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MAC2 Exam Questions And Answers Graded A+
The level of a nation's GDP measures __________ - Answer economic prosperity The growth rate of GDP measures - Answer economic progress How higher saving leads to a higher standard of living - Answer Higher saving -->physical capital increases --> more investment --> profit --> higher standard of living
What deter a policymaker from trying to raise the rate of saving? - Answer Future isunpredictable People cannot enjoy investing in future consumption Why would the removal of a trade restriction tend to result in faster economic growth -Answer Because trade has similar effects as discovering new technology, which improves productivity and living standard Population growth rate - GDP per capita: how does it affect it? 1) Answer Over-stretchingnatural resources: 200 years ago, Malthus explained that population growth burdens society's ability to provide for itself. Since then, the world population has grown sixfold,but living standards have increased --> Malthus has failed to consider technological progress and productivity growth. Rate of population growth determines the level of GDP per capita-how? 2-Answer Dilutingthe capital stock: Bigger population=higher L=lower K/L=lower productivity & living standards. Applies to K and H. Fast population growth=more children=greater stress oneducational system. Countries with fast growth tend to have lower educational attainment. But large populations have reasons to battle this as well: many countries usepolicy to control population growth - China's one child per family law
Rate of population growth influences the level of GDP per person - how? 3 - Answer
Promoting technical progress: More people = more scientists, engineers = more frequentdiscoveries = faster technical progress and economic growth
diminishing returns the property whereby the benefit from an extra unit of an inputdeclines as the quantity of the input increase catch-up effect the property whereby countries that start off poor tend to grow more rapidly than countries that start off richfinancial system a group of institutions in the economy that help to match one person's saving with another person's investment financial markets - Answer financial institutions through which savers can directlyprovide funds to borrowers
bond - Answer a certificate of indebtedness stock - Answer a claim to partial ownership in a firm financial intermediaries - Answer financial institutions through which savers canindirectly provide funds to borrowers
mutual fund - Answer an institution that sells shares to the public and uses the proceedsto buy a portfolio of stocks and bonds
national saving-the sum of income in the economy that is left over after the economypays for consumption and government purchases
private saving-the income a household has left after paying for taxes and consumption public saving-the revenue the government has left after it pays its spending budget surplus-an excess of tax revenue over government spending
required to pay federal income tax on the interest income Saving = - Answer (Y-T-C) + (T-G) Private saving= - Answer Y-T-C Public saving= - Answer T-G Credit risk refer to a bond's A. Term to maturityB. Probability of default C. Tax treatment D. dividendE. Price-earnings ratio - Answer B Which of the following is correct?A. A stock index is a directory used to find information about selected stock B. Longer-term bonds tend to pay less interest than shorter-term bondsC. Municipal bonds pay less interest than comparable corporate bonds. - Answer C If government speding exceeds tax collectionsA. Budget surplus B. Budget deficit - Answer B Suppose the public consumes $100 billion less and the government purchases $100billion more other things unchanging, which of the following statement is true? A. There is an increase in saving, and the economy should grow more quickly. B. There is a decrease in saving, and the economy should grow more slowly.C. Saving is unchanged.
D. There is not enough information to determine what will happen to saving. - Answer C If Americans become more thrifty we would expect a. The supply of loanable funds to shift to the right and the real interest rate to rise.b. The supply of loanable funds to shift to the right and the real interest rate to fall. c. The demand for loanable funds to shift to the right and the real interest rate to rise.d. The demand for loanable funds to shift to the right and the real interest rate to fall. - Answer B Which of the following sets of government policy is the most growth oriented? a. lower taxes on the returns to saving, provide investment tax credits, and lower thedeficit
b. lower taxes on the returns to saving, provide investment tax credits, and increase thedeficit
c. reduce lower taxes on the returns to saving, allow investment tax credits, and cut thedeficit d. reduce lower taxes on the returns to saving, allow investment tax credits, and run alarger deficit - Answer A
In a budget deficit that leads the government to increase its borrowing a.moves the supply of loanable funds right.b.moving demand for loanable funds left. c. shifts the demand for loanable funds to the right.d. shifts the supply of loanable funds to the left. - Answer D. shifts the supply of loanable funds to the left.
d.the investment fund effect. - Answer C If UK citizens become less concerned with the future and save less at each real interestrate, a.real interest rates rise and investment falls. b.real interest rates rise and investment rises.c.real interest rates fall and investment rises. d.real interest rates fall and investment falls. - Answer A If the government increases investment tax credits and reduces taxes on the return tosaving at the same time, a.the real interest rate should fall.b. the real interest rate should rise. c. the change in the real interest rate is ambiguous. d. the real interest rate should not change. - Answer C An increased budget surplusa.shifts the supply of loanable funds to the left and boosts the real interest rate. b.shifts the supply of loanable funds to the right and reduces the real interest rate.c. Shifts the demand for loanable funds right and increases the real interest rate. d. Shifts the demand for loanable funds left and decreases the real interest rate. -AnswerD
