Chapter 7
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.
Which type of growth would follow the reopening of idled manufacturing plants to produce additional product?
The economy would move from a point inside the production possibilities frontier to one on the PPF.
The catch-up effect, which explains why developing economies can grow faster than developed economies, is based on the fact that:
adoption of existing technologies can have a dramatic effect in accelerating in less developed economies; on the other hand, more advanced economies have already realized the benefits of these technologies.
Long-run growth occurs when
an economy finds better ways to use existing resources.
Economic growth allows countries to:
invest for the future, providing the basis for additional growth.
Over time, small differences in economic growth can lead to large differences in wealth because of the:
power of compounding.
Which of the following scenarios would result in economic growth in the country of Everland?
GDP doubles while prices remain the same.
Which statement is not true?
Countries with relatively large public sector shares in the economy have the highest growth rates in GDP per capita.
Which of these countries would have the HIGHEST GDP per capita?
a country categorized as free by the Index of Economic Freedom
Which of these is the primary explanation for the extraordinary economic growth the United States has enjoyed over the past century?
technological advancements
Government spending on _____ is considered a contribution to human capital.
the Pell grant program
The annualized percentage change in real GDP is 0.1%. What is the quarter-to-quarter percentage change in real GDP upon which this annualized rate was calculated?
0.025%
The annualized percentage change in real GDP is 1%. What is the quarter-to-quarter percentage change in real GDP upon which this annualized rate was calculated?
0.25%
Why is the effectiveness and stability of a country's financial system essential to economic growth?
It allows firms to finance technological advancements, which lead to economic growth.
For living standards to rise, what must occur?
Output must grow faster than the population.
Suppose a small business knows its production function output = A × f(L, K, H, N) = A × (L + K + H + N). The president of the company is wondering if having a new technology would help increase the total output. Previously, the company had a total output of 120, where L = 20, H = 20, K = 30, and N = 50. After the firm uses the new technology, where A = 2.5, its output rises to 300. Which of these statements is NOT true about this firm's production function?
The firm's output per worker = A*(L/L + K/L + N/L)
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?
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.
What would likely happen if the amount of capital employed per worker grew?
Wages would rise because workers would become more productive.
Using the Rule of 70, how long does it take for a value to double if the growth rate is 8%?
about 8.75 years
The benefits of economic growth in a country include a(n):
better standard of living for the country's citizens.
Which of these is a significant driver of economic growth?
improvements in technology and ideas
Which of these is a source of productivity growth?
increasing the capital-to-labor ratio
In September 2010, President Obama talked about a plan to spend more on U.S. infrastructure. Which of these would NOT be included in such a plan?
increasing the number of U.S. Border Patrol agents
Which term refers to a nation's transportation and communications networks, power generating facilities, educational institutions, and legal, economic, and financial systems?
infrastructure
Economic growth is important to understand because
it is closely tied to standard of living.
Improvements in factors of production can lead countries to attain a higher rate of economic growth. Such factors include:
land, labor, capital, and entrepreneurship.
What is the catch‑up effect concerning developed and developing countries? Developing countries
may grow faster than developed countries because they lack the most basic tools and capital investment leads to higher productivity growth.
The rule of 70 estimates the:
number of years it takes a value to double given a consistent growth rate.
Worker productivity is one of the most important factors that help determine the performance of an economy. Which definition best describes productivity?
per capita GDP
Governments _____ by purchasing public capital and providing incentives for private investment, supporting education through subsidies and financial aid, and supporting research with grants.
provide capital and technology
Which of these would NOT increase the quality of the labor force?
relaxing immigration restrictions
How do economists refer to the amount of capital employed per worker?
the capital‑labor ratio
The annualized percentage change in real GDP is 2.4%. What is the quarter-to-quarter percentage change in real GDP upon which this annualized rate was calculated?
0.6%
Gerald can produce 128 toothpicks in an eight-hour workday. What is Gerald's labor productivity?
16 toothpicks per hour
Assume the initial value of an investment is $1,000 and the growth rate is 4%. Using the Rule of 70, how many years will it take for the initial value to double?
17.5 years
Suppose a new island is discovered in the Atlantic Ocean and a new colony is created on that island with the production function output = f(A, L, K, H, N) = A × ((L + K + H + N). If A equals 3, L and K each equals 7, and H and N each equals 14, then how much output per worker would this new colony produce?
18 A × (L/L + K/L + H/L + N/L)
Assume the initial value of an investment is $1,000 and the growth rate is 20%. Using the Rule of 70, how many years will it take for the initial value to double?
3.5 years
Suppose a new island is discovered in the Atlantic Ocean and a new colony is created on that island with the production function output = Output= f(A, L, K, H, N) = A × (L + K + H + N). If A equals 4, L and K each equals 5, and H and N each equals 15, then how much output per worker would this new colony produce?
32
Assume the U.S. economy increased about 1.1% quarter to quarter. What is the annualized percentage change in real GDP?
4.4%
Assume the initial value of an investment is $1,000 and the growth rate is 10%. Using the Rule of 70, how many years will it take for the initial value to double?
7 years
Why is increased technological knowledge for a nation important for growth?
It allows the nation to be more productive in goods and services that it produces.
_____ can be used to calculate the number of years it takes for an amount to double in value.
The Rule of 70
Assume the U.S. economy increased about 0.6% quarter to quarter. What is the annualized percentage change in real GDP?
2.4%
Which of the statements clearly demonstrates that total factor productivity is increasing? Assume the aggregate production function is upward sloping and exhibits diminishing returns.
Physical capital per worker and human capital per worker decrease, but real GDP per worker remains unchanged.
Suppose a new island is discovered in the Atlantic Ocean and a new colony is created on that island with the production function output = f(A, L, K, H, N) = A × (L + K + H + N). If A equals 3 and L, K, H, and N each equals 7, then how much output would this new colony produce?
84
In June 2011, President Obama noted that foreign investment in the United States in 2010 was 49% higher than in 2009. He cited this as a key driver of an economic recovery. How might this also affect economic growth?
It means more capital for U.S. workers to use.
Economic growth is normally measured by the growth in a country's:
real GDP.
