Chapter 12 Study Guide

What factors determine productivity? Which ones are human produced?

Physical capital per worker, human capital per worker, natural resources per worker, and technological knowledge. All except natural resources

Outward-Oriented Policies

Policies that decrease international trade restrictions

Inward-Oriented Policies

Policies that increase international trade restrictions

Infant-Industry Argument

Restricting international trade to protect fledgling domestic industry form foreign competition

For a given level of technology, we should expect an increase in labor productivity within a nation when there is an increase in each of the following except A. human capital per worker B. physical capital per worker C. natural resources per worker D. labor

D

Our standard of living is most closely related to A. how hard we work B. out supply of capital because everything of value is produced by machinery C. our supply of natural resources because they limit production D. our productivity because our income Is equal to what we produce

D

If foreigners buy newly issued stock in Ford, and Ford uses the proceeds to expand capacity by building new plants and equipment, which will rise more in the future: GDP or GNP? Why? What do we call this type of investment?

GDP. GNP measures only the income of Americans while GDP measures the income generated inside the United States. Therefore, GDP will rise more than GNP because some of the profits from the capital investment will accrue to foreigners in form of dividends. Foreign portfolio investment.

How does human capital differ from physical capital?

Human capital is the knowledge and skills of the worker. Physical capital is the stock of equipment and structures

Natural Resources

Inputs into production provided by nature

Factors of Production

Inputs used in production, such as labor, capital and natural resources

Economics measure both the level of real income per person and the growth rate of real income per person. What is different concept does each statistic capture?

Level of real income per person measures standard of living. Growth rate measures rate of advance of the standard of living

Renewable Resource

Natural resource that can be reproduced

Nonrenewable resource

Natural resource that is limited in supply

Must poor countries stay relatively poor forever and must rich countries stay relatively rich forever? Why?

No. Since growth rates vary widely across countries, rich countries can become relatively poorer and poor countries can become relatively richer

Some economist argue for lengthening patent protection while some economists argue for shortening it. Why might patents increase productivity? Why might they decrease productivity?

Patents provide a property right to an idea; therefore, people are willing to invest in research and development because it is more profitable. Research and development is a public good once the information is disseminated, and a patent restricts this public use

Explain the opportunity cost of investing in capital. Is there any difference in the opportunity cost of investing in human capital versus physical capital?

Someone must forgo current consumption. No, someone must save instead of consume regardless of whether education or machines are purchased with the saving

Property Rights

The ability of people to exercise control over their resources

Growth Rate

The annual percentage change in out

Human Capital

The knowledge and skills the workers acquire through education, training and experience

Catch-Up Effect

The property that poorer countries tend to grow more rapidly than richer countries

Real GDP per person

The quantity of goods and services available for the average individual in the economy

Productivity

The quantity of goods and services produced from each unit of labor input

Physical Capital

The stock of equipment and structures used to produce output

Externality

When the actions on one person affect the wellbeing of a bystander

Diminishing Returns

When the incremental increase in output declines as equal increments of an input are added to production

Production function

the relationship between inputs and outputs from production

A reasonable measure of the standard of living in a country is A. real income per person B. real income C. nominal income per person D. nominal income E. the growth rate of nominal income per person

A

If Mazda builds a new plan in Illinois, A. in the future, U.S. GDP will rise more than U.S. GNP B. in the future, U.S. GDP will rise less than U.S. GNP C. in the future, U.S. GDP and GNP will both fall because some income from this investment will accrue to foreigners D. there has been an increase in foreign portfolio investment in the United States E. none of the above Is true

A

Madelyn goes to college and reads many books while at school. Her education increases which of the following factors of production? A. human capital B. physical capital C. natural resources D. technology E. all of the above would be increased

A

Which of the following describes an increase in technological knowledge? A. a farmer discovers that it is better to plant in the spring rather than in the fall B. a farmer buys another tractor C. a farmer hires another day laborer D. a farmer sends his child to agriculture college, and the child returns to work on the farm

