Studied by 69 people
Linan Pang
The 2003 Iraq War destroyed large amounts of capital. Later, insurgent activity continued to destroy capital and created instability in the government. Today, hostilities have waned, and the government has become more stable. According to the catch-up effect, over the next few years we would expect to see growth rates in Iraq ____ those of high-income countries with similar institutions, followed by growth rates that are ___ the growth rates in those countries.
A. higher than; much higher than
B. lower than; similar to
C. higher than; similar to
D. similar to; lower than
C. higher than; similar to
Countries that have been bombed extensively in a war typically have a(n) ___ product of capital in the aftermath of conflict.
A. lower
B. higher
C. unchanged
D. zero
B. higher
Suppose a country's output level is 800. It invests in an additional unit of capital, which increases output by 2 units. If the country then increases investment in capital by 1 more unit, the expected additional increase in output will be ___ due to ___.
A. greater than 2 units; increasing marginal returns
B. greater than 2 units; decreasing marginal returns
C. less than 2 units; increasing marginal returns
D. less than 2 units; decreasing marginal returns
D. less than 2 units; decreasing marginal returns
When a country has a large amount of capital stock, its annual investment in new capital needs to be ___ if it wants to maintain the same level of capital stock because of ____.
A. small; depreciation
B. large; depreciation
C. zero; increasing returns to scale
D. large; increasing returns to scale
B. large; depreciation
Pharmaceutical companies tend to concentrate on drugs for common diseases because:
A. more people can be helped.
B. spillovers are smaller.
C. they are more likely to be granted patents.
D. potential profits are larger.
D. potential profits are larger.
Which do economists define as saving?
A. General Motors issues corporate bonds.
B. Microsoft sells stock at an initial public offering.
C. Sandra purchases a certificate of deposit from a bank.
D. Andrea finances her new car through an auto loan.
C. Sandra purchases a certificate of deposit from a bank.
To start a business delivering documents, you need to purchase cell phones, bicycles, and desks.
A. These purchases are called capital investment. Raising the funds to purchase them makes you a borrower.
B. These purchases are called capital investment. Raising the funds to purchase them makes you a saver.
C. These purchases are called consumption. Raising the funds to purchase them makes you a saver
D. These purchases are called consumption. Raising the funds to purchase them makes you a borrower
A. These purchases are called capital investment. Raising the funds to purchase them makes you a borrower.
Which BEST represents time preference?
A. Sarah is spending $20,000 per year on tuition and other expenses to attend college with the hope of earning a higher income in the future.
B. Max saves $300 per month from his paychecks for retirement.
C. Alex smokes a pack of cigarettes per day even though he knows that he may face poor health down the road because of his smoking habit.
D. Thomas invests money in Apple today, which Apple subsequently uses to fund additional investment purchases that will benefit future shareholders.
C. Alex smokes a pack of cigarettes per day even though he knows that he may face poor health down the road because of his smoking habit.
Which is NOT an example of a major reason that funds are borrowed to make large investments in physical capital and human capital?
A. A woman uses her entire savings for a down payment and borrows to cover the cost of equipment and a factory building to produce a good she has recently developed. She did not have the funds to produce the good without the loan.
B. Rather than raising taxes today to pay for a new bridge that will facilitate transportation and economic growth, the government borrows to cover the cost of the bridge with plans to repay the loan later with additional tax revenue.
C. A student borrows to cover university tuition with the expectation that his loan payments can be made with future earnings that will be higher due to his investment in human capital.
D. A woman chooses to borrow funds to buy a new car rather than choosing to withdraw funds from her savings to pay in cash.
D. A woman chooses to borrow funds to buy a new car rather than choosing to withdraw funds from her savings to pay in cash.
If individuals become more impatient, what will happen in the market for loanable funds?
A. The supply of loanable funds will decrease, interest rates will fall, and the quantity of savings and borrowing will increase.
B. The supply of loanable funds will increase, interest rates will rise, and the quantity of savings and borrowing will decrease.
C. The supply of loanable funds will increase, interest rates will fall, and the quantity of savings and borrowing will increase.
D. The supply of loanable funds will decrease, interest rates will rise, and the quantity of savings and borrowing will decrease.
D. 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 because their incomes have increased, the interest rate ____ and the quantity of borrowing and lending ___.
