Chapter 7 Practice Questions

According to the Penn World tables, real per capita GDP in China in 1988 was approximately $2,000 and by the year 2002 real per capita income in China was approximately $4,000. Over this time period, the growth rate of per capita GDP was approximately

5%

Suppose economies A and B have the same initial level of GDP per capita at $15,000, and each economy begins with a constant growth rate of 1 percent per year. (Neither country has good institutions for economic growth at first.) Then Country A enters an era of political stability, establishes property rights, and installs incentives for entrepreneurship. Country A's economic growth rate consequently improves to 5 percent. Assuming population growth rates remain unaffected, how much longer will it take Country B to double its per capita GDP level compared to Country A?

56 years

One measure of student output is number of completed math problems produced. Using pen and paper only, a student can complete 50 math problems in 2 hours. Using pen, paper and calculator, this same student can complete 100 math problems in 2 hours. (The student is already familiar with, and knows how to use, the calculator.) This scenario illustrates the use of which factor of production? A.physical capital. B.human capital. C.technological knowledge. D.both human capital and technological knowledge.

A

What are some facts of economic growth? I.All countries were once poor. II.There have been growth miracles and growth disasters. III.All countries will catch-up some day. IV.Real GDP per capita varies enormously across countries. A)I, II, and IV only. B)I, II, and III only. C)I and II only. D)II and III only E)II and IV only

A

Communal returns to work often lead to low worker effort. Why does this happen? (Multiple Answers) A) It happens because of the free-rider problem. B) Since the final payout depends on the number of people in the pool rather than an individual worker's effort, a worker does not have much incentive to work. C) It happens because workers learned from seeing the Chinese experience during "The Great Leap Forward."

A and B

Which of the following will lead to sustained long-term economic growth? (Multiple Answers) A) a dependable legal system B) a stable political system C) an honest government. D) an equitable income redistribution system.

A, B, and C

A firm that pays for workers to get an MBA is increasing its A) physical capital. B) human capital. C) gains from trade. D) technical knowledge.

B

A proposal by President Obama to reduce the cost of community colleges is an attempt to raise increase society's __________________. A.physical capital. B.human capital. C.gains from trade. D.technical knowledge. E.ultimate factors of production.

B

Decreases in political stability in a country will typically result in A.Higher levels of real GDP per capita. B.Lower levels of real GDP per capita. C.no impact on real GDP per capita. D.increase GDP per capita at low levels of income, but create cycles and fluctuations as GDP rises.

B

Let's figure out how long it will take for the average Indian to be as wealthy as the average Western European is today. Note that all numbers are adjusted for inflation. India's GDP per capita is $3,000, and let's say that output per person there grows at 5 percent per year. Using the Rule of 70, how many years will it take for India to reach Italy's current level of GDP per capita, about $24,000 per year? A. 14 years. B. 42 years. C. 28 years. D. 12 years.

B

One measure of student output is the number of completed math problems produced. Using pen and paper only, a student can complete 50 math problems in 2 hours. Using pen, paper, and calculator, this same student can complete 100 math problems in 2 hours (the calculator had already been invented and the student is already familiar with and knows how to use the calculator). Does this scenario best illustrate how the addition of which factor of production can increase output? A. Human capital B. Physical capital C. Technological knowledge D. Both human capital and technological knowledge

B

Between 1978 and 1983, food production in China rose by 50% and 170 million people rose above the international poverty line. This occurred because of the: A. Rising popularity of free-riding behavior in China. B. The fall of communism in China. C. Return to private property rights in farming. D. The teaching of Mao Zedong.

C

In 1950 both North and South Korea real GDP per capita were nearly identical (roughly $1,000). Since that time period, real GDP per capita in North Korea grew at 1 percent per year and real GDP per capita in South Korea grew at roughly 5. At this growth rate, I.North Korea's per capita real GDP will double every 70 years. II.South Korea's per capita real GDP will double every 20 years. III.By 2020, South Korea's real per capita GDP will be 16 times higher than North Korea's real GDP A)only I is correct B)only I and II are correct C)only I and III are correct D)only II and III are correct. E)I, II and III are correct

C

Throughout human history we know that A.all countries were able to establish periods of high levels of real GDP per capita. B.most countries were only able to establish a few decades of high levels of real GDP per capita. C.Not until the early 19th century were a few countries able to establish sustained long-run economic growth D.all countries will eventually return to very low levels of real GDP per capita. E.None of the above.

C

The most important factor that contributed to China's rapid growth at the end of the 1970s and early 1980s was A.physical capital. B.human capital. C.technology. D.property rights.

D

The primary difference between per capita GDP in North Korea and South Korea is due to: A. Human capital. B. Culture C. Geography D. Instituions

D

We increase technological knowledge by engaging in _________ and human capital by engaging in ___________. A. Programs that improve workers' health; Investment in physical capital B. Investment in physical capital; programs that improve workers' health C. Education and training; research and development D. Research and development; education and training

D

Which of the following illustrates the "free-rider problem"? A.Three classmates working on a group project all know they will receive the same grade and one the students contributes very little effort to the project. B.Local residents on the island of Mauritius pay taxes to have its beaches cleaned. Tourists visiting the island leave garbage on the beaches because they know that the beaches are cleaned regularly. C.The servers at a restaurant agree to split all of the tips equally and some diners receive poor service. D.All are examples of the "free-rider problem". E.None are examples of the "free-rider problem".

D

Which of the following is not an institution that leads to sustained long-term economic growth? A.a dependable legal system B.a stable political system C.an honest government. D.an equitable income redistribution system.

D