ECON 2105 - Ch. 7 Practice Test

If the output equals A*(5K + 2L), what is the output if A equals 2,000, capital equals 10, and labor equals 100? A. 500,000 B. 120,000 C. 50,000 D. 12,000

A. 500,000

The single largest consumer of goods and services in the United States is: A. personal consumption. B. businesses. C. the government. D. industry.

C. the government.

Which is NOT an example of infrastructure? A. Hoover Dam B. the federal highway system C. airports D. Walmart stores

D. Walmart stores

The following table shows data for four countries Country - Workers - Capital Stock A - 100 - $4000 B - 50 - $500 C - 200 - $1000 D - 150 - $150 Which country has the most productive workers?

A - 100 - $4000

An example of intangible infrastructure is: A. patent laws. B. public education facilities. C. transportation networks. D. power transmission lines.

A. patent laws.

Between 1990 and 2010, the number of people in the world living in poverty has: A. stayed roughly the same. B. been cut in half. C. doubled. D. increased by 50%.

B. been cut in half.

The government decides to give tax-exempt status to a new organization whose mission is to award college scholarships to members of the armed forces. In doing so, the government is acting in its role to promote economic growth by: A. ensuring a stable legal system. B. enhancing physical and human capital. C. ensuring a stable and secure financial system. D. promoting free and competitive markets.

B. enhancing physical and human capital.

Labor includes all of the following factors EXCEPT: A. the physical talents of people. B. the ability to use physical resources in creative ways to produce goods and services. C. the mental talents of people. D. the time and effort provided by migrant workers on farms.

B. the ability to use physical resources in creative ways to produce goods and services.

A production function: A. shows that the output that is produced using different combinations of inputs combined with existing technology. B. shows that output that is produced using different combinations of technology combined with existing inputs. C. shows the outputs that is most highly valued by consumers. D. shows the most desired production method for a given level of output.

A. shows that the output that is produced using different combinations of inputs combined with existing technology.

If the growth rate in an economy is 3.5%, then it's GDP will double in about: A. 3.5 years B. 20 years. C. 70 years. D. 245 years.

B. 20 years.

If the Bureau of Economic Analysis reports that the annualized US growth rate was 2.5% for the second quarter, then the actual growth rate from the first quarter to the second quarter was: A. 0.625% B. 2.5% C. 7.5% D. 10%

A. 0.625%

One reasonably objective measure of infrastructure is the Index of Economic Freedom, which incorporates information about freedoms in ______ categories. A. 10 B. 25 C. 100 D. 500

A. 10

Which of statement about the Rule of 70 is TRUE? A. It is fairly accurate for small growth rates. B. It becomes more accurate over time. C. It provides an exact estimate of compounded values over time. D. It states that the number of years required for a value to double in size is 70 times the growth rate.

A. It is fairly accurate for small growth rates.

The US Patent Office grants Rene a patent for a new method of waterproofing outdoor gear. It is acting in its role to promote economic growth by: A. ensuring a stable legal system. B. enhancing physical and human capital. C. ensuring a stable and secure financial system. D. promoting free and competitive markets.

A. ensuring a stable legal system.

When the government enforces contract between two parties, it is acting in its role to promote economic growth by: A. ensuring a stable legal system. B. enhancing physical and human capital. C. ensuring a stable and secure financial system. D. promoting free and competitive markets.

A. ensuring a stable legal system.

The capital-to-labor ratio is: A. high in rich countries. B. high in poor countries C. a key element in decreasing real wages. D. the ratio of managers to workers.

A. high in rich countries.

A legal system that enforces property rights is important to economic growth because: A. legal protection of ideas and technologies gives people who innovate the ability to protect their work. B. the legal system can help the government with tax collection. C. strong laws demonstrate commitment by legislators to economic growth. D. bankruptcy laws encourage lending.

A. legal protection of ideas and technologies gives people who innovate the ability to protect their work.

Developed nations tend to have: A. limited labor supplies but lots of capital. B. low capital-to-labor ratios. C. limited amounts of both labor and capital. D. large amounts of both labor and capital.

