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

Question 1

Suppose that real GDP for 2010 was $10,000 billion and real GDP for 2011 was $9,500 billion.What is the rate of growth of real GDP between 2010 and 2011?

A) -10%
B) -5%
C) -2%
D) -1%

Answer 1

-5%

Question 2

The best measure of the standard of living is

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

Answer 2

real GDP per capita.

Question 3

________ depend on increases in labor productivity

A) Advances in technology
B) Increases in real GDP per capita
C) Decreases in the inflation rate
D) Decreases in the unemployment rate

Answer 3

Increases in real GDP per capita

Question 4

If,between 2001 and 2011,the economy's real GDP grew from $20 billion to $40 billion,what was the average annual growth rate in the economy?

A) 3%
B) 7%
C) 20%
D) 100%

Question 5

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) -2%
B) -1%
C) 1%
D) 2%

Question 6

If GDP grows at a rate of 3% per year,approximately how long will it take for GDP to double in size?

A) 12 years
B) 21 years
C) 23 years
D) 35 years

Question 7

According to Robert Fogel,economic growth ________ health,and health ________ economic growth.

A) improves; worsens
B) improves; improves
C) worsens; improves
D) worsens; worsens

Question 8

The only way the standard of living of the average person in a country can increase is if ________ increases faster than ________.

A) production; population
B) population; GDP per capita
C) population; production
D) population; income

Question 9

Labor productivity will increase if the ________ increases and ________.

A) quantity of capital per hour worked; technology improves
B) quantity of labor per unit of capital; technology improves
C) quantity of capital per hour worked; immigration increases while capital is fixed
D) quantity of labor per unit of capital; immigration increases while capital is fixed

Question 10

When production in an economy grows more quickly than the population in that economy,which of the following must be occurring?

A) Real GDP is falling.
B) Incomes are growing at a slower rate than the population.
C) Real GDP per capita is rising.
D) Living standards are falling.

Question 11

Which of the following describes the growth in real GDP per person in the United States from 1900 to the present?

A) It has decreased.
B) It has increased by eight times.
C) It has doubled.
D) It has increased twenty times.

Question 12

Table 21-1

Refer to Table 21-1. Using the table above,what is the approximate growth rate of real GDP from 2009 to 2010?

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

Question 13

An increase in labor productivity

A) allows the average consumer to increase consumption.
B) will increase the labor force participation rate.
C) will create short-run, but not long-run, economic growth.
D) will increase output and decrease wages in the long run.

Question 14

If GDP is currently $13 trillion and is growing at a rate of 2.3% per year,how long will it take GDP to reach $26 trillion?

A) about 15 years
B) about 17 years
C) about 25 years
D) about 30 years

Question 15

Suppose that real GDP for 2010 was $10,000 billion and real GDP for 2011 was $11,000 billion.What is the rate of growth of real GDP between 2010 and 2011?

A) 1%
B) 2%
C) 5%
D) 10%

Question 16

If GDP grew 3% in 1970,2.2% in 1971 and 2.5% in 1972 then,what is the average annual growth rate over this period?

A) 5%
B) 4%
C) 2.6%
D) -2.2%

Question 17

Labor productivity is

A) the quantity of output produced in one hour by several workers.
B) the quantity of capital one worker can produce in one day.
C) the quantity of output produced by one worker or by one hour of work.
D) the quantity of output produced in one hour by one machine.

Question 18

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%
C) 2%
D) 4%

Question 19

The rule of 70 states that

A) it takes an economy 70 years to double its real GDP.
B) the number of years it takes an economy to double in size is 70 divided by the growth rate.
C) the number of years it takes an economy to double in size is the growth rate times 70.
D) the number of years it takes an economy to double in size is the growth rate divided by 70.

Question 20

If an economy is growing at a rate of 2.5% per year,how long will it take the economy to double in size?

A) 60 years
B) 43 years
C) 36 years
D) 28 years

Question 21

Economic growth depends more on technological change than on increases on capital per hour worked.

