ECON 2000 Lecture Notes - Lecture 13: Investment Goods, E Number, Production Function

1. According to economists today, economic growth depends on:

1) resources.

2) technology.

3) institutions.

4) resources and technology.

5) resources, technology, and institutions.

2. Which of the following is FALSE?

1) Real-world observations shape economic theory.

2) Economic theory shapes policy decisions.

3) Policies affect real-world events.

4) Economic theory has no impact on real-world events.

5) None of these statements is false.

3. After the Great Depression, the main focus of macroeconomics was:

1) growth theory.

2) the study of business cycles.

3) the study of stock markets.

4) the study of why businesses fail.

4. The Solow Growth Model serves as a foundation of:

1) macroeconomic theory.

2) microeconomic theory.

3) growth theory.

4) all economic theory.

5. According to the Solow Growth Model, which of the following is/are the primary source(s) of economic growth?

A - Natural resources

B - Human capital

C - Physical capital

D - A and B

E - A and C

F- B and C

G- A, B, and C

6. According to the Solow Growth Model, the marginal product of capital is:

1) zero and increases as the quantity of capital increases

2) zero and decreases as the quantity of capital increases.

3) negative and increases as the quantity of capital increases.

4) negative and decreases as the quantity of capital increases.

5) positive and increases as the quantity of capital increases.

6) positive and decreases as the quantity of capital increases.

7. If building new capital is costless and the capital depreciation rate is zero, then an economy will reach a steady state in which the marginal product of capital is:

1) equal to zero.

2) greater than zero.

3) less than zero.

8. Which of the following is true for an economy before it reaches the steady-state?

1) Investment and net investment are both positive.

2) Investment is positive but net investment is zero.

3) Investment is zero but net investment is positive.

4) Investment and net investment are both zero.

9. The idea of convergence suggests that when underdeveloped nations begin to develop, they typically have _____________ growth rates as they catch up to the developed nations.

1) higher

2) lower

3) similar

4) very low

10. Which of the following is true after allowing for sustained technological advance in the Solow Growth Model?

I. The steady-state situation is avoidable.

II. The marginal product of each unit of capital will increase.

III. A diminishing marginal product is avoidable.

Only I only II

Only III

I and II

I and III

II and III

I, II, and III

11. What is the primary difference between the basic Solow model and the second Solow model?

1) The models are theoretically similar. The second Solow model is only more mathematically complex than the basic model.

2) The second Solow model allows for technological change, while the basic model doesn't.

3) The basic Solow model features diminishing returns, in contrast to the second model.

4) The marginal product eventually becomes zero in the basic model, while such a situation is avoidable in the second Solow model.

12. All of the following can result in economic growth except:

1) improved schools and colleges.

2) a boost in population growth.

3) a favorable climate.

4) an improved health care system.

13. Which of the following will result in a movement along with the aggregate production function?

I. a technological advancement

II. training of the workforce

III. an increase in the country's capital stock

I and II

I and III

II and III

I, II, and III

14. Which of the following is NOT true about technological change in the Solow model?

1) Technological change is random.

2) Technological change occurs exogenously.

3) Technological change is driven by the incentives of the innovators.

4) Technological change is not due to any inherent characteristics of the economy.

15. What is the key difference between the new growth theory and the growth theory as envisioned by Solow?

1) There is no difference; technological change is endogenous in both these theories.

2) There is no difference; technological change is exogenous in both these theories.

3) Technological change is endogenous in the new growth theory and exogenous in the Solow theory.

4) Technological change is exogenous in the new growth theory and endogenous in the Solow theory.

16. Which of the following was proposed by the new growth theory?

I. Capital resources cannot grow indefinitely.

II. Technological change is caused by factors inside the economy.

III. Technological changes are entirely unpredictable events.

IV. Institutions matter.

I and II

I and IV

II and IV

III and IV

I, II, III, and IV

17. All of the following except _____________ are barriers to natural growth.

1) corruption

2) political instability

3) high tax rates

4) free markets

5) All of these are barriers to natural growth.

