macro

The world's average (mean) GDP per capita is $10,515. There are roughly 7 billion people in the world. What is the world's total GDP?

$73.6 trillion

A government spending on building roads is considered as:

a government purchase.

A large number of economic and psychological studies demonstrate that people who are impatient in one area of life tend to be impatient in other areas as well. This isn't true in every single case, but of course that doesn't matter if we're trying to understand the "typical person." Based on your general knowledge and educated guessing, who is more likely to have the lowest credit card debt: a smoker, a nonsmoker, an alcoholic, or a criminal.

a nonsmoker

Differences in technological knowledge explain:

a small fraction of the differences in the wealth of nations but they are important for growth at the world level.

A tariff is a negative productivity shock because:

a tariff raises the cost of producing goods and services. a tariff pushes capital and labor into lower productivity sectors, thereby reducing total output. (a and b)

Which of the following are aggregate demand shocks? Choose all that apply.

A rise in consumer optimism , A rise in sales taxes , Foreigners watch fewer U.S.-made movies , Fear , A faster money growth rate

What will happen to AD and LRAS curves if a nation's scientists invent many new Internet search tools, raising current productivity and making investors optimistic about future inventions as well? Choose all that apply.

AD shifts right. , LRAS shifts right.

According to the short-run aggregate supply curve (SRAS): If expected inflation is 5% and actual inflation is 7%, real growth will fall . If expected inflation is 3% and actual inflation is 1%, real growth will rise . If expected inflation is 6% and actual inflation is 6%, real growth will remain unchanged .

Answer 1: Correct Answer rise You Answered fall Answer 2: You Answered rise Correct Answer fall Answer 3: Correct! remain unchanged

Legendary American labor leader John L. Lewis, head of the United Mine Workers from 1920 to 1960, was enormously successful in winning higher pay for his union's members. An economist called him, "the greatest oil salesman" because the resulting higher price of coal and disruptions of its production due to strikes caused many users to switch to oil. .

Answer 1: Correct! "the greatest oil salesman" Answer 2: Correct! the resulting higher price of coal and disruptions of its production due to strikes caused many users to switch to oil.

Suppose you paid $800 for a zero-coupon bond with a face value of $900. If you held that bond until maturity, what would be the rate (percentage) of return? 12.5% If another zero-coupon bond with the same face value and maturity sells for $850, what is the interest rate on this bond? 5.9% Which bond would you rather buy? It depends on whether you prefer the high-return, high-risk bond (the first one) or the low-return, low-risk bond (the second one).

Answer 1: Correct! 12.5% Answer 2: Correct! 5.9% Answer 3: Correct! It depends on whether you prefer the high-return, high-risk bond (the first one) or the low-return, low-risk bond (the second one).

Use the figure below to answer the following questions. SRAS 1 What is the inflation rate when the economy is at point A or C? 5% What is the expected inflation rate of SRAS2? 3% When the economy is at point B, which is greater, actual inflation or expected inflation? Actual inflation When the economy is at point C, which is greater, actual inflation or expected inflation? Expected inflation When the economy is at point D, which is greater, actual inflation or expected inflation? They are equal. The AD curve with a spending growth rate of 11% goes through point: A The AD curve with a spending growth rate of 14% goes through point: B The AD curve with a spending growth rate of 16% goes through point: D

Answer 1: Correct! 5% Answer 2: Correct! 3% Answer 3: Correct! Actual inflation Answer 4: Correct Answer Actual inflation You Answered Expected inflation Answer 5: Correct! They are equal. Answer 6: Correct! A Answer 7: You Answered B Correct Answer C Answer 8: Correct Answer B You Answered D

The following are events that caused the Great Depression. Determine which curve (AD or LRAS) shifts left. The stock market crashed in 1929. AD In the early 1930s, the U.S. money supply fell by about a third. AD From 1930 to 1932, there were four waves of banking panics and 40% of the banks failed. Both AD and LRAS The Smoot-Hawley Tariff of 1930 raised tariffs on tens of thousands of imported goods. LRAS The retaliation by the other countries (tariffs imposed on U.S. goods). AD A severe drought and decades of ecologically unsustainable farming practices created dust storms. LRAS

Answer 1: Correct! AD Answer 2: Correct! AD Answer 3: Correct! Both AD and LRAS Answer 4: Correct! LRAS Answer 5: Correct! AD Answer 6: Correct! LRAS

Determine which curve (AD or LRAS) shifts which way. Foreigners watch more U.S.-made movies AD shifts right. Fear on the part of consumers AD shifts left. New inventions occur at a slower pace LRAS shifts left. A smaller money growth rate AD shifts left.

Answer 1: Correct! AD shifts right. Answer 2: Correct! AD shifts left. Answer 3: Correct! LRAS shifts left. Answer 4: Correct! AD shifts left.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson bailed out Bear Stearns because they thought that Bear Stearns bankruptcy would lead to many other banks going bankrupt. Credit default swap is insurance against a loan (e.g., bond) default. Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson did not bail out Lehman Brothers because they thought that bailing out Lehman Brothers would have only a small positive impact on the economy. Which of the following was NOT bailed out by the government? d.\tAll of the above were bailed out.

Answer 1: Correct! Bear Stearns bankruptcy would lead to many other banks going bankrupt. Answer 2: Correct! insurance against a loan (e.g., bond) default. Answer 3: Correct Answer bailing out one bank would lead to other banks taking more risks in the future. You Answered bailing out Lehman Brothers would have only a small positive impact on the economy. Answer 4: Correct! d. All of the above were bailed out.

Suppose the economy is initially at point A in the figure below. Keynesian Model 1 Suppose the Fed decrease the money growth rate and the economy moves to point B. In the long run, without any government intervention, the economy will move to point: C . Again, the economy is initially at point A. Suppose fear on the part of consumers reduces the AD curve and the economy moves to point B. In the long run, without any government intervention, the economy will move to point: C .

Answer 1: Correct! C Answer 2: Correct Answer A You Answered C

Watch the video below to answer the following questions. How Expert Are Expert Stock Pickers? (Links to an external site.)Links to an external site. How Expert Are Expert Stock Pickers? Is it better to invest in a mutual fund that has performed well for the past 5 years in a row or one that has performed poorly for five years in a row? True or false: Actively managed mutual funds usually have lower fees than passively managed mutual funds. According to a study referenced in the video, of the top 25% of actively managed mutual funds in 2012, what percent were also ranked in the top 25% of performance 5 years later? Suppose that 100 financial 'experts' were to flip a coin at the start of each new year. Those who flip 'heads' will say the market is going up this year and those who flip 'tails' will say the market is going down this year. Roughly what percent of these experts would have a perfect prediction streak 3 years in a row?

Answer 1: Correct! Can not be determined with the given information. Answer 2: Correct Answer Market prices aggregate dispersed information that no single investor is likely to comprehend. You Answered False. Answer 3: Correct! 1%. Answer 4: Correct Answer 12% You Answered 6%

For each of the following, identify which type of unemployment increases. The economy gets worse, so General Motors shuts down a factory for four months, laying off workers. Cyclical General Motors lays off 5,000 workers and replaces them with robots. The workers start looking for jobs outside the auto industry. Structural About 10 workers per month at a General Motors plant quit their jobs because they want to live in another town. They start searching for work in the new town. Frictional

Answer 1: Correct! Cyclical Answer 2: Correct! Structural Answer 3: Correct! Frictional

Classify each of the following individuals in one of the following categories: employed, unemployed, or not in the labor force. George Lewis is 16 years old, and he has no job from which he receives any pay or profit. However, George does help with the regular chores around his father's farm about 20 hours a week. Employed Marcus Green was laid off from the Houston Motor Company when the firm began retooling to produce a new model car. Marcus knows he will be called back to work as soon as the model changeover is completed. So, he is available for work, but he is not seeking a job. Not in the labor force

Answer 1: Correct! Employed Answer 2: Correct Answer Unemployed You Answered Not in the labor force

Classify each of the following individuals in one of the following categories: employed, unemployed, or not in the labor force. Elizabeth has worked for 10 hours as a computer programmer for the National Video Company and attended night classes at the local college. She would prefer a full-time job. Employed Roger lost his job at the R-gone Manufacturing Company two weeks ago. Since then he has been trying to find a job at other local factories. Unemployed

Answer 1: Correct! Employed Answer 2: Correct! Unemployed

Due to the oil shocks, over time, the city of Houston (which serves much of the American oil industry) became populated with many former residents of Detroit (which made large American cars) though the transition was costly and disruptive.

Answer 1: Correct! Houston Answer 2: Correct! Detroi

Which factor caused higher productivity in each of the following cases? An increase in workers' ability to use various tools led to more production. Human capital Workers started using more cell phones to communicate with their bosses. Physical capital Pharmaceutical companies developed new drugs to treat cancer. Technological knowledge Doctors learned how to administer new drugs. Human capital Schools bought more computers. Physical capital New online homework assignment software with automatic grading is created. Technological knowledge

Answer 1: Correct! Human capital Answer 2: Correct! Physical capital Answer 3: Correct! Technological knowledge Answer 4: Correct! Human capital Answer 5: Correct! Physical capital Answer 6: Correct! Technological knowledge

Fill in the blanks: Institutions create incentives , which in turn affect the amount of physical capital, human capital, and technological knowledge in a country, which generates a high level of real GDP per capita .

Answer 1: Correct! Institutions Answer 2: Correct! incentives Answer 3: Correct! physical capital, human capital, and technological knowledge Answer 4: Correct! real GDP per capita

Between 1984 and 2001, the U.S. government made it much easier to get disability payments. Most of the people who try to qualify for disability payments have a tough time finding jobs, and spend a lot of time "out of work and searching for work." Once they start receiving disability payments, they rarely work again and exit the labor force. What happened to the number of "disabled" people? It increased. What happened to the labor force? It decreased. What happened to the number of those who were unemployment? It stayed the same. What happened to the unemployment rate? It decreased.

Answer 1: Correct! It increased. Answer 2: Correct! It decreased. Answer 3: Correct Answer It decreased. You Answered It stayed the same. Answer 4: Correct! It decreased.

Determine which curve (AD or LRAS) shifts which way. A rise in the price of oil LRAS shifts left. A fall in consumer optimism AD shifts left. A hurricane that destroys factories in Florida LRAS shifts left. Good weather that creates a bumper crop of California oranges LRAS shifts right. A fall in sales taxes AD shifts right.

Answer 1: Correct! LRAS shifts left. Answer 2: Correct! AD shifts left. Answer 3: Correct! LRAS shifts left. Answer 4: Correct! LRAS shifts right. Answer 5: Correct! AD shifts right.

Determine which curve (AD or LRAS) shifts which way. Steel workers go on a strike. LRAS shifts left. Businesses read about the glories of the Internet, so demand for high-tech investment purchases increases. AD shifts right. U.S. senators read about the glories of the Internet, so demand for high-tech government purchases increases. AD shifts right. Around 2000, the glories of the Internet fade a bit so innovations increase at a somewhat slower rate for a few years. LRAS shifts left.

Answer 1: Correct! LRAS shifts left. Answer 2: Correct! AD shifts right. Answer 3: Correct! AD shifts right. Answer 4: Correct! LRAS shifts left.

Why are so many Native Americans so poor, according to John Stossel? Lack of property rights In 1976, when economist Terry Anderson asked a member of the Flathead Indian Reservation why he was wealthy, what was his response? "I own this place." According to economist Terry Anderson, privately-owned Native American lands were 40 to 90% more productive than the lands held in trust. Some Native Americans own salmon streams and the salmon stock is larger than that of streams held in a commons.Native Americans have the highest poverty rate and the lowest life expectancy. According to John Stassel, what is the cause? Lack of property rights The Lumbees were not recognized as a sovereign tribe by the government and they were thriving because they have property rights , according to John Stossel.

Answer 1: Correct! Lack of property rights Answer 2: Correct! were not Answer 3: Correct! thriving Answer 4: Correct! property rights Answer 5: Correct! Lack of property rights Answer 6: Correct! "I own this place." Answer 7: Correct! 40 to 90% more productive Answer 8: Correct! larger than

Watch the video below to answer the following questions. Can You Beat the Market? (Links to an external site.)Links to an external site. Can You Beat the Market? Mutual fund managers tend not to beat the market over an extended period of time. Why? Market prices aggregate dispersed information that no single investor is likely to comprehend. Suppose some damaging information comes out about company Y this morning. The stock has been trading for a few hours today. When the bad news came out about the stock, what probably happened to the stock price after a few minutes? It went down. According to the efficient-market hypothesis, should you sell your shares now, a few hours after the bad news emerged? No. On average, buyers in the stock market have The same amount of information as sellers do.

Answer 1: Correct! Market prices aggregate dispersed information that no single investor is likely to comprehend. Answer 2: Correct! It went down. Answer 3: Correct! No. Answer 4: Correct! The same amount of information as sellers do.

Watch the video below from 3:19 to answer the following questions. https://www.youtube.com/watch?v=4Wg0MERlpW4#t=3m19s (Links to an external site.)Links to an external site. According to the author, if you get a hot stock tip, are you likely to beat the stock market on average? No, it is highly doubtful because new information gets reflected in the stock prices very quickly. At 11:39 Eastern Standard Time on January 28th, 1986, the space shuttle Challenger exploded in a great tragedy, killing everyone on board. Eight minutes later, that news hit the Dow Jones wire service. The stock prices of all the major contractors who had helped to build the shuttle, such as Morton Thiokol, Lockheed, Martin Marietta, and Rockwell International, all fell immediately. On that day, the stock price of Morton Thiokol fell the most. Six months after the disaster, a commission was set up to investigate the cause, which turned out to be the failed O-rings made by Morton Thiokol .

Answer 1: Correct! No, it is highly doubtful because new information gets reflected in the stock prices very quickly. Answer 2: Correct! Morton Thiokol Answer 3: Correct! Morton Thiokol

Classify each of the following individuals in one of the following categories: employed, unemployed, or not in the labor force. Joan Howard has filed applications for summer jobs. However, it's only April and she doesn't wish to start working until at least June 15, because she is attending school. Not in the labor force Lisa Fox spends most of her time taking care of her home and children, but, all day Friday and Saturday, she helps in her husband's computer software store. Employed

Answer 1: Correct! Not in the labor force Answer 2: Correct! Employed

Classify each of the following individuals in one of the following categories: employed, unemployed, or not in the labor force. Linda is a homemaker. Last week she was occupied with her normal household chores. She neither held a job nor looked for a job. Not in the labor force Scott has a Ph.D. He has been working full-time but doesn't like his job as a dishwasher. He has applied for jobs with three companies and five universities. As soon as he gets an offer, he'll quit his current job. Employed

Answer 1: Correct! Not in the labor force Answer 2: Correct! Employed

According to John Stossel, what is the biggest predictor of success in life? Patience In the marshmallow experiment, the children who could successfully wait for more marshmallow later All of the above. . Let's apply the lesson we learned from the video. Students who wait until the last minute to study for an exam might be like the children who could not wait for more marshmallow later because the gratification (e.g., a better exam score) comes later while the cost (e.g., studying) comes immediately . This video is shown in Chapter 9/29 because saving and investment that are important for economic growth require the ability to delay gratification .

Answer 1: Correct! Patience Answer 2: Correct! All of the above. Answer 3: Correct! could not wait for more marshmallow later Answer 4: Correct! later Answer 5: Correct! immediately Answer 6: Correct! saving and investment that are important for economic growth require the ability to delay gratification

In each of the following cases, which makes people save LESS? Automatic enrollment in a retirement savings plan or requiring employees to request a retirement savings plan Requiring employees to request a retirement savings plan The default savings of a retirement plan: 4 percent or 2 percent 2 percent

Answer 1: Correct! Requiring employees to request a retirement savings plan Answer 2: Correct! 2 percent

Identify each of the following either as investment or saving from the macroeconomics point of view. Tom purchases a bond issued by Star-Kist. Saving Jerry purchases stock issued by IBM. Saving Alice builds a new restaurant. Investment Nancy buys new machinery for her factory. Investment

Answer 1: Correct! Saving Answer 2: Correct! Saving Answer 3: Correct! Investment Answer 4: Correct! Investment

Watch the video clips below to answer the following questions. Congress: Trading stock on inside information? (Links to an external site.)Links to an external site. Congress: Trading stock on inside information? Update on "60 Minutes" report: Insiders (Links to an external site.)Links to an external site. Update on "60 Minutes" report: Insiders What does the STOCK Act stand for? Stop Trading On Congressional Knowledge Who could trade in the stock market using non-public information before the STOCK Act? Members of Congress If a law that allows government-funded insurance to become an option for the public is about to get killed, members of Congress can gain by selling insurance companies' stocks. Suppose a credit card legislation that hurts the credit card companies is about to be rejected. If members of Congress could receive shares of a credit card company stock in an IPO (Initial Public Offering), the stock price of the company is likely to rise substantially after the legislation is officially killed and the members of Congress would gain a lot of money. . Initially, how many co-sponsors did the STOCK Act get? 0 After the initial airing of 60 Minutes, what happened next? The STOCK Act was passed.

