Question

1) According to the rule of 70, if a country's real GDP per capita grows at an annual rate of

2% instead of 3%, it will take _____ for that country to double its level of real GDP per

capita.

a) 11.67 additional years

b)35 additional years

   

C) 3.3 additional years

D) 30 additional years

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2) In a closed economy, GDP = $10 trillion, Consumption = $6 trillion, and government spending

is $2 trillion. Total taxes are $1.5 trillion, and government transfers are $1 trillion. How much

is national saving?

a)$2 trillion

   

b)$4 trillion

c) $3 trillion

d) $3.5 trillion

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3) (Table) The private sector’s surplus is $ ______ billion

Component	$ billion
Govt. purchases	60
Taxe revenues	50
Investment	25
Saving	40

1) 15

   

2) -15

   

3) 10

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4) If the reserve requirement for banks is 20% and Erik deposits $400 cash into a bank, then by

how much can the money supply increase?

a) $2000

b) $400

   

c) $1600

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Assume China in 2008 has a per-capita income of$3000 and the U. S. has a per-capita income

of $40,000.Between 2008 and 2028 China grows at 9 percent while the U. S. grows at 2

percent. The per-capita income of China in 2028 will be and that of the U. S. will be

a) 18148; 59672

  

b) 10148; 69672

   

C) 10148; 59672

   

d) 18148; 69672

Please kindly show the detailed solution. Thanks!

Answer 1

1. Option A. 11.67 additional years

Explanation:

According to the rule of 70, the number of years required for a particular amount to double = 70/compount growth rate.

When the growth is 2%, the number of years it will double the real GDP = 70/2 = 35 years

When the growth is 3%, the number of years it will double the real GDP = 70/3 = 23.33 years

So, it will take 35 - 23.3 = 11.67 more years.

2. Option A. $2 trilion

Explanation:

National savings = private savings + public savings

Public savings =  (Taxes − Government spending − Transfer payments) = ($1.5 trillion - $2 trillion - $1 trillion) = $1.5 trillion - $3 trillion = -$1.5 trillion.

Private savings = (GDP − Taxes + Transfer Payments − Consumption) = $10 trillion - $1.5 trillion + $1 trillion - $6 trillion = $11 trillion - $7.5 trillion = $3.5 trillion.

So, national savings = private savings + public savings = $3.5 trillion + (-$1.5 trillion) = $3.5 trillion - $1.5 trillion = $2 trilllion.

3. Option 1. $15 billion

Explanation: Private sector surplus = Savings - Investment = $40 billion - $25 billion = $15 billion.

4. Option A. $2,000

Explanation: Money multiplier = 1/reserve requirement = 1/20% = 1/0.20 = 5.

Increase in the money supply = money multiplier * deposits = 5 * $400 = $2,000.