Micro-Econ Midterm 2

Front 1

Economists focus on which of the following measures as an indication of a country's living standard?

Back 1

GDP per person

Front 2

Which of the following has contributed to the increase in real GDP in the U.S. over the past four decades?

Back 2

a. Increasing female labor force participation
b. The baby boom
c. Increasing average labor productivity
d. The rising share of Americans with jobs

Front 3

The increase in the standard of living in the US over the past century is the result of

Back 3

a positive growth rate of output

Front 4

The standard of living increases if:

Back 4

productivity and the share of the population employed grow

Front 5

The talents, education, training, and skills of workers are known as

Back 5

human capital.

Front 6

A good that is long-lasting and is used to produce other goods is called

Back 6

capital good.

Front 7

Getting a college degree is an example of investing in

Back 7

Human capital

Front 8

Mike and Tom debone chicken breasts for Ted’s chicken Co. Mike is new and can only debone 60 chicken breasts per hour, while Tom’s experience allows him to debone 120 chicken breasts per hour. Both Mike and Tom work 40 hours per week. Their average hourly productivity is:

Back 8

(60+120)/2 = 90

Front 9

Increasing the capital available to the workforce, holding other factors constant, tends to ______ total output at a(n) ______ rate.

Back 9

increase; decreasing

Front 10

Diminishing returns to capital implies that, holding labor and other inputs constant, as more capital is added, each additional unit of capital adds

Back 10

less to production.

Front 11

Alpha has $40000 of capital per worker, while Beta has $5000 of capital per worker. According to the principle of diminishing returns to capital, an additional unit of capital will increase output _______ in Alpha compared to Beta, holding other factors constant.

Back 11

less

Front 12

Which of the following is a measure that policymakers might take to raise a country's rate of economic growth?

Back 12

a. Increase human capital
b. Promote saving and investment
c. Support research and development
d. Provide an appropriate political and legal framework

Front 13

Most economists agree that _______is/are detrimental to economic growth.

Back 13

political instability

Front 14

At the time it collapsed in 1991, the Soviet Union possessed all of the factors that promote increases in economic growth EXCEPT:

Back 14

a political and legal environment that promoted economic productivity.

Front 15

Which of the following statement is false?
a) The main source of increase in the standard of living since the 1960’s has been the increase in labor productivity.
b) The increase in the percentage of people employed in the population has increased the standard of living since the 1960’s.
c) In the future, economists expect that labor productivity will increase.
d) In the future, economists expect that the percentage of people employed in the population will strongly increase.
e) In Europe, the standard of living is lower than the US standard of living.

Back 15

In the future, economists expect that the percentage of people employed in the population will strongly increase.

Front 16

Hong Kong and Singapore strong rates of economic growth illustrate that:

Back 16

Land and natural resources are not a necessary condition for GDP growth

Front 17

The increase in productivity growth in the second half of the 1990’s is largely due to:

Back 17

The increase in investment in IT in the 1980’s (Invest ahead of time!)

Front 18

The fictitious country "Alpha" has a real GDP of $18,600, a population of 30 and 20 employed workers. If a new technology is introduced that increases real GDP to $25,000, what is the increase in average labor productivity in Alpha (measured in $) as a result of the technological change?

Back 18

320

Front 19

The biggest barrier to growth for many of the poorest countries in the world is the need for:

Back 19

improved legal and political frameworks

Front 20

High rates of saving and investing in the private sector promote economic growth by

Back 20

increasing physical capital

Front 21

The saving rate is equal to

Back 21

saving divided by income.

Front 22

Wealth can be defined as

Back 22

assets minus liabilities

Front 23

Increases in the value of existing assets are known as

Back 23

capital gains.

Front 24

Saving to meet long-term objectives is called

Back 24

life-cycle saving

Front 25

Saving for the purpose of leaving an inheritance is called

Back 25

bequest saving.

Front 26

Saving to protect against unexpected setbacks is called

Back 26

precautionary saving.

Front 27

Middle-class families that were once content with medium-priced cars, but now feel the need to drive expensive cars to keep up with community standards illustrate which of the following effects?

Back 27

Demonstration effect

Front 28

If tax collections exceed government spending, there is a budget

Back 28

surplus.

Front 29

For the past 20 years, the saving rate of US households
a) has

Back 29

has been decreasing like in most industrialized countries.

Front 30

In the 1990’s, US households’ wealth has ______ because ________.

Back 30

increased; of capital gains.

Front 31

During the second half of the 1990’s, national savings ________ because ________.

Back 31

have stabilized; government improving budget balance has offset declining households saving rate.

Front 32

National savings is the sum of

Back 32

households, firms and government savings

Front 33

In a closed economy, national savings equals:

Back 33

National income minus spending on current needs.

Front 34

When the government runs a budget deficit this is equivalent to:

Back 34

Negative public savings.

Front 35

In a closed economy, the loanable funds market, savings _______ .