Answer 1: Correct! Stop Trading On Congressional Knowledge Answer 2: Correct! Members of Congress Answer 3: Correct Answer buying You Answered selling Answer 4: Correct! rise substantially Answer 5: Correct! gain a lot of money. Answer 6: You Answered 0 Correct Answer 6 Answer 7: Correct! The STOCK Act was passed.

During the Great Leap Forward, millions of Chinese starved to death (20 to 40 million) because not enough food was produced by farmers. One of the main reasons was: The land was owned communally. In the late 1950s, the Chinese communes were order to make steel. People collected anything that was made of iron or steel and built small furnaces. They turned what they collected into something totally useless . Many people believed in miracle or miraculous farm output. There was a saying at the time: "The corn will grow higher, the more you desire." There was a fake photograph in the People's Daily that showed: wheat in the field supporting the weight of a few children . When Chairman Mao Zedong visited a commune, the people: moved grain from other places and put it all in one place so that they looked like they were producing a lot. . The local officials reported inflated agricultural production figures, which led to the central government taking more grains.

Answer 1: Correct! The land was owned communally. Answer 2: Correct! something totally useless Answer 3: Correct! "The corn will grow higher, the more you desire." Answer 4: Correct! wheat in the field supporting the weight of a few children Answer 5: Correct! moved grain from other places and put it all in one place so that they looked like they were producing a lot. Answer 6: Correct! inflated

In the early decades under Lenin and Stalin, the official doctrine was communism, and the use of market incentives was considered a form of treason. There was one important exception. Which industry was exempted from this doctrine? The military equipment sector Why did they exempt the sector? They knew the importance of the sector for their own survival. On the eve of the Bolshevik revolution, V. I. Lenin declared that capitalism had already "reduced" the administration of businesses to "extraordinarily simple operations" - that is, "supervising and recording, knowledge of the four rules of arithmetic, and issuing appropriate receipts." After just a few years in power, what did he find out? He needed the help from the capitalist businessmen.

Answer 1: Correct! The military equipment sector Answer 2: Correct! They knew the importance of the sector for their own survival. Answer 3: Correct! He needed the help from the capitalist businessmen.

Mexico and Bulgaria have roughly the same GDP per capita in 2014. Based on what you've learned in the video, is Bulgaria closer in GDP per capita to the United States or to the Central African Republic? United States Qatar has a higher GDP per capita than the United States. In fact, in 2017, Qatar had a GDP per capita that was roughly _______ times larger than the Central African Republic's GDP per capita. 175

Answer 1: Correct! United States Answer 2: Correct! 175

Watch the video below to answer the following questions. Who Is More Rational? You or the Market? (Links to an external site.)Links to an external site. Who Is More Rational? You or the Market? In 2008, Warren Buffett and a money management firm (Protege Partners) made a million-dollar bet (Links to an external site.)Links to an external site.. Warren Buffett bet that a passive, low-fee mutual fund of his choosing could outperform an actively managed investment portfolio by a team of financial wizards. Buffett picked a boring S&P 500 index fund, like this video recommends. Protege Partners chose a "portfolio of funds of hedge funds." Who won? Warren Buffett and his boring S&P 500 index fund. The market has some known anomalies such as the January effect mentioned in this video. Given these known anomalies, should you try to beat the market? No. Warren Buffett tells his children to invest In index funds.

Answer 1: Correct! Warren Buffett and his boring S&P 500 index fund. Answer 2: Correct! No. Answer 3: Correct! In index funds.

Which graph below is drawn with a ratio scale? Since 1800, real GDP per capita in the United States has doubled roughly every: 35 to 40 years If the real GDP per capita growth rate had been 1 percent in the United States since 1800, real GDP per capita today would have be about that of: 1940 If the real GDP per capita growth rate had been 3 percent in the United States since 1800, real GDP per capita would have hit today's level in: 1917

Answer 1: Correct! a Answer 2: Correct! 35 to 40 years Answer 3: Correct! 1940 Answer 4: Correct! 1917

Watch the video below to answer the following questions. www.youtube.com/watch?v=qgYF9q9gyis (Links to an external site.)Links to an external site. John Stossel threw darts at Wall Street Journal to pick stocks. He did: better than professionally managed funds. True or False: According to economist Burton Malkiel, in recessionary years, actively managed funds outperform index funds. False. Burton Malkiel states, "This is a game where you get what you don't pay for." What does it mean? Choose the best answer. Index funds have, on average, higher returns because you don't have pay extra fees. According to one study in the Journal of Economics and Portfolio Strategy that is introduced in the video, between 1990 and 2009, among 452 managed funds, 34 did better than the market average. There are always some people who beat the market and there will be Warren Buffets in the future. According to Burton Malkiel, what is the problem of trying to be a Warren Buffet or to invest in his/her mutual funds? Nobody knows who he/she is and you are more likely to lose by trying it.

Answer 1: Correct! better than Answer 2: Correct! False. Answer 3: Correct! Index funds have, on average, higher returns because you don't have pay extra fees. Answer 4: Correct Answer 13 You Answered 34 Answer 5: Correct! Nobody knows who he/she is and you are more likely to lose by trying it.

There is very little private housing stock on Indian Reservations in the United States. Tribal members often live either in houses that were financed by the federal government or in trailers. The reason is that: The land is owned communally , which means there is no property rights . Therefore, it is very difficult, if not impossible, to get a conventional mortgage on Indian reservations.

Answer 1: Correct! communally Answer 2: Correct! property rights Answer 3: Correct! mortgage

An increase in unemployment that began with the 2007 - 2009 recession is taking a very long time to decline, leading to worries that unemployment that perhaps started out as cyclical may become structural .

Answer 1: Correct! cyclical Answer 2: Correct! structural

Some researchers surveyed employers, asking about their employment before and after a minimum wage increase. They concluded that the change in unemployment was minimal. What does this survey method ignore? d. a and b If this survey method was used, you would have to conclude that Russian roulette is a safe activity. Why? You could only interview those who survived.

Answer 1: Correct! d. a and b Answer 2: Correct! You could only interview those who survived.

The factors listed below have affected the unemployment rate. Choose how each factor has affected which type of unemployment. The development of online job searches has: decreased frictional unemployment. The aging workforce has: decreased frictional unemployment.

Answer 1: Correct! decreased Answer 2: Correct! frictional Answer 3: Correct! decreased Answer 4: Correct! frictional

The factors listed below have affected the unemployment rate. Choose how each factor has affected which type of unemployment. The labor unions losing their power has: decreased structural unemployment. The unemployment insurance being available for longer periods has: increased structural unemployment.

Answer 1: Correct! decreased Answer 2: Correct! structural Answer 3: Correct! increased Answer 4: Correct! structural

In 1967, the Suez Canal suddenly closed and remained closed for 8 years, temporarily shutting down a major trade route for many countries. Based on the facts from the video, this temporary canal closure: decreased the GDP per capita of countries most reliant on the canal. Adam Smith argued in 1776 that Central Africa was resistant to growth because: Central Africa lacked large rivers flowing to the coasts.

Answer 1: Correct! decreased the GDP per capita of countries most reliant on the canal. Answer 2: Correct! Central Africa lacked large rivers flowing to the coasts.

Suppose the returns from investment in housing were the same as (or higher than) those of other financial investments (such as buying stocks). Then, the demand for housing would increase since people get to live in the houses. It would raise the price of housing. The lower price today means the rate of financial returns would be higher , contradicting the original supposition. To summarize, if the owner of an asset can derive joy from simply owning it (e.g., houses, paintings, etc.), the financial return of the asset tends to be: lower than that of the other assets, on average.

Answer 1: Correct! demand for Answer 2: Correct! increase Answer 3: Correct! raise Answer 4: Correct Answer higher You Answered lower Answer 5: You Answered higher Correct Answer lower Answer 6: Correct! lower than

Overall, banks make our lives simpler. We open our accounts, deposit our money, receive our interest payments, and write our checks; at the same time we are participating in the process of economic growth because the bank oversees a process by which our savings are turned into productive investments .

Answer 1: Correct! economic growth Answer 2: Correct! savings Answer 3: Correct! investments

In the long run, an increase in spending lead to a real growth rate that is equal to the Solow growth rate. The Solow growth rate is not influenced by the inflation rate.

Answer 1: Correct! equal to Answer 2: Correct! not influenced

Which of the following countries' economies fell further behind in the 20th century? f. b & c only Between 1950 and 1970, Japan doubled its GDP per capita every 8.2 years. Using the Rule of 70, calculate Japan's approximate annual growth rate during that time period. Rule of 70: Years to double = 70 / annual % change For example, if a country's GDP per capita growth rate is 2% per year, it double every 35 years (= 70/2). 8.5% per year We also learned that Argentina doubled its GDP per capita only once from 1950-2015. Using the Rule of 70, calculate Argentina's approximate annual growth rate during that time period. 1.1% per year

Answer 1: Correct! f. b & c only Answer 2: Correct! 8.5% per year Answer 3: Correct! 1.1% per year

If European governments set rules for marriage the same way they set rules for employment - with tough, preset rules that make it difficult to end the relationship - you would expect that rates of divorce to fall , rates of marrieages to fall , and the length of marriages to rise .

Answer 1: Correct! fall Answer 2: Correct! fall Answer 3: Correct! rise

In the real business cycle model, if a failure of the OPEC countries to agree upon their respective oil production quotas leads to an increase in the supply of oil, inflation will fall and real GDP growth will increase .

Answer 1: Correct! fall Answer 2: Correct! increase

Patient people tend to commit fewer crimes because the benefit (e.g., acquiring stolen goods) is immediate while the cost (e.g., getting caught) is delayed .

Answer 1: Correct! fewer Answer 2: Correct! immediate Answer 3: Correct! delayed

Imagine that prices have been going up by 5% and wages by 7% every year for a number of years. Now, however, the inflation rate falls to 2% a year. Workers are expecting wage increases of 7%, but if firms paid that amount, they would be unprofitable. Firms could cut wage growth to 4%, which would give workers the same increase in real wages of 2% that they had before, but how will workers feel when their salary increase is much less than expected? What will happen to morale and motivation? How will a union feel when the company tries to renegotiate its contract? Very often, morale goes down and the union threatens a strike. As a result, firms may find it easier to fire workers or reduce hours than to lower wages . In other words, a fall in aggregate spending will reduce the growth rate.

Answer 1: Correct! fire workers or reduce hours Answer 2: Correct! lower wages Answer 3: Correct! reduce

The Solow growth rate is an economy's potential growth rate, the rate of economic growth that would occur given and the existing .

Answer 1: Correct! flexible prices Answer 2: Correct! real factors of production

The concepts of cyclical, structural, and frictional unemployment are not always clear and distinct. If times are good, an employer will place more ads and search harder for workers. Because of this, we might say that the frictional rate of unemployment has fallen. But we also might say that the structural rate of unemployment has fallen because it is caused by a booming economy.

Answer 1: Correct! frictional Answer 2: You Answered structural Correct Answer cyclical

What types of unemployment are included in the natural unemployment rate? frictional and structural Jasmine has recently moved to Florida because she loves the warm climate there. Because she is new to the area, she will need to spend a few weeks looking for a new job. What type of unemployment is this? frictional

Answer 1: Correct! frictional and structural Answer 2: Correct! frictional

Why doesn't the government always inflate its debt away? One reason is the Fisher effect. If lenders expect that the government will inflate its debt away, they will only lend at high nominal rates of interest. Another reason the government doesn't always inflate its debt away is that people who buy government bonds are typically voters who would be upset if their real returns were shrunk to zero or less.

Answer 1: Correct! high Answer 2: Correct! voters

We increase human capital with education. We increase technological knowledge with research and development.

Answer 1: Correct! human capital Answer 2: Correct! technological knowledge

The minimum wage would: increase . unemployment. It is a question of how much, not whether it would. Because if it didn't, we could easily solve the problem of poverty by: raising the minimum wage to, say, $1,000 (or more) per hour. .

Answer 1: Correct! increase Answer 2: Correct! raising the minimum wage to, say, $1,000 (or more) per hour.

More generous unemployment insurance increases the unemployment rate. In Denmark, the government used to offer laid-off workers 3 years of unemployment benefits and laid-off Danes found their jobs after about 3 years. According to the survey introduced in the video, 1/5 of the unmployed found work immediately when their unemployment benefits ran out.

Answer 1: Correct! increases Answer 2: You Answered 3 Correct Answer 5 Answer 3: You Answered 3 Correct Answer 5 Answer 4: You Answered 1/5 Correct Answer 1/3

The aggregate demand curve tells us all the combinations of inflation and real GDP growth that are consistent with a specified rate of spending .

Answer 1: Correct! inflation Answer 2: Correct! real GDP growth Answer 3: Correct! spending

If spending growth increases, either because of an increase in money supply growth or an increase in velocity growth, then the AD curve shifts up and to the right. The intuition is that increased spending must flow into either a higher inflation rate or a higher real GDP growth rate .

Answer 1: Correct! inflation rate Answer 2: Correct! real GDP growth rate

In the 1970s, high inflation rates meant the real value of 30-year fixed-rate mortgages that were taken out in the 1960s declined tremendously, redistributing billions of dollars from lenders to borrowers . In the late 1970s, many people began to expect that 10% inflation was here to stay, so home buyers were willing to take out long-term mortgages with interest rates of 15% or higher. When inflation fell unexpectedly in the early 1980s, these borrowers found that their real payments were much higher than they had anticipated. Wealth was redistributed from borrowers to lenders . Answer 1:

Answer 1: Correct! lenders Answer 2: Correct! borrowers Answer 3: Correct! higher Answer 4: Correct! borrowers Answer 5: Correct! lenders

Even though 1949 - the year before a series of minimum wage escalations began - was a recession year, black teenage male unemployment was lower than it was to be at any time during the later boom years of the 1960s. The usual explanations of high unemployment among black teenagers such as inexperience, less education, lack of skills, and racism cannot explain the above because: those conditions were worse in the year when their unemployment rate was lower.

Answer 1: Correct! lower than Answer 2: Correct! cannot Answer 3: Correct! those conditions were worse in the year when their unemployment rate was lower.

Political pressure on Japan led to "voluntary" limits of its exports to the U.S. in the 1980s. Japanese automakers moved to the U.S. and were producing as many cars as were being exported to the U.S. by the 1990s. Many of the transplanted Japanese car companies had non-unionized workers. By the early twenty-first century, the Detroit automakers were laying off workers by the thousands, while Toyota was hiring American workers by the thousands.

Answer 1: Correct! non-unionized Answer 2: Correct! laying off Answer 3: Correct! hiring

In the inflation parable of the textbook, the government bought bread, shirts, and woodwork simply by printing money . Where did these real goods come from? They came from the baker, tailor, and carpenter. Inflation transfers real resources from citizens to the government. Thus, inflation is a type of government spending .

Answer 1: Correct! printing money Answer 2: You Answered government spending Correct Answer tax

The Industrial Revolution, centered in Great Britain, required a combination of multiple distinct advantages. Britain's status as an island, and the strong English Navy, protected the country against invaders and made more secure. Labor markets had been relatively for centuries and the ethic of the time encouraged commerce, entrepreneurship, and the accumulation of wealth. The growth of power of Parliament checked and encouraged economic policies that allowed wealth to spread more widely.

Answer 1: Correct! property rights Answer 2: Correct! free Answer 3: Correct! royal tyranny

Bond buyers hope that the bond prices will rise after their purchase. Bond sellers hope the bond prices will fall after their sale.

Answer 1: Correct! rise Answer 2: Correct! fall

Other things equal, a bond with a higher interest rate is riskier . Since people don't want to buy riskier bonds, the supply of loanable funds is lower .

