5学原理（宏观）第五版测试题库(25)

Chapter 25

Production and Growth

TRUE/FALSE

1. If per capita real income grows by 2 percent per year, then it will double in approximately 20 years.ANS: F DIF: 1 REF: 25-0 NAT: Analytic LOC: Productivity and growth TOP: Economic growth MSC: Definitional

2.

Over the period 1870-2006, the United States experienced an average annual growth rate of real GDP per person of about 4 percent per year.ANS: F DIF: 1 REF: 25-1 NAT: Analytic LOC: Productivity and growth TOP: Economic growth MSC: Definitional

3. In 2006, income per person in the United States was about 12 times that in India.ANS: T DIF: 1 REF: 25-1 NAT: Analytic LOC: Productivity and growth TOP: Economic growth MSC: Definitional

4. Over the period 1900-2006, Brazil’s rate of economic growth exceeded that of China.ANS: T DIF: 2 REF: 25-1 NAT: Analytic LOC: Productivity and growth TOP: Economic growth MSC: Definitional

5. If a country has a higher level of productivity than another, then it also has a higher level of real GDP.ANS: F DIF: 2 REF: 25-1 NAT: Analytic LOC: Productivity and growth TOP: Productivity MSC: Analytical

6. International data on real GDP per person give us a sense of how standards of living vary across countries.ANS: T DIF: 1 REF: 25-1 NAT: Analytic LOC: Productivity and growth TOP: Real GDP MSC: Definitional

7.

Real GDP per person in rich countries, such as Germany, is sometimes more than 10 times that of poor countries like Pakistan.ANS: T DIF: 1 REF: 25-1 NAT: Analytic LOC: Productivity and growth TOP: Standard of living MSC: Definitional

8. Both the standard of living and the growth of real GDP per person vary widely across countries.ANS: T DIF: 1 REF: 25-1 NAT: Analytic LOC: Productivity and growth TOP: Standard of living | Real GDP MSC: Definitional

9.

If they could increase their growth rates slightly, countries with low income would catch up with rich

countries in about ten years.ANS: F DIF: 1 REF: 25-1 NAT: Analytic LOC: Productivity and growth TOP: Economic growth | Catch-up effect MSC: Interpretive

10. In the United States real GDP per person is about $44,000, while in some poor countries real GDP per person

is less than $3,000.ANS: T DIF: 1 REF: 25-1 NAT: Analytic LOC: Productivity and growth TOP: Economic growth MSC: Definitional

1683

1684 ? Chapter 25 /Production and Growth

11. Although growth rates across countries vary some, rankings of countries by income remain pretty much the

same over time.ANS: F DIF: 1 REF: 25-1 NAT: Analytic LOC: Productivity and growth TOP: Economic growth MSC: Definitional

12. International data on the history of real GDP growth rates shows that over the last 100 years or so, rich

countries got richer and poor countries got poorer.ANS: F DIF: 1 REF: 25-1 NAT: Analytic LOC: Productivity and growth TOP: Economic growth MSC: Definitional

13. Productivity can be computed as number of hours worked divided by output.ANS: F DIF: 1 REF: 25-2 NAT: Analytic LOC: Productivity and growth TOP: Productivity MSC: Definitional

14. Indonesians, for example, have a lower standard of living than Americans because they have a lower level of

productivity.ANS: T DIF: 1 REF: 25-2 NAT: Analytic LOC: Productivity and growth TOP: Productivity | Standard of living MSC: Interpretive

15. If Country A produces 6,000 units of goods and services using 600 hours of labor, and if Country B

produces 5,000 units of goods and services using 450 units of labor, then productivity is higher in Country B than in Country A.ANS: T DIF: 2 REF: 25-2 NAT: Analytic LOC: Productivity and growth TOP: Productivity MSC: Applicative

16. Like physical capital, human capital is a produced factor of production.ANS: T DIF: 2 REF: 25-2 NAT: Analytic LOC: Productivity and growth TOP: Physical capital | Human capital MSC: Interpretive

17. Human capital is the term economists use to refer to the knowledge and skills that workers acquire through

education, training, and experience.ANS: T DIF: 2 REF: 25-2 NAT: Analytic LOC: Productivity and growth TOP: Human capital MSC: Definitional

18. A forest is an example of a nonrenewable resource.ANS: F DIF: 1 REF: 25-2 NAT: Analytic LOC: Productivity and growth TOP: MSC: Definitional

Natural resources

19. Historical trends in the prices of most natural resources compared to prices of other goods indicate that natural

resources have become scarcer over time.ANS: F DIF: 2 REF: 25-2 NAT: Analytic LOC: Productivity and growth TOP: Natural resources MSC: Interpretive

20. It is possible for a country without a lot of domestic natural resources to have a high standard of living.ANS: T DIF: 1 REF: 25-2 NAT: Analytic LOC: Productivity and growth TOP: Natural resources | Standard of living MSC: Interpretive

Chapter 25 /Production and Growth ? 1685

21. Constant returns to scale is the point on a production function where increasing inputs will no longer increase

output.ANS: F DIF: 2 REF: 25-2 NAT: Analytic LOC: Productivity and growth TOP: Constant returns to scale MSC: Interpretive

22. As capital per worker rises, output per worker rises. However, the increase in output per worker from an

addition to capital is smaller, the larger is the existing amount of capital per worker.ANS: T DIF: 1 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Production function MSC: Analytical

23. An increase in the saving rate does not permanently increase the growth rate of real GDP per person.ANS: T DIF: 2 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Saving rate MSC: Definitional

24. Other things the same, another unit of capital will increase output by more in a poor country than in a rich

country.ANS: T DIF: 1 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Productivity | Diminishing returns MSC: Interpretive

25. The catch-up effect refers to the idea that poor countries, despite their best efforts, are not likely ever to

experience the economic growth rates of wealthier countries.ANS: F DIF: 2 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Catch-up effect MSC: Interpretive

26. Two countries with the same saving rates must have the same growth rate of real GDP per person.ANS: F DIF: 1 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Saving rate | Catch-up effect MSC: Definitional

27. When Americans invest in Russia, the income of Russians (that is, Russian GNP) rises by more than does

production in Russia (that is, Russian GDP).ANS: F DIF: 3 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Foreign investment MSC: Applicative

28. If your company opens and operates a branch in a foreign country, you will be engaging in foreign direct

investment.ANS: T DIF: 1 REF: 25-3 NAT: Analytic LOC: International trade and finance TOP: Foreign investment MSC: Definitional

29. Investment in human capital has opportunity costs, but investment in physical capital does not.ANS: F DIF: 1 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Opportunity costs | Human capital | Physical capital MSC: Interpretive

30. Incentives for parents to send their children to school, such as small monthly payments to parents if their

children have regular attendance, appear to increase school attendance.ANS: T DIF: 1 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Economic growth MSC: Definitional

1686 ? Chapter 25 /Production and Growth

31. A country that made its courts less corrupt and its government more stable would likely see its standard of

living rise.ANS: T DIF: 1 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Property rights MSC: Definitional

32. If a country made it easier for people to establish and prove the ownership of their property, real GDP per

person would likely rise.ANS: T DIF: 1 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Property rights MSC: Interpretive

33. Economists generally believe that inward-oriented policies are more likely to foster growth than outward

oriented policies.ANS: F DIF: 1 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Trade policy MSC: Definitional

34. If a rich country reduced subsidies to domestic producers who produce goods for which poor countries have a

comparative advantage, the standard of living in these poor countries would likely rise.ANS: T DIF: 1 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Trade policy MSC: Definitional

35. One reason that governments may find it useful to sponsor universities and basic research is that to a large

extent knowledge is generally a private good.ANS: F DIF: 1 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Public goods MSC: Interpretive

36. The population growth rate tends to be higher in developed countries than in developing countries.ANS: F DIF: 1 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Population growth MSC: Definitional

37. In countries where women are discriminated against, policies that increase the likelihood of career success

and educational opportunities for women are likely to decrease the birth rate.ANS: T DIF: 1 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Population growth MSC: Definitional

38. Countries with high population growth rates tend to have lower levels of educational attainment.ANS: T DIF: 1 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Population growth MSC: Definitional

39. Studies confirm that controlling for other variables such as the percentage of GDP devoted to investment, poor

countries tend to grow at a faster rate than rich countries.ANS: T DIF: 1 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Catch-up effect MSC: Definitional

40. An increase in capital increases productivity only if it is purchased and operated by domestic residents.ANS: F DIF: 1 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Foreign investment MSC: Definitional

Chapter 25 /Production and Growth ? 1687

41. Other things the same, an economy’s factors of production are likely to be used more effectively if there is an

economywide respect for property rights.ANS: T DIF: 1 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Property rights MSC: Definitional

42. Economist Michael Kremer found that world growth rates fell as population increased.ANS: F DIF: 1 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Population growth MSC: Definitional

SHORT ANSWER1.

