ECON 203 Assignment 3

Assignment 3 Questions 1. Which of the following best describes changes in the average well-being in a country? a. The growth rate of real GDP per person 2. Which statement best characterizes the variations in real GDP per person and its rate of growth across countries? a. Real GDP per person and the growth rate of real GDP per person vary widely across countries 3. Last year, real GDP in Oceania was $620 billion and the population was 2.3 million. The year before, real GDP was $502 billion and the population was 2.0 million. What was the approximate growth rate of real GDP per person? a. 7% 4. What is the correct way to measure productivity? a. Divide output by the number of hours worked 5. Laurie works 8 hours and produces 7 units of goods per hour. Iris works 6 hours and produces 10 units of goods per hour. What can we conclude? a. Iris’ productivity and output are greater than Laurie’s 6. What do economists call the equipment and structures available to produce goods and services? a. Physical capital 7. What best defines human capital? a. The knowledge and skills that workers acquire through education, training, and experience 8. Which list contains, in this order, natural resources, human capital, and physical capital? a. For a railroad: fuel; railroad engineers; railroad tracks 9. In a market economy, what is scarcity of resources most clearly reflected in? a. Market prices 10. Which statement best defines technological knowledge? a. It is available information on how to produce things 11. Suppose you bake cupcakes. One day, you double the time you spend baking and double the sugar, flour, eggs, and all the other inputs in order to bake twice as many cupcakes. What kind of production function is this? a. Constant returns to scale 12. Suppose that an economy with constant returns to scale doubled its physical capital stock, doubled its available natural resources, and doubled its human capital, but kept the size of the labour force the same. How does the change in output compare to the change in productivity? a. Output and productivity would increase but by less than double 13. Suppose that over the past ten years productivity grew faster in Oceania than in Landia and the population of both countries was unchanged. What can we conclude? a. Real GDP per person grew faster in Oceania than in Landia 14. Which statement best explains how investment and growth rates relate across countries? a. They are positively related 15. Suppose Mexico increases its saving rate. What will happen in the long run? a. Productivity and real GDP per person will increase 16. Which statement best explains the logic behind the catch-up effect?

a. New capital adds more to production in a country that doesn’t have much capital than in a country that already had much capital 17. In the 1800s, Europeans purchased stock in Canadian companies, which used the funds to build railroads and factories. What type of investments did the Europeans make? a. Foreign portfolio investments 18. What factor did economic historian Robert Fogel focus on as one determinant of long-run economic growth? a. Nutrition 19. Once one person discovers an idea, the idea generally enters society’s pool of knowledge. Therefore, knowledge is generally what kind of good? a. A public good 20. Which of the following goods does a patent turn a new idea into? a. A private good, which increases the incentive to engage in research 21. Reggie’s income exceeds his expenditures. Which statement best describes Reggie? a. He is a saver who supplies money to the financial system 22. Suppose Microsoft sells a bond to the public. What is the company doing? a. Borrowing directly from the public 23. Which list of bonds is ordered from the most interest to the least interest? a. Corporate bond, municipal bond, federal government bond 24. Bella Roma Italian Market sells common stock. What type of financing are they using? a. They are using equity financing, and the return shareholders earn depends on how profitable the company is 25. What does a general, persistent decline in stock prices signal about an economy? a. That the economy s about to enter a recession because low stock prices may mean that people are expecting low corporate profits 26. Which term refers to the profits paid out to shareholders? a. Dividends 27. What is a dividend yield? a. It is the dividend as a % of the stock price 28. Suppose Sarah Lee Corporation stock has a P/E ratio of 10. Which statement best describes this P/E ratio? a. The P/E ratio is low, indicating that buyers may expect earnings to fall 29. Which of the following is a financial intermediary? a. A mutual fund 30. Which equation most simply represents GDP in a closed economy? a. Y = C + I + G 31. In a closed economy, how does national saving compare with investment? a. national saving is equal to investment 32. Suppose that in a closed economy GDP is equal to 15000, taxes are equal to 2500, consumption is equal to 7500, and government expenditures are equal to 3100. What is public saving? a. -600 33. The country of Aquilonia does not trade with any other country. Its GDP is $30 billion. Its government purchases $5 billion worth of goods and services each year, collects $7 billion in

48. How are discouraged workers counted in unemployment statistics? a. They are counted as part of the adult population, but not as part of the labour force 49. Who is considered unemployed? a. Sandy, who is on temporary layoff 50. Tom is looking for work after school, but everywhere he fills out an application he is told that so have lots of others. Simon has a law degree. Several firms have made him offers, but he thinks he might be able to find a firm where his talents could be put to better use. Which category of unemployment do Tom and Simon belong to? a. Tom is structurally unemployed, and Simon is frictionally unemployed 51. What is most likely to cause frictional unemployment? a. A worker leaving a job to find one with better benefits 52. The government operates programs for job training and job information intended to reduce unemployment. Which statement best describes how economists feel about such programs? a. Some economists claim that the government can do these things no better than firms, and individuals could do them for themselves 53. According to most economists, what would be an effect of eliminating unemployment insurance? a. It would cause a decrease in unemployment, but economists disagree about whether economic well-being would be enhanced by a such a change 54. What is the effect of minimum-wage laws on unemployment? a. minimum -wage laws probably increase teenage unemployment 55. When a union bargains successfully with an employer, what happens to unemployment and wages in that industry? a. Unemployment and wages increase 56. Suppose that in some country neither textile workers nor shoemakers are a. The supply of shoemakers will rise, and their wages will fall 57. What does the theory of efficiency wages explain? a. Why it may be in the best interest of firms to offer wages that are above the equilibrium level 58. Aaron is the owner of a firm that produces wind power in southern Alberta. There are many such firms in the area. Aaron decides that if he pays his workers a wage higher than the going market wage, his profits will increase. What is a likely explanation for his decision? a. The higher the wage, the less often his workers will choose to leave his firm 59. Which cause of unemployment is NOT associated with an excess supply of labour? a. Job search 60. In 2014, Madeleine opens up a new interior design business and creates five additional jobs in her firm. If net employment growth in 2014 was zero, what was a likely explanation for this? a. Job destruction was equal to job creation in 2014 Self-Assessment #3 1. Which statement best explains the importance of real GDP per person? a. It is a useful measure of well-being 2. Over the past 100 years, Canadian real GDP per person has doubled about every 35 years. If in the next 100 years it doubles every 25 years, then what will Canadian real GDP per person be a century from now?

