Deck 10: Economic Growth, the Financial System, and Business Cycles

Question 1

According to the "Rule of 70",how many years will it take for real GDP per capita to double when the growth rate of real GDP per capita is 5%?

A) less than 1 year
B) 5 years
C) 14 years
D) 35 years

Answer 1

14 years

Question 2

Since 1900,real GDP per capita has ________ and this measure ________ the actual growth in standards of living in the United States over this time.

A) increased; understates
B) increased; overstates
C) decreased; understates
D) decreased; overstates

Answer 2

increased; understates

Question 3

Economist Robert Fogel has estimated that by the year 2040,individuals in the United States will be spending

A) more time in the workforce and more time in leisure activities than they do today.
B) less time in the workforce and less time in leisure activities than they do today.
C) less time in the workforce and more time in leisure activities than they do today.
D) more time in the workforce and less time in leisure activities than they do today.

Answer 3

less time in the workforce and more time in leisure activities than they do today.

Question 4

If real GDP in a small country in 2010 is $8 billion and real GDP in the same country in 2011 is $8.3 billion,the growth rate of real GDP between 2010 and 2011

A) is 3.0%.
B) is 3.6%.
C) is 3.75%.
D) cannot be determined from the information given.

Question 5

Countries with high rates of economic growth tend to have

A) a labor force that is more productive.
B) a lower life expectancy at birth.
C) low rates of technological advancement.
D) a declining incidence of business cycle fluctuations.

Question 6

If real GDP per capita doubles between 2005 and 2020,what is the average annual growth rate of real GDP per capita?

A) 4.7%
B) 10.5%
C) 15%
D) 21%

Question 7

Table 21-1

Refer to Table 21-1.Using the table above,what is the approximate average annual growth rate from 2008 to 2011?

A) 1%
B) 1.5%
C) 2%
D) 3%

Question 8

Since 1900,real GDP in the United States has grown

A) more rapidly than the population.
B) more slowly than the population.
C) as rapidly as the population.
D) in a random unpredictable manner relative to the population.

Question 9

Increases in real GDP since 1900 can actually underestimate growth in the standard of living for Americans since 1900 because

A) the level of pollution in 1900 was much higher than it is today.
B) the crime rate was higher in 1900 than it is today.
C) goods and services are more expensive today as compared to 1900.
D) the quality of health care that exists today was not available in 1900.

Question 10

A good measure of the standard of living is

A) real GDP per capita.
B) nominal GDP per capita.
C) total real GDP.
D) total nominal GDP.

Question 11

The total amount of physical capital available in a country is know as the country's

A) labor productivity.
B) savings.
C) investment.
D) capital stock.

Question 12

Which of the following increases labor productivity?

A) an increase in the aggregate hours of work
B) decreases in the availability of computers and factory buildings
C) inventions of new machinery, equipment, or software
D) a decline in the health of the population

Question 13

The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as

A) technology.
B) labor productivity.
C) real GDP.
D) human capital.

Question 14

Technological advances generally result in

A) decreased incomes.
B) increased life expectancy.
C) increased infant mortality rates.
D) increased average number of hours worked per day.

Question 15

If you invest $10,000 in a bond that earns 8% interest per year,how many years will it take to double your money?

A) 1 year and 3 months
B) 2 years and 6 months
C) 8 years
D) 8 years and 9 months

Question 16

Which of the following statements describes the experiences of the Boeing Corporation since it was established in 1916?

A) strong uninterrupted growth in demand
B) strong growth interrupted by periods of business cycle recession
C) little or no growth in the long run, and unaffected by the business cycle
D) little or no growth in the long run, but very vulnerable to the business cycle

Question 17

If real GDP grows by 3% in 2009,3.2% in 2010,and 2.5% in 2011,what is the average annual growth rate of real GDP?

A) 2.6%
B) 2.9%
C) 3.1%
D) 4.2%

Question 18

If the growth rate of real GDP rises from 3% to 4% per year,then the number of years required to double real GDP will decrease from

A) 23.3 years to 17.5 years.
B) 28.0 years to 21.0 years.
C) 11.2 years to 10.8 years.
D) 23.3 years to 20.6 years.

Question 19

Table 21-1

Refer to Table 21-1.Using the table above,what is the approximate growth rate of real GDP from 2010 to 2011?