Use the data on U.S. real GDP below to compute real GDP per person for each year. Then use these numbers to compute the percentage increase in real GDP per person from 1987 to 2005.

Year 1987 2005 Real GDP (2000 prices) $6,435,000 million $11,092,000 million Population 243 million 296.6 million

ANS:

Real GDP per person in 1987 was $6,435,000/243= about $26,481. Income per person in 2005 was

$11,092,000/296.6 = about $37,397. Income per person grew by (37,397 - 26,481)/26,481 = about 41.2 percent.DIF: 1 REF: 25-1 LOC: Productivity and growth TOP: MSC: Applicative

NAT: Analytic

Real GDP | Economic growth

2.

Why is productivity related to the standard of living? In your answer be sure to explain what productivity and standard of living mean. Make a list of things that determine labor productivity.ANS:

The standard of living is a measure of how well people live. Income per person is an important dimension of the standard of living and is positively correlated with other things such as nutrition and life expectancy that make

people better off. Productivity measures how much people can produce in an hour. As productivity increases, people can produce more (and use less to produce the same amount) and so their standard of living increases.

The factors that determine labor productivity include the amounts of physical capital (equipment and structures), human capital (knowledge and skills), and natural resources available to workers, as well as the state of technological knowledge in society.

DIF: 2 REF: 25-1 LOC: Productivity and growth TOP: MSC: Interpretive

NAT: Analytic

Productivity | Standard of living

3.

What is a production function? Write an equation for a typical production function, and explain what each of the terms represents.ANS:

A production function is a mathematical representation of the relationship between the quantity of inputs used in production and the quantity of output produced using these inputs. A typical production function could be written as Y = A F(L, K, H, N), where Y denotes the quantity of output, L the quantity of labor, K the quantity of physical capital, H the quantity of human capital, N the quantity of natural resources, and A is a variable that reflects the available production technology.

DIF: 2 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics MSC: Interpretive

TOP: Production function

1688 ? Chapter 25 /Production and Growth

4. What is the difference between human capital and technology?ANS:

Technology is society's understanding of production techniques. Human capital is the labor force's understanding of these ideas. A society may have lots of information available about how to produce goods, but still have lots of people who know little of this information. For example, in the United States there exists information about how best to use a butter churn and how to make lye soap, but most people know nothing about it.

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP: MSC: Interpretive

NAT: Analytic

Human capital | Technology

5.

The catch-up effect says that countries with low income can grow faster than countries with higher income. However, in statistical studies that include many diverse countries we do not observe the catch-up-effect

unless we control for other variables that affect productivity. Considering the determinants of productivity, list and explain some things that would tend to prohibit or limit a poor country's ability to catch up with the rich ones.ANS:

The argument that poor countries will tend to catch up with rich ones is based on the idea that another unit of capital will increase output more in a country that has little capital than one that has much capital. So, for a given share of GDP devoted to investment, a poor country will grow faster than a rich one.

This argument assumes that other things are the same, but share of GDP invested may be lower in a poor country and the productivity of investment may be less. A politically unstable environment where property rights are unprotected or not secure tends to discourage investment. A country that has limited trade because of legal

restrictions or geography cannot focus on producing what it produces best and so has lower productivity. To get the most out of investment, or even simply to use some types of new investment, requires having workers who have acquired some basic human capital.

DIF: 3 REF: 25-3 LOC: Productivity and growth TOP: MSC: Analytical

NAT: Analytic Catch-up effect

6.

Some data that at first might seem puzzling: The share of GDP devoted to investment was similar for the United States and South Korea from 1960-1991. However, during these same years South Korea had a 6

percent growth rate of average annual income per person, while the United States had only a 2 percent growth rate. If the saving rates were the same, why were the growth rates so different?ANS:

The explanation is based on the concept of diminishing returns to capital. A country that has a lot of income, and so a lot of capital, gains less by adding more capital than does a country that currently has little capital. It is easy to envision how a poor country without much capital could increase its output considerably with even a little more capital.

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP: MSC: Analytical

NAT: Analytic

Investment | Catch-up effect | Diminishing returns

7.

In addition to investment in physical and human capital, what other public policies might a country adopt to increase productivity?ANS:

In addition to investment in physical and human capital, a country might increase productivity by (a) specifying and enforcing property rights, (b) encouraging free trade, (c) controlling population growth, and (d) promoting research and development.

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP: NAT: Analytic Productivity

MSC: Definitional

Chapter 25 /Production and Growth ? 1689

8. Why does a nation’s standard of living depend on property rights?

ANS:

Property rights are an important prerequisite for the price system to work in a market economy. If an individual or company is not confident that claims over property or over the income from property can be protected, or that contracts can be enforced, there will be little incentive for individuals to save, invest, or start new businesses. Likewise, there will be little incentive for foreigners to invest in the real or financial assets of the country. The

distortion of incentives will reduce efficiency in resource allocation and will reduce saving and investment which in turn will reduce the standard of living.

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP: MSC: Interpretive

NAT: Analytic Property rights

9. How do outward-oriented policies affect a nation's productivity?ANS:

Most economists believe that poor nations are better off pursuing outward-oriented policies that promote free trade. Countries that use their comparative advantage in trade are, in effect, helping themselves through the gains from trade in the same way that nations that develop new technology raise their standard of living. Hence, a country that eliminates trade restrictions will experience the same kind of economic growth that would occur after a major technological advance. Inward-oriented trade policies are akin to a country choosing to restrict the use of superior technologies.

DIF: 1 REF: 25-3 LOC: Productivity and growth TOP: MSC: Interpretive

NAT: Analytic Economic growth

10. At first patents might seem like a deterrent to growth because in effect they restrict the use of new technology.

Yet many economists believe that patents generate growth. Explain why.ANS:

Once someone comes up with an idea it is often easy for others to take advantage of it so that the idea becomes part of a society’s knowledge. So, knowledge is frequently a public good. Without patents an inventor’s reward for research and development of a good idea would be smaller. So, patents increase the incentives for firms and

individuals to engage in research. The negative consequences of temporarily restricting the use of new ideas with patents is outweighed by the increase in new ideas that patents induce.

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP: MSC: Interpretive

NAT: Analytic Economic growth

11. Some economists argue that it is possible to raise the standard of living by reducing population growth. As an

economist interested in incentives rather than coercion, what kind of policy would you recommend to slow population growth?ANS:

Since bearing a child has an opportunity cost, policies designed to increase the opportunity cost of bearing children would likely reduce population growth rates. In particular, women with the opportunity to receive a good education and desirable employment tend to want to have fewer children than do those with fewer opportunities outside the home. Hence, policies designed to increase educational and employment opportunities for women will likely reduce population growth rates without coercion.

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP: MSC: Interpretive

NAT: Analytic

Population growth | Standard of living

1690 ? Chapter 25 /Production and Growth

12. Compare and contrast the population theories of Malthus and Kremer.ANS:

The difference is that Malthus predicted that population growth would be greater than growth in the ability to increase output. He believed that people would continue to populate the earth until output reached a subsistence level. On the other hand Kremer argues that population growth increased productivity allowing people to improve their standard of living despite growing population. Kremer argues that with more population comes more

innovations. The improvements in technology outweighed any adverse impact of the increase in population on the standard of living.

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP: MSC: Interpretive

NAT: Analytic

Population growth | Economists

Sec00 - Production and Growth

MULTIPLE CHOICE1.

The average income in a rich country, such as the United States or Japan, is more than

a. 3 times, but less than 5 times, the average income in a poor country, such as Indonesia or Nigeria. b. 5 times, but less than 10 times, the average income in a poor country, such as Indonesia or Nigeria. c. 10 times, but less than 20 times, the average income in a poor country, such as Indonesia or

Nigeria.

d. more than 20 times the average income in a poor country, such as Indonesia or Nigeria.

DIF: 1 REF: 25-0 LOC: Productivity and growth TOP:

ANS: C

NAT: Analytic MSC: Definitional2.

Economic growth

Over the past century in the United States, real GDP per person has grown, on average, by about a. 1 percent per year. b. 2 percent per year. c. 3 percent per year. d. 5 percent per year.

DIF: 1 REF: 25-0 LOC: Productivity and growth TOP:

ANS: B

NAT: Analytic MSC: Definitional3.

Economic growth

During the past century the average growth rate of U.S. real GDP per person implies that it doubled, on average, about every a. 100 years. b. 70 years. c. 35 years. d. 25 years.

DIF: 1 REF: 25-0 LOC: Productivity and growth TOP:

ANS: C

NAT: Analytic MSC: Interpretive4.

Economic growth

In the United States, as measured by real GDP per person, average income is about how many times as high as average income a century ago? a. 2 b. 4 c. 6 d. 8

DIF: 1 REF: 25-0 LOC: Productivity and growth TOP:

ANS: D

NAT: Analytic MSC: Definitional

Economic growth

Chapter 25 /Production and Growth ? 1691

5.

