ECON Test #2
In general, the subsistence level ____________. A. is unique in each environment. B. does not apply in developed countries, such as the United States, that have high per capita incomes. C. is identical across all environments. D. declines as a country becomes wealthier.
A
Which factor is the most important contributor to growth in the United States? A. Number of hours worked per capita. B. Human capital (H). C. Physical capital (K). D. Technology (A).
A (tech)
Using the concepts discussed in the chapter, which of the following is a reason that an economy experiences economic growth with a simultaneous increase in unemployment? A. Technological improvement, resulting in labor substituting for capital. B. An increase in government spending, resulting in a decrease in savings decisions of households. C. An increase in the marginal product of labor, resulting in a loss of labor productivity. D. Technological improvement, resulting in capital substituting for labor.
D
real GDP
y
agregate production function
y=f(k,h)
A country's gross domestic product would exceed its gross nationalnational product when the ____________. A. production of foreign-owned factors operating in the domestic economy exceeds the production of domestically-owned factors operating abroad. B. production of domestically-owned factors operating abroad exceeds the production of foreign-owned factors operating in the domestic economy. C. amount of the national debt owed to foreigners is less than the amount of foreign debt owed to residents of the domestic economy. D. country's residents own more assets abroad than foreigners own in the domestic economy.
a
The national income accounting identity associated with the expenditure-based accounting method is represented by ___________. A. Y=C+I+G+X−M. B. C=Y+I+G+M−X. C. Y=X−M+I+G. D. Y=C+I+G+M−X. E. Y=C+I+G+X.
a
When government statisticians gather and analyze data on the purchases of goods and services produced in the domestic economy, they are measuring GDP using the ____________. A. expenditure-based accounting method. B. production-based accounting method. C. circular flow-based accounting method. D. income-based accounting method.
a
Which of the following are not included in GDP but probably should be? (Check all that apply.) A. home production B. transactions in the underground economy C. the value of externality D. the value of leisure
abcd
What policies can be used to raise real GDP in a country? (Check all that apply.) A. Improve efficiency in the allocation of resources. B. Increase technology. C. Lower income per worker. D. Raise physical and human capital. E. Reduce the amount of investment spending in R&D.
abd
What are the two components of technology? (Check only two.) A. The knowledge of how to produce new products. B. The need for more workers to produce more complex goods. C. A more efficient means of production. D. The enablement of globalization and the ability to use low-cost workers.
ac
To generate estimates of gross domestic product (GDP), the Bureau of Economic Analysis must aggregate a variety of data sources, such as expenditure surveys. Which of the following are likely to be problems while estimating GDP? (Select all that apply). A. Measuring physical depreciation of capital B. Measuring net exports C. Measuring consumption by households D. Measuring black-market production
ad
If the level of aggregate expenditure was $16.8 trillion in 2013, the level of aggregate income in the economy during 2013 was ___________. A. less than $16.8 trillion because the United States imports more than it exports. B. also $16.8 trillion because of the identity between aggregate expenditure and income. C. more than $16.8 trillion because transfers (entitlements) allow income to exceed aggregate expenditure. D. less than $16.8 trillion because taxes will reduce income below aggregate expenditure.
b
In its quarterly estimates, the Bureau of Economic Analysis uses both expenditures-based and income-based accounting; to differentiate between the two, it refers to the expenditures-based estimate as GDP and the income-based estimate as GDI. Which of the following shows the expected relationship between GDP and GDI? A. GDP is twice of GDI. B. GDP is equal to GDI. C. GDP is half of GDI.
b
Which of the following pieces of information are needed for national income accounting? (Select all that apply). A. The government would need information on the quantities produced and sold in an underground economy. B. The government would need information on all sales, including the size of all inventories in every company. C. The government would need information on both quantities produced and market prices, for every good produced in an economy. D. The government would need information on the spillover cost of an economic activity on society.
bc
Which of the following will be considered a final good in the calculation of U.S. GDP? (Check all that apply.) A. Processors manufactured in California for Apple's new range of laptops. B. Defense equipmentDefense equipment purchased by the federal government C. Canned foodsCanned foods purchased by a grocery store. D. Foot massagesFoot massages at spasspas in California.
