Final Exam
Uncertain. Growth rates depend, ceteris paribus, on how far or close countries are from the steady state
"The Solow model predicts that economic growth in poor countries should grow faster than rich countries". This statement is: - Always true. The Solow model predicts that every country converges to a steady state. - Never true. The Solow model predicts that poor countries cannot grow faster than rich countries. - Irrelevant. The Solow model does not say anything about the growth rate of countries. - Uncertain. Growth rates depend, ceteris paribus, on how far or close countries are from the steady state.
a decrease in imports of 80 million units
A $1 tariff results in: - a decrease in imports of 100 million units - an increase in imports of 100 million units - a decrease in imports of 80 million units - an increase in imports of 80 million units
The price of the bond falls to $9,082
A $10,000 face-value bond costs $9,250 and matures in one year. If the interest rate on similar bonds rises by 2%, what is the approximating price change for this bond? - The price of the bond rises to $9,804 - The price of the bond falls to $9,082 - The price of the bond rises to $9,424 - The price remains unchanged at $9,250
higher than average in the short run, but return to normal levels in the long run
A a city rebuilds after a hurricane destroys most of its physical capital, the Solow Model would predict growth in this region to be: - lower than average in both the short run and long run. - lower than average in the short run, but eventually rise above average in the long run. - higher than average in both the short run and long run. - higher than average in the short run, but return to normal levels in the long run.
it has short-term liabilities greater than its short-term assets, but overall assets greater than liabilities
A bank is considered illiquid if: - it has liabilities greater than the value of its assets. - the value of its outstanding loans is greater than the value of its deposits. - it has lost its FDIC coverage. - it has short-term liabilities greater than its short-term assets, but overall assets greater than liabilities.
human capital
A business that pays for its workers to attend a technical college is increasing its: - organizational skills - human capital - technical knowledge - physical capital
U.S. GNP, but not U.S. GDP.
A car produced by the American Company GM in a plant located in Canada would be included in: - U.S. GNP, but not U.S. GDP. - both U.S. GDP and U.S. GNP. - neither U.S. GDP nor U.S. GNP. - U.S. GDP, but not U.S. GNP.
400
A country in a steady state invests 50% of its output in new capital (𝛾 = 0.5) and depreciates 5% of its capital stock (𝛿 = 0.05). With a capital stock of 100 units, labor remains constant. Because of technological innovation, production improves from 𝑌=𝐾 to √Y=K to √Y=2K. What is the new steady-state level of K? - 1,600 - 100 - 256 - 400
makes it easy for people to engage in contracts to establish property rights
A legal system that helps raise a nation's productivity is one that: - protects domestic producers from foreign competition - has a lot of regulations and procedures for people and businesses to follow - allows people and businesses to act freely and to do just about everything they want - makes it easy for people to engage in contracts and to establish property rights
the private marginal benefit is greater than the marginal cost
A profit-maximizing firm will invest in research and development as long as: - the social marginal benefit is greater than the marginal cost - it continues to increase revenues - it is subsidized by the government - the private marginal benefit is greater than the marginal cost
inflation
A real dollar value, e.g., in GDP calculations, is one that corrects for: - population growth. - sales outside of a country's borders. - unemployment. - inflation.
consumption smoothing
A seasonal worker saves more when her income rises and saves less when her income falls. This behavior is referred to as: - time preference - impatience - consumption smoothing - dissaving
an intermediate good
A sound system produced by a supplier to Ford Motor company, who installs it in one of its trucks, is an example of: - a non-tangible service. - an intermediate good. - a final good. - an inferior good.
part of today's national wealth but not part of today's GDP
A tractor built in 2001 and still in operation today is: - part of today's national wealth but not part of today's GDP. - part of today's GDP but not part of today's national wealth. - not part of today's national wealth nor today's GDP. - part of today's national wealth and GDP.
physical capital
A tractor is an example of: - production technology - technical knowledge - physical capital - human capital
more capital and more output
According to the Solow model, a higher saving and investment rate leads to: - less capital and less output. - less capital and more output. - more capital and more output. - more capital and less output.
