Macroeconomics exam #2

Suppose a country invests 30% of output in new capital each year. The depreciation rate of capital is 0.02. The country's output level is 30 units and its capital stock = 900. What is the annual change in the country's capital stock?

-9%

The rule of 70 states that

70 divided by x

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

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

which does NOT tend to be higher in wealthier nations?

Civil War

Which is an example of an increase human capital?

The average educational level in a country's labor force rises from 8 years to 9 years

if investors become less optimistic about the economy, which of the following would best describe behavior in the funds market?

a decrease in demand results in a decrease in interest rate

If the production function shifts from Y1 to Y2 in the accompanying graph of the Solow model, then:

a new steady state will occur at K2.

which effect will an investment tax credit have on interest rates and the quantity of savings?

both interest rates and the quantity of savings will increase

How do banks earn a profit?

by charging higher interest rates on loans than they pay on deposits

There are _____ returns to physical capital and _____ returns to human capital.

decreasing; decreasing

The principle of diminishing returns to capital implies that a country that loses much of its capital during a war will:

experience a faster growth rate than before the war

The issuer of a bond is a lender.

false

The rule of 70 implies that poor countries tend to catch up with rich countries over time.

false

Which is not a factor of production?

financial capital

Diminishing returns to tractors indicates that:

having more tractors leads to more output, but at a decreasing rate.

The ways in which the factors of production are organized into production are the result of ____ and ____

incentives ; institutions

If the interest rate decreases with other things unchanged, the quantity of funds investors want to borrow will:

increase

which best describes the growth process from its ultimate to its immediate causes?

intuitions --> incentives --> factors of production --> real GDP per capita

Economists speculate that China's rapid growth will eventually slow as:

its capital stock rises

technological knowledge

knowledge about how the world works that is used to produce goods and services

the key to escaping the "iron logic" of diminishing returns in the Solow model is:

new ideas

If people have low expectations that their property will be secure and that they will be able to gain a return from its use, then people will:

not save and invest.

A FedEx truck is an example of:

physical capital

Which of the following events would NOT shift the production function from Y1 to Y2 in the accompanying diagram of the Solow model?

physical capital accumulation

The economic growth rate is the growth rate of:

real GDP per capita

If the recent financial crisis raises awareness about the dangers of not saving, leading to an increase in overall savings rates across the country, the loanable funds market will experience an increase in the ______ loanable funds and ______ in equilibrium interest rates.

supply of ; a decrease

In the accompanying graph, which of the following events could cause the upward shift of the production function?

technological advancement

human capital

the knowledge and skills that workers acquire through education, training, and experience

the production function is mathematical function that shows:

the relationship between output and the factors of production

physical capital

the stock of equipment and structures that are used to produce goods and services

The buyer of a bond is a borrower.

true

The figure shows real GDP per capita over time in different regions of the world. The figure shows that all regions of the world:

were poor at one time

which of the following would be the most likely to cause an increase in the demand for loanable funds?

an increase in government borrowing

If you recueve a constant annual rate of return of 7% on an investment of $10,000, how many years will it take before you have $20,000?

10 years

Based on the figure, about how many times wealthier is the richest country when compared to the poorest countries in the world?

100

If a country has an economic growth rate of 5.5%, its real GDP per capita will double in _____ years

12.73