ECN 222 Homework 3

Accumulating capital

requires that society sacrifice consumption goods in the present

Which of the following is consistent with the catch-up effect?

All of the above are correct. ( The United States had a higher growth rate before 1900 than after. After World War II the United States had lower growth rates than war-ravaged European countries. Although the United States has a relatively high level of output per person, its growth rate is rather modest compared to some countries. )

Refer to Figure 25-1. The shape of the curve is consistent with which of the following statements about the economy to which the curve applies?

All of the above are correct. (In the long run, a higher saving rate leads to a higher level of productivity. In the long run, a higher saving rate leads to a higher level of income. In the long run, a higher saving rate leads to neither a higher growth rate of productivity nor a higher growth rate of income.)

Which of the following is a determinant of productivity?

All of the above are correct. (human capital per worker, physical capital per worker, natural resources per worker)

Investment from abroad

All of the above are correct. (is a way for poor countries to learn the state-of-the-art technologies developed and used in richer countries. is viewed by economists as a way to increase growth. often requires removing restrictions that governments have imposed on foreign ownership of domestic capital. )

Which of the following would increase productivity?

All of the above are correct.( an increase in the physical capital stock per worker, an increase in human capital per worker, an increase in natural resources per worker)

Refer to Figure 25-1. The shape of the curve is consistent with which of the following statements about the economy to which the curve applies?

Returns to capital become increasingly smaller as the amount of capital per worker increases.

Workland has a population of 10,000, of whom 7,000 work 8 hours a day to produce a total of 224,000 final goods. Laborland has a population of 5,000, of whom 3,000 work 7 hours a day to produce a total of 105,000 final goods.

Workland has lower productivity but higher real GDP per person than Laborland.

Refer to Figure 25-1. The curve becomes flatter as the amount of capital per worker increases because of

diminishing returns to capital.

Foreign saving is used for domestic investment when foreigners engage in

either foreign direct investment or foreign portfolio investment.

Other things equal, relatively poor countries tend to grow

faster than relatively rich countries; this is called the catch-up effect.

In recent decades Americans have increased their purchase of stocks of foreign-based companies. The Americans who have bought these stocks were engaged in

foreign portfolio investment.

Inward-oriented policies

include imposing tariffs and other trade restrictions.

On a production function, as capital per worker increases, output per worker

increases. This increase is smaller at larger values of capital per worker.

The slope of the production function with capital per worker on the horizontal axis and output per worker on the vertical axis

is positive and gets flatter as capital per worker rises.

The catch-up effect refers to the idea that

it is easier for a country to grow fast and so catch-up if it starts out relatively poor.

Which of the following is an example of human capital?

knowledge learned from reading books

Which of the following is an example of a renewable natural resource?

lumber

An increase in capital will increase real GDP per person

more in a poor country than a rich country. The increase in real GDP per person will be the same whether the addition to capital is from domestic or foreign investment.

The logic behind the catch-up effect is that

new capital adds more to production in a country that doesn't have much capital than in a country that already has much capital.

Which of the following is an example of physical capital?

the equipment in a factory

Refer to Figure 25-1. Choose a point anywhere on the curve and call it point A. If the economy is at point A in 2011, then it will definitely remain at point A in 2012 if, between 2011 and 2012,

the quantity of physical capital doubles; the number of workers doubles; and human capital, natural resources, and technology remain constant.