# ECO Exam 2 CH12

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question
The downside of pursuing a policy that increases saving and investment is _____ nonexistent. that current consumption of goods and services decreases. that there is an increase in the number of banks. that there is growth in the stock market.
If current saving increases, then current consumption of goods and services must decrease. This policy has no direct link to the number of banks nor the stock market.
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The traditional view of the production process is that capital is subject to diminishing returns. So that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries. True False
True The property of diminishing returns to capital has an important implication: Other things being equal, it is easier for a country to grow fast if it starts out relatively poor. This effect of initial conditions on subsequent growth is called the catch-up effect.
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From 1890 to 2010, countries with lower levels of real GDP per person than the United States all had growth rates that are lower than that of the United States. True False
False In some cases, countries that had lower levels of real GDP per person than the United States had growth rates that were higher than that of the United States. In other cases, countries with lower levels of real GDP per person had lower growth rates than that of the United States.
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In 2014, real GDP in an imaginary economy was \$1 billion and the population was 2 million. In 2015, real GDP is \$1.2 billion and the population is the same 2 million. What was the growth rate of real GDP per person during the year? -0.20% 0.20% -20% 20%
In 2014, real GDP per capita was \$1 billion/2 million = \$500. In 2015, it is \$1.2 billion/2 million = \$600. The rate of growth is calculated as 100 * ((GDP per person in 2015 - GDP per person in 2014)/ GDP per person in 2014) = 100*((\$600 - \$500)/ \$500) = 20%.
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If workers increase the amount of training they obtain, we expect worker productivity to _____ decrease by a factor of 2. not change. increase. decrease.
increase. Human capital raises a nation's ability to produce goods and services.
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In the late 1800's, Japan was the richest country in the world. True False
In 1870, the United Kingdom was the richest country in the world with real GDP per person of \$4,853, whereas real GDP per person in Japan was only \$1,517
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In the long run, the higher saving rate leads to a higher level of productivity and income but not to higher growth in these variables. True False
True Because of diminishing returns, an increase in the saving rate leads to higher growth only for a while. As the higher saving rate allows more capital to be accumulated, in the long run, the benefits from additional capital become smaller and growth slows down. Reaching this long run can take quite a while. Studies of international data on economic growth show that increasing the saving rate can lead to substantially higher growth for a period of several decades.
question
Consider the case of Crusoe's economy. Suppose Robinson Crusoe spends two hours to find ten turtle eggs. What is his productivity? 2 hours. 10 turtle eggs. 0.1 hour per turtle egg. 5 turtle eggs per hour.
A correct way to measure productivity is to divide the quantity of output by the number of hours worked: 10 turtle eggs / 2 hours = 5 turtle eggs per hour.
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In the United States, real GDP per person was \$4,044 in 1870 and \$47,210 in 2010. The growth rate was 1.77% per year. Which of the following is true? 77% per year is an average rate of growth for real GDP per person, actual growth each year was much higher. 1.77% per year is an average rate of growth for real GDP per person, actual growth each year was much lower. Each year, for 140 years, real GDP per person increased by 1.77%. 1.77% per year is an average rate of growth for real GDP per person over many years.
1.77% per year is an average rate of growth for real GDP per person over many years. If real GDP per person, beginning at \$4,044, were to increase by 1.77% per year for 140 years, it would end up at \$47,210. However, real GDP per person did not rise exactly 1.77% every year. Some years it rose by more, other years it rose by less, and in other years it fell. The growth rate of 1.77% per year ignores short-run fluctuations around the long-run trend and represents an average rate of growth for real GDP per person over many years.
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Given that it takes only 35 years for an initial value to double if there is a 2 percent growth rate, we can conclude that _____ growth rates are not compounding. growth rates are compounding. Real GDP per person does not change over time. a country with a lower initial real GDP per person can never pass a country with a higher initial real GDP per person.
growth rates are compounding. If growth rates were not compounding and we were only applying the percentage change to the initial value each time, it would take 50 years to double. Real GDP per person changes over time, and countries with lower initial values can overtake countries with higher initial values by achieving higher growth rates over time.
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Consider three countries with diminishing returns to capital. Country A has real GDP per person of \$12,000; Country B has real GDP per person of \$20,000; Country C has real GDP per person of \$25,000. Suppose that the saving rate increases by the same rate in all three countries. For the next few years, Country A will grow faster than Countries B and C. For the next few years, Country C will grow faster than Countries A and B. In the long run, all three countries will grow at the same rate. In the long run, all three countries will have the same level of real GDP.
For the next few years, Country A will grow faster than Countries B and C. Catch-up effect predicts that given diminishing return to capital, countries with that start off poor tend to grow more rapidly than countries that start off rich.
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It is possible to increase economic growth with population growth because _____ with more people, there are more scientists and inventors to contribute to technological advances. it dilutes the capital stock. it stretches natural resources. there are more consumers.
with more people, there are more scientists and inventors to contribute to technological advances. An increase in population means more people available to contribute to technological advances that benefit everyone. The dilution of capital stock and the stretching of natural resources are problems with population growth.
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If workers increase the amount of training they obtain, we expect worker productivity to _____ decrease by a factor of 2. not change. increase. decrease.
increase. Human capital raises a nation's ability to produce goods and services.
