Econ: Multiple Choice Iii

Front 1

244. A country's growth rate depends very highly on how it has invested in its physical capital. Generally, countries that have:
A) used foreign direct investment as a source of their capital have exhibited the
highest growth rate.
B) used domestic saving as a source of their investment on physical capital have
exhibited the highest growth rate.
C) used foreign portfolio investment as a source of their capital have exhibited the
highest growth rate.
D) used contracted globalization as a source of their capital have exhibited the highest
growth rate.

Back 1

B) used domestic saving as a source of their investment on physical capital have
exhibited the highest growth rate.

Front 2

245. Which of the following institutions is important in channeling savings into investment?
A) schools
B) religious institutions
C) banks
D) the federal government

Back 2

C) banks

Front 3

246. An example of infrastructure is:
A) New Y ork City's public transportation system.
B) corporate bonds.
C) private equity firms.
D) the water supply system, government bonds and corporate stock.

Back 3

A) New Y ork City's public transportation system.

Front 4

247. Long-run economic growth is:
A) higher in countries with a weak rule of law and excessive government intervention.
B) lower in countries with a strong government and independent judiciary.
C) lower in countries whose courts enforce property rights and whose government
protects its citizens.
D) higher in countries with a strong rule of law and political stability.

Back 4

D) higher in countries with a strong rule of law and political stability.

Front 5

248. When the government invests resources in a nation's educational system, the government is said to be investing in:
A) private property.
B) human capital.
C) political stability.
D) infrastructure.

Back 5

B) human capital.

Front 6

249. Which of the following contributes to economic development?
A) low saving and investment rates
B) a command socialist economic system
C) investment in infrastructure
D) complete absence of government involvement

Back 6

C) investment in infrastructure

Front 7

250. The main reason South Korea has grown so rapidly is that because it was so poor:
A) it could take advantage of international financial aid for poor countries.
B) people left to go to more prosperous countries.
C) it could skip forward, or leapfrog, to use new-generation technology as it
developed.
D) it could import highly trained engineers from other countries.

Back 7

C) it could skip forward, or leapfrog, to use new-generation technology as it
developed.

Front 8

251. The convergence hypothesis helps explain why:
A) highly educated people converge in high-income countries.
B) high-income individuals marry other high-income individuals.
C) high-income countries continue their high growth rates.
D) the income of high-income and lower-income countries get closer.

Back 8

D) the income of high-income and lower-income countries get closer.

Front 9

252. The East Asian countries have exhibited tremendous economic growth during the last 40 years because of all of the following EXCEPT:
A) a significant increase in physical capital per worker made possible by very high
rate of saving.
B) a significant increase in human capital made possible by very good basic
education.
C) a substantial achievement in technological progress.
D) intervening governments with lots of regulations.

Back 9

D) intervening governments with lots of regulations.

Front 10

253. The convergence hypothesis says that international differences in GDP per capita tend to:
A) narrow over time.
B) expand over time.
C) remain steady over time.
D) narrow and then expand over time.

Back 10

A) narrow over time.

Front 11

254. The key factor explaining the poor growth performance of the African continent is probably:
A) the lack of political stability within countries.
B) the lack of natural resources.
C) overpopulation.
D) the prevalence of military conflicts among neighboring countries.

Back 11

A) the lack of political stability within countries.

Front 12

255. Greenhouse gas emissions are an example of:
A) a negative externality.
B) a public good.
C) a positive externality.
D) a private good.

Back 12

A) a negative externality.

Front 13

256. Economists generally agree that ____ are the best way for governments to reduce greenhouse gases to address climate change.
A) military actions
B) market-based incentives
C) direct pollution controls
D) subsidies for offshore oil exploration

Back 13

B) market-based incentives

Front 14

257. Suppose that South Korea is growing at 7% per year and is producing real GDP per capita of about $28,000, while Norway is growing at 3.5% per year and is producing real GDP per capita equal to $56,000. If all else stays equal, the real GDP per capita for these two countries will converge in:
A) 40 years.
B) 20 years.
C) 10 years.
D) 4 years.

Back 14

B) 20 years.

Front 15

258. Total factor productivity:
A) is the amount of output produced from a given amount of factor inputs.
B) is not an essential element in long-run growth.
C) is less important than technological progress.
D) cannot be used to explain how contributions of factors of production affect a
country's growth.