Answer 1: Correct! riskier Answer 2: Correct! the supply of loanable funds is lower

Calculate the unemployment rate and the labor force participation rate in the following case. Unemployed: 10 million Adult population: 200 million Employed: 90 million. The unemployment rate: 10 % The labor force participation rate: 50 %

Answer 1: Correct! 10 Answer 2: Correct! 50

Use the rule of 70 to answer the following questions. Suppose India's per capita real GDP is $4,000, and let's suppose (optimistically) that real output per person grows at 7 percent per year. Approximately, how many years will it take for India to reach the level of GDP per capita of $32,000 per year? 30 years If you inherit $10,000 this year and you invest your money so that it grows 4 percent per year, how many years will it take for your investment to be worth $40,000? 35 years What about $160,000? 70 years Suppose your grandfather spent $50 drinking beer 70 years ago, but he could have invested this amount at an interest rate of 5% per year. a.How many years would it have taken to double the $50 had he invested it? 14 years b.Approximately, how much would you have had today (70 years later) if he had invested the $50? $ 1600

Answer 1: Correct! 30 Answer 2: Correct! 35 Answer 3: Correct! 70 Answer 4: Correct! 14 Answer 5: Correct! 1600

Consider the figure below. In this relatively unsuccessful economy, the Solow growth rate is 1 percent per year. Ch 13 F & T Q10.jpg Calculate the inflation rate, the value of X, in this economy. Inflation = 6 % If spending growth were 15 percent in this economy, what would the inflation rate be in the long run? Inflation in the long run = 14 %

Answer 1: Correct! 6 Answer 2: Correct! 14

Calculate the unemployment rate and the labor force participation rate in the following case (round to the nearest tenth of a percent if necessary). Employed: 100 million Adult population: 200 million Labor force: 110 million. The unemployment rate: 9.1 % The labor force participation rate: 55 %

Answer 1: Correct! 9.1 Answer 2: Correct! 55

Use the figure below, where the origin = (0%, 0%), to answer the following questions. RBC Model 2 What is the spending growth rate of the AD curve? 3% What is the inflation rate when the real GDP growth rate is 5%? 5% What is the inflation rate when the real GDP growth rate is 7%? 3% What is the real GDP growth rate when the inflation rate is 7%? 3% What is the real GDP growth rate when the inflation rate is 0%? 10% Suppose the economy is at point X. If new technology is developed, where will the economy move to? Point Y Suppose the economy is at point X. If the price of oil rises, where will the economy move to? Point W

Answer 1: You Answered 3% Correct Answer 10% Answer 2: Correct! 5% Answer 3: Correct! 3% Answer 4: Correct! 3% Answer 5: Correct! 10% Answer 6: Correct Answer Point W You Answered Point Y Answer 7: You Answered Point W Correct Answer Point Y

According to the documentary of economist Walter Williams, 50 % of black children who look for jobs cannot find them in ghettos like the one he grew up in. According to Walter Williams, at one time in the 1940s, the black teenage unemployment rate was: higher than the white teenage unemployment rate because: there were no laws against discrimination in the 1940s. . According to Walter Williams, people have a misguided notion that the minimum wage is an anti-poverty tool although it doesn't even pass the smell test. He states that if the minimum wage low could eliminate poverty, you could raise the minimum wage in All of the above. and solve their poverty. According to him, people are poor mostly because they have: low skills . According to Walter Williams, in the days of Apartheid in South Africa, white racist unions that would never have a black as a member were: the major supporters of minimum wage laws for blacks . Their stated purpose was to: protect white workers from having to compete with low-skilled low-wage black workers .

Answer 1: You Answered 50 Correct Answer 70 Answer 2: You Answered higher than Correct Answer lower than Answer 3: Correct Answer the minimum wage were much lower in the 1940s. You Answered there were no laws against discrimination in the 1940s. Answer 4: Correct! All of the above. Answer 5: Correct! low skills Answer 6: Correct! the major supporters Answer 7: Correct! blacks Answer 8: Correct! protect white workers from having to compete with low-skilled low-wage black workers

Watch the video below to answer the following questions. Investing: Why You Should Diversify (Links to an external site.)Links to an external site. Investing: Why You Should Diversify Which of the following would be the least risky thing for you to do if you work as a real estate agent? Invest in construction companies. Let's assume that your mutual fund grows at an average rate of 7% per year. Using the rule of 70 (Links to an external site.)Links to an external site.: Approximately how many years will it take for your money to double? 10 years Using the same assumption as the previous question and the rule of 70: Approximately how many years will it take for your money to double if fees are 1.5% per year (not uncommon in the mutual fund industry)? 12.7 years

Answer 1: You Answered Invest in construction companies. Correct Answer Marry a doctor. Answer 2: Correct! 10 years Answer 3: Correct! 12.7 years

In the first half of the 20th century, which industry had large unions? Mining By the end of the century, who had the largest and most rapidly growing union? Government employees

Answer 1: You Answered Mining Correct Answer All of the above. Answer 2: Correct! Government employees

Which of the following is a factor of production and best defined as ideas and inventions? Organization A reason why countries have good institutions is: d. Hard work All of the following are key institutions of economic growth except: good incentives.

Answer 1: You Answered Organization Correct Answer Technical knowledge Answer 2: You Answered d. Hard work Correct Answer e. a & b only Answer 3: Correct! good incentives.

In the real business cycle model (the one with a vertical LRAS), a positive shock to aggregate demand (an increase in aggregate demand) will lead to a higher . rate of real GDP growth. A technological innovation such as the Internet or cheap fusion power shift the LRAS curve to the right .

Answer 1: You Answered a higher Correct Answer the same Answer 2: Correct! right

To what rapid increase is the tale of "the hockey stick of human prosperity" referring? c. Rapid increase in the standard of living When did the world begin to shift from the handle to the blade section of the hockey stick (of human prosperity)? 18th century True or false: All countries shifted from the handle to the blade portion of the hockey stick (of human prosperity) at about the same time. False In addition to improved access to education and reliable energy sources, what other changes do scholars cite as a reason(s) why we experienced the recent, rapid increase in human prosperity? c. Change in attitude

Answer 1: You Answered c. Rapid increase in the standard of living Correct Answer d. b & c only Answer 2: Correct! 18th century Answer 3: Correct! False Answer 4: You Answered c. Change in attitude Correct Answer d. a & c only

To be future oriented, you need to be able to trust that when you make a decision about the future, it's going to carry out. This is similar to emphasizing the importance of human capital for economic growth. The closer you are to the equator, the more present -oriented you are. Protestant countries are more future -oriented and have higher gross national product than Catholic countries. North Italy tends to be more future -oriented than South Italy and has lower income.

Answer 1: You Answered human capital Correct Answer institutions Answer 2: Correct! present Answer 3: Correct! future Answer 4: Correct! higher Answer 5: Correct! future Answer 6: Correct Answer higher You Answered lower

Suppose the economy is initially at point A in the figure below. Keynesian Model 2 a. Suppose businesses become more optimistic about the economy and increase their spending growth by 2%. What will be the rates of inflation and real GDP growth in the short run? Inflation rate: -1 % Real GDP growth rate: -1 % b. What will be the rates of inflation and real GDP growth in the long run after the change in part a? Inflation rate: 0 % Real GDP growth rate: 0 % c. Suppose again that the economy is at point A. Now the Fed increases the money growth rate by 2%. What will be the rates of inflation and real GDP growth in the short run? Inflation rate: 1 % Real GDP growth rate: 2 % d. What will be the rates of inflation and real GDP growth in the long run after the change in part c? Inflation rate: 0 % Real GDP growth rate: 0 % e. Suppose again that the economy is at point A. Now the Fed decreases the money growth rate by 1%. What will be the inflation rate and real GDP growth rate in the short run? Inflation rate: 1 % Real GDP growth rate: 2 % f. What will be the rates of inflation and real GDP growth in the long run after the change in part e? Inflation rate: 0 % Real GDP growth rate: 0 % g. Suppose again that the economy is at point A. Now other countries' recessions reduce spending growth by 1%. What will be the rates of inflation and real GDP growth in the short run? Inflation rate: -1 % Real GDP growth rate: -1 % h. What will be the rates of inflation and real GDP growth in the long run after the change in part g? Inflation rate: 0 % Real GDP growth rate: 0 %

Answer 1: You Answered -1 Correct Answer 3 Answer 2: You Answered -1 Correct Answer 3 Answer 3: You Answered 0 Correct Answer 2 Answer 4: You Answered 0 Correct Answer 2 Answer 5: You Answered 1 Correct Answer 3 Answer 6: You Answered 2 Correct Answer 3 Answer 7: You Answered 0 Correct Answer 4 Answer 8: You Answered 0 Correct Answer 2 Answer 9: You Answered 1 Correct Answer 1.8 Correct Answer 1,80 Answer 10: You Answered 2 Correct Answer 1.2 Correct Answer 1.20 Answer 11: You Answered 0 Correct Answer 1 Answer 12: You Answered 0 Correct Answer 2 Answer 13: You Answered -1 Correct Answer 1.8 Correct Answer 1.80 Answer 14: You Answered -1 Correct Answer 1.2 Correct Answer 1.20 Answer 15: You Answered 0 Correct Answer 2 Answer 16: You Answered 0 Correct Answer 2

In the diagram below, where the origin = (0%, 0%), what is the spending growth rate? When the inflation rate is 8%, what is the real GDP growth rate? RBC Model 1 Spending growth rate: 4 % Real GDP growth rate: 4 %

Answer 1: You Answered 4 Correct Answer 12 Answer 2: Correct! 4

In most of your financial decisions early in life, you'll be a buyer, but let's think about the incentives of people who sell stocks, bonds, bank accounts, and other financial products. Walking in the shopping mall one day, you see a new store, The Dollar Store. Of course, you've seen plenty of dollar stores before, but none like this one: The sign in the window says "Dollars for sale: Fifty cents each." Why will this store be out of business soon?

Because the store will lose $0.50 on every sale.

Which one of the following is included in the calculation of GDP?

Medicare

A Nobel prize-winning economist flew in to New York City for a conference. He got into a cab, and started talking with the cab driver. The cab driver said, "Oh, you're an economist? Let me tell you, this economy is terrible. I'm an unemployed architect." What would the economist say?

No, you are an employed cab driver.

Compute the values of nominal GDP, real GDP (the base year = 2013), and GDP deflator for each year. Do not type "$". The numbers may not be identical to the ones from the slides. DO NOT ROUND. Year Price of apples Quantity of apples Price of oranges Quantity of oranges 2013 $2 10 $1 5 2014 $3 15 $3 10 2015 $4 20 $5 20

Nominal GDP in 2013: $ 25 Nominal GDP in 2014: $ 75 Nominal GDP in 2015: $ 180 Real GDP in 2013: $ 25 Real GDP in 2014: $ 40 Real GDP in 2015: $ 60 GDP Deflator in 2013: 100 GDP Deflator in 2014: 187.5 GDP Deflator in 2015: 300

Your brother calls you on the phone to tell you that Google's share price has fallen by about 25 percent over the past few days. Now you can own one small slice of Google for only $540 a share. Your brother says he is pretty sure the stock is going to head back up to $700 very soon and you should buy. Is your brother absolutely correct that you should buy a share of Google?

None of these answers.

For every buyer, there is a seller. What does this tell you about investing in the stock market?

On average, you can't beat the market consistently.

In one hour, Ethan can bake 20 cookies or lay the drywall for two rooms. In one hour, Sienna can bake 100 cookies or lay the drywall for three rooms.

Sienna has an absolute advantage at both.

By opening up to trade, a country

both a and b

What will happen to the market for loanable funds if the government imposes a ceiling on interest rates?

The amount of loans made will decrease as people want to lend less.

What will happen to the market for loanable funds if an investment tax credit is removed?

The demand for loanable funds will decrease.

What will happen to the market for loanable funds if the economy is expected to experience a recession?

The demand for loanable funds will decrease.

What will happen to the market for loanable funds if entrepreneurs expect fewer regulations in the future?

The interest rate and the amount of loans made will increase.

What will happen to the market for loanable funds if the government increases its borrowing to finance the federal deficit?

The interest rate and the amount of loans made will increase.

What will happen to the market for loanable funds if the government reduces the tax on investment returns

The interest rate and the amount of loans made will increase.

What will happen to the market for loanable funds if savers feel safer putting their money in banks or buying bonds?

The interest rate will fall while the amount of loans made will increase.

What will happen to the market for loanable funds if Americans all go to see the classic Robin Williams/Ethan Hawke film Dead Poet Society and decide to carpe diem (enjoy the moment), or if they read the quotes of a famous Mediterranean preacher who said, "Take therefore no thought for the morrow," or if they watch the appalling 1970s sitcom One Day at a Time?

The interest rate will rise while the amount of loans made will decrease.

What will happen to the market for loanable funds if Congress abolishes the law that allows businesses to automatically enroll you in a savings plan that puts 5 percent of your salary in a retirement fund?

The interest rate will rise while the amount of loans made will decrease.

What will happen to the market for loanable funds if the government starts taxing interest earnings?

The interest rate will rise while the amount of loans made will decrease.

Some companies raise their workers' pay by giving raises, but others prefer to give one-time bonuses instead. Think about two steel mills facing a big two-year drop in steel demand: In one steel mill, workers have received pay raises every year for five years. In the second mill, most of the pay increases have occurred through big bonuses at the end of each year. Which steel mill will probably keep more jobs during the two-year downturn?

The one with the bonuses

How would the following event affect the unemployment rate? People without jobs and not looking for work take a job immediately.

The unemployment rate would fall because the labor force has increased while the number of unemployed people has stayed the same.

How would the following event affect the unemployment rate? People without jobs and looking for work give up and stop looking.

The unemployment rate would fall since, in terms of percentage, the number of unemployed workers has decreased more than the labor force has decreased.

How would the following event affect the unemployment rate? Workers are laid off and start looking for work.

The unemployment rate would rise since the number of unemployed people has increased while the labor force has stayed the same.

How would the following event affect the unemployment rate? People without jobs and not looking for work become encouraged and decide to start looking for work.

The unemployment rate would rise since, in terms of percentage, the number of unemployed workers has increased more than the labor force has increased.

Often, more than one kind of shock hits the economy at once. When this happens, the different shocks could push inflation (or real growth) in different directions in the short run, leaving the final short-run result ambiguous. What is most likely to happen to inflation and real output growth when a government raises taxes and its economy has a year of excellent weather for growing crops?

There will be a clear fall in inflation, but the effect on real GDP growth is ambiguous.

Often, more than one kind of shock hits the economy at once. When this happens, the different shocks could push inflation (or real growth) in different directions in the short run, leaving the final short-run result ambiguous. What is most likely to happen to inflation and real output growth when oil prices skyrocket and the central bank slows the rate of money growth?

There will be a clear fall in real GDP growth, but the effect on inflation is ambiguous.

Often, more than one kind of shock hits the economy at once. When this happens, the different shocks could push inflation (or real growth) in different directions in the short run, leaving the final short-run result ambiguous. What is most likely to happen to inflation and real output growth when a nation's scientists invent many new Internet search tools, raising current productivity and making investors optimistic about future inventions as well?

There will be a clear rise in real GDP growth, but the effect on inflation is ambiguous.

For the services that are not counted in GDP above, state the reason why they are not.

They are considered intermediate services.

In a competitive banking system, what tends to happen to banks that make low-interest rate loans to the banker's friends?

They are less successful, since they are lending money to people who are less able to pay back the loan.

According to Youssef Boutros-Ghali, Egypt's former minister for trade, when do industrial countries start feeling concerned about third-world workers?

When third world labor has proved to be competitive

In Paris, _______________ rioted in 2005. ___________________ rioted in 2006.

Young minority workers who want at-will employment; Elite French youth who are against at-will employment

If you talk to a broker selling a high-fee mutual fund, he or she will probably tell you that you are getting your money's worth even though there are high fees. According to Figure 10.1 (or 23.1) on page 208 (or 430), which shows the percent of mutual funds outperformed by the S&P 500 from 1963 to 1997, is your broker correct?

Your broker is usually wrong, since the figure shows that mutual funds did worse than the S&P 500 61 percent of the time.

Which of the following does not directly add to GDP?

a computer chip

Trade increases productivity through specialization and the division of knowledge. In other words, workers become more productive because they __________________________. Trade increases productivity through comparative advantage. In other words, workers become more productive because they __________________________.

can concentrate on producing only a few things; can concentrate on what they are good at

Real GDP per capita is usually used to compare the standard of living of:

d. a & c only.