Back 35

Always equals the supply for funds.

Front 36

In a closed economy, an increase in government deficits ________ national savings and results in ______ interest rates and _______ investment.

Back 36

Decreases; increased; decreased

Front 37

The effect of ______ on _______ is called the crowding-out effect.

Back 37

Deficits; investment

Front 38

Technological progress ________ investment and results in ______ interest rates and _______ savings.

Back 38

Increases; increased; increased

Front 39

Investment growth in the US has been possible thanks to:

Back 39

Flows of capital from foreign countries.

Front 40

From a microeconomic point of view, low households saving is a problem because it tends to affect

Back 40

Poor households who would need to constitute precautionary savings.

Front 41

Since the beginning of the 2008 recession, households saving rate has_____ and government saving rate has_______.

Back 41

Increased; decreased

Front 42

Over the past 200 years, the main causes of the increase in debt as a percentage of GDP have been:

Back 42

wars and economic recessions

Front 43

During the second world war the ratio debt/GDP was:

Back 43

larger than the current debt/GDP ratio

Front 44

The 2009 Congressional Budget Office study finds that the deterioration of deficits since 2001 is essentially due to:

Back 44

the great recession and policies enacted by president Bush

Front 45

The main sources of the increase in the debt/GDP ratio in the future are:

Back 45

Medicare and social security

Front 46

Learning from the great depression and the Japanese slump, we should:

Back 46

b) maintain targeted stimulus when the economy is weak
c) cautiously and progressively reduce structural deficits

Front 47

Money refers to

Back 47

assets that can be used to make purchases.

Front 48

When you use money as a basic yardstick for measuring economic value, it is serving which function?

Back 48

unit of account

Front 49

When you use money to buy lunch, it is serving which function of money?

Back 49

medium of exchange

Front 50

When you keep a $10 bill in your piggy bank and it is still worth $10 a year later, your money has served which function?

Back 50

store of value

Front 51

Cash or similar assets held by banks for the purpose of meeting depositor withdrawals and payments are knows as

Back 51

bank reserves.

Front 52

Which of the following the most frequent tool used by the Fed to use to control the money supply?

Back 52

open market purchases

Front 53

An episode in which depositors rush to withdraw their deposits from the banking system is called a bank

Back 53

panic

Front 54

Which of the following was instituted to prevent depositors from rushing to withdraw their deposits from fear that their bank will go bankrupt?

Back 54

Deposit insurance

Front 55

M2 includes M1 as well as:

Back 55

Less liquid assets

Front 56

Currency is ______ the M1 measure of money and ________ the M2 measure of money.

Back 56

included in; included in

Front 57

In Econland, the public does not hold any currency . There is a $5,000,000 initial deposit in a commercial bank. If the banks' reserve/deposit ratio is 10%, the money supply in Econland equals:

Back 57

$50,000,000

(5,000,000/10%)

Front 58

In Macroland there is $1,000,000 in currency that can either be partially held by the public or used by banks as reserves. Assuming the public continues to hold the same amount of currency, if banks' reserve/deposit ratio increases from 10% to 15%, the money supply in Macroland will ______.

Back 58

decrease.

Front 59

In Macroland, suppose that the public holds 200,000 in currency and the initial deposit is 800, 000.
Assuming the public continues to hold the same amount of currency, if banks' reserve/deposit ratio is 20%, the Final consolidated balance sheet of commercial banks show that commercial banks have lent a total amount equal to:

Back 59

3,200,000

Total deposits=800000/20%=4000000
Total reserves=800000
Total loans=3200000

Front 60

In Macroland, suppose that the public holds 200,000 in currency and the initial deposit is 800, 000.
Assume the public continues to hold the same amount of currency and the banks' reserve/deposit ratio is 20%.
The total amount of money in Macroland is:

Back 60

4,200,000

(200000+800000/20%)

Front 61

In Macroland, suppose that the public holds 200,000 in currency and the initial deposit is 800, 000.
Assume the public continues to hold the same amount of currency and the banks' reserve/deposit ratio is 20%.
Suppose the Fed conducts an open market purchase for 200,000, the total amount of money in Macroland after the open market purchase is:

Back 61

5,200,000

money creation due to the open market operation: 200000/20%=1000000. This adds up to the 4200000 already in the economy.

Front 62

Suppose the Fed conducts an open market sale for 200,000, the total amount of reserves in commercial banks in Macroland after the open market sale is:

Back 62

600,000

(800000-200000)

Front 63

In the recent past, the Fed has tried to increase liquidity in credit markets by:

Back 63

purchasing risky assets from commercial banks

Front 64

The Federal Open Market Committee makes decisions about ____ policy.

