Exam 4

Question 1

If competitive industry Z is making substantial economic profit, output will

Answer 1

expand in industry Z, as more resources will move into that industry

Question 2

Which of the following is an example of a public good?

Answer 2

a weather warning system

Question 3

As it relates to corporations, the principal-agent problem is that

Answer 3

the goals of the corporate managers (the agents) may not match the goals of the corporate owners (the principals)

Question 4

If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?

Answer 4

Nominal GDP would rise, but real GDP would be unchanged

Question 5

A good measure of the standard of living is

Answer 5

real GDP per capita

Question 6

If real GDP per capita measured in 2009 dollars was $6,000 in 1950 and $48,000 in 2018, we would say that in 2018, the average American could buy ________ times as many goods and services as the average American in 1950

Answer 6

8

Question 7

Countries with high rates of economic growth tend to have

Answer 7

a labor force that is more productive

Question 8

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

Answer 8

labor productivity

Question 9

The total amount of physical capital available in a country is know as the country’s

Answer 9

capital stock

Question 10

Human capital refers to which of the following?

Answer 10

the accumulated knowledge and skills workers acquire from education and training or from their life experiences

Question 11

Potential GDP refers to

Answer 11

the level of GDP attained when all firms are producing at capacity

Question 12

Actual real GDP will be above potential GDP if

Answer 12

firms are producing above capacity

Question 13

Suppose that real GDP for 2017 was $10,000 billion and real GDP for 2018 was $11,000 billion. What is the rate of growth of real GDP between 2017 and 2018?

Answer 13

10%

Question 14

Suppose that real GDP for 2017 was $10,000 billion and real GDP for 2018 was $9,500 billion. What is the rate of growth of real GDP between 2017 and 2018?

Answer 14

-5%

Question 15

If GDP grows at a rate of 3% per year, approximately how long will it take for GDP to double in size?

Answer 15

23 years

Question 16

If an economy is growing at a rate of 2.5% per year, how long will it take the economy to double in size?

Answer 16

28 years

Question 17

Which of the following is most liquid?

Answer 17

a dollar bill

Question 18

One difference between stocks and bonds is that

Answer 18

stocks do not involve a promise to repay a purchaser of the stock, while bonds represent a promise to repay the purchase price of the bond

Question 19

In a closed economy, which of the following components of GDP is not included?

Answer 19

net exports

Question 20

Borrowers are ________ of loanable funds, and lenders are ________ of loanable funds

Answer 20

demanders; suppliers

Question 21

The Congressional Budget Office reported that federal budget deficits in the United States were likely to increase during the next decade, and due to these higher deficits, “the nation’s capital stock ultimately would be smaller, and productivity and income would be lower than would be the case if the debt was smaller.” This higher budget deficit would be represented graphically by

Answer 21

a shift in the supply curve for loanable funds to the left

Question 22

In comparison to a government that runs a balanced budget, when the government runs a budget deficit

Answer 22

business investment will fall

Question 23

Refer to Figure 21-5. “Crowding out” of firm investment as a result of a budget deficit is illustrated by the movement from ________ in the graph above

Answer 23

A to B

Question 24

The Congressional Budget Office reported that federal budget deficits in the United States were likely to increase during the next decade, and due to these higher deficits, “the nation’s capital stock ultimately would be smaller, and productivity and income would be lower than would be the case if the debt was smaller.” This higher budget deficit could crowd out business investment if it resulted in an increase in interest rates. Crowding out of business investment would be represented graphically by a

Answer 24

a movement to the left along the demand curve for loanable funds

Question 25

A country with no trade and no borrowing and lending relationships with other countries is known as a(n)

Answer 25

closed economy

Question 26

Refer to Figure 21-6. The loanable funds market is in equilibrium, as shown in the figure above. An increase in the supply of loanable funds could result in which of the following combinations of the real interest rate and quantity of loanable funds at a new equilibrium?

Answer 26

The real interest rate is 3 percent, and the quantity of loanable funds is $150 million

Question 27

During the expansion phase of the business cycle, which of the following eventually increases?

Answer 27

all of these

Question 28

During the recession phase of the business cycle

Answer 28

interest rates are usually falling

Question 29

The period between a business cycle peak and a business cycle trough is called

Answer 29

recession

Question 30

From 1991 until 2001, the United States was in a period of

Answer 30

expansion

Question 31

Purchases of which of the following goods would be dramatically reduced during a recession?

Answer 31

refrigerators

Question 32

The economic effects of a recession are likely to have the smallest impact on the sales of which of the following businesses?