Back 15

A) is the amount of output produced from a given amount of factor inputs.

Front 16

259. Natural resources:
A) are still the most important factor in determining the productivity of human or
physical capital for all countries.
B) are the only factor which consistently shows a positive impact on productivity for
wealthy countries.
C) are a less significant source of productivity growth in most countries today than in
earlier times.
D) can be used to explain the differences in productivity growth among countries.

Back 16

C) are a less significant source of productivity growth in most countries today than in
earlier times.

Front 17

260. An action that would hinder growth would be:
A) a government's provision of basic health measures.
B) a government's support for research and development endeavors.
C) the lack of government oversight for property rights.
D) a government's encouragement of increased saving.

Back 17

C) the lack of government oversight for property rights.

Front 18

261. Which of the following do economists view as investment spending?
A) stocks
B) bonds
C) spending on physical capital
D) mutual fund investing

Back 18

C) spending on physical capital

Front 19

262. Which of the following is an example of investment spending?
A) The owner of a Domino's Pizza store has employed two students to deliver pizzas.
B) The manager of a local Domino's Pizza store has taken some cash to the bank to
make a deposit.
C) A local Domino's Pizza store has purchased a new pizza oven.
D) The owner of the Domino's Pizza store has used some of her salary to buy shares of
stock in the Domino's corporation.

Back 19

C) A local Domino's Pizza store has purchased a new pizza oven.

Front 20

263. Private savings is equal to:
A) income after taxes minus consumption.
B) taxes minus government spending on goods and services.
C) the total amount of savings accounts plus stocks plus bonds owned by households.
D) income plus investment.

Back 20

A) income after taxes minus consumption.

Front 21

264. The budget balance is equal to:
A) taxes plus government spending.
B) taxes minus government spending.
C) consumption plus investment.
D) imports minus exports.

Back 21

B) taxes minus government spending.

Front 22

265. A budget surplus exists when which of the following occurs?
A) Taxes are greater than government spending.
B) Taxes are less than government spending.
C) Taxes are less than government spending plus investment.
D) Investment is less than government spending less taxes.

Back 22

A) Taxes are greater than government spending.

Front 23

266. To help increase investment spending, the government can:
A) lower taxes on consumption, so that disposable income rises.
B) lower taxes on the returns from savings, so that total savings increase and the
interest rate falls.
C) raise taxes on the returns from bonds while lowering taxes on stock dividends.
D) lower taxes on investment spending while raising taxes on savings, so that total tax
revenue remains constant.

Back 23

B) lower taxes on the returns from savings, so that total savings increase and the
interest rate falls.

Front 24

267. In an open economy, total investment is equal to:
A) national savings plus capital inflow.
B) private savings plus national savings plus capital inflow.
C) private savings plus capital inflow.
D) national savings minus private savings minus capital inflow.

Back 24

A) national savings plus capital inflow.

Front 25

268. Which one of the following is an accurate formula for the budget balance?
A) The budget balance equals taxes minus government spending.
B) The budget balance equals transfers minus government spending.
C) The budget balance equals taxes plus government spending.
D) The budget balance equals savings plus taxes.

Back 25

A) The budget balance equals taxes minus government spending.

Front 26

269. If a country has a trade surplus, we can conclude that it also has:
A) a budget surplus.
B) a net capital outflow.
C) a net capital inflow.
D) a budget deficit.

Back 26

B) a net capital outflow.

Front 27

270. A business will want to borrow to undertake an investment project when the rate of return on that project is:
A) lower than the interest rate.
B) higher than the interest rate.
C) higher than the exchange rate.
D) equal to the inflation rate.

Back 27

B) higher than the interest rate.

Front 28

271. Economists use _____ as a model to explain how savers and borrowers come together to determine the equilibrium rate of interest.
A) the money market
B) the market for loanable funds
C) aggregate demand and aggregate supply
D) the financial system

Back 28

B) the market for loanable funds

Front 29

272. A business will want a loan when:
A) interest rate < (return on project – cost of project) / cost of project × 100.
B) rate of return < interest rate.
C) rate of return – interest rate < 0.
D) rate of return > (cost of project – interest rate) / interest rate × 100.

Back 29

A) interest rate < (return on project – cost of project) / cost of project × 100.