negative
According to this diagram of the Solow model, if the current capital stock is 70, then economic growth will be: - zero - positive - negative - in a steady state
an increase in the demand for loanable funds and an increase in the interest rate
An investment tax credit results in: - an increase in the supply of loanable funds and an decrease in the interest rate - a decrease in the supply of loanable funds and an increase in the interest rate - a decrease in the demand for loanable funds and a decrease in the interest rate - an increase in the demand for loanable funds and an increase in the interest rate
the money multiplier will decrease
As the reserve ration rises: - a bank's opportunity cost of holding reserves rises - the money multiplier will decrease - the interest rate on money will fall - more loans will be extended
$190 billion
At an 8% interest rate, the quantity of savings is $250 billion. What would the quantity of savings be if the interest rate fell to 5%? - $250 billion - $300 billion - $500 billion - $190 billion
surplus; $320
At an interest rate of 6% in this market, there is a ___ of loanable funds of ___. - surplus; $250 - surplus; $320 - shortage; $320 - shortage; $250
3
Based on the data in the figure, living standards in the United States are about how many times higher than the world average? - 3 - 40 - 10 - 50
-$200
Based on the data in the table, what is net exports in the Economy of Europia? - $1,000 - $2,800 - -$1,800 - -$200
resulted in many of the children turning to prostitution and taking jobs with worse conditions and lower pay
Because the pressure from the U.S, the garment industry in Bangladesh dismissed 30,000 to 50,000 child laborers. This action: - resulted in many of the children turning to prostitution and taking jobs with worse conditions and lower pay - led to a civil uprising in Bangladesh, claiming the lives of almost 4,000 of these children - None of the answers is correct - was very beneficial, since most of the children returned to school full time
return to private property rights in farming
Between 1978 and 1983, food production in China rose by 50% and 170 million people rose above the international poverty line. This occurred because of the: - teachings of Mao Zedong - rising popularity of free-riding behavior in China - fall of communism in China - return to private property rights in farming.
real GDP around its long-term trend
Business cycles are short-term movements in: - nominal GDP around its long-term trend - the unemployment rate above and below zero - real GDP around its long-term trend - inflation around its long-term trend
investment and depreciation
Capital growth is the difference between - investment and depreciation. - investment and saving. - investment and economic growth. - depreciation and economic growth.
increasing tariffs on soybeans rather than aircrafts because it is easier to find substitute producers of soybeans than aircrafts
China retaliated to the tariffs placed on Chinese goods through President Trump by: - decreasing tariffs on soybeans - increasing tariffs on soybeans and aircrafts - increasing tariffs on soybeans rather than aircrafts because it is easier to find substitute producers of soybeans than aircrafts - decreasing tariffs on many good in the hopes that President Trump would also decrease tariffs on Chinese goods
The interest differential between deposits and loans
Commercial banks make profits primarily through: - bailouts by the Fed. - the interest differential between deposits and loans. - interest paid on deposits. - interest paid on required reserves
countries with similar steady-state levels of output to grow faster when they're poor than when they're rich until their per capita GDP levels converge
Conditional convergence refers to the tendency for: - poorer countries to grow faster than richer countries, but only if they receive sufficient foreign investment - richer countries to grow faster than poorer countries given similar steady-state capital stocks, so the poor countries never catch up with the rich countries - countries with similar steady-state levels of output to grow faster when they're poor than when they're rich until their per capita GDP levels converge - poorer countries to grow faster than richer countries given similar steady-state capital stocks, but the poor countries will never catch up with the rich countries.
27%
Consider a country that produces only wheat and corn. Based on the data in the table, the growth rate of nominal GDP from 2005 to 2006 was: - 16% - 21% - 27% - 8%
12
Consider the following production function: 𝑌=𝐹(𝐾)=√𝐾 When the capital stock is 144, output is: - 12 - 24 - 72 - 144
less than; nonrivalrous
Considering the incentives for the private market to conduct research and development we expect that the amount of research and development conducted by the private sector would be ___ the efficient level because of the ___ property of new knowledge. - equal to; rivalrous - more than; rivalrous - less than; nonrivalrous - more than; nonrivalrous
a lower rate than
Countries A and B have similar levels of technology and physical capital, but country B has twice as much human capital as country A. If diminishing returns apply to all inputs, country B should grow at ___ country A. - a lower rate than - twice the rate of - the same rate as - more than twice the rate of
a higher
Countries that have been bombed extensively in a war typically have ___ marginal product of capital in the aftermath of conflict. - an unchanged - a lower - a higher - a zero
high levels of all three factors of production
Countries that have high per capita GDP tend to have: - high levels of human capital per worker - high levels of physical capital per worker - high levels of all three factors of production - high levels of technology per worker
Both tend to decrease aggregate employment
Creative destruction is similar to openness to foreign imports in all of the following ways except: - Both conspicuously benefit the consumers of the goods and services created or imported - Both face resistance from incumbent domestic producers - Both tend to decrease aggregate employment - Both involve substituting lower cost goods in place of higher cost goods.
consumption and investment to fall
Crowding out occurs because the government increases the demand for loanable funds, drives up interest rates, and causes: - consumption and investment to rise. - saving to rise. - consumption and investment to fall. - saving to fall.