Answer 32

a fast-food restaurant

Question 33

GDP is the

Answer 33

monetary value of all the final goods and services produced within the borders of a nation in a particular year

Question 34

Which of the following is an intermediate good?

Answer 34

the purchase of baseball uniforms by a professional baseball team

Question 35

Economic growth is best defined as an increase in

Answer 35

either real GDP or real GDP per capita

Question 36

One reason that Mexico has experienced relatively low rates of economic growth is that

Answer 36

the country has problems with organized crime and corruption

Question 37

The rapid growth of the Chinese economy should

Answer 37

benefit U.S. consumers as they have access to less-expensive consumer goods

Question 38

Suppose that in 2018, real GDP grew in Estonia by 3% and the population increased by 5%. Therefore, in 2018, Estonia experienced

Answer 38

economic growth, but not an increase in living standards

Question 39

The period of time from 1,000,000 B.C. to 1300 A.D. was a period of

Answer 39

no sustained economic growth

Question 40

Refer to Table 22-1. Based on the table above, which country has a higher standard of living and why?

Answer 40

Ireland has a higher standard of living because their GDP per capita is higher

Question 41

In the long run, ________ differences in economic growth rates result in ________ differences in GDP per capita

Answer 41

small; large

Question 42

________ is considered a high income country, ________ a developing country, and ________ a newly industrializing country

Answer 42

United States; Somalia; Taiwan

Question 43

An economic growth model explains

Answer 43

changes in real GDP per capita in the long run

Question 44

Refer to Figure 22-1. Diminishing marginal returns is illustrated in the per-worker production function in the figure above by a movement

Answer 44

up along any of the production functions

Question 45

Refer to Figure 22-1. Using the per-worker production function in the figure above, the largest changes in an economy's standard of living would be achieved by a movement from

Answer 45

B to C to D

Question 46

In the early 1900s, Henry Ford revolutionized the automotive manufacturing industry by instituting the assembly line. What impact did the assembly line method for producing automobiles have on the per-worker production function for Ford?

Answer 46

It shifted up

Question 47

Knowledge capital is nonrival in the sense that

Answer 47

two people can use the same knowledge to develop and produce a product

Question 48

Firms free ride on the research and development of other firms when they

Answer 48

use knowledge other firms have developed without paying for that knowledge

Question 49

Creative destruction means that

Answer 49

firms develop new products that replace old products in the economy, thereby encouraging economic growth

Question 50

Refer to Figure 22-3. Technological change is shown in the figure above by the movement from

Answer 50

B to E

Question 51

Refer to Figure 22-3. Which of the following would cause an economy to move from a point like A in the figure above to a point like B?

Answer 51

an increase in capital per hour worked

Question 52

Growth in the United States from 1800 to 1900 can be characterized as

Answer 52

positive and increasing

Question 53

Growth in real GDP per hour worked in the United States was slowest during what period of time?

Answer 53

2006-2016

Question 54

Some economists argue that the higher productivity growth that began in the mid-1990s is based on the development of

Answer 54

information technology

Question 55

One of the primary reasons that Mexico has had trouble attracting foreign investment and has therefore experienced relatively low rates of economic growth is

Answer 55

the failure to fully establish the rule of law

Question 56

The economic growth model predicts that

Answer 56

the level of real GDP per capita in poor countries will grow faster than in rich countries

Question 57

Refer to Figure 22-5. Based on the "catch-up line" drawn above, poorer countries are more likely to be at a point like ________, where growth in GDP is relatively ________, while richer countries are more likely to be at a point like ________, where growth in GDP is relatively ________.

Answer 57

A; high; B; low

Question 58

The purchase by an individual or firm of stock or bonds issued in another country is called

Answer 58

foreign portfolio investment

Question 59

High-income countries have ________ and ________ as compared to developing countries

Answer 59

high rates of savings; high rates of growth

Question 60

Which of the following best explains why productivity growth in the United States has been faster than in other leading industrialized nations?

