1946 The convergence hypothesis states that 1945 1947 1948 You have won the lottery and have been given the choice of receiving 5 million today or 10 million after 10 years Assume that the interest rate remains fixed at 10 per year for the entire 10 year period You should choose 10 million after 10 years since this is more than you would get if you invested 5 million for 10 years at an annual rate of interest of 10 Incorrect 10 million after 10 years since that is a larger amount than the present value of 5 million paid after 10 years Incorrect 5 million today since it would be worth more than 10 million after 10 years if the 5 million earned interest at the rate of 10 per year True Answer Correct 10 million after 10 years since it is the larger amount Incorrect international differences in real GDP per capita tend to diverge over time Incorrect international differences in real GDP per capita tend to fluctuate over time Incorrect international differences in real GDP per capita remain constant over time Incorrect international differences in real GDP per capita tend to narrow over time True Answer Correct A semiconductor firm is considering opening a new plant The plant will generate profits of 100 million for each of three years after the first year of production and then zero profits after that If the interest rate is 10 what is the maximum cost to the nearest million the firm is willing to pay now for the plant 300 million Incorrect 249 million True Answer Correct 273 million Incorrect 100 million Incorrect The East Asian countries have exhibited tremendous economic growth during the last 40 years because of all of the following EXCEPT a significant increase in physical capital per worker made possible by very high rate of saving Incorrect 1950 The convergence hypothesis says that a significant increase in human capital made possible by very good basic education Incorrect a substantial achievement in technological progress Incorrect intervening governments with lots of regulations True Answer Correct As the manager of a professional football team you just offered the kicker a two year contract that pays 2 million per year The kicker refuses the contract stating he wants 3 million this year If you offer 3 million this year about how much will you have to offer next year to keep the present value of the contract the same as your original offer Assume a 10 annual interest rate 1 million Incorrect 900 000 True Answer Correct 808 080 Incorrect 743 800 Incorrect differences in real GDP per capita among countries tend to narrow over time True Answer Correct differences in real GDP per capita among countries tend to increase over time Incorrect differences in real GDP per capita do not have much effect on living standards in the long run Incorrect aggregate production functions in different countries will all be the same in the long run Incorrect You win a prize at your sorority and you are given the following two payoff options Option 1 is to receive 100 one year from today and 100 two years from today Option 2 is to receive 180 today If the annual interest rate is 10 the present value of option 1 is 173 56 True Answer Correct 190 91 Incorrect 182 65 Incorrect 181 80 Incorrect The convergence hypothesis says that international differences in GDP per capita tend to 1949 1951 1952 narrow over time True Answer Correct expand over time Incorrect remain steady over time Incorrect narrow and then expand over time Incorrect You win a prize at your sorority and you are given the following two payoff options Option 1 is to receive 100 one year from today and 100 two years from today Option 2 is to receive 180 today If the annual interest rate is 5 the present value of option 1 is 176 56 Incorrect 185 94 True Answer Correct 190 48 Incorrect 195 24 Incorrect Throughout the twentieth century nations in Latin America experienced disappointing growth rates primarily due to low rates of national savings political instability and little emphasis on education True Answer Correct low rates of investment in physical capital that offset a strong emphasis on education Incorrect abundant natural resources rapid technological progress and political instability Incorrect low rates of national savings a scarcity of natural resources and political instability Incorrect 1955 The net present value of a project is the difference between current benefits and the present value of future costs Incorrect the present value of current benefits and the current value of future costs Incorrect the present value of future benefits and the present value of future costs Incorrect the present value of current and future benefits and the present value of current and future costs True Answer Correct The book cites which factor for slow growth in Latin America countries their reliance on the drug trade Incorrect 1953 1954 1956 excessive government intervention in the economy True Answer Correct an overly high birth rate Incorrect excessive reliance on America for foreign trade Incorrect 1957 The present value of a future payment increases if the period between the present and the future increases Incorrect future payment decreases Incorrect interest rate decreases True Answer Correct stock market falls Incorrect Which of the following is one reason for Latin America s lack of economic growth since 1920 The governments spent too much money on education Incorrect Latin American industries could not compete with all of the imported products Incorrect Savings and investment spending have been low because government policies have led to inflation bank failures and other disruptions True Answer Correct Latin America has very few natural resources Incorrect 1959 The present value of a future payment decreases if the period between the present and the future increases True Answer Correct future payment increases Incorrect interest rate decreases Incorrect stock market rises Incorrect All of the following are potential reasons for the economic stagnation of Latin America during the last century EXCEPT irresponsible government policies that fueled high levels of inflation Incorrect low rates of savings Incorrect lack of public support for education Incorrect excessively large flows of foreign investment True Answer Correct 1958 1960 1961 1962 1963 1964 The the future payment the its present value all other things held constant less the more uncertain is Incorrect more less Incorrect more more True Answer Correct less less Incorrect
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