question

Inflation tends to ________ during the expansion phase of the business cycle and ________ during the recession phase of the business cycle.

answer

increase, decrease

question

U.S. business cycle fluctuations have become milder since the

answer

1950s

question

If real GDP in a small country in 2010 is $8 billion and real GDP in the same country in 2011 is $8.3 billion, the growth rate of real GDP between 2010 and 2011

answer

3.75 %

question

Increases in real GDP since 1900 can actually underestimate growth in the standard of living for Americans since 1900 because

answer

quality of healthcare is better now

question

Purchases of Huggies diapers should

answer

remain fairly constant over the business cycle

question

Technological advances generally result in

answer

increased life expectancy.

question

Increasing the amount of consumption spending and reducing the amount of savings ________ investment expenditures, and ________ long-run economic growth in the economy.

answer

decreases, decreases

question

The demand for loanable funds is downward sloping because the ________ the interest rate, the ________ the number of profitable investment projects a firm can undertake, and the ________ the quantity demanded of loanable funds.

answer

lower, greater, greater

question

Countries with high rates of economic growth tend to have

answer

a labor force that is more productive

question

Borrowers are ________ of loanable funds, and lenders are ________ of loanable funds.

answer

demanders, suppliers

question

In a closed economy, which of the following components of GDP is not included?

answer

net exports

question

When the government runs a budget deficit, we would expect to see that

answer

investment will fall

question

If the U.S. government decided to regulate the prices of airline tickets to keep them from falling when the economy is weak, there would tend to be a ________ of airline tickets in the market and this would likely ________ the profits of U.S. airlines.

answer

surplus, reduce

question

An increase in the demand for loanable funds will occur if there is

answer

an increase in expected profits from firm investment projects.

question

The total amount of physical capital available in a country is know as the country's

answer

capital stock

question

As the economy nears the end of an expansion, which of the following do we typically see?

answer

rising interest rates

question

How would the equilibrium interest rate respond to a change from an income tax to a consumption tax?

answer

The equilibrium interest rate would fall.

question

There is a federal budget deficit when

answer

the government spends more that it collects in taxes

question

Which of the following statements describes the experiences of the Boeing Corporation since it was established in 1916?

answer

strong growth interrupted by periods of business cycle recession

question

If the growth rate of real GDP rises from 3% to 4% per year, then the number of years required to double real GDP will decrease from

answer

23.3 years to 17.5 years

question

Which of the following would encourage economic growth through increases in the capital stock?

answer

A) a change from an income tax to a consumption tax B) a decrease in the government deficit C) an increase in household saving

question

Which of the following will increase investment spending in the economy, holding everything else constant?

answer

an increase in the federal government surplus

question

Since 1900, real GDP in the United States has grown

answer

more rapidly than the population.

question

Which of the following is most liquid?

answer

a dollar bill

question

The effect of a recession on a company like Boeing Aircraft is such that

answer

sales decline more sharply for Boeing as compared to firms that do not produce durable goods.

question

Which of the following increases labor productivity?

answer

inventions of new machinery, equipment, or software

question

During the recession phase of the business cycle,

answer

interest rates are usually falling.

question

If consumers decide to be more frugal and save more out of their income, then this will cause

answer

a shift in the supply curve for loanable funds to the right.

question

The response of investment spending to an increase in the government budget deficit is called

answer

crowding out.

question

If, in an economy experiencing inflation, the government decided to tax real interest income rather than nominal interest income, this change would cause the real interest rate to ________ and the equilibrium quantity of loanable funds to ________.

answer

fall; rise

question

If government saving is negative, then

answer

T-TR<G

question

When the economy enters a recessionary phase of the business cycle, unemployment tends to

answer

increase

question

Long-run economic growth requires all of the following except

answer

political instablity

question

In comparison to a government that runs a balanced budget, when the government runs a budget deficit

answer

business investment will fall

question

In a closed economy, public saving is equal to which of the following?

