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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

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.

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.

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 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.

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.

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

) 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

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.

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

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.

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.

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

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.

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.

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

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.

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

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

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.

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.

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 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

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.

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

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.

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 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

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.

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.

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

________ 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

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.

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

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

A) natural resources

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

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.

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.

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.

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 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

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.


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