Exam (elaborations) TEST BANK MACROECONOMICS GRADED A 2021

Exam (elaborations) TEST BANK MACROECONOMICS GRADED A 2021 Table of Contents GDP The Wealth of Nations and Economic Growth Growth, Capital Accumulation, and the Economics of Ideas Savings, Investment, and the Financial System Personal Finance Unemployment and Labor Force Participation Inflation and Quantity Theory of Money Business Fluctuations Business Cycle Theories Monetary Policy and the Federal Reserve Fiscal Policy 1 TEST BANK MACROECONOMICS GRADED A 2021 GDP Video name: What is GDP? 1. GDP includes a. All final goods. b. All final services. c. Both final goods and final services. 2. Which of the following is counted in US GDP? a. Used car purchased by a student for his commute to school b. Used oven purchased by a baker for her cake shop c. Drill purchased by a construction company d. b & c only e. None of the above 3. Which of the following is counted in US GDP? a. A New video game made in China but purchased in the United States b. New growth in rainforests c. A new quilt made by Jane and given to her grandmother for her 80 th birthday d. a & c only e. None of the above Video name: Nominal vs. Real GDP 2 1. Real GDP controls for a. changes in preferences. b. changes in population. c. changes in prices. d. a & c only e. a, b, & c 2. True or false: nominal GDP is always larger than real GDP. a. True b. False 3. True or false: real GDP is always larger than real GDP per capita. a. True b. False 4. True or false: if a country’s nominal GDP increases, it means the country is producing more goods and services. a. True b. False 5. Real GDP per capita in the US ____________ during the great recession of 2009. a. increased 3 b. decreased c. did not change Video name: Real GDP Per Capita and the Standard of Living 1. Real GDP per capita is positively correlated with all of the following except a. malaria cases per capita. b. life expectancy. c. happiness. d. education. e. b & d only f. a, b, c, & d 2. Real GDP per capita is usually used to compare the standard of living of a. the same country at different points in time. b. two different individuals at one point in time. c. two different countries at one point in time. d. a & c only. e. None of the above. Video name: Splitting GDP 1. True or False: Government purchases includes all of the following: social security payments, government employee wages, and tanks purchased by the government. 4 a. True b. False 2. Measuring GDP using the national spending approach includes a. Consumption. b. Net exports. c. Government spending. d. a & b only e. a, b, c Explanation:national spending approach includes government purchases not government spending. 3. Measuring GDP using the factor income approach includes a. Employee compensation. b. Interest. c. Profit. d. b & c only e. a, b, c 5 The Wealth of Nations and Economic Growth Video name: Basic Facts about Wealth 1. Mexico and Bulgaria have roughly the same GDP per capita in 2014. Based on what you’ve learned in the video, is Bulgaria closer in GDP per capita to the United States or to Central African Republic? a. United States b. Central African Republic c. Cannot be determined with the given information 2. Qatar has a higher GDP per capita than the United States. In fact, Qatar has a GDP per capita that is roughly _______ times larger than Central African Republic’s GDP per capita. a. 10 b. 50 c. 75 d. 250 Video name: Growth Rates are Crucial 1. Which graph below is drawn with a ratio scale? a. 6 b. c. d. 2. Since 1800, real GDP per capita in the United States has doubled roughly every a. 20 years b. 35 years 7 c. 50 years d. 70 years 3. Suppose two countries start with a real GDP per capita level of $2,000, but country A is growing at 2% per year and country B is growing at 3% per year. After 140 years, country B will have a real GDP per capita that is roughly ________ times higher than country A. (Hint- you may want to review the “Rule of 70” to answer this question) a. 2 b. 3 c. 4 d. 5 Video name: Office Hours: Rule of 70 1. Two countries start with the same real GDP per capita. Country A is growing at 7% and country B is growing at 4%. After 70 years, how much larger is country A? a. 3 times larger b. 4 times larger c. 6 times larger d. 8 times larger e. 10 times larger 2. Two countries start with the same real GDP per capita. Country A’s real GDP per capita is growing at 4% and after 140 years, it is 16 times larger than country B’s. What was country B’s growth rate? a. 1% 8 b. 2% c. 3% d. 3.5% e. Can not be determined with the given information 3. Two countries start with the same real GDP per capita. After 210 years, country B is 3 times larger than country A. What was country A’s growth rate? a. 1% b. 2% c. 3% d. 4% e. Can not be determined with the given information 4. Country A starts with a real GDP per capita that is 3 times larger than Country B. Country A then grows at 2% per year and Country B grows at 4% per year. After 140 years, who is richer and by how