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In Canada, real GDP per person was \$2,397 in 1870 and \$38,370 in 2010. The growth rate was 2.00% per year. Which of the following is true? The growth rate of 2.00% per year ignores short-run fluctuations around the long-run trend and represents an average rate of growth for real GDP per person over the period. Each year, for 140 years, real GDP per person increased by 2.00%. 2.00% per year is an average rate of growth for real GDP per person, actual growth in each year was much lower. The growth rate of 2.00% per year accounts for short-run fluctuations around the long-run trend.
The growth rate of 2.00% per year ignores short-run fluctuations around the long-run trend and represents an average rate of growth for real GDP per person over the period. If real GDP per person, beginning at \$2,397, were to increase by 2.00% for each of 140 years, it would end up at \$38,370. Of course, real GDP per person did not rise exactly 2.00% every year: Some years it rose by more, other years it rose by less, and in other years it fell. The growth rate of 2.00% per year ignores short-run fluctuations around the long-run trend and represents an average rate of growth for real GDP per person over many years.
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A public policy that increases investment from abroad should _____ decrease future labor productivity. increase future labor productivity because the natural resources per worker increase. increase future labor productivity because it increases the current capital stock. have no effect on future labor productivity.
increase future labor productivity because it increases the current capital stock. When there is an increase in investment from abroad, there is an increase in the current capital stock, which increases future labor productivity.
question
The fact that in the United States, real GDP per person was \$4,044 in 1870 and \$47,210 in 2010 implies that every year the United States had the growth rate of 1.77% per year. True False
False If real GDP per person, beginning at \$4,044, were to increase by 1.77% for each of 140 years, it would end up at \$47,210. However, real GDP per person did not rise exactly 1.77% every year: Some years it rose by more, other years it rose by less, and still other years it fell. The growth rate of 1.77% per year ignores short-run fluctuations around the long-run trend and represents an average rate of growth for real GDP per person over many years.
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The opening of a new American-owned factory in Algeria would tend to increase Algeria's GDP more than it increases Algeria's GNP because some of the income from the factory accrues to people who do not live in Algeria. True False
True Gross domestic product (GDP) is income earned within a country by both residents and nonresidents, whereas gross national product (GNP) is the income earned by residents of a country while producing both at home and abroad
question
Suppose an economy experiences an increase in its saving rate. The higher saving rate leads to a higher growth rate of productivity in the long-run. True False
False The accumulation of capital is subject to diminishing returns: The more capital an economy has, the less additional output the economy gets from an extra unit of capital. As a result, although higher saving leads to higher growth for a period of time, growth eventually slows down as capital, productivity, and income rise.
question
The fact that in Canada, real GDP per person was \$2,397 in 1870 and \$38,370 in 2010 implies that every year, the growth rate was 2.00% per year. True False
False If real GDP per person, beginning at \$2,397, were to increase by 2.00% for each of 140 years, it would end up at \$38,370. Of course, real GDP per person did not rise exactly 2.00% every year: Some years it rose by more, other years it rose by less, and in other years it fell. The growth rate of 2.00% per year ignores short-run fluctuations around the long-run trend and represents an average rate of growth for real GDP per person over many years.
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In 2013, real GDP in an imaginary economy was \$1 billion and the population was 1 million. In 2014, real GDP was \$1.2 billion and the population increased to 1.1 million. What was the growth rate of real GDP per person during the year? -10% -9% 10% 9%
In 2013, real GDP per capita was \$1 billion/2 million = \$1,000. In 2014, it is \$1.2 billion/1.1 million = \$1,090.9. The rate of growth is calculated as 100 * ((GDP per person in 2014 - GDP per person in 2013)/ GDP per person in 2013) = 100*((\$1,090.9 - \$1000)/ \$1000) = 9%.
question
Suppose that productivity grew faster in Country A than in Country B, while the population and total hours worked remained the same in both countries. The standard of living must be the same in both countries. Real GDP per person must be lower in Country A than in Country B. The standard of living must be higher in Country B than in Country A. Real GDP per person grew faster in Country A than in Country B.
Real GDP per person grew faster in Country A than in Country B. Both population growth and productivity growth contribute in growth of real GDP. If there is no population growth, whereas productivity grows faster in Country A than in Country B, then real GDP per person must grow faster in Country A than in Country B.
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In 1890, Brazil's real GDP per person was only \$62 more than China's. From 1890 to 2010, Brazil experienced 2.65 percent economic growth while China had 2.15 percent. At the end of 2010, Brazil's real GDP per person was \$3,460 more than China's. This shows _____ small differences in growth rates can result in large dollar differences over time. compounding economic growth does not change numerical values. a country with a lower initial real GDP per person will always be lower. Real GDP per person does not change over time.
small differences in growth rates can result in large dollar differences over time. A slightly higher growth rate over 120 years increased a numerical value by almost 6 times. The act of compounding growth can lead to large differences over time, and countries that start lower can catch and even pass other nations over time.
