ECON 2010 Problem Set 3 and 2nd Midterm Test Bank

What are the components of the national spending approach to splitting GDP?

consumption, investment goods, government purchases, and net exports

Which of these represents the national spending approach to splitting GDP?

Y = C + I + G + NX

Which of these is the best measure of a country’s standard of living?

real GDP per capita

Which of these activities is counted as part of U.S. GDP?

Jeff stays in a hotel in Colorado while on a skiing trip

Countries with high per capita GDP have institutions that make it in people’s self-interest to invest in

all the factors of production

Factors of production that contribute to growth in per capita GDP include

physical capital, human capital, and technological knowledge

Which is NOT a factor of production?

incentives

A country is experiencing _____ growth when its GDP is growing due to increases in it capital stock and putting into use ideas developed earlier.

catching-up

A country is experiencing _____ growth when its GDP is growing due to the development and adoption of new ideas that increase productivity.

cutting-edge

The reason that the United States has experienced sustained economic growth for over 200 years is mostly due to

continued advances in technological knowledge

In economics, investment refers to the

purchase of new capital goods

Which do economists consider an investment?

the construction of a new factory

Adults who do not have a job but who are looking for work are

unemployed

The labor force is made up of

employed and unemployed workers

Who of these would be considered unemployed?

Janice, who graduated from the university in May, is waiting for her new job to start in July

The labor force consists of

employed workers and adults who do not have jobs but who are looking for work

According to the quantity theory of money, the main cause of inflation is an excessive

increase in the money supply

Inflation is

an increase in the average level of prices

Two of the challenges the U.S. Bureau of Labor Statistics faces when computing the consumer price index are

new goods and better-quality goods

A major problem with inflation is that after it starts, it

is difficult to stop without experiencing high unemployment

Akemi, who is a Japanese citizen, works in the United States as a computer programmer. The value of Akemi’s output is included in

U.S. GDP and Japan’s GNP

Which of the following would NOT be included in GDP for the United States?

Matt purchasing an antique desk for a new home office.

The purchase of sugar will be counted as a finished good in GDP when the buyer is

a person who is baking cookies at home.

Which of the following would be included in GDP for the United States?

Toyota, a Japanese car company, producing cars in the United States

Which of the following would be included in GDP for 2017?

the real estate agent’s commission on the resale in 2017 of a house built in 2015

Sound systems produced by a supplier and sold to Ford Motor Company for installation in new cars are an example of

intermediate goods

A tractor built in 2001 and still in operation today is

counted in national wealth today but not a part of GDP today

The value of a car produced and sold in 2015 and then resold in 2017 is included in

GDP for 2015 only

Birmingham Steel sells steel to Winston Golf Club Manufacturers for $300,000. Winston sells its golf clubs to Academy Sports for $1,000,000. Academy Sports then sells the golf clubs to consumers for $1,500,000. How much value is added to GDP from those transactions?

$1,500,000

Suppose you spent $2,500 in 2020 refurbishing your car, which you originally bought brand new for $22,000 in 2009. As a result, GDP in 2020 would

increase by $2,500

Property rights are important institutions for encouraging investment because

people won’t invest if they feel their property is at risk and they may not realize a return on their investment

The development of new software that increases productivity is best classified as an increase in

technological knowledge

Workers’ ability to use various tools is known as

human capital

The secret agreement made by farmers in the Xiaogang village in 1978 was significant because it

allowed farmers to keep any output produced above their government quota, restoring the link between effort and reward

A worker’s knowledge of how to use business software is an example of

human capital

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

human capital

The knowledge about how the world works is called

technological knowledge

A legal system that helps raise a nation’s productivity is one that

makes it easy for people to engage in contracts and to establish property rights

The stock of tools, including machines, structures, and equipment, used to produce output is called

physical capital

A tractor is an example of

physical capital

If two countries have the same steady-state levels of output, the country that is _____ today will _____ in per capita output.

poorer; catch up

Economists call the tendency for poorer countries to grow faster than richer countries, provided they have the same steady state and thus arrive at the same income, _____ convergence.

conditional

Which of the following describes an example of an increase in human capital?

An increase in the training of bone cancer researchers

According to the concept of conditional convergence, high-output countries will experience _____ growth than low-output countries as the countries all move toward _____.

slower; steady-state output

The key to keeping the economy growing in the long run is

advances in technological knowledge

If individuals become more impatient, what will happen in the market for loanable funds?

The supply of loanable funds will decrease, interest rates will rise, and the quantity of savings and borrowing will decrease

When individuals become more willing to save, the

supply of savings shifts to the right

When business firms become more pessimistic about the state of the economy, the

demand to borrow shifts to the left

If consumers expect to have a shorter life expectancy and desire to save less, then the

supply of loanable funds will decrease, and the equilibrium interest rate will increase

Borrowers _____ and savers _____.

demand loans; supply savings

Both unions and minimum wages

decrease the quantity of labor demanded and increase unemployment

Minimum wage laws that raise wages will _____ unemployment because _____.

increase; there are more people seeking work but fewer firms wanted to hire at higher wages

According to the Bureau of Labor Statistics, which of these would be counted as unemployed?

new graduates who are looking for their first job

Which of these individuals can be counted as unemployed?

Juan, a recent college graduate looking for his first job

Which of the following individuals is part of the labor force?

a person who was laid off and is actively seeking work

Which of these individuals can be counted as unemployed?

a man who was laid off from an auto manufacturing plant in Detroit

Which of the following individuals is considered unemployed?

John, on temporary layoff from his work, awaits recall

Which type of unemployment is likely to be higher when real GDP growth is lower?

cyclical unemployment

Which of these individuals can be counted as unemployed?

Jean, who left her job to search for a higher-paying position

An unemployed person is someone who

does not have a job but is actively looking for one

According to the quantity theory of money, in the long run, money growth

affects inflation only

According to the quantity theory of money, assuming stable velocity and real GDP, a nation that increases its money supply by 30% should expect its price level to increase by approximately

30%

Why do we use the real prices of goods to measure how expensive things have become?

to determine if there have been any changes in our purchasing power

The quantity theory of money states that the money supply times the velocity of money equals

nominal GDP

If the economy experiences unexpected inflation, then the actual rate of return will be _____ than its equilibrium rate, and wealth will be distributed from _____.

less; lenders to borrowers

A real price is

a price that has been corrected for inflation

Disinflation is defined as a decrease in the

inflation rate

Which of the following is an example of money illusion, assuming that the inflation rate is 5%?

You receive a 5% raise at your part-time job and start spending extra money on entertainment every weekend

If the money supply, the velocity of money, and the price level are fixed over time, then increases in real GDP

are impossible because real GDP must also be fixed over time

Deflation is defined as a decrease in the

average level of prices