In an economic panic, individuals may simply hold their money and be afraid to spend it. People might believe that keeping money under the mattress could be less risky than putting money in a bank. During the Great Depression, many people in the United States behaved in precisely this way and the ________ in monetary velocity helped to fuel a(n) ________.

decrease; deflation

Since money is neutral in the long run, the Solow growth rate ________ on the rate of inflation. Thus, when we put the inflation rate on the vertical axis of a graph and real growth (the growth rate of real GDP) on the horizontal axis, the long-run aggregate supply curve is a ________ line at the Solow growth rate.

does not depend; vertical

The primary topics of macroeconomics are

economic growth and business fluctuations

Corruption is a doubly bad tax because corruption makes it less profitable to be a(n) entrepreneur at the same time as it makes it more profitable to be a corrupt politician/bureaucrat .

entrepreneur , politician/bureaucrat

Competition, market size, investment and knowledge are all reasons for economic

growth

Fred Smith, the legendary entrepreneur, first laid out the idea for FedEx in an undergraduate paper he had to write for an economics class. Smith's idea, overnight delivery of packages using a hub and spoke system, was great but the problem was that:

he needed to cover a good part of the country from day 1. he didn't have enough of his own money to build an entire network. (and and b)

Unemployment benefits are ________ and last ________ in Europe than in the United States, which contributes to higher ________ unemployment in Europe.

higher; longer; structural

Cars made in the United States at a Toyota factory are:

included

The price paid by a German tourist when staying at a New York hotel is included in U.S GDP. The price paid by an American tourist staying at a Berlin hotel is not included in U.S. GDP.

included

We see in Figure 13.13 (32.13) on page 287 (or 665) a preview of several profound dilemmas in macroeconomic policy. Once we are at the new equilibrium at point c, consumers and producers are expecting an inflation rate of 7%, so to increase the real growth rate above the Solow rate once again, policymakers would have to __________ the actual rate of inflation __________. Can you see how a policymaker might become trapped in a spiral of ever-increasing inflation rates?

increase; above 7%

Across East Asia more generally, growing life spans and fewer children to support (and fewer children to be supported by, in old age) led to a(n) ________ in regional savings, which ____________________ loanable funds.

increase; increased the supply of

In the 1970s, a sudden, sharp decrease in the relative supply of oil ________ inflation and ________ the growth rate of real GDP.

increased; decreased

Securitization allows:

institutions with a long-term perspective to hold loan assets as investments. a lot of institutions to invest indirectly in the American economy. American home buyers to have low mortgage rates. All of the above.

A tractor used by a farmer is investment . The price of a tractor isn't reflected in the final price of corn, soybeans, wheat, etc. because the payment for buying a tractor is a fixed cost for the farmer.

investment, isnt, fixed

Many economists are concerned about falling labor force participation because:

it means lower tax receipts. the demands on Social Security and Medicare are rising at the same time. less goods and services are produced. Correct! All of the above.

A large and sudden increase in a tax on energy would shift the LRAS curve to the _______, especially in the short run.

left

In the United States, the portion of women who are in the official labor force has almost doubled since 1950, rising from 34% to about 60% today. As a result, mothers spend ______ time working at home than in 1950, but there are ______ nannies and house cleaners in the economy today. Therefore, the official GDP figure of 1950 ________ the amount of production relative to that of today.

less; more; understates

"If the government keeps real interest rates low (by decreeing low interest rates), then this leads to ______ investment purchases, a ______ stock of capital equipment, and ______ productivity.

less; smaller; lower

During World War II, the government did a good job measuring nominal GDP (i.e., we assume nominal GDP was correctly measured). But if the price level was calculated incorrectly, we might get a completely wrong idea about what happened with real GDP. During World War II, price ceilings were in place. That means that some things that would've been expensive were artificially cheap instead. Within a few years of the war's end, price controls finally ended, and the price level spiked up about 20%. If the true price level during the war was actually 20% higher than reported, that would mean that real GDP was ____________ the official number during the war.

lower than

Real GDP calculations become trickier, the longer the period we compare. In 1925, for example, what was the price of a computer? Economists and statisticians involved in computing real GDP must worry about the value of ________ goods and changes in the ________ of old goods. The more years that pass, the more difficult it is to determine how to adjust for those changes.

new; quality

Answer the questions about the goods/services below. Illegal drugs Illegal Prostitution Illegal Gambling Unreported activities Are they included in GDP?

no

Does a sugar quota protect American jobs as a whole?

no

Will the following increase the value of GDP? Your father receives interest on a U.S. government bond.

no

Your sister buys her friend's computer.

no

In most of your financial decisions early in life, you'll be a buyer, but let's think about the incentives of people who sell stocks, bonds, bank accounts, and other financial products. Walking in the shopping mall one day, you see a new store, The Dollar Store. Of course, you've seen plenty of dollar stores before, but none like this one: The sign in the window says "Dollars for sale: Fifty cents each." This dollar store is similar to stories people tell about "cheap stocks" that you might hear about on the news because if the shares of the company were really worth $100 per share, ________ would sell it for $50.

no one

A field of study known as "technical analysis" looks for much deeper patterns in stock and asset prices. It claims that stock prices exhibit predictable mathematical patterns. One team of economists studied 7,846 different strategies of technical analysis. Their conclusion was that ________ systematically beat the market over time.

none of them

Poverty is even more ________ when we think about human history.

normal

The distribution of world income tells us that poverty is ________ and wealth is ________.

normal; unusual

Cars made in Germany at a General Motors factory:

not

The price paid by an American tourist when staying at a Berlin hotel is:

not

In the United States, the average workweek has fallen by 10% since 1964 (from 38 hours to about 34.5 hours per week). Individuals in other developed nations such as France, Germany, and the United Kingdom work even less. Since leisure time is ________ to GDP, other things equal, the longer workweek will make the official U.S. GDP figure ________ the true standard of living compared with Europe

not added; overstate

Discouraged workers are:

not counted as unemployed.

Used textbooks sold at your college bookstore are not included in U.S. GDP. Used books sold at a garage sale are not included in U.S. GDP.

not included, not included

In India, women make up only 28% of the labor force, compared with 46% for the U.S. The output of the other 72% of Indian women is __________ in Indian GDP. Indian GDP statistics, therefore, __________ the real production of goods and services in India.

not included; understates

Many individuals neither have a job nor are looking for work. These individuals are:

not part of the labor force. not employed. not unemployed. Correct! All of the above.

Figure 13.9 (or 32.9) on page 282 (or 660)shows that sharp incrases in the price of oil just prior to or coincident with the onset of each of the past five recessions in the United States.

oil

Economists often refer to the "natural resource curse," by which they mean that large amounts of natural resources tend to create bad politics because as long as the oil keeps flowing, political leaders don't need to care much about what goes on in the rest of the country. Which factor of production do you think matters most to a leader of a resource-rich country?

physical capital

GDP in 2013 was $16.8 trillion and GDP in 2000 was $10.3 trillion. Should we celebrate this roughly 63% increase in GDP? Before we celebrate, we would like to know whether the increase was due mostly to greater ________ —more cars and computers—or to increases in ________ between 2000 and 2013.

production; prices

What kinds of institutions encourage investment and the efficient organization of the factors of production? Understanding institutions is an important area of research in economics, and there is considerable agreement that among the key institutions are property rights, honest government, political stability, a dependable legal system, and competitive and open markets. Much of this textbook is about _______________ and the benefits of _______________.

property rights; competitive and open markets

The first oil shock came in 1973, when many of the oil-producing nations under the guise of OPEC (Organization of the Petroleum Exporting Countries) reduced the global oil supply to protest America's support of Israel in the Middle East. It _______ the price of gasoline, _______ the demand for larger cars and _______ the demand for smaller cars.

raised; decreased; increased

To make all the problems of the late 1920s and early 1930s worse, the decrease in aggregate demand caused prices to fall and that, in turn, ________ the real value of debts. One feature of virtually all loans is that they are denominated in terms of dollars, and the debt is not adjusted for inflation or deflation. So if a person or company has borrowed $10,000 and the price level falls by 10% (as it did in some of the Depression's worst years), the real, inflation-adjusted value of that debt burden is now 10% ________ than before.

raised; higher

A real price is a price that has been corrected for inflation.

real

Some critics allege that Google has dominated Web search but failed with its maps, blog search services, and email accounts. It is not necessarily clear whether these endeavors are making money for the company. Will Google make YouTube into a profitable venture? Are the charges true that "Google has lost it"? It's hard to say in the abstract. But we can look at Google's ______ and see if it is going up or down. It gives the public a daily report on whether Google is succeeding or failing.

share price

For a corporation, which one of the following bears the largest risk?

shareholders

One important study by economists Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer finds that the larger the fraction of government-owned banks a country had in 1970, the ________ the growth in per capita GDP and productivity over the ______________.

slower; next several decades

Given the dilemma described in the previous question, you might ask why not just reduce aggregate demand and return to a lower inflation rate? Prices and wages adjust even more ________ to a fall in AD than to an increase in AD, so a fall in AD can create a ________ recession.

slowly; severe

Goldin and Katz looked for the link between birth control and women's labor force participation by examining the difference between states that acted early to make birth control legal and states that waited until later. Which states do you think had the biggest jump in women joining the labor force: states that legalized birth control earlier or those that legalized it later? (Note: Goldin and Katz provide evidence for the correct answer in their paper.)

states that legalized birth control earlier

For each blank, choose "rise," "fall," or "stay the same." According to legend, some government employees do very little work. If this legend is true enough to be important, then we may be measuring GDP incorrectly. Officially, we say that these are "employed workers," but to a great extent, these "employees" are really unemployed in any useful task; they are receiving transfer payments and watching YouTube for 40 hours per week. If instead government statistics counted these YouTube-watching government employees as simply retired or unemployed, consumption would stay the same , government purchases would fall , and GDP would fall .

stay the same, fall, fall

For each blank, choose "rise," "fall," or "stay the same." If U.S. government statistics counted people who are receiving unemployment benefits as people who are "government employees" hired to "search for work," consumption would stay the same , government purchases would rise , and GDP would rise .

stay the same, rise, rise

For each blank, choose "rise," "fall," or "stay the same." If U.S. government statistics counted education spending by government as part of investment, consumption would stay the same , investment would rise , and GDP would stay the same .

stay the same, rise, stay the same

To reduce your risk, if you are going to become an aerospace engineer, buy:

stocks that do well when aerospace does poorly.

What do you think would happen to inflation rates if a nation's debt was owed to foreigners? A government would probably have a ________ incentive to inflate away debt owed to foreigners than debt owed to voters. The U.S. debt is increasingly owed to foreigners, which makes some economists predict a return of ________ in the United States, especially if a future U.S. government finds it difficult to cover its debt with other taxes.

stronger; inflation

Decide whether the following is considered to be frictional unemployment, structural unemployment, cyclical unemployment, or none of these: General Motors lays off 5,000 workers and replaces them with robots. The workers start looking for jobs outside the auto industry.

structural

Women have a comparative advantage in being professionals such as lawyers, professors, and accountants. This itself implies that:

t does not imply any of the above.

U.S. farms today produce more than two and half times as much output as they did in 1950 and they do so using less land. Which of the following has been the primary factor for this increase in productivity?

technological knowledge

In their seminal work, A Monetary History of the United States, 1867-1960, Milton Friedman and Anna Schwartz argued that the Great Depression was brought about, in part, because:

the Federal Reserve failed in its job to prevent widespread bank failures

During a recession many entrepreneurs get scared about the future and they are reluctant to invest. It will shift:

the demand curve for loanable funds down and to the left.

An investment tax credit will shift:

the demand curve for loanable funds up and to the right.

Let's say that you wish to invest in the S&P 500. Some funds charge management and administrative fees of 0.09% of your investment, but other funds can charge up to 2.5% per year. Before the fees are subtracted:

the funds with the higher fees give you about the same value in return.

In 2008, the inflation rate in Zimbabwe approached the world record for a hyperinflation but in 2009, it failed to break the record because:

the government legalized transactions in foreign currencies the Zimbabwe dollar effectively ceased to exist. (a and b)

When the Pilgrims landed at Plymouth Rock, they established a system of collective farming in which all corn production was shared. Under the system:

they suffered from low agricultural productivity.

True or false: real GDP is always larger than real GDP per capita.

true

The bundling and division of mortgages and the many side-bets made on securitized mortgages made ________ who owned what or who faced the worst losses. Investors became ________ to lend to any financial institution

unclear; reluctant

The bundling and division of mortgages and the many side-bets made on securitized mortgages made ________ who owned what or who faced the worst losses. Investors became ________ to lend to any financial institution.

unclear; reluctant

Because of the activities to produce the above goods/services, GDP:

understates the actual production of the country. .

Spend some time driving in Detroit, MI—the Motor City—and you're sure to see bumper stickers with messages like "Buy American" or "Out of a job yet? Keep buying foreign!" or "Hungry? Eat your foreign car!" Domestic auto companies and their workers are hurt by imported automobiles, but _______________ benefit(s).

workers at the foreign auto companies, domestic buyers, and other industries in the U.S

The economist Truman Bewley interviewed employers and labor leaders, asking them why wages don't fall during a recession. He concluded that the main reason employers don't like to cut wages is that:

workers' morale declines. workers often take their anger out on their employers. laying off workers gets the misery out the door. Correct! All of the above.

The choice to work can be influenced by taxes on ________ and benefits paid to ________. Taxes ________ work and benefits ________ non-work.

workers; non-workers; discourage; encourage

Your aunt buys a newly constructed house.

yes

Your brother buys a life insurance policy.

yes

Your mother buys a brand-new car.

yes

Which of the following is counted in US GDP

. None of the above

U.S. GDP is approximately $14 trillion. Currently 150,000 people in the United States earn over $1.5 million per year. If you could take their money and divide it up among the approximately 300 million other Americans, how much money could you give to each person every year? Note that $1.5 million is only the cutoff: On average, this group earns $3 million per year, so use that number in your calculations. Do not type "$" in the box.

1500 (0.0 with margin 1500)

Practice with the rule of 70: Suppose that you put your money into a savings account that grows at an inflation-adjusted return of 2 percent per year. How many years will it take for your money to quadruple?

70 years

When are workers more likely to get a job: six weeks before their unemployment benefits run out, or a week before their unemployment benefits run out?

A week before

Suppose we only have ten people in the labor force. Of which, seven are employed and three are unemployed. What's the unemployment rate? 30 % Suppose one of the unemployed people gets discouraged and quits looking for work. What is the unemployment rate now? Round to the nearest tenth of a percent. 2.2 %

Answer 1: Correct! 30 Answer 2: You Answered 2.2 Correct Answer 22.2

If it was, what kind of society would it be?

Autarky (making everything by yourself)

How is "stock market diversification" like putting money in a bank account?

Banks put your money into a lot of small investments, just like a strategy of stock market diversification.

Fred Smith, the legendary entrepreneur, first laid out the idea for FedEx in an undergraduate paper he had to write for an economics class. Smith's grade on his paper was a(n):

C.

TV shows on regular network channels such as NBC, CBS, ABC, etc. vs. TV shows on cable or satellite

Cable/Satellite

The quantity theory of money says that the growth rate of the money supply will be approximately equal to the inflation rate.

Correct! inflation

The concept of GDP was developed to quantify the ideas of these two.

GDP

Which country has the comparative advantage in producing clocks?

Germany

A government buys a car.

Government purchases

Assuming that stocks continue to outperform bonds in the long run, you should invest heavily in stocks if:

None of the above.

Who are most affected by minimum wage laws?

The young, less experienced/skilled, and/or less educated.

If everyone agreed to buy locally,

b and c

Unreported, otherwise legal, activities should:

be counted in GDP.

In an economy with a large _________ sector, a reduction in the oil supply is like a reduction in rainfall in an agricultural economy.

manufacturing

used textbooks sold at your college bookstore are:

not

U.S. imports contribute to the GDP of _________. In GDP for the United States, we include U.S. ________ but subtract U.S. ________

other nations; exports; imports

The pill has been called the greatest technological advance of the twentieth century

pill

Why can we get so much more food through trade than through personal production? The reason is that specialization greatly increases ___________.

productivity

According to the authors, what was the greatest antipoverty program in the history of the world?

switching to individual farming in China

People in Canada visit Disneyland.

yes

Nominal GDP in 1931: $84 billion. Nominal GDP in 1932: $68 billion.

-19

In the real business cycle model, what does a fall in spending growth, that is, a shift inward of the AD curve, do to real growth?

Real growth will remain unchanged.

Macroeconomists find mixed evidence on the link between business fluctuations and inflation. But there's more agreement on the link between business fluctuations and real wages: The real wage is procyclical, growing quickly during good times and growing slowly or falling during bad times. Which of the two shocks (real or aggregate demand) is most consistent with this fact? (Hint: Use the answer to the previous question.)

Real shocks

Bank savings accounts typically pay an interest rate well below the inflation rate. As of Spring 2011, for example, the best interest rates on savings accounts were around 1% per year, while the CPI inflation rate was around 2.5% per year. This means that the real interest rate on bank savings is negative. Knowing this, why would people still choose to deposit any money in bank savings accounts?

Savings accounts are very liquid. Savings accounts still yield higher returns than holding cash. Savings accounts provide security against theft, fire, loss, etc. Savings accounts are guaranteed through the FDIC. Correct! All of the above.