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The United Kingdom is an advanced economy, and over the past century its rate of economic growth has been higher than that of the United States. True False
False In the United States, real GDP per person was \$4,044 in 1870 and \$47,210 in 2010. This equates to a growth rate of 1.77% per year. One country that has fallen behind is the United Kingdom. In 1870, it was the richest country in the world, with an average income about 20% higher than that of the United States. Today, the average income in the United Kingdom is 25% below that of the United States..
question
Bertha uses all of the following resources to prepare delicious breakfast meals at her cafรฉ. Which of them is an example of human capital? Furniture and kitchen equipment. Advertising. Funds invested in the establishment. Bertha's unique recipes.
Bertha's unique recipes. Human capital is the knowledge and skills that acquired through education, training, and experience. Human capital includes the skills accumulated in early childhood programs, grade school, high school, college, and on-the-job training for adults in the labor force. Thus Bertha's knowledge of unique recipes is her human capital.
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Consider two economies with diminishing returns to capital. The economies are identical except one has a higher capital per worker than the other. Suppose that the saving rates in both countries increase. Over the next few years, the growth rate of technological knowledge will be lower in the country that started with less capital per worker. Over the next few years, the growth rate of real GDP per worker will be higher in the country that started with more capital per worker. Over the next few years, the growth rate of human capital will be higher in the country that started with less capital per worker. Over the next few years, the growth rate of real GDP per worker will be higher in the country that started with less capital per worker
Over the next few years, the growth rate of real GDP per worker will be higher in the country that started with less capital per worker The accumulation of capital is subject to diminishing returns: The more capital an economy has, the less additional output the economy gets from an extra unit of capital. As a result, although higher saving leads to higher growth for a period of time, in the long run, growth slows down as capital, productivity, and income rise. It is not possible to predict, however, in which country human capital and technology will grow faster.
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Japan's status as a rich nation is attributable to international trade, but not to Japan's domestic quantities of natural resources. True False
True Natural resources are not necessary for an economy to be highly productive in producing goods and services. Japan, for example, is one of the richest countries in the world, despite having few natural resources. International trade makes Japan's success possible. Japan imports many of the natural resources it needs, such as oil, and exports its manufactured goods to economies rich in natural resources
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Which of the following describes natural resources? The hospital building and the doctors' knowledge of medicine. The chefs' cooking skills and the kitchen equipment. The pumps and the cash register at a gas station. The inputs into production of goods and services that are provided by nature, such as land, rivers, and mineral deposits.
The inputs into production of goods and services that are provided by nature, such as land, rivers, and mineral deposits. Natural resources are inputs into production that are provided by nature, such as land, rivers, and mineral deposits. Natural resources take two forms: renewable and nonrenewable.
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Which of the following can increase both productivity and income? An increase in human capital. A decrease in the savings rate. An increase in population. An increase in the savings rate.
An increase in the savings rate. Encouraging saving and investment is one way that a government can stimulate growth and, in the long run, raise the country's standard of living.
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Which of the following is an example of a nonrenewable resource? The knowledge possessed by scientists. Wood. Livestock. Oil.
Oil
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In 2013, real GDP in an imaginary economy was \$1 billion and the population was 1 million. In 2014, real GDP was \$1.2 billion and the population increased to 1.1 million. What was the growth rate of real GDP per person during the year? 10% 9% -10% -9%
In 2013, real GDP per capita was \$1 billion/2 million = \$1,000. In 2014, it is \$1.2 billion/1.1 million = \$1,090.9. The rate of growth is calculated as 100 * ((GDP per person in 2014 - GDP per person in 2013)/ GDP per person in 2013) = 100*((\$1,090.9 - \$1000)/ \$1000) = 9%.
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Which of the following describes natural resources? The electricity delivery system. Wind energy. A wind turbine. A variety of small, grid-connected devices referred to as distributed energy resources.
wind energy Natural resources are inputs into production that are provided by nature, such as land, rivers, and mineral deposits. A wind turbine, which is a piece of capital, can use the wind's energy, a natural resource, to generate electricity. Natural resources take two forms: renewable and nonrenewable.
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Which of the following defines productivity? The quantity of labor required to produce one unit of goods and services. The quantity of goods and services produced from each unit of labor input. The quantity of goods and services produced per unit of time The quantity of labor required to produce a nation's GDP.
The quantity of goods and services produced from each unit of labor input.
question
In 2013, real GDP in an imaginary economy was \$1.2 billion and the population was 1 million. In 2014, real GDP fell to \$1 billion, whereas the population increased to 1.1 million. What was the growth rate of real GDP per person during the year? -20.00% -24.24% 24.00% -16.70%
In 2013, real GDP per capita was \$1.2 billion/1 million = \$1,200. In 2014, it is \$1 billion/1.1 million = \$909.09. The rate of growth is calculated as 100 * ((GDP per person in 2014 - GDP per person in 2013)/ GDP per person in 2013) = 100*((\$909.09- \$1,200)/ \$1,200) = -24.24%.
question
Which of the following is an example of foreign portfolio investment? Ford Motor Company builds a car factory in Mexico. In the 1800s, Europeans purchased stock in American companies that used the funds to build railroads and factories. A European firm opens an interior design firm in San Francisco, CA. A European firm opens a new toy factory in China.
In the 1800s, Europeans purchased stock in American companies that used the funds to build railroads and factories. A capital investment that is owned and operated by a foreign entity is called foreign direct investment, whereas an investment that is financed with foreign money but operated by domestic residents is called foreign portfolio investment. Therefore, the Europeans who purchased stock in American railroads companies engaged in foreign portfolio investment.
