Test 1 - Prep.pdf

Test 1 Prep 1. A small country's aggregate production function is Y = K1/2 = (from now on). Its depreciation rate is 5%, and its investment rate is 25%. What is its steady-state level of capital? a. 25 b. 5 c. 1.25 d. 0.25 a 2. In the Solow model, if a country increases its...

Test 1 Prep 1. A small country's aggregate production function is Y = K1/2 = (from now on). Its depreciation rate is 5%, and its investment rate is 25%. What is its steady-state level of capital? a. 25 b. 5 c. 1.25 d. 0.25 a 2. In the Solow model, if a country increases its savings rate: a. growth increases as the economy moves toward a new, higher steady-state capital stock. b. growth decreases as the economy moves toward a new, lower steady-state capital stock. c. growth increases as a result of a new, higher production function. d. no growth occurs, since the steady state is unchanged. a 3. If U.S. per capita GDP is $50,000 and grows at 5% per year, what will U.S. per capita GDP be in 70 years? a. $400,000 b. $800,000 c. $1.2 million d. $1.6 million d 4. Imagine an economy with production function Y = F(K) = and 400 units of capital. If the fraction of output invested in new capital increases from γ = 0.2 to γ = 0.5 and the depreciation rate is δ = 0.05, what is the new steady- state amount of capital? a. 16 units b. 64 units c. 100 units d. 256 units c 5. A small country's aggregate production function is Y = K1/2. Its depreciation rate is 5% and its investment rate is 25%. What is its steady-state level of real GDP? a. 25 b. 5 c. 1.25 d. 0.25 b 6. Table: iPhones Test 1 Prep Year Quantity Produced Price 2000 100 $100 2010 90 $110 This table shows data for a country producing only iPhones. The growth rate of real GDP between 2000 and 2010 (in 2000 dollars) was: a. −10%. b. 0%. c. 8%. d. 10%. a 7. If the production function in a country is Y = K1/2, the investment rate equals 0.25, and the depreciation rate is 0.05, then the steady-state level of output is equal to: a. 5 units. b. 10 units. c. 15 units. d. 25 units. a 8. Imagine an economy with production function Y = F(K) = and 400 units of capital. If the fraction of output invested in new capital is γ = 0.2 and the depreciation rate is δ = 0.05, how much total capital will be available in the next period? a. 380 units b. 384 units c. 400 units d. 404 units b 9. If real GDP per capita in the United States is currently $50,000 and grows at 2.5% per year, it will take approximately how many years to reach $200,000? a. 28 years b. 56 years c. 84 years d. 112 years b 10. If a country has an economic growth rate of 5.5%, its real GDP per capita will double in _____ years. a. 3.85 b. 12.73 c. 55.70 d. 78.55 b Test 1 Prep 11. Consider an economy with production function Y = K1/2, an investment rate equal to 0.25, and a depreciation rate of 0.05. If K = 1,000 this period, the capital stock next period will be: a. equal to 1,000. b. greater than 1,000. c. less than 1,000. d. greater than 1,200. c 12. A developing country could buy (or be given) _____ and _____ more easily than _____. a. technological knowledge; physical capital; human capital b. physical capital; human capital; technological knowledge c. human capital; technological knowledge; physical capital d. human capital; work experience; technological knowledge a 13. In the Solow model, better ideas will lead to: a. increases in productivity. b. capital accumulation. c. both an increase in productivity and an increase in capital accumulation. d. neither an increase in productivity nor an increase in capital accumulation. c 14. In the Solow model, better ideas will lead to: a. catching-up growth. b. cutting-edge growth. c. both catching-up growth and cutting-edge growth. d. neither catching-up growth nor cutting-edge growth. c 15. Imagine an economy with production function Y = F(K) = and 400 units of capital. If the fraction of output invested in new capital is γ = 0.2, the depreciation rate is δ = 0.05, and the economy starts with output of 20, what does the Solow model predict will happen to output in the long run? a. It will remain at 20. b. It will decline. c. It will increase. d. It will increase for a time and then return to 20. b 16. Figure: The Solow Model Test 1 Prep If the