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61)
What is investment in a closed economy if you have the following economic data?
Y = $10 trillion
C = $5 trillion
TR = $2 trillion
G = $2 trillion
61)
A)
$3 trillion
B)
$5 trillion
C)
$2 trillion
D)
cannot be determined without information on taxes (T)
62)
A good measure of the standard of living is
62)
A)
nominal GDP per capita.
B)
real GDP per capita.
C)
total nominal GDP.
D)
total real GDP.
63)
In a closed economy, which of the following equations reflects investment? (Y = GDP, C =
Consumption, G = Government purchases, T = Taxes, and TR = Transfers)
63)
A)
Y - C - T
B)
Y - C - G
C)
C + G -T
D)
Y - T + TR
64)
What two factors are the keys to determining labor productivity?
64)
A)
the business cycle and the growth rate of real GDP
B)
technology and the quantity of capital per hour worked
C)
the growth rate of real GDP and the interest rate
D)
the average level of education of the workforce and the price level
65)
How would the equilibrium quantity of loanable funds respond to a change from an income tax to
a consumption tax?
65)
A)
The equilibrium quantity of loanable funds may rise or fall based on whether household
savings increase or decrease as a result of the change from an income tax to a consumption
tax.
B)
The equilibrium quantity of loanable funds would be unaffected.
C)
The equilibrium quantity of loanable funds would rise.
D)
The equilibrium quantity of loanable funds would fall.
66)
Three factors that affect China's airline industry's profitability and growth are
66)
A)
a lack of human capital, large investments in new planes, and the government's failure to
liberalize the air travel market.
B)
an abundance of human capital, large investments in new planes, and the government's
failure to liberalize the air travel market.
C)
a lack of human capital, large investments in new planes, and the government's liberalization
of the air travel market.
D)
a lack of human capital, small investments in new planes, and the government's failure to
liberalize the air travel market.
Figure 13-2
67)
Refer to Figure 13-2. Which of the following is consistent with the graph depicted above?
67)
A)
New government regulations decrease the profitability of new investment.
B)
There is a shift from an income tax to a consumption tax.
C)
An expected expansion increases the profitability of new investment.
D)
The government runs a budget surplus.
68)
If real GDP in a small country in 2005 is $8 billion and real GDP in the same country in 2006 is $8.3
billion, the growth rate of real GDP between 2005 and 2006
68)
A)
is 3.0%.
B)
is 3.6%.
C)
is 3.75%.
D)
cannot be determined from the information given.
69)
There is a government budget surplus if
69)
A)
T-Tr > G.
B)
G > Tr.
C)
Tr < T.
D)
G > T.
70)
Which of the following is an example of human capital?
70)
A)
a factory building
B)
a computer
C)
a college education
D)
a software program
Table 13-1
Year
Real GDP
(Billion of 2000
dollars)
2002 $8,700
2003 8,875
2004 9,000
2005 9,280
71)
Refer to Table 13-1. Calculate the average annual growth rate from 2002 to 2005.
71)
A)
3%
B)
1%
C)
1.5%
D)
2%
72)
If real GDP per capita doubles between 2005 and 2020, what is the average growth rate of real GDP
per capita?
72)
A)
10.5%
B)
21%
C)
15%
D)
4.7%
73)
During a recession, spending on ________ tends to fall more dramatically than spending on
________.
73)
A)
necessities; luxuries
B)
nondurable goods; durable goods
C)
food; cars
D)
durable goods; nondurable goods
74)
In a closed economy, private saving is equal to which of the following? (Y = GDP, C =
Consumption, G = Government purchases, T = Taxes, and TR = Transfers)
74)
A)
Y + TR - C - T
B)
Y - C - T
C)
Y - G - T + TR
D)
Y - G - T
75)
Under which of the following circumstances would the government be running a deficit?
75)
A)
G = $7 trillion
T = $7 trillion
TR = $0
B)
G = $7 trillion
T = $10 trillion
TR = $3 trillion
C)
G = $5 trillion
T = $7 trillion
TR = $1 trillion
D)
G = $5 trillion
T = $5 trillion
TR = $1 trillion
76)
Which of the following will not occur as the result of a decrease in net taxes?
76)
A)
decreased government saving
B)
decreased household saving
C)
a shift the supply of loanable funds to the left
D)
all of the above
77)
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%?
77)
A)
less than 1 year
B)
5 years
C)
35 years
D)
14 years
78)
Which of the following explains the causes of the changes in the unemployment rate at the end of a
recession?
78)
A)
Discouraged workers return to the labor force and this makes the unemployment rate fall.
B)
Discouraged workers leave the labor force and this makes the unemployment rate rise.
C)
Firms rapidly hire new workers at the first sign of on an increase in demand for their goods.
D)
Firms are hesitant to rehire laid off workers as they continue to operate below capacity.
79)
Borrowers are ________ of loanable funds, and lenders are ________ of loanable funds.
79)
A)
demanders; demanders
B)
suppliers; demanders
C)
suppliers; suppliers
D)
demanders; suppliers
80)
Growth in potential GDP in the United States is estimated to be about
80)
A)
2% per year.
B)
5% per year.
C)
3.5% per year.
D)
8% per year.
Figure 13-4
81)
Refer to Figure 13-4. Which of the following is consistent with the graph depicted?
81)
A)
an increase in the proportion of income after net taxes used for consumption
B)
an increase in tax revenues collected by the government
C)
an increase in household income
D)
an increase in transfer payments to households
82)
The period between a business cycle peak and a business cycle trough is called
82)
A)
recalculation.
B)
recession.
C)
diffusion.
D)
expansion.
83)
Botswana's rapid growth can be explained by
83)
A)
an increase in labor force participation.
