Econ midterm

Treasury securities are riskier than most other investment options. are only available to domestic buyers. can never default. are first sold through auctions to large financial firms. are first bought and sold in secondary markets.

are first sold through auctions to large financial firms.

Bob sells his car to Jane's Used Car Lot for $7,500. Jane's Used Car Lot sells the car to Damien for $8,500. This transaction contributes ________ to gross domestic product (GDP). $1,000 $8,500 $7,500 $500 $0

1,000

You deposit $1,000 in the bank and leave it for three years at 3% annual interest, making no additional transactions on this account. At the end of the three years, you withdraw the principal and any accumulated interest. The amount you would withdraw would be between $1,000 and $1,049. $1,050 and $1,100. more than $1,200. between $1,100 and $1,149. between $1,150 and $1,199.

$1,050 and $1,100.

You deposit $1,500 into an asset that pays 8% annual interest, compounded, for three years. At the end of the three years, rounded to the nearest dollar, you would have $1,880. $1,870. $1,860. $1,890. $1,900.

$1,890.

You are thinking about buying a new car and will borrow $25,000 for this purchase at a 6% fixed rate for exactly one year. The lender (correctly) assumes that inflation will be 2% this year. Based on the above information, and assuming you adhere to the terms of the loan, you will pay back the lender exactly ________, which will represent ________ of purchasing power. $20,000; $19,000 $26,000; $25,000 $25,850; $21,400 $26,500; $26,000 $26,500; $25,481

$26,500; $26,000

Consider a country with a nominal gross domestic product (GDP) of $500 billion in 2010 and $560 billion in 2015. In the same period the population grew by 5% and price levels increased by 6%. What is the economic growth rate for this country? 1% 23% 13% 11% 5%

1

Suppose real gross domestic product (GDP) shrinks by 2% and inflation is equal to 3%, but there is no change in the velocity of money. Based on the equation of exchange, by how much does the quantity of money change? -2% -3% 5% 1% 4%

1

Consider a country with a nominal gross domestic product (GDP) of $25 billion in 2016 and $30 billion in 2018. In the same period the population increased by 10% and price levels decreased by 4%. What is the economic growth rate for this country? 9% 34% 24% 6% 14%

14

Nominal gross domestic product (GDP) increased from $15.62 trillion to $16.09 trillion, and the price level increased from 120.0 to 122.4. Rounding to the nearest first decimal, the rate of inflation was ________. 2.0% 2.4% 1.0% 20.0% 3.0%

2.0

Consider a country with a nominal gross domestic product (GDP) of $20 billion in 2016 and $24 billion in 2019. In the same period, the population decreased by 2% and price levels decreased by 2%. What is the economic growth of this country? 24% 20% 4% 14% 8%

24

Consider a country with a nominal gross domestic product (GDP) of $20 billion in 2016 and $24 billion in 2019. In the same period, the population decreased by 2% and price levels decreased by 2%. What is the economic growth of this country? 4% 20% 8% 14% 24%

24

If you buy a house for $150,000 and anticipate that the market value of the home will increase at 5% a year, using the rule of 70, how much will the house be worth in 14 years? $215,000 $178,000 $280,000 $300,000 $350,000

300,000

If you buy a house for $150,000 and anticipate that the market value of the home will increase at 5% a year, using the rule of 70, how much will the house be worth in 14 years? $215,000 $178,000 $280,000 $350,000 $300,000

300,000

If the dollar price of a bond is $6,000 and its face value is $6,250, the interest rate paid by the bond is equal to ________. 4.16% 4,25% 5.88% 5.67% 4.67%

4.16

Consider a country with a nominal gross domestic product (GDP) of $600 billion in 2015 and $672 billion in 2019. In the same period, the population grew by 3% and price levels increased by 4%. What is the economic growth of this country? 5% 22% 12% 10% 2%

5

Suppose the real gross domestic product (GDP) grows by 2% and inflation is equal to 3%, but there is no change in the velocity of money. Based on the equation of exchange, by how much does the quantity of money change? -5% 7% 5% 3%

5

Suppose the real gross domestic product (GDP) grows by 2% and inflation is equal to 3%, but there is no change in the velocity of money. Based on the equation of exchange, by how much does the quantity of money change? 7% -5% -2% 3% 5%

