Chapter 7 True/False and Multiple Choice

If a production function exhibits constant returns to scale, which one of the following occurs if the inputs are doubled? a.Output doubles b.Output more than doubles due to the catch-up effect c.Output is less than double due to diminishing returns. d.Output is not impacted because output is constant.

A. Output doubles

Which one of the following is a reasonable measure of a country's standard of living a. real GDP per person b. real GDP c. nominal GDP per person d. nominal GDP

A. Real GDP per person

Which one of the following is the reason that South Korea has experienced more rapid economic growth than Canada? a.South Korea has enormous natural resources b.South Korea started off poor, and it is now experiencing the "catch-up effect" c.South Korea is an imperialist country that has collected wealth from precious victories in war. d.South Korea has always been wealthy and will continue to be wealthy, which is known as the "snowball effect"

B. South Korea started off poor, and it is now experiencing the "catch up effect"

Which one of the following statements is true a. A level of GDP per person may be different for each country, but all countries grow at the same rate. b. The growth rate of each country may be different, but all countries have the same level of GDP per person. c. The level and growth rate of GDP per person varies by country; thus, a poor country can relatively rich over time. d. All countries have the same growth rate and level of output because any country can obtain the same factors of production.

C. The level and growth rate of GDP per person varies by country; thus, a poor country can become relatively rich over time.

True or False: An increase in the a rate of saving and investment permanently increases a country's rate of growth.

False. Due to diminishing returns to capital, growth rises temporarily.

True or False: The U.S. economy should grow faster than that of Canada because the United States has a larger economy

False. Growth depends on the rate of productivity

True or False: Human capital refers to human-made capital such as tools and machinery, but not to a natural capital such as rivers and timber.

False. Human capital is the knowledge and skills of workers.

True or False: A country can increase its level of investment only by increasing its saving

False. It can attract foreign investment.

True or False: Most economists believe that inward-oriented policies that protect infant industries improve the growth rates of developing nations.

False. Most economists believe that outward-oriented policies improve growth.

True or False: Rising prices for natural resources demonstrates that natural resources are a limit to economic growth

False. The prices of most natural resources adjusted for inflation are stable or falling, reflecting our ability to conserve natural resources.

True or False: An increase in capital in a poor country should cause the country's growth rate to increase more than if the same increase in capital occurred in a rich country.

True

True or False: If a production function exhibits returns to scale then doubling all the inputs doubles the output.

True

True or False: In poorer countries, better nutrition leads to increases in the average height of the population and to higher productivity.

True

True or False: In very poor countries, paying parents to send their children to school could have a big impact on productivity.

True

True or False: Investment in human capital may be particularly productive because of spillover effects, or externalities

True

True or False: The only factor of production that is not "produced" is natural resources

True

True or False: The opportunity cost of additional growth is that someone must forego current consumption

True

True or False: Growth accumulates over time because of compounding

True.

True or False: Some economists believe that world population growth has been an engine of technological progress and economic prosperity.

True.

Which one of the following is NOT associated with expected increase in productivity within a nation? a. An increase in labour b. An increase in human capital per worker c. An increase in physical capital per worker d. An increase in natural resources per worker

a. An increase in labour

Which one of the following is the number of years it will take for nominal income to double if, using the rule of 70, the nominal income grows at 10% per year? a. approximately 7 years b. approximately 10 years c. approximately 70 years d. approximately 69 years

a. approximately 7 years

Which one of the following will occur if Toyota builds a new manufacturing plant in Ontario? a.Canadian GDP will rise more than Canadian GNP. b.Foreign portfolio investment in Canada will rise. c.Canadian GDP will rise, but the increase will be less than that of Canadian GNP d.Canadian GDP and GNP will both fall because some income from this investment will accrue to foreigners.

a.Canadian GDP will rise more than Canadian GNP.

Two countries start with the same real GDP per person. One country grows at 2 percent, while the other grows at 4 percent. Which one of the following statements is most accurate? a. One country will always have 2 percent more real GDP per person than the other. b. The standard of living in the country growing at 4 percent will start to accelerate away from the slower growing country due to compound growth c. The standard of living in the two countries will converge due to diminishing returns to capital. d. Next year, the country growing at 4 percent will be twice as large as the one growing at 2 percent.

b. The standard of living in the country growing at 4 percent will start to accelerate away from the slower growing country due to compound growth

Which of the following government policies is likely to increase growth in Africa? a.Restrictions on foreign capital investment b.Increased spending on health and nutrition c.decreased expenditures on public education d.Restrictions on property rights

b.Increased spending on health and nutrition

Which one of the following expenditures to enhance productivity will emit a positive externality a.TD Canada Trust buys a new computer b.Susan pays her university tuition c.Imperial Oil explores a new oil field d.General Motors buys a new drill press

b.Susan pays her university tuition

When Carly was born, her parents deposited $5000 in a bank account for her. Using the rule of 70, which one of the following is the amount that will be in the bank account when Carly retires at 70 years old, if the deposit earns 5 percent per year? a.$40 000 b.$80 000 c.$160 000 d.$180 000

c. $160 000

Which one of the following is an example of foreign portfolio investment? a.Honda builds a new plant in Ontario b. Royal Bank builds a new corporate office building. c. A U.S. pension fund buys stock in Air Canada, and Air Canada uses the proceeds to buy new airplanes. d. A Canadian citizen buys stock in Air Canada, and Air Canada uses the proceeds to buy a new airplane.

c. A U.S. pension fund buys stock in Air Canada, and Air Canada uses the proceeds to buy new airplanes.

A country's real GDP per person in 2012 was $34 100, and real GDP per person in 2013 was $35 669. Which one of the following is the growth rate of real output per person over this period? a.2.6 percent b.3.6 percent c.4.6 percent d.5.6 percent

c.4.6 percent =(year 2/year 1)-1 =x * 100 =percentage

Which one of the following describes an increase in technological knowledge? a.A farmer buys another tractor b.A farmer hires another day labourer c.A farmer discovers that it is better to plant in the spring than in the fall. d.A farmer sends his child to agricultural college and the child returns to work on the farm.

c.A farmer discovers that it is better to plant in the spring than in the fall.

Which one of the following government policies will increase economic growth? a.Reduce property rights b.encourage consumption c.encourage research and development d.restrict foreign investment

c.encourage research and development

Which one of the following is the opportunity cost of additional growth a. A reduction in taxes b. A reduction in current saving c. A reduction in current investment d. A reduction in current consumption

d. A reduction in current consumption

Which one of the following statements is most likely once a country is wealthy? a. It no longer needs human capital b. It is nearly impossible for it to become relatively poor c. Capital becomes more productive due to the "catch-up effect." d. It may be harder for it grow quickly because of the diminishing returns to capital

d. It may be harder for it grow quickly because of the diminishing returns to capital

Which of the following is copper an example of? a.Human capital b.Physical capital c. A renewable natural resource d. a nonrenewable natural resource

d. a nonrenewable natural resource

Which one of the following statements is most likely when a nation has very little real GDP per person? a. It must be a small nation b.It is doomed to being relatively poor forever. c. An increase in capital will likely have little impact on output d.Inadequate nutrition is an obstacle to higher productivity.

d.Inadequate nutrition is an obstacle to higher productivity.

Which one of the following is a country's standard of living MOST closely related to? a.The country's supply of labour, because that determines how hard the citizens work. b.The country's supply of labour, because everything of value is produced by machinery. c.The country's supply of natural resources, because they limit production d.The country's productivity, because income is equal to what is produced.

d.The country's productivity, because income is equal to what is produced.