Econ 101 poll questions test 2

73 How many of the following statements are true? A.Jackie, a Canadian citizen, works only in the United States. The value of the output she produces is included in U.S. GDP, but it is not included in U.S. GNP. B.Government purchases is consistently the largest spending component of GDP in the US. C.If the lumberyard sells $1000 of lumber to a carpenter and the carpenter uses the lumber to build a garage that he sells for $5000, the contribution to GDP is $6000. D.If nominal GDP in 2016 exceeds nominal GDP in 2015, real output must have risen. E.Recessions can be defined as significant and widespread declines in nominal GDP.

1

79 Senator Noitall says that in order to help poor countries develop, the United States should: 1.Prevent U.S. corporations from investing in these poor countries because the corporations take profits that the poor countries should have; 2.Not import goods from poor countries that use child labor; 3.Work to promote political stability in poor countries; and 4.Reduce poor countries reliance on market forces in their economies. How many of these policies are likely to help poor countries grow?

1

84 An economy's labor, technology, and education levels are constant, and the economy has a production function that can be described by Y=3√K. To demonstrate that this production function exhibits diminishing marginal product with respect to capital, calculate the marginal product of the 2nd unit of capital and of the 3rd unit of capital. K Y MPk 0 1 2 3 The MPK of the 3rd unit is approximately equal to

1

107 How many of the following statements are TRUE? A.The natural rate of unemployment is the amount of unemployment that won't go away on its own, even in the long run. B.In a recession, the actual rate of unemployment in an economy is equal to its natural rate of unemployment. C.Over time, the actual unemployment rate varies around the natural rate. D.When the unemployment rate is equal to the natural rate, frictional and structural unemployment are zero.

2

108 In each of the following determine which type of unemployment is present: frictional or structural? A.Meredith is looking for work as a computer programmer. Although her prospects are good, she hasn't yet taken a job. B.Julie is looking for work in a steel mill. Every time she shows up for an interview there are more people looking for work than there are openings. Someone waiting in line with her tells her its been that way a long time. C.Curtis has looked for work as an accountant for some time. While the demand for accountants doesn't appear to be falling, there seems to be more people applying than jobs available. How many of the cases represent structural unemployment?

2

68 In each of the following cases, determine which component (s) of GDP (i.e. C, I, G, and NX) is affected in the current year, if at all. Does GDP change? If so, then in which direction? A.Debbie spends $300 to buy her husband dinner at the finest restaurant in Boston. B.Sarah buys a new laptop for her business from Best Buy for $1800. Best Buy paid $1000 to import the laptop from China. C.General Motors builds $500 million worth of cars, but domestic consumers only buy $470 million worth of them and the rest are placed in inventory. D.Ford Motor Company produces $1.5m worth of Escapes in a factory in Missouri and ships them to a car dealer in Shanghai, China. E.The state of North Carolina spends $0.5 billion to build a new highway to help improve access to its coastline. In how many cases, will Investment increase? 0 1 2 3 4 5

2

80 How many of the following statements are TRUE? A.Competitive markets are not important for economic growth if the government enforces private property rights. B.If a country can establish a few decades of economic growth, then it can be assured that it will achieve long-run economic growth for the foreseeable future. C.The key to producing and organizing factors of production to increase economic growth is institutions that create the proper incentives. D.If U.S. per capita GDP is $50,000 and grows at 2% per year, then U.S. per capita GDP will be $200,000 in 70 years.

2

89 How many of the following statements are TRUE? A.All else equal, an increase in capital (i.e. capital accumulation) should cause the growth rate of a relatively poor country to increase more than that of a rich country. B.The opportunity cost of additional growth is that someone must forgo current consumption. C.As long as investment equals depreciation, the economy is growing. D.An increase in the investment rate results in a higher level of steady-state output.

2

93 How many of the following government policies will encourage long-run economic growth? A.subsidies for companies that use a lot of capital in their production process. B.Tax breaks for companies that invest in physical capital and/or new technologies. C.high taxes on companies that spend a lot on capital accumulation D.promotion of education and training programs for workers.

2

98 How many of the following statements are TRUE? A.If someone buys a bond, economists would say that person is saving, not investing. B.Businesses borrow when they expect the return on their investment to be greater than the interest rate. C.The buyer of a bond is a lender. D.When an entrepreneur borrows money for their business, their consumption expenditures are being financed by someone else's investment. E.An increase in domestic borrowing today will lead to an increase in the supply of loanable funds and an increase in domestic interest rates.