production function shifts from Y1 to Y2 in the accompanying graph of the Solow model, then: a. no growth occurs. b. catching-up growth occurs. c. cutting-edge growth occurs. d. both catching-up and cutting-edge growth occur. d 17. Table: Three-Good Economy 2 Product Quantity (2008) Price (2008) Quantity (2009) Price (2009) Computers 30 $1,000 28 $995 Pizzas 100 $10 150 $15 Burgers 200 $20 210 $20 Suppose an economy produces only the three finished goods shown in the table. The table gives information on the quantities produced and the prices of goods sold in 2008 and 2009. What was the growth rate of real GDP in 2009 if 2008 prices are used in the calculation of real GDP? a. −3.71% b. −5.62% c. 1.00% d. 2.94% a 18. In the Solow model, an increase in investment leads to: a. an increase in growth rates in the short run but a return to zero growth in the long run as the economy converges to a new, higher steady state. b. an increase in growth rates in both the short run and the long run, as new investment will lead to permanently higher levels of the capital stock. c. a decrease in growth rates in both the short run and the long run, as fewer resources are available for production following the increase in investment. d. no change in growth rates. a 19. Growth in nominal GDP can be caused by: a. only an increase in prices over time. b. only an increase in production over time. Test 1 Prep c. an increase in either prices or production over time. d. neither an increase in prices nor an increase in production over time. c 20. An economy has $10 trillion in consumption, $2.5 trillion in investment, $3 trillion in government purchases, $1 trillion in exports, and $1.5 trillion in imports. What is GDP in this economy? a. $15.0 trillion b. $15.5 trillion c. $16.5 trillion d. $18.0 trillion a 21. Real GDP for the year 2000 (measured in 2005 dollars) is equal to: a. 2000 prices × 2000 quantities. b. 2005 prices × 2000 quantities. c. 2000 prices × 2005 quantities. d. 2005 prices × 2005 quantities. b 22. Many economists are optimistic about the future of economic growth, mostly because: a. falling populations worldwide mean higher GDP per capita. b. growing populations mean a higher labor supply and thus higher levels of output. c. increasing populations worldwide mean added incentives for research and development. d. people are becoming wealthier worldwide. c 23. Table: Three-Good Economy 2 Product Quantity (2008) Price (2008) Quantity (2009) Price (2009) Computers 30 $1,000 28 $995 Pizzas 100 $10 150 $15 Burgers 200 $20 210 $20 Suppose an economy produces only the three finished goods shown in the table. The table gives information on the quantities produced and the prices of goods sold in 2008 and 2009. If 2008 prices are used in the calculation of real GDP, then nominal GDP in 2009 was $_____ and real GDP in 2009 was $_____. a. 34,310; 33,700 b. 35,350; 34,310 c. 33,700; 35,000 d. 35,000; 33,700 a 24. Figure: The Solow Model Test 1 Prep Which event would NOT shift the production function from Y1 to Y2 in the accompanying diagram of the Solow model? a. increases in productivity b. better ideas c. physical capital accumulation d. advances in technological knowledge c 25. Which statement is FALSE? a. Ideas for increasing output are primarily researched, developed, and implemented by profit-seeking firms. b. Ideas can be freely shared, but spillovers mean that ideas are underprovided. c. Government has a role in improving the production of ideas. d. The smaller the market, the greater the incentive to research and develop new ideas. d 26. The main reason for the influence of institutions on the wealth of nations is that good institutions: a. raise people's incentives to build wealth. b. keep the economy in tight control of the government. c. help distribute wealth more evenly among the people. d. allow government to convert private property more easily into collective property. a 27. Which is false regarding GDP? a. GDP measures the value of the production from labor and capital of a certain country. b. GDP does not include the value of used items that are sold. c. GDP does not add in the value of intermediate goods. d. GDP reflects both the quantity and value of production in a certain country. a