Question 22

Suppose you are a famous international economic advisor.You have been asked to asses the possibilities for growth in an African country.It is a country abundant in labor and some natural resources.The capital to labor ratio is low.It has a free market economy.You have found that this country does not have a very strong and healthy banking system,however the political system is stable and the government does a good job protecting property rights. Assess this country's prospects for growth.Recommend two things that would enhance the country's growth.

Question 23

Outline the various actions the government sector could take to promote growth.

Question 24

Use the rule of 70 to illustrate how small differences in growth rates can have a large impact on how rapidly the standard of living in a country increases.

Question 25

________ are financial securities that represent promises to repay a fixed amount of funds.

A) Stocks
B) Bonds
C) Interest rates
D) Mutual funds

Question 26

The key to sustained economic growth is increasing labor productivity.

Question 27

Potential GDP in the United States

A) does not change over time.
B) grows as the economy grows.
C) changes over a given business cycle.
D) declines over time.

Question 28

Which of the following will result in an increase in labor productivity?

A) a decrease in the number of people attending institutions of higher education
B) a decline in the amount of human capital per worker
C) an increase in technology
D) a decline in the capital stock per hour worked

Question 29

Explain why a centrally-planned economy might not grow as rapidly as a market economy.

Question 30

Market economies tend to grow more quickly than centrally-planned economies.

Question 31

What is one difference between stocks and bonds?

A) Bonds earn a higher rate of return than stocks.
B) Stocks earn a higher rate of return than bonds.
C) Bonds are purchased at a bank, while stocks are purchased through the federal government.
D) Stocks represent partial ownership in a firm, while bonds do not.

Question 32

________ are financial securities that represent partial ownership of a firm.

A) Stocks
B) Bonds
C) Treasury bills
D) Certificates of deposit

Question 33

Which of the following is most likely to be able to sustain economic growth in an economy?

A) sustained increases in the labor force participation rate
B) technological change
C) increases in capital per hour worked
D) accumulations of economic resources

Question 34

Economists point to the "pro-growth" policies of the government of which African country in explaining a high growth rate relative to other African countries?

A) South Africa
B) Botswana
C) Mali
D) Malawi

Question 35

If,as economist Alwyn Young has suggested,high growth rates in Singapore are not a result of technological progress,how are growth rates in Singapore expected to change over time?

A) Without technological progress, the high growth rates cannot be sustained.
B) As long as the labor force participation rate is rising, growth can still continue, despite a lack of technological progress.
C) As long as the amount of capital per hour worked continues to expand, the growth rate in Singapore will continue to rise at an increasing rate.
D) Agricultural workers will continue to expand their productivity, thereby allowing Singapore to achieve growth rates above those of higher-income countries.

Question 36

What is human capital?

A) a slang term for the underground labor market
B) manufactured goods that are used to produce other goods
C) accumulated knowledge and skills acquired by a worker
D) the manager or owner of a business

Question 37

Potential GDP is estimated to grow at a rate of 3.3% in the United States.Actual GDP in the U.S.

A) always grows at a slower rate than potential GDP.
B) always grows at a faster rate than potential GDP.
C) always grows at the same rate as potential GDP.
D) is the same as potential GDP if all firms in the economy were working at capacity.

Question 38

Workers in high-income countries have ________ to work with than do workers in low-income countries.

A) less physical capital
B) more physical capital
C) more labor
D) more labor and less physical capital

Question 39

Potential GDP is defined as

A) the maximum of GDP that the economy can produce.
B) the amount of GDP produced if there is no frictional unemployment.
C) the level of GDP attained when all firms are producing at capacity.
D) the amount of GDP produced if there is no structural unemployment.

Question 40

Potential GDP is always greater than real GDP in an economy.

Question 41

Which of the following would increase public saving?

A) an increase in taxes
B) an increase in transfers
C) an increase in government purchases
D) All of the above would increase public saving.

Question 42

When the government runs a deficit,which of the following is true?

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

Question 43

Public saving in the economy can be increased by

A) lowering taxes.
B) raising government spending.
C) raising taxes.
D) raising transfer payments.