4

100 Allen Steel Company is considering whether to build a new mill. If the interest rate rises, A.the present value of the returns from the mill will fall, so Allen will be less likely to build the mill. B.the present value of the returns from the mill will fall, so Allen will be more likely to build the mill. C.the present value of the returns from the mill will rise, so Allen will be less likely to build the mill. D.the present value of the returns from the mill will rise, so Allen will be more likely to build the mill.

A

104 unemployed - 5.8 million employed - 158.3 Given the information above, what is the labor force participation rate? A.63.2% B.60.9% C.96.5% D.74.3%

A

109 Policies that reduce the time it takes unemployed workers to find new jobs A.can reduce both frictional unemployment and the natural rate of unemployment. B.can reduce frictional unemployment, but it cannot reduce the natural rate of unemployment. C.cannot reduce frictional unemployment, but it can reduce the natural rate of unemployment. D.cannot reduce either frictional unemployment or the natural rate of unemployment.

A

112 If the CPI was 125 last year and is 135 this year, then what is the inflation rate between last year and this year? A.8% B.7.7% C.10% D.Less than 7%

A

120 Suppose you lend your roommate $100 for 1 year at 5 percent nominal interest. At the time you both agreed to the terms of the loan, you both expected the inflation rate to be 2 percent during the year of the loan. What do you both expect the real interest rate to be on the loan? Suppose at the end of the year, you are surprised to discover that the actual inflation rate over the year was 3.5%. What was the actual real interest rate generated by the loan? In the case described above, actual inflation turned out to be higher than expected inflation. Which of the two of you had an unexpected (real) gain? A.Your roommate (the borrower) B.You (the lender) What would the real interest rate have been if the actual inflation rate had turned out to be 6%?

A

67 Which of the following is not counted as a part of GDP? A.The purchase of 100 shares of AT&T stock by your grandfather. B.The purchase of a snow plough by the city of Minneapolis. C.The unsold additions to inventory at an appliances store. D.The purchase of flour by a consumer.

A

72 In 2015, Freedonia had a population of 5000 and real GDP of about $30,500,000. In 2016 it had a population of 4,500 and real GDP of about $28,800,000. Which of the following statements is true? A.Real GDP per capita grew between 2015 and 2016. B.Real GDP per capita fell between 2015 and 2016. C.Real GDP per capita did not change between 2015 and 2016.

A

76 According to the rule of 70, a sum of money invested at 12.5% would double in roughly A.5.6 years B.17.86 years C.56 years D.70 years

A

82 What are the factors of production in the Solow model of economic growth? A.physical capital, human capital, and technical knowledge. B.institutions, incentives, and technical knowledge. C.working capital, technological advances, and technical knowledge. D.motivated workers, honest government, and technical knowledge.

A

88 The citizens of Dookville and Tarheelia have the same population size and production function, Y=√K. However, the citizens of Dookville currently have 200 units of capital per worker and the citizens of Tarheelia have 400 units of capital per worker. This year, the citizens of both countries will receive another 100 units of capital per worker. Given this information, calculate this year's growth rate for each country. Assume no depreciation. •Which country is experiencing catch-up growth? •Which country has a higher standard of living? The growth rate in Tarheelia will be ______. A.Less than 15% B.15% C.Between 15% and 20% D.More than 20%

A

96 As interest rates fall, the cost of investing _____ and the quantity of funds demanded for investment _____. A.decreases; increases B.increases; decreases C.increases; increases D.decreases; decreases

A

97 If the interest rate is 3% in this market for loanable funds, then: A.Borrowing demands exceed savings by $100 million. B.Borrowing demands exceed savings by $50 million. C.Savings exceeds borrowing demands by $50 million. D.Savings exceeds borrowing demands by $100 million.

A

99 A national chain of grocery stores wants to finance the construction of several new stores. The firm has limited internal funds, so it likely will A.borrow the required funds by selling bonds. B.borrow the required funds by buying bonds. C.supply the required funds by buying bonds. D.supply the required funds by selling bonds.

A

102 Which of the following statements is true? A.All adults, who do not have a job, are counted as unemployed. B.Someone who is collecting unemployment benefits is counted as part of the labor force. C.A part-time worker who wishes to have a full time job is considered unemployed. D.All of the above are true.

B

103 If the adult population of a country is 200 million, 100 million are employed, and 10 million are unemployed, this country's unemployment rate is: A.5% B.9.1% C.10% D.11%

B

116 Suppose that this year's money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5 trillion. What is the price level? What is the velocity of money? The velocity of money is: A.10 B.20 C.50 D.None of the above

B

117 Suppose that velocity is constant and the economy's output of goods and services rises by 5 percent each year. What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant? Given your answer, which of the following statements is true? A.There is inflation and nominal GDP will increase. B.There is deflation and nominal GDP will not change. C.There is inflation and nominal GDP will not change. D.There is deflation and nominal GDP will decrease.

