Week 12 (Homework)

Market economies with legal systems that provide for the reliable protection of property rights and enforcement of contracts tend to promote economic growth.

True

Real GDP tends to fluctuate around potential output.

True

The "new growth theory" focuses on the sources of technological change.

True

The aggregate production function relates total national output to:

inputs and technology.

All else constant, if a nation's potential output doubles in 36 years, its average annual growth rate is

approximately 2%

Which of the following is prerequisite of successful market economies?

the existence and enforcement of property rights

An increase in the capital stock would shift the production function _______ and the long-run aggregate supply curve to the _______.

upward; right

Data from most industrialized countries show that countries with high investment rates (as a percentage of GDP) tend to be countries

with high rates of economic growth

The Malthusian population theory

was eventually dismissed for its pessimism and failure to take into account technological advances in agriculture and food production.

A sustained, long-term slow down in economic growth is called

Secular Stagnation

If the rate of growth of output is 10% and the rate of growth of per capita real GDP is 6%, what is the rate of growth of population?

4

Which of the following occurs in the long run neoclassical growth model without technological change?

Capital deepening ceases. Real wages stop growing. The return to capital is constant Real interest rates are constant.

Which of the following statements concerning saving is true?

An increase in the rate of saving decreases gross domestic income by reducing current consumption but increases current and future gross domestic income through investment in capital goods.

A country's rate of real GDP growth is 3% per year. Its population is growing 4% per year. At what rate is its real GDP per capita changing?

Real GDP per capita is decreasing by 1%.

What is the difference between economic growth and economic development?

Economic growth implies quantitative changes in productive processes whereas economic development requires widespread structural changes in the way people live.

A necessary condition for successful economic development is democracy.

False

According to the rule of 72, a 12% annual increase in real GDP would lead to a doubling of real GDP in 8 years.

False

For economic growth to take place, we must consume more and save less.

False

If real GDP grows at 3% and population grows at 1.2%, then real GDP per capita grows by 4.2%.

False

Population growth is always a source of economic growth, regardless of other circumstances.

False

Which of the following is a flaw in Malthus' population theory?

His belief that any increase in income would boost population growth failed to take into account the fact that higher incomes increase this opportunity cost and therefore reduces the number of children people want.

In the long run, economic growth will lead to I) the opportunity to produce more consumer goods. II) the opportunity to produce more capital goods. III) a higher material standard of living. IV) a more equitable distribution of income.

I, II, and III only

Which of the following is most important in increasing the rate of economic growth?

Increasing the percentage of GDP used for investment.

Roads, telephone lines, power facilities, and schools are examples of a nation's

Infrastructure

Economic growth is an exponential process. What does this mean?

It means that small differences in sustained growth rates have significant effects on a nation's real income over long periods of time.

The 19th group that destroyed machinery they thought would replace their jobs were the

Luddites

Suppose real GDPs in Hauck and Meran are identical at $10 trillion in 2000. Suppose Hauck's economic growth rate is 2% and Meran's is 4% and the rates remain constant over time. Calculate the percentage difference in their levels of potential output in 2036.

Meran's potential output will be 100% higher than that of Hauck's.

What is the fundamental argument in Malthus' An Essay on the Principle of Population?

Population would increase at a geometric rate and the food supply at an arithmetic rate and that this disharmony would lead to forced return to subsistence-level conditions.

During the industrial revolution, the United States saw increases in the demand for labor and increases in the supply of labor. The increase in real wages rose during this period is consistent with which of the following statements?

The rightward shift in the labor demand curve was greater than the rightward shift of the labor supply curve.

In 1798, An Essay on the Principle of Population was written by

Thomas Malthus

A VAT tax is said to encourage savings over consumption.

True

A change in the supply of labor will shift the long-run aggregate supply curve

True

All other things unchanged, higher saving rates contribute to higher rates of capital formation.

True

In his An Essay on Population Growth, Thomas Malthus argued that population would increase at a geometric rate and the food supply at an arithmetic rate and that this disharmony would lead to forced return to subsistence-level conditions.

True

Increases in human capital will promote economic growth.

True

All of the following are sources of economic growth

increases in human capital. an increase in the savings rate increases in physical capital

Economic growth occurs when

a nation's capacity to produce increases.

When calculating the factors which have led to economic growth over the last century, technological change is calculated as:

a residual, inferred as the leftover growth after accounting for the contributions of other factors.

A curve that relates an economy's total output to the total amount of labor employed, holding all other determinants of output constant, is called

an aggregate production function

Economic growth can be achieved through

an increase in the production of capital goods.

The skills, training, and education possessed by workers contribute to economic growth

by increasing the quality of labor.

An increase in saving

increases the amount of resources that can be devoted to the purchase of capital goods.

The idea that economic growth often occurs due to the development of new industries and the elimination of older inefficient ones is referred to as

creative destruction

Towards the end of the twentieth century, some of the world's more affluent countries experience robust growth while others experienced growth slowdown or even stagnation. Which of the following is a reason for the divergent growth trend?

disparities in the rate of accumulation of human capital disparities in the employment rate differences in macroeconomic policy-making that allow producers to take a long-term view

Diminishing marginal returns occurs when

each additional unit of a variable factor adds less to total output than the previous unit, given constant quantities of other factors.

Which of the following will not increase labor's productivity?

education technology new capital

Which of the following is an example of an investment in human capital?

enrolling in a course to improve your computer skills

Which of the following factors contribute to economic growth?

growth in physical capital an increase in the availability of natural resources an increase in the productivity of labor

The theory of economic growth focuses on the

growth of potential output over the long run, not on fluctuations in the level of economic activity in the short run.

Over the past century, the average household income in the United States

has increased in real terms.

All of the following contributes to economic development

high saving and investment rates. low population growth rate. the existence of a market economy.

Economic growth is best measured by the increase in

potential output

Investment in human capital

shifts the aggregate production function upward.

The present discounted value of $100 payable 1 year from now, assuming a market rate of interest of 10 percent, is:

slightly more than $90.

A factor critical to economic growth is

technological change that increases labor productivity

The determinants of economic growth include all of the following

technological improvement. growth in physical capital. growth in human capital.

What is the opportunity cost of allocating more and more resources to the production of capital goods?

the amount of consumption goods that could have been produced

All of the following are indicators of a nation's standard of living

the inflation rate measured by CPI.

Holding all else constant, a country's standard of living will rise if its

the rate of population growth is less than the rate of growth of real GDP

Which of the following is a cost of economic growth?

the sacrifice of current consumption