Economics
factors of production
Physical capital, human capital, and technological knowledge
In many nations, civil war, military dictatorship, and anarchy have destroyed the institutions necessary for economic growth. This demonstrates the importance of _____ as an institution.
Political Stability
They tend to charge higher-than-average management fees.
What is true of active mutual funds?
They consistently fail to beat the market average.
What is true of mutual fund managers?
They are a means of raising capital for new investment.
What is true of stocks?
For most of recorded human history, long-run economic growth was:
almost nonexistent.
the practice of taking advantage of price differences for the same good in different markets by buying low in one market and selling high in another market
arbitrage
the practice of buying stocks and then holding them for the long run, regardless of what prices do in the short run
buy and hold
Investment is the purchase of new _____ goods.
capital
something of value that by agreement becomes the property of the lender if the borrower defaults
collateral
the decrease in private consumption and investment that occurs when government borrows more; also, the decrease in private spending that occurs when government increases spending
crowding out
Increased government borrowing, shifts the _____ curve in the market for loanable funds to the right, causing the equilibrium interest rate to _____.
demand; rise
The Rule of 70
determining the length of time necessary for a growing variable to double.
jobless individuals who have given up looking for work but who would still like to find a job
discouraged workers
When industries are limited by the size of the domestic market, opening trade to the world markets will likely lead to _____ and _____ real GDP per capita in the domestic country.
economies of scale; increase
Which would be most effective in ensuring sustained long-term economic growth?
increasing technological knowledge
Factors of production that contribute to growth in per capita GDP include:
physical capital, skilled labor, and technological know-how.
In many nations, civil war, military dictatorship, and anarchy have destroyed the institutions necessary for economic growth. This demonstrates the importance of _____ as an institution.
political stability
The main reason for the influence of institutions on the wealth of nations is that good institutions:
raise people's incentives to build wealth.
Despite being a relatively _____ phenomenon, economic growth has quickly transformed the world.
recent
With economies of scale, large-scale production has _____ average costs because _____ is greater.
reduced; quantity
A country increases its technological knowledge by engaging in:
research and development
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.
higher returns come at the price of higher risk
risk-return trade-off
Incentives
the "rules of the game" that structure economic incentives
the desire to have goods and services sooner rather than later (all else being equal)
time preference
Human Capital
tools of the mind; the productive knowledge and skills that workers acquire through education, training, and experience
a Bureau of Labor Statistics measure that includes part-time workers who would rather have a full-time position and people who would like to work but have given up looking for a job
underemployment rat
A bond that pays only at maturity since these bonds sell at a discount to their face value.
zero-coupon bond or a discount bond
If per capita GDP is $1,000 and government officials want to increase it to $8,000 within 21 years, at what approximate rate does it have to grow?
10%
If U.S. per capita GDP is $50,000 and grows at 2% per year, what will U.S. per capita GDP be in 70 years?
200,000
If the growth rate of real GDP in the United States is 3 percent, how many years will it take to double?
23 years
If China has a 10 percent annual growth rate in real GDP and Germany has a 2 percent annual growth rate, China's GDP will double how many years sooner than Germany's?
28 years sooner
If per capita GDP is $1,000 and government officials want to increase it to $4,000 within 20 years, at what approximate rate does it have to grow?
7% → Getting from $1,000 to $4,000 requires doubling twice. To do this in 20 years, it must double every 10 years. 70 ÷ x = 10 gives x = 7 percent.
If per capita GDP is $1,000 and grows at 2 percent annual interest, approximately how long will it take before it is $4,000?
70 years → 70 ÷ 2 = 35 years to double one time. So doubling twice will take 35 × 2 = 70 years.
active fund
Channing invests in a mutual fund that has high management fees. In which type of fund is he investing?
holds on to those stocks regardless of what happens in the short run.
Clarissa is a firm believer in the investment strategy called buy and hold. When she sees the prices of some of her stocks begin to fall, Clarissa:
last much longer.
Compared to the United States, unemployment benefits in Europe:
One study estimates that if India used the human and physical capital that it does have as efficiently as the United States uses its capital, it would be four times richer than it is today. This demonstrates the importance of _____ and open markets as an institution.
Competitive
All else equal, if consumer preferences changed so that they generally decided to borrow more, what would occur?
Demand in the market for loanable funds would increase, and the interest rate would rise.
She is using inside information.
Eva is a mutual fund manager whose funds systematically outperform the market. Which statement is true if the efficient market hypothesis holds?
Which statement best describes the cross-country evidence on the relationship between a nation's GDP per capita and standard measures of societal well-being?
GDP per capita is positively related to measures of societal well-being.
Some workers may have to move from one sector to another because they lose their jobs.
How can a speculative bubble hurt an economy after the collapse of the bubble?
0.0858 → [14.6 ÷ (14.6 + 155.5)] × 100 = 8.58 percent
If 14.6 million people are unemployed, 155.5 million people are employed, and 7.9 million people are institutionalized, what is the unemployment rate?
10%→ Getting from $1,000 to $8,000 requires doubling three times. To do this in 21 years, it must double every 7 years. 70 ÷ x = 7 gives x = 10 percent.