Over the last century, U.S. real GDP per person grew at a rate of about

a. 2 percent per year, so that it is now 2 times as high as it was a century ago. b. 2 percent per year, so that it is now 8 times as high as it was a century ago. c. 4 percent per year, so that it is now 2 times as high as it was a century ago. d. 4 percent per year, so that it is now 8 times as high as it was a century ago.

DIF: 1 REF: 25-1 LOC: Productivity and growth TOP:

ANS: B

NAT: Analytic MSC: Definitional6.

Economic growth

Over the past 100 years, U.S. real GDP per person has doubled about every 35 years. If, in the next 100 years, it doubles every 25 years, then a century from now U.S. real GDP per person will be a. 4 times higher than it is now. b. 8 times higher than it is now. c. 12 times higher than it is now. d. 16 times higher than it is now.

DIF: 2 REF: 25-1 LOC: Productivity and growth TOP:

ANS: D

NAT: Analytic MSC: Interpretive7.

Economic growth

Over the past century in the United States, average income as measured by real GDP per person has grown about

a. 4 percent per year, which implies a doubling about every 18 years. b. 4 percent per year, which implies a doubling about every 8 years. c. 2 percent per year, which implies a doubling about every 35 years. d. 2 percent per year, which implies a doubling about every 18 years.

DIF: 2 REF: 25-1 LOC: Productivity and growth TOP:

ANS: C

NAT: Analytic MSC: Interpretive8.

Economic growth

In which of the following countries has economic growth been sufficiently strong in recent history to propel that country from being among the poorest in the world to being among the richest in the world? a. India b. Mexico c. Nigeria d. Singapore

DIF: 1 REF: 25-0 LOC: Productivity and growth TOP:

ANS: D

NAT: Analytic MSC: Definitional9.

Economic growth

Average income has been stagnant for many years in a. Argentina. b. Singapore. c. Nigeria.

d. All of the above are correct.

DIF: 1 REF: 25-1 LOC: Productivity and growth TOP:

ANS: C

NAT: Analytic MSC: Definitional

Economic growth

1692 ? Chapter 25 /Production and Growth

10. Which of the following statements is correct?

a. The level of real GDP is a good gauge of economic prosperity, and the growth of real GDP is a

good gauge of economic progress.

b. The level of real GDP is a good gauge of economic progress, and the growth of real GDP is a good

gauge of economic prosperity.

c. The level of real GDP is a good gauge of economic prosperity, and the level of real GDP per person

is a good gauge of economic progress.

d. The level of real GDP is a good gauge of economic progress, and the level of real GDP per person

is a good gauge of economic prosperity.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-0 LOC: Productivity and growth TOP:

Economic growth

Sec01 - Production and Growth - Economic Growth around the World

MULTIPLE CHOICE1.

You are told that Country A experienced growth of real GDP per person of 4 percent per year throughout the 1900s. In view of other countries’ experience, you would have to characterize Country A’s growth as a. exceptionally high. b. moderately high. c. moderately low. d. exceptionally low.

DIF: 1 REF: 25-1 LOC: Productivity and growth TOP:

ANS: A

NAT: Analytic MSC: Interpretive2.

Economic growth

You are told that Country A experienced growth of real GDP per person of 0.5 percent per year throughout the 1900s. In view of other countries’ experience, you would have to characterize Country A’s growth as a. exceptionally high. b. moderately high. c. moderately low. d. exceptionally low.

DIF: 1 REF: 25-1 LOC: Productivity and growth TOP:

ANS: D

NAT: Analytic MSC: Interpretive3.

Economic growth

As of 2006, using real GDP per person as a measure, we would classify

a. the United States and Mexico as advanced economies and Bangladesh as a middle-income country. b. Canada as an advanced economy, Mexico as a middle-income country, and Mali as a poor country. c. Japan and India as advanced economies and Mexico as a poor country.

d. Japan as an advanced economy, the United Kingdom as a middle-income country, and Argentina as

a poor country.

DIF: 2 REF: 25-1 LOC: Productivity and growth TOP:

ANS: B

NAT: Analytic MSC: Interpretive4.

Standard of living

Over the period 1900-2006, which of the following countries experienced the highest average annual growth rate of real GDP per person? a. Indonesia b. India c. Pakistan d. Brazil

DIF: 2 REF: 25-1 LOC: Productivity and growth TOP:

ANS: D

NAT: Analytic MSC: Definitional

Economic growth

1698 ? Chapter 25 /Production and Growth

34. In 2006, the imaginary nation of Viloxia had a population of 5,000 and real GDP of 500,000. In 2007 it had a

population of 5,100 and real GDP of 520,200. Over the year in question, real GDP per person in Viloxia grew by

a. 2 percent, which is high compared to average U.S. growth over the last one-hundred years. b. 2 percent, which is about the same as average U.S. growth over the last one-hundred years. c. 4 percent, which is high compared to average U.S. growth over the last one-hundred years. d. 4 percent, which is about the same as average U.S. growth over the last one-hundred years.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 3 REF: 25-1 LOC: Productivity and growth TOP:

Economic growth

35. Last year Panglossia had real GDP of 27.0 billion. This year it had real GDP of 31.5 billion. Which of the

following changes in population is consistent with a 5 percent growth rate of real GDP per person over the last year?

a. The population decreased from 88 million to 84 million. b. The population decreased from 75 million to 73 million. c. The population increased from 45 million to 50 million. d. The population increased from 60 million to 62 million.

ANS: C

NAT: Analytic MSC: Analytical

DIF: 3 REF: 25-1 LOC: Productivity and growth TOP:

Economic growth

36. Which of the following is indicated by the data on real income per person for various countries over the past

100 or so years?

a. If, in a relatively poor country, real income per person had grown by 3.5 percent per year for the

last 100 years, it would be a relatively rich country today.

b. Rich countries became richer and poor countries became poorer.

c. In the United States, real income per person today is about four times as high as it was 100 years

ago.

d. All of the above are correct.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-1 LOC: Productivity and growth TOP:

Economic growth

37. Which of the following is not correct?

a. Across countries there are large differences in the average income per person. These differences

are reflected in large differences in the quality of life.

b. With a growth rate of about 2 percent per year, average income per person doubles about every 35

years.

c. The ranking of countries by average income changes very little over time.

d. In some countries real income per person has changed very little over many years.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-1 LOC: Productivity and growth TOP:

Income | Economic growth

Sec02 - Production and Growth - Productivity: Its Role and Determinants

MULTIPLE CHOICE1.

The one variable that stands out as the most significant explanation of large variations in living standards around the world is a. productivity. b. population. c. preferences. d. prices.

ANS: A DIF: 1 REF: 25-2 NAT: Analytic LOC: Productivity and growth TOP: Productivity | Standard of living MSC: Interpretive

Chapter 25 /Production and Growth ? 1699

2.

In determining living standards, productivity plays a key role

a. for individuals, but not for nations. b. for nations, but not for individuals. c. for both nations and individuals. d. for neither nations nor individuals.

ANS: C DIF: 1 REF: 25-2 NAT: Analytic LOC: Productivity and growth TOP: Standard of living | Productivity MSC: Interpretive3.

The quantity of goods and services produced from each unit of labor input is called

a. standard of living. b. productivity.

c. capitalized quantity. d. the knowledge base.

DIF: 1 REF: 25-2 LOC: Productivity and growth TOP:

ANS: B

NAT: Analytic MSC: Definitional4.

Productivity

Productivity is defined as

a. the amount of difficulty that is involved in producing a given quantity of goods and services. b. the quantity of labor that is required to produce one unit of goods and services. c. the quantity of goods and services produced from each unit of labor input. d. the quantity of goods and services produced over a given amount of time.

DIF: 1 REF: 25-2 LOC: Productivity and growth TOP:

ANS: C

NAT: Analytic MSC: Definitional5.

Productivity

Which of the following is correct?

a. Although levels of real GDP per person vary substantially from country to country, the growth rate

of real GDP per person is similar across countries.

b. Productivity is not closely linked to government policies.

c. The level of real GDP per person is a good gauge of economic prosperity, and the growth rate of

real GDP per person is a good gauge of economic progress.

d. Productivity may be measured by the growth rate of real GDP per person.

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

ANS: C

NAT: Analytic MSC: Interpretive6.

Economic growth

Perry accumulated a lot of mathematical skills while in high school, college, and graduate school. Economists include these skills as part of Perry’s a. standard of learning. b. technological knowledge. c. physical capital. d. human capital.

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

ANS: D

NAT: Analytic MSC: Definitional7.

Human capital

What term do economists use to describe the relationship between the quantity of inputs used and the quantity of output produced? a. production function b. input function c. capital function d. returns to scale

ANS: A DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Production function MSC: Definitional

1700 ? Chapter 25 /Production and Growth

8.

