ECON 2120 CLEMSON FINAL EXAM
QUESTIONS AND DETAILED ANSWERS
Adam Smith's metaphor of the "invisible hand" can lead to benefits to society when... -
ANSWER-institutions align the private interest with the social interest
When people choose to recycle and buy appliances that conserve on energy, they are acting in
______ & _______. - ANSWER-the social interest, their self-interest
In an effort to clean air, many communities impose restrictions on the burning of garbage. This
policy causes more garbage to be buried underground, potentially increasing groundwater
contamination. What concept does this example represent? - ANSWER-Trade-Offs
The opportunity cost of receiving a free ticket to the NCAA championship game with a face-
value of $450 and attending the game is: - ANSWER-there resale value of the lost market value
of selling the ticket and the time to go
What are the institutions that help foster the appropriate incentives for economic growth? -
ANSWER-a dependable legal system, property rights, & competitive & open markets
Gross Domestic Product (GDP) is best defined as the _____ value of all _____ goods and
services that are produced _________. - ANSWER-market, final, within a country in 1 year
what data is used to calculate GDP? - ANSWER-both quantities and prices of goods
If a country's GDP per capita rises, this means that...
i. the country has fewer poorer people
ii. some people in the country have more wealth
iii. the country's standard of living is rising - ANSWER-ii & iii
It is often said that _____ is the "main driver" the economy because its share of GDP is larger
than any of the other expenditure components. - ANSWER-consumption
The most volatile component of GDP is.... - ANSWER-investment
Private spending on tools, plant, and equipment that are used to produce future output is called...
- ANSWER-investment
the factor income approach to calculating GDP can be summarized as the summation of .... -
ANSWER-wages, interest, rent, & profit
Sydney buys a used car form Lemon Drop Used Cars in 2015 for $3,000. Francis, a salesperson
at Lemon Drop, receives $200 in commission for selling the car to Sydney. How much does this
transaction contribute to 2015 GDP? - ANSWER-$200
, Last month Trevor purchased $177 of Swedish Fish from an online retailer in Sweden. How does
this transaction contribute to GDP in 2016? - ANSWER-Consumption increases by $177 and net
exports fall $177
Birmingham Steel sells to Winston Golf Club Manufacturers for $300,000. Winston sells its golf
clubs to Academy Sports for $1,000,000. Academy Sports sells Winston golf clubs for
$1,500,000. How much is added to GDP? - ANSWER-$1,500,000
If you want to compare real GDP in 2010 and 2015, what prices can you use...
i. 2010 prices for GDP in both years
ii. 2015 prices for GDP in both years
iii. 2007 prices for GDP in 2010 and 2015 - ANSWER-i, ii, & iii
Why is Nigeria considered to be a growth disaster in spite of the fact that it has large deposits of
oil? - ANSWER-the occurrence of civil war, rulers who were dictators and spent the wealth on
arms purchases, & corruption that siphoned away oil wealth into secret Swiss bank accounts.
The growth rate of GDP is...
a. GDP adjusted for changes in the inflation rate
b. GDP adjusted changes in the price level
c. GDP adjusted for changes in population growth
d. none of these are correct - ANSWER-D.
(current year's GDP - Last year's GDP) / Last year's GDP
In the course, we use _____ as a proxy for a country's standard of living. - ANSWER-real GDP
per capita
Consider an industrialized country where the growth rate of real GDP is -1% per year. However,
the growth rate of real GDP per capita is positive. What is the most likely reason this is
occurring? - ANSWER-the country's population is growing slower than the growth of nominal
GDP
what are the components of the National Spending Approach to calculating GDP? - ANSWER-
consumption goods and services, investment goods, government purchases, & net exports
Why do economists think that GDP may overestimate the actual level of economic activity in an
economy? - ANSWER-there is no negative adjustment for pollution.
