in US GDP or not? Resale of textbooks to college students
Not included in US GDP
Included in US GDP or not? Sale of wheat to Mrs. Baird's Bakery
Not included in US GDP
What does a real GDP growth rate of 3% mean?
Output is rising by 3%.
Which statement accurately characterizes the distribution of real GDP per capita internationally?
Real GDP per capita varies greatly across countries.
Two countries that may be considered examples of growth miracles are:
South Korea and Japan growth disasters: Nigeria and Argentina
Why does South Korea have a higher level of real GDP per capita than North Korea?
South Korea has a better system of incentives than North Korea
Which of the following would cause the real GDP per capita within a country to increase?
Stronger property rights Decrease: Decreases in political stability Less open markets (more trade barriers) A more dishonest federal gov
Why does a small difference in economic growth result in a large difference in wealth over time?
The effect of compounding allows growth to build upon previous growth
Which of the following could cause nominal GDP to increase, but real GDP to decrease?
The price level rises and the quantity of final goods and services produced falls. Real GDP only changes when the quantity of final goods and services produced changes. If real GDP decreased, it is because the quantities of goods and services produced must have decreased. Nominal GDP can change because prices and/or quantities produced change. If Nominal GDP increased even though quantities decreased, it must be that the price level increased.
Ruritania's Ministry of Economics has considered various plans to stimulate economic growth in the kingdom. Which proposal would have the best chance of success?
To increase the general level of skills in the labor force, subsidize tuition to enable more people to attend college.
Which of the following would increase the consumption component of U.S. real GDP?
You purchase a vacation at Disney World in Florida. Consumption is one of the four categories of the national spending approach which is a method for measuring GDP.
Productivity growth rate
[(New GDP per worker - Old GDP per worker) / Old GDP per worker] x 100
GDP Growth Rate
[(New value - Old value) / Old value] x 100
The U.S. nominal gross domestic product is ___ _____ ______ ___ _______ legally produced ______ ___ _______ ________ __ __ ____ within a given ____ _____ and valued at ___ ______ __ _______ ___ _____ __ _______ ___ ____.
all final goods and services within the territorial boundaries of the United States time period the prices at which the goods or services are sold
A country's rate of economic growth is important because...
an economy that grows too slowly fails to raise the living standards of its citizens.
A set of tires installed on a vehicle produced by an automobile factory is counted as...
an intermediate good and its market price is not part of GDP
Categorize each item below as a component of Gross Domestic Product (GDP): A 55-cent taco
consumption
Categorize each item below as a component of Gross Domestic Product (GDP): A domestically manufactured personal computer
consumption
Categorize each item below as a component of Gross Domestic Product (GDP): A ticket to a local sporting event
consumption
Categorize each item below as a component of Gross Domestic Product (GDP): Cab fare for personal use
consumption
Categorize each item below as a component of Gross Domestic Product (GDP): Ice cream
consumption
Every year, 1.8 million children in poor countries die of diarrhea. What is most effective in preventing these deaths?
economic growth
Categorize each item below as a component of Gross Domestic Product (GDP): A public school teacher's salary
government purchases
Today, relative to other countries around the world, the people of the United States...
have a living standard that is higher than about 95% of the world population
Ruritania's Ministry of Economics has considered various plans to stimulate economic growth in the kingdom. Which source of productivity growth does the best proposal directly influence?
human capital
Institutions create ________, which in turn affect the amount of ____________, __________, and __________, in a country, which, combined with the right kind of ____________, generates a level of ________ per person.
incentives ; physical capital; human capital; technology; organization ; GDP
Increases in the level of political stability in a country tend to:
increase per capita GDP
Which of the following increases labor productivity?
inventions of new machinery, equipment, or software Increases in physical capital (tools for production), human capital and technology help workers produce more goods and services per hour.
Categorize each item below as a component of Gross Domestic Product (GDP): A domestically manufactured business computer
investment
The most volatile spending component of GDP in the United States is... volatile describes when a market or security experiences periods of unpredictable, and sometimes sharp, price movements.
investment
A good produced in the current time period but put into a firm's inventory instead of being sold
is considered unsold inventory and counted as a part of investment in current GDP.
Categorize each item below as a component of Gross Domestic Product (GDP): A dollhouse sold abroad
net exports
Economists often refer to the "natural resource curse," by which they mean that large amounts of natural resources tend to create bad politics. As long as the oil keeps flowing or the diamonds remain plentiful, political leaders do not need to care much about what goes on in the rest of the country. Which one of the three factors of production is likely to matter most to the leaders of a resource-rich country?
physical capital
Economists often refer to the "natural resource curse," by which they mean that large amounts of natural resources tend to create bad politics. As long as the oil keeps flowing or the diamonds remain plentiful, political leaders do not need to care much about what goes on in the rest of the country. Which one of the five key institutions is likely to matter most to leaders of a resource-rich republic?
political stability
The GDP deflator measures...
price levels
Business cycles are short-term movements in:
real GDP around its long-term trend.
Between 1978 and 1983, food production in China rose by 50% and 170 million people rose above the international poverty line. This occurred because of the:
return to private property rights in farming
What does the investment component of GDP measure?
spending on goods to be used in future production
Which are immediate causes of the wealth of nations?
technical knowledge & human capital
The two most popular approaches to measuring GDP are the...
the national spending and the national income approach. Know the formulas for both of these national spending: GDP = Consumption + Investment + Gov Purchases + Net Exports national investment: GDP = Employee compensation + Rent + Interest + Profits
GDP for the U.S. was $20,527 in 2018 and $21,372 in 2019. Using 2012 as the base year, Real GDP was $18,606 in 2018 and $19,032 in 2019. Which of the following statements is the most correct in explaining why Nominal GDP in 2018 is different from Nominal GDP in 2019?
the prices and quantities produced in 2018 were different from the prices and quantities produced in 2019. Nominal GDP uses the prices and quantities from a particular year to determine the total value of goods and services; for example, Nominal GDP in 2018 uses the prices and quantities from 2018 for the total value of $20,527. Nominal GDP in 2019 uses the prices and quantities from 2019 for the total value of $21,372.
Real GDP per capita is calculated as the total real GDP divided by the:
total population
Net Exports =
value of exports minus the value of imports
Between year 1 and 1750, the economic growth of countries around the world...
varied very little, because all countries had a very low real GDP per capita. Up to around 1750, when the Industrial Revolution occurred, no significant economic growth had occurred around the world.
For most of recorded history, economic growth has been:
virtually nonexistent
GDP per capita in the United States in 2015 was approximately $54,045. If the U.S. maintains a 2.5% annual growth rate over the next 56 years (from 2015), about how large will the U.S. economy be in 56 years?
$216,180 Using the rule of 70, GDP per capita in the U.S. will double in (70/2.5%) 28 years from $54,045 to $108.090 and then double again in another 28 years from $108,090 to $216,180: doubling twice (28 + 28) will cover 56 years.
If China's economy maintains a 7% annual growth rate over the next 20 years, about how large will its economy be in 20 years if its current GDP is $12 trillion?
$48 trillion