UMN ECON 1102

GDP is defined as the

value of all final goods and services produced by both citizens and non-citizens of a country, in a given period of time. GDP is concerned with output within the border of a country regardless of the citizenship of the person.

Nominal GDP will definitely increase when

prices rise and output increase

The best measure of standard of living is

Real GDP per capita

The information for 2008 in millions in the table below was reported by the World Bank. On the basis of this information, which list below contains the correct ordering of real GDP per person from highest to lowest?

Country | GDP (Constant US$) | GDP (Current US$) | Population Germany | 2,091,573 | 3,649,493 | 82.11

Japan | 5,166,281 | 4,910,839 | 127.70

US | 11,513,872 | 14,093,309 | 304.06

Japan, United States, Germany

Which of the following would lead to an increase in GDP?

Acme, Inc purchases a new machine for $1000 to produce widgets

According to the hypothetical economy in Diagram below, between 1960 and 1970 real GDP declined but nominal GDP continued to rise. The increase in nominal GDP was due to:

An increase in the dollar value of output produced.

A farmer sells $25,000 worth of apples to individuals who take them home to eat, $50,000 worth of apples to a company that uses them all to produce cider, and $75,000 worth of apples to a grocery store that will sell them to households. How much of the farmer's sales will be included as apples in GDP? (don't need $ or comma in you answer)

25,000 - Selling to a cider company and a grocery store the apples would be intermediate goods. Even though the grocery store is not changing the apple they are still marking it up and are selling it to the final user.

Economic Growth is:

linked to Real GDP per Capita because it is directly connected with the Quality of Life

Using the rule of 72 how many years will it take for GDP to double if it growing an an annual rate of 10%. Your answer should be to 1 decimal point (i.e 2.2)

7.2

If you are given the following production function:

F ( K , L ) = K × L

then...

Complementary between the inputs

Diminishing returns refers to the decrease in:

the marginal product that results from increases in an input.

According to Thomas Malthus which of the following caused population to grow:

Increase in Consumption per Worker

A Production Function is defined as:

a rule telling us how output depends on inputs

Which of the following defines how capital changes over time?

k ′ = ( 1 − δ ) k + i

In the Solow Model steady state occurs when

depreciated capital equal investment

In the Solow Framework a key prediction is the Principle of Transition Dynamics which states

The farther below its steady state and economy is the faster it will grow

If the change in output is 1 units and the change in labor is 5 units then the Marginal Product of Labor (MPL) is

0.2

Suppose that K = 25 and L = 25 and you are given the following production function F ( K , L ) = sq. rt. K × sq. rt. L. How much output is produced.

25

In the Malthus Model output was only used in consumption. In the Solow Model output is now used for consumption and ___________.

savings

TRUE OR FALSE. Discouraged workers are considered to be unemployed.

False

How would you characterize the following situation?

Julia told the interviewer that she has submitted applications with three companies for summer jobs. However, it is only April and she doesn't wish to start work until at least June 15, because she is attending school.

Not in the Labor Force

During the business cycle, an economic expansion occurs:

In between the trough and peak

The labor force participation rate is defined as the...

ratio of the number in the labor force to the population of working age.

Since 1947 the Participation Rate of Men and Women have:

have come closer together

Which of the following is true during a recession?

Unemployment rate rises.

If Macroland had the following information:

200 - Employed Workers

100 - Not working, but still looking for a job

100 - Students not looking for a job

100 - Retired workers

100 - Children

What is the Employment to Population Rate?

Your answer should be a percentage and leave off the % sign. So if you believe that answer is 100% then type in 100

33

If Macroland had the following information:

200 - Employed Workers

100 - Not working, but still looking for a job

100 - Students not looking for a job

100 - Retired workers

100 - Children

What is the Participation Rate of Macroland?

Your answer should be a percentage and leave off the % sign. So if you believe that answer is 100% then type in 100

50

If Macroland had the following information:

200 - Employed Workers

100 - Not working, but still looking for a job

100 - Students not looking for a job

100 - Retired workers

100 - Children

What is the Unemployment Rate for Macroland?

Your answer should be a percentage and leave off the % sign. So if you believe that answer is 100% then type in 100

33

The Labor Force consists of people who are _________ and able to work.

willing

Cyclical unemployment refers to:

short-run fluctuations around the natural rate of unemployment.

Frictional unemployment is:

unemployment that is due to normal turnover in the labor market.

Minimum-wage laws can keep wages...

above equilibrium and cause a surplus of labor.

Which of the following has the largest stock of people in the US:

Employed

TRUE OR FALSE. A more elastic labor supply shows that hours worked is more responsive to changes in tax rates.