A) 1%
B) 2%
C) 3%
D) 4%

Question 20

If real GDP per capita measured in 2000 dollars was $6,000 in 1950 and $48,000 in 2010,we would say that in the year 2010,the average American could buy ________ times as many goods and services as the average American in 1950.

A) 1/8
B) 4
C) 8
D) 12

Question 21

According to the "Rule of 70",it will take 4 years for real GDP per capita to double when the growth rate of real GDP per capita is

A) 4 percent.
B) 12.25 percent.
C) 17.5 percent.
D) 28 percent.

Question 22

Potential GDP is the maximum output a firm is capable of producing.

Question 23

How has economist Robert Fogel explained that economic growth is connected to life expectancy? Based on this connection,in what country would you expect to have a longer life expectancy,the United States or India? Explain.

Question 24

Centrally-planned economies tend to grow more quickly than market economies.

Question 25

Accumulating a greater number of inputs will ensure that an economy will experience economic growth.

Question 26

If the U.S.government decided to regulate the prices of airline tickets to keep them from falling when the economy is weak,there would tend to be a ________ of airline tickets in the market and this would likely ________ the profits of U.S.airlines.

A) shortage; increase
B) shortage; reduce
C) surplus; increase
D) surplus; reduce

Question 27

The growth rate of real GDP in the United States rises from 4.2% to 4.4%.Explain and calculate how this increase in the growth rate of real GDP affects the number of years it will take for real GDP to double.

Question 28

Increases in capital per hour worked cannot sustain high rates of economic growth unless accompanied by technological change.

Question 29

Human capital refers to which of the following?

A) the quantity of goods and services that can be produced by one worker or by one hour of work
B) the accumulated knowledge and skills workers acquire from education and training or from their life experiences
C) manufactured goods that are used to produce other goods and services
D) physical equipment that is made by human laborers, not machines

Question 30

Which of the following is an example of human capital?

A) a computer
B) a factory building
C) a college education
D) a software program

Question 31

Actual real GDP will be above potential GDP if

A) firms are producing below capacity.
B) firms are producing at capacity.
C) firms are producing above capacity.
D) inflation is rising.

Question 32

If labor productivity growth slows down in a country,this will

A) accelerate the increase in real GDP per capita.
B) accelerate the increase in nominal GDP.
C) slow down the increase in real GDP per capita.
D) slow down the increase in nominal GDP.

Question 33

Which of the following does not describe governmental policy actions that are helpful in supporting growth in an economy? Governmental policies that

A) avoid playing any role in developing communication systems.
B) provide secure rights to private property.
C) establish an independent court system that enforces contracts.
D) facilitate the development of an efficient financial system.

Question 34

Growth in potential GDP in the United States is estimated to be about

A) 8.25% per year.
B) 5.0% per year.
C) 3.3% per year.
D) 1.5% per year.

Question 35

Botswana's rapid growth can be explained by

A) protection of private property and avoiding political instability.
B) investment in human capital from 1960 through 2009.
C) the movement of workers from the agricultural sector to the manufacturing sector.
D) an increase in labor force participation.

Question 36

Which of the following would contribute to a sustained high rate of economic growth in the long run in an economy?

A) growth in capital per hour accompanied by technological change
B) increases in labor force participation rates as workers who are out of the labor force pursue rising wages
C) a shift of workers in the economy from the agricultural sector to the nonagricultural sector
D) an influx of immigrant labor into an economy without any accompanying technological change

Question 37

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 38

Long-run economic growth requires all of the following except

A) technological change.
B) increases in capital per hour worked.
C) government provision of secure property rights.
D) political instability.

Question 39

What two factors are the keys to determining labor productivity?

A) the business cycle and the growth rate of real GDP
B) the growth rate of real GDP and the interest rate
C) technology and the quantity of capital per hour worked
D) the average level of education of the workforce and the price level

Question 40

Potential GDP refers to

A) the level of GDP attained when all firms are producing at capacity.
B) the level of GDP attained by the country with the highest growth in real GDP in a given year.
C) the difference between the highest level of real GDP per quarter and the lowest level of real GDP per quarter within any given year.
D) the extent to which real GDP is above or below nominal GDP.

Question 41

Increasing the amount of consumption spending and reducing the amount of savings ________ investment expenditures,and ________ long-run economic growth in the economy.

A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases

Question 42

In a closed economy,which of the following equations reflects investment? (Y = GDP,C = Consumption,G = Government purchases,T = Taxes,and TR = Transfers)

A) Y - C - G
B) Y - C - T
C) Y - T + TR
D) C + G -T

Question 43

What is "human capital," and how does human capital affect labor productivity and economic growth?