B

63. A macroeconomist — as opposed to a microeconomist — might study A.the effect of agricultural price support programs on the peanut industry B.the effect of an increasing inflation rate on national living standards C.the effect on U.S. steel producers of an import quota imposed on foreign steel D.the effect of an increase in the price of imported coffee beans on the U.S. coffee industry

B

70 Suppose an economy produces only chips and salsa. In 2015, 100 bags of chips are sold at $3 each and 50 jars of salsa are sold at $4 each. In 2010, the base year, chips sold at $2 per bag and salsa sold at $1.50 per jar. Calculate the value of nominal and real GDP for 2015. Based on your calculations, the ratio of NGDP/RGDP is A.Less than 1 B.Between 1 and 2 C.Between 2 and 3 D.Greater than 3

B

71 The following table shows the real GDP per capita for a given country over 3 years. 2012 - $1500 2013 - $1745 2014 - $2050 By how much did real GDP per capita grow in 2013? A.17.48% B.16.33% C.12.45% D.15.95%

B

90 If the production function shifts up because of a technological advancement, then in the long run: A.growth will occur from better ideas only. B.growth will occur from both better ideas and capital accumulation. C.growth will occur from capital accumulation only. D.No growth will occur.

B

91 Assume Tarheelia develops some "new ideas" and its production function changes from Y=√K to Y=1.5√K. Assuming that Tarheelia saves 20% of its output and faces a depreciation rate of 1%, solve for the new steady state level of capital and the new steady state level of output. Tarheelia's new steady-state level of output is: A.Less than 40 B.Between 40 and 50 C.Between 50 and 60 D.Greater than 60

B

92 Research into new technologies provides a A.negative externality, and too few resources are devoted to research as a result. B.positive externality, and too few resources are devoted to research as a result. C.negative externality, and too many resources are devoted to research as a result. D.positive externality, and too many resources are devoted to research as a result.

B

95 All else equal, people will usually save more if the interest rate A.Is lower B.Is higher C.Moves erratically D.Is zero.

B

115 Suppose there is an increase in the price of imported cheese. Would this have a larger impact on the CPI or the GDP deflator? A.It would have a larger impact on the GDP deflator. B.It would have a similar impact on both the CPI and the GDP deflator. C.It would have a larger impact on the CPI.

C

118 Suppose that velocity is constant and the economy's output of goods and services rises by 5 percent each year. What money supply growth rate should the Fed set next year if it wants to keep the price level stable? A.-5% B.0% C.5% D.None of the above

C

119 Lonnie lends Burt $15,000 in 2015. Burt repaid Lonnie $150 in real interest for the 1-year loan. Inflation that year was 1.5%. What nominal interest rate did Lonnie charge Burt? A.-0.5% B.2% C.2.5% D.None of the above

C

121 You offer to loan a friend $200 for one year at a real interest rate of 5 percent. If you expect deflation of 3 percent over the course of the loan, then what nominal interest rate should you charge your friend? A.8 percent, but you realize that if deflation is 4 percent, then wealth will be transferred from your friend (the borrower) to you (the lender). B.8 percent, but you realize that if deflation is 4 percent, then wealth will be transferred from you (the lender) to your friend (the borrower). C.2 percent, but you realize that if deflation is 4 percent, then wealth will be transferred from your friend (the borrower) to you (the lender). D.2 percent, but you realize that if deflation is 4 percent, then wealth will be transferred from you (the lender) to your friend (the borrower).

C

64 Because every transaction has a buyer and a seller, A.GDP is more closely associated with an economy's income than it is with an economy's expenditure. B.GDP is more closely associated with an economy's expenditures than it is with an economy's income. C.every transaction contributes equally to an economy's income and to its expenditure.

C

78 Which of the following has the greatest potential for solving free-rider problems? A.A stable political system B.An honest government C.Property rights D.The rule of law

C

83 Countries on the "cutting edge" grow primarily by: A.adopting ideas already used by other countries. B.capital accumulation. C.developing new ideas. D.eliminating waste and inefficiency.

C

85 An economy has a production function that can be described by Y=3√K. Suppose the economy's savings rate is 0.1 (i.e., 10%) and that depreciation is described by the linear function D = 0.05K. The economy's capital stock is currently 25. How much new capital will the economy invest in this year? A.0 B.0.25 C.1.5 D.15 According to the model, how many units of capital are expected to depreciate this period? 86 How much capital stock will the economy have next period? A.Less than 25 units B.Between 25 and 26 units C.More than 26 units

C 1.25 B

101 Suppose the economy is currently in equilibrium at a real interest rate of 6%. At this interest rate the government is running a balanced budget. A new President, who promised voters that he would cut taxes and build a new border wall, is able to push his policy proposals through Congress. These actions result in the prediction that the government will run a budget deficit for at least the next 10 years. All else equal, what long run effect are the President's policies expected to have on private investment? A.Private investment will be $50 billion. B.Private investment will be more than $50 billion, but less than $62 billion. C.Private investment will be $62 billion. D.Private investment will be less than $50 billion.