Identify the "bad" that t is not counted in GDP.
a. a decrease in water quality
b. the purchase of a smokestack scrubber required by environmental regulation
QUESTIONS AND DETAILED ANSWERS
Adam Smith's metaphor of the "invisible hand" can lead to benefits to society when... -
ANSWER-institutions align the private interest with the social interest
When people choose to recycle and buy appliances that conserve on energy, they are acting in
______ & _______. - ANSWER-the social interest, their self-interest
In an effort to clean air, many communities impose restrictions on the burning of garbage. This
policy causes more garbage to be buried underground, potentially increasing groundwater
contamination. What concept does this example represent? - ANSWER-Trade-Offs
The opportunity cost of receiving a free ticket to the NCAA championship game with a face-
value of $450 and attending the game is: - ANSWER-there resale value of the lost market value
of selling the ticket and the time to go
What are the institutions that help foster the appropriate incentives for economic growth? -
ANSWER-a dependable legal system, property rights, & competitive & open markets
Gross Domestic Product (GDP) is best defined as the _____ value of all _____ goods and
services that are produced _________. - ANSWER-market, final, within a country in 1 year
what data is used to calculate GDP? - ANSWER-both quantities and prices of goods
If a country's GDP per capita rises, this means that...
i. the country has fewer poorer people
ii. some people in the country have more wealth
iii. the country's standard of living is rising - ANSWER-ii & iii
It is often said that _____ is the "main driver" the economy because its share of GDP is larger
than any of the other expenditure components. - ANSWER-consumption
The most volatile component of GDP is.... - ANSWER-investment
Private spending on tools, plant, and equipment that are used to produce future output is called...
- ANSWER-investment
the factor income approach to calculating GDP can be summarized as the summation of .... -
ANSWER-wages, interest, rent, & profit
Sydney buys a used car form Lemon Drop Used Cars in 2015 for $3,000. Francis, a salesperson
at Lemon Drop, receives $200 in commission for selling the car to Sydney. How much does this
transaction contribute to 2015 GDP? - ANSWER-$200
, Last month Trevor purchased $177 of Swedish Fish from an online retailer in Sweden. How does
this transaction contribute to GDP in 2016? - ANSWER-Consumption increases by $177 and net
exports fall $177
Birmingham Steel sells to Winston Golf Club Manufacturers for $300,000. Winston sells its golf
clubs to Academy Sports for $1,000,000. Academy Sports sells Winston golf clubs for
$1,500,000. How much is added to GDP? - ANSWER-$1,500,000
If you want to compare real GDP in 2010 and 2015, what prices can you use...
i. 2010 prices for GDP in both years
ii. 2015 prices for GDP in both years
iii. 2007 prices for GDP in 2010 and 2015 - ANSWER-i, ii, & iii
Why is Nigeria considered to be a growth disaster in spite of the fact that it has large deposits of
oil? - ANSWER-the occurrence of civil war, rulers who were dictators and spent the wealth on
arms purchases, & corruption that siphoned away oil wealth into secret Swiss bank accounts.
The growth rate of GDP is...
a. GDP adjusted for changes in the inflation rate
b. GDP adjusted changes in the price level
c. GDP adjusted for changes in population growth
d. none of these are correct - ANSWER-D.
(current year's GDP - Last year's GDP) / Last year's GDP
In the course, we use _____ as a proxy for a country's standard of living. - ANSWER-real GDP
per capita
Consider an industrialized country where the growth rate of real GDP is -1% per year. However,
the growth rate of real GDP per capita is positive. What is the most likely reason this is
occurring? - ANSWER-the country's population is growing slower than the growth of nominal
GDP
what are the components of the National Spending Approach to calculating GDP? - ANSWER-
consumption goods and services, investment goods, government purchases, & net exports
Why do economists think that GDP may overestimate the actual level of economic activity in an
economy? - ANSWER-there is no negative adjustment for pollution.
Identify the "bad" that t is not counted in GDP.
a. a decrease in water quality
b. the purchase of a smokestack scrubber required by environmental regulation
