Production Function & Investment Resources – Economics

Production Function & Investment Resources – Macroeconomics

This quiz covers production function and investment resources of macroeconomics.


You are offered two jobs, one in Chicago paying $67,000 and one in Dallas paying $58,000. The price index in Chicago is 110.8, and in Dallas it is 91.5. If real wages are the only consideration, then you would

definitely take the job in Dallas because the real wage is higher there. – correct

suffer from menu costs and be conflicted.

definitely take the job in Chicago because the real wage is higher there.

be indifferent between the two jobs because the real wages would be about the same (within 2 percent).

suffer from money illusion and be conflicted.


The distinction between price confusion problems and menu costs is that

price confusion results from confusion between relative demand and inflationary pressures, whereas menu costs relate to producers changing prices, typically during inflationary periods.correct

price confusion results from confusion between relative demand and inflationary pressures, whereas menu costs have to do with people confusing changes in nominal and real wages.

menu costs result from confusion between relative demand and inflationary pressures, whereas price confusion has to do with people confusing changes in nominal and real wages.

menu costs only affect the food industry, whereas price confusion problems occur in high-tech industries.

menu costs occur during deflation, whereas price confusion problems occur during inflation.


If a bank expects inflation to increase in the near future, how will it respond?

It will start charging more interest on loans.correct

It will temporarily scale back its efforts to gain new customers.

It will start paying less interest on deposits.

It will seek to reduce the amount of cash held in its vaults.

It will temporarily suspend withdrawals.


If Robert was earning $10,000 and now earns $11,500, then

Robert’s real wage has increased, but we can’t tell about his nominal wage.

Robert’s real income must have risen.

Robert could experience menu costs if the items on the “value menu” increase in price.

Robert could suffer from money illusion if prices increase by 15 percent or more.correct

Robert will be confused about relative price increases and inflation.


If the value of the consumer price index (CPI) in 2013 was 135 and the value of the CPI in 2012 was 117, we could correctly say that the

typical basket of goods was about 18 percent less expensive in 2013 than in 2012.

typical basket of goods was about 18 percent more expensive in 2013 than in 2012.

average price of all items included in gross domestic product (GDP) was about 15.4 percent more expensive in 2013 than in 2012.

typical basket of goods was about 15.4 percent more expensive in 2013 than in 2012.correct

average price of all items included in gross domestic product (GDP) was about 18 percent more expensive in 2013 than in 2012.


In Country Z, the prices of goods are measured on an annual basis on the last day of the year. In Country Y, the prices of goods are measured on a weekly basis every Wednesday. Comparing the two countries based on this information,

Country Z will experience hyperinflation.

Country Y more accurately combats the upward bias of its price index by using a chained index.correct

neither country has a very good price index if consumer purchasing habits change; a chained index usually outperforms a traditional index.

Country Z more accurately combats the upward bias of its price index by using a chained index.

Country Y will experience hyperinflation.


What is one reason why a government will deliberately inflate its national money supply?

The action temporarily boosts the growth rate of a sluggish economy.correct

The action promotes the interests of domestic producers at the expense of foreign ones.

The action benefits retirees and anyone else on a fixed income.

The action helps to keep inflation under control in the long run.

The action enables the government to borrow funds to remain in operation.


Suppose a basket of goods and services has been selected to calculate the consumer price index (CPI) and 2002 has been chosen as the base year. In 2002, the basket’s cost was $76.00; in 2004, the basket’s cost was $79.50; and in 2006, the basket’s cost was $85.00. The value of the CPI was

100 in 2002.correct

no more than 90 in 2001.

108 in 2004.

120 in 2006.

at least 118 in 2007.


Donna Newton made $0.30 per hour in 1946 at a small restaurant in Clearfield, Pennsylvania. If the consumer price index (CPI) was 18.3 in 1946 and 202.4 in 2011, then Donna’s inflation-adjusted wage would be

$2.87.

$3.32.correct

$7.25, by U.S. law.

$0.61.

$0.30.


Donna Newton made $0.30 per hour in 1946 at a small restaurant in Clearfield, Pennsylvania. If the consumer price index (CPI) was 18.3 in 1946 and 202.4 in 2011 and the legal minimum wage in 2011 was $7.25, then

Donna’s inflation-adjusted wage would be greater than the legal minimum wage in 2011.

Donna’s inflation-adjusted wage would be equal to the legal minimum wage in 2011.

because of deflation in the years between 1946 and 2011, the inflation-adjusted wage would exceed the legal minimum in 2011.

Donna’s inflation-adjusted wage would be less than the legal minimum wage in 2011.correct

Donna would suffer from money illusion in 2011 if her real wage rose, holding her nominal wage constant.


Arguably, interest represents

both a cost to borrowers and a return to savers.correct

both a cost to lenders and a reward to borrowers.

the payment to the land factor of production and a return to savers.

the price of later availability (in terms of accrued interest) and a cost to borrowers.

the optimal rate of investment in depreciating assets and the price of earlier availability.



