Macro (ECON-22061) Exam 1
If you received a constant annual rate of return of 7% on an investment of $10,000, how many years will it take before you have $20,000?
10 years
A computer chip sold to Dell is an example of
An Intermediate Good
Economists prefer using real GDP because, other things held constant, increases in _____ are true increases in the standard of living.
production
The growth rate of GDP tells how rapidly the country's _____ is rising or falling over time.
production
human capital is the
productive knowledge and skills that workers acquire through education, training, and experience.
What do the institutions of economic growth include?
property rights, a dependable legal system, + competitive and open markets
Which of the following is the best measure of a country's standard of living?
real GDP per capita
In a steady state, the capital stock
remains constant
Patents allow a firm to enjoy a monopoly, thus increasing the incentive to
research and develop new products
The economy's production function relates __________ to output.
the factors of production
Capital is output that is
used to produce other goods
The marginal product of capital is the increase in output when:
when one more unit of capital is added
What is investment for this class, the Solow growth model, and most economics courses?
New physical capital
The production function expresses a relationship between
Output and the factors of production
A computer chip sold to you for use in your home computer is an example of
a final good
Part of investment spending, when considering the national income approach to calculating GDP, is the acquisition of what?
capital goods
GDP is equal to:
consumption + investment + government spending + net exports
Suppose a country has a real GDP of $100. What will the size of the GDP be after 3 years, if the economy grows by 2.5% each year?
$107.69 how to solve: 100 x (1+.025)^3 = 107.69 OR... 100 x (1+.025)= 102.5 (1 year) 102.5 x 1.025= 105.063 (2 years) 105.063 x 1.025= 107.69 (3 years)
Use the following table to answer question 3: Suppose an economy produces only the four goods listed in this table. All of the country's tomatoes are used in the production of pizzas and all of its shovels are purchased by foreign firms that produce landscaping services only in their country. What is the value of GDP in this country? Shovels - Price: 20 Q: 40 Books- Price: 50 Q: 500 Tomatoes- Price: 1 Q: 500 Pizzas- Price: 10 Q: 120
$27,000 (20x40=800; 50x50=25,000; 10x120= 1200) (800+25,000+1200)
A small country has an aggregate production function per hour of labor given by Y = K1/2. Its depreciation rate is 1% and its investment rate is 10%. What is its steady state level of capital?
100
If the depreciation rate is .04 and the capital stock is 300, how many units will depreciate?
12 (.04x300=12)
Consider the economy of a small country. It has capital stock equal to 1600 units and a production function of Y = K1/2. If the depreciation rate is 15% and the investment rate is 25%, what will the level of capital stock be next year for this small country?
1370 units
If per capita real GDP was $34,000 in the year 2000 and $39,000 in 2001, the growth rate of per capita GDP in 2001 was approximately
14.7% (new-old)/old (39,000-34,000)/34000
Consider the economy of a small country. It has capital stock equal to 400 units and a production function of Y = K1/2. If the depreciation rate is 15% and the investment rate is 10% of output, what will the level of investment be for this small country?
2 units of capital
Use the following graph to answer: (Figure: Capital Depreciation) The figure above shows the depreciation function for an economy. The depreciation rate is
2.5% (slope, 7.5-5=2.5)
If a country's initial real GDP is $10,000 and its yearly growth rate of GDP is 3.5%, use the Rule of 70 to determine approximately how many years it would take for this economy to double its GDP.
20 years (70/3.5=20)
A small country has an aggregate production function per hour of labor given by Y = K1/2. Its depreciation rate is 5% and its investment rate is 15%. What is its steady state level of real GDP?
3
Consider the following production function: Y =((sqrt)K) . When capital stock is 36, output is
6 (square root of 36=6)
If a nation doubles its GDP per capita in 10 years, what is its annual growth rate?
7% use rule of 70: (70/10=7)
According to Robert Solow, better ideas are responsible for about _____ of our standard of living
75%
If output in an economy is 30, and the investment function is 0.3Y,
9 units of output are being invested (.3x30=9)
A country has a 2008 growth rate of 5.7% and a 2007 GDP of $9,222 (in billions). What was the GDP in 2008?
9,748 (9,222x[1+0.057]=9748)
What grants temporary monopoly rights, typically 20 years from the date of filing?
A patent
Which of the following is correct? A) If investment < depreciation, the nation's capital stock will grow. B) If investment > depreciation, the nation's capital stock will stay constant. C) If investment > depreciation, the nation's capital stock will grow. D) If investment = depreciation, the nation's capital stock will grow.
C.) if investment > depreciation, the nation's capital stock will grow
What is the difference between catch-up growth and cutting-edge growth
Catch-up growth comes primarily from capital accumulation while cutting-edge growth comes from technological development
All other things equal, increases in capital will cause output to
Increase at a decreasing rate
Business cycles are short-term movements in real GDP around
Real GDP's long-term trend
Physical capital is the
Stock of tools including machines, structures and equipment
What is meant by the steady state level of capital?
There is no new net investment, or any growth.
Why are transfer payments not counted as part of GDP?
counting transfer payments would constitute double-counting as transfer payments will be used by the recipients to purchase final goods and services
Over time, capital wears out. The official term for this is
depreciation
Since 1950, the portion of U.S. GDP created by services has
doubled
All else equal, an increase in savings will cause investment to
increase
Private spending on tools, plant, and equipment that are used to produce future output is called
investment
Because of spillovers, the social benefit of research and development
is greater than the private benefit
What are the factors of production in the Solow model of economic growth?
physical capital, human capital and productivity/ideas/technology
GDP per capita is GDP divided by
population
Use the following to answer: (Table: Three-Product Economy) Suppose an economy produces only the three final goods listed in the table above. What is the real GDP in 2009 if 2009 is the base year?
$34,310 (multiply 2009 quantity but 2009 price and ADD)
If 10% of the population had an average income of $46,000 and the population as a whole had an average income of $10,000, what would the average income be for the other 90% of the population?
$6,000 .10(46,000)+0.9x=10,000 4,600+0.9x=10,000 0.9x=5,400 x=6,000
(Table: Economic Data) What is the level of net exports in this country?
-200 (NX= net exports - imports)
If nominal GDP is $6.82 (in billions) in 2007 and in the year 2008 the level of nominal GDP is $5.11 (in billions), what is the growth rate of nominal GDP?
-25.07% (new-old)/old
Use the following to answer questions 17+18: (Table: Economic Data) Using the expenditure approach to national income accounting, calculate the GDP of this country.
1,650 (Y= C+I+G+NX)
The story of China and the United States illustrates what concept?
U.S. creation of new technology did not allow for as much economic growth in the short run as did China's capital accumulation
Use the following to answer: (Table: Small Town GDP) Which of the four towns in this table has the highest standard of living? Town A - Real GDP: 4,859,307 Population: 250 Town B - Real GDP: 1,000,050 Population: 175 Town C - Real GDP: 6,000,000 Population: 320 Town D - Real GDP: 3,549.389 Population: 90
Town D (divide each towns real GDP by population, whichever number is largest has highest standard of living)
In the Solow model, an increase in the investment rate will _____ the amount of capital needed to achieve a steady state of output.
increase