wear and tear on capital through normal use
Depreciation refers to the: - underuse of capital because of a reduced workforce - loss of capital because of technological change - underuse of capital because of inefficiency - wear and tear on capital through normal use
I is true; II is false
Determine whether or not each statement is true or false. (1) Relative to a non-trade situation, if the United States exported wheat, the U.S domestic wheat price would rise and domestic production of wheat would expand. (2) Relative to a no-trade situation, international trade causes the prices of all goods to rise. - I is true; II is false - Both I and II are false - Both I and II are true - I is false; II is true
increase and borrowing to decrease
During a financial crisis in the early 2000s, the government of Argentina partially froze bank accounts for a year. Given the supply of savings and the demand to borrow functions, we would expect this action to cause the interest rate to: - increase and borrowing to increase - decrease and borrowing to increase - decrease and borrowing to decrease - increase and borrowing to decrease
pushed banks toward insolvency
During the financial crisis, because of high leverage, looses on mortgages - were fully hedged against - prevented a financial meltdown - increased the amount of credit available in the economy - pushed banks toward insolvency
real GDP per capita
Economic growth and improved standards of living are best measured by the growth rate of: - real GDP per capita. - nominal GDP per capita. - nominal GDP. - real GDP.
the size of positive spillovers
Economists advocate focusing subsidies on "basic science" because___ is their primary criterion for subsidizing research and development of new technologies. - the number of economists that work in universities - universities' unique scale advantage at doing r&d - the intrinsic importance of STEM - the size of positive spillovers
a small deadweight loss and relatively large tax revenues
Enacting a tariff on a good for which the world supply is relatively inelastic and the local demand is relatively elastic results in: - a small deadweight loss and relatively larger tax revenues - only a large deadweight loss - a large deadweight loss and relatively smaller tax revenues - relatively smaller tax revenues and no deadweight loss
economic growth
Every year, 1.8 million children in poor countries die of diarrhea. What is most effective in preventing these deaths? - economic growth - humanitarian aid - political reform - government subsidies
reduce the costs of moving savings from savers to borrowers and investors
Financial intermediaries - profit by keeping resources in their least valuable uses. - reduce the costs of moving savings from savers to borrowers and investors. - have liabilities that exceed their assets. - are inefficient middlemen, raising the cost of economic activity.
virtually nonexistent
For most of recorded history, economic growth has been: - a way to equalize the distribution of wealth around the world - about the same as today - virtually nonexistent - a source of continuously rising living standards
reduce the default risk on money they save and lend
For savers, the role of financial intermediaries is to: - reduce the default risk on money they save and lend - avoid taxes from income earned on investments - ensure that all borrowers can fund their investments - earn more returns on their investments
almost nonexistent
For the most of recorded history, long - run economic growth was: - the highest during the Dark Ages. - much higher than it has been in recent decades. - almost nonexistent. - the same as it is today.
$338,560.00
For this table, assume that all banks observe the same desired reserve ratio. Also assume that the banks are listed in sequential order (thus the loans from the First National Bank become the deposits for the Second National Bank, and the loans from the Second National Bank become the deposits for the Third National Bank, and so on). Also, the banks' balance sheets must always be balanced. For the multiple deposit expansion process described in this table, what is the maximum amount of loans that the Second National Bank can make if it observes the same reserve ratio as First National Bank? - $30,470.40 - $311,475.20 - $338,560.00 - $308,089.60
3.8%
GDP in the United States was $14,119 billion in 2014 and grew up to $14,660.4 billion in 2015. This represents an annual growth rate of: - 3.8% - 1.04% - $541.4 billion - 3.7%
the losses are spread over millions of consumers so the cost per consumer is small
Government sometimes supports protectionist tariffs because: - producers always gain much more than what consumers altogether lose - the losses are spread over millions of consumers so the cost per consumer is small - the losses are spread over millions of producers, so the cost per producer is small - producers lose less than what consumers gain
increase
High interest rates typically ___ saving, ceteris paribus - decrease - maintain - indeterminately change - increase
decrease
Higher interest rates typically___ borrowing, ceteris paribus - maintain - increase - indeterminately change - decrease
Banks coordinate the collection of lenders' funds and employ specialists in risk assessment to ensure that the funds are safely used
How do banks engage in specialization and division of labor? - Banks specialize in facilitating IPOs - Banks coordinate the collection of lenders' funds and employ specialists in risk assessment to ensure that the funds are safely used - Banks are the only avenue for savers to save their money and for borrowers to borrow for projects. - Banks specialize in lending to risky borrowers
nonrivalrous
Idea are: - nonrivalrous - sometimes rivalrous and sometimes nonrivalrous - partly rivalrous - rivalrous
4
If a $500 increase in reserves ultimately leads to a $2,000 increase in the money supply, the money multiplier is: - 0.5 - 40 - 1 - 4
nominal GDP is growing faster than real GDP
If a country is experiencing inflation, if means that: - nominal GDP and real GDP are growing at the same rate - nominal GDP is growing faster than real GDP - nominal GDP is growing and real GDP is falling - real GDP is growing faster than nominal GDP
increases by 1%
If a country's nominal GDP increases by 5% between two years while its GDP deflator increases by 4%, the country's real GDP: - decreases by 1% - decreases by 9% - increases by 9% - increases by 1%
Tax the returns on investments
If a government was to encourage its population to increase investment and entrepreneurship, it should do all of the following except: - Establish a banking system that makes loans meritocratically, based on borrowers' creditworthiness. - Remove regulations and red tape involved in starting a business. - Establish courts to settle contractual disputes quickly and fairly. - Tax the returns on investment.
