Econ 102 chapter 7

If the quantity of capital per worker in the economy increases A) labor productivity increases. B) the stock of human capital necessarily increases. C) the stock of financial assets held by the public increases. D) the amount of money held by workers increases.

40 A) labor productivity increases.

41) Labor productivity, real GDP per labor hour, increases if A) there is an increase in the accumulation of human capital. B) new technologies are continuously discovered. C) saving and investment cause an increase in the quantity of capital per worker. D) All of the above answers are correct.

41 D) All of the above answers are correct.

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

42 B) new growth theory

The aggregate production function is graphed as A) an upward sloping line that becomes steeper as the quantity of labor increases. B) an upward sloping line that becomes flatter as the quantity of labor increases. C) an upward sloping straight line. D) a downward sloping curve.

14 B) an upward sloping line that becomes flatter as the quantity of labor increases.

In 2011, Armenia had a real GDP of $4.21 billion and a population of 2.98 million. In 2012, real GDP was $4.59 billion and population was 2.97 million. What was Armenia's economic growth rate from 2011 to 2012? A) 9.0 percent B) 0.38 percent C) 3.8 percent D) 8.3 percent

1. A

Real GDP grows when: I. the quantities of the factors of production grow. II. persistent advances in technology make factors of production increasingly productive. III. human capital grows. A) only I B) both I and III C) only II D) I, II, and III

10. D) I, II, and III

A decrease in population shifts the A) labor supply curve rightward. B) labor supply curve leftward. C) labor demand curve rightward. D) labor demand curve leftward.

15 B) labor supply curve leftward.

If the nation's capital stock increases so that workers become more productive, the A) supply of labor will increase. B) demand for labor will decrease. C) supply of labor will decrease. D) demand for labor will increase.

16 D) demand for labor will increase.

In the labor market, an increase in labor productivity ________ the real wage rate and ________ the level of employment. A) lowers; decreases B) raises; decreases C) lowers; increases D) raises; increases

17 D) raises; increases

Human capital is A) the saving done by human beings. B) the investment people make in industries that make capital goods. C) a measure of the labor productivity of workers. D) people's knowledge and skills.

31 D) people's knowledge and skills.

A worker's stock of knowledge is known as A) human capital. B) monetary capital. C) financial capital. D) physical capital.

32 A) human capital.

An increase in saving that leads to more capital accumulation ________ labor productivity. A) increases B) decreases C) does not change D) probably changes but in an ambiguous direction

33 A) increases

An increase in education and training A) increases the employment-to-population ratio. B) decreases real GDP growth. C) increases labor productivity. D) increases aggregate hours.

34 C) increases labor productivity.

Moving along the aggregate production function shows the relationship between ________, holding all else constant. A) labor input and real GDP B) labor input, capital input and real GDP C) technology and real GDP D) capital input and real GDP

11 A) labor input and real GDP

The quantity of labor supplied depends on the A) price of output not the money wage rate nor the real wage rate. B) money wage rate not the real wage rate. C) real wage rate not the money wage rate. D) level of profits.

12 C) real wage rate not the money wage rate.

Which of the following is NOT an important factor affecting growth in labor productivity? A) the growth rate of physical capital B) the saving rate C) the growth rate of labor productivity D) the speed with which prices fall

35 D) the speed with which prices fall

The more education that workers have, the ________ is their human capital and the ________ is their productivity. A) smaller; smaller B) smaller; higher C) larger; higher D) larger; smaller

36 C) larger; higher

All of the following contribute to labor productivity growth EXCEPT A) population growth. B) technological advancements. C) human capital growth. D) physical capital growth.

37 A) population growth.

The Industrial Revolution in England in large was the result of A) growth in human capital. B) population growth. C) technological innovations that were financed mainly by government spending. D) technological innovations encouraged by the patent system.