Back 64

monetary

Front 65

According to the quantity equation if velocity and real GDP are constant and the Federal Reserve increases the money supply by 5 percent, then the price level:

Back 65

increases by 5 percent

Front 66

If velocity is constant, real GDP growth is 2% and the growth rate of money is 7%, then according to the quantity equation, inflation is:

Back 66

5%

Front 67

The credit market meltdown is related to

Back 67

a) Wrong rating of mortgage-backed asset securities.
b) Weak oversight and regulation by Government Sponsored Agencies.

Front 68

The credit market meltdown describes

Back 68

a) the difficulty faced by banks to find liquidities in the market through securitization.
b) the decline in the market value of banks' assets and their resulting bankruptcies .
c) the credit crunch experienced by potential borrowers.

Front 69

Bond prices and interest rates are

Back 69

inversely related.

Front 70

A regular payment made to a partial owner of a firm is called a(n)

Back 70

equity.

Front 71

A legal promise to repay a debt, including both the principal amount and regular interest payments describes a

Back 71

bond

Front 72

Spreading wealth over a variety of different financial investments to reduce overall risk is known as

Back 72

diversification

Front 73

The value of a stock is _________ related to expected dividend payments and ________ related to the market interest rate

Back 73

positively; negatively

Front 74

High rates of saving and investing in the private sector promote economic growth by

Back 74

increasing physical capital

Front 75

At the begining of 1998 - Smith's wealth was $100,000 - they don't save anything that year. experience housing ,arket gains equal to $40,000 what was their wealth @ end of 1998?

Back 75

140,000

Front 76

in 1990's, US households' wealth has __________ because __________ .

Back 76

increased; of capital gains

Front 77

The saving rate of american households is currently about:

Back 77

5%

Front 78

Durring the second half of the 1990s, national savings _______ because_______.

Back 78

have increased; the government has run a surplus

Front 79

In a closed economy, and increase in government deficits _____ national savings and results in _______ interest rates and _______ investments.

Back 79

decreased; increased; decreased

Front 80

The effect of _____ on ______ is called the crowding-out effect.

Back 80

deficits; investments

Front 81

In a closed economy, technological progress results in ______ national savings results in _____ interest rates and ______ investment.

Back 81

Increases; Increased; Increased

Front 82

What does monetary policy consist of?

Back 82

Controlling money supply

Front 83

Cash or similar assets held by banks for the purpose of meeting depositor withdrawals and payments are known as

Back 83

bank reserves

Front 84

Public holds: 300,000
Initial Deposit: 60,000
deposit ratio: 10%
total amount of money in the economy:

Back 84

60,000/.10 = 600,000
600,000+300,000 = 900,000

Front 85

Public holds: 300,000
Initial Deposit: 60,000
deposit ratio: 10%
Total Reserves:

Back 85

reserves = initial deposits
60,000

Front 86

Public holds: 300,000
Initial Deposit: 60,000
deposit ratio: 10%
Open Market Purchase: 50,000
total reserves:

Back 86

110,000

Front 87

Public holds: 300,000
Initial Deposit: 60,000
deposit ratio: 10%
Open Market Purchase: 50,000
total amount of money in the economy:

Back 87

1,400,000

Front 88

An Open Market Sales:

Back 88

1. Decreases the sum of reserves held by commercial banks
2. Decreases the sum of the deposits held by commercial banks
3. Decreases the amount of money in the economy

Front 89

Quantity theory of money:
supposing constant velocity, if output grows at 2%/year, the growth rate of money is 5%, then inflation is:

Back 89

M+V=P+Y
5%=P+2%
inflation = 3%

Front 90

Quantitative easing is

Back 90

the Fed buying long term government bonds with newly created money

Front 91

The article "The Central Banks" from the economist, refers to the fact that public confidence in central banks has decreased because:

Back 91

1. of their limited success in the face of the great recession
2. quantitative easing is unpopular due to the risk of inflation
3. of their inability to regulate financial markets prior to the credit crisis

Front 92

article "The shift away from thrift" from 1980s-2005:

Back 92

households saving has tend to decrease in industrialized countries and has been high in Asia

Front 93

Article "The productivity gap between Europe and the US: Trends and Causes" slower productivity growth in Europe is due to :

Back 93

slower productivity growth in market services

Front 94

Quantitative easing is

Back 94

the Fed buying long term government bonds with newly created money

Front 95

The article "The Central Banks" from the economist, refers to the fact that public confidence in central banks has decreased because:

Back 95

1. of their limited success in the face of the great recession
2. quantitative easing is unpopular due to the risk of inflation
3. of their inability to regulate financial markets prior to the credit crisis

Front 96

article "The shift away from thrift" from 1980s-2005:

Back 96

households saving has tend to decrease in industrialized countries and has been high in Asia

Front 97

Article "The productivity gap between Europe and the US: Trends and Causes" slower productivity growth in Europe is due to :

Back 97

slower productivity growth in market services

Front 98

article "the great illusion" up to the recession of 2008, spending in the US is increasingly driven by:

Back 98

higher asset values rather than higher incomes