a. 16 times higher than it is now 3. Last year, real GDP per person in Olympus was $6500. The year before, it was $5500. What was the growth rate of real GDP per person? a. 18.18% 4. How does productivity explain the differences in standard of living across countries? a. Productivity explains most of the differences across countries in the standard of living 5. Tom works 6 hours a day and Jerry works 8 hours. Tom can produce 6 baskets of goods while Jerry can produce 7 baskets. What can we conclude? a. Tom’s productivity is greater than Larry’s 6. What do economists call the inputs used to produce goods and services? a. Factors of production 7. Which of the following would NOT be considered physical capital? a. On-the-job training 8. Which of the following best describes natural resources? a. Production inputs such as land,rivers, and mineral deposits 9. In a market economy, when do we know that a resource has become scarcer? a. When its prices rises relative to other prices 10. Which statement best defines proprietary technology? a. It is knowledge that is known only by the company that discovers it 11. If your firm has constant returns to scale, what would happen to your firm’s output if you doubled all your inputs? a. It would double 12. If the production function for an economy had constant returns to scale, the labour force doubled, and all other inputs stayed the same, what would happen to real GDP? a. It would increase, but by something less than double 13. Which of the following does Y/L refer to? a. Productivity 14. How can a government encourage growth and, in the long run, raise the country’s economic standard of living? a. By encouraging saving and investment 15. Suppose a country were to increase its saving rate. In the long run, what would also increase? a. Its income and productivity levels 16. Which statement best defines the catch-up effect? a. It is the idea that it is easier for a country to grow fast and “catch up” with richer countries if it starts out relatively poor 17. If your Canadian-based firm opens and operates a new long board factory in Costa Rica, what type of investment is your firm engaging in? a. Foreign direct investment 18. What is an externality aspect of education? a. Education produces a return to society that is greater than the return to the individual 19. What is a valid policy to use for increasing the rate of economic growth? a. Encourage trade with neighbouring countries 20. What is the source of most technological progress? a. Private research by firms and individuals inventors

a. It is the interest rate as usually reported by banks 38. What would most likely happen in the market for loanable funds if the government were to increase the tax on interest income? a. The supply of loanable funds will shift left 39. What is the effect of an increase in budget deficit? a. It changes the supply of loanable funds 40. Which term refers to the fall in investment due to government borrowing? a. Crowding out 41. Which statement best defines the natural rate of unemployment? a. It is the amount of unemployment that the economy normally experiences 42. What does cyclical unemployment refer to? a. Year-to-year fluctuations of unemployment around its natural rate 43. How is the unemployment rate computed? a. By dividing the number of unemployed by the number of persons in the labour force 44. Who would be included in the labour force? a. Cody, who does not have a job, but is looking for work 45. A foreign governmental statistics agency recently reported that there were 47.6 million people over age 25 who had at least a bachelor’s degree. Of this number, 38.0 million were in the labour force and 35.9 million were employed. What was the unemployment rate in this group? a. About 5.5% 46. Last year, a government reported an increase in the number of people who were employed and an increase in the unemployment rate. Which statement would best explain the report? a. There was an increase in labour force 47. If an unemployed person quits looking for work, other things equal, which statement best describes the changes in the labour statistics? a. The unemployment rate decreases, and the labour-force participation rate decreases 48. Suppose that some people report themselves as unemployed when, in fact, they are working in the underground economy. If these persons were counted as employed, how would the labour statistics change? a. The unemployment rate would be lower, and the labour-force participation rate would be unaffected 49. How does Statistics Canada call a person who has a temporary, part-time job? a. Employed 50. What does the natural unemployment rate include? a. Both frictional and structural unemployment 51. What is most likely to cause frictional unemployment? a. Changes in the composition of demand among industries or regions 52. What would we predict if a country increases its unemployment compensation? a. The country would have longer duration spells of unemployment and it would have higher unemployment rate 53. What impact does employment insurance have on the labour market? a. It reduces search effort and raises unemployment 54. Which condition causes structural unemployment? a. Wages are kept above the equilibrium level

55. Which statement best defines collective bargaining? a. It is the process by which unions and firms agree on the terms of employment 56. What impact do employment insurance and unions have on unemployment? a. Unemployment insurance creates frictional unemployment, and unions create structural unemployment 57. Where is the unemployment rate more likely higher? a. Where EI benefits are higher, because people have less incentive to find jobs 58. Mary Sue is the newly appointed CEO of a company that manufactures USB flash drives on an assembly line. Her staff has told her that the output the firm produces, given the number of workers employed, indicates that some workers may be shirking. According to efficiency wage theory, what should she do? a. Pay all workers more than the equilibrium wage rate 59. Why did Henry Ford decide to pay $5 per day to his workers? a. He believed that %4 a day would increase worker productivity 60. Which law is most likely to reduce the natural rate of unemployment? a. A law that abolishes the minimum wage