ECON Exam 1
Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, has
increased measured GDP by the value added by the restaurant's preparation and serving of the meals
If there are diminishing returns to capital, then
increases in the capital stock increase output by ever smaller amounts
The price associated with the goods market is the
inflation rate
Which of the following is NOT associated with long-run growth?
inflation rate
The production function shows the relationship between output and
inputs of production
The price associated with the financial market is the
interest rate
The real interest rate is the
interest rate corrected for inflation
A farmer produces oranges and sells them to Fresh Juice, which makes orange juice. The oranges produced by the farmer are called
intermediate goods
The marginal product of labor
is always positive and shows how much output increases when the labor input is increased by one unit
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
The CPI is an imperfect measure of inflation because of all of the following EXCEPT
it doesn't include footballs
The unemployment rate is the percentage of the __________ that is unemployed
labor force
The unemployment rate is a piece of data that gives us some direct information about which of the following markets?
labor market
The growth rate of output per person over a long time span is called
long-run growth trend
Which of the following is NOT a major macroeconomic market?
market for footballs
Which of the following is a typical macroeconomic topic?
national production levels
Suppose an economy produces only iPhones and bananas. In 2010, 1000 iPhones are sold at $300 each and 5000 pounds of bananas are sold at $3 per pound. In 2009, the base year, iPhones sold at $400 each and bananas sold at $2 per pound. For 2010,
nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 76.83
Changes in real GDP reflect
only changes in the amounts being produced
The difference between output (production) and productivity is
output measures the level of production while productivity measures production per input
Moderately high inflation is undesirable for all of the following reasons EXCEPT
people postpone purchasing goods
Education contributes to human capital accumulation. It may also create positive externality because
people with more human capital create ideas that benefit other people and help to generate even more ideas
The labor force participation rate is the
percentage of the population that is in the labor force
The major inputs of production are
physical capital, labor, human capital, natural resources
In a closed economy, what does (Y - T - C) represent?
private saving
The danger of producing above potential output is that
production costs may increase and lead to inflation
If a country's saving rate increases, then in the long run
productivity and real GDP per person are both higher
A larger budget deficit
raises the interest rate and reduces investment
When studying changes in the economy over time, economists want a measure of the total quantity of goods and services the economy is producing that is not affected by changes in the prices of those goods and services. In other words, economists want to study
real GDP
Which measure is preferred for comparing an economy's output over time?
real GDP
A nation's standard of living is best measured by its
real GDP per person
If nominal GDP doubles and the GDP deflator doubles, then real GDP
remains constant
"When workers already have a large quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity only slightly." This statement
represents the traditional view of the production process. is an assertion that capital is subject to diminishing returns. is made under the assumption that the quantities of human capital, natural resources, and technology are being held constant.
If Congress instituted an investment tax credit, the interest rate would
rise and saving would rise
If we graph the production function with capital on the horizontal axis and then there is a decrease in the number of workers, this would be illustrated with the production function by
shifting down the production function curve
If technological change increases factor productivity, this would be illustrated with the production function by
shifting up the production function curve
Demand shocks are a major source of
short-run economic fluctuations
If the demand for loanable funds shifts to the right, then initially there is a
shortage so the interest rate will rise
Technological knowledge is
society's ideas on the best way to produce goods & services
Economists generally agree that an inflation rate in the vicinity of _____ is the most conducive to good economic performance
2%
In the United States, what has been the approximate average growth rate of output per person over the last 150 years?
2%
A U.S.-owned car factory in Mexico produces $5 million of cars. $2.5 million of these cars are sold in Mexico and the other $2.5 million are sold in the U.S. In both cases $1 million of the value of the cars was due to U.S-owned equipment located in Mexico and U.S. managers working in Mexico. How much did this production contribute to U.S. GDP?
$0
If in some year nominal GDP was $18 billion and the GDP deflator was 120, what was real GDP?
$15 billion
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?
$2 trillion, $2 trillion
Population growth may have which two opposing effects on economic growth:
1) reduces the amount of physical and human capital per person but 2) more people generate more ideas for technological progress
In one day Portal Computer Company made 400 laptops with 1200 hours of labor. What was its productivity?
1/3 laptop per hour
A country's real GDP rose from $500 to $530 while its nominal GDP rose from $600 to $700. What was this country's inflation rate?
10.0%
In 2010, the imaginary nation of Mainland had a population of 6,000 and real GDP of 120,000. In 2011 the population was 6,200 and real GDP of 128,960. Over the year in question, real GDP per person in Mainland grew by
4 percent, which is high compared to average U.S. growth over the last one-hundred years
If nominal GDP is $8 trillion and real GDP is $10 trillion, then the GDP deflator is
80, and this indicates that the price level has decreased by 20 percent since the base year
Y = AF(L, K, H, N) Which of the following represents technology?
A
In economics, investment spending refers to
The purchase of physical capital
If business taxes change so that the effective cost of capital increases, then the
Demand for loanable funds falls - shifts to the left
If capital becomes more productive
Demand for loanable funds rises - shifts to the right
Private domestic saving provides the pool of funds available for
Domestic investment and financing government budget deficits
Which of the following would NOT be directly counted in GDP?