answer

T-G-R

question

In a closed economy public saving plus private saving is equal to

answer

investment

question

If government purchases are $400 million, taxes are $700 million, and transfers are $200 million, which of the following is true?

answer

Public saving is $100 million.

question

If Ebenezer Scrooge spends rather than saves his vast wealth he will

answer

slow economic growth because he is reducing the amount of funds available for investment.

question

If net taxes fall by $80 billion, we would expect

answer

household saving to rise by less than $80 billion.

question

The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as

answer

labor productivity

question

Potential GDP refers to

answer

the level of GDP attained when all firms are producing at capacity.

question

According to the National Bureau of Economic Research, the United States experienced ________ recessions since 1950.

answer

10

question

Which of the following would you expect to increase the equilibrium interest rate?

answer

an increase in the budget deficit

question

The demand for durable goods

answer

declines by a greater percentage than does GDP during a recession.

question

There is a government budget surplus if

answer

T - TR > G.

question

Human capital refers to which of the following?

answer

the accumulated knowledge and skills workers acquire from education and training or from their life experiences

question

How would the equilibrium quantity of loanable funds respond to a change from an income tax to a consumption tax?

answer

The equilibrium quantity of loanable funds would rise.

question

Most economists believe that the return of ________ during the 2007-2009 recession is a key reason why the recession was so severe.

answer

financial instablity

question

Liquidity refers to

answer

the ease with which a financial security can be traded for cash.

question

The period between a business cycle peak and a business cycle trough is called

answer

recession

question

What is the name of the organization that defines business cycle peaks and troughs in the United States?

answer

the National Bureau of Economic Research

question

Which of the following does not describe governmental policy actions that are helpful in supporting growth in an economy? Governmental policies that

answer

avoid playing any role in developing communication systems

question

Which of the following will not occur as the result of a decrease in net taxes?

answer

decreased household saving

question

In a closed economy, which of the following equations reflects investment? (Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers)

answer

Y - C - G

question

Actual real GDP will be above potential GDP if

answer

firms are producing over capacity

question

Which of the following explains why fluctuations in real GDP have become less volatile in the United States since 1950?

answer

Unemployment insurance and other government transfer programs are more prevalent since the 1950s.

question

Which of the following explains the cause of the change in the unemployment rate at the end of a recession?

answer

Firms are hesitant to rehire laid off workers as they continue to operate below capacity.

question

Since 1950, expansions in the United States have become ________, while recessions have become ________.

answer

longer, shorter

question

Which of the following is an example of human capital?

answer

college education

question

A firm can fund an expansion of its operations by

answer

issuing bonds

question

According to the "Rule of 70", it will take 4 years for real GDP per capita to double when the growth rate of real GDP per capita is

answer

17.5 percent

question

A good measure of the standard of living is

answer

real GDP per capita

question

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)

answer

Y + TR - C - T

question

From 1991 until 2001, the United States was in a period of

answer

expansion

question

Typically, as an economy begins to emerge from a recessionary phase of the business cycle,

answer

unemployment continues to rise.

question

During a recession, spending on ________ tends to fall more dramatically than spending on ________.

answer

durable, nondurable

question

Growth in potential GDP in the United States is estimated to be about

answer

3.3%

question

If labor productivity growth slows down in a country, this means that the growth rate in ________ has declined.

answer

the quantity of goods or services that can be produced by one hour of work

question

As the economy nears the end of a recession, which of the following do we typically see?

answer

increased spending on capital goods by firms

question

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%?

answer

14 years

question

Since 1900, real GDP per capita has ________ and this measure ________ the actual growth in standards of living in the United States over this time.

answer

increased; understates

question

The period of expansion ends with a ________ and the period of recession ends with a ________.

answer

peak, trough

question

What two factors are the keys to determining labor productivity?

answer

technology and the quantity of capital per hour worked

question

If labor productivity growth slows down in a country, this will

answer

slow down the increase in real GDP per capita.

question

Which of the following would contribute to a sustained high rate of economic growth in the long run in an economy?