Question 44

Which of the following statements about the budget deficit is true?

A) In 1992, the federal budget was balanced.
B) In 2000, the federal budget was in surplus.
C) In 2004, the federal budget was in surplus.
D) In 2011, the federal budget was in surplus.

Question 45

A country with no trade and no borrowing and lending relationships with other countries is known as a(n)

A) planned economy.
B) market economy.
C) open economy.
D) closed economy.

Question 46

If real GDP in a closed economy is $40 billion,consumption is $20 billion,and government purchases are $10 billion,what is investment?

A) $10 billion
B) $30 billion
C) $40 billion
D) $70 billion

Question 47

In a closed economy,

A) I = Y - C - G.
B) I = Y + C - G.
C) I = Y - C + G.
D) I = Y + C + G.

Question 48

The sum of public and private saving in an economy is equal to

A) Y - C - T.
B) T - TR - G.
C) Y - C - G.
D) I - C - G.

Question 49

If,in a closed economy,real GDP is $30 billion,consumption is $20 billion,and government purchases are $5 billion,what is total saving in the economy?

A) $5 billion
B) $15 billion
C) $45 billion
D) $55 billion

Question 50

Which of the following financial securities is most liquid?

A) a savings account
B) a share of stock
C) a cashier's check
D) a $20 bill

Question 51

If taxes are less than transfers plus government spending,then

A) there is positive saving.
B) there is a balanced budget.
C) there is a budget surplus.
D) there is public dissaving.

Question 52

Which of the following is not one of the key services provided by the financial system?

A) decreasing taxes
B) risk sharing
C) liquidity
D) generating information

Question 53

________ is the ease with which a financial security can be exchanged for money.

A) Risk
B) The face value
C) Liquidity
D) The rate of return

Question 54

An increase in government purchases,ceteris paribus,will

A) increase public saving.
B) increase the supply of loanable funds.
C) reduce investment.
D) reduce real GDP.

Question 55

There is public dissaving if

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

Question 56

Which one of the following is not considered a financial intermediary?

A) a bank
B) a pension fund
C) an insurance company
D) a credit counselor

Question 57

The budget deficit is defined as

A) T - (G + TR), and this is negative.
B) T - (G + TR), and this is positive.
C) T + (G - TR), and this is negative.
D) T + (G + TR), and this is negative.

Question 58

A financial intermediary's main function is to match ________ with excess funds to ________ with a shortage of funds.

A) savers; borrower
B) borrower; savers
C) governments; households
D) firms; insurance companies

Question 59

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 60

Private saving is defined as

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

Question 61

Equilibrium in the loanable funds market determines

A) the nominal interest rate.
B) the current interest rate.
C) the real interest rate.
D) the expected interest rate.

Question 62

An increase in the real interest rate does which of the following?

A) reduces the demand for loanable funds
B) reduces saving
C) reduces consumption spending
D) increases the demand for loanable funds

Question 63

If technological change increases the profitability of new investments for firms,then the ________ curve for loanable funds will shift to the ________.

A) supply: right
B) supply; left
C) demand; right
D) demand; left

Question 64

Using the market for loanable funds,which of the following has the potential to raise the real interest rate?

A) an increase in the demand for loanable funds
B) an increase in the quantity of loanable funds demanded
C) an increase in the supply of loanable funds
D) an increase in the quantity of loanable funds supplied

Question 65

The demand for loanable funds is determined by the willingness of ________ to borrow money to engage in new investment projects.

A) government
B) households
C) banks
D) firms

Question 66

An increase in public saving has what impact on the market for loanable funds?

A) The supply of loanable funds increases.
B) The demand for loanable funds increases.
C) The supply of loanable funds decreases.
D) The demand for loanable funds decreases.

Question 67

Because ________ in the government budget deficit increase the real interest rate,budget deficits can ________ firm investment.

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

Question 68

Figure 21-1

Refer to Figure 21-1.The loanable funds market is in equilibrium,as shown in the figure above.As a result of an increase in the government budget deficit,the ________ for loanable funds will ________,thereby ________ the equilibrium real interest rate and ________ the equilibrium quantity of loanable funds.