18. Which of the following is supported by the modern growth theory?

A - Population growth is an obstacle to economic growth.

B - Competition encourages the discovery of new goods and services, which leads to economic growth.

C - A country can grow faster if it disengages itself from international trade with foreign nations.

D - Taxes should be abolished, as they hurt incentives necessary for economic growth.

All of these. A and B

A, B, and D

19. According to the new growth theory, the low living standards in many developing countries can be explained by a lack of:

A - natural resources.

B - free markets.

C - sound institutions.

D - strong military resources.

all of these.

B and C.

A and D.

Please help wtih these economics questions. I'll give the best answer to the person who justifies their answer.. or someone who does well in economics and knows the subject area well.

Which of the following statements is not true about Say's Law?

A. People produce more goods than they want for their own use only if they seek to trade them for other goods.

B. Markets would be regularly hit by severe shortages and surpluses.

C. Desired expenditures will equal actual expenditures.

D. Surpluses will be eliminated by falling prices and shortages will be eliminated by increasing prices.

Which of the following is not an assumption of the classical model?

A. Buyers and sellers react to changes in relative prices.

B. Households want to maximize economic well being.

C. Wages and prices will move freely in the upward direction but not the downward direction.

D. No single buyer or seller of a commodity can affect its price.

Money illusion is

A. when people think they are better off when their income increases even though prices have increased by the same amount.

B. when people are motivated by self-interest.

C. could not exist if the economy did not have competitive markets.

D. a basic condition that all classical economists assume people have.

Saving is not a problem in the classical model because

A. interest rates were flexible and savings were channeled into investment.

B. savers and investors were the same people.

C. the classical economists assumed that saving was beneficial to people for retirement.

D. saving would be spent by consumers eventually.

Which of the following statements is true?

A. There is an inverse relationship between investment and the interest rate.

B. There is no relationship between investment and the interest rate.

C. There is a direct relationship between investment and the interest rate.

D. Investment is always less than savings.

In the classical model, high unemployment due to either a demand or a supply shock

A. will return to its normal level quickly as wages adjust.

B. will persist if due to a supply shock but not if due to a demand shock.

C. can persist for an indefinite period of time.

D. never exists because unemployment can never deviate from its normal level.

The classical model makes little distinction between the long-run and short-run because

A. the model has not been fully developed yet.

B. prices adjust so fast that the economy is quickly moving towards the long-run.

C. the classical economists knew that we are always operating in the short run.

D. current changes influence the long run, so it is not possible to plan for the future.

In the classical model

A. the level of real GDP per year does not depend on the level of aggregate demand.

B. the level of GDP is demand determined.

C. the level of GDP determines prices independent of demand.

D. changes in aggregate supply affect the price level, not real GDP.

Which of the following is a true statement?

A. Classical economists believed output adjusted more than prices when aggregate demand fell while Keynes believed prices adjusted more than output.

B. Classical economists believed price adjusted more than output when aggregate demand fell while Keynes believed output adjusted more than prices.

C. A decrease in aggregate demand has no short-run effects according to the classical economists, but had significant effects according to Keynes.

D. A decrease in aggregate demand was not possible according to the classical economists, but was possible according to Keynes.

Which of the following is not a reason why GDP can be expanded beyond a level consistent with its long-run growth path in modern Keynesian analysis?

A. Prices and wages are flexible allowing for needed adjustments.

B. In the short-run existing workers can work more hours.

C. The existing capital stock can be used more intensively.

D. Higher prices induce firms to hire more workers.

A recessionary gap can be caused by

A. a decrease in aggregate supply holding aggregate demand constant.

B. an increase in aggregate demand holding aggregate supply constant.

C. an increase in the long run aggregate supply curve holding the aggregate demand constant.

D. a decrease in both aggregate demand and aggregate supply.

Q1. In the short run, an increase in the discount rate usually

a. causes the equilibrium level of real GDP and the price level to fall.

b. leads banks to hold fewer excess reserves.

c. leads to an increase in the price of existing bonds.

d. results in decreases in other interest rates.