Which of the following items plays a role in determining productivity?

a. physical capital b. natural resources

c. technological knowledge d. All of the above are correct.

DIF: 1 REF: 25-2 LOC: Productivity and growth TOP:

ANS: D

NAT: Analytic MSC: Interpretive9.

Productivity

Technological knowledge

a. is the same thing as human capital.

b. can be discovered but it can never be kept secret. c. is a determinant of productivity.

d. does not play a role in the relationship that economists call the production function.

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

ANS: C

NAT: Analytic MSC: Interpretive

Technology

10. Industrial machinery is an example of

a. a factor of production that in the past was an output from the production process. b. technological knowledge. c. a production function.

d. an item which always has the property called constant returns to scale.

ANS: A DIF: 2 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Physical capital MSC: Interpretive

11. Industrial machinery is an example of

a. a factor of production that in the past was an output from the production process. b. physical capital.

c. something that influences productivity. d. All of the above are correct.

ANS: D DIF: 2 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Physical capital | Productivity MSC: Interpretive

12. Which of the following statements about inputs is correct?

a. A forest is an example of a natural resource; it is also an example of a renewable resource. b. There is no distinction between human capital and technological knowledge. c. Human capital is a non-produced factor of production. d. Physical capital is a non-produced factor of production.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

Inputs

13. Despite its status as one of the richest countries in the world, Japan

a. has a very low level of productivity. b. has few natural resources. c. has very little human capital.

d. engages in a relatively small amount of international trade.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

Natural resources

Chapter 25 /Production and Growth ? 1701

14. The notion that our ability to conserve natural resources is growing more rapidly than their supplies are

dwindling is supported by the fact that

a. most economists do not regard the availability of natural resources as a determinant of productivity. b. the quantity of natural resources does not enter into any production function. c. inflation-adjusted prices of natural resources are stable or falling over time. d. inflation-adjusted prices of natural resources are rising over time.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

Natural resources

15. Which of the following statements is correct?

a. By definition, all natural resources are nonrenewable.

b. Market prices give us reason to believe that natural resources are a limit to economic growth. c. An economy must be blessed with ample quantities of natural resources if it is to be a highly

productive economy.

d. Differences in natural resources can explain some of the differences in standards of living around

the world.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

Natural resources

16. The average amount of goods and services produced from each hour of a worker's time is called

a. GDP.

b. per capita GDP. c. productivity.

d. technological knowledge.

ANS: C

NAT: Analytic MSC: Definitional

DIF: 1 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

17. For a given year, productivity in a particular country is most closely matched with that country's

a. level of real GDP over that year.

b. level of real GDP divided by hours worked over that year.

c. growth rate of real GDP divided by hours worked over that year. d. growth rate of real GDP per person over that year.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

Productivity | Real GDP

18. Productivity

a. is nearly the same across countries, and so provides no help explaining differences in the standard

of living across countries.

b. explains very little of the differences in the standard of living across countries.

c. explains some, but not most of the differences in the standard of living across countries. d. explains most of the differences in the standard of living across countries.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

19. Which of the following is a correct way to measure productivity?

a. Divide the number of hours worked by the quantity of output. b. Divide the quantity of output by the number of hours worked. c. Divide the quantity of output by the quantity of physical capital.

d. Divide the change in the quantity of output by the change in the number of hours worked.

ANS: B

NAT: Analytic MSC: Definitional

DIF: 1 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

1702 ? Chapter 25 /Production and Growth

20. Cedar Valley Furniture uses 5 workers, each working 8 hours, to produce 80 rocking chairs. What is the

productivity of these workers? a. 2 chairs per hour b. 10 chairs per hour c. 1 hour per chair d. 80 chairs

ANS: A

NAT: Analytic MSC: Applicative

DIF: 1 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

21. In one day Alpha Cabinet Company made 40 cabinets with 320 hours of labor. What was their productivity?

a. 1/8 cabinet per hour b. 8 hours per cabinet c. 40 cabinets

d. None of the above is correct.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

22. You and your friend work together for 4 hours to produce a total of 12 futons. What is productivity?

a. 12 futons b. 24 futons

c. 3 futons per hour of labor d. 1.5 futons per hour of labor

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

23. A barber shop produces 96 haircuts a day. Each barber in the shop works 8 hours per day and produces the

same number of haircuts per hour. If the shop’s productivity is 3 haircuts per hour of labor, then how many barbers does the shop employ? a. 2 b. 3 c. 4 d. 6

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

24. Nathan owns a bakery that bakes only cakes. All of his bakers work 8 hours per day. In 2006, he employed

5 bakers and they produced 200 cakes each day. In 2007, he employed 6 bakers and they produced 249 cakes each day. In Nathan’s bakery, productivity a. decreased by 2.33 percent between 2006 and 2007. b. increased by 2.33 percent between 2006 and 2007. c. increased by 3.75 percent between 2006 and 2007. d. increased by 24.50 percent between 2006 and 2007.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

Chapter 25 /Production and Growth ? 1703

25. In 2007, Modern Electronics, Inc. produced 60,000 calculators, employing 80 workers, each of whom worked

8 hours per day. In 2008, the same firm produced 76,500 calculators, employing 85 workers, each of whom worked 10 hours per day. Between 2007 and 2008, productivity at Modern Electronics a. decreased by 4.00 percent. b. remained constant.

c. increased by 8.33 percent. d. increased by 27.50 percent.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 3 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

26. Consider two countries. Country A has a population of 1,000, of whom 800 work 8 hours a day to make

128,000 final goods. Country B has a population of 2,000, of whom 1,800 work 6 hours a day to make 270,000 final goods.

a. Country A has higher productivity and higher real GDP per person than country B. b. Country A has lower productivity and lower real GDP per person than country B. c. Country A has higher productivity, but lower real GDP per person than country B. d. Country B has lower productivity, but higher real GDP per person than country B.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

Productivity | Real GDP

27. Workland has a population of 10,000, of whom 7,000 work 8 hours a day to produce a total of 224,000 final

goods. Laborland has a population of 5,000, of whom 4,000 work 12 hours a day to produce a total of 120,000 final goods.

a. Workland has higher productivity and higher real GDP per person than Laborland. b. Workland has higher productivity but lower real GDP per person than Laborland. c. Workland has lower productivity but higher real GDP per person than Laborland. d. Workland has lower productivity and lower real GDP per person than Laborland.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 3 REF: 25-2 LOC: Productivity and growth TOP:

Productivity | Real GDP

28. Country A has a population of 1,000, of whom 700 worked an average of 8 hours a day and had a productivity

of 2.5. Country B has a population of 800, of whom 560 worked 8 hours a day and had productivity of 3.0. The country with the higher real GDP was

a. country A, and the country with higher real GDP per person was country A. b. country A, and the country with higher real GDP per person was country B. c. country B, and the country with higher real GDP per person was country A. d. country B, and the country with higher real GDP per person was country B.

ANS: B

NAT: Analytic MSC: Analytical

DIF: 3 REF: 25-2 LOC: Productivity and growth TOP:

Productivity | Real GDP

29. Last year a country had 800 workers who worked an average of 8 hours and produced 12,800 units. This

year the country had 1000 workers who worked an average of 8 hours and produced 14,000 units. This country’s productivity was

a. higher this year than last year. A possible source of this change in productivity is a change in the

size of the capital stock.

b. higher this year than last year. A change in the size of the capital stock does not affect

productivity.

c. lower this year than last year. A possible source of this change in productivity is a change in the

size of the capital stock.

d. lower this year than last year. A change in the size of the capital stock does not affect

productivity.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 3 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

1704 ? Chapter 25 /Production and Growth

30. Which of the following statements is true?

a. Productivity is calculated as hours worked divided by output produced.

b. Americans have a higher standard of living than Indonesians because American workers are more

productive than Indonesian workers.

c. Trends in the market prices of most resources indicate that they have become increasingly scarce

over time.

d. All of the above are correct.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

31. Which of the following is not correct?

a. Countries that have had higher output growth per person have typically done so without higher

productivity growth.

b. A country's standard of living and its productivity are closely related. c. Productivity refers to output produced per hour of work.

d. Increases in productivity can be used to increase output or leisure.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 1 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

32. Productivity is the

a. key determinant of living standards, and growth in productivity is the key determinant of growth in

living standards.

b. key determinant of living standards, but growth in productivity is not the key determinant of growth

in living standards.

c. not the key determinant of living standards, but growth in productivity is the key determinant of

growth in living standards.

d. not the key determinant of living standards, and growth in productivity is not the key determinant

of growth in living standards.