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For a developed nation, a downside of public policy that increases health and nutrition is that _____ it decreases natural resources. it decreases physical capital. it decreases labor productivity. there is little payoff from the increase.
there is little payoff from the increase. Given that developed nations are relatively healthy and there are diminishing returns, expenditures on health and nutrition contribute little to labor productivity in developed nations.
question
Bertha uses all of the following resources to prepare delicious breakfast meals at her cafรฉ. Which of them is an example of physical capital? Funds invested in the establishment. Furniture and appliances. Bertha's unique recipes. Chefs and waiters.
Furniture and appliances. The stock of equipment and structures used to produce goods and services is called physical capital, or just capital. Bertha uses not only uses her kitchen equipment to prepare the meals, furniture in the room is also an 'equipment' required to operate the cafe.
question
Last year, real GDP in an imaginary economy was \$125 billion and the population was 5 million. This year, real GDP is \$132 billion and the population was 5.2 million. What was the growth rate of real GDP per person during the year? 1.0% 1.54% 2.0% 0.15%
Last year, real GDP per capita was \$125 billion/5 million = \$25,000. This year, it is \$132 billion/5.2 million = \$25,384. The rate of growth is calculated as 100 * ((GDP per person in the current year - GDP per person last year)/ GDP per person last year) = 100*((\$25,384 - \$25,000)/ \$25,000) = 1.54%.
question
Last year, a computer company made 600 laptops with 1200 hours of labor. This year, it made 900 laptops with 1200 hours of labor. What can you say about company's productivity? Productivity remained the same. Productivity increased by 50%. Productivity increased by 0.25 laptops. Productivity decreased by 50%.
Productivity increased by 50%. Last year, productivity was 600 laptops/ 1200 hours = 0.5 laptops per hour. This year it increased to 900 laptops/ 1200 hours = 0.75 laptops per hour. The productivity grew by 100* ((0.75 laptops per hour - 0.5 laptops per hour)/ 0.5 laptops per hour) = 50%.
question
Suppose an economy experiences an increase in its saving rate. The higher saving rate leads to a higher growth rate of productivity in the short- run. True False
True The accumulation of capital is subject to diminishing returns: The more capital an economy has, the less additional output the economy gets from an extra unit of capital. As a result, although higher saving leads to higher growth for a period of time, growth eventually slows down as capital, productivity, and income rise.
question
In Mexico, real GDP per person was \$1,169 in 1900 and \$14,350 in 2010. The growth rate was 2.31% per year. Which of the following is true? 2.31% per year is an average rate of growth for real GDP per person, actual growth in each year was much lower. In some years the growth rate was higher than 2.31% per year, in other years, it was lower. 2.31% per year is an average rate of growth for real GDP per person, actual growth in each year was much higher. Each year, for 110 years, real GDP per person increased by 2.31%.
In some years the growth rate was higher than 2.31% per year, in other years, it was lower. If real GDP per person, beginning at \$1,169, were to increase by 2.31% per year for 110 years, it would end up at \$14,350. However, real GDP per person did not rise exactly 2.31% every year: Some years it rose by more, other years it rose by less, and in other years it fell. The growth rate of 2.31% per year ignores short-run fluctuations around the long-run trend and represents an average rate of growth for real GDP per person over many years.
question
The short-run effects of an increase in the saving rate include a higher growth rate of productivity and a lower growth rate of income. True False
False The short-run effects of an increase in the saving rate include a higher level of productivity, a higher growth rate of productivity, and a higher growth rate of income.
question
In a closed economy, if saving rises in some period, then in that period consumption falls and investment rises. True False
True Because resources are scarce, devoting more resources to producing capital requires devoting fewer resources to producing goods and services for current consumption. That is, for society to invest more in capital, it must consume less and save more of its current income. The growth that arises from capital accumulation requires that society sacrifice consumption in the present to enjoy higher consumption in the future.
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Which of the following accurately describes the difference between foreign direct investment and foreign portfolio investment? When foreigners directly invest in a country, they do so to stimulate the country's economy, all their profit will stay and be re-invested in the country, whereas foreign portfolio investment assumes that investors will move additional income back to their home country in the form of profit. Foreign direct investment assumes an investment that is owned and operated by a foreign entity, whereas foreign portfolio investment assumes investment into a domestically owned and operated business. Foreign direct investors have a right to a portion of the profit that the corporation earns, whereas portfolio investors own profits earned by the business they invested in. Foreign portfolio investment assumes an investment that is owned and operated by a foreign entity, whereas foreign direct investment assumes investment into a domestically owned and operated business.
Foreign direct investment assumes an investment that is owned and operated by a foreign entity, whereas foreign portfolio investment assumes investment into a domestically owned and operated business. A capital investment that is owned and operated by a foreign entity is called foreign direct investment, whereas an investment that is financed with foreign money but operated by domestic residents is called foreign portfolio investment. Therefore, foreign direct investors own profits earned by the business they invested in, whereas portfolio investors have a right to a portion of the profit that the corporation earns.
question
Which of the following countries is a middle-income country, which over the past century had a higher rate of economic growth than the United States? Canada Mexico Argentina Japan
Mexico Mexico is a middle-income country. In 1900, its real GDP per person was \$1,169. Over the century, it rose to \$14,350, with the rate of economic growth of 2.31% per year. In the U.S. during the same period, the rate of growth was 1.77%.
question
Which of the following is an accurate explanation of why the average American today is "richer" than the richest American 100 years ago? A century ago, people had fewer years of schooling. Tremendous technological advances. A century ago, international trade had not yet begun to flourish. Inaccurate measurements of personal fortunes.
