chapter 6 (part 4)

) If the saving rate increases, a countryʹs growth rate of real GDP per hour of labor ________ and capital per hour of labor ________. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases

A) increases; increases

Ongoing economic growth in real GDP per person requires all of the following except ________. A) investment in human capital B) the discovery of new technologies C) saving and investment in new capital D) population growth

D) population growth

Neoclassical growth theory predicts that A) population growth rates slow as employment opportunities for women increase. B) population explosions decrease real GDP per person. C) economic growth leads to technological change. D) the pursuit of profit creates perpetual growth.

A) population growth rates slow as employment opportunities for women increase.

Which of the following is consistent with classical growth theory? A) Real GDP per person will increase because technological change induces investment. B) Real GDP per person will never permanently increase. C) Competition destroys innovation and decreases profit. D) As real GDP increases, there will be a decrease in the rate of population growth.

B) Real GDP per person will never permanently increase.

Which theory emphasizes the significance of new discoveries that can be used by many people at the same time? A) neoclassical growth theory B) new growth theory C) classical growth theory D) None of the above answers are correct

B) new growth theory

The growth theory that predicts perpetual economic growth is A) classical growth theory. B) neoclassical growth theory. C) the new growth theory. D) real growth theory.

C) the new growth theory.

A factor that turned out to be a weakness of the classical theory of growth is its A) emphasis on saving and investment. B) assumption that the growth rate of the population increases when income increases. C) reliance on constant growth in technology. D) neglect of the subsistence real wage.

B) assumption that the growth rate of the population increases when income increases.

New growth theory predicts that A) economic growth is only temporary. B) economic growth can last indefinitely. C) economic growth is eroded by changes in taxes. D) government policies can do nothing to foster increased growth.

B) economic growth can last indefinitely.

Classical growth theory states that A) growth is maximized when everyone is fully employed. B) growth is followed by increases in the population, eventually leaving real GDP per person unchanged. C) growth in real GDP per person is difficult in the beginning but easier in the later stages. D) advances in technology will always insure a permanent increase in real GDP per person.

B) growth is followed by increases in the population, eventually leaving real GDP per person unchanged.

Economic growth tends to be higher in a country that A) has a low savings rate. B) has an economy open to international trade. C) has an undeveloped system of property rights. D) does not grant patents to inventors.

B) has an economy open to international trade

A problem with the neoclassical growth theory is its A) prediction that population growth lowers the real wage rate. B) inability to explain persistent differences between countriesʹ GDP growth rates. C) prediction that population growth raises the real wage rate. D) comparison of the economy to a perpetual motion machine.

B) inability to explain persistent differences between countriesʹ GDP growth rates.

According to new growth theory ________. A) ever-advancing productivity keeps the population growth rate high B) knowledge does not experience diminishing returns C) growth rates and income levels per person around the globe will converge D) knowledge is subject to the law of diminishing returns

B) knowledge does not experience diminishing returns

Which of the following will NOT work to increase the rate of economic growth? A) increase saving B) limit competition from international trade C) improve the quality of education D) All of the above will work to increase the rate of economic growth

B) limit competition from international trade

According to empirical evidence, A) providing international aid to developing nations stimulates economic growth. B) providing international aid to developing nations does not have a positive effect on economic growth. C) international trade stimulates economic growth in richer nations, but actually slows economic growth in developing economies. D) international trade stimulates economic growth in developing economies, but actually slows economic growth in richer nations.

B) providing international aid to developing nations does not have a positive effect on economic growth.

An important foundation of the new growth theory is that A) we will get more technological advances the more the government is involved in deciding which technology to pursue. B) we will get more technological advances the greater the rewards people receive from making technological advances. C) the growth rate of the capital stock is more important than the growth rate of new knowledge in generating economic growth. D) improvements in labor productivity are poor measures of technological growth.

B) we will get more technological advances the greater the rewards people receive from making technological advances.

