econ exam 3

Which of the following would NOT be included in this year's GDP?

Jim mows his neighbor's lawn as a favor.

Why is the demand for loanable funds downward sloping?

More people borrow money when interest rates are low than when they are high.

What does a real GDP growth rate of 3% mean?

Output is rising by 3%.

Every year, 1.8 million children in poor countries die of diarrhea. What is most effective in preventing these deaths?

economic growth

Reserves held by banks are mainly held in the form of:

electronic claims.

To reduce the money supply in the economy, the Fed would:

engage in actions to increase interest rates.

Suppose the economy is growing faster than its long-run potential growth rate. To bring the real growth rate back to the long-run potential rate, the Fed should:

engage in actions to raise interest rates.

Gross domestic product is the market value of all:

finished goods and services produced within a country in a year.

The United States has a comparative advantage in:

goods produced by skilled workers.

Countries that have high per capita GDP tend to have:

high levels of all three factors of production.

To design effective monetary policy, the Fed does NOT need to monitor or estimate:

how changes in interest rates impact the number of depositors.

A business that pays for its workers to attend a technical college is increasing its:

human capital.

In the Solow model production function, Y = F(A, K, eL), A stands for:

ideas

Which is NOT a key institution for economic growth?

income equality

Higher interest rates typically _____ saving, ceteris paribus.

increase

During a financial crisis in the early 2000s, the government of Argentina partially froze bank accounts for a year. Given the supply of savings and the demand to borrow functions, we would expect this action to cause the interest rate to:

increase and borrowing to decrease.

Suppose the reserve ratio is 20% for all banks. If the Fed increases bank reserves by $200, then the money supply will:

increase by $1,000.

Increases in the level of political stability in a country tend to:

increase per capita GDP.

Which of the following should lead to an increased rate of economic growth due to increased development of new ideas?

increased population, increased wealth, and larger markets

If a country's nominal GDP increases by 5% between two years while its GDP deflator increases by 4%, the country's real GDP:

increases by 1%.

China retaliated to the tariffs placed on Chinese goods through President Trump by:

increasing tariffs on soybeans rather than aircrafts because it is easier to find substitute producers of soybeans than aircrafts.

Which is considered an ultimate cause of economic growth?

institutions

The most volatile spending component of GDP in the United States is:

investment

The steady-state capital stock is the capital stock where:

investment equals depreciation.

In early 2018, President Trump imposed new tariffs on washing machines produced outside the United States because:

low- to medium-skilled jobs were under pressure from the international production of goods and from the automation of factories.

India could be four times richer than it is today if it were to:

make its markets open and competitive.

A legal system that helps raise a nation's productivity is one that:

makes it easy for people to engage in contracts and to establish property rights.

Trade restrictions based on national security concerns:

might be beneficial in certain cases, like vaccinations.

The single best indicator of a recession is:

negative real GDP growth.

If a country is experiencing inflation, it means that:

nominal GDP is growing faster than real GDP.

Ideas are:

nonrivalrous.

Which is NOT neutral in the long run?

output

The marginal product of capital is the increase in:

output when one more unit of capital is added.

When economists speak of "long-run economic growth," they mean increasing the:

per capita real GDP of a country.

A tractor is an example of:

physical capital

If we hold ideas, education, and labor constant in the Solow model, then output (GDP) is a function of:

physical capital only.

During the financial crisis, because of high leverage, losses on mortgages:

pushed banks toward insolvency.

The main reason for the influence of institutions on the wealth of nations is that good institutions:

raise people's incentives to build wealth.

What is the term for GDP when price levels are held constant?

real GDP

Business cycles are short-term movements in:

real GDP around its long-term trend.

Increases in _____ are considered the best measure of increases in living standards because they measure increases in production.

real GDP per capita

For savers, the role of financial intermediaries is to:

reduce the default risk on money they save and lend.

The Federal Reserve:

regulates the banking system.

Because of pressure from the United States, the garment industry in Bangladesh dismissed 30,000 to 50,000 child laborers. This action:

resulted in many of the children turning to prostitution and taking jobs with worse conditions and lower pay.

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.

One of the best explanations for why some countries are rich and others are poor is that:

rich countries organize their factors of production more efficiently than poor countries do.

In most cases, trade restrictions will:

save some jobs and destroy other jobs.

In the market for loanable funds:

savers supply loanable funds and borrowers demand loanable funds.

The supply of loanable funds comes from _____, and the demand for loanable funds comes from _____.

saving; investment

Which of the following would likely cause a shortage in the loanable funds market?

strict limits on interest rates

The possibility that the failure of one bank affects the performance of other banks is called:

systemic risk.