Tremendous technological advances. Because of tremendous technological advances, many of the goods and services that we now take for granted were not available. As a result, the average American today is arguably "richer" than the richest American a century ago, even if that fact is lost in standard economic statistics.
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An economy which consumes only what it produces has the standard of living that is tied to productivity. True False
True In the case of Crusoe's economy, it is easy to see that productivity is the key determinant of living standards and that growth in productivity is the key determinant of growth in living standards. The more fish Crusoe can catch per hour, the more he eats at dinner. If Crusoe finds a better place to catch fish, his productivity rises. This increase in productivity makes Crusoe better off.
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Consider the case of Crusoe's economy. Suppose Robinson Crusoe spends two hours to catch four fish. What is his productivity? 4 fish. 2 fish per hour. 2 hour. 0.5 hour per fish.
2 fish per hour. A correct way to measure productivity is to divide the quantity of output by the number of hours worked: 4 fish / 2 hours = 2 fish per hour.
question
Protecting property rights _____ leads to greater economic growth. decreases economic growth. only helps homeowners. has nothing to do with business transactions.
leads to greater economic growth. The enforcement of property rights promotes more business activity and economic output because it discourages theft and forces buyers and sellers to follow contracts.
question
Which of the following statements is consistent with the fact that capital in an economy is subject to diminishing returns? When workers have a relatively large quantity of capital, giving them an additional unit of capital increases their productivity by a large amount. When workers have a relatively small quantity of capital, giving them an additional unit of capital increases their productivity by a relatively large amount. When workers have a relatively small quantity of capital, giving them an additional unit of capital will not increase their productivity. When workers already have a large quantity of capital, giving them an additional unit of capital will not increase productivity.
When workers have a relatively small quantity of capital, giving them an additional unit of capital increases their productivity by a relatively large amount. Diminishing returns is the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases. That is, as the stock of capital rises, the extra output produced from an additional unit of capital falls. However, if the stock of capital is relatively small, an additional unit of capital may increase productivity by a relatively large amount.
question
Consider the case of Crusoe's economy. Suppose Robinson Crusoe spends two hours to find ten turtle eggs, whereas his friend Friday finds 10 turtle eggs in one hour. Which of the following is true about productivity in this economy? Robinson and Friday are equally productive. Friday is more productive than Robinson. Robinson and Friday are equally unproductive. Robinson is more productive than Friday.
Friday is more productive than Robinson.
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A domestic downside to a policy that increases education is that _______ there are already enough people with college degrees. people must forgo current wages to invest in education. it decreases natural resources. human capital has no link to labor productivity.
people must forgo current wages to invest in education. Investment in human capital is like other investments: There is an opportunity cost. People must forgo current wages to earn the human capital.
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A factory employs 100 workers, each working 8 hours, to produce 3200 gadgets. What is productivity at the factory? 800 gadgets per hour. 4 gadgets per worker hour. 3200 gadgets. 320 gadgets per worker.
4 gadgets per worker hour. Productivity at the factory is (3200 gadgets / 100 workers)/ 8 hours = 4 gadgets per worker hours
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Increasing health and nutrition in less developed nations will most likely _____ decrease natural resources. decrease physical capital. increase labor productivity. decrease labor productivity.
increase labor productivity. An increase in health and nutrition increases labor productivity because other things being equal, healthier workers are more productive.
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Japan is an advanced economy, and over the past century its rate of economic growth has been higher than that of the United States. True False
true In the United States, real GDP per person was \$4,044 in 1870 and \$47,210 in 2010. This equates to a growth rate of 1.77% per year. In Japan, over the same period, the growth rate of real GDP was 2.65% per year.
question
Countries that have had higher output growth per person have typically done so without higher productivity growth. True False
False One of the Ten Principles of Economics is that a country's standard of living depends on its ability to produce goods and services. A nation can enjoy a high standard of living only if it can produce a large quantity of goods and services. Americans live better than Nigerians because American workers are more productive than Nigerian workers. The Japanese have enjoyed more rapid growth in living standards than Argentineans because Japanese workers have experienced more rapid growth in productivity.
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If a country's saving rate declined, then other things the same, in the long run, the country would have lower productivity and lower real GDP per person. True False
True Encouraging saving and investment is one way that a government can encourage growth and, in the long run, raise the economy's standard of living. In contrast, lower saving rates, other things the same, lead to lower productivity and lower real GDP per person.
question
Which of the following is measured by the growth rate of real GDP per person? Foreign direct investment. Changes in the level of well-being in a country. Human capital. Growth rate of nominal GDP.
Changes in the level of well-being in a country. The data on real GDP per person show that living standards vary widely from country to country.