purchase additional government bonds
If the Fed wants to increase the money supply, it will typically: - increase the money multiplier. - extend new loans. - purchase additional government bonds. - raise interest rates.
buy government bonds
If the Fed wants to increase the money supply, it will: - sell government bonds - increase the rate of interest paid on reserves - require more reserves to be held - buy government bonds
savings exceed borrowing demands by $100 million
If the interest rate is 5% in this market for loanable funds, then: - savings exceed borrowing demands by $100 million - savings exceed investment by $100 million - savings exceed borrowing demands by $200 million - savings exceed investment by $200 million
16
If the production function in a country follows Y = K^2/3, the investment rate equals 0.20, and the depreciation rate is 0.05, then the steady-state level of output is equal to: - 8 - 16 - 24 - 4
25
If the reserve ratio is 4%, the money multiplier is: - 4 - 16 - 25 - 20
a net exporter of the good
If the world price for the good in the figure is higher than the domestic price, a move to free international trade means that the domestic economy will become: - a net exporter of the good - neither a net importer nor a net exporter of the good - a net importer of the good - either a net importer or a net exporter of the good, but it is impossible to say which
1,300 units
If this figure represents the market for oil and the country imposes no tariffs on international trade, domestic consumption will be: - 1,000 units - 1,300 units - 1,150 units - 500 units
physical capital only
If we hold ideas, education, and labor constant in the Solow model, then output (GDP) is a function of: - human capital only - technological knowledge only - labor only - physical capital only
neither increases nor decreases
In a steady state, the capital stock - decreases. - neither increases nor decreases. - equals zero. - increases.
Low - to medium - skilled jobs where under pressure from the international production of goods and from the automation of factories
In early 2018, President Trump imposed ne3w tariffs on washing machines produced outside the United States because: - the World Trade Organization suggested that it was a good idea - trade was making consumers in the United States worse off - low - to medium - skilled jobs were under pressure from the international production of goods and from the automation of factories - China imposed new tariffs on U.S. imports of washing machines
the purchase of capital goods
In economics, investment refers to: - the purchase of consumption goods. - the purchase of capital goods. - dissaving. - saving.
save some jobs and destroy other jobs
In most cases, trade restrictions will: - benefit only the government - benefit both producers and consumers - save jobs without any other costs - save some jobs and destroy other jobs
GDP will underestimate total production in the economy
In nations that have large underground, or illegal sectors: - poverty will be significantly greater than in countries with fewer illegal market activities - GDP will underestimate total production in the economy - GDP will provide an accurate account of production in the economy - GDP will overestimate total production in the economy
ideas
In the Solow model production function, Y = F(A, K, eL), A stands for: - attitude - ideas - aggregate demand - assets
technological advancements
In the accompanying graph, what would cause the upward shift of the production function? - an increase in the capital stock - foreign direct investment - technological advancement - an aging labor force
D
In the figure representing the market for leather, domestic suppliers are the high cost producers of leather. However, import restrictions push the domestic price up to $100. Which area represents the deadweight loss of consumption. - A - B - C - D
C
In the figure representing the market for leather, domestic suppliers are the high cost producers of leather. However, import restrictions push the domestic price up to $100. Which area represents the value of wasted resources in production? - A - B - C - D
a financial intermediary
In the market for loanable funds, ___ coordinates between the savers and borrowers. - an investor - the government - a market supplier - a financial intermediary
savers supply loanable funds and borrowers demand loanable funds
In the market for loanable funds: - banks supply loanable funds and the government demands loanable funds - both savers and borrowers supply and demand loanable funds - savers demand loanable funds and borrowers supply loanable funds - savers supply loanable funds and borrowers demand loanable funds
real GDP per capita
Increases in ___ are considered the best measure of increases in living standards because they measure increases in production. - nominal GDP - real GDP per capita - consumer spending - national wealth
increase per capita GDP
Increases in the level of political stability in a country tend to: - increase per capita GDP at lower levels of stability, but decrease per capita GDP at higher levels of stability - increase per capita GDP - decrease per capita GDP - have no impact on per capita GDP
make its markets open and competitive
India could be four times richer than it is today if it were to: - make its markets open and competitive - confiscate all private property - accept more foreign aid - avoid civil war
ultimate; immediate
Institutions and incentives are ___ causes, and factors of production are ___ causes of the wealth of nations. - immediate; direct - ultimate; indirect - ultimate; immediate - immediate; ultimate
Was ultra-leveraged
Lehman Brothers, one of the largest investment banks in the United States, was one of the largest companies to go bankrupt in the 2008 financial crisis. Economists have identified that one of the main reasons it went bankrupt was because it: - Was ultra-leveraged. - Refused to sell bad investments to the government. - Was not insured by the FDIC. - Almost exclusively invested in junk bonds.
