ec 102 midterm 1 (watson ‘26)

In his article "Unlocking Growth in Africa," Kenneth Rogoff makes which of the following arguments concerning economic aid to poor African countries?

Aid should be given in the form of grans instead of loans

According to the article “the poor and the rich”, which of the following features of the neoclassical growth model was called into question by the “new growth theory”?

The law of diminishing returns

Given the table, using the GDP deflator, what can we say happened in the economy from 2015 to 2016?

The price level has risen

If nominal GDP exceeds real GDP for a specific year, then the GDP deflator must be

Greater than 100

Which of the following are not considered part of government purchases?

• a tank purchased by the federal government

• a bridge purchased by the state government

• welfare benefits

• teachers' salaries paid by a local government

Welfare benefits

If firms pay what are called "efficiency wages," they pay wages that

motivate workers to increase their productivity.

The natural rate of unemployment is the amount of unemployment

equal to frictional plus structural unemployment.

If you want to earn a real interest rate of 3% on money you lend, and you expect that inflation will be 2%, what nominal rate of interest will you charge?

5

Characteristics of macroeconomics

Expectations matter greatly in macroeconomics

Macroeconomics is highly empirical

Research in macroeconomics is driven by policy considerations

Suppose the labor force stays constant, and the working-age population stays constant, but a greater number of persons who were unemployed become employed. The labor force participation rate will…

…remain constant

U.S. nominal GDP in 2024 was approximately $29 trillion. This means that…

• The value of output in 2024 was 29 trillion

• Total spending in 20s4 was around 29 trillion

• Total income in 2024 was around 29 trillion

The decline in the slope from A to B to C is due to the effect of

Diminishing marginal product of capital

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 ________.

A, high,

B, low

According to the institutional approach to development, why have some countries not experienced relatively high growth rates in real GDP per capita despite relatively low initial levels of real GDP per capita?

• Many of these developing countries do not have a functioning court system that can enforce laws.

• Countries that are relatively poor are likely to have a lot of corruption.

• Countries that are relatively poor are more likely to experience wars and revolutions.

Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid?

3%

How are intermediate goods treated in the calculation of GDP?

Their value is not counted separately, but included as part of the value of the final good for which they are a component

If the number employed is 190 million, the number unemployed is 10 million, and the working-age population is 250 million, then the labor force participation rate is

80%

When deflation occurs…

…the real interest rate is greater than the nominal interest rate

If Arrowstreet Capital, a large hedge fund based in Boston, buys shares of stock in Bharti Airtel, an Indian telecommunications company, this would be an example of…

…a flow of financial capital

The advice to "retrain" would be most appropriate for which of the following types of unemployment?

Structural unemployment

Jack received a promotion at work and works 50 hrs per week instead of 35. As a result…

…neither the unemployment rate nor the labor force participation rate changed

According to the "Rule of 70," how many years will it take for real GDP per capita to double when the growth rate of real GDP per capita is 5%?

14 yrs

In his article "Institutions Matter, but Not for Everything," Jeff Sachs says that developing countries generally fall into one of three categories. What are the categories?

• Countries and regions in which geography and institutions and policies are all favorable

• Countries and regions whose geography is favorable, but who have had poor governance and institutions

• Countries and regions where geography is especially unfavorable

In the long run, a country will experience an increasing standard of living only if it experiences

Continuous technological change

Assume the CPI values for 2015 and 2016 were 207.3 and 215.3, respectively. What was the inflation rate between these two years?

3.86

Consider the following data on nominal GDP and real GDP (values are in billions of dollars): The base year used in calculating real GDP is

2014

What impact would including members of the military in employment, labor force, and working-age population statistics have on the unemployment rate and the labor force participation rate?

Including members of the military would reduce the unemployment rate and increase the labor force participation rate.

When he died in May of 1937, John D. Rockefeller's wealth was estimated at $1.4 billion. The CPI for May of 1937 was 14.4, and the CPI for January 2026 is 325.252. What was Rockefeller's wealth at his death expressed in today's dollars?

$31.6B

What two factors are the keys to determining labor productivity?

technology and the quantity of capital per hour worked