Question 44

In a closed economy,public saving is equal to which of the following? (Y = GDP,C = Consumption,G = Government purchases,T = Taxes,and TR = Transfers)

A) Y - C - T
B) Y - G - T
C) T - G - TR
D) Y - C - T + TR

Question 45

Financial securities that represent promises to repay a fixed amount of funds are known as

A) bonds.
B) stocks.
C) pension funds.
D) insurance premiums.

Question 46

What factors increase potential GDP? Include a definition of potential GDP in your answer.

Question 47

When potential GDP increases,is it necessarily the case that real GDP increases as well? Explain.

Question 48

In a closed economy,private saving is equal to which of the following? (Y = GDP,C = Consumption,G = Government purchases,T = Taxes,and TR = Transfers)

A) Y - C - T
B) Y - G - T
C) Y - G - T + TR
D) Y + TR - C - T

Question 49

Liquidity refers to

A) the ease with a stock can be traded for a bond.
B) the ease with which a financial security can be traded for cash.
C) the number of times a dollar changes hands in the creation of GDP in an economy.
D) the number of shares of stock a corporation issues.

Question 50

What is investment in a closed economy if you have the following economic data?
Y = $10 trillion
C = $5 trillion
TR = $2 trillion
G = $2 trillion

A) $2 trillion
B) $3 trillion
C) $5 trillion
D) cannot be determined without information on taxes (T)

Question 51

One difference between stocks and bonds is that

A) stocks are financial securities, while bonds are labor market securities.
B) stocks are usually issued in electronic form, while bonds are usually issued in paper form.
C) stocks represent ownership in companies, while bonds represent ownership in banks.
D) stocks do not involve a promise to repay a purchaser of the stock, while bonds represent a promise to repay the purchase price of the bond.

Question 52

In a closed economy,which of the following components of GDP is not included?

A) investment
B) government spending
C) net exports
D) consumption

Question 53

A firm can fund an expansion of its operations by

A) issuing bonds.
B) buying stock.
C) paying dividends.
D) loaning money.

Question 54

Which of the following is most liquid?

A) a mutual fund share
B) a government bond
C) a corporate bond
D) a dollar bill

Question 55

In a closed economy public saving plus private saving is equal to

A) investment.
B) taxes minus transfers.
C) the budget surplus.
D) the budget deficit.

Question 56

SCENARIO21-1

Refer to Scenario 21-1.Based on the information above,what is the level of private saving in the economy?

A) $3 trillion
B) $4 trillion
C) $5 trillion
D) $8 trillion

Question 57

Under which of the following circumstances would private saving be positive in a closed economy?

A) Y = $10 trillion C = $5 trillion TR = $2 trillion G = $2 trillion public saving = $1 trillion
B) Y = $9 trillion C = $5 trillion TR = $1 trillion G = $1 trillion public saving = $3 trillion
C) Y = $8 trillion C = $2 trillion TR = $4 trillion G = $2 trillion public saving = $4 trillion
D) Y = $6 trillion C = $2 trillion TR = $8 trillion G = $3 trillion public saving = $1 trillion

Question 58

Under which of the following circumstances would the government be running a deficit?

A) G = $5 trillion T = $5 trillion TR = $1 trillion
B) G = $5 trillion T = $7 trillion TR = $1 trillion
C) G = $7 trillion T = $7 trillion TR = $0
D) G = $7 trillion T = $10 trillion TR = $3 trillion

Question 59

There is a government budget surplus if

A) T - TR > G.
B) G > T.
C) G > TR.
D) TR < T.

Question 60

SCENARIO21-1

Refer to Scenario 21-1.Based on the information above,what is the level of public saving?

A) $0
B) $1 trillion
C) $2 trillion
D) negative $1 trillion (a deficit of $1 trillion)

Question 61

If Ebenezer Scrooge spends rather than saves his vast wealth he will

A) slow economic growth because he is reducing the amount of funds available for investment.
B) slow economic growth because he is increasing the amount of funds available for investment.
C) promote economic growth because he is increasing the amount of funds available for investment.
D) promote economic growth because he is decreasing the amount of funds available for investment.

Question 62

How will an increase in the government budget surplus as a result of lower government spending (with no change in net taxes)affect private saving in the economy?