anything that is a widely accepted means of payment
Money is best defined as: - anything that has a high nominal value - only the amount we spend in a given period - anything that is a widely accepted means of payment - the total amount of fixed assets we own
rich countries organize their factors of production more efficiently than poor countries do
One of the best explanations for why some countries are rich and other are poor is that: - rich countries may have simply gotten lucky and poor countries remain unlucky - rich countries organize their factors of production more efficiently than poor countries do - technological knowledge is more advanced in rich countries than in poor countries - rich countries have far greater natural resources than poor countries do
Fed purchase of longer-term government bonds
Quantitative easing is the: - government purchase of private equities - interest rate on short-term Treasury securities - lowering of the ratio of reserves to deposits - Fed purchase of longer-term government bonds
total population
Real GDP per capita is calculated as the total real GDP divided by the: - price level - GDP deflator - nominal GDP - total population
Consistent with the model studied in class, in which consumers bear the one burden when import supply is perfectly elastic
Recent research on the 2018 U.S. import tariffs estimated, "... complete pass-through of tariffs to duty - (tariff) - inclusive prices". This finding is: - A contrast against the model studied in class, in which protectionism decreases prices in the domestic market. - A contrast against the model studied in class, in which exporters pay the full burden of tariffs. - Consistent with the model studied in class, suggesting that domestic buyers and foreign sellers share the burden of tariffs. - Consistent with the model studied in class, in which consumers bear the burden when import supply is perfectly elastic.
rich; poor
Relative to Japan, Argentina was ___ in 1950 and ___ in 2000. - rich; rich - poor; rich - rich; poor - poor; poor
electronic claims
Reserves held by banks are mainly held in the form of: - currency - electronic claims - checkable deposits - savings accounts
Aggregate demand will increase because of lower interest rates
Suppose a given economy starts at Point A in the figure. If the Fed engages in an expansionary monetary policy, what would you expect to happen in the short run? - The economy will move along the AD curve to a lower inflation rate - Aggregate demand will increase because of lower interest rates - Aggregate demand will decrease because of higher interest rates - Aggregate supply will decrease because of higher wages
$31, 400
Suppose an economy produced only the three final goods shown in the table. The table gives information on the quantities produced and price of goods sold in 2008 and 2009. What is the nominal GDP in 2009? - $21,134 - $31,400 - $20,134 - $26,260
$25,260
Suppose an economy produces only the three finished goods shown in the table. The table gives information on the quantities produced and the prices of goods sold in 2008 and 2009. If prices in 2008 are used to calculate real GDP, what was the real GDP in 2009. - $25,260 - $20,134 - $21,134 - $31,400
engage in actions to raise interest rates
Suppose the economy is growing faster than its long-run potential growth rate. To bring the real growth rate back to the long-run potential rate, the Fed should: - buy government bonds in the open market - lower the reserve ratio - lower the interest rate on reserves - engage in actions to raise interest rates
$350 million
Suppose the government enacts a $2 tariff; the total deadweight loss, from distortions of consumption and production the result from the tariff is: - $550 million. - $350 million. - $150 million. - $200 million.
-24%
Suppose the local government is going to borrow $90 billion from the public. What will be the growth rate of the private investment? - 24% - 20% - -24% - -20%
increase by $1,000
Suppose the reserve ratio is 20% for all banks if the Fed increases bank reserves by $200, then the money supply will: - increase by $1,000. - decrease by $400. - increase by $400. - decrease by $1,000.
increase by $1,000
Suppose the reserve ratio is 20% for all banks. If the Fed increases bank reserves by $200, then the money supply will: - increase by $1,000 - decrease by $1,000 - decrease by $400 - increase by $400
systemic risk, should these banks fail
The Fed loaned money to (investment bank) J.P. Morgan and (insurance company) AIG in 2008 because it was concerned about: - systemic risk, should these banks fail. - the market demands being placed on these banks. - moral hazard on the part of these banks. - the liquidity of these banks.
