ECO209Y1 Lecture Notes - Lecture 2: Gdp Deflator, Personal Consumption Expenditures Price Index, Factor Cost
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Question 3
According to Joseph Schumpeter, the theory of creative destruction describes a process by which
| A | some new products unleash a gale of destruction that drive other new products out of the market. | |
| B | new products unleash a gale of destruction that drives old products out of the market. | |
| C | new products are created by the destruction of capital. | |
| D | the creation of new products never involves the destruction of old products. |
Question 4
Which of the following countries had the highest GDP per capita in 2012?
| A Qatar | ||
| B | United States | |
| C | Japan | |
| D | Norway |
Question 5
________ save a ________ of their income. This ________ capital in their economy and raises economic growth.
| A | Developing countries; large proportion; decreases | |
| B | Developing countries; small proportion; increases | |
| C | High-income countries; large proportion; increases | |
| D | High-income countries; small proportion; increases |
Question 6
The demand for loanable funds is determined by the willingness of ________ to borrow money to engage in new investment projects.
A
| A | government | |
| B | households | |
| C | banks | |
| D | firms |
Question 7
The U.S. economy has been more stable since 1950.
True
False
Question 8
When the economy reaches a trough in a business cycle, which of the following will occur?
| A | Income, production, and employment will continue to fall. | |
| B | Income, production, and employment will begin to rise. | |
| C | Income and production will rise, but employment will continue to fall. | |
| D | Employment rises, but income and production will continue to fall. |
Question 9
In a closed economy, what is the relationship between saving and investment?
| A | Saving is greater than investment. | |
| B | Investment is greater than saving. | |
| C | Investment is equal to saving. | |
| D | Investment may be greater or smaller than saving. |
Question 10
The per-worker production function shows the relationship between ________ per hour worked and ________ per hour worked, holding ________ constant.
| A | labor; real GDP; technology | |
| B | capital; real GDP; technology | |
| C | labor; capital; real GDP | |
| D | capital; labor; real GDP |
Question 11
New growth theory states that increases in ________ capital will result in ________ at the ________ level.
| A | knowledge; increasing returns to scale; firm | |
| B | physical; decreasing returns to scale; firm | |
| C | knowledge; decreasing returns to scale; economy | |
| D | knowledge; increasing returns to scale; economy |
Question 12
Which of the following is not a reason why the Industrial Revolution occurred when and where it did?
| A | The British government was committed to upholding private property rights. | |
| B | The British government was able to eliminate arbitrary increases in taxes. | |
| C | The British government was able to more easily seize wealth. | |
| D | Institutional changes by the British government helped protect wealth. |
Question 13
Growth in real GDP per capita for the world economy was greatest during
| A | the seventeenth century. | |
| B | the eighteenth century. | |
| C | the nineteenth century. | |
| D | the twentieth century. |
Question 14
Which of the following is a normative statement about economic growth?
| A | Economic growth is associated with higher labor productivity growth. | |
| B | Economic growth increases GDP per capita. | |
| C | Economic growth hurts developing countries. | |
| D | Foreign direct investment stimulates economic growth. |
Question 15
The effect of a recession on a company like Whirlpool Corporation is such that
| A | sales decline more sharply for Whirlpool as compared to firms that do not produce durable goods. | |
| B | profits fall less sharply as compared to firms that do not produce durable goods. | |
| C | the decline in sales is more short-lived as compared to firms that do not produce durable goods. | |
| D | there is no difference in the impact of the recession on its profits as compared to firms that do not produce durable goods. |
Question 16
For the recessions in the United States since the 1950s,
| A | cyclical unemployment has been non-existent. | |
| B | unemployment rises on average by about 1.2 percentage points 12 months after a recession begins. | |
| C | unemployment falls on average by 2 percentage points 12 months after a recession begins. | |
| D | unemployment rises on average about 5 percentage points 12 months after a recession begins. |
Question 17
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?
| A | a reduction in sales taxes | |
| B | an investment tax credit | |
| C | a reduction in taxes on luxury yachts | |
| D | All of these |
Question 18
In comparison to a government that runs a balanced budget, when the government runs a budget deficit,
| A | the equilibrium interest rate will fall. | |
| B | business investment will fall. | |
| C | household savings will fall. | |
| D | None of these |
Question 19
If labor productivity growth slows down in a country, this means that the growth rate in ________ has declined.
