Chapter 25: Economic Growth and Productivity

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.

A public policy that increases investment from abroad should _____

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

Other things equal, relatively rich countries tend to grow

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

Which of the following can increase both productivity and income?

An increase in the savings rate.

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

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

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.

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. 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.

Over the last century, which of the following countries had the highest growth rate of real GDP per person?

Japan

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.

What is measured by the level of real GDP divided by hours worked over that year?

Productivity for a given year.

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 defines productivity?

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

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

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

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

True

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

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 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

Which of the following describes natural resources?

Wind energy 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.

Promoting political stability _____

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.

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.

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

sponsoring research and enforcing patent laws.

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.

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 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.

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

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.

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

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.

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

Oil Oil is an example of a nonrenewable resource. Because oil is produced by nature over many millions of years, there is only a limited supply.

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.

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 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

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

True Real GDP is adjusted for inflation, whereas nominal GDP is not. Thus, nominal GDP will often appear higher than real GDP.

Public policies pursuing free trade _____

can lead to greater economic growth.

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.

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 compounding.

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.

Rapid population growth

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

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.

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

there is little payoff from the increase.