ECON Exam 1

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Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, has

increased measured GDP by the value added by the restaurant's preparation and serving of the meals

If there are diminishing returns to capital, then

increases in the capital stock increase output by ever smaller amounts

The price associated with the goods market is the

inflation rate

Which of the following is NOT associated with long-run growth?

inflation rate

The production function shows the relationship between output and

inputs of production

The price associated with the financial market is the

interest rate

The real interest rate is the

interest rate corrected for inflation

A farmer produces oranges and sells them to Fresh Juice, which makes orange juice. The oranges produced by the farmer are called

intermediate goods

The marginal product of labor

is always positive and shows how much output increases when the labor input is increased by one unit

The slope of the production function with capital per worker on the horizontal axis and output per worker on the vertical axis

is positive and gets flatter as capital per worker rises

The source of the supply of loanable funds

is saving and the source of demand for loanable funds is investment

The CPI is an imperfect measure of inflation because of all of the following EXCEPT

it doesn't include footballs

The unemployment rate is the percentage of the __________ that is unemployed

labor force

The unemployment rate is a piece of data that gives us some direct information about which of the following markets?

labor market

The growth rate of output per person over a long time span is called

long-run growth trend

Which of the following is NOT a major macroeconomic market?

market for footballs

Which of the following is a typical macroeconomic topic?

national production levels

Suppose an economy produces only iPhones and bananas. In 2010, 1000 iPhones are sold at $300 each and 5000 pounds of bananas are sold at $3 per pound. In 2009, the base year, iPhones sold at $400 each and bananas sold at $2 per pound. For 2010,

nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 76.83

Changes in real GDP reflect

only changes in the amounts being produced

The difference between output (production) and productivity is

output measures the level of production while productivity measures production per input

Moderately high inflation is undesirable for all of the following reasons EXCEPT

people postpone purchasing goods

Education contributes to human capital accumulation. It may also create positive externality because

people with more human capital create ideas that benefit other people and help to generate even more ideas

The labor force participation rate is the

percentage of the population that is in the labor force

The major inputs of production are

physical capital, labor, human capital, natural resources

In a closed economy, what does (Y - T - C) represent?

private saving

The danger of producing above potential output is that

production costs may increase and lead to inflation

If a country's saving rate increases, then in the long run

productivity and real GDP per person are both higher

A larger budget deficit

raises the interest rate and reduces investment

When studying changes in the economy over time, economists want a measure of the total quantity of goods and services the economy is producing that is not affected by changes in the prices of those goods and services. In other words, economists want to study

real GDP

Which measure is preferred for comparing an economy's output over time?

real GDP

A nation's standard of living is best measured by its

real GDP per person

If nominal GDP doubles and the GDP deflator doubles, then real GDP

remains constant

"When workers already have a large quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity only slightly." This statement

represents the traditional view of the production process. is an assertion that capital is subject to diminishing returns. is made under the assumption that the quantities of human capital, natural resources, and technology are being held constant.

If Congress instituted an investment tax credit, the interest rate would

rise and saving would rise

If we graph the production function with capital on the horizontal axis and then there is a decrease in the number of workers, this would be illustrated with the production function by

shifting down the production function curve

If technological change increases factor productivity, this would be illustrated with the production function by

shifting up the production function curve

Demand shocks are a major source of

short-run economic fluctuations

If the demand for loanable funds shifts to the right, then initially there is a

shortage so the interest rate will rise

Technological knowledge is

society's ideas on the best way to produce goods & services

Economists generally agree that an inflation rate in the vicinity of _____ is the most conducive to good economic performance

2%

In the United States, what has been the approximate average growth rate of output per person over the last 150 years?

2%

A U.S.-owned car factory in Mexico produces $5 million of cars. $2.5 million of these cars are sold in Mexico and the other $2.5 million are sold in the U.S. In both cases $1 million of the value of the cars was due to U.S-owned equipment located in Mexico and U.S. managers working in Mexico. How much did this production contribute to U.S. GDP?

$0

If in some year nominal GDP was $18 billion and the GDP deflator was 120, what was real GDP?

$15 billion

Suppose a closed economy had public saving of -$1 trillion and private saving of $3 trillion. What are national saving and investment for this country?

$2 trillion, $2 trillion

Population growth may have which two opposing effects on economic growth:

1) reduces the amount of physical and human capital per person but 2) more people generate more ideas for technological progress

In one day Portal Computer Company made 400 laptops with 1200 hours of labor. What was its productivity?

1/3 laptop per hour

A country's real GDP rose from $500 to $530 while its nominal GDP rose from $600 to $700. What was this country's inflation rate?

10.0%

In 2010, the imaginary nation of Mainland had a population of 6,000 and real GDP of 120,000. In 2011 the population was 6,200 and real GDP of 128,960. Over the year in question, real GDP per person in Mainland grew by

4 percent, which is high compared to average U.S. growth over the last one-hundred years

If nominal GDP is $8 trillion and real GDP is $10 trillion, then the GDP deflator is

80, and this indicates that the price level has decreased by 20 percent since the base year

Y = AF(L, K, H, N) Which of the following represents technology?

A

In economics, investment spending refers to

The purchase of physical capital

If business taxes change so that the effective cost of capital increases, then the

Demand for loanable funds falls - shifts to the left

If capital becomes more productive

Demand for loanable funds rises - shifts to the right

Private domestic saving provides the pool of funds available for

Domestic investment and financing government budget deficits

Which of the following would NOT be directly counted in GDP?

