Macroeconomics Test 3: Chap 8

At a 2 percent annual growth rate in GDP per​ capita, it will take ???years for GDP per capita to double.

35 To calculate how long it will take GDP per capita to​ double, divide the number 70 by the annual growth rate.

Some economists say that economic growth involves a​ trade-off between current generations and future generations. If a current generation raises its saving​ rate, what does it​ sacrifice? A. Current consumption. B. Human capital. C. Capital deepening. D. Both a and b. What will be gained for future​ generations? A. More output. B. More capital. C. Less inequality. D. Both a and b.

A. Current consumption. D. Both a and b.

Which of the following will promote economic growth through capital​ deepening? A. Increased imports to purchase supercomputers for industry. B. Higher taxes used to finance universal health care. C. Increased imports to purchase new​ flat-screen TVs for consumers.

A. Increased imports to purchase supercomputers for industry.

Suppose that a group of consumer activists claims that drug companies earn excessive profits because of the patents they have on drugs. The activists advocate cutting the length of time that a drug company can hold a patent to five years. They argue that this will lead to lower prices for drugs because competitors will enter the market after the​ five-year period. Do you see any drawbacks to this​ proposal? A. It will reduce the incentive for drug companies to invent new drugs. B. It will result in only induced innovation. C. It will promote​ "creative destruction," as outlined by Joseph Schumpeter. D. All of the above.

A. It will reduce the incentive for drug companies to invent new drugs.

Each year when they announce the awards for best new​ restaurants, the recipients are almost always in the large cities. These restaurants are praised for their creativity and bold new dishes. What are some of the factors that would explain why the innovative restaurants are found in big​ cities? ​(Check all that apply​.) A. Larger cities allow for the specialization of​ labor, which can lead to greater creativity among chefs. B. Restaurants in large markets​ don't have to invest in human capital and can instead focus on the creativity of their dishes. C. In larger​ markets, restaurants have more incentives to come up with innovative and creative new dishes. D. These awards are strategically given to a restaurant in large markets to attract more growth to these megacities. E. There are more chances to have​ face-to-face interactions, which can lead to increased innovation and creativity.

A. Larger cities allow for the specialization of​ labor, which can lead to greater creativity among chefs. C. In larger​ markets, restaurants have more incentives to come up with innovative and creative new dishes. E. There are more chances to have​ face-to-face interactions, which can lead to increased innovation and creativity.

Free trade leads to more research and development because it promotes larger markets. A. True B. False

A. True Governments can play a key role in designing institutions that promote economic​ growth, including providing secure property rights.

Education can contribute to economic growth by A. complementing physical capital and developing new ideas. B. enhancing technology and raising wages. C. increasing wages and employment. D. providing employment and literacy.

A. complementing physical capital and developing new ideas.

Computers have revolutionized banking for consumers through the growth of ATMs and electronic bill paying capabilities. All of these improvements for consumers might not be counted as technological progress because technological progress A. is defined by economists as an increase in output with no additional increases in inputs. B. cannot be counted. C. occurs only in some sectors and not in others. D. is defined by economists as an increase in buildings and equipment.

A. is defined by economists as an increase in output with no additional increases in inputs. Technological progress is an increase in output with no additional increases in inputs. Not all technological innovations constitute technological progress. Some add convenience rather than the ability to increase output with no additional increases in inputs.

Suppose that GDP is​ $18 trillion in year​ 1, and​ $19 trillion in year 2. Which of the following statements is​ true? A. The growth rate of GDP is​ 4.25%. B. It will take 12.6 years for GDP to double. C. The growth rate of GDP is​ 5.26%. D. It will take 16.5 years for GDP to double.

B. It will take 12.6 years for GDP to double. - The growth rate of a variable is the percentage change in that variable from one period to another. Real GDP per capita is​ GDP/population. GDP is​ $18 trillion in year​ 1, and​ $19 trillion in year 2. Growth rate of GDP​ = (19 - 18 / 18) x 100 = 5.55%. Years to double for GDP​ = 70 / 5.55= 12.6 years. REMEMBER: when referring to doubling, use 70

Suppose a country makes substantial investments to improve its roads. Give an​ example(s) of how this would improve productivity in the economy as a whole. ​(Check all that apply​.) A. The​ government's total tax revenue as a proportion of GDP would increase. B. Substantial investments to improve the roads would encourage private investment. C. The total employment elasticity of the economy would increase. D. Total transportation costs would be reduced.

B. Substantial investments to improve the roads would encourage private investment. C. The total employment elasticity of the economy would increase. Substantial investments in a​ country's roads reduce transportation costs and result in an improvement in infrastructure. This in turn encourages private investment.

Governments can play a key role in designing institutions that promote economic​ growth, including providing secure property rights. A. False B. True

B. True

Some economists are concerned about the​ "brain drain," the phenomenon in which highly educated workers leave developing countries to work in developed countries. Other economists have argued that​ "brain drain" could create incentives for others in the country to secure increased education and many of the newly educated might not emigrate. Explain why the​ "brain drain" could lead to increased education among the remaining residents. A. When highly educated workers​ leave, earnings forgone while in school decrease. B. When highly educated workers​ leave, more high paying jobs become available. C. When highly educated workers​ leave, the direct​ out-of-pocket costs of education decrease. D. All of the above. How would you test this​ theory? A. Compare wages in developing countries with and without significant​ "brain drain." B. Compare the types of jobs in developing countries with and without significant​ "brain drain." C. Compare labor productivity in developing countries with and without significant​ "brain drain." D. All of the above

B. When highly educated workers​ leave, more high paying jobs become available. D. All of the above

To gauge living standards across countries with populations of different​ sizes, economists use A. measures of human capital. B. real GDP per capita. C. the growth rate. D.technological progress.