5

A government worker surveys a number of households and comes up with the following information: there were a total of 100 people in the households, 10 of the people were children under 16, 60 people had full-time jobs, 5 people had part-time jobs, 10 were stay-at-home parents, 10 were full-time students over the age of 16, and 5 people had no job but were looking for jobs. According to the information in the survey, the unemployment rate is ________. 7.1% 22.5% 6.3% 20.5% 15%

7.1

What is the difference between a mortgage and a mortgage-backed security? A mortgage is a loan, whereas a mortgage-backed security is a pool of mortgages. A mortgage is like a bond and a mortgage-backed security is a bond issued by the U.S. government. There is no difference between them. They are the same. A mortgage is a debt to be paid in several years, whereas a mortgage-backed security has to be paid in one single year. A mortgage is a loan and a mortgage-backed security is a liability.

A mortgage is a loan, whereas a mortgage-backed security is a pool of mortgages.

Which of the following statements is NOT a characteristic of bonds? A bond represents a debt to be paid. A bond's interest rate is calculated as a growth rate. The dollar price and the interest rate of a bond are inversely related. Bonds represent ownership shares in a firm. Bonds are subject to default risk.

Bonds represent ownership shares in a firm.

In 1950, Brazil's economy was roughly the same size as Nicaragua's. Today, Brazil's economy is almost five times as large as Nicaragua's. Which of the following most likely explains this difference based on the main drivers of economic growth discussed in the textbook? Brazil was too reliant on foreign aid, whereas Nicaragua was far more economically independent. Brazil had excessively high tax rates, but Nicaragua kept its taxes low and competitive. Brazil's economy was largely agricultural, whereas Nicaragua's was industrial. Brazil supported institutions like property rights, which tend to foster growth, whereas Nicaragua did not. Brazil greatly limited international trade, whereas Nicaragua opened its borders to imports and exports.

Brazil supported institutions like property rights, which tend to foster growth, whereas Nicaragua did not.

Apple, Inc. is an American company that produces some phones and computers in China. The value of Apple's production in China is included in China's GDP, but not U.S. GDP. half U.S. GDP and half China's GDP. neither U.S. GDP nor China's GDP. U.S. GDP, but not China's GDP. both U.S. gross domestic product (GDP) and China's GDP

China's GDP, but not U.S. GDP.

Which of the following statements is true regarding healthy economic conditions? Creative destruction is always the catalyst and marginally attached workers disappear. Frictional unemployment disappears but structural unemployment remains. All unemployment disappears. Unemployment rates increase across the board. Cyclical unemployment disappears but natural unemployment remains.

Cyclical unemployment disappears but natural unemployment remains.

What is the relationship between enforcing a nation's laws and economic growth? Enforcing laws is bad for growth. It creates too much red tape and reduces investment. Enforcing laws is good for growth. The government is always more efficient at making market decisions than individuals. Enforcing laws is good for growth. It creates stability and incentivizes investment. Enforcing laws is bad for growth. It disincentivizes investment. Enforcing laws is bad for growth. It interferes with efficient markets.

Enforcing laws is good for growth. It creates stability and incentivizes investment.

If the labor force participation rate increases, which of the following is a likely cause? Homemakers began looking for work in large numbers, but the size of the relevant adult population did not change. The size of the relevant adult population increased, but the size of the labor force did not change. The number of marginally attached workers increased, but the size of the relevant adult population did not change. The size of the labor force decreased, but the size of the relevant adult population did not change. Baby boomers started retiring in large numbers, but the size of the relevant adult population did not change.

Homemakers began looking for work in large numbers, but the size of the relevant adult population did not change.

A company sells 100 bags of tortilla chips, yet it produced only 90 bags of tortilla chips during the year. Which of the following is true? Inventory investment must be negative. It is impossible to sell more than is produced. The firm must have acquired the extra 10 bags from another company. The firm sold the chips but must have given 10 people an IOU. The price of the chips must have gone up.

Inventory investment must be negative.

Why do institutions, such as private property rights, promote economic growth? Private property rights guarantee that everyone will have equal amounts of property. Private property rights are not established by governments but rather by private individuals. Private property rights create an incentive to maximize the value of one's property, which is not true when property is collectively owned. Private property rights are usually forced on a country, whereas collective ownership is voluntarily adopted. Private property rights guarantee that the economy is stable in the short run, which encourages investment.