ANS: A DIF: 1 REF: 25-2 NAT: Analytic LOC: Productivity and growth TOP: Productivity | Standard of living MSC: Interpretive

33. Both Tom and Jerry work 10 hours a day. Tom can produce six baskets of goods per hour while Jerry can

produce four baskets of the same goods per hour. It follows that Tom's a. productivity is greater than Jerry's. b. output is greater than Jerry's.

c. standard of living is higher than Jerry's. d. All of the above are correct.

ANS: D DIF: 1 REF: 25-2 NAT: Analytic LOC: Productivity and growth TOP: Productivity | Standard of living MSC: Interpretive

34. Waldo works eight hours and produces 7 units of goods per hour. Emerson works six hours and produces 10

units of goods per hour.

a. Waldo’s productivity and output are greater than Emerson’s.

b. Waldo’s productivity is greater than Emerson’s but his output is less. c. Emerson’s productivity and output are greater than Waldo’s.

d. Emerson’s productivity is greater than Waldo’s but his output is less.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

Chapter 25 /Production and Growth ? 1705

35. In 8 hours, Sonja produces 8 units of goods and services. In 10 hours, Emma produces 9 units of goods and

services. It follows that

a. Sonja’s productivity is higher than Emma’s. b. Emma’s productivity is higher than Sonja’s.

c. Emma’s income per hour will be higher than Sonja’s. d. Sonja’s income per day will be higher than Emma’s.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

36. Mary looks over reports on four of her workers. Jack made 25 baskets in 5 hours. Walter made 36 baskets in 6

hours. Rudy made 40 baskets in 10 hours. Sam made 22 baskets in four hours. Who has the greatest productivity? a. Jack b. Walter c. Rudy d. Sam

ANS: B

NAT: Analytic MSC: Applicative

DIF: 1 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

37. Real Foods produced 400,000 cans of diced tomatoes in 2007 and 460,000 cans of diced tomatoes in 2008.

They employed the same number of labor hours each year. Relative to their productivity in 2007, their productivity in 2008 was a. 6 percent lower. b. unchanged. c. 6 percent higher. d. 15 percent higher.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

38. In 2007, Angel Foods produced 300,000 bags of tortilla chips, employing 12,000 hours of labor. In 2008,

Angel Foods produced 325,000 bags of tortilla chips, employing 13,000 hours of labor. Relative to their productivity in 2007, their productivity in 2008 a. decreased by 2.1 percent. b. was unchanged.

c. increased by 1.3 percent. d. increased by 2.3 percent.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

39. Dilbert’s Incorporated produced 5,000,000 units of accounting software in 2004. At the start of 2005 the

pointy-haired boss reduced total annual hours of employment from 10,000 to 8,000 and production was 4,800,000. These numbers indicate that productivity a. fell by 4%. b. fell by 20%. c. rose by 12%. d. rose by 20%.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

1706 ? Chapter 25 /Production and Growth

40. Dilbert’s Incorporated produced 6,000,000 units of software in 2005. At the start of 2006 the pointy-haired

boss raised employment from 10,000 total annual hours to 14,000 annual hours and production was 7,000,000 units. Based on these numbers what happened to productivity? a. It fell by about 16.7%. b. It stayed the same. c. It rose by about 16.7%. d. It rose by about 40%.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

41. The key determinant of a the standard of living in a country is

a. the amount of goods and services produced from each hour of a worker's time. b. the total amount of goods and services produced within the country. c. the total amount of its physical capital. d. its growth rate of real GDP.

ANS: A DIF: 1 REF: 25-2 NAT: Analytic LOC: Productivity and growth TOP: Standard of living | Productivity MSC: Interpretive42. Which of the following is a determinant of productivity?

a. human capital per worker b. physical capital per worker c. natural resources per worker d. All of the above are correct.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 1 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

43. The inputs used to produce goods and services are also called

a. productivity indicators. b. capitalization producers. c. production functions. d. factors of production.

ANS: D DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Factors of production MSC: Definitional

44. The Peapod Restaurant uses all of the following to produce vegetarian meals. Which of them is an example of

physical capital?

a. the owner's knowledge of how to prepare vegetarian entrees

b. the money in the owner's account at the bank from which she borrowed money c. the tables and chairs in the restaurant d. the land the restaurant was built on

ANS: C DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Physical capital MSC: Definitional

45. The equipment and structures available to produce goods and services are called

a. physical capital. b. human capital.

c. the production function. d. technology.

ANS: A DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Physical capital MSC: Definitional

Chapter 25 /Production and Growth ? 1707

46. The saws, lathes, and drill presses that woodworkers at Cedar Valley Furniture use to produce furniture are

called

a. human capital. b. physical capital. c. natural resources.

d. technological knowledge.

ANS: B DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Physical capital MSC: Definitional

47. Which of the following would not be considered physical capital?

a. a new factory building

b. a computer used to help Mercury Delivery Service keep track of its orders c. on-the-job training

d. a desk used in an accountant's office

ANS: C DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Physical capital MSC: Definitional

48. Which of the following is physical capital?

a. the strength of workers b. the knowledge of workers

c. financial assets like cash and bonds d. the equipment in a factory

ANS: D DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Physical capital MSC: Definitional

49. Which of the following would be considered physical capital?

a. the refrigerators at Uncle Bob’s restaurant b. rivers on which goods are transported c. the skills and knowledge of a lawyer d. All of the above are correct.

ANS: A DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Physical capital MSC: Definitional

50. Which of the following terms do we use to mean the same thing as physical capital?

a. assembly line b. manual labor c. capital

d. factor of production

ANS: C DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Physical capital MSC: Definitional

51. Human capital is the

a. knowledge and skills that workers acquire through education, training, and experience. b. stock of equipment and structures that is used to produce goods and services. c. total number of hours worked in an economy. d. same thing as technological knowledge.

ANS: A DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Human capital MSC: Definitional

1708 ? Chapter 25 /Production and Growth

52. Which of the following is considered human capital?

a. knowledge acquired from early childhood education programs b. knowledge acquired from grade school

c. knowledge acquired from on-the-job training d. All of the above are correct.

ANS: D DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Human capital MSC: Definitional

53. Which of the following is human capital?

a. a student loan

b. understanding how to use a company's accounting software c. training videos for new corporate employees d. All of the above are correct.

ANS: B DIF: 2 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Human capital MSC: Definitional

54. Which of the following is considered human capital?

a. the comfortable chair in your dorm room where you read economics texts b. the amount you get paid each week to work at the library c. the things you have learned this semester

d. any capital goods that require a human to be present to operate

ANS: C DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Human capital MSC: Definitional

55. Which of the following best illustrates the human capital of a survivor stranded on an island?

a. the fishing poles she has produced b. the invention of a better fishing lure

c. the fresh fruit and fish on and around the island d. her previous training in a survival course

ANS: D DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Human capital MSC: Interpretive

56. Which of the following is a part of your economics professor's human capital?

a. the things she learned at some prestigious university b. her copy of Mankiw's text c. her chalk holder

d. All of the above are correct.

ANS: A DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Human capital MSC: Definitional

57. Which of the following is human capital?

a. textbooks

b. hand held power tools

c. understanding how to repair cars d. All of the above are correct.

ANS: C DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Human capital MSC: Definitional

Chapter 25 /Production and Growth ? 1709

58. Which of the following would be human capital and physical capital, respectively?

a. for an accounting firm, the accountants’ knowledge of tax laws and computer software b. for a grocery store, grocery carts and shelving c. for a school, chalkboard and desks

d. for a library, the building and the reference librarians’ knowledge of the Internet

ANS: A DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Human capital | Physical capital MSC: Definitional

59. Which of the following would be human capital and physical capital, respectively?

a. for an accounting firm, the accountants’ knowledge of tax laws and the number of hours worked by

those accountants

b. for a grocery store, grocery carts and cash registers.

c. for a restaurant, the chefs’ knowledge about preparing food and equipment in the kitchen d. for a library, the building and the reference librarians’ knowledge of the Internet

ANS: C DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Human capital | Physical capital MSC: Definitional

60. Natural resources

a. are inputs provided by nature.

b. are inputs such as land, rivers, and mineral deposits. c. take two forms: renewable and nonrenewable. d. All of the above are correct.

ANS: D DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Natural resources MSC: Definitional

61. The inputs into production of goods and services that are provided by nature, such as land, rivers, and mineral

deposits are called a. physical capital. b. natural resources. c. human capital.

d. technological knowledge.

ANS: B DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Natural resources MSC: Definitional

62. Which of the following lists contains, in this order, natural resources, human capital, and physical capital?

a. For a restaurant: the land the restaurant was built on, the things the Chef learned at Cooking School,

the freezers where the chops and steaks are kept.

b. For a furniture company: wood, the company cafeteria, saws. c. For a railroad: fuel, railroad engines, railroad tracks. d. None of the above is correct.

ANS: A DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Natural resources | Physical capital | Human capital MSC: Definitional63. Which of the following is an example of a nonrenewable resource?

a. coal b. honey c. livestock

d. All of the above are correct.