D

105 Consider the following unemployment statistics for a given country: Frictional Unemployment 2005 - 1.5% 2015 - 1.0% Cyclical Unemployment 2005 - 3.4% 2015 - 4.7% Structural Unemployment 2005 - 2.5% 2015 - 1.9% Given the data, this country is likely to be in recession in

D

106 What is the size of the labor force if a $10 minimum wage is implemented? A.4 million B.6 million C.8 million D.14 million What is the unemployment rate in this market as a result of the implementation of a $10 minimum wage?

D

110 If Congress passes legislation making it more difficult for firms to fire workers, this legislation will A.increase frictional unemployment but leaves the natural rate of unemployment unchanged. B.increase frictional unemployment and the natural rate of unemployment. C.increase structural unemployment but leaves the natural rate of unemployment unchanged. D.increase structural unemployment and the natural rate of unemployment.

D

111 Inflation is best defined as an increase in: A.the real price of a good or service. B.the price of one product relative to the price of another product. C.all prices in an economy. D.the average price level.

D

113 The GDP Deflator reflects A.the price of a fixed basket of goods and services purchased by a typical consumer, as does the CPI. B.the prices of all final goods and services currently produced domestically, while the CPI reflects the price of a fixed basket of goods and services purchased by a firm. C.the prices of all final goods and services currently produced domestically, as does the CPI. D.the prices of all final goods and services currently produced domestically, while the CPI reflects the price of a fixed basket of goods and services purchased by a typical consumer.

D

65 Gross domestic product is the market value of all: A.goods and services sold within a country in a year. B.goods and services produced within a country in a year. C.final goods and services produced by a country's permanent residents, wherever located, in a year. D.final goods and services produced within a country in a year.

D

66 Which of the following is included in GDP calculations for this year? A.sales revenue received from a yard sale B.cash income received by a self-employed landscaper that is not reported to the IRS C.a crisp $50 bill received on your birthday D.the university tuition paid by a Peruvian student to enroll in a course at UNC

D

69 The Pattersons bought a home that was newly constructed in 2015 for $275,000. They sold the home without the help of a realtor in 2017 for $205,000. Which of the following statements is correct regarding the sale of the house? A.The 2017 sale increased 2017 GDP by $205,000 and had no effect on 2015 GDP. B.The 2017 sale reduced 2017 GDP by $70,000 and had no effect on 2015 GDP. C.The 2017 sale increased 2017 GDP by $205,000; and caused 2015 GDP to be revised downward by $70,000. D.The 2017 sale affected neither 2015 GDP nor 2017 GDP.

D

74 Which of the following statements is TRUE? A.GDP per capita varies enormously among nations. B.Everyone used to be poor. C.There are growth miracles and growth disasters. D.All of the above are true.

D

75 Wealthier nations tend to have A.better educational opportunities. B.lower infant mortality rates. C.Higher life expectancy rates. D.All of the above.

D

77 Suppose economies A and B have the same initial level of GDP per capita at $15,000, and each economy begins with a constant growth rate of 1 percent per year. (Neither country has good institutions for economic growth at first.) Then Country A enters an era of political stability, establishes property rights, and installs incentives for entrepreneurship. Country A's economic growth rate consequently improves to 5 percent. Assuming population growth rates remain unaffected, how much longer will it take Country B to double its per capita GDP level compared to Country A? A.28 years B.70 years C.14 years D.56 years

D

87 Suppose an economy has a production function that can be described by 2√K. The economy's savings rate is 30% and its depreciation rate is 10%. The economy's capital stock is 25. Given this information, A.There will not be any economic growth. B.The level of economic growth cannot be determined since we do not know how much capital the country will have after this period. C.Economic growth will be negative. D.Economic growth will be positive.

D

94 Investment is A.the purchase of shares of stock on the New York Stock Exchange. B.the purchase of corporate bonds issued by a company like Apple. C.the purchase of new capital goods. D.All of the above.

D

According to the quantity theory of money, an increase in the money supply causes an increase in _____ over the long run. A.Production B.Capital stock C.Real GDP D.Prices

D

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: A.decrease. B.remain the same. C.increase by more than one unit. D.increase, but by less than one unit.

D