Q2. Both Keynesians and monetarists agree that monetary policy works by shifting aggregate supply.

a. true

b. false

Q3. The effect of expansionary monetary policy is to

a. increase real output and decrease the price level.

b. decrease real output and increase the price level.

c. increase real output and increase the price level.

d. decrease real output and decrease the price level.

Q4. The price of bonds and the interest rate are

a. unrelated.

b. inversely related.

c. related, but we are not sure how.

d. positively related.

Q5. If the Fed increases the reserve requirement,

a. banks will issue more loans.

b. consumers will save more.

c. banks will issue fewer loans.

d. consumers will save less.

Q6. A central bank that engages in inflation targeting is following a monetary rule.

a. true

b. false

Q7. The Federal Reserve increased the money supply significantly during the Great Depression, but prices continued to fall anyway.

a. true

b. false

Q8. Keynesian theory argues that

a. decreases in the money supply lead to increases in the interest rate which increases investment which increases the level of real GDP.

b. increases in the money supply lead to decreases in the interest rate which increases investment which increases the level of real GDP.

c. increases in the money supply lead to decreases in the interest rate which decreases investment which decreases the level of real GDP.

d. increases in the money supply cause consumers to spend more which reduces the unemployment rate and therefore increases real GDP.

Q9. The effect of contractionary monetary policy is to

a. decrease real output and increase the price level.

b. increase real output and decrease the price level.

c. increase real output and increase the price level.

d. decrease real output and decrease the price level.

Q10. Keynesian economists believe that monetary policy works through its effect on

a. long-run aggregate supply.

b. the interest rate.

c. consumer confidence.

d. the federal budget deficit.

Q11. An expansionary monetary policy results in lower interest rates, which in turn

a. lead to higher rates of taxation.

b. cause firms to invest more.

c. lead to lower bond prices.

d. cause consumers to save more.

Q12. Contractionary monetary policy is used to combat recessions.

a. true

b. false

Q13. Economic growth can also be defined as the cumulative contribution of the rate of growth of capital, the rate of growth of labor, and the rates of growth of capital and labor productivity.

a. true

b. false

Q14. Small differences in the annual growth rate of a country add up to large differences over time because of compounding.

a. true

b. false

Q15. Economic growth occurs when

a. there is an increase in the inflation rate.

b. there is an increase in the amount of capital.

c. there is an increase in the unemployment rate.

d. the production possibilities curve becomes flatter.

Q16. Which one of the following is TRUE?

a. Small changes in the annual growth rate amount to a measurable difference in the long-term growth trend of a country.

b. For every country that experiences an increase in its growth rate, there must be another experiencing a decline.

c. A well-defined system of property rights benefits only the wealthy, and consequently it produces income inequality that will stifle economic growth.

d. Restricting imports will enhance a country's economic growth.

Q17. Economic growth is reflected in

a.

growth in total output.

b. an increase in tax revenue.

c. increases in the level of employment.

d. increase in per capita real GDP.

Q18. Economic growth is reflected in the production possibilities curve becoming flatter.

a. true

b. false

Q19. Research has shown that the growth of developing countries is most strongly enhanced by

a. providing a good secondary education.

b. increasing the money supply.

c. providing incentives to have large families.

d. providing colleges and universities.

Q20. Which of the following is the most important factor affecting economic growth?

a. the rate of interest

b. the exchange rate

c. the price level

d. the rate of saving

Q21. Secondary schooling makes measurable contributions to economic growth in developing countries.

a. true

b. false

Q22. Poorly defined property rights inhibit economic growth.

a. true

b. false

Q23. Which one of the following helps preserve incentives to develop new technologies?

a. tariffs

b. income taxes

c. patents

d. quantity restrictions on imports

Q24. Studies indicate that

a. there is no relationship between economic growth and saving.

b. there is a negative relationship between economic growth and saving.

c. there is a positive relationship between economic growth and saving.

d. saving does not contribute to capital formation.