bd
A firm's value added refers to the dollar value of ____________. A. a firm's total sales revenue. B. the intermediate products a firm buys from other producers. C. a firm's sales revenue minus the firm's profits. D. a firm's sales revenue minus the firm's purchases of intermediate products from other firms.
d
What is the key difference between the Consumer Price Index (CPI) and the GDP deflator? A. The formulas used to construct the indexes bear little resemblance to each other. B. The GDP deflator includes imports, while the CPI only includes domestically produced goods and services. C. The CPI is broader in coverage than is the GDP deflator. D. The two indexes measure price changes for different "baskets" of products.
d
When government statisticians gather and analyze data on the income of various agents in the domestic economy, they are measuring GDP using the ____________. A. expenditure-based accounting method. B. production-based accounting method. C. circular flow-based accounting method. D. income-based accounting method.
d
physical capital stock of the nation
k
GDP at purchasing power parity (PPP) takes into account variations in
living costs
GDP per capita in PPP is the most useful for comparing
living standards
The nation's ports are examples of __________________ , which contributes to economic growth.
physical capital
any good, including machines and buildings
physical capital
The effect of foreign investments on the poverty rate will depend on the
redistribution of income among the poor segments of society
Which factors explain economic growth in the United States over the past few decades? (Check all that apply.) A. Physical capital (K). B. An increase in the saving rate (S). C. Human capital (H). D. Technology (A).
KHA
Holding all other factors constant, the Law of Diminishing Marginal Product states that ____________. A. the marginal contribution of labor decreases as the quantity of labor used in production increases. B. the marginal contribution of labor increases as the quantity of labor used in production increases. C. the aggregate contribution of labor increases as the quantity of capital used in production increases. D. the marginal contribution of labor increases as the quantity of capital used in production increases
A
The Human Development Index measures ____________. A. living standards across various countries. B. the amount of ethnic welfare and disease in third-world countries. C. the relative lifespan and education in third-world countries. D. how fairly income is distributed across countries.
A
The saving rate in an economy is defined as the ____________. A. fraction of total income that households save. B. fraction of total income that households invest. C. level of total income that households save. D. rate of private saving minus the rate of government spending, G.
A
When technology improves, holding all else constant, an economy can produce ___________. A. more output with the same number of inputs, and GDP will increase. B. more output but at a higher cost, and GDP will remain constant. C. as much output as it wants as long as its human capital increases at the same time. D. This cannot be determined, as the amount of output produced depends more on having a large physical capital stock.
A
Which of the following countries will be better off in the long run? A. Country A with $1 comma 0001,000 annual GDP per capita and a 66 percent annual growth rate. B. Country B with $5 comma 0005,000 annual GDP per capita and a 22 percent annual growth rate. C. Country C with $40 comma 00040,000 annual GDP per capita and a 11 percent annual growth rate. D. Country D with $60 comma 00060,000 annual GDP per capita and a 0.10.1 percent annual growth rate.
A
Factors that help households decide whether to consume or save their income are ___________. (Check all that apply.) A. expectations about taxes. B. the interest rate. C. expectations of future income growth. D. expectations of the nation's investment needs.
ABC
An example of catch-up growth is ____________. A. Kenya, which has managed to maintain a steady growth rate over the last 50 years. B. South Korea, which by 1970 had become poorer relative to the United States, but over the last 40 years grew faster than the United States, closing the gap that had opened up previously. C. the change France made in 2008 by eliminating the 35-hour work week, which allowed workers to put in more hours and therefore earn more. D. when you move your money from a bank account earning 2 percent simple interest to one that earns 2 percent compounded interest.
B
Before 1800, a pattern developed showing that increases in aggregate income led to an expanding population, which in turn reduced income per capita and put downward pressure on the population. This pattern is known as the ___________. A. demographic transition. B. Malthusian cycle. C. fertility cycle. D. poverty cycle.
B
Does an increase in GDP per capita of a nation imply that all its citizens have become richer? A. Yes, because an increase in the average income per capita means that purchasing power parity (PPP) has also increased, making all citizens richer. B. No, because the average income per capita of a nation is not the same as the income of each individual in that nation. C. Yes, but only if the average is above the poverty level of $1.25 per day. D. No, because the average income per capita does not give as good a measure as the purchasing power parity (PPP) of the average citizen in a nation.