Which growth theory models growth as a perpetual motion machine? A) new growth theory B) classical growth theory C) neoclassical growth theory D) all growth theories model growth as a perpetual motion machine

A) new growth theory

Which theory of economic growth concludes that growth can continue indefinitely? A) the classical theory B) the neoclassical theory C) the new theory D) all of the theories

C) the new theory

Which theory of economic growth concludes that in the long run real GDP per person will be at its subsistence level? A) the classical theory B) the neoclassical theory C) the new theory D) all of the theories

C) the new theory

Which of the following statements is CORRECT? I. Higher savings rates can stimulate economic growth. II. Limiting international trade can stimulate economic growth. A) I only B) II only C) both I and II D) neither I nor II

A) I only

________ predicts that real GDP per person can grow indefinitely. A) New growth theory B) Classical growth theory C) Profit growth theory D) Neoclassical growth theory

A) New growth theory

To achieve faster growth, one possibility is to tax A) consumption. B) saving. C) hiring. D) immigration

A) consumption.

A country would achieve faster growth by ________. A) encouraging free trade B) increasing the cost of education C) increasing union membership D) taxing income and not consumption

A) encouraging free trade

According to the neoclassical growth theory, A) increases in labor productivity are only temporary. B) technological change depends on peopleʹs choices. C) forces other than GDP growth determine population growth. D) higher saving rates generate permanently faster growth in GDP per person

C) forces other than GDP growth determine population growth.

New growth theory assumes that A) all inputs experience diminishing returns. B) only random technological advances produce growth. C) knowledge does not experience diminishing returns. D) None of the above answers is correct.

C) knowledge does not experience diminishing returns.

Which growth theory predicts perpetual growth? A) classical growth theory B) neoclassical growth theory C) new growth theory D) None of the above answers is correct.

C) new growth theory

A key feature of the new growth theory is the assumption of A) diminishing returns to labor. B) diminishing returns to knowledge. C) no diminishing returns to knowledge. D) no diminishing returns to labor.

C) no diminishing returns to knowledge.

Which of the following policies improves prospects for more rapid economic growth? A) policies to increase government expenditure B) limitations on international trade C) policies to increase the educational attainment of the labor force D) encouragement of political instability

C) policies to increase the educational attainment of the labor force

Which of the following is consistent with the classical theory of growth? A) permanent increases in real wages B) permanent growth in productivity C) rapid population growth in poor countries D) permanent increases in living standards

C) rapid population growth in poor countries

The classical model of Malthus predicted that economies would A) continue to grow indefinitely. B) experience rapid technological progress. C) reach a state where the growth of real GDP per person stopped. D) experience significant productivity growth

C) reach a state where the growth of real GDP per person stopped.

New growth theory A) dates from the 18th century. B) concludes that economic growth is temporary. C) states that economic growth arises from peopleʹs choices. D) asserts that population growth is the source of economic growth.

C) states that economic growth arises from peopleʹs choices.

One policy that would increase the saving rate would be A) raising taxes on the returns to saving. B) raising taxes on the returns to investment. C) taxing consumption. D) raising taxes on saving.

C) taxing consumption.

Neoclassical growth theory is based on the proposition that real GDP per person grows when A) the population growth rate increases. B) the population growth rate decreases. C) technological advances occur. D) saving decreases.

C) technological advances occur.

In the neoclassical theory of growth, growth in ________ is the result of luck. A) saving B) income C) technology D) the real interest rate

C) technology

Classical growth theory proposes that real GDP growth is ________ and that real GDP per person will ________ the subsistence level. A) permanent; temporarily be above B) permanent; always be above C) temporary; temporarily be above D) temporary; be above and below

C) temporary; temporarily be above

The notion that technological change is not random but instead is driven by the pursuit of profits is an essential element of A) classical growth theory. B) neoclassical growth theory. C) the new growth theory. D) perpetual growth theory

C) the new growth theory.