GM purchases tires to use in automobile production

Which of the following is included in the calculation of GDP

The purchase of tutoring services from a tutor who holds citizenship outside the country but resides within the country

An important element in creating the environment for economic growth is an environment that provides the correct incentives for saving, investment and innovation. Which of the following describes the environment that shapes incentives

Institutions

Each day Sue works 8 hours and produces 7 units of goods and services. Mary works 10 hours each day and produces 10 units of goods and services. It follows that

Mary's productivity is higher than Sue's

One of the major functions of the financial markets is to

Match savers with borrowers

The bond market is an example of

Matching without an intermediary

Which of the following is correct?

Nominal GDP equals real GDP in the base year

When the government deficit rises

Supply of funds to the loanable funds market falls - shifts to the left

When national income rises

Supply of funds to the loanable funds market rises - shifts to the right

When personal income taxes rise

Supply of funds to the loanable funds market rises - shifts to the right

The real interest influences the saving decision because

The higher the real interest rate, the more consumption you can have in the future via saving

In order for the standard of living within a country to be enhanced over time, which of the following is essential?

The level of productivity must increase

Which of the following increases demand for capital (i.e. increases investment spending)

The marginal product of capital increases

Which of the following equations represents GDP for an open economy?

Y = C + I + G + NX

Which of the following would be directly counted in U.S. GDP?

Your neighbor purchases a new lawn mower

Achieving economic efficiency requires markets to be properly structured. Which of the following is NOT part of the ideal market structure?

a lack of competition between firms

If we graph the production function with capital on the horizontal axis and then there is an increase in the capital stock, this would be illustrated with the production function by

a movement along the production function curve from left to right

Which of the following is a financial intermediary?

a mutual fund

Accumulating physical capital faces diminishing returns. This means that

adding one more unit of capital increases output, but the increase in output gets smaller as more capital is added

Most goods and services produced at home

and most goods and services produced illegally are excluded from GDP

If the demand for loanable funds shifts to the left, then the equilibrium interest rate

and quantity of loanable funds falls

As real interest rates fall, firms desire to

b. buy more new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping

Two of the economy's most important financial intermediaries are

banks and mutual funds

To be counted as unemployed, a person must

be not working and be actively looking for work

Real GDP values output in each year using

constant prices

How do markets direct production to the most efficient firms?

consumers choose to purchase from firms that produce the best product at the lowest cost

Nominal GDP values output in each year using

current prices from each year

In 2010, Acme Foods produced 300,000 bags of pretzels, employing 12,000 hours of labor. In 2011, it produced 322,000 bags of pretzels, employing 14,000 hours of labor. Acme Foods productivity

decreased by 8%

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

demand the required funds by selling bonds

If we draw the production function with output on the vertical axis and physical capital on the horizontal axis, the slope of the production function will be decreasing because of

diminishing marginal product of capital

The U-3 measure of unemployment is often called the "headline" unemployment rate (because this is the measure normally reported in media). The U-4 measure includes U-3 plus which other type of worker?

discouraged

Which of the following is NOT necessarily associated with a well-functioning market?

equal outcomes for all

In a closed economy, national saving is

equal to investment

Productivity

explains most of the differences in the standard of living across countries

A person who is not working and who has given up looking for work is part of the labor force.

false

Which of the following are human capital and physical capital, respectively?

for a restaurant: the chefs' knowledge about preparing food and the equipment in the kitchen

Suppose that the U.S. undertakes a policy to increase its saving rate. This policy will likely

gradually raise the level of real GDP per person

Suppose the government changed the tax laws, with the result that people were encouraged to consume more and save less. Using the loanable funds model, a consequence would be

higher interest rates and lower investment

The CPI measures price changes of a fixed basket of goods. The composition of goods in the basket mirrors the composition of a typical household's spending. What are the 3 largest categories of household spending in order from the largest share to the smallest share?

housing, transportation, food & beverages

An increase in the saving rate would, other things the same,

increase growth more for a poor country than for a rich country, but raise growth temporarily

Other things the same, an increase in the interest rate

would decrease the quantity of loanable funds demanded

Among the following countries, which one has the highest level of real GDP per person but the lowest growth rate of real GDP per person over a very long period of time?

the United Kingdom

Deflation can lead to spiraling spending and price declines for all of the following reasons EXCEPT

the dilution effect

If the economy is using less labor than the full employment level of labor, then

the economy is operating inefficiently and produces less than potential output

When the government's budget deficit increases

the government is borrowing more and public savings falls

All else equal, if there are diminishing returns, then if a country raised its capital by 100 units last year and by 100 units this year,

the increase in output was greater last year than this year

The "great divergence" in living standards between countries began around the time of

the industrial revolution

Human capital is

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

Other things the same, if a country raises its saving rate, then in the long run

the level of real GDP is higher but the growth rate of real GDP is unchanged

If we draw the production function with output on the vertical axis and physical capital on the horizontal axis, the production function will be upward sloping because of

the marginal product of capital is positive

Potential output is

the output produced when both capital and labor inputs are used efficiently given the current level of technology

If there is a shortage of loanable funds, then

the quantity demanded is greater than the quantity supplied and the interest rate will rise

In a particular production process, if the quantities of all inputs used double, then the quantity of output doubles as well. This means that

the relevant production function has the constant-returns-to-scale property

Physical capital is

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

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

their investments are being financed by someone else's saving

A worker is "marginally attached" if

they are neither working nor looking for work, but have indicated that they want work and are available for a job and that they have looked for work within the past year

In the production function, the letter "A" stands for

total factor productivity

If in the past Congress had taken additional actions to make saving more rewarding, then today it is likely that the equilibrium interest rate

would be lower and the equilibrium quantity of loanable funds would be higher


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