If Davida invests $1,000 and wants to turn it into $8,000 within 21 years, at what approximate interest rate does she need to invest it?
72 → (6 ÷ 72) × 100 = 8.33 percent.
If the number of unemployed is 6 million and the total labor force is _____ million, then the unemployment rate is 8.33 percent.
structural
Imagine that the factory Anna worked in has relocated to China in an effort to save money. What would BEST describe her state of employment?
154.2
In August 2010, the labor force was _____ million of 238.1 million noninstitutionalized civilian adults, so the labor force participation rate was 64.8 percent.
Which of the following defines the "rules of the game" that structure economic incentives?
Institutions
if he wants to diversify his investments without having to do the work of picking stocks himself.
Jimmy should hire an active mutual fund manager:
prices of stocks, bonds, and other traded assets reflect all publicly available information.
Like most economists, Dr. Herbert agrees with the efficient market hypothesis. In turn, when discussing the stock market, Dr. Herbert informs his students that:
One measure of student output is number of completed math problems produced. Using pen and paper only, a student can complete 50 math problems in 2 hours. Using pen, paper, and a calculator, the same student can complete 100 math problems in 2 hours. (The student is already familiar with, and knows how to use, the calculator.) This scenario illustrates the use of which factor of production?
Physical Capital
It mimics a broad stock market index.
Ricardo invests in a passive mutual fund. What can he expect?
131.2→ [(8.5 + 131.2) ÷ (8.5 + 131.2 + 69.3)] × 100 = 66.84 percent.
Suppose an economy has 8.5 million unemployed workers, _____ million employed workers, and 69.3 million adults who do not participate in the labor force. The labor force participation rate for this economy is 66.84 percent.
are bonds with maturities of a few days to 26 weeks that pay only at maturity.
T Bills
are 30-year bonds that pay interest every 6 months.
T Bonds
are bonds with maturities ranging from 2 to 10 years that also pay interest every 6 months.
T Notes
times
The labor force participation rate is equal to [(unemployed + employed) ÷ adult population] _____ 100.
unemployment rate
The percentage of the labor force without a job is:
Imagine that a nation has imported a large quantity of combines and tractors to use in its farming industry. What impact would this have on economic growth?
There would be an increase in economic growth as the physical capital has increased, which would lead to greater productivity.
This is called "compounding" or "exponential growth."
When growth builds on top of growth.
property rights
Which of the following has the greatest potential for solving free-rider problems?
unemployment rate
[Unemployed ÷ (unemployed + employed)] × 100 is the formula used to calculate:
Which event would cause the equilibrium interest rate in the market for loanable funds to increase?
a rightward shift in the demand for loanable funds
Which event would definitely cause the equilibrium quantity of savings to decrease?
a simultaneous decrease in the demand for loanable funds and decrease in the supply of loanable funds
institutions such as banks, bond markets, and stock markets that reduce the costs of moving funds from savers to borrowers and investors
financial intermediaries
the first instance of a corporation selling stock to the public in order to raise capital
initial public offering (IPO)
a bank/firm whose liabilities are greater in value than its assets
insolvent bank/firm
Trading in the market for loanable funds determines the equilibrium _____ rate.
interest
The lower the _____ rate, the _____ the quantity of funds demanded for investment.
interest; greater
All else equal, higher _____ rates usually result in _____ savings.
interest; more
technological knowledge
knowledge about how the world works that is used to produce goods and services
the ratio of debt to equity, D/E
leverage ratio
the market where suppliers of loanable funds (savers) trade with demanders of loanable funds (borrowers), thereby determining the equilibrium interest rate
market for loanable funds
The United States and Western European countries began to experience accelerated economic growth during which century?
nineteenth
the value of the asset minus the debt, E = V − D
owner's equity
When economists speak of "long-run economic growth," they mean increasing the
per capita real GDP of a country
People whose incomes fluctuate (like salespeople, writers, and homebuilders) smooth consumption by:
saving
Over the past 200 years, economic growth in the United States has been:
slow and consistent.
free rider
someone who consumes the benefits of a public good without paying a share of the costs
or a share is a certificate of ownership in a corporation
stock
persistent, long-term unemployment caused by long-lasting shocks or permanent features of an economy that make it more difficult for some workers to find jobs
structural employment
_____ knowledge is knowledge about how the world works that is used to produce goods and services.
technological
Economic Growth
the growth rate of real per capita GDP.
physical capital
the stock of tools including machines, structures, and equipment
more than 27 weeks.
According to data from the Bureau of Labor Statistics, MOST unemployment in the United States in the year 2010 lasted:
France
According to the unemployment benefit replacement rates from 1994, which country's unemployed workers have the largest share of their income replaced in the first year of unemployment?
Passive fund
An investor is investing in a mutual fund that mimics a broad stock market index. She is investing in a(n):
stock
Anton has noticed that _____ prices have been rising higher and faster than can be accounted for by the fundamental prospects of companies. It is likely there is a speculative bubble.
a sophisticated IOU that documents who owes how much and when payment must be made
Bond
the claim that the prices of traded assets reflect all publicly available information
efficient markets hypothesis