ANS: A DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Natural resources MSC: Definitional

1710 ? Chapter 25 /Production and Growth

64. Which of the following is an example of a renewable natural resource?

a. the knowledge possessed by scientists b. carpenters’ labor services c. lumber

d. All of the above are correct.

ANS: C DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Natural resources MSC: Definitional

65. Which of the following is an example of a renewable natural resource?

a. fish b. soybeans c. wood

d. All of the above are correct.

ANS: D DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Natural resources MSC: Definitional

66. In a market economy, scarcity of resources is most clearly reflected in

a. supply. b. demand.

c. market prices.

d. the stock of the resource.

ANS: C

NAT: Analytic TOP: Scarcity DIF: 2 REF: 25-2

LOC: Scarcity, tradeoffs, and opportunity cost MSC: Definitional

67. In a market economy, we know that a resource has become scarcer when

a. its price rises relative to other prices. b. it is non-renewable and some of it is used. c. people search for substitutes. d. All of the above are correct.

ANS: A

NAT: Analytic TOP: Scarcity DIF: 2 REF: 25-2

LOC: Scarcity, tradeoffs, and opportunity cost MSC: Interpretive

68. In a market economy, we know that a resource has become scarcer when

a. both the demand for the good and the supply of the good have increased. b. both the demand for the good and the supply of the good have decreased. c. the demand for the good has increased and the supply has decreased.

d. the demand for the good has decreased and the supply has remained constant.

ANS: C

NAT: Analytic TOP: Scarcity DIF: 2 REF: 25-2

LOC: Scarcity, tradeoffs, and opportunity cost MSC: Interpretive

69. If the price of a good has risen over time,

a. it must have become more scarce. b. it must have become less scarce.

c. it has become more scarce only if the price adjusted for inflation has risen. d. it has become less scarce only if the price adjusted for inflation has risen.

ANS: C

NAT: Analytic TOP: Scarcity DIF: 2 REF: 25-2

LOC: Scarcity, tradeoffs, and opportunity cost MSC: Interpretive

Chapter 25 /Production and Growth ? 1711

70. In a market economy, the real, or inflation-adjusted, price of a resource measures its

a. contribution to revenue. b. relative scarcity. c. productivity.

d. contribution to efficiency.

ANS: B DIF: 1 REF: 25-2 NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost TOP: Natural resources MSC: Definitional

71. Greater scarcity of a natural resource is indicated

a. by an increase in the price of the resource, whether the price increase is less than or greater than the

rate of inflation.

b. only by an increase in the price of the resource that is less than the rate of inflation. c. only by an increase in the price of the resource that is greater than the rate of inflation.

d. only by an increase in the price of the resource that is caused by a decrease in supply and is greater

than the rate of inflation.

ANS: C DIF: 2 REF: 25-2 NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost TOP: Natural resources MSC: Interpretive

72. Historically, the market prices of most natural resources (adjusted for inflation) have

a. increased.

b. remained stable.

c. remained stable or decreased. d. decreased.

ANS: C DIF: 2 REF: 25-2 NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost TOP: Natural resources MSC: Definitional

73. The behavior of market prices over time indicates that natural resources

a. are a limit to economic growth. b. are unrelated to economic growth. c. are not a limit to economic growth.

d. are the major determinant of productivity.

ANS: C DIF: 1 REF: 25-2 NAT: Analytic LOC: Productivity and growth TOP: Natural resources | Economic growth

MSC: Interpretive

74. Which of the following statements is true?

a. Natural resources per worker influence productivity only when those natural resources are

renewable.

b. The prices of most natural resources are stable or falling relative to other prices. c. Technology requires greater use of natural resources.

d. The terms human capital and technological knowledge are used interchangeably.

ANS: B DIF: 2 REF: 25-2 NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost TOP: Natural resources MSC: Interpretive

75. Which of the following statements is true?

a. The quantity of natural resources per worker can influence productivity. b. Technological knowledge and human capital are closely related.

c. Over long periods of time, the prices of most natural resources are stable or falling, relative to other

prices.

d. All of the above are correct.

ANS: D DIF: 2 REF: 25-2 NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost TOP: Natural resources | Productivity MSC: Interpretive

1712 ? Chapter 25 /Production and Growth

76. If natural resources had become scarcer, then we would expect their

a. prices to have risen more than inflation as they have.

b. prices to have risen more than inflation, but they have not. c. known quantities to have fallen as they have. d. known quantities to have fallen but they have not.

ANS: B DIF: 2 REF: 25-2 NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost TOP: Natural resources MSC: Interpretive

77. If an inexpensive alternative to oil were found, the price of oil adjusted for inflation

a. would decline as the alternative would reduce the demand for oil. b. would decline as the alternative would reduce the supply of oil. c. would increase as the alternative would increase the demand for oil. d. would increase as the alternative would increase the supply of oil.

ANS: A DIF: 3 REF: 25-2 NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost TOP: Natural resources MSC: Applicative

78. A leading environmental group recently published a report contending that humans are running a \

deficit\means that economic growth will eventually stop, and will even be reversed. An economist would a. agree with the report, and would point to rising natural resource prices as evidence.

b. agree with the report, but wouldn't think it was important because growth will not slow down for

several centuries.

c. disagree with the report, in part because it ignores the mitigating effects of technological change. d. disagree with the report because labor and capital are the primary determinants of growth, and since

they are plentiful, growth will not slow down.

ANS: C DIF: 2 REF: 25-2 NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost TOP: Natural resources MSC: Interpretive

79. If a good has become more scarce, then we know for sure that

a. the demand for it increased. b. the supply of it decreased.

c. either the demand for it increased or the supply of it decreased. d. both the supply of it and the demand for it decreased.

ANS: C

NAT: Analytic TOP: Scarcity DIF: 3 REF: 25-2

LOC: Scarcity, tradeoffs, and opportunity cost MSC: Interpretive

80. Which of the following best states economists' understanding of the facts concerning the relationship between

natural resources and economic growth?

a. A country with no or few domestic natural resources is destined to be poor.

b. Differences in natural resources have virtually no role in explaining differences in standards of

living.

c. Some countries can be rich mostly because of their natural resources and countries without natural

resources need not be poor, but can never have very high standards of living.

d. Abundant domestic natural resources may help make a country rich, but even countries with few

natural resources can have high standards of living.

ANS: D DIF: 2 REF: 25-2 NAT: Analytic LOC: Productivity and growth TOP: Natural resources | Economic growth

MSC: Interpretive

Chapter 25 /Production and Growth ? 1713

81. In the country of Suchnott, the price of silver increased from $30 per ounce to $32 per ounce during a time

when the overall price level increased by 5 percent. During this period, the real price of silver a. increased. b. decreased.

c. stayed the same.

d. might have increased, decreased or stayed the same; more information is needed to be sure.

ANS: A

NAT: Analytic TOP: Prices DIF: 2 REF: 25-2

LOC: Scarcity, tradeoffs, and opportunity cost MSC: Applicative

82. Suppose over the last year that the price of recycled aluminum increased from $800 a ton to $900 a ton. Over

the same time a measure of the overall price level increased from 120 to 130. The price of recycled aluminum increased by

a. less than inflation, but this doesn’t necessarily mean it became scarcer. b. less than inflation, and this means it became scarcer. c. more than inflation, and this means it became scarcer.

d. more than inflation, but this doesn’t necessarily mean that it become scarcer.

ANS: C DIF: 2 REF: 25-2 NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost TOP: Prices | Scarcity MSC: Applicative

83. Suppose over the last year that the price of iron ore increased from $1,200 a ton to $1,300 a ton. Over the same

time a measure of the overall price level increased from 168 to 187. The price of iron ore increased by a. less than inflation, and this means it became relatively less scarce. b. less than inflation, and this means it became scarcer. c. more than inflation, and this means it became scarcer.

d. more than inflation, but this doesn’t necessarily mean that it become scarcer.

ANS: A DIF: 2 REF: 25-2 NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost TOP: Prices | Scarcity MSC: Applicative

84. After adjusting for inflation, over time the prices of most natural resources have been

a. steady or falling, meaning that our ability to conserve them is growing more rapidly than their

supplies are dwindling.

b. steady or falling, meaning that their supplies are dwindling more rapidly than our ability to

conserve them is growing.

c. rising, meaning that our ability to conserve them is growing more rapidly than their supplies are

dwindling.

d. rising, meaning that their supplies are dwindling more rapidly than our ability to conserve them is

growing.

ANS: A DIF: 1 REF: 25-2 NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost TOP: Natural resources | Prices MSC: Interpretive

85. Proprietary technology is knowledge that is

a. known but no longer used much. b. known, but only recently discovered.

c. known mostly by only those in a certain profession. d. known only by the company that discovered it.