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The traditional view of the production process is that capital is subject to constant returns. True False
False he traditional view of the production process is that capital is subject to diminishing returns: As the stock of capital rises, the extra output produced from an additional unit of capital falls.
question
The historic data show that the world's richest countries have no guarantee they will stay the richest. True False
True The world's richest countries have no guarantee they will stay the richest. Similarly, the world's poorest countries are not doomed forever to remain in poverty. For example, over the past century, Japan has risen relative to others, whereas the United Kingdom, once the richest country in the world, has fallen behind.
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Suppose over the past decade, Country A had a higher population growth and productivity growth than Country B. Real GDP in both countries grew at the same rate. Real GDP in Country A grew faster than in Country B. Real GDP per person must be lower in Country B. Real GDP in Country A grew slower than in Country B.
Real GDP in Country A grew faster than in Country B. Greater population growth and greater productivity growth in Country A contributed in the faster growth of real GDP in Country A than in Country B.
question
Suppose a European firm opens a new toy factory in China. This is an example of brain-drain. foreign direct investment. indirect foreign investment. foreign portfolio investment.
foreign direct investment.
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Promoting political stability _____ can lead to greater economic growth. decreases economic growth. only helps homeowners. has nothing to do with business transactions.
can lead to greater economic growth. Promoting political stability encourages the protection of property rights, leading to greater economic growth.
question
One of the Ten Principles of Economics is that a country's standard of living depends on its ability to produce goods and services. True False
True A nation can enjoy a high standard of living only if it can produce a large quantity of goods and services. Americans live better than Nigerians because American workers are more productive than Nigerian workers. The Japanese have enjoyed more rapid growth in living standards than Argentineans because Japanese workers have experienced more rapid growth in productivity.
question
Consider two economies with diminishing returns to capital. The economies are identical except one has a higher capital per worker than the other. Suppose that the saving rates in both countries increase. Over the next few years, the growth rate of human capital will be higher in the country that started with less capital per worker. Over the next few years, the growth rate of real GDP per worker will be higher in the country that started with less capital per worker. Over the next few years, the growth rate of technological knowledge will be lower in the country that started with less capital per worker. Over the next few years, the growth rate of real GDP per worker will be higher in the country that started with more capital per worker.
Over the next few years, the growth rate of real GDP per worker will be higher in the country that started with less capital per worker.
question
Suppose that productivity grew more slowly in Country A than in Country B, while the population and total hours worked remained the same in both countries. The standard of living must be higher in Country A than in Country B. Real GDP per person grew more slowly in Country A than in Country B. The standard of living must be the same in both countries. Real GDP per person must be lower in Country A than in Country B.
Real GDP per person grew more slowly in Country A than in Country B. Both population growth and productivity growth contribute in growth of real GDP. If there is no population growth, whereas productivity grows more slowly in Country A than in Country B, then real GDP per person must grow more slowly in Country A than in Country B.
question
The historic data show that the world's poorest countries are doomed to remain in poverty. True False
False The historic data show that the world's richest countries have no guarantee they will stay the richest. Similarly, the world's poorest countries are not doomed forever to remain in poverty. For example, over the past century, Japan has risen relative to others, whereas the United Kingdom, once the richest country in the world, has fallen behind.
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Which of the following most accurately describes the factors affecting productivity? Natural resources, physical capital, and human capital. Natural resources, technology, physical capital, and human capital. Physical capital, human capital, and technology. Natural resources, technology, and human capital.
Natural resources, technology, physical capital, and human capital.
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Last year real GDP in an imaginary economy was \$10 billion and the population was 2 million. This year, real GDP is \$9 billion and the population is the same 2 million. What was the growth rate of real GDP per person during the year? 0.9% -10.0% -9.0% 11.0%
-10.0%
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Real GDP per person more accurately measures a nation's standard of living than nominal GDP per person. True False
True Real GDP is adjusted for inflation, whereas nominal GDP is not. Thus, nominal GDP will often appear higher than real GDP.
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An orchard employs 10 workers, each working eight hours, to produce 160 boxes of apples. What is orchard's productivity? 20 boxes per hour. 2 boxes per worker hour. 160 boxes. 16 boxes per worker.
2 boxes per worker hour.
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In Germany, real GDP per person was \$2,204 in 1870 and \$38,410 in 2010. The growth rate was 2.06% per year. Which of the following is true? The growth rate of 2.06% per year accounts for short-run fluctuations around the long-run trend. The growth rate of 2.06% per year ignores short-run fluctuations around the long-run trend and represents an average rate of growth for real GDP per person over the period. 2.06% per year is an average rate of growth for real GDP per person, actual growth in each year was much lower. Each year, for 140 years, real GDP per person increased by 2.06%.
The growth rate of 2.06% per year ignores short-run fluctuations around the long-run trend and represents an average rate of growth for real GDP per person over the period.
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The traditional view of the production process is that capital is subject to diminishing returns. So that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries.
True The property of diminishing returns to capital has an important implication: Other things being equal, it is easier for a country to grow fast if it starts out relatively poor. This effect of initial conditions on subsequent growth is called the catch-up effect.
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A public policy that increases saving and investment increases future labor productivity because the policy ____ increases the capital stock. causes an increase in the stock market. causes an increase in the number of banks. increases natural resources per worker.
increases the capital stock. An increase in saving and investment leads to a higher capital stock, which provides for greater production of goods and services in the future. The policy has no direct link to the stock market, the number of banks, or the amount of natural resources per worker.
