MAC2 Exam Questions With Correct
Answers
The level of a nation's GDP measures __________ - answereconomic prosperity
The growth rate of GDP measures - answereconomic progress
How higher saving leads to a higher standard of living - answerHigher saving --> physical
capital increases --> m...
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 is
unpredictable
People can't enjoy to invest on future consumption
Why would removing a trade restriction lead to more rapid economic growth -
answer✔Because trade has similar effects as discovering new technology, which improves
productivity and living standard
Rate of population growth influences the level of GDP per person (how? 1) -
answer✔Stretching natural resources: 200 years ago, Malthus stated that population growth
strain society's ability ro provide for itseft. Since then, the world population has increased sixfold
but the living standards has risen --> Malthus failed to account for technological progress and
productivity growth
Rate of population growth influences the level of GDP per person (how? 2) - answer✔Diluting
the capital stock: Bigger population = higher L = lower K/L = lower productivity & living
standards. This applies to K and H. Fast population growth = more children = greater strain on
educational system. Countries with fast growth tend to have lower educational attainment. To
combat this, many countries use policy 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
frequent discoveries = faster technical progress and economic growth
disminishing returns - answer✔the property whereby the benefit from an extra unit of an input
declines as the quantity of the input increase
financial system - answer✔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 directly provide
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 can indirectly
provide funds to borrowers
mutual fund - answer✔an institution that sells shares to the public and uses the proceeds to buy
a portfolio of stocks and bonds
national saving - answer✔the total income in the economy that remains after paying for
consumption and government purchases
private saving - answer✔the income that a household has left after paying for taxes and
consumption
public saving - answer✔the tax revenue that government has left after paying for its spending
budget surplus - answer✔an excess of tax revenue over government spending
budget decifit - answer✔a shortfall of tax revenue over government spending
market for loanable funds - answer✔the market in which those who wants to save supply funds
and those who want to borrow to invest demand funds
crowding out - answer✔a decrease in investment that results from government borrowing
Why is it important for people who own stocks and bonds to diversify their holding? -
answer✔The value of any single stock or bond is tie to the fortunes of one company --> face
less risk because they have only a small stake in each company
Explain why is mutual fund is likely to be less risky than an individual stock? - answer✔Mutual
funds make diversification easy. When one stock in the fund is performing poorly, it is likely that
another stock is performing well.
What is investment? How is it related to national saving/ - answer✔Investment is a purchase of
new capital. Saving must be equal to investment
Describe a change in the tax code that might increase private saving
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