Which of the following is counted in US GDP?

. Drill purchased by a construction company

Suppose the growth rate of money is 3% and the growth of the velocity of money is -4%. If the inflation rate is -1%, what is the rate of real GDP growth? Real GDP growth rate = 0 %

0

During the 1990s, the Internet revolution shifted the _____ curve __________.

LRAS; to the right

Zimbabwe in 1980 was one of the most prosperous nations in Africa after independence from Britain. Between 1980 and 1996, real per capita income fell by one-third. Since 1996, it has fallen by an additional one-third. What was the main reason for the decline over the years?

Lack of property rights

In 30 minutes, Kana can either make miso soup or she can clean the kitchen. In 15 minutes, Mitchell can make miso soup; it takes Mitchell an hour to clean the kitchen.

Mitchell has an absolute advantage at miso soup and Kana has an absolute advantage at cleaning.

In the early 2000s, the United States experienced slow growth and falling inflation. Which kind of shock best fits these facts?

Negative aggregate demand shock

If you have public information that a company is doing well (or is going to do well), should you buy the company's stock?

No, the information is public and has already been reflected in the current stock price of the company. There is no reason to believe that it will continue to rise (or fall) in the future.

Patient people tend to go to college more because the benefit (e.g., higher income) is delayed while the cost (e.g., the time and money spent for college education) is immediate .

Answer 1: Correct! more Answer 2: Correct! delayed Answer 3: Correct! immediate

Which comes first, interest payments on bonds or dividends from stocks? payments on bonds Which has, on average, higher returns, bonds or stocks? stocks Which is riskier, bonds or stocks? stocks

Answer 1: Correct! payments on bonds Answer 2: Correct! stocks Answer 3: Correct! stocks

To understand booms and recessions, we will focus on how an economy responds to two types of shocks, real shocks (also called aggregate supply shocks) and aggregate demand shocks.

Answer 1: Correct! real Answer 2: Correct! aggregate demand

If the money supply growth rate is increased, the aggregate demand curve shifts to the right . If the growth rate of velocity falls, the aggregate demand curve shifts to the left .

Answer 1: Correct! right Answer 2: Correct! left

Question 1 1 / 1 pts The world's financial system was shaken to its core when, on September 15, 2008, the investment bank Lehman Brothers filed for bankruptcy. It shook the world not simply because it was large but because Lehman Brothers was an important financial intermediary, an institution that works to transform savings into investments .

Answer 1: Correct! savings Answer 2: Correct! investments

he unemployment rates are higher in some Western European countries than that of the United States. Identify which type of unemployment each of the four reasons below increases. Minimum wages are higher. structural Unemployment benefits are much more generous. structural European unions are much more powerful. structural They have rigid and generous laws for vacation days and layoffs. structural

Answer 1: Correct! structural Answer 2: Correct! structural Answer 3: Correct! structural Answer 4: Correct! structural

The young man in the video, in essence, is stating: the law of supply in the market for internship. The young woman in the video, in essence, is stating: the law of demand in the market for internship. According to the economic concepts/principles above, requiring firms to pay all interns: decreases the number of interns hired, which hurts the students without prestige, experience, or money.

Answer 1: Correct! the law of supply Answer 2: Correct! the law of demand Answer 3: Correct! decreases Answer 4: Correct! hurts

How does a binding minimum wage (a minimum wage set above the market equilibrium wage) affect the labor market?

B. It creates a surplus of labor. C. It creates unemployment. Correct! D. B and C

As of 2014, Berkshire Hathaway, the investment company managed by Warren Buffett, was still a very profitable company. In early 2014, it was borrowing two-year money at less than 1%. In the United Kingdom, the soccer team Manchester United was borrowing money at about 9% for a seven-year bond. What do these two things indicate?

Berkshire Hathaway was less likely to default on its loan payments. Manchester United had a higher return. a and c

Suppose 72 hours of labor are available for each country and each country only produces the good with the comparative advantage. What is the combined amount of production for each good?

Combined: 18 sofas and 24 clocks

A consumer buys a car.

Consumption

Education paid by an individual

Consumption

Cooking at home vs. Cooking at a restaurant

Cooking at home

There is debate about when the 2001 recession started. The official NBER starting date is March 2001, but data revisions have led many people to conclude that the recession actually started in late 2000. Why all the fuss about the timing?

Democrats wanted to show that the recession started in March 2001 while Republicans wanted to show that it started in late 2000.

The inflation tax requires:

None of the above.

True or false: nominal GDP is always larger than real GDP.

False

The purchase of heroin by a household

Not counted

Classify each of the following individuals in one of the following categories: employed, unemployed, or not in the labor force. Mary-Helen has been out of work for a full year. She would take a job if it was offered, but no local companies are hiring. She is not actively looking for work. Not in the labor force

Not in the labor force

Before the rise of affordable automobiles and subways, many people used trolleys—small trains on rails that run along ordinary streets to get around in urban areas. On trolleys, there is a literal free-rider problem, since people could hop on and off very easily without paying. If free riders are a big problem, what will happen to the supply of trolley rides?

Fewer companies will offer trolley rides.

What happens to the official measure of GDP in each of the following situations? A man marries his housekeeper, who then quits working for wages.

GDP decreases.

Homemakers perform the same jobs but switch houses and charge each other for their services.

GDP increases.

A drug addict marries his/her supplier.

GDP stays the same.

A business downturn leads to corporate pessimism and increases workers' fears of being laid off (assume workers try to increase their "emergency fund" savings when they're worried about becoming unemployed). How will this affect the supply of and demand for loanable funds?

Supply will increase, and demand will decrease

This chapter pointed out that trade restrictions on sugar cause U.S. consumers to pay more than twice the going world price for sugar. However, you are very unlikely to ever encounter bumper stickers that say things like "Out of money yet? Keep taxing foreign sugar!" or "Hungry? It's probably because domestic sugar is so expensive!" Why do you think it is that these bumper stickers are not popular?

The costs of the tariffs are relatively small for each individual as it is spread out among many, many people.

Which of the following did not cause structural unemployment in the United States?

The oil shocks of the 1970s and early 1980s. the shift from a manufacturing to a service economy globalization and new information technologies Correct! All of the above caused structural unemployment in the U.S.

If Americans all go to see the classic Robin Williams/Ethan Hawke film Dead Poets Society and decide to carpe diem, or if they read the famous Mediterranean preacher who said, "Take therefore no thought for the morrow," and if it is assumed that everything else remains constant, what will happen to the market for loanable funds?

The supply of loanable funds will decrease.

What will happen to the market for loanable funds if people expect to have longer life expectancy?

The supply of loanable funds will increase.

In which city are you least likely to find a mechanic who specializes in pre-1950s Italian automobiles?

Turlock, California (pop. 68,549)

In May 2006, the Zimbabwean government announced plans to print 60 trillion Zimbabwean dollars to finance a 300% increase in pay for soldiers. Ironically, the payment was delayed because:

Zimbabwe didn't have enough U.S. dollars to buy ink and paper.

Which of the following people unemployed?

a 6-year-old without a job someone in prison a retired 60-year-old Correct! None of the above.

Kmart filed for bankruptcy in 2002 and laid off 34,000 workers. In the same year, Walmart hired ________workers.

a lot more

Which of the following people are counted as unemployed?

a person out of work but actively searching for work

Which of the following is not a reason to save?

a shorter life expectancy

Which of the following people are counted as fully employed?

a taxi driver with a PhD in chemistry a taxi driver with a BA in English a worker who has a part-time job but who wants a full-time job Correct! All of the above.

When are workers more likely to get a job: six weeks before their unemployment benefits run out, or a week before their unemployment benefits run out? (Note: The correct answer to this question is solidly backed up by U.S. job data.)

a week before their unemployment benefits run out

Real GDP per capita in the US ____________ during the great recession of 2009.

decreased

Greater patience of people will shift:

the supply curve of loanable funds down and to the right.

The Great Leap Forward in China was actually a great leap backward—agricultural land was less productive in 1978 than it had been in 1949 when the Communists took over. In 1978, however, farmers in the village of Xiaogang held a secret meeting. The essence of the farmers' agreement was:

to privatize the land.

Greater risk ___________________ in the market as a whole

decreases the supply of loanable funds

Greater risk ___________________ in the market as a whole.

decreases the supply of loanable funds

Based on the latest research, how does the fair trade movement affect wages of the world's poorest workers?

decreases wages

Which of the following is not an example of physical capital?

desks cell phones a GPS (global positioning system) receiver All of the above are examples of physical capital

In his book The Choice, economist Russ Roberts asks how voters would feel about a machine that could convert wheat into automobiles. This machine would ________ jobs in the auto industry and ________ jobs in other industries. Economists call this machine, "___________"

destroy; create; international trade

In the video, productivity in an economy is increased by each of the following EXCEPT:

differing preferences.

A decrease in the rate of inflation, rather than a decrease in the price level, is called a(n):

disinflation

Speculative bubbles, and their bursting, can hurt an economy because:

during the rise of the bubble, capital is invested in areas where it is not actually very valuable. when the bubble crashes, lower stock prices make people feel poorer and so they will spend less. the workers must move from one sector to another, and shifting labor from one sector of an economy to another creates labor adjustment costs. Correct! All of the above.

Given that mass immigration from Nepal to the United States is impossible, what are the factors of production that are statistically important for economic growth in Nepal (and any other countries)?

e. a, b, and c

Measuring GDP using the factor income approach includes:

e. a, b, c

To prevent the deaths of the children from diarrhea, Malaria, measles, other diseases in the developing world, what we need is one thing:

economic growth.

Measured GDP will ________ if people decide not to work to consume more leisure.

fall

When expected inflation decreases, nominal interest rates ______.

fall

Buying from your local farmer's market ensures that your money stays in the local economy.

false

In Shakespeare's Hamlet, Polonius advises "Neither a borrower nor a lender be." But people forget that Polonius was a fool .

fool

Decide whether the following is considered to be frictional unemployment, structural unemployment, cyclical unemployment, or none of these: About 10 workers per month at a General Motors plant quit their jobs because they want to live in another town. They start searching for work in the new town.

frictional

Some economists think that business cycles are mostly a response to real shocks that require a reallocation of labor across industries. For these economists, a business cycle is nothing more than the economic growth process in action—growth is volatile not smooth. Thus, for these economists, cyclical unemployment is just another example of:

frictional and structural unemployment.

Calculate GDP in this simple economy: Consumer purchases: $100 per year Investment purchases: $50 per year Government purchases: $20 per year Total exports: $50 per year Total imports: $70 per year

gdp is $150/year

Between 2000 and 2007, the minimum wage in France was about 40% ________ than in the United States. Minimum wages in Western Europe have been ________ relative to the median wage than in the United States.

higher; higher

Complete the following sentences: With a real shock, when real growth is worse than usual, inflation is _____ than usual. With an aggregate demand shock (and a SRAS curve), when real growth is worse than usual, inflation is _____ than usual.

higher; lower

Nations that have greater levels of corruption and higher tax rates usually have ________ levels of underground transactions. Therefore, their official GDP figures ________ the amount of production.

higher; understate

Although the following pairs offer similar services, only one of the services contributes to GDP (either as a final service or an intermediate one). Which one does NOT contribute? Services of domestic servants vs. Services of housewives/husbands

housewives/husbands

The typical person in the United States has about 12 years of schooling, while in Pakistan the typical person has less than 5 years of schooling. From this fact, we can say that the United States has more ___________ than Pakistan does.

human capital

When a government raises the minimum wage by $2.00 per hour, where would we expect more jobs to be lost: in the fast-food industry or in city government?

in the fast-food industry because more people are paid the minimum wage in the fast-food industry.

A ticket for a Yankees game is:

included

When a firm sells new shares to the public and uses the proceeds to buy new capital goods, it ________ net investment in the economy.

increase

A real variable is one that corrects for ________.

inflation

If everyone could accurately predict the rate of inflation:

inflation would not be much of a problem.

In short, the key to producing and organizing the factors of production are----- that create appropriate ---- .

institutions, incentives

If financial intermediation broke down, what category of GDP would probably fall the most?

investment

In 1992, television reporter John Stossel decided to challenge the experts of Wall Street. He threw darts at a giant wall-sized version of the stock pages of the Wall Street Journal, followed his portfolio for nearly a year, and compared the return with the portfolios picked by major Wall Street experts. Stossel's portfolio beat 90% of the experts. This chapter explains why Stossel's amusing experiment:

is backed up by economic theory and careful empirical studies.

In the long run, money is neutral .

is neutral

Throughout most of human history, a failure to grow ________.

is normal

Suppose your friend is thinking about buying one of the two bonds discussed above. Which of bond would you recommend?

it depends.

The efficient markets hypothesis says that the prices of traded assets reflect all publicly available information. It means that:

it is difficult for ordinary investors to systematically outperform the market.

Economic growth in the modern era is primarily due to the creation of new _____________.

knowledge

Frictional unemployment is typically a ________ share of total unemployment because the U.S. economy is ________. Innovation and the relentless pressure of competition drive progress.

large; dynamic

In the Netherlands in the 1990s, a worker who worked past the age of 60 lost one year of benefits. Workers who kept working also had to pay payroll taxes on their wages. The net result was that a worker who worked past the age of 60 in the Netherlands earned ______________ a worker who retired.

less money than

In India, shocks to the weather are becoming _____ economically important over time as the percentage of agriculture's contribution to the Indian economy has ________.

less; decreased

Workers in the United States often fear trade because they think that they cannot compete with _________ in other countries. Meanwhile, workers in low-wage countries fear trade because they think that they cannot compete with ________ countries like the United States.

low-wage workers; high-productivity

Economists Goldin and Katz argue that the pill ______ the costs of earning a professional degree by giving women ______ certainty about the consequences of sex.

lowered; more

In the Soviet Union, especially in the early decades under Lenin and Stalin, the official doctrine was Communism, and the use of incentives was considered a form of treason. One important exception was the _____________ sector. Consider why it was important.

military equipment

If we are thinking about sustained inflation, a significant and continuing increase in the price level, then Nobel Prize winner Milton Friedman has it exactly right: "Inflation is always and everywhere a(n) monetary phenomenon." Answer 1:

monetary

It would be _____ difficult to get a date if every date required marriage. It is _____ difficult to find a job when every job requires a long-term commitment from the employer.

more; more

During the 1970s, the real price of oil increased from about $10 a barrel to nearly $80 a barrel. The oil shocks required a fundamental reallocation of labor from industries that were heavily dependent on oil to industries less dependent on oil. It takes _____ time (and thus _____ unemployment) for workers to move from one industry to another industry than to move from one firm to another firm in the same industry. This type of unemployment that occurs in response to deep changes in the economy is called ________ unemployment.

more; more; structural

As a result of the challenges of measuring the CPI, some economists suggest that the CPI may actually _______ inflation by _______ every year.

overstate; a little bit

A tractor built in 2005 and still operating today is ________ of U.S. wealth ________ of today's GDP.

part; but not part

South Korea has a per capita GDP nearly 20 times higher than that of North Korea mainly because South Korea has more ____________________ per worker than North Korea.

physical and human capital

Economists often refer to the "natural resource curse," by which they mean that large amounts of natural resources tend to create bad politics because as long as the oil keeps flowing, political leaders don't need to care much about what goes on in the rest of the country. Which of the five key institutions matters most to a leader of a resource-rich country?

political stability

The real cause of child labor is:

poverty.

Robert Mugabe had a problem. The dictatorial president of Zimbabwe needed money. Zimbabwe had almost nothing left to tax, but Mugabe still needed money to bribe his enemies and reward his supporters, especially the still loyal Zimbabwean army. Mugabe thus turned to the last refuge of needy governments. What was the last refuge?

printing money

In the model of Mexico and the United States in the chapter, after specialization and trade, the wage in Mexico is lower than the wage in the United States, both before and after trade, because the ________________ is lower in Mexico.

productivity of labor

Stock markets are valuable for the economy as a whole, besides giving you the opportunity to put your money for potential financial gains. Stock markets:

provide an important means of raising capital for new investment (investment now in the economic sense of increasing the capital stock) and reward successful entrepreneurs and thus encourage people to start companies and look around for new ideas. give us a better idea of how well firms are run. are a way of transferring company control from less competent people to more competent people. Correct! All of the above.