Which of the following is NOT associated with the new growth theory? A) natural resources B) research C) technology D) innovation

A) natural resources

In neoclassical growth theory, technological change ________. A) occurs by chance B) is influenced by population growth C) is influenced by the rate of economic growth D) occurs at a steady rate

A) occurs by chance

Neoclassical growth theory attributes economic growth to A) technological change. B) fiscal policy. C) the law of diminishing returns. D) increasing population growth.

A) technological change

An assumption of neoclassical growth theory is that A) technological change is random. B) technological change can be influenced by savings. C) more growth encourages more technological change. D) None of the above answers is correct.

A) technological change is random.

An assumption of classical growth theory is that when ________ the population growth rate ________. A) real GDP per person exceeds the subsistence level; increases B) people become more skilled; decreases C) the real wage rate falls; increases D) saving declines; decreases

A) real GDP per person exceeds the subsistence level; increases

According to the new growth theory, competition A) reduces profit. B) increases profit. C) has no impact on real profit, only nominal profit. D) is only theoretical because all firms are growing at some rate

A) reduces profit.

Neoclassical growth theory A) predicts that growth rates and incomes per person throughout the world will converge. B) predicts that the faster growing underdeveloped nations will overtake and then surpass the industrial nations. C) predicts that nations that enjoy a technological advantage will maintain that advantage. D) makes no predictions about the relative growth or incomes among countries.

A) predicts that growth rates and incomes per person throughout the world will converge.

Several factors are important for achieving faster economic growth. Which of the following is one of those factors? A) expansion of international trade B) increased government expenditure C) increased taxes on saving D) promotion of consumption expenditure

A) expansion of international trade

Classical growth theory asserts that A) growth in real GDP per person is temporary. B) only some countries can have economic growth. C) real GDP growth will eventually be a constant 3 percent per year. D) nominal GDP growth is most important.

A) growth in real GDP per person is temporary.

Within neoclassical growth theory, technological change ________ saving and ________ investment. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases

A) increases; increases

All of the following lead to more rapid economic growth EXCEPT A) restricting international trade. B) encouraging higher rates of saving. C) supporting more research and development. D) encouraging higher quality education.

A) restricting international trade.

activities that encourage faster growth are A) investment in new capital and human capital. B) high levels of consumption and low levels of savings. C) taxes on saving that serve to encourage more spending and less saving. D) developing trade barriers to protect national industries.

A) investment in new capital and human capital.

A higher saving rate leads to faster growth because A) more saving produces greater additions to capital per hour of labor, raising real GDP per person. B) capital would wear out faster. C) people could consume more of an economyʹs output. D) population growth would accelerate.

A) more saving produces greater additions to capital per hour of labor, raising real GDP per person.

New growth theory economists believe that: I. Economic growth can continue as long as we keep finding new ideas. II. The marginal product of capital diminishes very rapidly, so we must rely upon technological advances to create economic growth. A) I only B) II only C) both I and II D) neither I nor II

A) I only

Which one of the following statements about growth theories is correct? A) In the new growth theory, knowledge is not subject to diminishing returns. B) In neoclassical growth theory, technological progress is the result of rapid increases in saving and investment in capital per person. C) In classical growth theory, real GDP per person is unrelated to the subsistence real GDP. D) In classical growth theory physical resources are unlimited.

A) In the new growth theory, knowledge is not subject to diminishing returns.

What best explains why real GDP per person is always driven to the subsistence level in the classical model? A) Population growth occurs, increasing the supply of labor. B) Population growth occurs, shifting the labor supply curve leftward. C) Growth is not possible so the demand for labor never changes. D) Investment in capital decreases labor demand, decreasing the demand for labor.

A) Population growth occurs, increasing the supply of labor.

) Neoclassical growth theory predicts that A) advances in technology increase the productivity of capital, which leads to an increase in investment and rising real GDP per person. B) advances in technology are a result of discoveries motivated by the pursuit of profits. C) growth in real GDP can increase without any increase in investment. D) growth in real GDP can continue indefinitely.