Private property rights create an incentive to maximize the value of one's property, which is not true when property is collectively owned.

What is the relationship between institutions, such as private property rights, and productive resources in terms of encouraging economic growth? Private property rights encourage resources to be used in the most productive way. Private property rights guarantee that the gains from trade will be equally shared. Private property rights mean that everyone has the right to equal amounts of property. Private property rights allow resources to be used by those with the most political connections. Private property rights mean that the government will produce no goods or services.

Private property rights encourage resources to be used in the most productive way.

If Robert was earning $10,000 and now earns $11,500, then Robert will be confused about relative price increases and inflation. Robert's real income must have risen. Robert could suffer from money illusion if prices increase by 15% or more. Robert's real wage has increased, but we can't tell about his nominal wage. Robert could experience menu costs if the items on the "value menu" increase in price.

Robert could suffer from money illusion if prices increase by 15% or more.

What is one reason why a government will deliberately inflate its national money supply? The action tamps down the growth rate of an overheated economy. The action is part of efforts to attract overseas investors and immigrant labor. The action promotes the long-term health of the national economy. The action helps the money supply keep up with the consequences of rising prices. The action is part of printing money to pay off the government's debts.

The action is part of printing money to pay off the government's debts.

Country A has a real gross domestic product (GDP) of $750,000 and a population of 200. Country B has a real GDP of $500,000 and a population of 150. Which of the following is true? The value of income is higher in Country B. The value of output is higher in Country B. The average living standard is higher in Country A. The value of real per capita GDP is higher in Country A. The value of real per capita GDP is higher in Country B.

The value of real per capita GDP is higher in Country A.

Ten economies have all reached a steady state. According to the Solow growth model, which of the following is true? They all have the same rate of depreciation. They are all growing at the same positive rate. They all have the same level of real gross domestic product (GDP). Investment in each of these economies is equal to zero. They all have the same level of real per capita gross domestic product (GDP).

They all have the same level of real per capita gross domestic product (GDP).

Levi-Strauss is an American company that produces some of its blue jeans in Vietnam. The value of the jeans produced in Vietnam is included in ________. Vietnam's GDP, but not U.S. GDP neither U.S. GDP nor Vietnam's GDP half U.S. GDP and half Vietnam's GDP both U.S. gross domestic product (GDP) and Vietnam's GDP U.S. GDP, but not Vietnam's GDP

Vietnam's GDP, but not U.S. GDP

Assume real interest rates fall from 3% to 1%. What could cause this, all other things being equal? a 1% decrease in real interest rates a 2% decrease in nominal interest rates a 2% increase in nominal interest rates a 1% decrease in inflation a 3% increase in inflation

a 2% decrease in nominal interest rates

An example of physical capital is a skilled worker. political stability. a college degree. oil. a factory.

a factory.

An example of an institution that will increase the expected payoff of investment is corruption. a high rate of inflation. a trade restriction to protect domestic jobs. political instability. a more efficient tax structure.

a more efficient tax structure.

Which of the following is considered a member of the labor force? a 12-year-old girl a retired military officer an active duty member of the military a part-time store greeter a stay-at-home dad

a part-time store greeter

Which of the following is considered a member of the labor force? a 12-year-old girl a stay-at-home dad an active duty member of the military a retired military officer a part-time store greeter

a part-time store greeter

If, over a period of time, real gross domestic product (GDP) decreases whereas nominal GDP increases, then this implies that real GDP is much greater than nominal GDP. that the given period year occurs after the base period. that the given period occurs before the base period. a significant drop in the price level. a rise in the price level.

a rise in the price level.

The cost-of-living index score is 99.4 for Detroit and 132.5 for Boston. These index scores imply that the population in Boston is higher than the population in Detroit. the cost of living in both Detroit and Boston is higher than the cost of living in an average U.S. city. a salary of $99,400 in Detroit is equivalent to a salary of $132,500 in Boston. the average salary in Detroit is $99,400, and the average salary in Boston is $132,500. the average inflation rate in Detroit is 99.4%, and the average inflation rate in Boston is 132.5%.

a salary of $99,400 in Detroit is equivalent to a salary of $132,500 in Boston.