A. limited labor supplies but lots of capital.

One of the reasons that property rights are important for economic development is that without legal ownership: A. loans are very difficult to obtain. B. consumption will ber lowered. C. money cannot be passed along to heirs. D. no one will plan flower gardens.

A. loans are very difficult to obtain.

The Index of Economic Freedom: A. measures the quality of a country's intangible infrastructure. B. is completely objective. C. measures the distribution of income. D. measures the degree of tolerance with respect to drugs.

A. measures the quality of a country's intangible infrastructure.

Increases in __________ often lead to economic growth. A. technology B. public goods. C. money supply D. government regulations

A. technology

If an economy's GDP will double in 15 years, then its growth rate must be about: A. 7% B. 4.7% C. 10% D. 15%

B. 4.7%

The historical evidence shows that: A. despotic governments invest wisely, because they have access to all relevant information. B. a country's degree of freedom is related to the level of economic growth C. economic freedom is detrimental to growth, because market participants tend to make mistakes. D. there is no connection between citizens' freedoms and economic prosperity.

B. a country's degree of freedom is related to the level of economic growth

Infrastructure is: A. not important in a market-based economy. B. a country's public capital C. typically better when provided by private companies. D. unimportant for economic growth because the government provides it.

B. a country's public capital

Government funding of Los Alamos National Labs is an example of government acting in its role to promote economic growth by: A. ensuring a stable legal system. B. enhancing physical and human capital. C. ensuring a stable and secure financial system. D. promoting free and competitive markets.

B. enhancing physical and human capital.

Use of tax receipts to modernize the air traffic control system promotes economic growth by: A. ensuring a stable legal system. B. enhancing physical and human capital. C. ensuring a stable and secure financial system. D. promoting free and competitive markets.

B. enhancing physical and human capital.

One way a stable financial system supports economic growth is that it: A. subsidizes borrowers of financial capital. B. facilitates the movement of capital from savings to investment. C. keeps tax rates lows. D. increases the incidence of unanticipated price changes.

B. facilitates the movement of capital from savings to investment.

The primary reason the US standard of living is relatively _______ is that the US workers produce _________ than workers throughout most of the rest of the world. A. high; less B. high; more C. low; more D. low; less

B. high; more

Which of the following occurrences is NOT a source of productivity growth? A. increasing the capital-to-labor ratio B. increasing the level of consumption spending C. increased the quality of the labor force D. improvements in techonlogy

B. increasing the level of consumption spending

The absence of well-defined and enforceable property rights often: A. causes people to work together for the good of all. B. inhibits investment because it is difficult to use capital as collateral. C. improves society because it avoids the selfish actions of private property owners.

B. inhibits investment because it is difficult to use capital as collateral.

Schumpeter's term "creative destruction" describes the: A. Luddites' destruction of machines. B. innovative dynamism of capitalism. C. working class communist movement. D. destruction of buildings.

B. innovative dynamism of capitalism.

Refer to the production possibilities frontiers below. Panel A illustrates ___________________ economic growth and Panel B illustrates ______________ economic growth. A. short-run; short-run B. short-run; long-run C. long-run; long-run D. long-run; short-run

B. short-run; long-run

The catch-up effect tends to: A. speed up over time. B. slow down over time. C. remain the same over time. D. remain the same over time unless new technologies are developed.

B. slow down over time.

The classical form of production function states that output is determined by: A. population growth. B. some function of available labor or capital. C. some function of the money supply. D. the government

B. some function of available labor or capital.

Creative destruction occurs when: A. companies attempt to destroy the demand for their competitors' product. B. the periodic emergences of innovation boosts the economy. C. new technology is born out of the same theories that led to the old technology. D. firms plan for their products to become obsolete so that consumers will be forced to buy replacements.

B. the periodic emergences of innovation boosts the economy.

If a country's population increases at a higher rate than the growth in its real GDP: A. GDP per capita has increased. B. the standard of living in the country has declined C. average output per person remains constant D. the country's rate of inflation has increased.