| A | labor force participation | |
| B | the quantity of goods or services that can be produced by one hour of work | |
| C | the working-age population | |
| D | nominal GDP |
Question 20
Policies to promote growth by increasing saving and investment work through
| A | decreasing the supply of loanable funds, lowering the interest rate, raising the level of investment in physical capital. | |
| B | increasing the supply of loanable funds, increasing the interest rate, raising the level of investment in physical capital. | |
| C | increasing the supply of loanable funds, lowering the interest rate, lowering the level of investment in physical capital. | |
| D | increasing the supply of loanable funds, lowering the interest rate, raising the level of investment in physical capital. |
| Q1. The total resource cost of goods and services produced by the U. S. economy is known as a. real GDP b. personal income c. national wealth d. national income Q2. The difference between GDP and final sales equals a. depreciation b. exports c. imports d. net inventory change Q3. Current disposable income can be adjusted for price changes and population changes to yield real per capita disposable income. a. true b. false Q4. If a lawn service mows your grass, it is included in the GDP. a. true b. false Q5. In national income accounting, grain fed to a hog at a commercial hog farm is considered a(n) a. final good b. intermediate good c. consumer good d. capital consumption allowance Q6. Imports constitute a minus figure in national income accounting. a. true b. false Q7. The total value added in the production of a final good a. exceeds the price of the final good b. equals the price of the final good c. exceeds the total payments made to owners of productive resources used in the production d. both (b) and (c) Q8. The GDP is reported on a monthly basis by the Department of Commerce. a. true b. false Q9. Transfer payments are added to NI in the process of determining personal income. a. true b. false Q10. U.S. gross domestic product is converted to U.S. gross national product by a. adding the value of output produced by U.S.-owned resources in foreign countries b. subtracting the value of output produced by U.S.-owned resources in foreign countries c. subtracting the value of output produced in the United States by foreign-owned resources d. both (a) and (c) Q11. Final sales are always larger than the GDP. a. true b. false Q12. Because of the value of things produced inside households, (building your own desk, mowing your own lawn, etc.) a. the GDP value is automatically adjusted upward to reflect this b. the GDP value is automatically adjusted downward to reflect this c. Official GDP is surely smaller than true total output d. Official GDP is surely larger than true total output Q13. A government surplus may trigger a decline in the money supply. a. true b. false Q14. Real wages are determined by multiplying money wages by the CPI. a. true b. false Q15. The more volatile the inflation rate, the weaker the money supply as a standard of deferred payment. a. true b. false Q16. An increase in the money supply always causes an increase in the price level. a. true b. false Q17. Your nominal wages rose during the same period from $200 a week to $260. By how much did your real income rise? a. 30 percent b. 16.7 percent c. 8.33 percent d. 12 percent Q18. In the past 10 years or so, average real wages of U.S. workers in nonagricultural industries have a. increased about 40 percent b. increased slightly c. remained about the same d. declined Q19. If a new cash deposit creates excess reserves of $5,000 and the required reserve ratio is 10 percent, the banking system can increase the money supply by a maximum of a. $50,000 b. $500 c. $5,000 d. $4,500 Q20. The effect of a change in the money supply on economic activity may be offset by a change in velocity. a. true b. false Q21. The current base period for the CPI is a. 1967 b. 1977 c. 1982â1984 d. 1990 Q22. In the circular flow, an increase in the money supply tends to result when a. planned I equals planned S b. planned I is less than planned S c. planned I is greater than planned S d. there is a surplus government budget Q23. COLA is a form of indexation. a. true b. false Q24. The total checkable deposits a bank may have can be determined by dividing its reserves by the reserve requirement. a. true b. false Q25. The Financial Services Modernization Act a. reinforced the Glass Steagall Act b. prevented mergers of banks c. eliminated barriers between banks, brokerage houses, and insurance companies d. eliminated all banking regulations Q26. Each Federal Reserve Bank has its own board of directors. a. true b. false Q27. The most frequently used tool of U.S. monetary policy is a. the discount rate b. the reserve requirement c. open-market operations d. moral suasion Q28. When the Fed conducts open-market operations, it primarily uses a. Treasury bills b. long-term U.S. government bonds c. bonds of publicly traded corporations d. overnight loans of major banks Q29. The Board of Governors of the Federal Reserve System has a. 6 members b. 7 members c. 1 member from each Federal Reserve Bank d. 20 members Q30. If the Fed desires to increase checkable deposits, it may lower the reserve requirement. a. true b. false Q31. The interest rate at which banks borrow excess reserves from each other is known as the a. prime rate b. federal funds rate c. discount rate d. T-bill rate Q32. If member banks need to borrow reserves, they must do so through the discount window. a. true b. false Q33. The Fed Chairman appears before Congress semi-annually to present the Monetary Policy Report. a. true b. false Q34. In terms of the total number of payments, which of the following comprises the largest share? a. cash b. personal checks c. debit cards d. credit cards Q35. By buying government securities, the Federal Open Market Committee adds to member banks' reserves. a. true b. false Q36. More than 50 percent of commercial banks in the United States belong to the Federal Reserve System. a. true b. false Q37. The Federal Reserve System is built around a. 4 regional banks b. 6 regional banks c. 12 district banks d. 1 bank with several branches Q38. The time lags lead monetarists to contend that monetary policy is counterproductive. a. true b. false Q39. The marginal propensity to consume is a. the fraction of an increase in income that would be spent on consumer goods b. the additional desire people have for consumer goods c. the fraction of a person's total income normally spent for consumer goods d. the change in consumption resulting from a $1 change in the price level Q40. The consumption function shows a. how fast the economy is consuming its capital b. that the amount of national income determines the rate at which the economy consumes its resources c. that households' incomes determine how much the households will spend for consumer goods d. the rate at which people actually use up their consumer goods Q41. In the simple Keynesian model, if output exceeds aggregate expenditures, a. there will be no response from businesses b. inventories will decrease and businesses will increase output c. inventories will increase and businesses will increase output d. inventories will increase and businesses will decrease output Q42. If planned construction investment increases by $30 billion and the MPC is two-thirds, total output will increase by a. $30 billion b. $20 billion c. $45 billion d. $90 billion Q43. "A given change in business investment will cause a larger change in equilibrium output." This statement describes an important Keynesian concept called the a. multiplier effect b. marginal propensity to consume c. marginal propensity to invest d. consumption function Q44. In the multiplier formula, 1/MPS equals the multiplier. a. true b. false Q45. The classical economists held that chronic unemployment was likely. a. true b. false Q46. As income increases, the absolute level of planned consumption will increase. a. true b. false Q47. The new classical school contends that government fiscal policy is better than monetary policy in controlling inflation. a. true b. false Q48. Higher price levels are associated with lower aggregate expenditure at every level of income. a. true b. false Q49. Any time that planned leakages exceed planned injections, the economy will expand. a. true b. false Q50. According to the Keynesian model, increased foreign spending for U.S. goods is likely to a. reduce total employment in the United States b. increase total employment in the foreign country c. reduce total output in the United States d. increase total output in the United States |
