Macro Midterm 3

Last year real GDP in the imaginary town of Springville was $9,075,000 and the population was 3,300. The year before, real GDP was $7,500,000 and the population was 3,000. What was the growth rate of real GDP per person during the year?

10%

If the economy of Country Z is growing at an annual rate of 5%, how long will it take for the size of this economy to double?

14 years

For a closed economy, GDP is $18 trillion, consumption is $13 trillion, taxes are $2 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?

$3 trillion and $2 trillion, respectively

Human capital is ...

knowledge and skills that workers have acquired

A policy that induces people to save more shifts ...

the supply of loanable funds rightward and increases investment.

Long-run economic growth has been mostly dependent on ... A) rising productivity. B) a low unemployment rate. C) an increase in the population which eventually leads to an increase in the labor population. D) countries following the rule of 70.

A) rising productivity.

The key determinant of the standard of living in a country is ...

-productivity. -the amount of goods and services produced per worker.

Suppose that in a closed economy GDP is equal to 15,000, government purchases are equal to 3,000, consumption equals 10,500, and taxes equal 3,500. What are private saving and public saving?

1,000 and 500, respectively

On the basis of theory and empirical evidence, economists have reached several conclusions about economic growth. Which of the following is not one of these conclusions?

A relatively simple way to increase growth rates permanently is to increase a country's saving rate.

If real GDP per capita doubles between 2005 and 2020, what is the average annual growth rate of real GDP per capita? A) 4.7% B) 10.5% C) 15% D) 21%

A) 4.7%

If an economy is growing at 6% a year while the population is growing at 3% a year, what is true about this economy? A) The standard of living is rising. B) The standard of living is falling. C) The standard of living is not changing. D) Indeterminate.

A) The standard of living is rising.

When a country saves a larger portion of its GDP than it did before, it will have ... A) more capital and higher productivity. B) more capital and lower productivity. C) less capital and higher productivity. D) less capital and lower productivity.

A) more capital and higher productivity.

Productivity increases if ... saving and investment increase the amount of physical capital per worker. improvements in health and education increase the accumulation of human capital. there is an increase in technological knowledge. All of the above answers are correct.

All of the above answers are correct.

You observe a closed economy that has a government deficit and positive investment. Which of the following is correct? A) Private and public saving are both positive. B) Private saving is positive; public saving is negative. C) Private saving is negative; public saving is positive. D) Both private saving and public saving are negative.

B) Private saving is positive; public saving is negative.

Which of the following statements is correct? A) Productivity is a determinant of human capital per worker. B) Technological knowledge is a determinant of productivity. C) Human capital and technological knowledge are the same thing. D) All of the above are correct.

B) Technological knowledge is a determinant of productivity.

The catch-up effect refers to the idea that ... A) saving will always catch-up with investment spending. B) it is easier for a country to grow fast and so catch-up if it starts out relatively poor. C) population eventually catches-up with increased output. D) if investment spending is low, increased saving will help investment to "catch up."

B) it is easier for a country to grow fast and so catch-up if it starts out relatively poor.

Country A and country B both increase their capital stock by one unit. Output in country A increases by 12 while output in country B increases by 15. Other things the same, diminishing returns implies that country A is ... A) richer than Country B. If Country A adds another unit of capital, output will increase by more than 12 units. B) richer than Country B. If Country A adds another unit of capital, output will increase by less than 12 units. C) poorer than Country B. If Country A adds another unit of capital, output will increase by more than 12 units. D) poorer than Country B. If Country A adds another unit of capital, output will increase by less than 12 units.

B) richer than Country B. If Country A adds another unit of capital, output will increase by less than 12 units.

In 2012, the imaginary nation of Kanmiw had a population of 8,044 and real GDP of 36,198,000. In 2013 it had a population of 7,800 and real GDP of 35,880,000. What was the growth rate of real GDP per person in Kanmiw between 2012 and 2013? A) -2.2 percent B) -0.7 percent C) 2.2 percent D) 4.5 percent

C) 2.2 percent

Which of the following statements is correct? A) The total income in the economy that remains after paying for consumption and government purchases is called private saving. B) The sum of private saving and national saving is called public saving. C) For a closed economy, the sum of private saving and public saving must equal investment. D) For a closed economy, the sum of consumption, national saving, and taxes must equal GDP.