Q25. The European Union is

a. an organization established to resolve trade disputes among member nations.

b. a group of countries that impose tariffs on one another's agricultural goods.

c. a restricted trade zone.

d. a common market.

Q26. Which one of the following is FALSE?

a. Trade of goods facilitates the exchange of intellectual property as well.

b. The end result of trade is that richer countries take advantage of poorer ones.

c. A country enjoys an absolute advantage if it can produce a good with fewer resources than any other country can.

d. Countries that engage in trade will end up specializing according to their own comparative advantage.

Q27. If there are two goods and two countries, then one country can have

a. an absolute advantage in both goods but a comparative advantage in only one good.

b. an absolute advantage in both goods and a comparative advantage in both goods.

c. an absolute advantage in neither good and a comparative advantage in both goods.

d. an absolute advantage in one good, an absolute disadvantage in the other good, and a comparative advantage in neither.

Q28. An infant industry is one in which

a. the firms are too new and too small to compete internationally.

b. no country has a comparative advantage.

c. no country has an absolute advantage.

d. the products are only consumed domestically.

Q29. The European Union is an example of a common market.

a. true

b. false

Q30. An import quota will make the supply curve for the imported good

a. unitary elastic.

b. negatively sloped.

c. perfectly elastic.

d. perfectly inelastic.

Q31. If the infant-industry argument is used to protect an industry that has already matured then

a. consumers lose because they pay a price for a product which is below the world price.

b. consumers lose because they pay a price for a product which is above the world price.

c. no one loses.

d. stockholders lose because the firm cannot compete with other firms.

Q32. Protection should be withdrawn from an infant-industry when the companies in the industry

a. reach a sufficient size to compete with foreign firms.

b. become profitable.

c. are listed on the domestic stock exchange.

d. double their sales revenues.

Q33. Which of the following is a true statement?

a. Exporters benefit from trade and importers do not.

b. Free trade harms domestic producers of goods that face import competition.

c. Consumers benefit from trade and producers do not.

d. Everyone benefits from free trade in the short run.

Q34. In the United States today, imports are over

a. 22 percent of GDP.

b. 26 percent of GDP.

c. 14 percent of GDP.

d. 18 percent of GDP.

Q35. Table 16.6

Product Country X Country Y

Gallons of Ice Cream 2,000 1,000

Yards of Textiles 6,000 2,000

Table 16.6 shows the combinations of quantities of two goods, gallons of ice cream and yards of textiles, that can be produced with all of the resources available in two countries, X and Y.

Refer to Table 16.6. Which of the following statements is TRUE?

a. Country X has a lower opportunity cost of producing ice cream than does Country Y.

b. Country Y has a comparative advantage in producing textiles.

c. Country X has a comparative advantage in producing ice cream.

d. In Country X, the opportunity cost of producing a gallon of ice cream is three yards of textiles.

Q36. Table 16.1

Alpha's Production Possibilities

A B C D E

Cookies 4 3 2 1 0

Coffee 0 5 10 15 20

Beta's Production Possibilities

A B C D E

Cookies 8 6 4 2 0

Coffee 0 6 12 18 24

Table 16.1 shows the quantities of cookies and coffee that can be produced with the full amount of resources available in each of two countries, Alpha and Beta.

Refer to Table 16.1. The table shows the production possibilities of cookies and coffee in Alpha and Beta measured in tons. In Alpha the domestic cost of 1 ton of cookies

a. is 5 tons of coffee.

b. changes with the level of coffee production.

c. changes with the level of cookie production.

d. averages 4 tons of coffee.

