ECON TEST 1: CHAPTER SEVEN

The U.S. GDP in 2003 was $11,142.2 billion, and the previous year the GDP was $10,642.3 billion. What was the rate of growth in GDP in 2003?

4.70%

Please determine which countries would be classified as growth miracles or growth disasters. Nigeria Japan Argentina South Korea

Growth miracles: Japan South Korea Growth disasters: Nigeria Argentina

If Galaxia has a GDP that is 10 times larger than that of Myopia, which country would likely have greater marginal returns to capital based on the law of diminishing marginal returns to capital?

Myopia

Why does a small difference in economic growth result in a large difference in wealth over time?

The effect of compounding allows growth to build upon previous growth.

Rules, regulations, and customs that structure incentives are called:

institutions

Country A and Country B start with the same GDP per capita of $50,000. Country A's GDP per capita grows at a constant rate of 2.8% and Country B's GDP per capita grows at a constant rate of 1.4%. Compute the difference in GDP per capita for these two countries after 100 years, in thousands of dollars.

$ 600,000

If China's economy maintains a 7% annual growth rate over the next 20 years, about how large will its economy be in 20 years if its current GDP is $12 trillion?

$48 trillion

Wealthier nations have:

- Higher infant survival rates, life expectancy, and nutrition - More educational opportunities, leisure, and entertainment - Fewer conflicts such as civil wars and riots - More material goods

If Greenville's GDP doubled over 5 years, what was the approximate annual growth rate (using the rule of 70)?

14%

An emerging country has a real GDP of $1539.61539.6 billion. After one year, real GDP has grown to $16471647 billion. In percentage terms, what is the growth rate? Please round your answer to the nearest whole number.

7%

Suppose the production function for the country of Westlandia is Q = K + L, where Q is output, K is capital, and L is labor. Which of the following statements is true about this production function? a) Westlandia could achieve economic growth with labor alone. b) Labor exhibits diminishing marginal returns. c) Capital exhibits diminishing marginal returns d) All of the above statements are true.

A

Which best describes technological knowledge? a) knowledge used to produce goods and services. b) machinery, tools, and structures. c) knowledge achieved through education, training, and experience. d) property rights and a dependable legal system.

A

Which of the following government actions would represent the largest increase in physical capital? a) Expansion of research and development in biotechnology. b) Investment in hospitals and other health care facilities to modernize their operations. c) Taxes on corporate earnings. d) Tax credits to offset college tuition.

B

Suppose Hyperpolis's GDP increases by 15%, and its inflation rate is 12%, while Superpolis's GDP increases by 6%, and its inflation rate is 3%. Assuming the population in both countries remained constant, which economy grew faster?

Both economies grew at the same rate.

All else equal, which scenario would exhibit a country with the most economic growth? a) Mirari, a country embroiled in a civil war. b) Katanga, a country with a long line of bureaucrats, which creates ample amounts of red tape. c) Froland, a country known to be able to resolve most trials and legal issues within a year. d) Dos Rios, under a communist regime, where property is communal

C

Which of the following would represent the fastest annual growth of GDP per capita? a) An increase in real GDP of 2% and population decline of 1%. b) An increase in real GDP of 6% and population growth of 4%. c) An increase in real GDP of 5% and population growth of 1%. d) An increase in real GDP per capita of 3%.

C

Determine whether each of the scenarios given creates incentives for economic growth or not. civil conflict private property ownership a command (non-market) economy a market economy legally protected investments

Creates incentives for growth private property ownership a market economy legally protected investments Does not create incentives for growth: a command (non-market) economy civil conflict

Ruritania's Ministry of Economics has considered various plans to stimulate economic growth in the kingdom. Which proposal would have the best chance of success? a) To lower unemployment by discouraging layoffs, require businesses to continue paying the salary of any worker who loses his or her job until he or she finds a new one. b) To enhance efficiency and minimize the size of the private sector, require private firms to enter into partnerships whereby ownership of firms is split equally between the government and private owners. c) To reduce risk and encourage entrepreneurship, require the government to take control of and operate any businesses that do not earn a profit for two consecutive years, including providing salaries for the workers and managers equal to the average for that industry plus 10%. d) To increase the general level of skills in the labor force, provide more on-the-job training for workers who have not completed secondary education. Which source of productivity growth does the best proposal directly influence?

