CHAPTER 17 ECONOMICS PRACTICE QUESTIONS

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 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

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

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

The fact that in Japan, real GDP per person was $1,667 in 1890 and $43,279 in 2017 does not necessarily imply that the growth rate was 2.60% per year. True False

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 False

True

In the United States, real GDP per person was $4,443 in 1870 and $59,532 in 2017. The growth rate was 1.78% per year. Which of the following is true? a. 1.78% per year is an average rate of growth for real GDP per person over many years. b. 1.78% per year is an average rate of growth for real GDP per person, actual growth each year was much higher. c. 1.78% per year is an average rate of growth for real GDP per person, actual growth each year was much lower. d. Each year, for 140 years, real GDP per person increased by 1.78%.

a. 1.78% per year is an average rate of growth for real GDP per person over many years.

Which of the following is measured by the growth rate of real GDP per person? a. Changes in the level of well-being in a country. b. Human capital. c. Foreign direct investment. d. Growth rate of nominal GDP.

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

Promoting political stability _____ a. can lead to greater economic growth. b. decreases economic growth. c. only helps homeowners. d. has nothing to do with business transactions.

a. can lead to greater economic growth.

If Mazda builds a new plant in Illinois, a. in the future, U.S. GDP will rise more than U.S. GNP. b. in the future, U.S. GDP will rise less than U.S. GNP. c. in the future, U.S. GDP and GNP will both fall because some income from this investment will accrue to foreigners. d. there has been an increase in foreign portfolio investment in the United States. e. none of the above is true.

a. in the future, U.S. GDP will rise more than U.S. GNP.

For a given level of technology, we should expect an increase in labor productivity within a nation when there is an increase in each of the following except a. labor. b. human capital per worker. c. natural resources per worker. d. physical capital per worker.

a. labor.

If real income per person in 2018 is $18,073 and real income per person in 2019 is $18,635, what is the growth rate of real income over this period? a. 5.62 percent b. 3.1 percent c. 18.6 percent d. 2.5 percent e. 18.0 percent

b. 3.1 percent

Copper is an example of a. a renewable natural resource. b. a nonrenewable natural resource. c. physical capital. d. technology. e. human capital.

b. a nonrenewable natural resource.

Our standard of living is most closely related to a. our supply of capital because everything of value is produced by machinery. b. our productivity because our income is equal to what we produce. c. our supply of natural resources because they limit production. d. how hard we work.

b. our productivity because our income is equal to what we produce.

A reasonable measure of the standard of living in a country is a. nominal income per person. b. real income per person. c. the growth rate of nominal income per person. d. real income. e. nominal income.

b. real income per person.

Consider the case of Crusoe's economy. Suppose Robinson Crusoe spends two hours to find ten turtle eggs. What is his productivity? a. 10 turtle eggs b. 0.1 hour per turtle egg c. 2 hours d. 5 turtle eggs per hour

d. 5 turtle eggs per hour

Which of the following is an example of foreign portfolio investment? a. A naturalized U.S. citizen, who was originally born in Germany, buys stock in Ford, and Ford uses the proceeds to buy a new plant. b. Toyota builds a new plant in Tennessee. c. Toyota buys stock in Ford, and Ford uses the proceeds to build a new plant in Michigan. d. Ford builds a new plant in Michigan. e. None of the above is an example of foreign portfolio investment.

c. Toyota buys stock in Ford, and Ford uses the proceeds to build a new plant in Michigan.

Thomas Malthus argued that a. technological progress will continuously generate improvements in productivity and living standards. b. labor is the only true factor of production. c. an ever-increasing population is constrained only by the food supply, resulting in chronic famines. d. private charities and government aid will improve the welfare of the poor. e. none of the above is true.

c. an ever-increasing population is constrained only by the food supply, resulting in chronic famines.

When a nation has very little income per person, a. it is doomed to being relatively poor forever. b. it must be a small nation. c. it has the potential to grow relatively quickly due to the "catch-up effect." d. an increase in capital will likely have little impact on output. e. none of the above is true.

c. it has the potential to grow relatively quickly due to the "catch-up effect."

Which of the following describes an increase in technological knowledge? a. A farmer buys another tractor. b. A farmer hires another day laborer. c. A farmer sends his child to agricultural college, and the child returns to work on the farm. d. A farmer discovers that it is better to plant in the spring rather than in the fall.

d. A farmer discovers that it is better to plant in the spring rather than in the fall.

Which of the following statements regarding the impact of population growth on productivity is true? a. There is no evidence yet that rapid population growth stretches natural resources to the point that it limits growth in productivity. b. Rapid population growth may dilute the capital stock, lowering productivity. c. Rapid population growth may promote technological progress, increasing productivity. d. All of the above are true.

d. All of the above are true.

Which of the following expenditures to enhance productivity is most likely to emit a positive externality? a. Megabank buys a new computer. b. Exxon leases a new oil field. c. General Motors buys a new drill press. d. Susan pays her college tuition.

d. Susan pays her college tuition

The opportunity cost of growth is a. a reduction in current investment. b. a reduction in taxes. c. a reduction in current saving. d. a reduction in current consumption.

d. a reduction in current consumption.

To increase growth, governments should do all of the following except a. promote free trade. b. encourage foreigners to invest in your country. c. encourage saving and investment. d. nationalize major industries. e. encourage research and development.

d. nationalize major industries.

China, Japan, and Brazil are growing very quickly because a. they have always been wealthy and will continue to be wealthy, which is known as the "snowball effect." b. they have enormous natural resources. c. they are imperialists and have collected wealth from previous victories in war. d. they save and invest an unusually high percentage of their real income.

d. they save and invest an unusually high percentage of their real income.

Which of the following statements is true? a. Countries have great variance in both the level and growth rate of income per person; thus, poor countries can become relatively rich over time. b. Countries may have a different level of income per person, but they all grow at the same rate. c. Countries all have the same growth rate and level of output because any country can obtain the same factors of production. d. Countries may have a different growth rate, but they all have the same level of income per person.

a. Countries have great variance in both the level and growth rate of income per person; thus, poor countries can become relatively rich over time.

If a production function exhibits constant returns to scale, a. doubling all of the inputs doubles output. b. doubling all of the inputs has absolutely no impact on output because output is constant. c. doubling all of the inputs less than doubles output due to diminishing returns. d. doubling all of the inputs more than doubles output due to the catch-up effect.

a. doubling all of the inputs doubles output.

Madelyn goes to college and reads many books while at school. Her education increases which of the following factors of production? a. human capital b. physical capital c. natural resources d. technology e. All of the above would be increased.

a. human capital

Which of the following government policies is least likely to increase growth in Africa? a. increase expenditures on public education b. increase restrictions on the importing of Japanese automobiles and electronics c. eliminate civil war d. reduce restrictions on foreign capital investment e. All of the above would increase growth.

b. increase restrictions on the importing of Japanese automobiles and electronics

Once a country is wealthy, a. it is nearly impossible for it to become relatively poorer. b. it may be harder for it to grow quickly because of the diminishing returns to capital. c. capital becomes more productive due to the "catch-up effect." d. it no longer needs any human capital. e. none of the above is true.

b. it may be harder for it to grow quickly because of the diminishing returns to capital