Macro Test 2

Birmingham Steel sells steel to Winston Golf Club Manufacturers for $300,000. Winston sells its golf clubs to Academy Sports for $1,000,000. Academy Sports sells Winston golf clubs for $1,500,000. How much is added to the GDP?

$1,500,000

Based on the data in the table, what is the GDP for this economy based on the factor income approach?

$1,831 (wages + rent + interest + profit)

Based on the data in the table, what is the level of net exports in tis economy? (table on the quiz)

$160 (subtract exports from imports for net exports)

If US per capita GDP is $50000 and grows at 2% per year, what will US per capita GDP be in 70 years?

$200,000 (70/2=35..this means it will double twice in 70 years so 50,000...100,000(twice) now again because it doubles so 150,000...200,000

What makes a bigger contribution to GDP, 12 million cars sold at $28,000 each or 20 million computers sold at $1,000 each?

12 million cars (this is because 12 million X 28,000=3.36e11 which is more than 20 million x 1000.)

If output in an economy is 20 and the investment function is 0.25Y, then:

15 units of output are being consumed (0.25x20=5 and then 20-5=15)

At an average growth rate of 4%, approximately how long would it take for an economy to double its GDP?

17.5 years (growth rate is always 70/x)

Imagine an economy with production function Y = F(K) =K (square root) and 400 units of capital. If the depreciation rate is δ = .05, how much capital will deteriorate in the next period?

20 units (this is because delta=.05 and k=400 so you always multiply gammaXdelta which is .05x400=20)

The value of a car produced and sold in 2005 and sold again in 2011 is included in:

2005's GDP only.

A country's GDP (in billions) was $5690 in 2010 and $5899 in 2011. What is the growth rate of GDP?

3.67% (this is because you do new-old/old)

Imagine an economy with production function Y = F(K) =K(square rooted) and 400 units of capital. If the fraction of output invested in new capital is γ = 0.2 and the depreciation rate is δ = .05, how much total capital will be available in the next period?

384 units (this is because you add 400+4-20 from answers of 3 and 4)

Imagine an economy with production function Y=F(K)=K (square root) and 400 units of capital. If the fraction of output invested in new capital is y=0.2, how much new capital will be created in the next period?

4 (this is because 400=k so we take the square root of 400 which is 20 and multiply it by 0.2

Which statement in NOT an explanation for why Germany and Japan both grew faster than the United States following World War II.

Both countries were experiencing cutting edge growth at the time. (cutting edge is only for countries who have finished their rapid growth)

If 2009 prices are used in the calculation of real GDP and inflation occurs between 2009 and 2010, then nominal GDP will be ____________ real GDP in 2010.

Greater than

Which is NOT a key institution for economic growth?

Income equality

Due to economies of scale, average costs decline as

Production levels increase

A rural village in a developing country has an economy based on agriculture. Then the government of the country provides the village with newly developed hybrid seeds that more than double the agricultural yield per acre. This story illustrates the growth of per capita GDP in the village through which factor(s) of production?

Technological knowledge

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

The US government distributes $10 million in social security payments.

Which of the four towns has the highest standard of living?

Town B: You divide the real GDP by the population and whoever has the highest one is who gets it.

Which of the following would be included in GDP for the US?

Toyota, a japanese car company, producing cars in the US. (this is because it is PRODUCED IN THE US)

Which of the following would NOT be included in the calculation of GDP as an investment expenditure?

You purchase $5000 in shares of Apple Stock

Which scenario has the greatest potential for free riding?

a system in which work effort and pay are not connected

A set of tired installed on a vehicle in an automobile factory is counted as?

an intermediate good and its market price is not part of the GDP

If the interest rate increases, then

both the quantity saved and the quantity supplied of loanable funds will increase.

Crowding out occurs because the government increases the demand for loanable funds, drives up interest rates, and causes:

consumption and investment to fall

If the interest rate rises from 5% to 9%, the number of new businesses will:

decrease

The AIDS epidemic ______________ the savings rate in Africa

decreases

What is the most immediate (or direct) cause of growth in real GDP per capita?

factors of production

Gross Domestic Product is the market value of all:

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

Countries with more human capital tend to have a:

higher GDP per capita

In the Solow model, if the first unit of capital increases output by one unit, then the second unit of capital will cause total output to:

increase, but by less than one unit

If the supply of loanable funds increases and the demand for loanable funds increases at the same time, interest rates will:

increase, decrease, or remain the same

An investment tax credit will cause the interest rate to _______ and borrowing to _______.

increase; increase

Which best describes the growth process from its ultimate to its immediate cause?

institutions → incentives → factors of production → real GDP per capita

In a steady state, the level of investment:

is equal to depreciation

Because of spillovers, the social benefit of research and development:

is greater than the private benefit

When bond prices increase, interest rates:

must decrease

According to this diagram of the Solow model, if the current capital stock is 70, then economic growth will be:

negative (since depreciation is higher than investment)

The value of a country's GDP exceeds that of the country's GNP if the value of the:

output produced by foreign workers in the country exceeds the value of output produced by the country's permanent residents in other countries.

Property rights are important to institutions for encouraging investment because:

people won't invest if they feel their property is at risk and that they may not realize a return on their investment.

GNP measures?

production by US citizens wherever they work in the world.

A recession is a period of significant, widespread declines in:

real income and employment

An increase in government borrowing will cause the interest rate to

rise and private spending to fall

If the interest rate is 5% in this market for loanable funds, then:

savings exceeds borrowing demands by $100 million. (difference of supply and demand 200-100)

look at number 9 on quiz 5!

the answer is 600-400 which gives you 200. this is because it is the difference of output and investment.

Assume that a country's production function changes from Y=2(square root K) to Y=3(square root K) . Which of the following events could explain the change in this production function?

the development of new technology in production

What is real GDP?

the money made in a certain yea that is the base price.

Investment is what?

the purchase of new capital goods

The production function is a mathematical function that shows:

the relationship between output and the factors of production

If individuals become more impatient, what will happen in the market for loanable funds?

the supply of loanable funds will decrease, interest rates will rise, and the quantity of saving and borrowing will decrease.

If the interest rate in the market for loanable funds is below the market-clearing rate, then:

there will be a shortage of savings, and demanders will bid the interest rate up as they compete to borrow.

The factor income approach to calculating GDP states that GDP is equal to:

wages + rent +interest + profit

If income and consumption are equal, saving must be

zero