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If workers increase the amount of education they obtain, we would expect worker productivity to _____ decrease by a factor of 2. not change. decrease. increase.
increase. Human capital raises a nation's ability to produce goods and services.
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Last year, a chocolate factory made 60,000 bars employing 100 workers, each of whom worked 8 hours per day. This year, the factory produced 70,000 toys, employing 80 workers, each of whom worked 10 hours per day. What can you say about factory's productivity? Productivity remained the same. Productivity increased by 16.7%. Productivity increased by increased by 14.3%. Productivity decreased by 16.7%.
Productivity increased by 16.7%. Last year, productivity was 60,000 toys/ 100 workers/ 8 hours = 75 bars per hour. This year, it was to 70,000 toys / 80 workers/ 10 hours = 87.5 toys per hour. The productivity grew by 100* ((87.5 bars per hour - 75 bars per hour)/ 75 bars per hour) = 16.7%.
question
Bertha uses all of the following resources to prepare delicious breakfast meals at her cafรฉ. Which of them is an example of technological knowledge? Funds invested in the establishment. Efficient commercial foodservice equipment that allows an increased number of servings per hour. Kitchen help. Bertha's cooking skills.
Efficient commercial foodservice equipment that allows an increased number of servings per hour. The difference between technological knowledge and human capital is not always obvious as the two resources are closely related. Still, technological knowledge refers to society's understanding about how the world works. Thus technology makes commercial foodservice more efficient and allows to increase productivity. Human capital, however, refers to the resources expended transmitting this understanding to the labor force. Bertha uses the commercial foodservice technology to prepare her unique recipes, which are her human capital.
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Industrial machinery is an example of Natural resource. Physical capital Financial capital. Human capital
Physical capital The stock of equipment and structures used to produce goods and services is called physical capital, or just capital.
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When China experiences investment from abroad, Chinese workers have to protect the domestically developed technology from being copied by richer countries. Chinese workers gain access to the state-of-the-art technologies developed and used in richer countries. It requires more government restrictions on foreign ownership of domestic capital. The wages of Chinese workers fall.
Chinese workers gain access to the state-of-the-art technologies developed and used in richer countries. Investment from abroad is one way for poor countries to learn the state-of-the-art technologies developed and used in richer countries. For these reasons, many economists who advise governments in less developed economies advocate policies that encourage investment from abroad. Often, this means removing restrictions that governments have imposed on foreign ownership of domestic capital.
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Over the last century, which of the following countries had the highest growth rate of real GDP per person? The United Kingdom Japan Mexico China
In 1890-2010, Japan had the growth rate of real GDP of 2.65% per year. However, Japan was not a rich country in the beginning of the period; its standard of living in Japan in 1890 was less than half of that in India today. But because of its spectacular growth, Japan is now an economic superpower, with average income more than twice that of Mexico and Argentina and similar to that of Germany, Canada, and the United Kingdom.
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Other things the same, when an economy increases its saving rate, consumption increases now and production rises later. True False
False ecause resources are scarce, devoting more resources to producing capital requires devoting fewer resources to producing goods and services for current consumption. That is, for society to invest more in capital, it must consume less and save more of its current income. The growth that arises from capital accumulation requires that society sacrifice consumption in the present to enjoy higher consumption in the future. Thus when an economy increases its saving rate, consumption falls now, but production rises late.
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In 1890, Brazil's real GDP per person was only \$62 more than China's. From 1890 to 2010, Brazil experienced 2.65 percent economic growth while China had 2.15 percent. At the end of 2010, Brazil's real GDP per person was \$3,460 more than China's. This shows _____ small differences in growth rates can result in large dollar differences over time. compounding economic growth does not change numerical values. a country with a lower initial real GDP per person will always be lower. Real GDP per person does not change over time.
small differences in growth rates can result in large dollar differences over time. A slightly higher growth rate over 120 years increased a numerical value by almost 6 times. The act of compounding growth can lead to large differences over time, and countries that start lower can catch and even pass other nations over time.
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In 2014, real GDP in an imaginary economy was \$1 billion and the population was 2 million. In 2015, real GDP is \$1.2 billion and the population is the same 2 million. What was the growth rate of real GDP per person during the year? 0.20% 20% -0.20% -20%
In 2014, real GDP per capita was \$1 billion/2 million = \$500. In 2015, it is \$1.2 billion/2 million = \$600. The rate of growth is calculated as 100 * ((GDP per person in 2015 - GDP per person in 2014)/ GDP per person in 2014) = 100*((\$600 - \$500)/ \$500) = 20%.
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Last year real GDP per person in an imaginary economy was \$4,500. This year, it is \$4,900. What was the rate of economic growth over the year? 8.2% 8.9% 9.2% 1.1%
The rate of growth is calculated as 100 * ((GDP per person in the current year - GDP per person last year)/ GDP per person last year) = 100*((\$4,900 - \$4,500)/ \$4,500) = 8.9%.
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A furniture factory uses 10 workers, each working eight hours, to produce 240 computer desks. What is productivity at the factory? 30 desks per hour. 3 desks per worker hour. 240 computer desks. 24 desks per worker.