A) advances in technology increase the productivity of capital, which leads to an increase in investment and rising real GDP per person.

Savings is an important factor influencing economic growth because saving A) can finance new investment and capital formation. B) helps the economy maintain the current level of total expenditures when a recession begins. C) provides a fund for wages needed from any unexpected population growth. D) All of the above answers are correct.

A) can finance new investment and capital formation.

The view that population growth occurs when real GDP per person exceeds the amount necessary to sustain life is part of the ________. A) classical growth theory B) modern theory of population growth C) neoclassical growth theory D) new growth theory

A) classical growth theory

Which of the following predicts that there can be no sustained rise in real GDP per person above the subsistence level? A) classical growth theory B) neoclassical growth theory C) new growth theory D) None of the above because all predict that there will be a sustained rise above the subsistence level.

A) classical growth theory

Population increases are the limiting factor in the growth process in A) classical growth theory. B) neoclassical growth theory. C) the new growth theory. D) real growth theory.

A) classical growth theory.

All of the following would stimulate economic growth EXCEPT A) decreasing taxes on consumption (for instance, decreasing a sales taxes) and increasing income taxes. B) subsidizing basic research. C) decreasing tuition charges at state universities. D) encouraging international trade.

A) decreasing taxes on consumption (for instance, decreasing a sales taxes) and increasing income taxes.

New growth theory proposes that real GDP per person grows because of ________ and that growth ________. A) the pursuit of profit; can persist indefinitely B) productivity shocks; can persist indefinitely C) technological change; can only increase above the subsistence level temporarily D) productivity shocks; occurs randomly

A) the pursuit of profit; can persist indefinitely

) Which of the following ideas are included in classical growth theory? I. Subsistence real GDP per person II. Growth in real GDP per person is temporary. III. Technological change induces investment. A) I only B) I and II C) II and III D) I, II and III

B) I and II

An assumption of the neoclassical theory of growth is that A) people receive only subsistence real GDP per person. B) all technological advances are the result of chance. C) the marginal product of all types of capital increases as more capital is accumulated. D) knowledge has diminishing returns.

B) all technological advances are the result of chance.

The assumption that population growth will lead to a fall in real GDP per person rate back to subsistence level is A) accepted by all economists today. B) associated with Malthusians. C) part of the neoclassical school of growth theory. D) central to the new growth theory.

B) associated with Malthusians.

A central proposition of the new growth theory is that A) growth will cease but prosperity will persist. B) knowledge is not subject to diminishing returns. C) government direction and oversight is necessary for consistent growth. D) growth is often just an illusion fostered by growth accounting.

B) knowledge is not subject to diminishing returns.

According to the new growth theory A) the rate of technological progress is determined by chance. B) knowledge is not subject to diminishing returns. C) the labor demand curve does not shift rightward over time. D) the concept of a labor market is not necessary

B) knowledge is not subject to diminishing returns.

According to neoclassical growth theory, the higher real GDP per person from economic growth will A) not last because the population will increase. B) last because there is no link between growth and population. C) last indefinitely regardless of any other factor. D) last as long as technological change continues

B) last because there is no link between growth and population

Classical growth theory argues that when real GDP per person rises above the subsistence level, A) technological change slows down, stagnating the economy. B) population growth increases, driving real GDP per person back to subsistence level. C) people donʹt want to work as much, decreasing labor supply. D) the economy enjoys a period of permanent growth.

B) population growth increases, driving real GDP per person back to subsistence level.

Neoclassical growth theory proposes that A) technological progress increases the population growth rate and drives down real wages. B) real GDP per person grows because technological change increases profit opportunities. C) real GDP growth is caused by growth in the population. D) discoveries result from choices that increase profits.

B) real GDP per person grows because technological change increases profit opportunities.

Classical economists believed that A) real GDP per person would rise above its subsistence level in the long run. B) real GDP per person would never rise above its subsistence level in the long run. C) the demand for labor increases when the population increases. D) population growth decreases as real GDP per person rises.