A. increases; increases
B. increases; decreases
C. decreases; decreases
D. decreases; increases
D. decreases; increases
If an increase in the expected future returns on investment leads to an increase in the current level of investment projects undertaken, the loanable funds market will experience an increase in the ____ loanable funds and a(n) ____ in equilibrium interest rates.
A. demand for; increase
B. supply of, increase
C. demand for; decrease
D. supply of; decrease
A. demand for; increase
If the supply of loanable funds decreases and the demand for loanable funds decreases at the same time, interest rates will:
A. increase.
B. decrease.
C. remain the same.
D. increase, decrease, or remain the same.
D. increase, decrease, or remain the same.
An investment tax credit results in a(n):
A. increase in the demand for loanable funds and an increase in the interest rate.
B. decrease in the demand for loanable funds and a decrease in the interest rate.
C. increase in the supply of loanable funds and a decrease in the interest rate.
D. decrease in the supply of loanable funds and an increase in the interest rate.
A. increase in the demand for loanable funds and an increase in the interest rate.
Crowding out occurs because the government increases the demand for loanable funds, drives up interest rates, and causes:
A. saving to rise.
B. saving to fall.
C. consumption and private investment to rise.
D. consumption and private investment to fall.
D. consumption and private investment to fall.
A corporation is planning to construct new offices, but it has limited funds. The corporation is likely to:
A. supply loanable funds by selling bonds.
B. supply loanable funds by buying bonds.
C. demand loanable funds by selling bonds.
D. demand loanable funds by buying bonds.
A. supply loanable funds by selling bonds.
If the Apple corporation sells a bond, it is
A. borrowing directly from the public.
B. borrowing indirectly from the public.
C. selling shares of ownership directly to the public.
D. selling shares of ownership indirectly to the public.
A. borrowing directly from the public.
Katherine is considering expanding her jewelry shop. If interest rates fall she is
A. more likely to expand. This illustrates why the supply of loanable funds slopes downward.
B. less likely to expand. This illustrates why the supply of loanable funds slopes upward.
C. more likely to expand. This illustrates why the demand for loanable funds slopes downward.
D. less likely to expand. This illustrates why the demand for loanable funds slopes upward.
C. more likely to expand. This illustrates why the demand for loanable funds slopes downward.
Who is considered unemployed?
A. Julia, a full-time college student, has a part-time job.
B. Jason, a full-time caregiver, was searching for a part-time position two months ago, but hasn't since.
C. Javier, a retired college professor, does community volunteer work.
D. John, on temporary layoff from his work, awaits recall.
D. John, on temporary layoff from his work, awaits recall.
In the late 1990s, the rising popularity of Barnes & Noble and Borders shifted workers from independent bookshops to larger chains. What type of unemployment was associated with this reallocation of the workforce?
A. frictional unemployment
B. technological substitution
C. creative destruction
D. structural unemployment
A. frictional unemployment
Which of these is the best example of frictional unemployment?
A. John, a coal miner, was laid off because of a lack of demand for workers in his industry.He is looking into new opportunities in computer programming, but they require him to gain some new skills.
B. Heather recently graduated with her doctorate in economics. She is searching for a job that matches her skills.
C. Peter, a highly skilled construction worker, lost his job when the recession began. He is looking for work, but demand in the construction industry is still low.
D. Allison, a recent high school graduate with high aspirations, is seeking a job as the CEO of a Fortune 500 company
B. Heather recently graduated with her doctorate in economics. She is searching for a job that matches her skills.
A worker repairing VHS cassette-tape players was laid off because most of their customers have started using DVD players and streaming services. This worker is now:
A. a discouraged worker.
B. frictionally unemployed.
C. cyclically unemployed.
D. structurally unemployed.
D. structurally unemployed.
Consider countries A and B. In country A, the minimum wage is 30% of the median wage, and in country B, the minimum wage is 60% of the median wage. As a result, the minimum wage will affect more workers in country ___ and create more unemployment un country ___.
A. A; A
B. A; B
С. В; В
D. B; A
С. В; В
Suppose that Congress decided to exempt seniors from paying income tax on labor income. What would happen to the labor force participation rate for seniors?
A. It would increase.
B. It would decrease.
C. It would remain the same.
D. It is impossible to tell.
A. It would increase.
As a result of the changing variety and quality of goods that the typical consumer purchases each year, many economists argue that the consumer price index might:
A. have to be abandoned in favor of a better measure of inflation.
B. not be as good a measure of inflation as the GDP deflator is.
C. understate inflation.
D. overstate inflation.
D. overstate inflation.
The price level at the end of 2011 minus the price level at the end of 2010 is the year 2011.