True

TRUE OR FALSE. In our explanation for hours worked differing across countries we showed that countries with higher hours worked also had higher tax rates.

False

TRUE OR FALSE. Inflexible Wages are good at explaining real wages but not nominal wages?

False

TRUE OR FALSE. During a recession we expect for outflows of the unemployed to be greater than inflows of the unemployed.

False

TRUE OR FALSE. The supply and demand framework for the labor market predicts a positive unemployment rate?

False

The Aggregate Demand Curve

shows an inverse relationship between price level and quantity of all goods and services demanded.

Which of the following is not a determinant of the potential output anchoring Aggregate Supply?

Price Level

Autonomous Inflation...

is the prevailing inflation rate when the economy is at potential output.

Based on the interest rate effect higher price levels leads to

Lower Investment

What is the relationship between higher price level and savings

Higher price level leads to lower savings which increases the interest rate.

If the nominal interest rate is 15% then what is the Discounted Present Value (DPV) of $50 received a year from today? (round to the nearest cent and don't add a $ to you answer)

43.48

The idea that households don't like large variations in consumption is known as consumption _________?

smoothing

TRUE OR FALSE. As the interest rate increases the Discounted Present Value (DPV) increases?

False

TRUE OR FALSE. Government Spending changes based on price level meaning that at higher price levels government spending decreases.

False

TRUE OR FALSE. When there is a negative output gap there is upward pressure on prices because the inflation rate will exceed autonomous inflation.

True

In general, Economic Growth

Used to be lower in the past than in the last few centuries

What is part of 2015 US GDP

Japanese food made and sold at a Japanese restaurant to a Japanese student in the US in 2015

What does the Solow growth model predict?

As soon as the World War 2 is over, real GDP growth in Germany will be higher than in the US

A dependable legal system is a result of which of the following?

Institutions

What led to Argentina's reversal of fortune during the twentieth century?

Poor institutions

Which one of these is an effect of a binding price floor?

A misallocation of resources

Which of the following is a deficiency in the measurement of GDP per capita, when GDP per capita is used as a proxy for living standards?

GDP doesn't count leisure

Which of the following is the driver of long-run economic growth in advanced economies such as the England and Germany?

Better technological knowledge

In 2016, aggregate consumption in Lichtenstein were $500bn, aggregate investment was $100bn, total wages wer $200bn, total government spending was $100bn, Exports were $50bn and imports were also $50bn. According to the Factor Income approach, what was Lichtenstein's GDP that year?

Not enough Information

According to the Solow growth model, what happens in steady state?

a)The amount of output invested is equal to the level of capital that depreciates

b) As long as there are no shocks, capital stock does not change between periods

c) The growth rate of the economy is zero

Which of the following is NOT true about human capital

It exhibits increasing returns

Ideas are not rivalrous, meaning that:

Many people can benefit from an idea at the same time

What does the GDP deflator measure?

The average price level

Which one of these is a shifter of demand?

change in expectations

The GDP deflator is the base year is equal to what number?

100

Nominal GDP is doubling every 35 years, while the price level doubles every 10 years. At what rate is Real GDP growing?

5%

Let Y= SQK. If depreciation delta= 0.1 and the investment parameter gamma= 0.3, what are the steady state levels of capital and output?

k=9, y=3

Let Y= A SQK. What happens to the steady state level of capital if the technology parameter A doubles?

Capital quadruples

Why is it desirable for countries open to trade to specialize in the production of goods in which they have a comparative advantage?

a) It means they will produce the good with the lowest opportunity cost

b) Specializing in one good and then trading allows them to increase their consumption possibilities of all goods beyond what they can produce

c) Specializing in one good means that they might become even more efficient in the production of that good

What is the economic term to describe the value of the best choice that one needs to give up when making a different choice?

Opportunity Cost

The cross-country evidence on the relationship between Real GDP per capita and human capital, measured by the average years of schooling shows that the correlation between these two measure is:

Strong and Positive

Both inflation and nominal GDP grow at 3% per year. If population at the rate of 1% per year, this means that GDP per capita is:

Falling

Which of the following is true about supply and demands of pencils?

If the price of erasers increases, then demand curve for pencils shifts to the left

Which of the following accounts for the largest share of GDP?

consumption spending

Japan's experience from 1950-1970 is an example of

Growth miracle

Which is/are institutions conducive to the increase in investment?

A dependable government

When countries have different steady-state level of output, and the poor countries grow faster than richer countries, we say there is a

D

a) recession

b) Income Divergence

c) Conditional Convergence

d) None of the Above

The difference between a final good and an intermediate good is that:

An intermediate good is sold for use as a component of a final good

China began with very little capital, so its marginal product of capital was very high

Rapid Growth