Answer 60

There are fewer government regulations in the United States regarding the way firms can hire and fire workers

Question 61

The term "brain drain" refers to

Answer 61

highly educated individuals who leave developing countries for high-income countries

Question 62

Disease, poor nutrition, and substandard health care in developing nations can reduce growth in an economy by

Answer 62

reducing human capital

Question 63

Enforcing property rights in an economy will

Answer 63

raise the level of investment

Question 64

The most important determinate of consumption and saving is the

Answer 64

level of income

Question 65

The greater is the marginal propensity to consume, the

Answer 65

smaller is the marginal propensity to save

Question 66

At the equilibrium GDP for a private open economy,

Answer 66

net exports may be either positive or negative

Question 67

Other things equal, an improvement in productivity will

Answer 67

shift the aggregate supply curve to the right

Question 68

In macroeconomic models, prices are assumed to be completely inflexible in

Answer 68

the very short run only

Question 69

The basic aggregate demand and aggregate supply curve model helps explain

Answer 69

short-term fluctuations in real GDP and the price level

Question 70

When the economy enters into a recession, your employer is ________ to reduce your wages because ________.

Answer 70

unlikely; lower wages reduce productivity and morale

Question 71

An increase in the value of which of the following would not increase household wealth?

Answer 71

a credit card balance

Question 72

The international trade effect states that

Answer 72

an increase in the price level will lower net exports

Question 73

During the recession of 2007-2009 in the United States, ________ relative to potential GDP

Answer 73

net export spending rose and consumption spending declined

Question 74

Refer to Figure 24-1. Ceteris paribus, an increase in interest rates would be represented by a movement from

Answer 74

AD2 to AD1

Question 75

Refer to Figure 24-1. Ceteris paribus, an increase in personal income taxes would be represented by a movement from

Answer 75

AD2 to AD1

Question 76

Refer to Figure 24-1. Ceteris paribus, an increase in households' expectations of their future income would be represented by a movement from

Answer 76

AD1 to AD2

Question 77

Refer to Figure 24-1. Ceteris paribus, a decrease in the growth rate of domestic GDP relative to the growth rate of foreign GDP would result in U.S. exports increasing faster than U.S. imports. This would be represented by a movement from

Answer 77

AD1 to AD2

Question 78

Refer to Figure 24-1. Ceteris paribus, an increase in the value of the domestic currency relative to foreign currencies would be represented by a movement from

Answer 78

AD2 to AD1

Question 79

Refer to Figure 24-1. Ceteris paribus, an increase in government spending would be represented by a movement from

Answer 79

AD1 to AD2

Question 80

Refer to Figure 24-1. Ceteris paribus, an increase in firms' expectations of the future profitability of investment spending would be represented by a movement from

Answer 80

AD1 to AD2

Question 81

Refer to Figure 24-1. Ceteris paribus, an increase in the growth rate of domestic GDP relative to the growth rate of foreign GDP would be represented by a movement from

Answer 81

AD2 to AD1

Question 82

The long-run aggregate supply curve

Answer 82

is vertical

Question 83

Which aggregate supply curve has a positive slope?

Answer 83

short run only

Question 84

Refer to Figure 24-2. Ceteris paribus, an increase in the labor force would be represented by a movement from

Answer 84

SRAS1 to SRAS2

Question 85

Refer to Figure 24-2. Ceteris paribus, a decrease in the capital stock would be represented by a movement from

Answer 85

SRAS2 to SRAS1

Question 86

Refer to Figure 24-2. Ceteris paribus, an increase in the price level would be represented by a movement from

Answer 86

point A to point B

Question 87

Refer to Figure 24-3. Suppose the economy is at point C. If government spending decreases in the economy, where will the eventual long-run equilibrium be?

Answer 87

A

Question 88

Refer to Figure 24-3. Suppose the economy is at point C. If investment spending decreases in the economy, where will the eventual long-run equilibrium be?

Answer 88

A

Question 89

When the price of oil rises unexpectedly, the equilibrium price level ________ and the unemployment rate ________ in the short run

Answer 89

rises; rises

Question 90

Stagflation usually results from

Answer 90

a supply shock

Question 91

On average, in the recessions since 1950, it has taken ________ for real GDP to return to its cyclical peak

Answer 91

about 18 months

Question 92

Refer to Figure 24-4. In the figure above, LRAS1 and SRAS1 denote LRAS and SRAS in year 1, while LRAS2 and SRAS2 denote LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the growth rate in potential GDP in year 2?

Answer 92

10%

Question 93

Refer to Figure 24-4. Given the economy is at point A in year 1, what is the inflation rate between year 1 and year 2?

Answer 93

1.8%

Question 94

Refer to Figure 24-4. In the figure above, AD1, LRAS1 and SRAS1 denote AD, LRAS and SRAS in year 1, while AD2, LRAS2 and SRAS2 denote AD, LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the actual growth rate in GDP in year 2?

Answer 94

7.3%

Question 95

Refer to Figure 24-4. Given the economy is at point A in year 1, what will happen to the price level in year 2?

Answer 95

It will rise