Holding all else constant, if people who are currently marginally attached workers decide to start looking for jobs again, you will see an increase in the unemployment rate. a decrease in the unemployment rate. a decrease in the labor force participation rate. no effect on the labor force participation rate. no effect on the unemployment rate.

an increase in the unemployment rate.

Yarn is used to produce sweaters that are sold to consumers. The yarn is ________ good and its value ________ counted in gross domestic product (GDP). The sweaters are ________ good and their value ________ counted in GDP. a final; is; an intermediate; is not an intermediate; is; a final; is not a final; is; a final; is an intermediate; is not; a final; is an intermediate; is; an intermediate; is

an intermediate; is not; a final; is

Economic theories about growth are mainly used for teaching. are used to set economic policies that impact human lives. have had no influence on government policy. are not based on real-world facts. are mainly used for intellectual debate.

are used to set economic policies that impact human lives.

One misconception that people often have about unemployment is that as a nation, we should aim for zero unemployment. unemployment is a macroeconomic topic. unemployment is important to the economy. marginally attached workers are included in the official unemployment rate. the unemployment rate tells the whole story about the employment situation

as a nation, we should aim for zero unemployment.

The Solow model emphasizes the importance of skilled labor. the development of institutions. technological change. capital and diminishing returns. cultural factors.

capital and diminishing returns.

Some individuals are unemployed because they are laid off from their jobs when the economy is sluggish. These individuals would be considered overemployed. structurally unemployed. cyclically unemployed. frictionally unemployed. marginally attached workers

cyclically unemployed.

Sylvia purchases a new clothes dryer for her home. This purchase is counted as a nondurable consumption good. durable government purchases good. nondurable investment good. durable consumption good. durable investment good

durable consumption good.

When moving up along the production function, the marginal product of capital will increase. first increase and then remain constant. decrease. first decrease and then increase. remain constant.

decrease

In 1910, the U.S. workforce was almost evenly distributed among agricultural, manufacturing, and service industry workers. By 2010, the U.S. economy was dominated by the agricultural industry. dominated by the manufacturing industry. dominated by the service industry. completely taken over by the new e-commerce industry. still evenly distributed amongst agricultural, manufacturing, and service workers.

dominated by the service industry.

According to the Solow growth model, rich economies with large stocks of capital will eventually experience diminishing returns to capital and slower growth. never reach a steady state. grow at a constant rate indefinitely. always grow faster than poor economies. experience increasing returns to capital and accelerating growth.

eventually experience diminishing returns to capital and slower growth.

You have to pay costs for your business now, but you also have to enter into contracts to pay wages and supply costs in the future. If inflation occurs, the best term for the problem that arises in this case is money illusion. menu costs. price confusion. future price uncertainty. shoe-leather costs.

future price uncertainty.

Government salaries paid to police officers are included in the ________ category of gross domestic product (GDP). investment government purchases net exports durable goods consumption

government purchases

All else being equal, the smaller the default risk, the _________ of the bond. lower the face value higher the interest rate higher the price higher the face value

higher the price

During normal economic times, unemployment in Europe tends to be ________ than in the United States mainly because of ________. higher; labor market regulations higher; exchange rates higher; cyclical unemployment lower; labor market regulations longer; exchange rates

higher; labor market regulations

For the last two decades, unemployment in Spain has consistently run ________ than in the United States, mainly because of ________. lower; exchange rate regulations higher; labor market regulations lower; labor market regulations lower; exchange rates higher; exchange rates

higher; labor market regulations

If inflation occurs in a country, we know that both real and nominal wages are falling. holding nominal wages constant, the real wage would fall. holding nominal wages constant, the real wage would rise. both real and nominal wages remain constant. both real and nominal wages are rising.

holding nominal wages constant, the real wage would fall.

If deflation occurs in a country, holding nominal wages constant, the real wage would fall. holding nominal wages constant, the real wage would rise. both real and nominal wages are falling. both real and nominal wages are rising. those with no job and no income are better off because all things are cheaper.

holding nominal wages constant, the real wage would rise.