Which are immediate causes of the wealth of nations?

technical knowledge and human capital

Consider the following production function: 𝑌=𝐹(𝐾)=𝐾‾‾√Y=F(K)=K. . When the capital stock is 144, output is:

12

At an 8% interest rate, the quantity of savings is $250 billion. What would the quantity of savings be if the interest rate fell to 5%?

190 bill

If the reserve ratio is 4%, the money multiplier is:

25

GDP in the United States was $14,119 billion in 2014 and grew to $14,660.4 billion in 2015. This represents an annual growth rate of:

3.8%.

If a $500 increase in reserves ultimately leads to a $2,000 increase in the money supply, the money multiplier is:

4

A country in a steady state invests 50% of its output in new capital (𝛾γ = 0.5) and depreciates 5% of its capital stock (𝛿δ = 0.05). With a capital stock of 100 units, labor remains constant. Because of technological innovation, production improves from 𝑌=𝐾‾‾√Y=K to 𝑌=2𝐾‾‾√Y=2K. What is the new steady-state level of K?

400

Which statement is TRUE about economic growth?

A country can grow and become wealthy, never grow, or grow and then begin to stagnate.

How do banks engage in specialization and division of labor?

Banks coordinate the collection of lenders' funds and employ specialists in risk assessment to ensure that the funds are safely used.

Which of the following statements correctly differentiates catching-up growth from cutting-edge growth?

Catching-up growth comes primarily from capital accumulation, while cutting-edge growth comes from technological development.

Which of the following statements is TRUE about the removal of trade barriers?

Consumers benefit while some suppliers are harmed.

Quantitative easing is the:

Fed purchase of longer-term government bonds.

Which of the following statements is TRUE about GDP?

GDP does not account for the distribution of income in a country.

In nations that have large underground, or illegal, sectors:

GDP will underestimate total production in the economy.

Two countries that may be considered examples of growth miracles are:

South Korea and Japan.

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.

A $10,000 face-value bond costs $9,250 and matures in one year. If the interest rate on similar bonds rises by 2%, what is the approximate price change for this bond?

The price of the bond falls to $9,082.

What is a result of a high level of government corruption?

There are few entrepreneurs.

A car produced by the American company GM in a plant located in Canada would be included in:

U.S. GNP, but not U.S. GDP.

In the market for loanable funds, _____ coordinates between the savers and borrowers.

a financial intermediary

Countries that have been bombed extensively in a war typically have _____ marginal product of capital in the aftermath of conflict.

a higher

Countries A and B have similar levels of technology and physical capital, but country B has twice as much human capital as country A. If diminishing returns apply to all inputs, country B should grow at _____ country A.

a lower rate than

The main reason people save during their working years is:

a preference toward a smooth consumption path over time.

Enacting a tariff on a good for which the world supply is relatively inelastic and the local demand is relatively elastic results in:

a small deadweight loss and relatively larger tax revenues.

An investment tax credit results in:

an increase in the demand for loanable funds and an increase in the interest rate.

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.

Money is best defined as:

anything that is a widely accepted means of payment.

The Fed will be most effective at changing the money supply when:

banks have low reserves and the money multiplier is large.

The crowding-out effect of government borrowing refers to a decrease in:

both private consumption and private investment.

If the Fed wants to increase the money supply, it will:

buy government bonds.

A seasonal worker saves more when her income rises and saves less when her income falls. This behavior is referred to as:

consumption smoothing.

What are the components of the national spending approach to splitting GDP?

consumption, investment goods, government purchases, and net exports

Conditional convergence refers to the tendency for:

countries with similar steady-state levels of output to grow faster when they're poor than when they're rich until their per capita GDP levels converge.

The financial crisis of 2008 illustrates that:

the Fed has the power to step outside its normal functions and lend to investment banks when it perceives the risk of financial contagion.

Which of the following do economists consider an investment?

the construction of a new factory

Government sometimes supports protectionist tariffs because:

the losses are spread over millions of consumers so the cost per consumer is small.

As the reserve ratio rises:

the money multiplier will decrease.

A profit-maximizing firm will invest in research and development as long as:

the private marginal benefit is greater than the marginal cost.

The paradox of trade restrictions on countries with child labor is that:

these restrictions aim to reduce child labor, but because they make the countries poorer, they actually cause more child labor.

Real GDP per capita is calculated as the total real GDP divided by the:

total population.

For most of recorded history, economic growth has been:

virtually nonexistent.

Depreciation refers to the:

wear and tear on capital through normal use.