B. the standard of living in the country has declined

Which of the following items is NOT an example of investment in human capital? A. policy of universal education B. on-the-job training C. acquisition of obsolete skills D. apprenticeship

C. acquisition of obsolete skills

Developing countries can achieve higher productivity per unit of capital because they can use technologies developed by other countries. This is known as the: A. increasing returns to capital effect. B. copycat effect C. catch-up effect D. productivity effect

C. catch-up effect

As a rule, the more capital employed with workers, the _________ their productivity and the __________ their earnings. A. lower; higher B. lower; lower C. higher; higher D. higher; lower

C. higher; higher

Investment in human capital is important because: A. humans need capital B. it lowers the total wage bill. C. it increases labor productivity. D. it improves morale.

C. it increases labor productivity.

Which of the following resources is an example of infrastructure? A. computer manufacturing plant B. coal mine C. newly drained swamp D. elementary school

C. newly drained swamp

Human capital refers to: A. equipments, buildings, and inventories. B. fund firms raise by selling stocks and bonds. C. skills, knowledge, and quality of workers. D. infrastructure of a nation.

C. skills, knowledge, and quality of workers.

Human capital includes: A. physical capital. B. labor. C. the improvement to labor capabilities from training, education, and apprenticeship programs. D. pension plans that enable early retirement.

C. the improvement to labor capabilities from training, education, and apprenticeship programs.

Labor productivity is NOT a major determinant of: A. economic growth. B. per capita GDP. C. the money supply. D. living standards.

C. the money supply.

According to Joseph Schumpeter, what is the driving force behind business cycles? A. waves of inventions B. weather cycles C. waves of innovations D. consumer spending

C. waves of innovations

Which statement about short-run economic growth is NOT true? A. It occurs when an economy makes use of underutilized resources. B. It is easier to achieve than long-run economic growth C. It is likely to occur when countries are recovering from an economic downturn. D. It is likely to occur when obstacles preventing resources from being used are put in place.

D. It is likely to occur when obstacles preventing resources from being used are put in place.

Which of the following statements about the roles of social media in promoting economic growth is FALSE? A. Many people who used to get information about products form their local newspaper now access this information via social media. B. Social media allow firms to do more with fewer resources. C. Social media allow buyers and sellers to interact more seamlessly. D. The advent of social media raised costs for firms, which now much invest in Web pages and information gathering technology to stay competitive.

D. The advent of social media raised costs for firms, which now much invest in Web pages and information gathering technology to stay competitive.

Which of the following is NOT one of the reasons for the phenomenal growth of the US economy over the past century? A. increases in human capital B. open immigration policies C. high worker productivity D. a reduction in the capital-to-labor ratio

D. a reduction in the capital-to-labor ratio

Which of the following does NOT increase productivity? A. research and development B. improvements in labor quality C. capital investment D. an increased money supply

D. an increased money supply

Protection of property rights is: A. not part of the infrastructure. B. a tangible resource, such as a dam or a road. C. independent of a stable legal system. D. an intangible resources that is part of the infrastrucutre

D. an intangible resources that is part of the infrastrucutre

Which of the following is NOT an example of infrastructure in the United States? A. the interstate highway system B. the electric power grid C. the state systems of public colleges and universities D. desktop computers in the workplace

D. desktop computers in the workplace

According to the classical model, which of the following developments does NOT contribute to economic growth? A. labor productivity B. more capital C. technological change D. higher interest rate

D. higher interest rate

The Index of Economic Freedom uses all of the following categories EXCEPT: A. monetary policy. B. fiscal policy C. the size of government. D. international exchange.

D. international exchange.

Economic growth is most commonly measured by: A. GDP. B. GDP per capita. C. Genuine Progress Indicator per capita. D. real GDP per capita.

D. real GDP per capita.

In the United States, real GDP is measured by: A. the Federal Reserve. B. the Congressional Budget Office. C. the National Bureau of Economic Research. D. the Bureau of Economic Analysis

D. the Bureau of Economic Analysis

Which is NOT a characteristic of a stable financial system? A. stable prices B. flourishing credit markets C. ease of making financial transactions D. unanticipated high inflation

D. unanticipated high inflation