answer

growth in capital per hour accompanied by technological change

question

How will an increase in the government budget surplus as a result of lower government spending (with no change in net taxes) affect private saving in the economy?

answer

Private saving will decrease by less than the amount of increase in the budget surplus.

question

A government budget surplus from reduced government spending (no change in net taxes) will ________ the level of investment in the economy and ________ the level of saving (private plus public) in the economy.

answer

increase, increase

question

Which of the following is true regarding the productivity slowdown in the United States during the mid-1970s?

answer

High oil prices raised the costs of doing business for markets worldwide, and reduced output worldwide as well.

question

2) Disease, poor nutrition, and substandard health care in developing nations can reduce growth in an economy by

answer

reducing human capital.

question

Some factors currently exist that inhibit the growth rate of the Chinese economy.The main reason given is

answer

the lack of laws that predictably enforce property rights.

question

An economy can improve its standard of living by

answer

increasing the amount of capital available per hour worked.

question

Growth in the United States from 1800 to 1900 can be characterized as

answer

positive and increasing.

question

In a small European country, it is estimated that changing the level of capital from $8 million to $10 million will increase real GDP from $2 million to $3 million. What level of GDP would you expect the economy to be able to reach if spending on capital continued to rise to $12 million, assuming no technological change and no change in the hours of work?

answer

GDP would increase further, but by less than $1 million.

question

If real GDP in the United States is growing at an annual rate of 3.2% per capita and Bolivia's real GDP per capita is growing at a rate of 1.3%, which of the following would we expect in the long run? Assume real GDP per capita in the United States begins at a level above that of real GDP per capita in Bolivia.

answer

The difference between the level of real GDP per capita in the United States and real GDP per capita in Bolivia will increase over time.

question

If real GDP per capita in Ireland is estimated to be $7,400 in 2012, what will real GDP per capita be in 2017 if real GDP per capita grows at an annual rate of 2.8%?

answer

$8,496

question

According to new growth theory

answer

technological change is influenced by economic incentives.

question

One potential problem with the Chinese government's increases in spending on capital goods is that these increases have been achieved through

answer

decreases in private consumption.

question

You are an economic advisor to the president. You are asked to recommend a policy to promote long-term economic growth in the economy. Which of the following policies would you choose?

answer

an investment tax credit

question

According to new growth theory

answer

knowledge capital is subject to increasing returns.

question

China's economy is fueled primarily by

answer

fixed asset investment, such as investing in buildings and roads.

question

Knowledge capital is nonrival in the sense that

answer

two people can use the same knowledge to develop and produce a product.

question

The term "brain drain" refers to

answer

highly educated individuals who leave developing countries for high-income countries.

question

All of the following policies are ways for a country to promote long-run economic growth except

answer

imposing stricter regulations to limit foreign direct investment.

question

An economic growth model explains

answer

changes in real GDP per capita in the long run.

question

Robert Lucas, a Nobel laureate in economics, argues that there are ________ returns to human capital.

answer

increasing

question

Which of the following government policies would most likely result in an increase in economic growth?

answer

a decrease in the interest rate at which the government provides student loans

question

Why do some firms choose not to file for a patent and instead try to keep the results of their research a trade secret?

answer

because firms must disclose information about the product or process being patented in a patent application

question

Growth in real GDP per capita for the world economy was greatest during

answer

20th century

question

Knowledge capital is

answer

nonrival and nonexcludable

question

According to Douglass North, the Industrial Revolution occurred in England because

answer

the British Parliament took control of the government and could credibly commit to upholding property rights.

question

Increasing the growth rate of GDP per capita and sustaining this growth rate in an economy can

answer

increase standards of living

question

Some economists argue that the apparent slowdown in economic growth in the United States during the mid-1970s may not really have reduced the standard of living because

answer

significant improvements in the quality of services occurred, although the quantity of these services did not increase much during this time.

question

In 1973, the Club of Rome published a book titled The Limits to Growth, which predicted that economic growth would likely end in high-income countries because of

answer

increasing pollution and the depletion of natural resources.