38 D) technological innovations encouraged by the patent system.

39) Which of the following does NOT increase labor productivity? A) physical capital growth B) increases in aggregate hours C) human capital growth D) technological advances

39 B) increases in aggregate hours

Using the Rule of 70, if the country of Huttodom's current growth rate of real GDP per person was 10 percent a year, how long would it take the country's real GDP per person to double? A) 7 years B) 20 years C) 10 years D) 0.7 years

4 A) 7 years

When labor productivity increases, the demand for labor curve ________ and the supply of labor curve ________. A) shifts rightward; does not shift B) shift s leftward; does not shift C) shifts rightward; shifts rightward D) shifts leftward; shifts rightward

13 A) shifts rightward; does not shift

effects of population on GDP (also graph)

An increase in population increases the supply of labor. With no change in the demand for labor, the equilibrium real wage rate falls and aggregate hours decrease. As aggregate hours increase, potential GDP increases.

reasons for growth in supply of labor

Average hours per worker Employment to population ratio The working age population growth.

growth theories

Classical growth theory neoclassical new growth theory

economic growth rate

is the annual percentage change of real GDP. It tells us how rapidly the total economy is expanding.

aggregate labor market

is the demand for labor shows the quality of labor demanded and the real wage rate. The real wage rate is the money wage rate divided by the price level.

labor productivity

is the quantity of real GDP produced by an hour of labor. Labor productivity equals the real GDP / aggregate labor hours. If labor becomes more productive, firms are willing to pay more for a given number of hours so the demand for labor increases.

Potential GDP

is the quantity of real GDP produced when the quality of labor employed is the full-employment quality. To determine real GDP we use. The quantity of real GDP produced when the economy is at full employment is potential GDP.

Economic growth

is the sustained expansion of production possibilities measured as the increase in real GDP over a given period. Economic growth occurs when real GDP increases. However, a one shot increase does not count. Economic growth is the sustained, year-on-year increase of potential GDP.

aggregate production function

tells us how real GDP changes as the quantity of labor changes when all other influences on the production remain the same. An increase in labor increases real GDP.

The real wage rate will fall if the A) labor demand curve shifts rightward and the labor supply curve does not shift. B) labor supply curve shifts leftward and the labor demand curve does not shift. C) labor demand curve shifts rightward more than the labor supply curve shifts rightward. D) labor supply curve shifts rightward and the labor demand curve does not shift.

18 D) labor supply curve shifts rightward and the labor demand curve does not shift.

As labor increases, there is a A) movement along the aggregate production function, but no shift in it. B) movement along the aggregate production function and real GDP will increase less with each additional increase in labor. C) movement along the aggregate production function and real GDP will decrease less with each additional increase in labor. D) shift of the aggregate production function, but no movement along it.

19 B) movement along the aggregate production function and real GDP will increase less with each additional increase in labor.

In 2016, Armenia had a real GDP of approximately $4.21 billion and a population of 2.98 million. In 2017, real GDP was $4. 59 billion and population was 2.97 million. From 2016 to 2017, Armenia's standard of living A) decreased. B) increased. C) did not change. D) might have increased, decreased, or remained unchanged but more information is needed to determine which.

2 B) increased.

If real GDP is $13,000 billion and aggregate hours are 270 billion, labor productivity equals A) $6.50 per hour. B) $45 per hour. C) $650 per hour. D) $48 per hour.

20 D) $48 per hour.

An advance in technology will A) not shift the production function but will lead to a movement down along the production function. B) not shift the production function but will lead to a movement up along the production function. C) shift the production function downward. D) shift the production function upward.

21 D) shift the production function upward.

Potential GDP per labor hour can increase due to A) increases in population. B) increases in the quantity of money. C) increases in labor productivity. D) decreases in the quantity of capital.

22 C) increases in labor productivity.

An advance in technology increases the productivity of labor. As a result, the nation's production function shifts ________ and the ________ labor curve shifts rightward. A) downward; supply of B) upward; demand for C) upward; supply of D) downward; demand for

23 B) upward; demand for

In the illustration above, which figure shows an aggregate production function? (refer to notes, fig 1) A) Figure A B) Figure B C) Figure C D) Figure D

24 A) Figure A

The country of Kemper is on its aggregate production function at point W in the above figure. The government of Kemper passes a law that makes 4 years of college mandatory for all citizens. After all citizens have their education, the economy will (fig2) A) move to point such as Y B) remain at point W C) move to point such as Z D) move to point such as X

25 C) move to point such as Z

The country of Kemper is on its aggregate production function at point W in the above figure. If the population increases with no change in capital or technology, the economy will (fig 3) A) move to point such as Z B) move to point such as X C) remain at point W D) move to point such as Y

26 B) move to point such as X

In the above figure, if the real wage is $10 per hour, a labor (fig 4) A) surplus will occur and the real wage will rise. B) shortage will occur and the real wage will rise. C) shortage will occur and the real wage will fall. D) surplus will occur and the real wage will fall.