B
Factors of production are the ____________. A. resources needed to produce new technology. B. inputs used to produce other goods and services in an economy. C. inputs that are used to redistribute income and thus reduce inequality. D. items needed to reduce income inequality
B
Given that saving can be thought of as future consumption, which of the following would not increase the saving rate? A. An expected increase in interest rates B. Expected growth in personal income C. Expected college expenses D. An expected increase in taxes
B
Given the information above, which of the following is likely to happen as a result of this demographic shift? A. The purchasing power of workers will increase. B. Income per capita will decline with a decrease in the workforce and its productivity. C. The income inequality in society will decrease.
B
Household saving decisions impact investment in the economy by having ___________. A. very little impact on investment, as banks are primarily involved with investment. B. a direct impact on investment, as saving is correlated with investment. C. a direct impact on investment, as saving is inversely correlated with investment. D. no impact on investment in the economy.
B
Imagine every technology company in the United States suddenly made their code open source. Which of the following outcomes is likely to occur in this scenario? A. It would cause the developing countries to experience exponential growth in the short run. B. It would not necessarily boost economic growth immediately in developing countries because the technologies of foreign economies may not be immediately useful. C. It would boost the gross domestic product of developing countries because the open-sourced code would be available off-the-shelf and could directly reach consumers. D. It would cause the developing countries to experience catch-up growth in the short run.
B
In the book "Dead Aid," economist Dambisa Moyo argues that humanitarian aid-provision of food or medicine to poor families, for example-is an ineffective tool for promoting growth in the developing world. Instead, she argues in favor of foreign aid policies that encourage/subsidize foreign investments in the businesses of developing countries. Which of the following will be the short-term and long-term effects of foreign investments on aggregate growth? A. In the short run, the productivity of workers and the GDP per capita of an economy will increase, while in the long run, there will be a decline in the GDP per capita. B. In the short run, the productivity of workers and the GDP per capita of an economy will increase, while in the long run, the effect on the GDP per capita of the economy will depend on the productivity enhancing investment. C. In the short run, the productivity of workers and the GDP per capita of an economy will decrease, while in the long run, the impact of foreign investment will be ambiguous. D. In the short run, the productivity of workers and the GDP per capita of an economy will increase, while in the long run, the effect on the GDP per capita of the economy will not depend on the productivity enhancing investment.
B
Suppose that country A has higher real income per capita than country B. Explain why this does not imply that most citizens of country A have higher real income than most citizens of country B. A. The higher per capita income in country A could be the result of most citizens there having unearned income. B. A high degree of income inequality in country A may result in most of its citizens having incomes below the average income of country C. Most citizens in country B may be employed, while the majority of those in country A may not work. D. All of the above are plausible.
B
Suppose you are comparing the income per capita in the United States and Ghana. You try two approaches. In the first approach, you convert the Ghana values into U.S. dollars using the current exchange rate between the U.S. dollar and the Ghanaian cedi. In the second approach, you also convert both values to U.S. dollars using the purchasing power parity-adjusted exchange rate. Which approach is likely to give you a more accurate picture of the living standards in both countries? A. The first approach, because the United States is the world's leader and the dollar is the global reserve currency. B. The second approach, because it takes into account the relative costs for each country. C. The second approach, because it's the total dollars that matter. D. The first approach, because it's the total dollars that matter.
B
Sustained growth is the ____________. A. type of growth that occurs when growth is compounded on the rate of growth in the prior period of measurement. B. process where GDP per capita grows at a positive and relatively steady rate for long periods of time. C. pattern of growth that occurs when workers in relatively poorer nations work extra hours so that their GDP per capita catches up with more advanced nations. D. process by which relatively poorer nations increase their incomes by taking advantage of the knowledge and technologies already invented in other technologically advanced nations.
B
All of the following are factors in determining the subsistence level of an economy except ____________. A. shelter. B. calories. C. air. D. clothing.
C
Exponential growth is the ____________. A. growth rate that grows at an exponential rate greater than one (that is, g Superscript ngn, where n > 1). B. rate differential between growth in a baseline period and growth in the current period. C. process by which new growth builds on past growth, leading to a (roughly) constant growth rate. D. process by which the growth rate in the economy increases each year by a (roughly) constant rate.
