Macro (ECON-22061) Exam 1

If you received a constant annual rate of return of 7% on an investment of $10,000, how many years will it take before you have $20,000?

10 years

A computer chip sold to Dell is an example of

An Intermediate Good

Economists prefer using real GDP because, other things held constant, increases in _____ are true increases in the standard of living.

production

The growth rate of GDP tells how rapidly the country's _____ is rising or falling over time.

production

human capital is the

productive knowledge and skills that workers acquire through education, training, and experience.

What do the institutions of economic growth include?

property rights, a dependable legal system, + competitive and open markets

Which of the following is the best measure of a country's standard of living?

real GDP per capita

In a steady state, the capital stock

remains constant

Patents allow a firm to enjoy a monopoly, thus increasing the incentive to

research and develop new products

The economy's production function relates __________ to output.

the factors of production

Capital is output that is

used to produce other goods

The marginal product of capital is the increase in output when:

when one more unit of capital is added

What is investment for this class, the Solow growth model, and most economics courses?

New physical capital

The production function expresses a relationship between

Output and the factors of production

A computer chip sold to you for use in your home computer is an example of

a final good

Part of investment spending, when considering the national income approach to calculating GDP, is the acquisition of what?

capital goods

GDP is equal to:

consumption + investment + government spending + net exports

Suppose a country has a real GDP of $100. What will the size of the GDP be after 3 years, if the economy grows by 2.5% each year?

$107.69 how to solve: 100 x (1+.025)^3 = 107.69 OR... 100 x (1+.025)= 102.5 (1 year) 102.5 x 1.025= 105.063 (2 years) 105.063 x 1.025= 107.69 (3 years)

Use the following table to answer question 3: Suppose an economy produces only the four goods listed in this table. All of the country's tomatoes are used in the production of pizzas and all of its shovels are purchased by foreign firms that produce landscaping services only in their country. What is the value of GDP in this country? Shovels - Price: 20 Q: 40 Books- Price: 50 Q: 500 Tomatoes- Price: 1 Q: 500 Pizzas- Price: 10 Q: 120

$27,000 (20x40=800; 50x50=25,000; 10x120= 1200) (800+25,000+1200)

A small country has an aggregate production function per hour of labor given by Y = K1/2. Its depreciation rate is 1% and its investment rate is 10%. What is its steady state level of capital?

100

If the depreciation rate is .04 and the capital stock is 300, how many units will depreciate?

12 (.04x300=12)

Consider the economy of a small country. It has capital stock equal to 1600 units and a production function of Y = K1/2. If the depreciation rate is 15% and the investment rate is 25%, what will the level of capital stock be next year for this small country?

1370 units

If per capita real GDP was $34,000 in the year 2000 and $39,000 in 2001, the growth rate of per capita GDP in 2001 was approximately

14.7% (new-old)/old (39,000-34,000)/34000

Consider the economy of a small country. It has capital stock equal to 400 units and a production function of Y = K1/2. If the depreciation rate is 15% and the investment rate is 10% of output, what will the level of investment be for this small country?

2 units of capital

Use the following graph to answer: (Figure: Capital Depreciation) The figure above shows the depreciation function for an economy. The depreciation rate is

2.5% (slope, 7.5-5=2.5)

If a country's initial real GDP is $10,000 and its yearly growth rate of GDP is 3.5%, use the Rule of 70 to determine approximately how many years it would take for this economy to double its GDP.

20 years (70/3.5=20)

A small country has an aggregate production function per hour of labor given by Y = K1/2. Its depreciation rate is 5% and its investment rate is 15%. What is its steady state level of real GDP?

3

Consider the following production function: Y =((sqrt)K) . When capital stock is 36, output is

6 (square root of 36=6)

If a nation doubles its GDP per capita in 10 years, what is its annual growth rate?

7% use rule of 70: (70/10=7)

According to Robert Solow, better ideas are responsible for about _____ of our standard of living

75%

If output in an economy is 30, and the investment function is 0.3Y,

9 units of output are being invested (.3x30=9)

A country has a 2008 growth rate of 5.7% and a 2007 GDP of $9,222 (in billions). What was the GDP in 2008?

9,748 (9,222x[1+0.057]=9748)

What grants temporary monopoly rights, typically 20 years from the date of filing?

A patent

Which of the following is correct? A) If investment < depreciation, the nation's capital stock will grow. B) If investment > depreciation, the nation's capital stock will stay constant. C) If investment > depreciation, the nation's capital stock will grow. D) If investment = depreciation, the nation's capital stock will grow.

C.) if investment > depreciation, the nation's capital stock will grow

What is the difference between catch-up growth and cutting-edge growth

Catch-up growth comes primarily from capital accumulation while cutting-edge growth comes from technological development

All other things equal, increases in capital will cause output to

Increase at a decreasing rate

Business cycles are short-term movements in real GDP around

Real GDP's long-term trend

Physical capital is the

Stock of tools including machines, structures and equipment

What is meant by the steady state level of capital?

There is no new net investment, or any growth.

Why are transfer payments not counted as part of GDP?

counting transfer payments would constitute double-counting as transfer payments will be used by the recipients to purchase final goods and services

Over time, capital wears out. The official term for this is

depreciation

Since 1950, the portion of U.S. GDP created by services has

doubled

All else equal, an increase in savings will cause investment to

increase

Private spending on tools, plant, and equipment that are used to produce future output is called

investment

Because of spillovers, the social benefit of research and development

is greater than the private benefit

What are the factors of production in the Solow model of economic growth?

physical capital, human capital and productivity/ideas/technology

GDP per capita is GDP divided by

population

Use the following to answer: (Table: Three-Product Economy) Suppose an economy produces only the three final goods listed in the table above. What is the real GDP in 2009 if 2009 is the base year?

$34,310 (multiply 2009 quantity but 2009 price and ADD)

If 10% of the population had an average income of $46,000 and the population as a whole had an average income of $10,000, what would the average income be for the other 90% of the population?

$6,000 .10(46,000)+0.9x=10,000 4,600+0.9x=10,000 0.9x=5,400 x=6,000

(Table: Economic Data) What is the level of net exports in this country?

-200 (NX= net exports - imports)

If nominal GDP is $6.82 (in billions) in 2007 and in the year 2008 the level of nominal GDP is $5.11 (in billions), what is the growth rate of nominal GDP?

-25.07% (new-old)/old

Use the following to answer questions 17+18: (Table: Economic Data) Using the expenditure approach to national income accounting, calculate the GDP of this country.

1,650 (Y= C+I+G+NX)

The story of China and the United States illustrates what concept?

U.S. creation of new technology did not allow for as much economic growth in the short run as did China's capital accumulation

Use the following to answer: (Table: Small Town GDP) Which of the four towns in this table has the highest standard of living? Town A - Real GDP: 4,859,307 Population: 250 Town B - Real GDP: 1,000,050 Population: 175 Town C - Real GDP: 6,000,000 Population: 320 Town D - Real GDP: 3,549.389 Population: 90

Town D (divide each towns real GDP by population, whichever number is largest has highest standard of living)

In the Solow model, an increase in the investment rate will _____ the amount of capital needed to achieve a steady state of output.

increase