Hong United Statement Canada Guatemala Kong Korea Niger Kingdom This economy had the highest level of real income per person in the year 2010 This economy experienced the fastest rate of growth in real income per person from 1960 to 2010 Consider the following four nations listed below. Which economy started 1960 with a level of real income per person of well below that of the United Kingdom and grew fast enough to catch up with and surpass the United Kingdom's real income per person by 2010? Canada C Guatemala Hong Kong Korea 2. The determinants of productivity Suppose there is a simple hypothetical economy in which the only industry is weaving In the weaving field, productivity-the amount of goods and services a worker can produce per hour-is measured by the number of garments one weaver makes per hour. In the following table, select the appropriate productivity determinant that represents each example. a WHuman Physical Capital Natural Capital per Resources per Technological Examples Worker per Worker Worker Knowledge The looms used to weave the textiles The accumulated weaving experience C of the workforce A dietary supplement that results in healthier, faster-growing coats C C. on the sheep The grasslands supporting the sheep whose wool is C C used for weaving 3. Economic growth and public policy Suppose an American buys stock issued by an Argentinian corporation. The Argentinian firm uses the proceeds from the sale to build a new office complex. This is an example of foreign PORTFOLIO OR DIRECT investment in Argentina. Which of the following policies are consistent with the goal of increasing productivity and growth in developing countries? Check all that apply. Providing tax breaks and patents for firms that pursue research and development in health and sciences Imposing restrictions on foreign ownership of domestic capital Increasing taxes on income from savings Protecting property rights and enforcing contracts Which of the following are possible outcomes of rapid population growth? a WA reduction in human capital per worker A reduction in capital per worker An increase in technological knowledge All of the above 4. Problems and Applications Q2 Suppose that society decided to increase consumption and reduce investment. Less investment leads to SLOWER OR FASTER economic growth in the long run Which of the following statements are true about groups in society that would benefit from or be hurt by this change? Check all that apply. All groups will have higher incomes as the result of faster economic growth There might be a transition period in which workers and owners in investment-good industries would receive lower incomes. There might be a transition period in which workers and owners in consumption- goods industries would receive higher incomes. 5. Problems and Applications Q4 What is the opportunity cost of investing in capital? Improved technology that leads to faster growth Higher taxes The loss of consumption that results from redirecting resources toward investment True or False: If people would prefer to have lower consumption spending and higher future growth, the country may be overinvesting in capital. True False What is the opportunity cost of investing in human capital? Lower taxes Improved technology that leads to faster growth The goods or resources that could be produced if the resources to produce them were not invested in human capital aTrue or False: A country may be overinvesting in human capital if each person's education level matches his or her profession True False 6. Financial institutions in the U.S. economy Suppose Jaylan decides to use $4,500 currently held as savings to make a financial investment. One method of making a financial investment is the purchase of stock or bonds from a private company. Suppose Warm Breeze, a cloud computing firm, is selling bonds to raise money for a new lab. This practice is called EQUITY OR DEBT_finance. Buying a bond issued by Warm Breeze would give Jaylan A CLAIM TO PARTIAL OWNERSHIP IN OR AN IOU, OR PROMISE TO PAY. FROM the firm. In the event that Warm Breeze runs into financial difficulty, JAYLAN AND THE OTHER BONDHOLDERS OR THE STOCKHOLDERS will be paid first. Suppose instead Jaylan chooses to buy 250 shares of Warm Breeze stock. Which of the following statements are correct? Check all that apply. The Dow Jones Industrial Average is an example of a stock exchange where he can purchase Warm Breeze stock. Expectations of a recession that will reduce economywide corporate profits will likely cause the value of Jaylan's shares to decline. An increase in the perceived profitability of Warm Breeze will likely cause the value of Jaylan's shares to rise- Alternatively, Jaylan could undertake their financial investment by purchasing bonds issued by the U.S. government. Assuming that everything else is equal, a U.S. government bond that matures 10 years from now most likely pays a HIGHER OR LOWER interest rate than a U.S. government bond that matures 30 years from now. 7. Saving and investment in the national income accounts a WThe following table contains data for a hypothetical closed economy that uses the dollar as its currency. Review the equations for national saving, private saving and public saving. Suppose GDP in this country is $1, 170 million. Enter the amount for consumption. Value National Income Account (Millions of dollars) Government Purchases (G) 300 Taxes minus Transfer Payments (T) 390 Consumption (C) Investment (1) 420 Complete the following table by using national income accounting identities to calculate national saving. In your calculations, use data from the preceding table. National Saving (S) million Complete the following table by using national income accounting identities to calculate private and public saving. In your calculations, use data from the initial table. Private Saving million Public Saving million Based on your calculations, the government is running a budget DEFICIT OR SURPLUS 8. Supply and demand for loanable funds The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward- sloping blue line represents the demand for loanable funds. a WSupply INTEREST RATE (Percent) Demand 100 200 300 400 500 600 700 300 800 1000 1100 1200 LOANABLE FUNDS (Billions of dollars) SAVING OR INVESTMENT is the source of the demand for loanable funds. As the interest rate falls, the quantity of loanable funds demanded INCREASES OR DECREASES. Suppose the interest rate is 5.5% Based on the previous graph, the quantity of loanable funds supplied is GREATER OR LESS than the quantity of loans demanded, resulting in a SURPLUS OR SHORTAGE |of loanable funds. This would encourage lenders to RAISE OR LOWER the interest rates they charge, thereby INCREASING OR DECREASING the quantity of loanable funds supplied and INCREASING OR DECREASING the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of 9. The market for loanable funds and government policy The following graph shows the loanable funds market. For each of the given scenarios adjust the appropriate curve on the graph to help you complete the questions that follow. Consider each scenario separately by returning the graph to its starting positionnew when moving from one scenario to the next. (Note: You will not be graded on any] changes you make to the graph.) O Demand Supply Supply INTEREST RATE (Percent) Demand LOANABLE FUNDS (Billions of dollars) Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 18%. Now suppose there is an increase in the tax rate on interest income, from 18% to 22% Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to RISE OR FALL and the level of investment spending to DECREASE OR INCREASE. Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital within some relevant time period. Suppose the government implements a new investment tax credit. a Wew View Help to edit, it's safer to stay in Protected View. Enable Editing Shift the appropriate curve on the graph to reflect this change. The implementation of the new tax credit causes the interest rate to FALL OR RISE and the level of investment to FALL OR RISE. Scenario 3: Initially, the government's budget is balanced; then the government significantly increases spending on national defense without changing taxes. This change in spending causes the government to run a budget DEFICIT OR SURPLUS, which INCREASES OR DECREASES national saving. Shift the appropriate curve on the graph to reflect this change. This causes the interest rate to FALL OR RISE, CROWDING OUT OR INCREASING the level of investment spending. 10. Problems and Applications Q3 Indicate whether each of the following descriptions represents saving or investment, as defined by a macroeconomist. Description Saving Investment This occurs when a person's income exceeds his consumption. This occurs when a person or firm purchases new capital. Indicate whether each of the following situations represents saving or investment. Situation Saving Investment Your family takes out a mortgage and buys a new house. C You use your $200 paycheck to buy stock in AT&T. C C Your roommate earns $100 and deposits it in his account at a bank. You borrow $1,000 from a bank to buy a car to use in your pizza delivery business