B. real GDP per capita.

If the government or large firms employ workers and scientists to advance the frontiers of knowledge in basic​ sciences, their work can lead to A. deflation. B. technological progress in the long run. C. full employment for trading partners. D. higher wages and lower interest rates.

B. technological progress in the long run.

The idea that innovations come about through inventive activity designed specifically to reduce costs is known as A. competitive technology. B. creative destruction. C. induced innovation. D. the invisible hand.

C. induced innovation. Some economists have emphasized that innovations come about through inventive activity designed specifically to reduce costs. This is known as induced innovation.

With secure land​ titles, parents can work outside the home​ (rather than guarding their​ property) and earn higher incomes. Explain why this might reduce child labor. A. Parents will be more willing to make​ long-term investments to improve their lives. B. Parents can borrow against their property to purchase substitutes for their​ children's labor such as new machinery. C. Parents with more income tend to rely less on their children for financial support. D. All of the above.

D. All of the above.

Economic historians have found that the average height of individuals in both the United States and the United Kingdom fell during the​ mid-nineteenth century before rising again. This was a period of rapid industrialization as well as migration into urban areas. What factors do you think might account for this fall in​ height? A. Resources were invested in physical capital instead of human capital. B. Industrialization did little to reduce malnutrition. C. Health conditions in urban areas were worse than in rural areas. D. All of the above. How would you evaluate economic welfare during this​ period? A. Economic welfare remained unchanged. B. Economic welfare increased as measured by the number of new factories. C. Economic welfare decreased as measured by average height. D. Economic welfare increased as measured by migration into urban areas.

D. All of the above. C. Economic welfare decreased as measured by average height.

Many economists believe countries that open themselves to foreign investment of plant and equipment will benefit in terms of increased technological change because local companies will learn from the foreign companies. In the last several​ decades, China has been more open to foreign investment than India. This is consistent with the two​ countries' patterns of economic growth because A. China had positive growth in GDP whereas India had negative growth in GDP. B. the contributions from human capital for each country were similar. C. employment in China and India both grew at 2 percent per year in the last several decades. D. China's growth in GDP was much higher than​ India's growth in GDP.

D. China's growth in GDP was much higher than​ India's growth in GDP

If we cannot measure every invention or new​ idea, how can we possibly measure the contribution to growth of technological​ progress? A. We can measure the effects of technological progress by measuring GDP convergence across countries. B. We can measure the effects of technological progress directly by tracking capital deepening. C. We can measure the effects of technological progress by comparing labor productivity over time. D. We can measure the effects of technological progress indirectly using growth accounting methods.

D. We can measure the effects of technological progress indirectly using growth accounting methods.

Modern theories of growth that try to explain the origins of technological progress are known as A. classical theories. B. technology theories. C. employment theories. D. new growth theories.

D. new growth theories.

Capital deepening comes to an end because of the A. reality principle. B. marginal principle. C. principle of opportunity cost. D. principle of diminishing returns.

D. principle of diminishing returns. The process of capital deepening must eventually come to an end. As the stock of capital​ increases, output​ increases, but at a decreasing rate because of diminishing returns. The process of capital deepening will come to a halt as depreciation catches up with total saving.

Growth accounting is a useful tool for A. determining comparative GDP per capita. B. examining personal income and disposable income. C. identifying the shares of consumption and investment in GDP. D. understanding different aspects​ of, or contributions​ to, economic growth.

D. understanding different aspects​ of, or contributions​ to, economic growth.

A worldwide patent and copyright system would ??? the incentive to be innovative.

Increase A worldwide patent and copyright system would increase innovation by allowing firms that invent new products and more efficient ways to produce to earn monopoly​ profit, protecting intellectual property rights both domestically and worldwide.

A higher saving rate leads to a permanently higher rate of growth. - true or false

false A higher saving rate will lead to a higher stock of capital in the long run. A higher saving rate will promote capital deepening. If a country saves​ more, it will have a higher output. But​ eventually, the process of economic growth through capital deepening alone comes to an​ end, even though this may take decades to occur.

Higher saving leads to ??? gross investment and will tend to ??? the stock of capital available for production and result in ??? depreciation because there is ??? capital to depreciate.

higher, increase, more, more

Suppose a government places a 10 percent tax on incomes and spends 60 percent of the money from taxes on investment and the rest on public consumption​ goods, such as military parades. Individuals save 20 percent of their income and consume the rest. In this​ case, total investment​ (public and​ private) - increases or decreases

increases Since the government invests a larger portion of the money than​ individuals, total investment increases.

??? and ??? are the two factors that determine how the stock of capital changes over time.

saving, depreciation The stock of capital depends on two​ factors: investment​ (or saving) and depreciation. The stock of capital increases with any gross investment spending​ (or saving) but decreases with depreciation. New capital stock − old capital stock​ = (gross investment −​depreciation). Gross investment depends on​ saving, so: Change in the stock of capital​ = saving − ​depreciation

Once we account for changes in the labor​ force, ??? is the next biggest source of the growth of GDP in the United States. - capital growth, international trade, or technological progress

technological progress Behind increases in the labor​ force, technological progress has been the​ second-largest factor contributing to real GDP​ growth, accounting for roughly 35 percent of the growth in output between 1929 and 1982.