A) Private saving will increase by the amount of increase in the budget surplus.
B) Private saving will decrease by the amount of increase in the budget surplus.
C) Private saving will decrease by less than the amount of increase in the budget surplus.
D) Private saving will be unaffected by the increase in the budget surplus.

Question 63

Which of the following would you expect to increase the equilibrium interest rate?

A) an increase in the percentage of income after net taxes that households save
B) an increase in the budget deficit
C) a decrease in the profitability of investment projects firms are considering
D) a change from an income tax to a consumption tax

Question 64

Figure 21-3

Refer to Figure 21-3.Which of the following is consistent with the graph depicted above?

A) Taxes are changed so that real interest income is taxed rather than nominal interest income.
B) An expected recession decreases the profitability of new investment.
C) The government runs a budget deficit.
D) Technological change increases the profitability of new investment.

Question 65

Borrowers are ________ of loanable funds,and lenders are ________ of loanable funds.

A) demanders; suppliers
B) suppliers; demanders
C) suppliers; suppliers
D) demanders; demanders

Question 66

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 the above

Question 67

Figure 21-2

Refer to Figure 21-2.Which of the following is consistent with the graph depicted above?

A) An expected expansion increases the profitability of new investment.
B) The government runs a budget surplus.
C) There is a shift from an income tax to a consumption tax.
D) New government regulations decrease the profitability of new investment.

Question 68

Figure 21-5

Refer to Figure 21-5."Crowding out" of firm investment as a result of a budget deficit is illustrated by the movement from ________ in the graph above.

A) A to B
B) B to A
C) B to C
D) C to A

Question 69

Which of the following will increase investment spending in the economy,holding everything else constant?

A) an increase in the federal government surplus
B) an increase in the budget deficit
C) an increase in consumer dissavings
D) an increase in transfer payments

Question 70

The response of investment spending to an increase in the government budget deficit is called

A) expansionary investment.
B) private dissaving.
C) crowding out.
D) income minus net taxes.

Question 71

When the government runs a budget deficit,we would expect to see that

A) private saving will fall.
B) investment will fall.
C) G + TR < T.
D) public saving is positive.

Question 72

There is a federal budget deficit when

A) the government spends less that it collects in taxes.
B) the government spends more that it collects in taxes.
C) the government spends the same amount it collects in taxes.
D) taxes are too high.

Question 73

Figure 21-4

Refer to Figure 21-4.Which of the following is consistent with the graph depicted?

A) an increase in household income
B) an increase in transfer payments to households
C) an increase in the proportion of income after net taxes used for consumption
D) an increase in tax revenues collected by the government

Question 74

If government purchases are $400 million,taxes are $700 million,and transfers are $200 million,which of the following is true?

A) Public saving is $500 million.
B) The budget deficit is $100 million.
C) The budget deficit is $500 million.
D) Public saving is $100 million.

Question 75

The demand for loanable funds is downward sloping because the ________ the interest rate,the ________ the number of profitable investment projects a firm can undertake,and the ________ the quantity demanded of loanable funds.

A) lower; greater; greater
B) lower; smaller; greater
C) greater; greater; greater
D) greater; smaller; greater

Question 76

If government saving is negative,then

A) T > TR.
B) G > T.
C) T - TR < G.
D) Y + TR < C - T.

Question 77

A government budget surplus from reduced government spending (no change in net taxes)will ________ the level of investment in the economy and ________ the level of saving (private plus public)in the economy.

A) increase; decrease
B) increase; increase
C) decrease; increase
D) decrease; decrease

Question 78

If consumers decide to be more frugal and save more out of their income,then this will cause

A) a shift in the supply curve for loanable funds to the right.
B) a shift in the supply curve for loanable funds to the left.
C) a movement to the right along the supply curve for loanable funds.
D) a movement to the left along the supply curve for loanable funds.

Question 79

Figure 21-1

Refer to Figure 21-1.Which of the following is consistent with the graph depicted above?

A) An expected recession decreases the profitability of new investment.
B) Technological change increases the profitability of new investment.
C) The government runs a budget surplus.
D) Households become spendthrifts and begin to save less.

Question 80

An increase in the demand for loanable funds will occur if there is

A) an increase in the real interest rate.
B) a decrease in the real interest rate.
C) an increase in expected profits from firm investment projects.
D) an increase in the nominal interest rate accompanied by an equal increase in inflation.