Some politicians want to raise the age at which people can collect Social Security benefits, likely postponing retirement for many. It will ______ the labor force participation rate.

raise

The marginal tax rate (the tax on additional income) for married couples was reduced significantly during the 1980s. It _____ the female labor force participation rate.

raised

Overall, opening a country to foreign trade __________ the level of poverty

reduces

The decline in life expectancy caused by AIDS ________ saving rates, which in turn ________ economic growth and the standard of living, and that makes it more difficult to combat diseases like AIDS.

reduces; reduces

Let's say you bought a share of stock for $100, and over several years inflation alone pushed its price to $150. The U.S. tax system:

requires that you pay a tax on the $50 gain.

Suppose that an invention of the GPS technology has greatly increased agricultural production. All of the three primary factors of production have increased in the process: New knowledge of identifying locations (technological knowledge) is embodied in the GPS receivers (physical capital) and farmers need to learn how to use the receivers (human capital). Economists would probably argue that the main contributor to this increased output is:

technological knowledge

If every person had to make his or her own toaster, just as Thomas Thwaites did, then in a society of a million people, we would expect:

the best toaster to be not much better than Thomas Thwaites's toaster.

In 1948, only 35% of women aged 25-54 were in the (paid) labor force. By the mid-1990s, 75% of these women were in the labor force. Which of the following has not contributed to the rise of the female labor force participation rate?

the rise of feminism and the growing acceptance of equality for women the move from a manufacturing to a service economy the increasing availability of birth control pills Correct! All of the above have contributed to the rise of the female labor force participation rate.

Practice with the rule of 70: If you inherit $10,000 this year and you invest the money so that it grows 7 percent per year, how many years will it take for your investment to be worth $20,000?

10 years

Which of the following increases AD in the United States?

An investment tax credit is introduced.

When the government borrows to finance its budget deficit, they demand more loanable funds . The interest rate rises while the amount of loans made increases . Given the change in the interest rate above, private consumption and investment decrease . This phenomenon is called crowding out .

Answer 1: Correct! they demand more loanable funds Answer 2: Correct! rises Answer 3: Correct! increases Answer 4: Correct! decrease Answer 5: Correct! crowding out

According to the life cycle theory of savings, you borrow while attending college , you save during the prime working years , and you dissave after retirement to smooth out consumption .

Answer 1: Correct! while attending college Answer 2: Correct! during the prime working years Answer 3: Correct! after retirement Answer 4: Correct! smooth out consumption

If we have an aggregate demand curve with M→ = 7% and v→ = 0%, what will inflation plus real growth equal? If we find out that real growth is 0%, what is inflation? Inflation + Real growth = 7 % Inflation when real growth is 0% = 7 %

Answer 1: Correct! 7 Answer 2: Correct! 7

The purchase (by an American household) of an automobile produced by a Japanese-owned automobile company on American soil

C

What is the fastest way to sell a house?

Lower the price.

In the long run, what causes inflation?

growth in the money supply

Used books sold at a garage sale are:

not

Around the world, about ________ people have incomes of less than $2 per day.

1 billion

Suppose your rich aunt hands you a $3,000 check at the end of the school year. She tells you it's for your education. If you put it in a bank account earning 2 percent real annual return on average, how many years would it take before it was worth $6,000? Use the rule of 70.

35

By 1998, the average trade tariff in India fell to around _____ percent.

37

In 2005 the U.S. economy produced approximately 12 million cars and light vehicles and 20 million personal computers. If the average price of a car was $28,000 and the average price of a computer was $1,000, the market value of the production of cars was $

336 billion

Suppose your rich aunt hands you a $3,000 check at the end of the school year. She tells you it's for your education. If you put it in a Standard and Poor's (S&P 500) mutual fund earning 7 percent real return every year, how many years would it take before it was worth $6,000? Use the rule of 70.

10

Let's assume that your mutual fund grows at an average rate of 7 percent per year before subtracting fees. Using the rule of 70, how many years will it take for your money to double if fees are 0.5 percent per year? Round to the nearest tenth of a year (e.g., 12.3 years).

10.8

Deirdre has a choice between writing one more book this year or five more articles this year. The opportunity cost of writing half of a book this year, in terms of articles is:

2.5 articles

Let's see how many jobs have to be destroyed for one net job to be created. As noted in the text, millions of jobs are created and destroyed every month. Suppose that 5 millions jobs are destroyed every month and about 5.25 million jobs are created. How many total jobs are destroyed for every net job created? (Hint: If there are 12 pieces of pie and 4 kids, how many pieces of pie are available for every kid?) 1.05 jobs destroyed per every net job created

20

and the market value of computer production was $

20 billion

We noted that "government purchases" don't include all government spending. A big part of what the U.S. government does is transfer money from one person to another. Social security (payments to retirees), and Medicare and Medicaid (paying for medical care for the elderly and the poor) make up most of these "government transfers." We'll look into this in more detail in Chapter 17, but right now, let's see how big "government transfers" are and how fast they've grown in the federal government's budget. The figures in this table are all in noninflation-adjusted dollars. Complete the table of Thinking and Problem Solving, Question 3 on page 113 (or 507). Round to the nearest percent (e.g., 12%, not 12.3%). Transfers as percent of spending in 1950:

32

Use the figure below. Ch 13 T & PS Q6.jpg The Solow growth rate is 4 %.

4

What is the opportunity cost of producing one sofa in Germany?

4 clocks

Nominal GDP in 2000: $9,744 billion. Nominal GDP in 2001: $10,151 billion.

4.2

Practice with the rule of 70: 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 $160,000?

40

Let's figure out how long it will take for the average Indian to be as wealthy as the average Western European is today. Note that all numbers are adjusted for inflation. India's GDP per capita is $3,000, and let's say that real output per person there grows at 5 percent per year. Using the rule of 70, how many years will it take for India to reach Italy's current level of GDP per capita, about $24,000 per year?

42

Suppose, in your country, there are 36 million people are employed while 3 million are unemployed. What is the unemployment rate in your country? Round to the nearest tenth of a percent (e.g., 4.1%, not 4.12% or 4%). [l1]%

7.7

If a zero-coupon bond with a face value of $1,000 payable in one year sells for $925, what is the interest rate? Round to the nearest tenth of a percent.

8.1

As of 1990, the average trade tariff in India was about _____ percent.

80

Geologists discover vast new oil deposits under the South Pole. How will this affect the supply of and demand for loanable funds? (Hint: drilling in this harsh environment requires extremely large up-front physical capital expenses.)

Demand will increase, and supply will not change.

Can you think of one reason why interest rates on home loans are almost always lower than interest rates on vacation loans?

Lenders can repossess the houses but not the vacation.

If YR is fixed by the real factors of production and v is stable, then it follows immediately that the only thing that can cause increases in P are increases in:

M, the supply of money.

When housing prices started to fall dramatically in 2007, many people began to default on their mortgages. Since many buyers had only a little equity in their homes, as house prices fell, they quickly came to owe more on their mortgage than their house was worth. _____ homeowners actually chose to default.

Many

Which of the following is counted in the calculation of GDP?

sales of newly built houses

The world's average (mean) GDP per capita is $10,515. There are roughly 7 billion people in the world. About 20% of the world's population produces 50% of the world's total GDP. How much GDP does the top 20% produce?

$37 trillion

Calculate the annual growth rate of nominal GDP in the following examples. Round to the nearest tenth of a percent for each (e.g., 1.2%, not 1% or 1.23%). If the number is negative, do not forget the negative sign. Nominal GDP in 1930: $97 billion. Nominal GDP in 1931: $84 billion.

-13.4

Given the following data of the peak and trough years of the Great Depression, compute the real GDP growth rate (%) between the two years. Round to the nearest tenth of a percent. Just type the number without anything else such as "%". For example, if your computation gives you 5.678%, then just type "5.7" in the box. Real GDP in 1929 (peak): $977 billion (2005 dollars) Real GDP in 1933 (trough): $716 billion (2005 dollars)

-26.7

If another bond with the same face value and maturity as the one in the previous question sells for $900, what is the interest rate on this bond? Round to the nearest tenth of a percent.

11.1

Suppose Mexico and the United States each have 24 units of labor and that they each devote 12 units of labor to producing computers and 12 units of labor to producing shirts. What is total world production?

12 computers, 18 shirts

Solve Thinking and Problem Solving Question 6, Part c, on page 24. What exact number would you have to place in the empty cell of the table for it to be impossible that trade between the United States and South Korea could benefit both nations?

12.5 (with margin: 0.0)

Rank the following loans in order from low risk/low return, to high risk/high return. Consider risk and return in terms of percentages only, not in terms of the actual monetary amount you may gain or lose

13 week US Treasury bill 5 year CD issued by the local FDIC-insured bank 10 year bond 30 year bond issued by AAA-rated company Johnson & Johnson 30 year fixed rate home loan capital one credit card

Use the rule of 70 to answer the question. Suppose that the annual growth rate of real GDP per capita is 5%. It will take 14 years for real per capita GDP to double from $40,000 to $80,000.

14

Supposed Mexico specializes in producing shirts and the U.S. transfers 2 units of labor from shirts to producing computers. What is total world production?

14 computers, 22 shirts

Let's assume that your mutual fund grows at an average rate of 7 percent per year—before subtracting the fees. Using the rule of 70, how many years will it take for your money to double if fees are 2.5 percent per year? Round to the nearest tenth of a year (e.g., 12.3 years).

15.6

Assuming that the velocity is stable, if the inflation rate is 3% while the GDP growth rate is -1%, what is the money growth rate? M-> = 2 %

2

What is the opportunity cost of producing one sofa in the United States?

2 clocks

Erin has a choice between two activities: She can repair one transmission per hour or she can repair two fuel injectors per hour. The opportunity cost of repairing one transmission is:

2 fuel injectors

Using data from the Penn World Tables (the figure of Question 7 of Facts and Tools on page 134 or 528), calculate the annual growth rate of real GDP per person for China for 2001, 2002, 2003, and 2004. Make sure to round to the nearest tenth of a percent for each. You will receive zero points if you fail to round it correctly.

2001: 9.7 % 2002: 10.4 % 2003: 9.8 % 2004: 8.5 %

If the real GDP growth rate is 4% and the population growth rate is 1%, what will be the growth rate of real GDP per capita? Just type the number without any other symbols.

3

Suppose the growth rate of money is 5% and the velocity of money is stable (not changing). If the inflation rate is 2%, what is the rate of real GDP growth? Real GDP growth rate = 3 %

3

Transfers as percent of spending in 2000

59

Growth in transfers:

7672

Imagine that a business needs a million dollar loan. One thousand savers are each willing to lend the business $1,000. If each saver spent a day evaluating the quality of the business, that would be 1,000 wasted days of effort. It makes more sense for the lenders to appoint a single person to evaluate the business on behalf of all of them. That's exactly what a bank does.

999 bank

Determine which curve (AD or LRAS) shifts which way. Choose all that apply. A series of investment banks like Lehman Brothers and Bear Stearns go bankrupt.

AD shifts left, LRAS shifts left.

What will happen to AD and LRAS curves if oil prices fall and the central bank increases the rate of money growth?

AD shifts right. , LRAS shifts right.

Which of the following is not counted in the calculation of GDP?

All of them are counted in the calculation of GDP

Which one of the three factors of production matters most to the leader of a resource-rich country? Human capital If you lived in a country with rich natural resources, what would be the easiest way to become rich? Owning the natural resources. The fact of the previous question often leads to: armed conflicts to own the resources. All of the above tell us that natural resources is (are) not a statistically important factor for economic growth. Even if a country doesn't have rich natural resources, it can substitute something else for them or develop new technology. For technological progress to work its magic or for substitution to occur, potential inventors must receive a signal that a new technology or substitution is needed. What is the signal? Rising prices of natural resources

Answer 1: Correct Answer Physical capital Answer 2: Correct! Owning the natural resources. Answer 3: Correct! armed conflicts to own the resources. Answer 4: Correct! natural resources Answer 5: Correct! Rising prices of natural resources

The following institution(s) promote(s) economic growth: e. b & d only When Korea split into two countries in 1945, the northern and southern portions were similar if not identical in all of the following except: Institutions Today, the main reason that North Korea has far fewer lights when viewed from outer space than South Korea is that: North Korea has different institutions than South Korea.

Answer 1: Correct Answer b. Property rights You Answered e. b & d only Answer 2: Correct! Institutions Answer 3: Correct! North Korea has different institutions than South Korea.

In Chapter 10 or 23 only, "investment" means: buying assets such as stocks, bonds, real estate, etc. . In macroeconomics, "investment" means: e. a, b, and c .

Answer 1: Correct! buying assets such as stocks, bonds, real estate, etc. Answer 2: Correct! e. a, b, and c

Use the data below to answer the following questions. In July 2018, the adult population was 257.84 million, the number of the employed was 155.965 million, and the labor force was 162.245 million. What is the unemployment rate in July 2018? Round to the tenth of a percent at the end (e.g., 3.4%, not 3.45% or 3%). For example, do not round the labor force to 162.2 million before you do the computation. You won't get the credit if you make a mistake rounding. 96.1 % What is the labor force participation rate? Round to the tenth of a percent at the end. 62.9 %

Answer 1: You Answered 96.1 Correct Answer 3.9 Answer 2: Correct! 62.9

As of 2014, Berkshire Hathaway, the investment company managed by Warren Buffett, was still a very profitable company. In early 2014, it was borrowing two-year money at less than 1%. In the United Kingdom, the soccer team Manchester United was borrowing money at about 9% for a seven-year bond. What do these two things indicate?

Berkshire Hathaway was less likely to default on its loan payments. Manchester United had a higher return. (a and c)

Missionaries urged the British government toward acquiring control of various countries in Africa. Who often opposed such urging?

Chancellors of the Exchequer (Finance Minister). The wars and subsequent governance were too costly for the country.

In 1929, the stock market crashed, creating a mood of pessimism among the American public. In part, this stock market crash had been brought on by a tight monetary policy, aimed at limiting a stock market bubble. The fall in stock prices was a wealth shock that made many people feel poorer and so they limited their spending, causing ____ to fall. This, combined with the initial monetary contraction, that is, a reduction in ____, reduced aggregate demand, shifting the AD curve inward to the left.

C→; M→

Driving in public transportation vs. Driving by yourself

Driving by yourself

Research and Development (R & D) done by a government

Government purchases

Holding everything else equal, why should someone prefer to be afflicted with a common disease than with a rare one?

Greater demand for treatment of common diseases drives specialization and greater expertise on the part of medical practitioners

Larger markets and greater overall demand have resulted in:

Greater specialization and increased productivity by workers

Which of the following is the best reflection of changing living standards?

Growth rates of real GDP per capita

The purchase of a personal computer by a used car dealership to keep track of sales

I

Of the three conditions that explain why a free market is efficient (from Chapter 4), which condition or conditions cease to hold in the case of a tariff on imported goods? I. The supply of goods is bought by the buyers with the highest willingness to pay. II. The supply of goods is sold by the sellers with the lowest costs. III. Between buyers and sellers, there are no unexploited gains from trade and no wasteful trades.

II and III

Determine how each of the following will be recorded in the computation of U.S. GDP. a. An import of an automobile produced in Japan and sold to a consumer in 2018.

In 2008, consumption increases while net exports decreases by the same amount, not changing the value of U.S. GDP.

A refrigerator was produced by its manufacturer in 2017, sold to a retailer in 2017, and sold by the retailer to a final consumer in 2018.

In 2017, investment increases, which increases U.S. GDP. In 2018, consumption increases while investment decreases by the same amount, not changing the value of GDP.

In many poor countries, the banking system just isn't advanced enough to lend money for many large investments. Based on this single fact, where would you expect to see more entrepreneurs coming from rich families rather than poor families: in the rich countries or the poor countries?

In the poor countries

Research and Development (R & D) done by a firm

Intermediate goods/services

Although you may consider all of the following as investment, not all of them are categorized as investment by the Bureau of Economic Analysis. Choose the appropriate category for each one. A rental car company buys a car.

Investment

By definition, nominal GDP is ________ real GDP

It depends on which year we choose as the base year.

When government outlaws high interest rates and the ceiling is binding, what probably happens to the total amount of money borrowed?

It falls, because savers aren't willing to lend as much money at this low interest rate (the quantity of loanable funds supplied declines).

Kenyans used to need a permission to import non-GM automobiles and had only 300,000 land-line telephones. And there is no way for them to compete against the foreign countries in the auto or cell phone industries. Did freeing up the markets for automobiles and cell phones help or hurt Kenyans?

It helped them because many Kenyan businesses and consumers got access to cheaper automobiles and cell phones.

Why is the average pay of musicians, actors, radio personalities, painters, athletes, etc. lower than the average wage of the workers?

It is a lot of fun to be those and the supply of those jobs is higher.

Prices are signals and inflation makes price signals more difficult to interpret. What does this mean more precisely?

It is more difficult to know whether an increase in demand for goods is real or just a reflection of more money in the economy.