banks have low reserves and the money multiplier is large
The Fed will be most effective by changing the money supply when: - banks have low reserves and the money multiplier is large - banks have high reserves and the money multiplier is large - banks have high reserves and the money multiplier is small - banks have low reserves and the money multiplier is small
regulates the banking system
The Federal reserve: - clears all checks - makes loans to individuals - regulates the banking system - prints all currency
the Fed has the power to step outside its normal functions and lend to investment banks when it perceives the risk of financial contagion
The Financial crisis of 2008 illustrates that: - the Fed has the power to control the U.S. president's responses to a financial and economic crisis and supervise fiscal policy - the Fed does not concern itself with the actions of investment banks - the Fed has the power to step outside its normal functions and lend to investment banks when it perceives the risk of financial contagion - systemic risk is no longer a serious concern for the U.S. economy
income equality
The OEDC's "better life index" a social welfare measure studied in class, weight is put on all the following factors except? - environmental quality - income equality - work - life balance - income per capita
goods produced by skilled workers
The United States has a comparative advantage in: - no goods - goods produced by skilled workers - goods produced by unskilled workers - all goods
both private consumption and private investment
The crowding-out effect of government borrowing refers to a decrease in: - private consumption only - neither private consumption nor private investment - private investment only - both private consumption and private investment
A natural disaster destroyed part of the capital stock
The economy was in a steady state prior to period 7. What would have happened at that time to produce the changes shown in output, consumption and investment after period 7? - The depreciation rate increased. - The savings rate decreased. - Technological innovation occurred. - A natural disaster destroyed part of the capital stock.
0.10
The figure shows the depreciation function for an economy. The depreciation rate is: - 0.10 - 1 - 0.010 - 0.0010
raise people's incentives to build wealth
The main reason for the influence of institutions on the wealth of nations is that good institutions: - allow government to more easily convert private property into collective property - keep the economy in tight control of the government - help distribute wealth more evenly among the people - raise people's incentives to build wealth
a preference toward a smooth consumption path over time
The main reason people save during their working years is: - a preference toward a smooth consumption path over time - an expectation that they will die early - a preference toward matching income with spending over time - a high time preference for the present
output when one more unit of capital is added
The marginal product of capital is the increase in: - the number of machines when one more unit of capital is added - output when one more unit of capital is added - employment when one more unit of capital is added - unemployment when one more unit of capital is added
currency plus total reserves held at the Fed
The monetary base (MB) refers to: - currency plus checkable deposits. - currency, savings deposits, money market mutual funds, and small time deposits. - currency plus total reserves held at the Fed. - currency.
investment
The most volatile spending component of GDP in the United States is: - net exports - investment - government purchases - consumption
these restrictions aim to reduce child labor, but because they make the countries poorer, they actually cause more child labor
The paradox of trade restrictions on countries with child labor is that: - these restrictions aim to reduce child labor, but because they make the countries poorer, they actually cause more child labor - children can be hired at lower wages than adults - restrictions on trade cause losses in consumer surplus - children from those countries are actually more efficient than adults
systemic risk
The possibility that the failure of one bank affects the performance of other banks is called: - systemic risk - moral hazard - a liquidity crisis - credit risk
poverty in the child's family
The primary reason that children are employed as labor worldwide is: - absence of schools in developing nations. - producing exports for international trade. - poverty in the child's family. - trade restrictions such as tariffs and quotas.
negative real GDP growth
The single best indicator of a recession is: - increasing unemployment - negative real GDP growth - negative nominal GDP growth - falling prices
investment equal depreciation
The steady-state capital stock is the capital stock where: - investment is less than depreciation - investment equals depreciation - investment exceeds depreciation - depreciation equals zero
saving; investment
The supply of loanable funds comes from ___, and the demand for loanable funds comes from ___. - investment; saving - saving; investment - saving; consumption - investment; consumption
$57 million
The table shows some statistics for a small economy. Based on only the information provided, M1 in this country amounts to: - $69 million - $50 million - $57 million - $43 million
at both the international level and the local level
The theory of comparative advantage, recommending specialization in goods at which you have lower opportunity cost, applies to gains from trade: - among international traders but not among individuals at the local level. - among individuals at the local level but not among international traders. - neither at the international or local level. - at both the international level and the local level.
how changes interest rates impact the number of depositors
To design effective monetary, policy, the Fed does not need to monitor or estimate: - the extent to which changes in reserves will lead to changes in lending - how much change in interest rates is needed to achieve the desired change in borrowing - how quickly changes in the monetary base will lead to changes in the money supply - how changes in interest rates impact the number of depositors
engage in actions to increase interest rates
To reduce the money supply in the economy the Fed would: - carry out open market purchases and increase the interest rate paid on reserves -carry out open market purchases - carry out open market sales and lower the interest rate - engage in actions to increase interest rates
might be beneficial in certain cases, like vaccinations
Trade restrictions based on national security concerns: - have no merit and are always unwise - might be beneficial in certain cases, like vaccinations - give little incentive for industry lobbyists to declare their product vital for national security purposes - have never been granted in the United States
moves jobs from import-competing industries to export industries
Trade: - moves jobs from import-competing industries to export industries. - decreases the number of jobs. - increases the number of jobs. - moves jobs from export industries to import-competing industries.