A. inflation rate
B. change in the price level
C. change in gross national product
D. consumer price index
B. change in the price level
If the price level in the year 2000 is 100, and the price level in the year 2001 is 110, what is the inflation rate in 2001?
A. 100%
В. 110%
C. 10%
D. 9%
C. 10%
An associate professor of physics gets a $200 a month raise. With their new monthly salary they can buy more goods and services than they could buy last year.
A. Their real and nominal salary have risen.
B. Their real and nominal salary have fallen.
C. Their real salary has risen and their nominal salary has fallen.
D. Their real salary has fallen and their nominal salary has risen.
A. Their real and nominal salary have risen.
To compare the $1-an-hour your grandfather earned in 1950 with the $8-an-hour you earn today, you would need to:
A. simply compare $1-an-hour to $8-an-hour.
B. add the inflation rates in each year since 1950 until today and add this to your grandfather's wage.
C. calculate real wages in both 1950 and today.
D. calculate your grandfather's nominal wage in 1950 and compare it to your wage today.
C. calculate real wages in both 1950 and today.
In a small economy, the quantity of money circulating in the economy is $2.5 million. Real GDP for the current year is $5 million, and the average price level is 2. What is the velocity of money?
A. 4.0
B. 2.0
C. 2.5
D. 5.0
A. 4.0
If the money supply, the velocity of money, and the price level are fixed, then increases in real GDP:
A. are impossible because real GDP must also be fixed.
B. cause the money supply, the velocity of money, and the price level to increase together.
C. cause the money supply, the velocity of money, and the price level to decrease together.
D. occur without changes in the other variables.
A. are impossible because real GDP must also be fixed.
Suppose that the average level of prices increased from 100 to 110 between 2007 and 2008, and from 110 to 115 between 2008 and 2009. Between 2008 and 2009, there was:
A. deflation.
B. hyperinflation.
C. disinflation.
D. inflation in the real price of everything.
C. disinflation.
When the expected rate of inflation is higher than the actual rate of inflation, wealth is:
A. redistributed at random.
B. not redistributed at all.
C. redistributed from borrowers to lenders.
D. redistributed from lenders to borrowers.
C. redistributed from borrowers to lenders.
Suppose your employer cuts your pay 5% when the economy is experiencing overall deflation of 5%. If in response to your pay cut you also reduce your consumption by 5%, then economists would say that:
A. you made a rational decision.
B. you are exhibiting money illusion.
C. your real wage decreased by 5%.
D. the quantity theory of money held.
B. you are exhibiting money illusion.
A bank lends money for a year at an interest rate of 7%, and the inflation rate for that year turns out to be 5%. What is the bank's real rate of return for that year?
А. 2.0%
B. 3.5%
C. 6.0%
D. 12.0%
А. 2.0%
What happens to workers who contract for cost-of-living allowances of 10% a year when the inflation rate falls to 4%?
A. They lose purchasing power.
B. They are paying an inflation tax.
C. They become more costly to employ and may lose their jobs.
D. They must be suffering from money illusion.
C. They become more costly to employ and may lose their jobs.
If spending in an economy increases by 3% and real gross domestic product increases by 1%, the result will be:
A. a recession.
B. inflation.
C. a positive supply shock.
D. war.
B. inflation.
If spending growth is 6% and inflation is also 6%, this means that:
A. real gross domestic product did not increase.
B. economic growth was 12%.
C. more money is chasing an increased number of goods.
D. a positive supply shock occurred.
A. real gross domestic product did not increase.
Suppose a doctor spends half of the year in the United States and the other half in Canada and works in both places. How is the doctor's production allocated between U.S. and Canadian GNP?
A. Half of the doctor's income counts toward U.S. GNP and half toward Canadian GNP.
B. It depends on whether the doctor is a permanent resident of the United States or Canada.
C. The full income gets counted in both U.S. GNP and Canadian GNP.
D. The value of the services produced in the United States is counted in U.S. GNP and the value of the services produced in Canada is counted in Canadian GNP.