A country passes a law that mandates secondary education. Which resource is the primary focus of this law? physical capital natural resources technology human capital institutions

human capital

A country passes a law that mandates secondary education. Which resource is the primary focus of this law? technology institutions natural resources physical capital human capital

human capital

When private property rights are established, the expected payoffs from investment will ________ and the amount of production will ________. increase; decrease increase; increase increase; remain unchanged decrease; increase decrease; decrease

increase; increase

The demand for loanable funds decreases while the supply simultaneously increases. This would cause the equilibrium interest rate to decrease, but the new equilibrium quantity would be uncertain. You Answered quantity of loanable funds to increase, but the effect on the equilibrium interest rate would be uncertain. quantity of loanable funds to decrease and the equilibrium interest rate to increase. interest rate to increase, but the new equilibrium quantity would be uncertain. quantity of loanable funds to increase and the equilibrium interest rate to decrease.

interest rate to decrease, but the new equilibrium quantity would be uncertain.

An economy is in the steady state if investment equals depreciation. net investment is positive. depreciation is zero. there are no diminishing returns. capital grows at a constant rate.

investment equals depreciation.

In an economy with efficient institutions, technological advancement occurs predictably. depends mainly on luck. is exogenous. tends to occur by accident. is the result of individuals responding to incentives.

is the result of individuals responding to incentives.

If you have a savings account at a bank, you participate in the loanable funds market as a borrower. lender. borrower and a lender. buyer and a seller. buyer.

lender.

our friend Josephine is starting a new photography business that specializes in photographs of Central Park in New York City. Because her business is new and risky, she is unable to obtain a loan from the local bank. On June 21, 2019, you agree to pay a price of $9,000 for a bond from Josephine. You will receive $10,000 in return on June 21, 2020. The _________ is the date on which you will receive $10,000 (June 21, 2020). maturity date par value date expiration date sale date purchase date

maturity date

The consumption category of gross domestic product (GDP) includes all purchases by households EXCEPT new automobiles. electronics. new houses. nondurable goods. services.

new houses.

A consumer in the United States buys a shirt made in India. For India, this purchase counts as a decrease in consumption and an increase in net exports. an increase in consumption and an increase in net exports. a decrease in consumption and a decrease in net exports. no change in consumption and an increase in net exports. an increase in consumption and a decrease in net exports

no change in consumption and an increase in net exports.

Milton Friedman, who won the Nobel Prize in economics, characterized inflation as being "high and variable." These characteristics of inflation create problems because of arbitrage. deflation could occur. of future price uncertainty. of the signal emissions problem. inflation always becomes hyperinflation

of future price uncertainty.

A firm's production function in the Solow growth model is given by q = f (human capital, physical capital). This equation says that unemployment is a function of the human and physical capital a firm uses. labor is a function of the human and physical capital a firm uses. labor determines the amount of human and physical capital a firm has available. output determines the amount of human and physical capital a firm has available. output is a function of the human and physical capital a firm uses.

output is a function of the human and physical capital a firm uses.

During the most recent housing crisis, builders confused inflation with an increase in demand and therefore built too many houses. This is an example of a ________ problem. menu cost wealth redistribution price confusion money illusion shoe-leather cost

price confusion

During the most recent housing crisis, builders confused inflation with an increase in demand and therefore built too many houses. This is an example of a ________ problem. wealth redistribution price confusion money illusion menu cost shoe-leather cost

price confusion

Typically individuals have difficulty judging the default risk of any one company, let alone the thousands of firms that sell bonds in a developed economy. To address this problem, the price of bonds increases as more information is made available to investors. the government assigns ratings of borrowing entities. borrowing entities rate their own bonds. private rating agencies evaluate and then grade the default risk of borrowing entities. individuals should never invest in bonds.

private rating agencies evaluate and then grade the default risk of borrowing entities

The ________ describes the relationship between output and capital inputs. marginal product curve steady state production function supply curve exogenous growth function

production function

The ________ describes the relationship between output and capital inputs. production function steady state supply curve marginal product curve exogenous growth function

production function

The investment spending category of gross domestic product (GDP) does NOT include purchases of new equipment. purchases of computer software. purchases of stocks and bonds. purchases of new homes. the value of changes to business inventory

purchases of stocks and bonds.