A) demand; rise; increasing; decreasing
B) supply; rise; decreasing; increasing
C) demand; fall; decreasing; decreasing
D) supply; fall; increasing; decreasing

Question 69

An increase in the real interest rate results in which of the following?

A) an increase in the demand for loanable funds
B) a decrease in the demand for loanable funds
C) an increase in the quantity of loanable funds supplied
D) Both B and C will occur as a result of an increase in the real interest rate.

Question 70

Figure 21-1

Refer to Figure 21-1.The loanable funds market is in equilibrium,as shown in the figure above.An increase in the supply of loanable funds could result in which of the following combinations of the real interest rate and quantity of loanable funds at a new equilibrium?

A) The real interest rate is 5 percent, and the quantity of loanable funds is $150 million.
B) The real interest rate is 5 percent, and the quantity of loanable funds is $90 million.
C) The real interest rate is 3 percent, and the quantity of loanable funds is $150 million.
D) The real interest rate is 3 percent, and the quantity of loanable funds is $90 million.

Question 71

The federal budget deficit can be reduced by

A) raising taxes.
B) raising government spending.
C) raising transfer payments.
D) higher interest rates.

Question 72

Economist Steve Landsburg has pointed out that Ebenezer Scrooge's change in behavior from miser to spender might actually be detrimental to the economy because

A) Scrooge's miserly saving helped contribute to the production of investment goods rather than consumption goods.
B) Scrooge was happiest when he was saving money, and happiness is the key to economic growth.
C) saving has to be greater than consumption for the economy to grow.
D) Scrooge's consumption habits were more detrimental to the environment than were his earlier saving habits.

Question 73

A decrease in the real interest rate will

A) increase consumption and reduce investment.
B) increase saving and investment.
C) decrease investment and government spending.
D) increase consumption and investment.

Question 74

If technological change increases the profitability of new investment for firms,then the ________ curve for loanable funds will shift to the ________ and the equilibrium real interest rate will ________.

A) supply; right; fall
B) supply; left; rise
C) demand; right; rise
D) demand; left; fall

Question 75

Figure 21-1

Refer to Figure 21-1.The loanable funds market is given in the figure above.If the current real interest rate is 5 percent,which of the following is true?

A) The loanable funds market is in equilibrium.
B) There is a surplus of loanable funds in the market.
C) There is a shortage of loanable funds in the market.
D) The quantity of loanable funds being demanded in the market is less than $90 million.

Question 76

The supply of loanable funds has a ________ slope because the greater the interest rate,the ________ the reward to saving,and the ________ the quantity of loanable funds supplied.

A) positive; lesser; lesser
B) positive; greater; lesser
C) negative; lesser; greater
D) positive; greater; greater

Question 77

Figure 21-1

Refer to Figure 21-1.The market is in equilibrium.If the government budget deficit rises,which of the following would you expect to see?

A) The quantity of loanable funds demanded by firms will rise above $120 million.
B) The quantity of loanable funds demanded by firms will fall below $120 million.
C) The budget deficit will have no impact on the quantity of loanable funds demanded by firms.
D) The interest rate will fall below 4 percent.

Question 78

The demand for loanable funds has a ________ slope because the lower the interest rate,the ________ number of investment projects are profitable,and the ________ the quantity of loanable funds demanded.

A) negative; greater; greater
B) negative; greater; lesser
C) negative; lesser; greater
D) positive; lesser; lesser

Question 79

An increase in the government budget deficit will shift the ________ curve for loanable funds to the ________ and the equilibrium real interest rate will ________.

A) supply; right; fall
B) supply; left; rise
C) demand; right; rise
D) demand; left; fall

Question 80

An increase in the government budget surplus will shift the ________ curve for loanable funds to the ________ and the equilibrium real interest rate will ________.

A) supply; right; fall
B) supply; left; rise
C) demand; right; rise
D) demand; left; fall