Front 30

275. An increase in the level of business opportunity will generally:
A) not change the loanable funds demand curve.
B) shift the loanable funds demand curve to the left.
C) cause a movement either up or down the loanable funds demand curve.
D) shift the loanable funds demand curve to the right.

Back 30

D) shift the loanable funds demand curve to the right.

Front 31

276. A business decision to borrow to fund projects should be based on whether:
A) the rate of return on the project is less than the interest rate on the loan.
B) the project will produce a good or service that is in high demand.
C) the rate of return on the project is at least as high as the interest rate on the loan.
D) the minimum efficient scale will be attained.

Back 31

C) the rate of return on the project is at least as high as the interest rate on the loan.

Front 32

277. Governments can save when:
A) taxes are less than expenditures.
B) taxes are greater than expenditures.
C) the government borrows to finance its expenditures.
D) the president insists that Congress balance the budget.

Back 32

B) taxes are greater than expenditures.

Front 33

278. Suppose a lender expects a real interest rate of 6% and the inflation rate is expected to be 3%. In this case, the nominal interest rate is equal to:
A) 3%.
B) 9%.
C) 12%. D) 6%.

Back 33

B) 9%.

Front 34

279. If you are paid $10,500 in one year on a $10,000 loan made today, then your annual interest rate is:
A) 0%.
B) 5%.
C) $500. D) $10,000.

Back 34

B) 5%.

Front 35

280. The present value of $1 realized one year from now is equal to: A) $1/(1+r).
B) $1×(1+r). C) 1+r.
D) 1/r.

Back 35

A) $1/(1+r).

Front 36

281. The main role of financial systems is to:
A) make the capitalist class richer.
B) provide credit cards to as many people as possible.
C) channel goods and services to the people willing to pay for them.
D) channel funds from savers into investments.

Back 36

D) channel funds from savers into investments.

Front 37

282. A financial asset is:
A) a physical asset like a car.
B) a claim that entitles the owner to future income from the seller.
C) the value of accumulated savings.
D) another term for capital.

Back 37

B) a claim that entitles the owner to future income from the seller.

Front 38

283. A physical asset is:
A) a claim on a tangible asset that gives the owner the right to dispose of it as he or
she wishes.
B) a claim that entitles the owner to future income from the seller.
C) the value of accumulated savings.
D) human capital.

Back 38

A) a claim on a tangible asset that gives the owner the right to dispose of it as he or
she wishes.

Front 39

284. Transaction costs are:
A) the return to an entrepreneur.
B) the return to moving a product to market.
C) the expenses of producing a product.
D) the expenses of negotiating and executing a deal.

Back 39

D) the expenses of negotiating and executing a deal.

Front 40

285. Which of the following assets would be considered to be the least liquid?
A) cash
B) checking account balance
C) corporate bond
D) ownership of one fourth of a privately held company

Back 40

D) ownership of one fourth of a privately held company

Front 41

286. Which of the following assets would be considered to be the most liquid?
A) currency
B) checking account balance
C) stock in a publicly traded company
D) a townhouse

Back 41

A) currency

Front 42

287. Financial assets that carry more risk:
A) usually have a lower rate of return.
B) usually have a higher rate of return.
C) are purchased by risk-averse buyers.
D) are a hedge against the future.

Back 42

B) usually have a higher rate of return.

Front 43

288. Financial intermediaries that manage a stock portfolio and sell shares of the stock portfolio itself to individual investors are:
A) mutual funds.
B) pension funds.
C) life insurance companies.
D) banks.

Back 43

A) mutual funds.

Front 44

289. Shares of stock represent:
A) shares of ownership in the issuing company.
B) a tax liability for the issuing company.
C) a tax deduction for the investor.
D) a debt of the issuing company to the investors who purchase the stock.

Back 44

A) shares of ownership in the issuing company.

Front 45

290. When portions of investment spending are financed by a capital inflow:
A) interest is being paid by government for the use of those funds.
B) interest is being paid to a foreigner for use of those funds.
C) consumers will need to cut back on spending.
D) taxes will be raised to pay for this capital inflow.

Back 45

B) interest is being paid to a foreigner for use of those funds.