Productivity at the factory is (240 desks / 10 workers) / 8 hours = 3 desks per worker hour.
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Last year, a toy factory made 60,000 toys employing 80 workers, each of whom worked 8 hours per day. This year, the factory produced 76,500 toys, employing 85 workers, each of whom worked 10 hours per day. What can you say about factory's productivity? Productivity remained the same. Productivity decreased by 4%. Productivity increased by increased by 8.33%. Productivity increased by 4%.
Last year, productivity was 60,000 toys/ 80 workers/ 8 hours = 93.75 toys per hour. This year, it decreased to 76,500 toys / 85 workers/ 10 hours = 90 toys per hour. The productivity changed by 100* ((90 toys per hour - 93.75 toys per hour)/ 93.75 toys per hour) = -4%.
question
Suppose that productivity grew faster in Country A than in Country B, while the population and total hours worked remained the same in both countries. The standard of living must be higher in Country B than in Country A. Real GDP per person grew faster in Country A than in Country B. The standard of living must be the same in both countries. Real GDP per person must be lower in Country A than in Country B.
Real GDP per person grew faster in Country A than in Country B. Both population growth and productivity growth contribute in growth of real GDP. If there is no population growth, whereas productivity grows faster in Country A than in Country B, then real GDP per person must grow faster in Country A than in Country B
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Suppose that the U.S. undertakes a policy to increase its saving rate. This policy will cause a decrease in the growth of real GDP per person for several decades. True False
False Encouraging saving and investment is one way that a government can encourage growth and, in the long run, raise the economy's standard of living. In contrast, lower saving rates, other things the same, lead to lower productivity and lower real GDP per person.
question
In Japan, real GDP per person was \$1,517 in 1890 and \$34,810 in 2010. The growth rate was 2.65% per year. Which of the following is true? 2.65% per year is an average rate of growth for real GDP per person, actual growth each year was much lower. The growth rate of 2.65% per year ignores short-run fluctuations around the long-run trend. 2.65% per year is an average rate of growth for real GDP per person, actual growth each year was much higher. Each year, for 120 years, real GDP per person increased by 2.65%.
The growth rate of 2.65% per year ignores short-run fluctuations around the long-run trend.
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Suppose a European company buys stock of a Chinese toy corporation. This is an example of Brain-drain. foreign portfolio investment. indirect foreign investment. foreign direct investment.
foreign portfolio investment.
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If workers increase the amount of education that they obtain, they increase their _____ natural resources. human capital. physical capital. technology.
human capital Human capital is the knowledge and skills that workers acquire through education, training, and experience.
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A potential downside to a policy that increases investment from abroad is that it _____ decreases human capital. decreases physical capital. decreases natural resources. does not have the same effect on all measures of economic prosperity.
does not have the same effect on all measures of economic prosperity. Investment from abroad increases the capital stock, but income earned from the investment tends to leave the country at a greater rate than domestic investment.
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Public policies pursuing free trade _____ can lead to greater economic growth. only help domestic producers. only help domestic consumers. have nothing to do with business transactions.
can lead to greater economic growth. International trade in goods and services can improve the economic well-being of a country's citizens, both producers and consumers.
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A public policy that increases investment from abroad should _____ decrease future labor productivity. increase future labor productivity because the natural resources per worker increase. increase future labor productivity because it increases the current capital stock. have no effect on future labor productivity.
increase future labor productivity because it increases the current capital stock. When there is an increase in investment from abroad, there is an increase in the current capital stock, which increases future labor productivity.
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When China experiences investment from abroad, productivity rises, however the wages of Chinese workers fall. True False
False Investment from abroad is a way for a country to grow. Even though some of the benefits from this investment flow back to the foreign owners, this investment does increase the economy's stock of capital, leading to higher productivity and higher wages.
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The U. S. government has promoted research and development by _____ sponsoring research and enforcing patent laws. only sponsoring research. only enforcing patent laws. passing a balanced budget amendment.
sponsoring research and enforcing patent laws.
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Which of the following is an example of foreign direct investment? American saving is being used to finance Mexican investment. An American entrepreneur opens and operates a candy factory in Finland. A New York based interior design firm opens a store in San Francisco, CA. In the 1800s, Europeans purchased stock in American companies that used the funds to build railroads and factories.
An American entrepreneur opens and operates a candy factory in Finland.
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When China experiences investment from abroad, China's productivity rises, however the wages of Chinese workers fall. China's productivity and the wages of Chinese workers increase. China's productivity declines, however and the wages of Chinese workers rise. China's productivity and the wages of Chinese workers decrease.
China's productivity and the wages of Chinese workers increase. Investment from abroad is a way for a country to grow. Even though some of the benefits from this investment flow back to the foreign owners, this investment does increase the economy's stock of capital, leading to higher productivity and higher wages.
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What is measured by the level of real GDP divided by hours worked over that year? Nominal GDP per person. Productivity for a given year. Growth rate of real GDP. Real GDP per person.
Productivity for a given year. For a given year, productivity in a particular country is most closely matched with that country's level of real GDP divided by hours worked.
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A public policy that increases education increases labor productivity because it _______ increases human capital. increases physical capital. increases natural resources. decreases human capital.