Econ 202 Chapter 7 practice questions

If GDP grows at a rate of 3% per year, approximately how long will it take for GDP to double in size?

23 years

In 2012, the imaginary nation of Platland had a population of 10,000 and real GDP of 42,000,000. During the year its real GDP per person grew by about 2%. Which of the following sets of growth rates is consistent with this growth in real GDP per person?

3% population growth and 5% real GDP growth. GDP growth - population growth = GDP growth per person. When population growth is 3% and real GDP growth is 5%, real GDP per person grows by about 2%.

If, between 2001 and 2011, the economy's real GDP grew from $20 billion to $40 billion, what was the average annual growth rate in the economy? (Use the rule of 70)

7%

Last year real GDP in the imaginary nation of Olympus was 445.0 billion and the population was 2.2 million. The year before, real GDP was 390.0 billion and the population was 2.1 million. What was the growth rate of real GDP per person during the year?

8.9 percent. We can divide real GDP by population in each year and then calculate the percentage change, which is about 8.9%. Alternatively we could calculate the percentage change in real GDP and subtract that percentage change in population. This calculation gives 14.1% - 4.8% = 9.3%, which is approximately correct.

Which of the following can explain why some countries have not experienced relatively high growth rates in real GDP per capita despite relatively low initial levels of real GDP per capita?

Countries that are relatively poor have a difficult time generating savings, and many have not welcomed foreign investment. Countries that are relatively poor are more likely to experience wars and revolutions. Many of these developing countries do not have a functioning court system that can effectively enforce laws.

Country K had a population of 1,400, of whom 350 worked an average of 8 hours a day and had a productivity of 44 units per labor hour. Country L had a population of 2,500, of whom 1,250 worked 6 hours a day and had productivity of 41 units per labor hour.

Country L had the higher level of real GDP and real GDP per person. Total production per day in country K is 350 x 8 x 44 = 123,200 or 88 per person. Total production per day in country L is 1,250 x 6 x 41 = 307,500 or 123 per person. These calculations are a little too complicated for an exam question.

Which of the following best describes what has happened to real GDP per person in the United States between 1929 and today?

It has increased by a factor of six.

Refer to Table 25-1. Which of the following is correct?

Real GDP is higher in Troy while real GDP per person is higher in Athens. Real GDP in Athens: 200,000 Ribs * $10 per Rib + 400,000 Baked Potatoes * $4 per Baked Potato = $3,600,000. Real GDP per Person in Athens: $3,600,000 / 6,000 people = $600 per person. Real GDP in Troy: 300,000 Ribs * $10 per Rib + 250,000 Baked Potatoes * $4 per Baked Potato = $4,000,000. Real GDP per Person in Troy: $4,000,000 / 8,000 people = $500 per person

The Karmic Deed Restaurant uses all of the following to produce vegetarian meals. Which of them is an example of physical capital?

The tables and chairs in the restaurant.

Keira is a farmer. Which of the following are included in her human capital?

What she's learned from experience but not her seed drill.

What is meant by the term human capital?

accumulated knowledge and skills acquired by workers

Refer to Figure 25-1. The curve becomes flatter as the amount of capital per worker increases because of

diminishing returns to capital.

The traditional view of the production process is that capital is subject to

diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries.

In recent decades, Americans have increased their purchase of stocks of foreign-based companies. The Americans who have bought these stocks were engaged in

foreign portfolio investment.

Suppose Japanese-based Toshiba Corporation builds and operates a new computer factory in the United States. Future production from such an investment will

increase U.S. GDP more than it increases U.S. GNP.

All else equal, if there are diminishing returns, then

increases in the capital stock increase output by ever smaller amounts.

technological knowledge

is a determinant of productivity.

The catch-up effect refers to the idea that

it is easier for a country to grow fast and so catch-up if it starts out relatively poor.

Other things the same, a country that increases its saving rate increases

its future productivity and future real GDP.

Which of the following is an example of human capital?

knowledge learned from reading books

Economists differ in their views of the role of the government in promoting economic growth. They generally agree, though, that at the very least, the government should

lend support to the invisible hand by maintaining property rights and political stability. Most economists believe that free trade is usually in a nation's interest, even a developing nation.

Which of the following is true about economic growth? Economic theory predicts that

poor countries can grow faster than rich countries, and South Korea and China are examples, but for many poor countries it has not been true.

The Economic Development Minister of a country has a list of things she thinks may explain her country's low growth of real GDP per person relative to other countries. She asks you to pick the one you think most likely explains her country's low growth. Which of the following contributes to low growth?

poorly enforced property rights

In some countries it is time consuming and costly to establish ownership of property. Reforms to reduce these costs would likely

raise real GDP and productivity.

A rapid increase in the number of workers, other things the same, is likely in the short term to

raise real GDP, but decrease real GDP per person.

Consider a per-worker production function that has the usual shape and assume there is no technological change or growth in human capital. Then if the United States increases capital per hour worked by $40,000 every year between 2010 and 2014, we would expect to see that

real GDP per hour worked will increase by smaller increments each year between 2010 and 2014.

Among the following choices, a nation's standard of living is best measured by its

real GDP per person.

Country A and country B both increase their capital stock by one unit. Output in country A increases by 12 while output in country B increases by 15. Other things the same, diminishing returns implies that country A is

richer than Country B. If Country A adds another unit of capital, output will increase by less than 12 units.

The rule of 70 states that

the number of years it takes an economy to double in size is 70 divided by the growth rate

Which of the following is a part of an economics professor's human capital?

the things she learned at some prestigious university