C
If you were trying to improve macroeconomic growth and lower poverty rates in the developing world, which of the following would you encourage the U.S. government to fund? A. A program that aims at improving growth in the urban areas of society. B. A program that aims at stabilizing the aggregate growth rate of an economy in the long run. C. A mix of well-targeted programs that improves the productivity and provides financial aid to poor segments of the population.
C
In a closed economy without government spending, all income must be ____________. A. invested; therefore, GDP is equal to the sum of aggregate saving and investment. B. consumed; therefore, GDP is equal to the sum of aggregate consumption and investment. C. consumed or saved; therefore, GDP is equal to the sum of aggregate consumption and investment. D. consumed or saved; therefore, GDP is equal to the sum of aggregate saving and investment.
C
In the second half of the twentieth century, Japan experienced exceptional growth. According to World Bank data, in 1985, Japan's GDP was $3.67 trillion, and its annual growth rate was 6.33 percent. The GDP in this problem is in constant 2010 dollars. Assuming an exponential annual growth rate of 6.33 percent, Japan's projected GDP in 2010 was $17.0217.02 trillion. (Round your answers to two decimal places.) In fact, Japan's 2010 GDP was $5.7 trillion. Which of the following reasons could explain any discrepancy between this number and your answer to the previous part? A. The discrepancy might have occurred because of the paradox of thrift. Japan's initial post-war growth may have been low, but it increased in later years. B. The discrepancy might have occurred because of the increasing marginal propensity to save. Japan's initial savings were high post-war, but it reduced in later years. C. The discrepancy might have occurred because of the catch-up effect. Japan's initial post-war growth may have been high, but it declined in later years. D. The discrepancy might have occurred because of the sudden decrease in population. Japan's population decreased post-war, but it increased in later years.
C
The Industrial Revolution affected economic growth ____________. A. because better drugs and basic sanitation improvements allowed workers to improve their knowledge base and increase efficiency and productivity, increasing the marginal product of labor and therefore overall economic growth. B. through the demographic transition, whereby families sustained lower fertility rates and broke the Malthusian cycle that kept per capita income close to subsistence levels. C. because technological changes, such as new machinery and new methods of production, became more systematic and pervasive, underpinning economic growth. D. by replacing the agricultural underpinnings of most economies with an urban one, which allowed children to go to school more easily and therefore increased human capital.
C
The Industrial Revolution had a positive impact on living standards __________. A. by eliminating the impact of diminishing marginal returns at most levels of production, shifting the production curve upward. B. because as capital depreciated, it needed to be replaced, which created an increase in production, shifting the production curve upward. C. because of the introduction of new capital and technology that shifted the production curve upward. D. with the transition from agriculture to industry, which allowed people to rely less on child labor, it created incentives for smaller families and thus increased per capita income and living standards.
C
The aggregate production function describes the relationship between the ____________. A. amount of discrimination and the level of income inequality. B. level of income inequality and the national fairness index. C. aggregate GDP of a nation and its factors of production. D. gender pay gap and the growth of GDP per capita.
C
The subsistence level is the ___________. A. maximum level of saving that keeps consumption at the optimal rate. B. rate at which an economy grows that keeps income per capita stable. C. minimum level of income per person that is generally necessary for an individual to survive. D. minimum level of the saving rate that is necessary to maintain the current level of physical capital.
C
There was no sustained growth in living standards prior to the Industrial Revolution because __________. A. with income below the subsistence level, as was common prior to the Industrial Revolution, people starved, which prohibited growth. B. with output increasing at a decreasing rate, the level of per capita output will start to decrease, leading to a decrease in living standards. C. with output increasing at a decreasing rate, it is not possible to increase living standards, especially as the population continues to grow. D. the transition from agriculture and rural areas toward industry and city areas did not occur until after the Industrial Revolution, and it was only this urbanization that allowed increases in living standards.
C
Using the concepts discussed above, which of the following statements is true of inequality? A. Inequality is likely to decrease in an economy if the technological improvement allows capital to substitute for labor. B. Inequality is likely to be unaffected in an economy as technological improvement historically benefits everyone equally. C. Inequality is likely to increase in an economy if the jobs lost due to technological improvement are low-skilled jobs.
