ECON7100-M50 Spring 2015

Self-Study14

1. Which of the following is correct?
   1. The economy has a healthy debt burden as long as the nominal income growth rate exceeds the real debt interest rate.
   2. If the debt/GDP ratio is 200% and debt interest rate is 10%, the debt interest payment will represent 20% of GDP.
   3. If the debt/GDP ratio is increasing, GDP must be increasing faster than debt.
   4. If only the new GDP growth is used to pay interest on existing debt, the debt/GDP ratio will fall regardless.
2. Why does "gross" mean in "gross domestic product"?
   1. There is some double counting in the total output (GDP) because some part of the capital investment actually is depreciated for the production of other final goods.
   2. Capital depreciation has been netted out of total output (GDP).
   3. Capital investment can last over time but consumption vanishes when consumed.
   4. Not all long-lasting intangible assets have been included.
3. Government incentives are costly because
   1. only unintended recipients benefit from them.
   2. the incentives fail to produce short-term effects.
   3. only intended recipients benefit from them.
   4. it is difficult to channel the incentives only to incremental activities.
4. Automatic stabilizers are timely buffers against precipitous drops in spending because
   1. they could be implemented with fast-track legislation.
   2. the basic benefits are legislated on an ad hoc basis.
   3. they require no additional legislation.
   4. the benefits go down when income goes down.
5. An aging population is the result of
   1. high birth rates plus low death rates.
   2. high birth rates plus high death rates.
   3. low birth rates plus low death rates.
   4. low birth rates plus high death rates.
6. If ticket prices went up 8 times between 1939 and 2010, Avatar would rank the same as Gone with the Wind if its nominal 2010 box-office receipt were _____ times as high as the Wind's 1939 gross nominal box-office receipt.
   1. more than eight
   2. less than eight
   3. eight
   4. nine
7. Circular flow will stay the same size if
   1. actual leakages are equal to actual injections.
   2. planned injections exceed planned leakages.
   3. planned leakages exceed planned injections.
   4. planned injections are equal to planned leakages.
8. When planned domestic leakages exceed planned domestic injections in an open economy
   1. the domestic circular flow will expand.
   2. capital outflow can make up for the difference.
   3. the quantity produced will fall short of the quantity people want to buy domestically.
   4. imports will make up for the difference between the quantity produced and quantity bought domestically.
9. The spending multiplier model assumes that
   1. the multiplier effect will go on forever once a stream of new spending is injected into the economy.
   2. the new injection of spending will not crowd out other spending.
   3. planned injections exceed planned leakages in the absence of the stimulus spending.
   4. the new injection of spending will crowd out other spending.
10. During the housing bubble preceding 2008, US household consumption was financed by
    1. debt.
    2. real household savings.
    3. foreign savings.
    4. disposable income.
    5. Both A and C.
11. Which one of the following is correct?
    1. MPC + MPS = 1.
    2. MPC + MPS = 100%.
    3. 1 - MPS < MPC.
    4. Both A and C.
    5. Both A and B.
12. In a closed economy, actual savings will increase only if
    1. the output pie shrinks.
    2. consumption is reduced.
    3. what is saved is recycled back to investment.
    4. investment is reduced.
13. A constant growth rate will
    1. lead to an ever shorter doubling time of the initial value.
    2. double the positive initial value every 10 years.
    3. result in a growth curve with an increasing slope on a semi-log graph paper.
    4. not be sustainable in a finite world.
14. Gross saving is
    1. saving including capital depreciation allowances.
    2. equal to gross domestic investment.
    3. saving excluding capital depreciation allowances.
    4. saving including foreign capital inflow.
15. When planned injections exceed planned leakages in a closed economy
    1. there will be a shortages of goods and services.
    2. the quantity produced falls short of the quantity people want to buy.
    3. there will be a surplus of goods and services.
    4. the circular flow will shrink in the next round.
    5. Both A and B.
16. Net capital inflow into America was funded by
    1. recycled trade surplus earned by foreign countries.
    2. American household savings.
    3. capital depreciation allowances set aside by America's corporate sector
    4. trade deficits incurred by foreign countries.
17. The government can do new non-debt servicing borrowing without increasing the debt/GDP ratio if
    1. the new borrowing does not exceed the excess of income growth rate over the debt interest rate.
    2. the debt interest rate is higher than the income growth rate.
    3. the income growth rate is equal to the debt interest rate.
    4. Both A and B.
18. The simple "crowding out" model is
    1. based on the circular-flow model in a closed economy.
    2. not related to the circular-flow model.
    3. based on the circular-flow model in an open economy.
    4. Both B and C.
19. In an economic recession, higher consumption is good because
    1. higher spending on ANY investment would simply increase the productive capacity which is already under-utilized.
    2. it leads to higher saving.
    3. it reverses the spending multiplier effect.
    4. higher rate of saving would further erode aggregate demand for goods and services.
20. GDP is the sum of
    1. C, I, and G.
    2. C, S, and T.
    3. C, I, and S.
    4. private spending and government spending.
    5. Both A and D.