B)
the movement of workers from the agricultural sector to the manufacturing sector.
C)
investment in human capital from 1960 through 2007.
D)
protection of private property and avoiding political instability.
84)
Purchases of Huggies diapers should
84)
A)
increase in recessions and decrease in expansions.
B)
decrease in recessions and increase in expansions.
C)
remain fairly constant over the business cycle.
D)
increase in recessions and remain constant in expansions.
85)
How would the equilibrium interest rate respond to a change from an income tax to a consumption
tax?
85)
A)
The equilibrium interest rate may rise or fall based on whether the demand or supply of
loanable funds changes.
B)
The equilibrium interest rate would be unaffected.
C)
The equilibrium interest rate would fall.
D)
The equilibrium interest rate would rise.
86)
Increases in real GDP since 1900 can actually underestimate growth in the standard of living for
Americans since 1900 because
86)
A)
the crime rate was higher in 1900 than it is today.
B)
goods and services are more expensive today as compared to 1900.
C)
the quality of health care that exists today was not available in 1900.
D)
the level of pollution in 1900 was much higher than it is today.
87)
During the recession phase of the business cycle
87)
A)
income is usually rising.
B)
interest rates are usually falling.
C)
production is usually rising.
D)
unemployment is usually falling.
88)
If real GDP grows by 3% in 2005, 3.2% in 2006, and 2.5% in 2007, what is the average annual
growth rate of real GDP?
88)
A)
2.6%
B)
4.2%
C)
2.9%
D)
3.1%
89)
During the expansion phase of the business cycle, which of the following eventually increases?
89)
A)
employment
B)
production
C)
income
D)
all of the above
90)
As the economy nears the end of an expansion, which of the following do we typically see?
90)
A)
falling wages relative to output prices
B)
rising firm profits
C)
rising levels of firm investment
D)
rising interest rates
Figure 13-3
91)
Refer to Figure 13-3. Which of the following is consistent with the graph depicted above?
91)
A)
Technological change increases the profitability of new investment.
B)
The government runs a budget deficit.
C)
An expected recession decreases the profitability of new investment.
D)
Taxes are changed so that real interest income is taxed rather than nominal interest income.
92)
The longest recession since 1953 in the United States lasted for
92)
A)
10 months.
B)
eight months.
C)
16 months.
D)
24 months.
93)
In comparison to a government that runs a balanced budget, when the government runs a budget
deficit,
93)
A)
household savings will fall.
B)
the equilibrium interest rate will fall.
C)
business investment will fall.
D)
none of the above
94)
Countries with high rates of economic growth tend to have
94)
A)
a declining incidence of business cycle fluctuations.
B)
a labor force that is more productive.
C)
a lower life expectancy at birth.
D)
longer workweeks.
95)
Long-run economic growth requires all of the following except
95)
A)
political instability.
B)
increases in capital per hour worked.
C)
technological change.
D)
government provision of secure property rights.
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
96)
Explain and show graphically how government deficits can "crowd out" private
investment.
96)
97)
When potential GDP increases, is it necessarily the case that real GDP increases as well?
Explain.
97)
98)
Briefly explain how the miserliness of Ebenezer Scrooge might actually be beneficial for
economic growth.
98)
99)
Use the equations for public and private saving to demonstrate how total saving in the
economy equals investment.
99)
100)
What factors increase potential GDP? Include a definition of potential GDP in your
answer.
100)
101)
Consider the following data for a closed economy:
a. Y = $12 trillion
b. C = $8 trillion
c. I= $3 trillion
d. TR = $2 trillion
e. T = $3 trillion
Use the data provided to calculate the level of private saving and the level of public saving
and demonstrate their relationship to investment.
101)
102)
Explain and show graphically how an increase in household savings affects the
equilibrium interest rate and the equilibrium quantity of loanable funds.
102)
103)
What is "human capital," and how does human capital affect labor productivity and
economic growth?
103)
104)
How are unemployment, inflation, and the business cycle related?
104)
105)
How has economist Robert Fogel explained that economic growth is connected to life
expectancy? Based on this connection, in what country would you expect to have a longer
life expectancy, the United States or India? Explain.
105)
106)
If net taxes rise by $150 billion would you expect household savings to fall by $150 billion,
by more than $150 billion, or by less than $150 billion?
106)
107)
Explain and show graphically how an increase in government spending affects the
equilibrium interest rate in the market for loanable funds.
107)
108)
How have government policies and programs affected the volatility of the business cycle in
the United States since 1950? Explain and provide at least two specific examples of policies
or programs that may have had an impact.
108)
109)
The growth rate of real GDP in the United States rises from 4.2% to 4.4%. Explain and
calculate how this increase in the growth rate of real GDP affects the number of years it
will take for real GDP to double.
109)
110)
Countries without well-developed financial systems are able to sustain high levels of economic
growth.
110)
111)
If there is public dissaving investment spending in the economy will decline, holding everything
else constant.
111)
112)
The NBER's Business Cycle dating committee defines a recession as at least two consecutive
quarters of falling real GDP.
112)
113)
Potential GDP is the maximum output a firm is capable of producing.
113)
114)
In an open economy, there is interaction with other economics in terms both trading of goods and
services and borrowing and lending.
114)
115)
Economists have not found a way to predict when recessions will begin and end.
115)
116)
Accumulating a greater number of inputs will ensure that an economy will experience economic
growth.
116)
117)
Recessions have been more severe since the 1950s.
117)
118)
At the end of an expansion, wages of workers are usually rising faster than prices.
118)
119)
Increases in capital per hour worked cannot sustain high rates of economic growth unless
accompanied by technological change.
119)