much? a. Country A, roughly 2 times larger b. Country A, roughly 5 times larger c. Country B, roughly 2 times larger d. Country B, roughly 5 times larger e. Cannot be determined with the given information Video name: An Orgy of Innovation 9 1. To what rapid increase is the tale of “the hockey stick of human prosperity” referring? a. Rapid increase in global population b. Rapid increase in gross domestic product (GDP) per capita c. Rapid increase in the standard of living d. B & C only e. A,B,&C 2. When did the world begin to shift from the handle to the blade section of the hockey stick (of human prosperity)? a. 0 A.D. b. 13th century c. 18th century d. 20th century 3. True or false: All countries shifted from the handle to the blade portion of the hockey stick (of human prosperity) at about the same time. a. True b. False 4. In addition to improved access to education and reliable energy sources, what other changes do scholars cite as a reason(s) why we experienced the recent, rapid increase in human prosperity? a. Improvements in institutions b. Increase in religiosity 10 c. Change in attitude d. A & C only e. A, B, & C Video name: Growth Miracles and Growth Disasters 1. Which of the following countries’ economies fell further behind in the 20th century? a. Japan b. Niger c. Argentina d. South Korea e. c & d only f. b & c only 2. Between 1950 and 1970, Japan doubled its GDP per capita every 8.2 years. Using the Rule of 70, calculate Japan’s approximate annual growth rate during that time period. a. 6.5% per year b. 7.5% per year c. 8.5% per year d. 9.5% per year e. Greater than 9.5% per year 11 3. We also learned that Argentina doubled its GDP per capita only once from . Using the Rule of 70, calculate Argentina’s approximate annual growth rate during that time period. a. .5% per year b. 1.1% per year c. 1.7% per year d. 2.1% per year e. Greater than 2.1% per year Video name: The Importance of Institutions 1. The following institution(s) promote(s) economic growth: a. Communism b. Property rights c. Price controls d. Redistributive justice e. b & d only f. b, c, & d only 2. When Korea split into two countries in 1945, the northern and southern portions were similar if not identical in all of the following except a. Language b. Human capital c. Real GDP per capita 12 d. Institutions 3. Today, the main reason that North Korea has far fewer lights when viewed from outer space than South Korea is that a. North Korea has less available energy than South Korea. b. North Korea has fewer people than South Korea. c. North Korea has different institutions than South Korea. d. North Koreans have different norms around using electricity than South Korea. e. North Korea’s population is more dispersed than South Korea’s. Video name: Geography and Economic Growth 1. In 1967, the Suez Canal suddenly closed and remained closed for 8 years, temporarily shutting down a major trade route for many countries. Based on the facts from the video, this temporary canal closure a. increased the GDP per capita of countries most reliant on the canal. b. decreased the GDP per capita of countries most reliant on the canal. c. increased international trade of countries most reliant on the canal without affecting their GDP per capita. c. decreased international trade of countries most reliant on the canal without affecting their GDP per capita. 2. Adam Smith argued in 1776 that central Africa was resistant to growth because a. Central Africa was too hot. b. Central Africa’s education levels were too low. 13 c. Central Africa’s tropical diseases were deadly. d. Central Africa lacked large rivers flowing to the coasts. Video name: The Puzzle of Growth 1. Which of the following is a factor of production and best defined as ideas and inventions? a. Human capital b. Physical capital c. Organization d. Technical knowledge 2. A reason why countries have good institutions is a. Luck b. Geography c. Planning d. Hard work e. a & b only f. b & c only 3. All of the following are key institutions of economic growth except a. good incentives. b. property rights. 14 c. a just legal system. d. a competitive market. e. honest government. f. political stability. 15 Growth, Capital Accumulation, and the Economics of Ideas Video name: Introduction to the Solow Model 1. Japan’s and Germany’s economic growth after World War II are both examples of a. Catching-up growth. b. Cutting-edge growth. 2. The Solow model is a simple model to explain a. Economic growth. b. Country differences. c. Income inequality. 3. Select the order of symbols below that mimics the following order: human capital, physical capital, ideas. a. eL, eK, A b. L, A, K c. eK, L, A d. L, K, eA e. eL, K, A Video name: Physical Capital and Diminishing Returns 1. The following diagram appeared in the video; what does portion B represent? 16 a. Capital accumulation b. Function c. Output d. Input 2. In the equation Y=f(k), Y equals a. Output b. Knowledge c. Factors of production d. Inputs e. A constant f. A function 3. Which of the following graphs best represents the relationship between Y and K in the Solow model? 