question

When additions of input to a fixed quantity of another input lead to progressively smaller increases in output, we say we are facing

answer

diminishing returns

question

The productivity slowdown of the mid-1970s can be explained by which of the following?

answer

a decline in labor quality

question

Which of the following explains the ability of the U.S. economy to avoid diminishing marginal returns and experience accelerating growth in the early to mid-20th century?

answer

continuing technological change

question

Technological improvements are more likely to occur if

answer

entrepreneurs are compensated with higher profits for taking risks.

question

Enforcing property rights in an economy will

answer

raise the level of investment.

question

A patent grants an inventor exclusive rights to a product for how long?

answer

20 years

question

A policy that offers parents a tax reduction based on how much they are saving for their children's college education should ________ the equilibrium level of loanable funds and ________ the rate of long-term growth.

answer

increase, increase

question

Creative destruction means that

answer

firms develop new products that replace old products in the economy, thereby encouraging economic growth.

question

According to Joseph Schumpeter, economic growth is achieved through

answer

a process termed "creative destruction."

question

Growth in real GDP per hour worked in the United States was slowest during what period of time?

answer

1973-1994

question

In the early 1900s, Henry Ford revolutionized the automotive manufacturing industry by instituting the assembly line. What impact did the assembly line method for producing automobiles have on the per-worker production function for Ford?

answer

it shifted up

question

When an economy faces diminishing returns,

answer

the slope of the per-worker production function becomes flatter as capital per hour worked increases.

question

Under the Soviet system of communism

answer

technological progress was slow because managers had little incentive to develop new technologies.

question

Which of the following policies would not help promote economic growth?

answer

law requiring that the funds in an individual retirement account be taxed

question

The rapid growth of the Chinese economy should

answer

benefit U.S. consumers as they have access to less expensive consumer goods.

question

Why do some economists point to a decline in the quality of labor as an explanation for the productivity slowdown in themid-1970s?

answer

The skill level required to perform many jobs increased during this period of time, although the skills of the labor force did not increase as quickly.

question

hich of the following would you expect to result in faster economic growth?

answer

he invention of new computers that increase labor productivity

question

Because of diminishing returns, an economy can continue to increase real GDP per hour worked only if

answer

there is technological change

question

Which of the following government provisions would help increase the accumulation of knowledge capital?

answer

A) copyrights B) education subsidies C) patents

question

If the per-worker production function shifts down,

answer

it now takes more capital per hour worked to get the same amount of real GDP per hour worked.

question

Which of the following is not one of the three sources of technological change?

answer

additional amounts of existing capital

question

The period of time from 1,000,000 B.C. to 1300 A.D. was a period of

answer

no sustained economic growth

question

Which of the following advances contributed to the "new economy" of the mid-1990s?

answer

A) expanded cell phone use B) the lower cost and increased availability of laptop computers C) the increased use of the Internet in selling products and services

question

Firms free ride on the research and development of other firms when they

answer

use knowledge other firms have developed without paying for that knowledge.

question

Between 1960 and 2010, deaths among children have

answer

declined in nearly all countries, including most low-income countries.

question

The "new economy" that emerged in the mid-1990s is based on

answer

information technology

question

All of the following are reasons why China is unlikely to maintain high enough rates of productivity growth to catch-up with the standard of living in the United States except

answer

B) the Chinese migration of rural workers to more productive urban jobs.

question

69) The Soviet Union's economy grew rapidly in terms of GDP per hour worked in the 1950s, but eventually this growth slowed. Why did this occur?

answer

Capital per hour worked grew rapidly from 1950 to 1980, but technological change occurred very slowly.

question

Significant economic growth did not begin in the world until

answer

1750 AD

question

China's economy has grown tremendously from 1979 to the presentThe reason the article gives for this growth is

answer

the introduction of market-oriented reforms in 1978.

question

Paul Romer, an economist at Stanford University, is most closely associated with what economic theory?

answer

new growth theory

question

In the United States, the annual growth rate of real GDP per hour worked between 1995 and 2010 averaged

answer

2.1 %

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