27 B) shortage will occur and the real wage will rise.

The figure above shows the U.S. production function. From 1986 to 2008 the United States experienced major advances in technology as well as an increase in the working age population. The combined effect can best be shown by a (fig 6) A) movement from point Y to point X. B) movement from point W to point X. C) movement from point Y to point Z. D) movement from point W to point Z.

29 D) movement from point W to point Z.

As a result of the rightward shift in the demand curve for labor from LD 0 to LD 1, the equilibrium level of employment ________ and potential GDP ________. (fig 5) A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases

2A) increases; increases

According to the Economic Times (09/2012), Standard & Poor's forecast for India's GDP growth rate was cut by 1 percentage point to 5.5 percent as the entire Asia Pacific region feels the pressure of ongoing economic uncertainty. India has averaged 7 percent growth in GDP since 1997. Which of the following is TRUE? A) India's PPF has not shifted since 1997. B) India's PPF has been shifting rightward since 1997. C) India has been moving from a point within its PPF to points beyond its PPF D) India's PPF has been shifting leftward since 1997.

3 B) India's PPF has been shifting rightward since 1997.

If capital per worker rises A) labor productivity increases. B) labor productivity decreases. C) no technological progress occurs. D) firms respond by raising their prices.

30 A) labor productivity increases.

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

43 B) the pursuit of profit; can persist indefinitely

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

44 C) knowledge is not subject to diminishing returns.

Classical growth theory states that A) growth is followed by increases in the population, eventually leaving real GDP per person unchanged. B) growth is maximized when everyone is fully employed. 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.

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

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

46 B) discouraging international trade.

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

47 D) natural resources

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

48 D) I, II and III

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

49 B) associated with Malthusians.

Suppose a nation's population grows by 2 percent and, at the same time, its GDP grows by 5 percent. Approximately how fast will real GDP per person increase? A) 3 percent per year B) 10 percent per year C) 5 percent per year D) 2 percent per year

5 A) 3 percent per year

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

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

Suppose real GDP for a country is $13 trillion in 2015, $14 trillion in 2016, $15 trillion in 2017, and $16 trillion in 2018. Over this time period, the real GDP growth rate is A) constant. B) negative. C) increasing. D) decreasing.

6 D) decreasing.

Slowdonia's current growth rate of real GDP per person is 1 percent a year. Approximately how long will it take to double real GDP per person? A) 70 years B) 35 years C) 10 years D) 100 years

7 A) 70 years

The Rule of 70 is used to A) estimate how long it will take the level of any variable to double. B) calculate the standard of living. C) calculate the economy's growth rate. D) estimate how much of an economy's growth rate is due to increases in capital per hour of labor.

8 A) estimate how long it will take the level of any variable to double.

Slowdonia's current growth rate of real GDP per person is 2 percent a year. How long will it take to double real GDP per person? A) 35 years B) approximately 10 years C) half a year D) 28.6 years

9 A) 35 years

Why Labor Productivity Grows

Physical capital growth is the accumulation of new capital increases capital per worker and increases labor productivity. Human capital growth is acquired through education, on the job training and learning by doing. It's the more fundamental source of labor productivity growth. Technological advances. Tech changes i.e the discovery and application of re techonlogies and new goods - has contributed immensely to labor productivity.

preconditions of labor productivity

Preconditions of labor productivity growth is the incentive system created by firms, markets, property rights and money.

reasons why real GDP increases

The economy might be returning to full employment in expansion phase of the business cycle. The potential GDP might be increasing.

rule of 70

The rule of 70 states that the number of years it takes for the level of a variable to double in approx. 70 divided by the annual percentage growth rate of the variable

supply of labor

shows the quality of labor supplied and the real wage rate. The labor market is in equilibrium at the real wage rate at which the quality of labor demanded equals the quality of labor supplied.