D human capital

Which of the following scenarios would result in economic growth in the country of Everland?

GDP doubles while prices remain the same.

GDP per capita in the countries of Neverland and Everland are 2,000 and 500, respectively. This suggests that, other things being equal, the returns from capital investment would be:

Greater in Everland.

Please categorize the situations according to whether they describe an investment in physical capital or human capital. Ethel learns to use a keyboard so she can produce her weekly newspaper column faster than she did when she wrote it by hand. Bruce goes back to school to learn a new computer programming language. Angus buys a new tractor for his wheat farm. Cecile buys textbooks and notebooks, so she is ready for the new school year. Daniel is hired to work at the local sugar factory and is trained in use of the processing machinery.

Human capital: Bruce goes back to school to learn a new computer programming language. Ethel learns to use a keyboard so she can produce her weekly newspaper column faster than she did when she wrote it by hand. Daniel is hired to work at the local sugar factory and is trained in use of the processing machinery. Physical capital: Angus buys a new tractor for his wheat farm. Cecile buys textbooks and notebooks, so she is ready for the new school year.

living standards vs economic growth

LS- the level of economic prosperity at a given time. * best measured by the level of real GDP per capita EG- the change or progress in living standards over time. * by the growth rate of real GDP per capita.

Free rider:

Someone who consumes a resource without working or contributing to the resource's upkeep.

Institutions:

The "rules of the game" that structure economic incentives. EX: include laws and regulations, but also customs, practices, organizations, and social mores.

Economies of scale:

The advantages of large-scale production that reduce average cost as quantity increases.

Human capital:

The productive knowledge and skills that workers acquire through education, training, and experience.

Physical capital:

The stock of tools that include machines, structures, and equipment.

Use the Rule of 70 to answer the questions on economic growth. Round answers to two places after the decimal. a) If annual real GDP per capita growth in South Africa averages 1.8%1.8%, how long will it take the country to double its real GDP per capita? b) If Ireland took 1515 years to double its real GDP per capita, what was its average annual GDP per capita growth rate during this period? c) If annual real GDP per capita growth in Tanzania averages 0.8% per year, how long will it take the country to quadruple its real GDP per capita? d) If China took 4040 years to increase its real GDP per capita eightfold, what was its average economic growth during this period?

a) 38.88 years b) 4.66% c) 175 years d) 5.25%

Categorize the statements according to whether they promote economic growth or inhibit economic growth. a) Laws against theft _________ economic growth. b) Income tax rates of 90% ________ economic growth. c) The creation of a price ceiling on gold _________ economic growth. d) The enforcement of trademarks __________ economic growth. e) Governmental corruption __________ economic growth. f) A commitment by a nation's central bank to print money to pay for government expenditures __________ economic growth. g) The use of competitive markets to allocate goods and services ______ economic growth.

a) p b) i c) i d) p e) i f) i g) p

Margaret owns a stuffed animal shop. At first, it is just her daughter Allison and her hand‑sewing stuffed bears, stuffed sharks, and stuffed giraffes in the spare bedroom. Over time, Margaret decides to rent a larger shop and hire more workers to help out, increasing to a staff of 20 people. Everything is still hand sewn. She notices, however, that her stuffed animal output increased much more than tenfold despite her work force increasing by that amount. However, any more than 20 workers slows down production. This is an example of:

economies of scale.

The organization of factors of production depends on

incentives and institutions.

Most of the world is:

poor

Knowledge that is used to produce goods and services is called:

technological knowledge

Many economists think that effective institutions are essential for economic growth. In this context, what are institutions?

the laws, social norms, and conventions of a culture

Real GDP per capita ______

varies greatly across countries.