To evaluate the change in average living standards over time, it is best to use gross domestic product (GDP). the employment rate. the inflation rate. real per capita GDP. the literacy rate

real per capita GDP.

When actual unemployment is less than its natural rate resources are employed at levels that are not sustainable in the long run. the economy is producing below its long-run capabilities. output is less than full-employment output. natural resources are employed at levels that are constant. the economy is producing low levels of real GDP

resources are employed at levels that are not sustainable in the long run.

What could cause a drop in interest rates? both the supply and the demand curves for loanable funds shifting left the demand curve for loanable funds shifting left or the supply curve for loanable funds shifting right both the supply and the demand curves for loanable funds shifting right the supply curve for loanable funds shifting left, or the demand curve for loanable funds shifting right an upward movement along fixed demand and supply curves for loanable funds

the demand curve for loanable funds shifting left or the supply curve for loanable funds shifting right

What could cause a drop in interest rates? the supply curve for loanable funds shifting left, or the demand curve for loanable funds shifting right an upward movement along fixed demand and supply curves for loanable funds both the supply and the demand curves for loanable funds shifting left the demand curve for loanable funds shifting left or the supply curve for loanable funds shifting right both the supply and the demand curves for loanable funds shifting right

the demand curve for loanable funds shifting left or the supply curve for loanable funds shifting right

One of the main characteristics of bonds is that the dollar price and interest rate of a bond have a positive relationship. a bond's dollar price is calculated as growth rate. bonds are ownership shares in a firm. the dollar price and interest rate of a bond have an inverse relationship. bonds can never default.

the dollar price and interest rate of a bond have an inverse relationship.

Once an economy reaches ________, there is no change in capital or output. the steady state exogenous growth depreciation diminishing returns convergence

the steady state

During periods of recession the labor force participation rate rises. productivity rises. real GDP rises. the unemployment rate rises. household income rises.

the unemployment rate rises.

One reason why wealthy nations have continued to realize sustained growth is that they participate in unfair trade practices with developing nations. there has been continued technological advancement. they have passed their steady states. they are not getting close to their steady states. the steady state does not exist

there has been continued technological advancement.

suppose a major hurricane hits the eastern coast of Florida and destroys significant amounts of physical capital. Considering the production function that illustrates the relationship between real GDP and capital, in the long run, you would expect that the production function will have shifted back to its original position after having shifted downward in the short run. the production function will have shifted downward. there has been a permanent downward movement along the production function. there has been no effect on the production function and real gross domestic product (GDP) returns to the steady state level. the production function will have shifted upward.

there has been no effect on the production function and real gross domestic product (GDP) returns to the steady state level.

Suppose a hurricane hits Houston, Texas and destroys significant amounts of capital. In the short run, you would expect that there will be no effect on the production function. there will be a downward movement along the production function. there will be an upward movement along the production function. the production function will shift downward. the production function will shift leftward.

there will be a downward movement along the production function

Kyle works part-time as an elementary school classroom aide and would really like to land a full-time assignment. Kyle is frictionally unemployed. a marginally attached worker. structurally unemployed. not work-eligible. underemployed

underemployed

You are offered two jobs, one in Chicago paying $67,000 and one in Philadelphia paying $79,000. The consumer price index (CPI) is 120.0 in Chicago and 127.5 in Philadelphia. If real wages are the only consideration, then you would definitely take the job in Chicago because the real wage is higher there. you would definitely take the job in Chicago because the nominal wage is higher there. you would definitely take the job in Philadelphia because the real wage is higher there. because there is a direct correlation between the real wage and the nominal wage, the job in Philadelphia is definitely the one to take. you would be indifferent between the two jobs because the real wages would be exactly the same.

you would definitely take the job in Philadelphia because the real wage is higher there

In Dallas, the cost of living index is 91.9, and in San Francisco, it is 164.0. You currently work in Dallas and your salary is $60,000. You are offered a promotion and pay raise to $75,000 to move to San Francisco. If you take the promotion, your nominal wage and your real wage have increased. both your nominal and real wages have decreased. your nominal wage increased but your real wage has decreased. your real wage remained constant even though your nominal wage rose. your nominal wage decreased but your real wage has increased.

your nominal wage increased but your real wage has decreased.