B. It depends on whether the doctor is a permanent resident of the United States or Canada.
Suppose you spent $10,000 in 2016 remodeling your house, which you originally built for $200,000 in 2000. As a result, GDP in 2016 would:
A. not change.
B. increase by $10,000.
C. increase by $200,000.
D. increase by $210,000.
B. increase by $10,000.
Which of these would be included in 2017's GDP?
A. the 2017 resale of a house built in 2015
B. the sale of bonds in 2017
C. the sale of stocks in 2017
D. the real estate agent's commission on the 2017 resale of a house built in 2015
D. the real estate agent's commission on the 2017 resale of a house built in 2015
Which of these goods is a finished good that would be counted in GDP in the year it is produced?
A. tomatoes used by an Italian restaurant
B. wood used for making furniture
C. an oven for installation in a bakery
D. a computer chip used in a laptop computer
C. an oven for installation in a bakery
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 sells these golf clubs to consumers for $1,500,000. How much is added to GDP?
A. $1,000,000
B. $1,500,000
C. $2,500,000
D. $2,800,000
B. $1,500,000
Intel sells computer chips to Hewlett-Packard for $1,500,000. Hewlett-Packard uses the computer chips to make computers and sells the computers to Best Buy for $4,300,000. Best Buy sells these computers to consumers for $5,500,000. How much is added to GDP?
A. $4,300,000
B. $5,500,000
C. $9,800,000
D. $11,300,000
B. $5,500,000
Tim buys a house from Betty in 2017 for $200,000. Betty receives $185,000 and $15,000 goes to Mary, the real estate agent. Betty originally purchased the house in 2007 for $240,000. What value is added to GDP in 2017 for this transaction?
A. -$40,000
B. $15,000
C. $185,000
D. $200,000
B. $15,000
According to the national spending approach, which of these is counted in investment?
A. A restaurant buys a new wood-fired oven for baking pizzas.
B. A college graduate buys a new car after graduating.
C. A student pays for tuition at a university.
D. A retiree buys newly issued U.S. government bonds.
A. A restaurant buys a new wood-fired oven for baking pizzas.
Which of these government outlays is a transfer payment that would NOT be included in GDP?
A. The Veteran's Administration pays a doctor to care for a wounded veteran.
B. The National Security Agency builds a new building for its headquarters.
C. The Social Security program sends a monthly payment to a senior citizen.
D. The Defense Department buys a new aircraft carrier.
C. The Social Security program sends a monthly payment to a senior citizen.
The portion of women in the workforce has nearly doubled since 1950. As a result, fewer mothers are providing home and child care services. How has this trend affected GDP?
A. This trend has had no predictable effect on GDP.
B. The GDP in 1950 is underestimated relative to today.
C. The GDP in 1950 is overestimated relative to today.
D. The share of GDP attributable to women has declined.
B. The GDP in 1950 is underestimated relative to today.
Jane and Bob purchase avocados at a grocery store, but Bob also grows avocados in his backyard. Regarding these two practices, which of the following statements is correct?
A. Only Jane's grocery store purchases are included in GDP.
B. Only Jane's and Bob's grocery store purchases are included in GDP.
C. Jane's and Bob's grocery store purchases are included in GDP. The avocados from Bob's backyard garden are included at their market value.
D. Jane's and Bob's grocery store purchases are included in GDP. The avocados from Bob's backyard garden are included at their market value, if Bob provides this information.
B. Only Jane's and Bob's grocery store purchases are included in GDP.
Suppose the country of Wakanda only produces one style of good, Vibranium. Last year, nominal GDP was $50,000 and this year it is $200,000. What can be definitively concluded?
A. Output in Wakanda quadrupled.
B. The rate of unemployment decreased.
C. The standard of living in Wakanda increased.
D. None of the statements are necessarily true.
D. None of the statements are necessarily true.
Consider a market for loanable funds (supply and demand curve in pic)
Now, assume Gotham City becomes more corrupted, and the city council starts to freeze citizens bank accounts. Update the curve.
Supply shifts to the left (decreases)
Consider a market for loanable funds (supply and demand curve in pic)
Now, assume investors become less optimistic. Update the curve.
Demand shifts to the left (decreases)
Consider a market for loanable funds (supply and demand curve in the pics)
Now assume people become more thrifty. Update the curve.
Supply shifts to the right (increases)
Consider a market for loanable funds. (supply/demand curve in pic)
Now assume the government offers a temporary investment tax credit.
Demand shifts to the right (increases)
Note 
Flashcard (31)