Q37. Table 16.1

Alpha's Production Possibilities

A B C D E

Cookies 4 3 2 1 0

Coffee 0 5 10 15 20

Beta's Production Possibilities

A B C D E

Cookies 8 6 4 2 0

Coffee 0 6 12 18 24

Table 16.1 shows the quantities of cookies and coffee that can be produced with the full amount of resources available in each of two countries, Alpha and Beta.

Refer to Table 16.1. If these two countries, Alpha and Beta, specialize based on comparative advantage

a. Beta will specialize in producing both items.

b. Alpha will specialize in cookies, and Beta will specialize in coffee production.

c. Alpha will specialize in coffee, and Beta will specialize in cookies.

d. Alpha will specialize in producing both items.

Q38. A country is made richer by its exports and poorer by its imports.

a. true

b. false

Q39. The demand for Japanese yen will increase when

a. Japan becomes more productive relative to the United States.

b. Americans change preferences in favor of domestically produced goods.

c. America is perceived as more stable politically and economically than Japan.

d. real interest rates in Japan fall.

Q40. If labor productivity improves in India relative to other countries,

a. the demand for the Indian rupee will decrease, leading to its appreciation.

b. the demand for the Indian rupee will decrease, leading to its depreciation.

c. the demand for the Indian rupee will increase, leading to its depreciation.

d. the demand for the Indian rupee will increase, leading to its appreciation.

Q41. Assume that there is an increased demand in the United States for Australian wines. If all other factors are held constant, this will result in

a. an appreciation of the Australian dollar.

b. a movement along the demand curve for Australian wine.

c. a decrease in the supply of U.S. dollars in the foreign exchange market.

d. an appreciation of the U.S. dollar.

Q42. Capital account transactions occur

a. when a U.S. citizen purchases stock in a U.S. corporation.

b. because of foreign investments.

c. when you move money from one U.S. bank to another U.S. bank.

d. when a U.S. company purchases goods from a foreign company.

Q43. When a country intervenes in foreign currency markets to maintain a fixed exchange rate

a. it is engaged in hedging.

b. it increases the foreign exchange risk faced by its citizens.

c. it does so by using its foreign exchange reserves.

d. it smoothes out fluctuations in the level of business activity.

Q44. An increase in the U.S. demand for Japanese yen causes

a. an increase in the dollar-price of yen.

b. an increase in the demand for U.S. goods.

c. an increase in the yen-price of dollars.

d. a decrease in the supply of yen.

Q45. Other factors held constant, a rise in the price level in Japan that exceeds the rise in the price level in other countries will most likely result in

a. a decrease in the supply of the Japanese yen.

b. an increase in the supply of Japanese goods.

c. a depreciation of the dollar.

d. a decline in the level of Japanese exports.

Q46. The fact that the United States has a trade deficit means that

a. U.S. workers cannot compete with workers overseas.

b. the United States has a surplus in its capital account.

c. interest rates in the United States are low compared to the world average.

d. the United States has a deficit in its capital account.

Q47. Which of the following statements is true about the role of gifts given to U.S. citizens from foreigners?

a. Gifts are only included in the balance of payments if the gift is over $1,000,000.

b. Gifts given to U.S. citizens are not included in the balance of payments, but gifts given to foreigners are included as deficit items.

c. Gifts are included in the balance of payments.

d. Gifts are not included in the balance of payments.

Q48. Every transaction concerning the exportation of American goods constitutes a

a. demand for foreign currency and a supply of dollars.

b. demand for dollars, with no effect on markets for foreign currencies.

c. supply of foreign currency, with no effect on the market for dollars.

d. supply of foreign currency and demand for dollars.

Q49. If the capital account is in surplus, the current account will be in deficit.

a. true

b. false

Q50. The balance of payments consists of the

a. capital account, official reserve transactions account, and recent account.

b. current account, official reserve transactions account, and monetary account.

c. current account, capital account, and official reserve transactions account.

d. current account, capital account, and gold flows.