C) For a closed economy, the sum of private saving and public saving must equal investment.

When a society decides to increase its capital stock, the society ... A) can avoid the usual need to face trade-offs. B) is apparently not very concerned about its rate of economic growth in the future. C) is in effect deciding to consume fewer goods and services in the present. D) is in effect deciding to save less of its current income in the present.

C) is in effect deciding to consume fewer goods and services in the present.

The best measure of a country's standard of living is ... A) real GDP per labor hour. B) real GDP per unit of capital. C) real GDP per person. D) total nominal GDP.

C) real GDP per person.

Which of the following would a macroeconomist consider as investment?

Charlie builds a new coffee shop.

According to the loanable funds model, which of the following events would result in higher interest rates and greater saving?

Congress passes a reform of the tax laws that encourages greater investment.

If there are diminishing returns to capital, then ... A) capital produces fewer goods as it ages. B) old ideas are not as useful as new ones. C) increases in the capital stock eventually decrease output. D) increases in the capital stock increase output by ever smaller amounts.

D) increases in the capital stock increase output by ever smaller amounts.

All else equal, if there are diminishing returns, then which of the following is true if a country increases its capital by one unit?

Output will rise but by less than it did when the previous unit was added.

On the basis of theory and empirical evidence, economists have reached several conclusions about economic growth. Which of the following is NOT one of these conclusions?

Restricting investment in domestic industries by foreigners promotes economic growth as it ensures that profits stay in the country.

Which of the following statements is correct? Productivity is a determinant of human capital per worker. Technological knowledge is a determinant of productivity. Human capital and technological knowledge are the same thing. All of the above are correct.

Technological knowledge is a determinant of productivity.

If an economy is growing at 4% a year while the population is growing at 5% a year, what is true about this economy?

The standard of living is falling.

Other things the same, when an economy increases its saving rate ...

consumption falls now and production rises later.

Other things the same, if saving falls in some period, then in that period ...

consumption rises and investment falls.

Institutions that help to match one person's saving with another person's investment are collectively called the ...

financial system.

A country's human capital increases ...

if its workers become better educated and healthier.

Which of the following will decrease a country's real GDP per person?

imposing restrictions on foreign trade and foreign investment

Crowding out occurs when ...

investment declines because a budget deficit makes interest rates rise.

The source of the demand for loanable funds is ...

investment, and the source of the supply of loanable funds is saving.

The catch-up effect refers to the idea that ...

it is easier for a country to grow fast and so catch up if it starts out relatively poor.

In examining the national income accounts of the closed economy of Country X you see that this year it had taxes of $100 billion, transfers of $20 billion, and government purchases of goods and services of $70 billion. You also notice that last year it had private saving of $70 billion and investment of $50 billion. In which year did Country X have a budget deficit of $20 billion?

last year but not this year

The slope of the supply of loanable funds is based on the logic that an increase in interest rates ...

makes saving more attractive.

When a country saves a larger portion of its GDP than it did before, it will have ...

more capital and higher productivity.

When the government goes from running a balanced budget to running a budget surplus, ...

national saving increases, the interest rate falls, and the economy's longrun growth rate is likely to increase.

The logic behind the catch-up effect is that ...

new capital adds more to production in a country that doesn't have much capital than in a country that already has much capital.

Country X and country Y are the same except country X currently has more capital. Assuming diminishing returns, if both countries increase their capital by 1,000 units and other factors that determine output are unchanged, then ...

output in country X increases by less than in country Y.

Pharmaceutical companies often obtain patents on new products, thereby turning new ideas into ...

private goods and increasing the incentive to engage in research.

Patents turn new ideas into ...

private goods, and increase the incentive to engage in research.

The quantity of goods and services that can be produced by one worker in one hour is referred to as ...

productivity.

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

real GDP per person.

Which of the following will increase a country's real GDP per person?

reducing restrictions on foreign trade and foreign investment

If there is a surplus of loanable funds, then ...

the quantity supplied is greater than the quantity demanded and the interest rate will fall.

In the market for loanable funds, the interaction of the demand for, and supply of, loanable funds determines the equilibrium level of ...

the real interest rate.