C
Why was there no sustained economic growth before modern times, that is, before 1800? (Check all that apply.) A. There were no national income or product accounts and so there was no way to accurately measure the economy. B. People could not easily survive in the subsistence level. C. The pace of technological change was much slower than in modern times. D. Increases in aggregate income were offset by increases in population, keeping per capita income low.
CD
According to U.S. census projections, the percentage of U.S. citizens over the age of 65 will increase from 14.9% in 2015 to 22.1% in 2050, due, in part, to both prolonged life expectancy and declining fertility rates. Given the information above, which of the following will likely be an effect of such a demographic shift? A. The marginal propensity to consume will increase because income per capita will decrease. B. The marginal propensity to save will increase because income per capita will decrease. C. The productivity of labor will decrease because the workers may be more qualified overall. D. The productivity of labor will decrease because workers become less productive as the workforce ages
D
An example of sustained growth is ____________. A. Kenya, which has managed to maintain a steady growth rate over the last 50 years. B. the Democratic Republic of Congo, which despite a negative growth rate at times, has shown mainly steady growth. C. the steady increase in the saving rate in countries such as China and the United Kingdom. D. the United States, which demonstrated sustained growth between 1820 and 2007.
D
Economists Andrew McAfee and Erik Brynjolfsson have written about "The Great Decoupling"-the divergence between productivity growth and employment. Since the mid-1990s, labor productivity and GDP have continued to increase, while employment and wages have remained stagnant. Using the concepts discussed in the chapter, which of the following reasons would explain an increase in productivity and GDP at a given level of employment? A. Population growth. B. An decrease in the physical capital stock. C. An increase in the marginal propensity to save. D. Technological improvement.
D
Holding all else equal, will increasing the efficiency units of labor lead to sustained growth? Why? A. Yes, although it will lead to sustained growth only if individuals learn the correct skills as determined by the type of physical capital available. B. Probably, because although there is diminishing marginal product of labor, there are not diminishing returns to education or skills attainment. C. No, because with diminishing marginal product of physical capital, there is a limit to the amount of work an individual can do. D. Not likely, because each individual has a finite life and there is a limit to the number of years of schooling that an individual can obtain.
D
Households play a role in physical capital accumulation because ____________. A. households provide the human capital that produces the physical capital. B. the interest rate on investment is determined by households. C. the population growth rate determines the number of efficiency units of labor and therefore output. D. it is households that determine their level of consumption and therefore the rate of saving.
D
Increasingly, independent programmers are making their code "open source." The statistical programming language ?R,? for example, is completely free and open; anyone can submit a new package of specialized functions. Which of the following would explain the impact of open source technology on growth in developing countries? A. Open-source technology makes productivity-enhancing tools unavailable to a major section of the population, thereby reducing growth in developing countries around the world. B. Open-source technology increases the income of low-skilled workers, which results in an increase in economic growth in developing countries. C. Open-source technology lowers the efficiency of high-skilled employees, which results in a decrease in growth in developing countries around the world. D. Open-source technology makes productivity-enhancing tools available to a broader group of people, thereby increasing growth in developing countries around the world.
D
Physical capital accumulation is driven by ____________. A. the marginal product of capital. B. the growth rate of GDP. C. government purchases. D. investment.
D
Productivity is ____________. A. an indicator of how hard workers apply themselves to their tasks. B. the value of profit divided by the number of production workers. C. a measure of the speed with which inputs can be transformed into products. D. the value of output that a worker generates for each hour of work.
D
Productivity varies across countries because ___________. A. the quantity of physical capital that workers can access varies greatly across countries. B. the level of technology differs across countries. C. human capital per worker varies substantially from country to country. D. all of the above. E. A and B only.
D
The Malthusian cycle ___________. A. has its roots in the demographic transition post-1800. B. was common between the time of the Industrial Revolution and the Great Depression. C. primarily impacted economies during the Great Depression. D. was common prior to the Industrial Revolution.
D
The correlation between this index and real income per capita in a country is ____________. A. a positive association is apparent but only for high-income economies. B. the correlation between this index and real income per capita is weakly negative. C. no discernable association exists between this index and income per capita. D. countries with higher real income per capita tend to have higher levels of this index.