Loanable funds. Production Function & Investment Resources - Economics


Assuming the figure represents the market for loanable funds, which of the following would represent a decrease in time preferences (i.e., people are more patient)?

movement from A to B

a new shortage of loanable funds represented by the distance from C to D

a shift from line 4 to line 1

a shift from line 2 to line 3

a shift from line 1 to line 4correct


You are thinking about buying a new car and will borrow $20,000 for this purchase at a 5 percent fixed rate for exactly one year. The lender (correctly) assumes that inflation will be 2 percent this year. Based on the above information and assuming you adhere to the terms of the loan, you will pay back the lender exactly ________, which will represent ________ of purchasing power.

$21,000; $21,400

$20,000; $19,000

$19,600; $20,000

$21,000; $20,600 – correct

$21,000; $21,000


You are an entrepreneur about to start your first business. Based on this statement, you

are most likely to be a borrower concerned mostly about the nominal interest rate you will earn.

are most likely to be a borrower concerned mostly about the real interest rate you will earn. – correct

are most likely to be a lender concerned mostly about the real interest rate you will earn.

would only be concerned with whether inflation was greater or less than the nominal rate of interest based on the Fisher equation.

are most likely to be a lender concerned mostly about the nominal interest rate you will earn.


If people have more equity in their homes, it is the same as if

foreign entities have borrowed more from the United States.

investment has increased.

savings has decreased.

investment has decreased.

savings has increased.- correct


A young girl is saving money for a soccer ball but is tempted to buy a book. If the girl buys a book rather than continuing to save for the ball, the

girl has engaged in consumption smoothing.

girl has exchanged low time preferences for high. – correct

bookseller has moved from being a lender of loanable funds to a borrower.

girl has exchanged high time preferences for low.

bookseller has moved from being a borrower to a lender of loanable funds.


What will happen to the U.S. workforce over the next decade or so?

There will be a surge of people leaving the workforce to become dissavers.

There will be a surge of young workers, who are borrowers.

Consumption smoothing will become increasingly common.

Consumption smoothing will become less and less common.

There will be a surge of workers in their prime earning years, who are savers.


The gap between the real and nominal interest rate represents

the inflationary premium. – correct

the difference from what the lender receives and the borrower pays.

a surplus of loanable funds.

consumption smoothing.

the time preference.


You deposit $1,000.00 into an asset that pays 7 percent annual interest for eight years. At the end of the eight years, you would have

$1,718.19. – correct

$1,560.00.

$10,260.00.

$1,000.00.

$1,605.78


Loanable funds



Assuming the figure represents the market for loanable funds, which of the following would represent a cut in corporate tax rates, causing business owners and managers to become more optimistic?

a shift from line 1 to line 4

movement from B to A

a shift from line 2 to line 3 – correct

a shift from line 3 to line 2

movement from A to B


Steve owns a bike shop. He wants to increase the number of bikes he sells each month, so he knows he needs to acquire more resources. Which of the following actions would represent an increase in the human capital resource at his bike shop?

stocking more helmets and tire pumps

increasing the number of shop employees – correct

increasing the size of his shop

purchasing more bikes for his showroom

buying more bike-repair equipment


From 2009 to 2010, per capita real gross domestic product (GDP) in the United States grew by 1.8 percent. Given that prices increased by 1 percent and the population grew by 1 percent, we know that nominal GDP grew by

5.8 percent.

4.8 percent.

1.8 percent.

2.8 percent. – correct

3.8 percent.


Real per capita gross domestic product (GDP) is defined as the

market value of all final goods and services consumed in a country.

total level of income in a country.

average level of income in a country.

median level of income in a country.

average number of goods produced in a country. – correct


In 2007, per capita real gross domestic product (GDP) in Brazil was $9,893.92. By 2008, it had increased to $10,525.58. At what rate did Brazil’s economy grow in that time?

7.3 percent

5.4 percent

6.0 percent

6.4 percent – correct

2.3 percent


From 2009 to 2010, nominal gross domestic product (GDP) in the United States grew by 3.8 percent. Given that the population grew by 1 percent and per capita real GDP grew by 1.8 percent, we know that prices increased by

4.8 percent.

5.8 percent.

1.8 percent.

2.0 percent.

1.0 percent.


Why would an increase in capital resources lead to an increase in worker productivity?

More capital causes decreasing returns to scale.

More capital means that the owners of a company reap all of the benefits of labor.

More capital leads to a decrease in wages, leading employees to work harder.

More capital means that workers have better tools and equipment and can produce more. – correct

More capital means that fewer workers are needed, increasing output.


Liberia, a very poor nation in West Africa, is relatively abundant in resources such as mahogany and rubber tree forests, iron-ore deposits, and diamonds. If Liberia is so rich in valuable resources, why is it still so impoverished?

Taxes in Liberia are too high and discourage investment.

Liberians are content with a low standard of living.

The population of Liberia is too small to use those resources.

Liberia lacks the institutions necessary to make productive use of those resources. – correct

Natural resources are not as important as other types of resources.


An example of physical capital is

pants.

dog food.

a factory. – correct

exhaust from a smokestack.

a pillow.