GM purchases tires to use in automobile production
Which of the following is included in the calculation of GDP
The purchase of tutoring services from a tutor who holds citizenship outside the country but resides within the country
An important element in creating the environment for economic growth is an environment that provides the correct incentives for saving, investment and innovation. Which of the following describes the environment that shapes incentives
Institutions
Each day Sue works 8 hours and produces 7 units of goods and services. Mary works 10 hours each day and produces 10 units of goods and services. It follows that
Mary's productivity is higher than Sue's
One of the major functions of the financial markets is to
Match savers with borrowers
The bond market is an example of
Matching without an intermediary
Which of the following is correct?
Nominal GDP equals real GDP in the base year
When the government deficit rises
Supply of funds to the loanable funds market falls - shifts to the left
When national income rises
Supply of funds to the loanable funds market rises - shifts to the right
When personal income taxes rise
Supply of funds to the loanable funds market rises - shifts to the right
The real interest influences the saving decision because
The higher the real interest rate, the more consumption you can have in the future via saving
In order for the standard of living within a country to be enhanced over time, which of the following is essential?
The level of productivity must increase
Which of the following increases demand for capital (i.e. increases investment spending)
The marginal product of capital increases
Which of the following equations represents GDP for an open economy?
Y = C + I + G + NX
Which of the following would be directly counted in U.S. GDP?
Your neighbor purchases a new lawn mower
Achieving economic efficiency requires markets to be properly structured. Which of the following is NOT part of the ideal market structure?
a lack of competition between firms
If we graph the production function with capital on the horizontal axis and then there is an increase in the capital stock, this would be illustrated with the production function by
a movement along the production function curve from left to right
Which of the following is a financial intermediary?
a mutual fund
Accumulating physical capital faces diminishing returns. This means that
adding one more unit of capital increases output, but the increase in output gets smaller as more capital is added
Most goods and services produced at home
and most goods and services produced illegally are excluded from GDP
If the demand for loanable funds shifts to the left, then the equilibrium interest rate
and quantity of loanable funds falls
As real interest rates fall, firms desire to
b. buy more new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping
Two of the economy's most important financial intermediaries are
banks and mutual funds
To be counted as unemployed, a person must
be not working and be actively looking for work
Real GDP values output in each year using
constant prices
How do markets direct production to the most efficient firms?
consumers choose to purchase from firms that produce the best product at the lowest cost
Nominal GDP values output in each year using
current prices from each year
In 2010, Acme Foods produced 300,000 bags of pretzels, employing 12,000 hours of labor. In 2011, it produced 322,000 bags of pretzels, employing 14,000 hours of labor. Acme Foods productivity
decreased by 8%
A national chain of grocery stores wants to finance the construction of several new stores. The firm has limited internal funds, so it likely will
demand the required funds by selling bonds
If we draw the production function with output on the vertical axis and physical capital on the horizontal axis, the slope of the production function will be decreasing because of
diminishing marginal product of capital
The U-3 measure of unemployment is often called the "headline" unemployment rate (because this is the measure normally reported in media). The U-4 measure includes U-3 plus which other type of worker?
discouraged
Which of the following is NOT necessarily associated with a well-functioning market?
equal outcomes for all
In a closed economy, national saving is
equal to investment
Productivity
explains most of the differences in the standard of living across countries
A person who is not working and who has given up looking for work is part of the labor force.
false
Which of the following are human capital and physical capital, respectively?
for a restaurant: the chefs' knowledge about preparing food and the equipment in the kitchen
Suppose that the U.S. undertakes a policy to increase its saving rate. This policy will likely
gradually raise the level of real GDP per person
Suppose the government changed the tax laws, with the result that people were encouraged to consume more and save less. Using the loanable funds model, a consequence would be
higher interest rates and lower investment
The CPI measures price changes of a fixed basket of goods. The composition of goods in the basket mirrors the composition of a typical household's spending. What are the 3 largest categories of household spending in order from the largest share to the smallest share?
housing, transportation, food & beverages
An increase in the saving rate would, other things the same,
increase growth more for a poor country than for a rich country, but raise growth temporarily
Other things the same, an increase in the interest rate
would decrease the quantity of loanable funds demanded
Among the following countries, which one has the highest level of real GDP per person but the lowest growth rate of real GDP per person over a very long period of time?
the United Kingdom
Deflation can lead to spiraling spending and price declines for all of the following reasons EXCEPT
the dilution effect
If the economy is using less labor than the full employment level of labor, then
the economy is operating inefficiently and produces less than potential output
When the government's budget deficit increases
the government is borrowing more and public savings falls
All else equal, if there are diminishing returns, then if a country raised its capital by 100 units last year and by 100 units this year,
the increase in output was greater last year than this year
The "great divergence" in living standards between countries began around the time of
the industrial revolution
Human capital is
the knowledge and skills that workers acquire through education, training and experience
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
If we draw the production function with output on the vertical axis and physical capital on the horizontal axis, the production function will be upward sloping because of
the marginal product of capital is positive
Potential output is
the output produced when both capital and labor inputs are used efficiently given the current level of technology
If there is a shortage of loanable funds, then
the quantity demanded is greater than the quantity supplied and the interest rate will rise
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
Physical capital is
the stock of equipment, software and structures that are used to produce goods and services
Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,
their investments are being financed by someone else's saving
A worker is "marginally attached" if
they are neither working nor looking for work, but have indicated that they want work and are available for a job and that they have looked for work within the past year
In the production function, the letter "A" stands for
total factor productivity
If in the past Congress had taken additional actions to make saving more rewarding, then today it is likely that the equilibrium interest rate
would be lower and the equilibrium quantity of loanable funds would be higher