17 a. b. c. d. a & b only e. Can not be determined from the given information. 18 Video name: The Solow Model and the Steady State 1. For the next two questions, consider the following: Country A has K=10,000 and produces GDP according to the following equation: Y=5. If the country devotes 25% of its GDP to making investment goods, how much is the country saving? a. 12.5 b. 25 c. 125 d. 1,250 e. Can not be determined with the given information. 2. If 1% of all machines become worthless every year (they depreciate, in other words) in Country A, GDP is a. Increasing. b. Decreasing. c. In steady state. d. Can not be determined with the given information. 3. According to the Solow model, when a country is in steady state, a. Depreciation investment. b. Depreciation investment. c. Depreciation = investment. d. Depreciation output. e. Depreciation output. 19 f. Depreciation = output. Video name: Office Hours: The Solow Model 1. For the following two questions, recall Country A’s economy from the video: How much is Country A consuming? a. 375 b. 400 c. 475 d. 500 e. Cannot be determined from the given information 2. At what point will Country A be in steady state? a. K=13453 b. K=15625 c. D=13453 d. D=15625 e. A and C f. B and D 3. Country B has the following economic conditions: GDP=2√K, initial capital stock (K)=2,500. If this country is consuming 25, what percent of the country’s GDP is being invested? 20 a. 20% b. 30% c. 40% d. 50% e. None of the above. 4. For the following two questions, suppose two countries have the following economic conditions: Once both countries achieve steady state, which country will consume a higher proportion of its GDP? a. Country A b. Country C 5. Once both countries achieve steady state, which country will have higher consumption? a. Country A b. Country C Video name: Human Capital and Conditional Convergence 1. Human capital has which of the following properties: a. diminishing returns. b. increasing returns. c. Depreciation. 21 d. a and c only e. b and c only 2. Which countries will likely be growing faster: cutting-edge countries or catching-up countries? a. Cutting edge b. Catching up 3. The Solow model predicts that countries with similar _________ will eventually converge to similar levels of output. a. human capital depreciation rates b. institutions c. growth rates d. consumption preferences e. a and b only 4. The Solow model predicts ____ economic growth in the steady state. a. 0% b. 2% c. 1-3% d. 8% e. There is no specific growth rate; rather, prediction varies by type of country. 22 5. In the Solow model, the capital stock doesn’t change when a. Investment = Depreciation. b. Investment Depreciation. c. Investment Depreciation. d. Investment = Savings. e. Investment Savings. f. Investment Savings. Video name: The Solow Model and Ideas 1. A country’s economic growth is given by the following equation: Y= and the country invests 25% to making investment goods. Suddenly, through some invention, the country’s new production function becomes Y=4. Which of the following equations represents the country’s new investment function? a. I=.25 b. I=.5 c. I= d. I=2 e. Can not be determined with the given information. 2. Cutting-edge growth occurs primarily because of increases in a. Investment. b. Ideas c. Depreciation. 23 d. Capital e. a and b only. f. a, b, and c only. For the next three questions, consider the following two countries: Thrifty and Inventive. In Thrifty, people devote 50% of GDP (Y) to making new investment goods, so =.5, and their production function is Y=. In Inventive, people devote 25% of GDP to making new investment goods, =.25, and their production function is Y=2. Both countries begin with K=100. 3. What is the amount of investment in Inventive? a. .5 b. 2.5 c. 5 d. 10 e. 25 4. What is the amount of consumption in Thrifty? (Hint: Anything that is not invested of GDP is consumed) a. .5 b. 2.5 c. 5 d. 10 e. 25 24 5. In which country would you rather live? a. Thrifty b. Inventive c. Indifferent between the two countries. d. Cannot be determined from the given information. Video name: Office Hours: The Solow Model: Investments vs. Ideas For questions 1 - 6, consider the following two countries: Inventive and Thrifty. In Inventive, the country’s economy grows according to the following production function: GDP= 2√K and it devotes 25% of GDP to making investment goods. Thrifty’s production function is given by GDP=√K and it devotes 50% of its GDP to making new investment goods. Both countries begin with 100 dollars worth of K and both countries have the same capital depreciation rates and the same population. Additionally, assume that depreciation for both countries is 3% of the capital stock. 1. What is the approximate steady-state capital stock for Inventive? a. 13 b. 100 c. 111 d. 192 e. 278 2. What is the approximate steady-state capital stock for Thrifty? a. 13 b. 100 25 c. 111 d. 192 e. 278