ECON 100B Chapter Notes - Chapter 16: Real Interest Rate, Nominal Interest Rate
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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. |
1. Suppose that there is a tax of $1 per unit, and the elasticity of supply is 3 and the elasticity of demand is 2 (in absolute value). How much of the $1 tax is paid by sellers?
$0.60 | ||
$0.40 | ||
$0.75 | ||
$0.67 |
2. In Market X, the external benefit of consumption is $5. In Market Y, the external cost of consumption is $10. Efficiency in both markets could be achieved by:
a tax of $5 in Market X and a subsidy of $10 in Market Y. | ||
subsidizing both markets. | ||
taxing Market Y and subsidizing Market X. | ||
taxing both markets. |
3.Economic theory suggests that a natural monopoly should be:
eliminated whenever it arises. | ||
regulated to take advantage of economies of scale. | ||
left alone to operate with excess capacity. | ||
taken over by the government. |
4.When the size of the production is the most efficient:
total cost is at the minimum. | ||
average cost is at the minimum. | ||
marginal cost is at the minimum. | ||
fixed cost is at the minimum. |
5.A firm should exit the industry if which of the following conditions apply?
TR > TC | ||
P < AC | ||
Lifetime expected profit is positive. | ||
Prices are low now but expected to rise. |
6.Figure: Costs
Reference: Ref 11-6
(Figure: Costs) Use the figure. At a price of $20, the firm earns profit of:
$75. | ||
$300. | ||
$225. | ||
$0, because P = MC at P = $20. |
7.When external benefits are present, the market price is ________, however when external costs are present, the market price is ________.
too low; too high | ||
equal to the efficient price; too low | ||
too high; too low | ||
equal to the efficient price; too high |
8.Which of the following statements is TRUE?
I. The EPA's tradeable allowances program for sulfur dioxide establishes property rights to pollute and helps reduce transaction costs by distributing allowances, maintaining databases, and monitoring emissions.
II. One criticism of tradeable allowances is that they prohibit non-businesses and environmental groups from purchasing the allowances.
III. The tradeable allowances for sulfur dioxide have performed poorly because electricity output has increased, causing a rise in sulfur dioxide levels.
I only | ||
II and III only | ||
I, II, and III | ||
III only |
9.Price floors make it illegal to compete for more customers by lowering prices, so firms compete by offering customers:
various options. | ||
more quantity. | ||
more discount. | ||
higher quality. |
10.Figure: Government Price Controls
Reference: Ref 8-3
(Figure: Government Price Controls) Refer to the figure. If the government sets the price ceiling at $31, there will be:
a shortage of 15 units. | ||
a surplus of 15 units. | ||
a supply of 20 units. | ||
no effect on the market. |
11.In which of these instances does price function as a signal in the market?
Suppliers invest more in exploration when the price of oil increases. | ||
Consumers complain of price gouging as the price of oil skyrockets. | ||
Government imposes price controls on the skyrocketing price of oil. | ||
All of the answers are correct. |
12.Ethanol and sugar are both made from sugar cane, and ethanol can be used as substitute fuel for oil. Increasing oil prices cause the demand for ethanol to increase. This will cause the ______ sugar to ______ and its price to ______.
demand for; decrease; decrease | ||
supply of; increase; increase | ||
supply of; decrease; increase | ||
demand for; increase; increase |
13.Why do cotton growers spend billions of dollars to dam rivers and transport water hundreds of miles to grow cotton in California deserts?
Cotton growers in California don't pay payroll taxes. | ||
The water used to grow California cotton is highly subsidized by the government. | ||
Cotton growers in California are mostly operated as nonprofit enterprises. | ||
The water used to grow California cotton is high in mineral contents, making for a bigger cotton yield. |
14.Suppose that the equilibrium price in the market is $10. If the current market price is $7.50:
the equilibrium price will fall to $7.50. | ||
competition among buyers will increase the current price. | ||
the current price will fall below $7.50 as sellers compete for market share. | ||
There is not enough information provided to answer the question. |
15.Which of the following would increase the demand for beef?
lower pork prices | ||
higher consumer income | ||
higher prices of feed grains used to feed beef cattle | ||
an increase in the price of beef |
16.A change in quantity supplied is reflected by a movement along the same supply curve while a change in supply refers to a shift in the entire supply curve.
True
False
17.Table: Production in the United States and Germany
Labor units required to produce: |
One Clock | One Sofa |
United States | 2 | 5 | |
Germany | 3 | 9 |
Reference: Ref 2-8
(Table: Production in the United States and Germany) According to the table, the opportunity cost of producing one sofa in the United States is _________, and the opportunity cost of producing one sofa in Germany is _______.
two clocks; three clocks | ||
10 clocks; 27 clocks | ||
0.4 clocks; 0.33 clocks | ||
2.5 clocks; three clocks |
18.Mark values his drum set at $800 and Ella values her guitar at $1,000. Suppose that Mark trades his drum set for Ella's guitar.
This trade makes Ella worse off by $200. | ||
This trade makes Mark better off by $200. | ||
Mark must value Ella's guitar for at least $1,000, and Ella must value Mark's drum set for at least $800. | ||
This trade creates value by moving the guitar and drum set to people who value them more. |