ANS: D

NAT: Analytic TOP: Technology DIF: 1 REF: 25-2

LOC: The Study of economics, and definitions of economics MSC: Definitional

1714 ? Chapter 25 /Production and Growth

86. Proprietary technology is technology that is

a. widely used because it is easy to learn.

b. widely used because the government subsidizes its use.

c. not widely used because people could, but have not, taken the time to learn how to apply it. d. not widely used because it is known or controlled only by the company that discovered it.

ANS: D

NAT: Analytic TOP: Technology DIF: 1 REF: 25-2

LOC: The Study of economics, and definitions of economics MSC: Definitional

87. A management professor discovers a way for corporate management to operate more efficiently. He publishes

his findings in a journal. His findings are a. proprietary and common knowledge.

b. neither proprietary nor common knowledge. c. proprietary, but not common, knowledge. d. common, but not proprietary, knowledge.

ANS: D

NAT: Analytic TOP: Technology DIF: 1 REF: 25-2

LOC: The Study of economics, and definitions of economics MSC: Definitional

88. Your company discovers a better way to produce mousetraps, but your better methods are not apparent from

the mousetraps themselves. Your knowledge of how to more efficiently produce mousetraps is a. common technological knowledge.

b. common, but not technological, knowledge. c. proprietary technological knowledge.

d. proprietary, but not technological, knowledge.

ANS: C

NAT: Analytic TOP: Technology DIF: 1 REF: 25-2

LOC: The Study of economics, and definitions of economics MSC: Definitional

89. Technological knowledge refers to

a. human capital.

b. available information on how to produce things.

c. resources expended transmitting society's understanding to the labor force. d. All of the above are technological knowledge.

ANS: B

NAT: Analytic TOP: Technology DIF: 2 REF: 25-2

LOC: The Study of economics, and definitions of economics MSC: Interpretive

90. Thomas Edison received patents on many of his inventions. While the patents existed, his ideas were

a. public goods and proprietary knowledge. b. public goods but not proprietary knowledge. c. private goods and proprietary knowledge. d. private goods but not proprietary knowledge.

ANS: C

NAT: Analytic TOP: Technology DIF: 2 REF: 25-2

LOC: The Study of economics, and definitions of economics MSC: Interpretive

91. The relationship between the quantity of output created and the quantity of inputs needed to create it is called

a. the capital accumulation function. b. technological knowledge. c. the production function. d. human capital.

ANS: C DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Production function MSC: Definitional

Chapter 25 /Production and Growth ? 1715

92. An understanding of the best ways to produce goods and services is called

a. human capital. b. physical capital. c. technology. d. productivity.

ANS: C

NAT: Analytic TOP: Technology DIF: 1 REF: 25-2

LOC: The Study of economics, and definitions of economics MSC: Definitional

93. Suppose that over the last ten years productivity grew faster in Oceania than in Freedonia and the population

of both countries was unchanged.

a. It follows that real GDP per person must be higher in Oceania than in Freedonia. b. It follows that real GDP per person grew faster in Oceania than in Freedonia. c. It follows that the standard of living must be higher in Oceania than in Freedonia. d. All of the above are correct.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

Productivity | Real GDP

94. Suppose that real GDP grew more in Country A than in Country B last year.

a. Country A must have a higher standard of living than country B. b. Country A's productivity must have grown faster than country B's. c. Both of the above are correct. d. None of the above is correct.

ANS: D DIF: 3 REF: 25-2 NAT: Analytic LOC: Productivity and growth TOP: Productivity | Standard of living MSC: Analytical95. Which of the following would increase productivity?

a. an increase in the physical capital stock per worker b. an increase in human capital per worker c. an increase in natural resources per worker d. All of the above are correct.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 1 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

96. Which of the following would, by itself, reveal the most about a country’s standard of living?

a. its level of capital

b. the number of hours worked

c. its availability of natural resources d. its productivity

ANS: D DIF: 2 REF: 25-2 NAT: Analytic LOC: Productivity and growth TOP: Productivity | Standard of living MSC: Interpretive97. Human capital is

a. the same thing as technological knowledge. b. the same thing as labor.

c. the tools and equipment operated by humans. d. knowledge and skills that workers have acquired.

ANS: D

NAT: Analytic MSC: Definitional

DIF: 1 REF: 25-2 LOC: Productivity and growth TOP:

Human capital

1716 ? Chapter 25 /Production and Growth

98. Suppose a country imposes new restrictions on how many hours people can work. If these restrictions reduce

the total number of hours worked in the economy, but all other factors that determine output are held fixed, then

a. productivity and output both rise. b. productivity rises and output falls. c. productivity falls and output rises. d. productivity and output fall.

ANS: B

NAT: Analytic MSC: Analytical

DIF: 3 REF: 25-2 LOC: Productivity and growth TOP:

Productivity

99. Which of the following would be considered physical capital?

a. the available knowledge on how to make semiconductors b. a taxi-cab driver’s knowledge of the fastest routes to take c. bulldozers, backhoes and other construction equipment d. All of the above are correct.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:

Physical capital

100. Other things the same, which of the following could explain an increase in productivity?

a. either an increase in human capital or an increase in physical capital b. an increase in human capital but not an increase in physical capital c. an increase in physical capital but not an increase in human capital d. neither an increase in human capital nor an increase in physical capital

ANS: A DIF: 2 REF: 25-2 NAT: Analytic LOC: Productivity and growth

TOP: Productivity | Human capital | Physical capital MSC:

Interpretive

101. Which of the following is correct?

a. Once adjustment is made for inflation, the prices of most natural resources have been about steady

or falling.

b. Technological progress has allowed us to substitute renewable resources for some nonrenewable

resources.

c. Technological progress has made once-crucial natural resources less necessary. d. All of the above are correct.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 1 REF: 25-2 LOC: Productivity and growth TOP:

Natural resources

102. Given that a country’s real output has increased, in which of the following cases can we be sure that its

productivity also has increased?

a. The total number of hours worked rose.

b. The total number of hours worked stayed the same. c. The total number of hours worked fell. d. Both b and c are correct.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-2 LOC: Productivity and Growth

TOP: Output | Productivity

103. Using the notation and production function in the text, Y/L is

a. productivity. b. output.

c. the availability of natural resources. d. the amount of human capital.

ANS: A

NAT: Analytic TOP: Productivity DIF: 1 REF: 25-2

LOC: The Study of economics, and definitions of economics MSC: Interpretive

Chapter 25 /Production and Growth ? 1717

104. Using the production function and notation in the text, H/L measures

a. natural resources per worker. b. human capital per worker. c. output per worker.

d. physical capital per worker.

ANS: B DIF: 2 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Production function MSC: Interpretive

105. In a particular production process, if the quantities of all inputs used are increased by 60 percent, then the

quantity of output increases by 60 percent as well. This means that a. the production process cannot be enhanced by technological advances.

b. no mathematical representation of the relevant production function can be formulated. c. the relevant production function has the limits-to-growth property.

d. the relevant production function has the constant-returns-to-scale property.

ANS: D DIF: 2 REF: 25-2 NAT: Analytic LOC: Productivity and growth

TOP: Production function | Constant returns to scale MSC:

Interpretive

106. If your firm’s production function has constant returns to scale, and if you doubled all your inputs, then your

firm's output would a. not change.

b. increase, but by less than double. c. double.

d. more than double.

ANS: C DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Constant returns to scale MSC: Definitional

107. You bake cookies. One day you double the time you spend, double the number of chocolate chips, flour, eggs,

and all your other inputs, and bake twice as many cookies. Your cookie production function has a. decreasing returns to scale. b. zero returns to scale. c. constant returns to scale. d. increasing returns to scale.

ANS: C DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Production function | Constant returns to scale MSC: Interpretive

108. If there are constant returns to scale, the production function can be written as

a. xY = 2xAF(L, K, H, N). b. Y/L = A F(xL, xK, xH, xN). c. Y/L = A F( 1, K/L, H/L, N/L). d. L = AF(Y, K, H, N).

ANS: C DIF: 2 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Constant returns to scale MSC: Interpretive

109. If a production function has constant returns to scale, output can be doubled if

a. labor alone doubles.

b. all inputs but labor double. c. all of the inputs double. d. None of the above is correct.

ANS: C DIF: 1 REF: 25-2 NAT: Analytic LOC: The Study of economics, and definitions of economics TOP: Constant returns to scale MSC: Interpretive

Chapter 25 /Production and Growth ? 1723

13. In countries that experience political instability, standards of living tend to be low because of

a. violations of diminishing returns. b. excessive levels of caloric intake. c. lack of respect for property rights.

d. attempts by government officials to thwart the catch-up effect.