A

Public Good

A good that we may all use at the same time without diminishing another's benefits

Constant Returns to Scale

A production process where doubling all of the inputs doubles the output

Technological Knowledge

A society's understanding about the best ways to produce goods and services

If a production function exhibits constant returns to scale, doubling all of the inputs A. has absolutely no impact on output because output is constant B. doubles output C. more than doubles output due to the catch-up effect D. less than doubles output due to diminishing returns

B

If real income per person in 2015 is $18,073 and real income per person in 2016 is $18,635, what is the growth rate of real income over this period? A. 3.0% B. 3.1% C. 5.62% D.18.0% E. 18.6%

B

Once a country is wealthy A. it is nearly impossible for it to become relatively poorer B. it may be harder for it to grow quickly because of the diminishing returns to capital C. capital becomes more productive due to the "catch-up effect" D. it no longer needs any human capital E. none of the above is true

B

Which of the following expenditures to enhance productivity is most likely to emit a positive externality? A. megabank buys a new computer B. susan pays her college tuition C. exxon leases a new oil field D. general motors buys a new drill press

B

Which of the following government policies is lease likely to increase growth in Africa? A. increase expenditures on public education B. increase restrictions on the importing of Japanese automobiles and electronics C. eliminate civil war D. reduce restrictions on foreign capital investment E. all of the above would increase growth

B

Why does an increase in the rate of saving and investment only increase the rate of growth temporarily?

Because there are diminishing returns to physical capital

Brazil, Japan, and China are growing very quickly because A. they have enormous natural resources B. they are imperialists and have collected wealth from previous victories in war C. they save and invest an unusually high percentage of their real income D. they have always been wealthy and will continue to be wealthy, which is known as the "snowball effect"

C

The opportunity cost of growth is a reduction in A. current investment B. current saving C. current consumption D. taxes

C

Thomas Malthus argued that A. technological progress will continuously generate improvements in productivity and living standards B. labor is the only true factor of production C. an ever-increasing population is constrained only by the food supply, resulting in chronic famines D. private charities and government aid will improve the welfare of the poor E. none of the above is true

C

When a nation has very little income per person A. it is doomed to being relatively poor forever B. it must be a small nation C. it has the potential to grow relatively quickly due to the "catch-up effect" D. an increase in capital will likely have little impact on output E. none of the above is true

C

Which of the following is an example of foreign portfolio investment A. a naturalized U.S. citizen, who was originally born in Germany, buys stock in Ford, and Ford uses the proceeds to buy a new plant B. Toyota builds a new plant in Tennessee C. Toyota buys stock in Ford, and Ford uses the proceeds to build a new plan in Michigan D. Ford builds a new plan in Michigan E. none of the above is an example of foreign portfolio investment

C

Foreign Portfolio Investment

Capital investment financed with foreign money but operated by domestic residents

Foreign Direct Investment

Capital investment owned and operated by foreigners

Copper is an example of A. human capital B. physical capital C. a renewable natural resource D. a nonrenewable natural resource E. technology

D

Which of the following statements is true? A. countries may have a different level of income per person, but they all grow at the same rate B. countries may have a different growth rate, but they all have the same level of income per person C. countries all have the same growth rate and level of output because any country can obtain the same factors of production D. countries have great variance in both the level and growth rate of income per person; thus, poor countries can become relatively rich over time

D

Which of the following statements regarding the impact of population growth on productivity is true? A. there is no evidence yet that rapid population growth stretches natural resources to the point that it limits growth in productivity B. rapid population growth may dilute the capital stock, lowering productivity C. rapid population growth may promote technological progress, increasing productivity D. all of the above are true

D

To increase growth, governments should do all of the following except A. promote free trade B. encourage saving and investment C. encourage foreigners to invest in your country D. encourage research and development E. nationalize major industries

E