B) real GDP per person would never rise above its subsistence level in the long run.

Which of the following has NOT been one of the primary sources of economic growth over the last 200 years? A) investment in new capital B) resource conservation C) investment in human capital D) discoveries of new technology

B) resource conservation

The neoclassical growth theory says, in part, that A) a population explosion driven by economic growth will end economic growth. B) technological change leads to economic growth. C) the differences in nationʹs growth rates will persist indefinitely. D) technology does not play a role in economic growth.

B) technological change leads to economic growth.

Which of the following is associated with classical growth theory? I. Growth in real GDP can continue indefinitely. II. Technological growth increases as the population grows. III. Population explosions bring real GDP per person back to subsistence levels. A) I B) II C) III D) I and III

C) III

A key assumption of new growth theory is that A) all technological change is the result of luck. B) higher incomes lead to a higher birth rate. C) a successful innovator has the opportunity to earn a temporary, above-average profit. D) the population growth rate is lower than the real interest rate.

C) a successful innovator has the opportunity to earn a temporary, above-average profit.

Which of the following ideas apply to the neoclassical growth theory? I. Technological change results from chance. II. Growth in real GDP stops if technology stops advancing. A) I only B) II only C) both I and II D) neither I nor II

C) both I and II

All of the following would increase the growth rate of the economy EXCEPT A) raising the saving rate. B) stimulating research and development. C) discouraging international trade. D) None of the above answers is correct because they all would increase the growth rate.

C) discouraging international trade.

Which of the following ideas apply to the neoclassical growth theory? I. The rate of technological change influences the rate of economic growth. II. Technological change promotes saving and investment. III. Convergence of economic growth rates across countries. A) I only B) III only C) I and II D) I, II and III

D) I, II and III

Which of the following policy actions could speed productivity growth? I. Tax incentives to encourage saving. II. Encouraging international trade. III. Directing public funds toward financing basic research. A) II only. B) I and III. C) I only. D) I, II, and III.

D) I, II, and III.

The relationship between education and economic growth can best be summarized by saying that A) educated people are less apt to consume goods that deplete economic resources, which encourages economic growth. B) educational expenditures tend to divert funds from productive investments, which discourages economic growth. C) educational expenditures tend to be inflationary, which discourages economic growth. D) education has benefits beyond those who receive the education, which encourages economic growth.

D) education has benefits beyond those who receive the education, which encourages economic growth.

Neoclassical growth theory predicts that Chinaʹs economic growth rate will ________. A) decrease when the interest rate increases B) continue at around 10 percent a year C) always remain above the U.S. economic growth rate D) eventually converge to the U.S. economic growth rate.

D) eventually converge to the U.S. economic growth rate.

According to new growth theory, technological change is driven by A) random chance. B) government policies. C) foreign firmsʹ attempts to increase their sales in the domestic market. D) firmsʹ attempts to increase their profit.

D) firmsʹ attempts to increase their profit.

According to the classical growth theory of Thomas Malthus, A) labor productivity increases continuously. B) the population growth rate is fixed. C) technological advances lead to permanent increases in real GDP per person. D) increases in real GDP per person are only temporary.

D) increases in real GDP per person are only temporary

Neoclassical growth theory assumes that technological progress A) is determined by investment. B) is determined by saving. C) responds to economic incentives. D) is a purely chance event.

D) is a purely chance event.

Classical growth theory asserts that A) an increase in the labor supply raises real wage rates. B) the economy can grow indefinitely. C) real wage rates fall over time and, as they fall, they increase the population growth rate. D) population growth is determined by the level of real GDP per person.

D) population growth is determined by the level of real GDP per person.

Because of the choices people make in the pursuit of profit, new growth theory argues that A) technology growth slows down in the long-run. B) population growth increases will bring real GDP per person back to subsistence level. C) the capital stock experiences diminishing returns. D) the economy can enjoy persisting economic growth.

D) the economy can enjoy persisting economic growth.