Consider Figure 9.10 (or 29.10) on page 187 (or 581). Would a rise in government borrowing make it harder or easier for a new business to sell new stocks in an initial public offering (IPO)? In other words, are government bonds and corporate stocks substitutes for each other or complements to each other?

It would make it harder because they are substitutes.

Kara can build two glass sculptures per day or she can design two full-page newspaper advertisements per day. Sara can build one glass sculpture per day or design four full-page newspaper ads per day.

Kara has a comparative advantage at glass sculptures and Sara has a comparative advantage at newspaper ads.

Kara can build two glass sculptures per day or she can design two full-page newspaper advertisements per day. Sara can build one glass sculpture per day or design four full-page newspaper ads per day.

Kara has an absolute advantage at glass sculptures and Sara has an absolute advantage at newspaper ads.

Payday loans are usually between $300 and $400 where low-income people wait until the next paydays to repay their loans. For a two-week loan, payday lenders typically charge $15 for every $100 lent, which amounts to about 390% annual interest rate. Suppose the government imposes an interest ceiling at 36% annual rate. What are the possible consequences for low-income households? Choose all that apply.

More expensive overdraft fees Correct! Late fees on credit cards Correct! Not being able to pay off debt

The financial return from owning houses is lower than the average. The average wage of musicians, actors, radio personalities, painters, athletes, etc. is lower than the average. What is the common factor?

More fun means lower returns

In one firm, the default savings rate was 3% of salary. _______________ of the workers chose that as their savings rate, despite an employer guarantee of a dollar-for-dollar match on contributions of up to 6% of salary. Later, the company switched to a 6% default savings rate; in that setting, ______ new workers chose the 3% savings contribution rate.

More than a quarter; few

The movement for "green accounting" has tried to reform GDP statistics to cover the environment more explicitly.

Most economists agree with the logic behind green accounting, but it is not done because environmental amenities are difficult to value.

In the 1970s, the United States had slow growth and high inflation. Which kind of shock best fits these facts?

Negative real shock

Is it better to invest in a mutual fund that has performed well for five years in a row or one that has performed poorly for five years in a row?

Neither. Past performance won't tell us anything about their future performance.

You own shares in a pharmaceutical company, PillCo. Reading the Yahoo! Finance Web site, you see that PillCo was sued this morning by users of PillCo's new heart drug, Amphlistatin. PillCo's stock has already been trading for a few hours today. According to the efficient market hypothesis, should you sell your shares in PillCo now, a few hours after the bad news came out?

No, because the bad news is baked into the price. The price is already lower and there is no reason to believe that it will fall further in the future.

In most of your financial decisions early in life, you'll be a buyer, but let's think about the incentives of people who sell stocks, bonds, bank accounts, and other financial products. Walking in the shopping mall one day, you see a new store, The Dollar Store. Of course, you've seen plenty of dollar stores before, but none like this one: The sign in the window says "Dollars for sale: Fifty cents each." If business owners are self-interested and fairly rational people, will they ever open up this "dollar store"?

No, because the store is losing money on every sale.

The underground economy and other nonpriced production make it hard to accurately measure the precise level of GDP. If Janet Yellen, the Federal Reserve head, is trying to find out whether the U.S. economy has gone into a recession, are the difficulties of measuring nonpriced production likely to be important problems for her purposes? (Though not required, make sure to explain your answer.)

No, they do not matter as much in measuring changes. (As long as it is about the same fraction of GDP year in and year out, it doesn't pose a problem measuring "changes." It's like going on the bathroom scale with your shoes on: As long as you always wear your shoes, you can still tell whether you're gaining or losing weight every week)

The purchase of a security service by a private firm

Not counted

Gasoline for commuting paid for by employers vs. Gasoline for commuting paid for by commuters

Paid by employers

Which has a higher return on average, active investing or passive investing?

Passive investing

When you bought a $299 30-gigabyte video iPod a few years ago, who retained the majority of the retail value?

People at Apple in the U.S.

The textbook lists ____________, ____________, and ____________ as the primary factors of production.

Physical capital; human capital; technological knowledge

In each of the following pairs, which is directly included in GDP? Services of police officers vs. Services of guards hired by businesses

Police officers

In the late 1990s, the United States experienced fast growth and falling inflation. Which kind of shock best fits these facts?

Positive real shock

Take a look at Figure 10.2 (23.2) on page 209 (or 431). At the top of the figure, we start out with 1,000 experts, each of whom flips a coin to predict whether the market will go up in the following year or down. At the end of five years, just 31 out of 1,000 experts will have been right five years in a row. (Anyone familiar with the probability theory knows that it is unlikely that exactly 31 will remain. The authors knew it and just made the story simple to make the point which is the answer to the following question.) What does this hypothetical experiment tell us? (This question might be difficult. Instead of trying to find the answer in the text directly, think hard about what the experiment really tells us.)

Regardless of their abilities, we will always have a small number of people who do really well in the stock market.

Data can write 12 excellent poems per day or solve 100 difficult physics problems per day. Riker can write one excellent poem per day or solve 0.5 difficult physics problems per day.

Riker has a comparative advantage at poetry and Data has a comparative advantage at physics.

Real-world economies get hit with lots of aggregate demand and real shocks. Some shocks clearly fit into the first category, some into the second, and some include a generous mix of both. Shocks can be postive or negative. Let's categorize the following shocks. Only one is a clear case of "both."

Steelworkers go on strike, so less steel is produced (neg real shock) Correct! Businesses read about the glories of the Internet, so demand for high-tech investment purchases increase ( pos agg dem) Correct! U.S. senators read about the glories of the Internet, so demand for high-tech government purchases increase (pos agg dem) Correct! A series of investment banks like Lehmann Brothers and Bear Stearns go bankrupt (neg real) You Answered Around 2000, the glories of the Internet fade a bit so innovations increase at a somewhat slower rate for a few years Correct Answer a negative real shock

Television newscasters convince most people that the end of the world will occur in 2017. How will this affect the supply of and demand for loanable funds?

Supply will decrease, and demand will increase.

Breakthrough advances (they have already happened and no advances are expected in the future) in pharmaceuticals increase life expectancy to 100 years. How will this affect the supply of and demand for loanable funds?

Supply will increase, and demand will not change.

If the Federal Reserve wants to keep aggregate demand stable, what will it do to the growth rate of the money supply when a lot of good news comes out about the economy?

The Federal Reserve is likely to cut money growth.

Economist Robert Frank posed the following question: Why does a spectacularly resourceful and intelligent person in Nepal earn spectacularly less than a lazy untalented American?" What is the short answer?

The Nepali can't move to the United States.

During the Great Depression, which of the following were mostly aggregate demand shocks and which were mostly negative real shocks?

The fall in the growth rate of money neg agg deb Correct! The fall in farm productivity neg real shock You Answered The Smoot-Hawley Tariff Act (It is NOT about the retaliation by the other countries.) Correct Answer a negative real shock

Under current U.S. law, businesses are allowed to automatically enroll you in a savings plan that puts 5 percent of your salary in a retirement fund. Suppose Congress abolishes this law. What will happen to the market for loanable funds if it is assumed that everything else remains constant?

The supply of loanable funds will decrease.

What will happen to the market for loanable funds if people become less patient?

The supply of loanable funds will decrease.

Before the rise of affordable automobiles and subways, many people used trolleys—small trains on rails that run along ordinary streets to get around in urban areas. On trolleys, there is a literal "free rider problem," since people could hop on and off very easily without paying. What could the trolley industry do to solve the problem of free riders?

The trolley companies might hire an employee to check people's tickets. The trolley companies might put gates on the entrances (like the door to a bus). B and C

Warren Buffett often says that he doesn't want a lot of diversification in his portfolio. He says that diversification means buying stocks that go up along with stocks that go down; but he only wants to buy the stocks that go up! From the point of view of the typical investor, what is wrong with this reasoning?

The typical investor cannot predict which stocks will go up and which will go down.

Between 1984 and 2001, the U.S. government made it much easier to get disability payments and the number of disabled people more than doubled from 3.8 million to 7.7 million. Most of the people who try to qualify for disability payments have a tough time finding jobs, and spend a lot of time "out of work and actively searching for work." Once people start receiving disability payments, however, they rarely work again and continue to get the disability payments for decades: These citizens then count as "out of the labor force." What effect did reducing the requirements to get disability payments have on the unemployment rate?

The unemployment rate decreased because more people were classified as "out of labor force" rather than "unemployed."

How would the following event affect the unemployment rate? People without jobs who are looking for work find work.

The unemployment rate would fall since the number of unemployed people has decreased while the labor force has stayed the same.

With respect only to their home equity (i.e. ignoring all other assets and investments), regardless of whether they have fixed rates or flexible rates and regardless of whether they have finished mortgage payments or not, would homeowners tend to favor high or low interest rates?

They tend to favor low interest rates.

It's been said that "once you reach the top of the ladder of opportunity, the first thing to do is pull up the ladder behind you." Let's consider the implications of this adage for the following workers: If government requires higher educational and training standards for doctors, schoolteachers, and barbers, do wages tend to rise or fall for these professionals?

This increases the demand for these professionals and decreases the supply of these professionals, which will raise the equilibrium wage for these workers.

Trade makes us rich. How?

Trade allows us to specialize in goods/services we are good at producing, which makes us more productive. The overall knowledge level also rises as everyone develops a unique set of knowledge. Trade also makes it possible to access larger markets, so we can utilize large-scale production (economies of scale) that is often more productive. We also have more financial incentives to be productive (i.e., the rewards are much larger).

A citizen of Mexico who works temporarily in the United States adds to ________. An American who works temporarily in Mexico contributes to ________.

U.S. GDP; Mexican GDP

Who often are the biggest lobbyists for bills to restrict trade on behalf of "oppressed foreign workers"?

U.S. labor unions

In the United States, high-level corporate officials have to publicly state when they buy or sell a large number of shares in their own company. They have to make these statements a few days after their purchase or sale. What do you think probably happens when newspapers report these true insider trades? (Note: The right answer according to theory is actually true in practice.)

When insiders sell, prices fall, since investors decrease their demand for the company's shares.

Which of the following questions does Chapter 7 or 27 try to answer?

Why are some nations wealthy, while others are poor? Why are some nations getting wealthier faster than others? Can anything be done to help poor nations become wealthy? Chapter 7 tries to answer all of the above.

Which of the following variables in the quantity equation of money, M x v = P x YR, is (are) considered relatively stable? Choose all that apply.

YR: Real GDP v: Velocity of money

In theory, is it possible for a monkey to invest in the stock market as well as some of the mutual fund managers who are praised in the financial magazines?

Yes, given enough number of monkeys, a few of them would get lucky and pick companies that well.

Suppose we are stuck in a classroom and no extra goods will be brought in. Also suppose we don't produce any goods or services. Is it possible sometimes to make ourselves better off without hurting anybody else?

Yes, it sometimes is possible. If there are two people each of whom has what the other wants more, they can trade them and both will be better off. It will not make anybody else worse off.

To economists, which one is not considered as investment?

You buy IBM stock.

Real GDP per capita is positively correlated with all of the following except:

a. malaria cases per capita.

The world's average (mean) GDP per capita is $10,515. There are roughly 7 billion people in the world. About 20% of the world's population produces 50% of the world's total GDP. What is the average GDP per capita of the most productive 20% of the world's population?

about $26,000

Suppose that you are told that the average price of a gallon of gasoline was $1.25 in 1982 but double that, $2.50, in 2006. The CPI was 100 in 1982 and 202 in 2006, so the real price of gasoline was:

about the same in 1982 as in 2006.

Let's try to understand the relation between recessions and the unemployment rate. According to Figure 11.6 (30.6) on page 236 (or 614), when does the unemployment rate tend to reach its peak?

after the recession

The Great Depression was due to large, negative:

aggregate demand and real shocks where the AD shocks were greater than the real shocks. (Both curves shifted to the left, but from the fact that there was deflation, we can tell that the negative AD shock was greater than the negative real shock. (Negative AD shock - lower inflation. Negative real shock - higher inflation.))

In 2009, about 18% of all children aged 5-14 around the world worked for a significant number of hours. The vast majority of these children worked in ________, and not in ________. Restrictions on trade, therefore, ________ directly reduce the number of child workers.

agriculture; export industries; cannot

At the height of the German hyperinflation in 1923, prices were increasing by the minute. Instead of being paid weekly, workers would be paid as often as three times a day and they would hand off their earnings to their wives, who would rush to the stores to buy food, soap, clothes, anything before prices rose even further.The hyperinflation was due to:

an increase in the money supply. an increase in the velocity of money. a and b

In the parable of a mini-economy with a baker, tailor, and carpenter, the authors try to show that:

an unexpected increase in the money supply can boost the economy in the short run. an unexpected increase in the money supply eventually leads to inflation. a and c

Which of the following is NOT a negative real shock during the Great Depression?

bank failures the National Industrial Recovery Act (NIRA) and the Agricultural Adjustment Act (AAA) the Smoot-Hawley Tariff of 1930 Dust Bowl Correct! All of the above are real shocks during the Great Depression.

Indian shirts are usually made by hand in small shops of three or four tailors:

because, until recently, large-scale production was illegal.

In the U.S. tax system, __________ produce(s) tax burdens and tax liabilities that do not make economic sense.

both expected and unexpected inflation

GDP includes:

both final goods and final services

The disaster at Chernobyl meant that Ukrainian potato crop would be contaminated. Knowing this, traders on Wall Street ________ American potato futures, which ________ the price of American potatoes

bought; raised

Which of the following transactions would be counted in GDP? For those counted, indicate whether they count as C (consumption), I (investment), G (government purchases), or NX (net export). The purchase of a personal computer by a household

c

Real GDP controls for:

changes in prices.

The difficulties of measuring the CPI includes:

changing baskets of goods and services bought by the average consumer. new goods that are constantly introduced in the economy. changes in quality of goods and services. Correct! All of the above.

Which of the following does not tend to increase with economic growth?

civil wars and riots

Research indicates that ___________ benefit the most from the extra cost of fair trade coffee.

coffee shops

Fit the following example into one of the reasons for trade. Former President Bill Clinton, a graduate of Yale Law School, hires attorneys who are less skilled than himself to do routine legal work.

comparative advantage

Changes in the growth rate of velocity tends to be temporary because:

consumers can cut back a big purchase such as buying a new automobile only once. as consumers cut back on consumption, their savings increase and they become more reassured about spending. as consumers cut back, the consumption that remains becomes even more important (like groceries and rent) Correct! All of the above.

The Bureau of Economic Analysis categorizes private spending on education as:

consumption spending.

When Medicare pays your medical bill, it is considered to be:

consumption spending.

Complete the following sentences: If aggregate demand shocks are the most important drivers of business fluctuations, then we would expect real wages to be _____. If real shocks are the most important drivers of business fluctuations, then we would expect real wages to be _____. Note: A countercyclical real wage rises when GDP growth falls and vice versa. A procyclical real wage rises when GDP growth rises and vice versa.

countercyclical; procyclical

In the 1980s when the U.S. price was four times the world price because of the U.S. tariff on sugar, Canadian entrepreneurs started _____________________ and exported it to the United States.

creating super-high-sugar iced tea

Decide whether the following is considered to be frictional unemployment, structural unemployment, cyclical unemployment, or none of these: The economy gets worse, so General Motors shuts down a factory for four months, laying off workers.

cyclical

In the past, many countries used a commodity such as gold or silver as money. The dollar, for example, was defined as 1/20th of an ounce of gold between 1834 and 1933. Since the supply of gold or silver usually increases slowly under commodity-money standards, prices typically ________ a bit every year as YR increases faster than M.

decrease

If the government sets an interest rate ceiling below the market equilibrium level, the quantity of savings/borrowing will __________.

decrease.

Other things equal, when the government borrows a lot of money, private consumption and investment:

decreases.

Economists, typically of the "Keynesian" persuasion, think that cyclical unemployment is caused by deficiencies in aggregate ________, the wages demanded by workers are out of synch with the level of prices, so workers are too ________ to hire from the point of view of firms.

demand; expensive

Shareholders gain from profits through:

dividends. higher stock prices from reinvesting the profits. a and b

Fit the following example into one of the reasons for trade. Two recently abandoned cats, Bingo and Tuppy, need to quickly learn how to catch mice in order to survive. If they also remain well groomed, they stand a better chance of surviving: Good grooming reduces the risk of disease and parasites. Each cat could go it alone, focusing almost exclusively on learning to catch mice. The alternative would be for Bingo to specialize in learning how to groom well and for Tuppy to specialize in learning how to catch mice well

division of knowledge

Buying and selling existing shares of stock ________ net investment in the economy.

do not change

Increases in C→, I→, G→, or NX→ ________ the rate of inflation in the long run.

do not change

The destruction of water aquifers, the accumulation of carbon dioxide in the atmosphere, or declining supplies of natural resources ________ the official GDP figure.

does not change

On eBay, you sell your collection of Pokémon cards. Your sale __________ GDP.

does not change the value of

The Interstate Bakeries Corporation buys wheat flour to make into Wonder Bread. The purchase of wheat flour ____________ GDP. adds to

does not change the value of

Measuring GDP using the national spending approach includes:

e. a, b, c

The lesson of Figure 19.4 (or 9.4) on page 419 (or 169) is that __________ reduces child labor.

economic growth

What's surprising about human history is that:

everyone in the past was poor.

