Ch 25

Rapid population growth

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

Other things equal, relatively rich countries tend to grow

slower than relatively poor countries due to the catch-up effect.

Other things the same, when an economy increases its saving rate, consumption increases now and production rises later.

false

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.

false

The U. S. government has promoted research and development by _____

sponsoring research and enforcing patent laws.

Which of the following is an example of foreign direct investment?

An American entrepreneur opens and operates a candy factory in Finland.

Which of the following can increase both productivity and income?

An increase in the savings rate.

Bertha uses all of the following resources to prepare delicious breakfast meals at her café. Which of them is an example of human capital?

Bertha's unique recipes.

Which of the following is measured by the growth rate of real GDP per person?

Changes in the level of well-being in a country.

Which of the following countries achieved higher economic growth, in part by mandating a reduction in population growth?

China

When China experiences investment from abroad,

Chinese workers gain access to the state-of-the-art technologies developed and used in richer countries.

Which of the following is an example of foreign portfolio investment?

In the 1800s, Europeans purchased stock in American companies that used the funds to build railroads and factories.

Which of the following is an example of a nonrenewable resource?

Oil.

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 real GDP per worker will be higher in the country that started with less capital per worker.

Industrial machinery is an example of

Physical capital

Suppose over the past decade, Country A had a higher population growth and productivity growth than Country B.

Real GDP in Country A grew faster than in Country B.

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.

Real GDP per person grew more slowly in Country A than in Country B.

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 small quantity of capital, giving them an additional unit of capital increases their productivity by a relatively large amount.

Which of the following describes natural resources?

Wind energy.

An increase in a country's population may contribute to the rate of technological progress because a larger population

brings with it more scientists, inventors, and engineers.

Promoting political stability _____

can lead to greater economic growth.

Public policies pursuing free trade _____

can lead to greater economic growth.

Other things the same, an increase in population growth

decreases capital per worker. However, there is some evidence that a higher population growth rate may increase the pace of technological progress.

A potential downside to a policy that increases investment from abroad is that it _____

does not have the same effect on all measures of economic prosperity.

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

false

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.

false

In 1870, the United States was the richest country in the world.

false

In the late 1800's, Japan was the richest country in the world.

false

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.

false

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.

false

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

false

When China experiences investment from abroad, productivity rises, however the wages of Chinese workers fall.

false

Suppose a European firm opens a new toy factory in China. This is an example of

foreign direct investment.

If workers increase the amount of education that they earn, they increase their _____

human capital.

A public policy that increases investment from abroad should _____

increase future labor productivity because it increases the current capital stock.

Increasing health and nutrition in less developed nations will most likely _____

increase labor productivity.

A public policy that increases education increases labor productivity because it _______

increases human capital.

The public policy of promoting research and development increases economic growth by _____

leading to technological advances.

A domestic downside to a policy that increases education is that _______

people must forgo current wages to invest in education.

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.

Japan's status as a rich nation is attributable to international trade, but not to Japan's domestic quantities of natural resources.

true

Real GDP per person more accurately measures a nation's standard of living than nominal GDP per person.

true

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

The growth that arises from capital accumulation requires that society sacrifice consumption goods and services now in order to enjoy more consumption in the future.

true

The historic data show that the world's richest countries have no guarantee they will stay the richest.

true

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

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

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.

Which of the following is correct?

Economists argue that outward rather than inward policies are likely to promote economic growth.

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?

Friday is more productive than Robinson.

Bertha uses all of the following resources to prepare delicious breakfast meals at her café. Which of them is an example of physical capital?

Furniture and appliances.

Which of the following describes natural resources?

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

The president of Suldinia, a developing country, proposes that his country needs to help domestic firms by reducing trade restrictions.

These are outward-oriented policies and most economists believe they would have beneficial effects on growth in Suldinia.

Which of the following is an accurate explanation of why the average American today is "richer" than the richest American 100 years ago?

Tremendous technological advances.

The downside of pursuing a policy that increases saving and investment is _____

that current consumption of goods and services decreases.

For a developed nation, a downside of public policy that increases health and nutrition is that _____

there is little payoff from the increase.

An economy which consumes only what it produces has the standard of living that is tied to productivity.

true

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

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