South Korea and Japan
Two countries that may be considered examples of growth miracles are: - Mexico and China - Denmark and Luxembourg - South Korea and Japan - the United States and Spain
solvent but illiquid
Tyler owes $100,000, nut he owns Mexican Amati paintings that he could sell immediately for $80,000 or within a few months for $120,000. If these are all the assets and liabilities that Tyler has, Tyler is: - insolvent and illiquid - solvent but illiquid - insolvent but liquid - solvent and liquid
technical knowledge and human capital
What are immediate causes of the wealth of nations? - technical knowledge and human capital - property rights and honest government - institutions and incentives - customs, practices, and social norms
consumption, investment goods, government purchases, and net exports
What are the components of the national spending approach to splitting GDP? - consumption expenditures, transfer payments, and government investment - wages, rent, interest, and profit - private investment, sale of new and used goods, net exports, and transfer payments - consumption, investment goods, government purchases, and net exports
I is likely to be true, and II is likely to be false
What best describes the following? (1) The national security argument might be a valid argument for trade protection (2) Industries with spillover effects should be protected from foreign competition - I and II are both false - I is likely to be true, and II is likely to be false - I is likely to be false, and II is likely to be true - I and II are both true
consumers become less patient
What could cause the supply curve for loanable funds to shift to the left from S1LF to SLF in the figure? - The economy is expected to go into a recession - The government ceases taxing interest earnings - An existing investment tax credit is abolished - Consumers become less patient
Catching-up growth comes primarily from capital accumulation, while cutting-edge growth comes from technological development
What differentiates catching-up growth from cutting-edge growth? - Cutting-edge growth leads to convergence, while catching-up growth does not - Catching-up growth comes primarily from capital accumulation, while cutting-edge growth comes from technological development - Catching-up growth can go on indefinitely, while cutting-edge growth cannot - Poorer countries with low levels of capital stock will always display catching-up growth, while rich countries will not
output is rising by 3%
What does a real GDP growth rate of 3% mean? - The value of output is rising by 3% - The value of output per person is rising by 3% - Output per person is rising by 3% - Output is rising by 3%
It has shifted to the right ("richer") and become more equal
What has happened to the worldwide income distribution during the last 40 years or so? - It has shifted to the left ("poorer") and become more unequal. - It has shifted to the right ("richer") and become more equal. - It has shifted to the right ("richer") and become more unequal. - It has shifted to the left ("poorer") and become more equal.
They organize initial public offerings for firms
What is a function performed by commercial banks? - They organize initial public offerings for firms. - They provide a safe opportunity for savers to earn interest on their savings. - They direct loans to the highest valued uses, e.g., business plans. - They help form the bridge between savers and investors.
there are few entrepreneurs
What is a result of a high level of government corruption? - Government officials have a low standard of living - Politicians hold little power over the market - There are few entrepreneurs - The form of government tends toward communism
Additional people can consume a good without diminishing another's consumption
What is meant by a nonrivalrous good? - There exists a perfectly competitive market for the good. - There is only a single consumer of the good. - There is only a single producer of the good. - Additional people can consume a good without diminishing another's consumption.
providing loans to small businesses
What is not a function of the Federal reserve? - regulating the U.S. money supply - serving as the lender of last resort - providing loans to small businesses - regulating the U.S. financial system
income equality
What is not a key institution for economic growth? - property rights - honest government - political stability - income equality
A woman chooses to borrow funds to buy a new car rather than choosing to withdraw funds from her savings to pay in cash
What is not an example of a major reason that funds are borrowed to make large investments in physical capital and human capital? - A student borrows to cover university tuition with the expectation that his loan payments can be made out of future earnings that will be higher due to his investment in human capital - A woman chooses to borrow funds to buy a new car rather than choosing to withdraw funds from her savings to pay in cash - A woman uses her entire savings for a down payment and borrows to cover the cost of equipment and a factory building to produce a good she has recently developed. She did not have the funds to produce the good without the loan - Rather than raising taxes today to pay for a new bridge that will facilitate transportation and economic growth, the government borrows to cover the cost of the bridge with plans to repay the loan later with additional tax revenue.
output
What is not neutral in the long-run? - aggregate demand - output - real interest rates - money
$9,375
What is the dollar value of the dead-weight lost created as a result of prohibiting trade in this market? - $3,125 - $37,500 - $6,250 - $9,375
$3
What is the size of the tariff in this figure? - $8 - $3 - $5 - $1
real GDP
What is the term for GDP when price levels are held constant? - annual GDP - real GDP - aggregate GDP - nominal GDP
consumers benefit while some suppliers are harmed
What is true about the removal of trade barriers? - Consumers benefit while some suppliers are harmed - Everyone is harmed - Consumers are harmed while some suppliers benefit - Everyone benefits
increased population, increased wealth, and larger markets
What would lead to an increased rate of economic growth due to increased development of new ideas? - increased population, lower saving, and larger markets - increased population, increased wealth, and larger markets - stable population, increased wealth, and larger markets - increased population, increased consumer wealth, and smaller markets
strict limits on interest rates
What would likely cause a shortage in the loanable funds market? - an economic panic - strict limits on interest rates - insecure property rights on physical capital - higher interest rates
saving
When a person's income is greater than her spending on consumption goods the she is: - investing. - dissaving. - disinvesting. - saving.
per capita real GDP of a country
When economists speak of "long-run economic growth" they mean increasing the: - population of a country - geographic size of a country - real GDP of a country - per capita real GDP of a country
supply of loanable funds shifts outward
When individuals become more willing to save, the: - supply of loanable funds shifts inward. - demand for loanable funds shifts outward. - demand for loanable funds inward. - supply of loanable funds shifts outward.