D
Catch-up growth is the ____________. A. type of growth that occurs when growth is compounded on the rate of growth in the prior period of measurement. B. pattern of growth that occurs when workers in relatively poorer nations work extra hours so that their GDP per capita catches up with more advanced nations. C. process where GDP per capita grows at a positive and relatively steady rate for long periods of time. D. process by which relatively poorer nations increase their incomes by taking advantage of the knowledge and technologies already invented in other technologically advanced nations.
D
A country's gross national product would exceed its gross domestic product when the ____________. A. production of domestically-owned factors operating abroad exceeds the production of foreign-owned factors operating in the United States B. production of foreign-owned factors operating in the United States exceeds the production of domestically-owned factors operating abroad. C. amount of the national debt owed to foreigners is less than the amount of foreign debt owed to residents of the domestic economy. D. country's residents own more assets abroad than foreigners own in the domestic economy.
a
National income accounting is ____________. A. a system of accounts designed to measure aggregate economic activity in a country. B. a system used by tax accountants to calculate the tax liabilities of transnational corporations. C. an accounting system used by businesses to calculate their profits during a given production period. D. used by international organizations such as the World Bank to determine individual country assessments (fees).
a
Which one of the sets of terms given below would correctly complete the following definition of GDP? "Gross Domestic Product is the ____ value of the ____ goods and services produced _____ of a country during a particular period of time." A. market; final; within the borders. B. intrinsic; final; within the borders. C. market; final; by the resources. D. social; final and component; by the resources.
a
Productivity varies across countries because of differences in ____________. (Check all that apply.) A. technology. B. physical capital. C. human capital. D. GDP. E. income.
abc
The diagram shows ____________. (Check all that apply.) A. the aggregate production function, holding total efficiency units of labor constant. B. both the capital stock and the marginal product of labor rise accordingly when there is lower income inequality. C. both the increasing relationship between capital and output and the law of diminishing marginal product. D. the higher the capital stock, then the lower the likely amount of GDP per capita.
ac
Using the information, which of the following factors is responsible for the discrepancy between GDP and GDI? A. Depreciation of capital is accounted for in GDP but not in GDI. B. Net exports are accounted for in GDP but not in GDI. C. Underground economies are accounted for in GDP but not in GDI.
b
When government statisticians gather and analyze data on the value added by the firms in the domestic economy, they are measuring GDP using the ____________. A. expenditure-based accounting method. B. production-based accounting method. C. circular flow-based accounting method. D. income-based accounting method.
b
Which of the following news stories (all published in early 2014) would typically be studied in macroeconomics? (Select all that apply.) A. "5 Reasons Why Apple is Looking Like the Next Sony" B. "We Believe Inflation Should Rule Monetary Policy." C. "Which Collegelong dash—and Which Majorlong dash—Will Make You Richest." D. "Expectations High for March Employment." E. "What If Economic Growth Is No Longer Possible?"
bde
Which one of the following is not in the circular flow diagram as one of the three systems of GDP measurement? A. Income is shown as a flow from the firm sector to the household sector. B. Production is shown as a flow from the firm sector to the household sector. C. Taxes are shown as a flow from the private sector to the public sector. D. Expenditure is shown as a flow from the household sector to the firm sector.
c
Production-based accounting is used to estimate GDP by ____________. A. summing each firm's value added to the production process. B. adding up the incomes received by all the resources that contributed to production. C. computing for each firm the difference between sales revenue and the purchase of intermediate products, then summing this difference across all firms. D. all of the above. E. A and C only.
e
Items are classified as final goods only if they are the _______________ in a chain of production.
end product
Sam Walton, the founder of Walmart, is an example of the power of __________________ , which creates economic growth.
entrepreneurship
relationship between variables
f
efficiency units of labor used in production
h
Your university or college is an example of ____________________ , which contributes to economic growth
human capital
each person's stock of skills to produce output or economic value
human capital
During a recession, the unemployment rate ____________ and aggregate growth ________________. If population remains constant but aggregate income falls, income per capita will __________________.
rises, decreases, decrease
New developments that enable natural gas and oil fracking are examples of ____________________ , which contribute to economic growth.
technology
the ability to use labor and capital more efficiently
technology
PPP attempts to work out how much currency will be needed to buy ____________ quantity of goods and services in different countries.
the same