Front 46

291. Holding everything else constant, when the government uses an expansionary policy in the presence of a deficit, it will result in:
A) an increase in the equilibrium interest rate in the loanable funds market.
B) an increase in the level of private investment spending.
C) an increase in government savings.
D) a fall in the equilibrium interest rate in the loanable funds market.

Back 46

A) an increase in the equilibrium interest rate in the loanable funds market.

Front 47

292. Crowding out results in a(n):
A) decrease in private investment spending resulting from government deficit
spending.
B) increase in physical capital accumulation, which leads to higher economic growth.
C) increase in private investment spending resulting from government deficit
spending.
D) increase in consumption spending as a result of higher investment spending.

Back 47

A) decrease in private investment spending resulting from government deficit
spending.

Front 48

293. A checking account with $500 is:
A) more liquid than a person's new car.
B) less liquid than a checking account with $1,000.
C) equally liquid as a stock share with a $500 value.
D) less liquid than a home with a market value of $250,000.

Back 48

A) more liquid than a person's new car.

Front 49

294. Four types of financial intermediaries are:
A) mutual funds, pension funds, government, and the central bank.
B) mutual funds, pension funds, life insurance companies, and banks.
C) banks, stock markets, pension funds, and the central bank.
D) the central bank, government, the stock market, and the Dow Jones Industrial
A verage.

Back 49

B) mutual funds, pension funds, life insurance companies, and banks.

Front 50

295. A semiconductor firm is considering opening a new plant. The plant will generate profits of $100 million for each of three years after the first year of production and then zero profits after that. If the interest rate is 10%, what is the maximum cost (to the nearest million) the firm is willing to pay now for the plant?
A) $300 million
B) $249 million
C) $273 million
D) $100 million

Back 50

B) $249 million

Front 51

296. You win a prize at your sorority, and you are given the following two payoff options: Option 1 is to receive $100 one year from today and $100 two years from today. Option 2 is to receive $180 today. If the annual interest rate is 10%, the present value of option 1 is:
A) $173.56.
B) $190.91.
C) $182.65.
D) $181.80.

Back 51

A) $173.56.

Front 52

297. You win a prize at your sorority and you are given the following two payoff options: Option 1 is to receive $100 one year from today and $100 two years from today. Option 2 is to receive $180 today. If the annual interest rate is 5%, the present value of option 1 is:
A) $176.56.
B) $185.94.
C) $190.48.
D) $195.24.

Back 52

B) $185.94.

Front 53

298. The net present value of a project is the difference between:
A) current benefits and the present value of future costs.
B) the present value of current benefits and the current value of future costs.
C) the present value of future benefits and the present value of future costs.
D) the present value of current and future benefits and the present value of current and
future costs.

Back 53

D) the present value of current and future benefits and the present value of current and
future costs.

Front 54

299. Your friend wants to borrow $2,000 and pay it back in one year. She is someone who keeps her word. She agrees to repay you $2,080 in one year. The bank annual interest rate is 5%. Which of the following statements is true?
A) You will be financially worse off if you make the loan rather than deposit $2,000 in
the bank.
B) You will be financially better off if you make the loan rather than deposit $2,000 in
the bank.
C) The present value of $2,080 payable in one year with an interest rate of 5% is
$1,904.76, which is less than the value of the $2,000 you have been asked to lend.
D) None of the statements is true.

Back 54

A) You will be financially worse off if you make the loan rather than deposit $2,000 in
the bank.

Front 55

300. In order to finance your education, you borrow $10,000 from a relative at an annual interest rate of 5%. You promise to pay her back in eight years. Which formula will provide the correct formula for calculating the value of your payment in eight years?
A) $10,000(1 + 0.05)
B) $10,000(1 + 5)
C) $10,000(1 + 0.05)8
D) $10,000(1 + 0.5)8

Back 55

C) $10,000(1 + 0.05)8

Front 56

301. The present value of a future payment:
A) decreases when the interest rate rises.
B) decreases when the interest rate falls.
C) decreases when the interest rate stays the same.
D) never changes regardless of the interest rates.

Back 56

A) decreases when the interest rate rises.

Front 57

302. If the friend offers to pay you $1 five years from today, the net present value will:
A) be higher than $1.
B) depend upon the prevailing interest rate.
C) be equal to zero, since you don't have the dollar.
D) not be important in understanding the time value of money.

Back 57

B) depend upon the prevailing interest rate.