ANS: C DIF: 2 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Property rights | Standard of living MSC: Interpretive

14. Countries that pursued outward-oriented policies in the 20th century

a. experienced lower rates of economic growth than did countries that pursued inward-oriented

policies.

b. experienced higher levels of political instability than did countries that pursued inward-oriented

policies.

c. include Singapore, South Korea, and Taiwan. d. All of the above are correct.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:

Free trade

15. Rapid population growth

a. was hailed by Thomas Robert Malthus as the key to future economic growth. b. tends to lead to higher levels of educational attainment. c. is the main reason that less developed nations are poor.

d. may depress economic prosperity by reducing the amount of capital which each worker has to work

with.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:

Population growth

16. It has been suggested that a possible benefit of rapid population growth is the likelihood that when there are

more people, then there are more

a. teachers, and so students acquire more knowledge and skills. b. people to discover things, and so technological progress is rapid. c. savers, and so capital per worker tends to increase over time. d. consumers, and so economic growth is more rapid.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:

Population growth

17. One of the Ten Principles of Economics in Chapter 1 is that people face tradeoffs. The growth that arises from

capital accumulation is not a free lunch. It requires that society a. conserve resources for future generations.

b. sacrifice consumption goods and services now in order to enjoy more consumption in the future. c. recycle resources so that future generations can produce goods and services with the accumulated

capital.

d. None of the above is correct.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 1 REF: 25-3 LOC: Productivity and growth TOP:

Investment

18. Accumulating capital

a. requires that society sacrifice consumption goods in the present. b. allows society to consume more in the present. c. decreases saving rates. d. involves no tradeoffs.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 1 REF: 25-3 LOC: Productivity and growth TOP:

Capital | Saving

1724 ? Chapter 25 /Production and Growth

19. The traditional view of the production process is that capital is subject to

a. constant returns. b. increasing returns. c. diminishing returns.

d. diminishing returns for low levels of capital, and increasing returns for high levels of capital.

ANS: C

NAT: Analytic MSC: Definitional

DIF: 1 REF: 25-3 LOC: Productivity and growth TOP:

Diminishing returns

20. If there are diminishing returns to capital, then

a. capital produces fewer goods as it ages. b. old ideas are not as useful as new ones.

c. increases in the capital stock eventually decrease output.

d. increases in the capital stock increase output by ever smaller amounts.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:

Diminishing returns

21. In the long run, a higher saving rate

a. cannot increase the capital stock.

b. means that people must consume less in the future. c. increases the level of productivity. d. None of the above is correct.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:

Saving

22. In the long run, a higher saving rate

a. cannot increase the capital stock. b. increases the growth rate of income. c. increases the growth rate of productivity. d. None of the above is correct.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:

Saving

23. In the long run, an increase in the saving rate

a. doesn’t change the level of productivity or income. b. raises the levels of both productivity and income.

c. raises the level of productivity but not the level of income. d. raises the level of income but not the level of productivity.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:

Saving | Productivity

24. If a country were to increase its saving rate, then in the long run it would also increase its

a. level of income.

b. growth rate of income. c. growth rate of productivity. d. All of the above are correct.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:

Saving

Chapter 25 /Production and Growth ? 1725

25. If a country’s saving rate declined, then other things the same, in the long run the country would have

a. lower productivity, but not lower real GDP per person. b. lower productivity and lower real GDP per person. c. lower real GDP per person, but not lower productivity d. neither lower productivity nor lower real GDP per person.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:

Saving | Productivity

26. If a country's saving rate increases, then in the long run

a. both productivity growth and income growth increase. b. only productivity growth increases. c. only income growth increases.

d. neither productivity growth nor income growth increase.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:

Saving | Productivity

27. If a country's saving rate increases, then in the long run

a. productivity is higher but real GDP per person is not higher. b. real GDP per person is higher but productivity is not higher. c. productivity and real GDP per person are both higher. d. neither productivity nor real GDP per person is higher.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:

Saving | Productivity

28. Other things the same, a country that increases its saving rate increases

a. its future productivity and future real GDP.

b. neither its future productivity nor future real GDP. c. its future productivity, but not its future real GDP. d. its future real GDP, but not its future productivity.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:

Saving | Productivity

29. Other things the same, a country that increases its savings rate will have

a. higher future capital and higher future real GDP per person. b. higher future capital but not higher future real GDP per person. c. higher future real GDP per person but not higher future capital. d. neither higher future capital nor higher future real GDP per person.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:

Saving | Capital

30. Suppose Turkey increases its saving rate. In the long run

a. the growth rates of productivity and real GDP per person increase. b. productivity and real GDP per person increase.

c. the growth rate of productivity increases, and real GDP per person increases. d. productivity increases, and the growth rate of real GDP per person increases.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:

Saving

1726 ? Chapter 25 /Production and Growth

31. Suppose that Slovenia undertakes a policy to increase its saving rate. This policy will likely

a. have no impact on GDP growth.

b. lead to higher GDP growth for a few years.

c. lead to higher GDP growth for a period of several decades. d. lead to a permanently higher growth rate.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:

Saving

32. Suppose that a country increased its saving rate. In the long run it would have

a. higher productivity, and another unit of capital would increase output by more than before. b. higher productivity, but another unit of capital would increase output by less than before. c. lower productivity, and another unit of capital would increase output by more than before. d. lower productivity, but another unit of capital would increase output by less than before.

ANS: B

NAT: Analytic MSC: Analytical

DIF: 3 REF: 25-3 LOC: Productivity and growth TOP:

Saving | Diminishing returns

33. Other things equal, relatively poor countries tend to grow

a. slower than relatively rich countries; this is called the poverty trap. b. slower than relatively rich countries; this is called the fall-behind effect. c. faster than relatively rich countries; this is called the catch-up effect.

d. faster than relatively rich countries; this is called the constant-returns-to-scale effect.

ANS: C

NAT: Analytic MSC: Definitional

DIF: 1 REF: 25-3 LOC: Productivity and growth TOP:

Catch-up effect

34. Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one

has more capital per worker and so it has more real GDP per worker than the other. Finally, suppose that the saving rate in both countries increases from 4 percent to 7 percent. Over the next ten years we would expect that

a. the growth rate will not change in either country.

b. the country that started with less capital per worker will grow faster. c. the country that started with more capital per worker will grow faster. d. both countries will grow and at the same rate.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:

Catch-up effect

35. Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one

has less capital and so less real GDP per person. Suppose that both increase their saving rate from 3 percent to 4 percent. In the long run

a. both countries will have permanently higher growth rates of real GDP per person, and the growth

rate will be higher in the country with more capital.

b. both countries will have permanently higher growth rates of real GDP per person, and the growth

rate will be higher in the country with less capital.

c. both countries will have higher levels of real GDP per person, and the temporary increase in growth

in the level of real GDP per person will have been greater in the country with more capital.

d. both countries will have higher levels of real GDP per person, and the temporary increase in growth

in the level of real GDP per person will have been greater in the country with less capital.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 3 REF: 25-3 LOC: Productivity and growth TOP:

Catch-up effect

Chapter 25 /Production and Growth ? 1727

36. Real GDP per person is $30,000 in Country A, $20,000 in Country B, and $11,000 in Country C. Saving per

person is $1,000 in all three countries. Other things equal, we would expect that a. all three countries will grow at the same rate. b. Country A will grow the fastest. c. Country B will grow the fastest. d. Country C will grow the fastest.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:

Catch-up effect

37. Other things the same, if a country increased its saving rate, in 40 years or so it would likely have

a. higher productivity, and a higher growth rate of real GDP. b. higher productivity, but not a higher growth rate of real GDP. c. the same productivity and growth of real GDP it began with. d. None of the above is correct.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:

Saving

38. Which of the following best describes the response of output as time passes to an increase in the saving rate?

a. The growth rate of output does not change.

b. The growth rate of output increases and gets even larger as time passes. c. The growth rate of output increases and does not change as time passes.

d. The growth rate of output increases, but diminishes to its former level as time passes.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:

Saving | Diminishing returns

39. An increase in the saving rate would, other things the same,

a. increase growth more for a poor country than for a rich country, and raise growth permanently. b. increase growth more for a poor country than for a rich country, but raise growth temporarily. c. increase growth more for a rich country than for a poor country, and raise growth permanently. d. increase growth more for a rich country than for a poor country, but raise growth temporarily.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 3 REF: 25-3 LOC: Productivity and growth TOP:

Catch-up effect

40. Consider three imaginary countries. In Old York, saving amounts to $3,000 and consumption amounts to

$7,000; in New Frank, saving amounts to $2,000 and consumption amounts to $8,000; and in Ganzee, saving amounts to $4,500 and consumption amounts to $10,500. The saving rate is

a. higher in Old York than in Ganzee, and it is higher in Ganzee than in New Frank. b. higher in New Frank than in Ganzee, and it is higher in Ganzee than in Old York. c. higher in Ganzee than in New Frank, and it is the same in New Frank and Old York. d. higher in Old York than in New Frank, and it is the same in Old York and Ganzee.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:

Saving

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