In the AD shock model, if lower growth rates of foreign countries reduce the amount of American goods and services exported, the inflation rate will: fall and the real GDP growth rate will: decrease in the short run.

fall, decrease

True or False: Government purchases includes all of the following: social security payments, government employee wages, and tanks purchased by the government.

false

True or false: if a country's nominal GDP increases, it means the country is producing more goods and services.

false

The number of senior citizens will double by 2020. So the way to make money is to invest in companies that produce goods and services that senior citizens want, things like assisted living facilities, medical care for the elderly, and retirement homes. This statement is:

false because the current stock prices of the firms that produce goods and services for seniors are already higher, reflecting the information.

Scarcity of information is one of the causes of ________ unemployment. Workers do not know all of the job opportunities available to them and employers do not know all the available candidates and their respective qualifications. ____________ has probably lowered the underlying rate of frictional unemployment by making it easier for workers to search for jobs and for firms to search for workers.

frictional; The Internet

Institutions have a large effect on increasing and organizing the factors of production and thus institutions have a large effect on economic growth. But where do institutions come from? Institutions products of:

geography history ideas culture luck Correct! All of the above and more.

The theory of comparative advantage not only explains trade patterns but it also tells us something remarkable: A country (or a person) will always be the low-cost seller of some good. The reason is clear: The greater the advantage a country has in producing A, the ___________ the cost to it of producing B. If you are a great pianist, the cost to you of doing anything else is very ______.

greater; high

If we look at the financial returns on real estate over a long time horizon, it turns out they are fairly low. In fact, for long periods of time, the average financial rate of return on real estate is not much different than zero. That is because:

if you buy a house, you get to live in it. houses are lots of fun. Correct! b and c

Cars made in the United States at a Toyota factory are included in U.S. GDP. Cars made in Germany at a General Motors factory are not included in U.S. GDP.

included

The price paid by a German tourist when staying at a New York hotel is:

included

Professor Boudreaux suggests two ways that we can help the world's poorest workers. One of those ways is to

increase worker productivity

Since China opened to foreign trade in 1978, China's GDP per capita has sharply:

increased

The problem of volatile and unexpected inflation is that:

it redistributes wealth. long-term loans become riskier few long-term contracts will be signed. Correct! All of the above.

In one fascinating study, four-year-old children were asked whether they wanted one cookie now or two cookies in 20 minutes. Many years later, the children were evaluated again—the children who had waited were ______ impulsive and had ________ grades than the children who had not waited.

less; higher

Employment protection laws create valuable insurance for workers with a full-time job, make labor markets _____ flexible and dynamic, ________ the duration of unemployment, and ________ unemployment rates among young, minority, or otherwise "riskier" workers.

less; increase; increase

As the manufacturing sector declined and the service sector rose, there was _____ demand for machine operators and _____ demand for professionals. This ________ wages in sectors where females had a comparative advantage, thereby drawing more females into the labor force. In turn, the phenomenon of women in the workplace fueled the rise of feminism.

less; more; raised

It's _____ risky and _____ profitable to lend one thousand firms $1 each than to lend one firm $1,000, so the spreading of risk encourages greater lending and investment.

less; no less

A country has an absolute advantage in producing a good if it can produce _________ using ________________ another country.

more of it; less inputs than more of it; the same amount of inputs as the same amount of it; less inputs than (all of the above)

A gardener weeds her own garden.

no

The cost of the next most valuable opportunity is known in economics as

opportunity cost .

The inflation parable from Chapter 12 tells us that a positive shock to spending increases ________ at first. In the long run it only increases ________.

output; prices

One of the most successful active labor market programs is the simplest -

pay workers to get a job.

Growth in ___________ is usually the best reflection of changing living standards.

real GDP per capita

Minimum wage laws were once advocated explicitly to ________________ particular minorities (e.g., Japanese in Canada and blacks in the U.S. and South Africa in the 1920s.)

reduce or eliminate the competition of

In the United States, Ronald Reagan was elected to the presidency in 1980 after inflation in the United States hit 13.5% a year. By 1983, tough monetary policy had ________ the inflation rate. The consequence was ___________________.

reduced; a severe recession

The ubiquity of cell phones throughout the world shifted the LRAS curve to the ______ because it improved communications in all countries, more dramatically in ________ countries.

right; less-developed (Since the land lines were too expensive for poor countries to install, most households didn't have access to telecommunications before. Since the infrastructure of cell phones is much cheaper to build (a few towers), a lot more people now have access to telecommunications in the developing world.)

In the AD shock model, if the Federal Reserve increases the monetary growth rate, the inflation rate will: rise and the real GDP growth rate will: increase in the short run.

rise, increase

Bond buyers hope that the bond prices will rise after their purchase. Bond sellers hope the bond prices will fall after their sale.

rise//fall

The reason that one bond pays a higher interest rate than another bond is that _______.

risky bonds have a lower supply of funds

If people want to smooth their consumption over time, what will they tend to do when they win the lottery?

save most of it for later (including purchasing assets)

Trade restrictions:

save visible jobs but destroy jobs that are harder to see.

The rule of 70 is just a mathematical approximation, but it bears out the key concept that:

small differences in growth rates have large effects on economic progress.

Why does the government support the U.S. sugar tariff when U.S. consumers lose much more than U.S. producers gain? One clue is that the costs of the sugar tariff are spread over millions of consumers so the costs per consumer are ________. The benefits of the tariff, however, flow to a small number of producers, each of whom benefits by ___________. As a result, the producers support and lobby for the tariff much more actively than consumers oppose the tariff. large; a few dollars

small; millions of dollars

We know from our basic equation M→ + v→ = P→ + YR→ that an increase in spending must lead to an increase in either:

the inflation rate, P→, or the real growth rate, YR→, or both.

In the U.S. stock market, people on average make money and that is because:

the productive capacity of the U.S. economy is expanding through economic growth.

Ultimately, what determines the wage rate?

the productivity of labor

Early retirement is beneficial for workers if they want to retire early, but taxing older workers at significantly higher rates than younger workers does not benefit:

the younger workers who must pay higher taxes. the older workers who otherwise would not want to retire. the economy as older workers do not contribute to GDP. Correct! All of the above.

In India, residents who purchase land often have to do so two or three times from different parties because:

there exists no reliable record of true ownership.

When people fear that a country can be outcompeted in everything:

they are wrong because it is impossible.

For every buyer of a stock, there is a seller. The buyer thinks the price is going _____, the seller thinks the price is going _____. There is a disagreement. On average, who do you think is more likely to be correct, the buyer or the seller? Of course, the answer is ________.

up; down; neither

In the model of Mexico and the United States in the chapter, after specialization and trade, the wage in Mexico has gone ____ and the wage in the United States has gone _____.

up; up

Real shocks to an economy, besides oil and railfall shocks, do NOT include:

wars and terrorist attacks major new regulations and tax rate changes mass strikes new technologies Correct! All of the above are real shocks to an economy.

In the above scenario, what is the opportunity cost in bananas to Anne of producing one fish?

5

Katie works at a customer service center and every hour she has a choice between two activities: answering 200 telephone calls per hour or responding to 400 emails per hour. The opportunity cost of responding to 400 phone calls is:

800 emails

Thomas Thwaites sought out the help and advice of several people and consulted many textbooks as he attempted to build his toaster from scratch. Why didn't he just locate one person who knows absolutely everything there is to know about what it takes to build a toaster?

Because building a toaster from scratch requires many detailed processes and it is not possible for a single person to have knowledge of each and every process in detail.

In the United States, we don't just have doctors - we have neurologists, cardiologists, gastroenterologists, gynecologists, and urologists. We also have dog walkers, closet organizers, and manicurists. It's common to dismiss the latter jobs as frivolous, but, from society's point of view, they are very important in producing the services offered by the medical specialists. Why?

Because dog walkers, closet organizers, and manicurists are the ones who give the neurologists the time they need to perfect their skills.

Assume Bob can produce 10 bananas or 3 fish each day, while Anne can produce 30 bananas or 6 fish. Who has the comparative advantage in catching fish?

Bob

Data can write 12 excellent poems per day or solve 100 difficult physics problems per day. Riker can write one excellent poem per day or solve 0.5 difficult physics problems per day.

Data has an absolute advantage at both.

Which two large countries grew most after WWII? What is the common factor between them?

Germany and Japan. They lost the WWII and their colonies.

. According to the video clips, does boycotting sweat shops that hire children help or hurt them?

It hurts them because the alternatives to working at the sweat shops for the children are worse.

Suppose the United States did have the world's best climate for growing sugar.

It would make sense for the United States to design iPads and import sugar from Brazil if the United States had a bigger advantage in designing iPads than it did in growing sugar

Let's focus just on the lobbyists who are restricting trade. If the United States were to amend the Constitution to permanently ban all tariffs and trade restrictions, these lobbyists would lose their jobs, and they'd have to leave Washington to get "real jobs." Would this job change raise U.S. productivity or lower it? Which is more likely over time?

It would raise U.S. productivity.

The Japanese people currently pay about four times the world price for rice. If Japan removed its trade barriers so that Japanese consumers could buy rice at the world price, who would be better off and who would be worse off: Japanese consumers or Japanese rice farmers? If we added all the gains and losses to the Japanese, would there be a net gain or net loss?

Japanese consumers would be better off while Japanese rice farmers would be worse off. There would be a net gain.

In 30 minutes, Kana can either make miso soup or she can clean the kitchen. In 15 minutes, Mitchell can make miso soup; it takes Mitchell an hour to clean the kitchen.

Mitchell has a comparative advantage at miso soup and Kana has a comparative advantage at cleaning.

Does "Buy American" make sense besides the fact that not trading makes us worse off?

No. We have no idea what percent of a given product is made in America or what percent of the sales goes to Americans.

Many people will tell you that, whenever possible, you should always buy U.S.-made goods. Some will go further and tell you to spend your money on goods produced in your own state whenever possible. (Just do a simple Google search for "Buy [any state]" and you'll find a Web site encouraging this kind of thinking.) The idea is that if you spend money in your state, you help the economy of your state, rather than the economy of some other state. By the same logic, shouldn't one buy only goods produced in one's own city? Or on one's own street? Ultimately, where does this thinking lead to?

Self sufficiency

In one hour, Ethan can bake 20 cookies or lay the drywall for two rooms. In one hour, Sienna can bake 100 cookies or lay the drywall for three rooms.

Sienna has a comparative advantage at baking cookies and Ethan has a comparative advantage at laying drywall.

The loss to consumers from protectionism is greater than the gain for the protected industries. Why don't politicians oppose protectionism and help consumers who outnumber the protected industries? Explain fully.

Since the loss from protecting one industry is spread over a large number of consumers, each consumer's loss is very small. But the gain from protection is concentrated on a small group of producers and each member's gain is very large. Therefore, those who gain (a small group of producers) work very hard to lobby for protection while those who lose (a large number of consumers) don't care about the loss or just don't see the loss.

Let's focus just on the lobbyists who are restricting trade. If the United States were to amend the Constitution to permanently ban all tariffs and trade restrictions, these lobbyists would lose their jobs, and they'd have to leave Washington to get "real jobs." Would most of these lobbyists likely earn more or less right after the amendment was enacted?

The lobbyists would probably earn less.

In 1992, labor activists discovered that Walmart was selling clothing that had been made in Bangladesh by subcontractors who had employed some child workers. Senator Tom Harkin angrily introduced a bill in Congress to prohibit firms from importing any products made by children under the age of 15. Harkin's bill didn't pass, but in a panic the garment industry in Bangladesh dismissed 30,000 to 50,000 child workers. Where did these children go?

To a worse job such as prostitution

The theory of comparative advantage holds that:

To maximize production, workers should specialize in what they are best at relative to others and trade .

Suppose 72 hours of labor are available for each country and, in a no-trade world, let's assume that 48 hours are used to produce sofas and 24 hours are used to produce clocks in each country. How many sofas and clocks are produced in each country? What is the combined amount of production for each good?

U.S.: 12 sofas and 12 clocks Germany: 4 sofas and 8 clocks Combined: 16 sofas and 20 clocks

Number of Hours to Make One Sofa Number of Hours to Make One Clock United States 4 2 Germany 12 3 a. Which country has the absolute advantage in producing sofas?

US

Which country has the absolute advantage in producing clocks?

US

Which country has the comparative advantage in producing sofas?

US

Which of the following are given as reasons behind increased efficiency associated with division of labor?

a and b

In 1954 the U.S. government declared that mohair, the fleece of the Angora goat, was vital for national security (it can be used to make military uniforms). For nearly 40 years the producers received millions of dollars in annual payments. Finally, after much ridicule, the program was eliminated in 1993 . . . only to be reestablished in 2002. This example:

casts doubt on the argument for restricting free trade based on national security.

If two countries specialize in their _____________________ and trade, both countries will be better off.

comparative advantage

What makes trade profitable is differences in ___________ advantage, and a country will always have some __________ advantage.

comparative; comparative

The phonograph destroyed jobs in the piano industry, CDs destroyed jobs in the record industry, and today MP3s are destroying jobs in the CD industry. With all these jobs being destroyed:

employment and the standard of living keep trending upward.

Trade does not eliminate jobs—it moves jobs from ________ industries to ________ industries.

import-competing; export

Sam was going to trash the old Fisher Price garage that his kids no longer play with. Instead, Sam sells it on eBay to Jen who pays $65.50. What had been worth nothing is now worth at least $65.50. The total value in society has ___________.

increased.

Studies have shown that more openness to trade ________ income and ________ child labor.

increases; reduces

In September 1995, Pierre Omidyar, a 28-year old computer programmer, finished the code for what would soon become eBay. Searching around for a test item, Omidyar grabbed a broken laser pointer and posted it for sale with a starting price of $1. The laser pointer sold for $14.83. The main point of this example is that:

innovation makes you rich.

Does outsourcing cost American jobs as a whole over time?

no

Some people argue for protectionism by pointing out that other countries with whom we trade engage in "unfair trade practices," and that we should retaliate with our own protectionist measures. One such policy is the policy of some countries to subsidize exporting industries. India, for example, subsidizes its steel industry. Obviously, U.S. steel producers are hurt by this policy and would like to restrict imported steel from India. For the U.S. economy as a whole, restricting imported steel from India is:

not a good policy because the losses suffered by steel buyers and other industries outweigh the benefits gained by the U.S. steel industry.

If Martha Stewart was the world's best ironer, she should:

not iron her clothes because the loss of not running her business due to ironing was greater. not iron her clothes because she did not have a comparative advantage in ironing her clothes. (b and c)

In a primitive agricultural economy in which each person or household farms for themselves, each person has about the same knowledge as the person next door. In this case, the combined knowledge of a society of one million people barely exceeds that of ______________.

one person

Many people thought that "it's better to produce computer chips than potato chips." Most computer chips today, however, are cheap, mass-manufactured commodities and the United States is better off not specializing in this type of manufacturing. In the late 1980s, many pundits argued that HDTV would be a technology driver for many related industries, but it has yet to produce significant benefits for the broader economy. The point of these examples is that:

since it is difficult to determine which industry is a key to economic growth, it doesn't make sense to protect a certain industry as a key industry

The closing of the Suez Canal is a natural experiment in increasing:

tariff barriers .

Use the table for Thinking and Problem Solving Question 6 on page 24 and the answer to the previous question. Any number less than the number in the previous question will give __________ the comparative advantage in airplanes. Any number higher than the number in the previous question will give __________ the comparative advantage in airplanes.

the United States; South Korea

What makes specialization possible?

trade

American workers are typically paid much more than Chinese workers. This is largely because American workers are typically more productive than Chinese workers.

true

Julia Child, an American chef (and World War II spy) who reintroduced French cooking to Americans in the 1960s, was paid much more than most American chefs. This was largely because Julia Child was much more productive than most American chefs.

true

Is it possible, in theory, to create an economy in which everybody who wants to work has a job and nobody is exploited?

yes