Krista owns a hair salon. She wants to increase the number of clients she serves each month, so she knows she needs to acquire more resources. Which of the following actions would represent an increase in the physical capital resource at her hair salon?

buying more chairs and hair dryers – correct

purchasing better-quality shampoo

hiring more stylists

giving her stylists a raise

increasing the amount of training for her stylists


Which of the following are the three major categories of resources?

institutions, human capital, land

land, labor, technology

labor, physical capital, technology

natural resources, physical capital, human capital – correct

physical capital, technology, institutions


Suppose housing values fall during a recession. In the short run,

aggregate demand will increase because the demand for houses will increase.

the price level will fall as we move down the aggregate demand curve.

the price level will fall as we move down the short-run aggregate supply curve. – correct

short-run aggregate supply will increase because wages will fall.

short-run aggregate supply will decrease and the price level will fall.


Which of the following would affect both short-run and long-run aggregate supply?

a change in the general price level

technological change – correct

menu costs

money illusion

a supply shock


When median home prices rise, the value of real wealth ________ and aggregate demand ________.

increases; decreases

decreases; decreases

increases; is unaffected

is unaffected; is unaffected

increases; increases – correct


Long-run equilibrium. Production Function & Investment Resources - Economics




Based on the figure, which of the following would cause the long-run equilibrium point to change from point B to point D?

The population has aged and there are fewer people in the labor force.

Firms and workers expected the price level to rise.

The economy experienced an increase in government spending.

The country’s overall productivity increased.

The economy was in an expansion and has adjusted.


Suppose people are worried about losing their jobs. In the short run, this will

decrease aggregate demand and output. – correct

decrease short-run aggregate supply and output.

increase saving and increase aggregate demand.

decrease aggregate demand and short-run aggregate supply.

decrease output and increase the price level.


An economy has experienced a rightward shift of its long-run aggregate supply curve and is now producing on that new long-run aggregate supply curve. It is reasonable to expect that

the inflation rate has risen.

the price level has risen.

the cyclical unemployment rate has been unaffected. – correct

productivity has fallen.

the cyclical unemployment rate has fallen.


You read a study that predicts that rising oil prices projected for this summer are certain to fuel inflation. Having taken an economics class, due to this expected change in prices, you predict that spending today will ________ and aggregate demand today will ________.

be unaffected; be unaffected

increase; decrease

increase; increase – correct

decrease; increase

decrease; decrease


A decrease in aggregate demand is harmful in the short run because ________ but not in the long run because ________.

the price level falls; the unemployment rate rises

real wealth rises; real wealth falls

unemployment rises; the price level falls – correct

wages increase; wages decrease

the price level rises; output falls


Perfect summer weather increases farm output by 30 percent. In the short run, this can be expected to ________ the price level and ________ real wealth.

have no effect on; have no effect on

decrease; decrease

increase; decrease

decrease; increase – correct

increase; increase



Price Level. Production Function & Investment Resources - Economics



Based on the figure, starting at point A, if there is an increase in government spending, then in the short run we would move to point ________ and in the long run to point ________.

B; E

D; C

B; A

D; A

B; C


The production function describes the relationship between

the firm’s output and the price level.

the levels of output and spending in the economy.

inflation and unemployment in the economy.

the aggregate supply and demand for goods in the economy.

the firm’s inputs and outputs. – correct


In the steady state, investment is ________ and net investment is ________.

negative; negative

constant; constant – correct

zero; zero

positive; positive

positive; zero


The Solow model emphasizes

capital and diminishing returns. – correct

technological change.

the importance of skilled labor.

the development of institutions.

cultural factors.


When the production function shifts upward, we can expect the marginal product of capital to

decrease.

double in value.

increase.

remain constant.

turn negative.


An example of an institution that will increase the expected payoff of investment is

high rates of inflation.

trade restrictions to protect domestic jobs.

a more efficient tax structure.

corruption.

political instability.


According to modern growth theory, the key to economic growth is

institutions. – correct

skilled labor.

paved roads.

a large pool of unskilled labor.

modern buildings.


Which best explains the relationship between physical capital and the level of wealth in a country?

Poor countries can only become wealthier if they acquire more physical capital.

As countries become wealthier, they acquire more physical capital.

As countries acquire more physical capital, they become wealthier. – correct

Wealthier countries invest less in physical capital.

A country does not need physical capital to increase wealth.


Capital.


Suppose that the level of capital is 200,000, the depreciation rate is 15 percent, and investment is equal to 20,000. In this case, you would expect that

there will be an upward shift of the production function and an upward movement along the production function.

there will be an upward movement along the production function.

there will be a downward movement along the production function.

the production function will shift downward.

the production function will shift upward.


In the economy, the level of capital will remain the same if

net investment is greater than investment.

investment is zero.

net investment is less than investment.

output is increasing.

net investment is zero.


Net Investment. Production Function & Investment Resources - Economics




If net investment is positive, then

there is an upward movement along the production function.correct

there is a downward movement along the production function.

there is an upward shift of the production function and an upward movement along the production function.

the production function will shift downward.

the production function will shift upward.


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