All are true
Which are true? (1) Protection is more more costly if other countries respond to U.s tariffs with tariffs of their own (2) When President Trump increased tariffs on thousands of products, other countries retaliated with tariffs of their own (3) Retaliatory tariffs generally affect every industry in a country equally (4) Retaliatory tariffs can be targeted to do political damage - II only - I and III only - All are true - I only
I and II only
Which are true? (1) The price of washing machines increased after tariffs were placed on washing machines (2) The price of dryers increased after tariffs were placed on washing machines (3) Producers increased the price of washing machines less than predicted, but increased the price of dryers to spread the tariffs costs over both washing machines and dryers - I only - II only - I, II, and III - I and II only
C
Which bond yields the highest rate of return? - A - B - C - D
Country B
Which country will reach a real GDP per capita of $80,000 the most quickly if the growth rates in the table are maintained? - Country A - Country B - Country C - Country D
Graph C
Which graph shows the changes in output, consumption, and investment that would result from a one-time technological innovation without subsequent innovations? - Graph A - Graph B - Graph C - Graph D
institutions
Which is considered an ultimate cause of economic growth? - physical capital - technological knowledge - human capital - institutions
the construction of a new factory
Which of the following do economists consider an investment? - the construction of a new factory - the purchase of bonds - the acquisition of gold - the purchase of stocks
Jim mows his neighbor's lawn as a favor
Which of the following would not be included in this year's GDP? - Megan buys a new coach purse - Sarah pays her accountant $200 to do her taxes - Jim mows his neighbor's lawn as a favor - Tom and Amy pay $75 for a meal in a restaurant
Town C
Which of the four towns in this table has the lowest standard of living? - Town A - Town B - Town C - Town D
Graph D
Which of these production functions exhibits diminishing returns? - Graph A - Graph B - Graph C - Graph D
GDP does not account for the distribution of income in a country
Which statement is true about GDP? - GDP includes a negative adjustment for damage caused by pollution - GDP does not account for the distribution of income in a country - GDP includes all known goods and services in the underground economy - GDP includes a positive adjustment for the value of leisure and well-being
A country can grow and become wealthy, never grow, or grow and then begin to stagnate
Which statement is true about economic growth? - All countries eventually grow rich - Once a country starts to grow, it will continue to grow - Growth is a random process, in some years a country grows and other years it does not - A country can grow and become wealthy, never grow, or grow and then begin to stagnate
I and III only
Which statement(s) are true? (1) When U.S consumers buy lowered-priced imports, they have more money to buy other goods, leading to increased jobs in other industries. (2) Free trade reduces total employment. (3) When foreign producers receive U.S dollars for their exports, some of these dollars are used to buy U.S goods and assets, increasing employment in U.S exporting industries - I only - III only - I and III only - II only
Transfer payments do not involve the purchase of a final good or service
Why are transfer payments not counted as part of GDP? - Transfer payments are not counted because they must ultimately be paid back. - Transfer payments do not involve the purchase of a final good or service. - Transfer payments are not spent within the United States. - Spending by the unemployed and senior citizens is not included in GDP.
South Korea has a better system of incentives than North Korea
Why does South Korea have a higher level of real GDP per capita than North Korea? - South Korea has more natural resources than North Korea - South Korea has a better system of incentives than North Korea - South Korea started with more physical capital than North Korea - South Korea started with more human capital than North Korea.
More people borrow money when interest rates are low than when they are high
Why is the demand for loanable funds downward sloping? - More people borrow money when interest rates are low than when they are high - People save more when the interest rate is high - People save less when the interest rate is low - Fewer investment projects have returns that can beat higher interest rates, so people are more willing to invest at higher interest rates
U.S GNP, but not U.S GDP
a car produced by the American company GM in a plant located in Canada would be included in: - both U.S GDP and U.S GNP - U.S GDP, but not U.S GNP - neither U.S GDP nor U.S GNP - U.S GNP, but not U.S GDP
an intermediate good and its market price is not part of GDP
a set of tires installed on a vehicle produced by an automobile factory is counted as: - an intermediate good and its market price is not part of GDP - a finished good and its market price is part of GDP an intermediate good and its market price is part of GDP - a finished good and its market price is not part of GDP
finished goods and services produced within a country in a year
gross domestic product is the market value of all: - finished goods and services produced within a country in a year - goods and services sold within a country in a year - goods and services produced within a country in a year - finished goods and services produced by a country's permanent residents, wherever located, in a year
