Econ 102 Chapter 7 Multiple Choice

11) Moving along the aggregate production function shows the relationship between ________, holding all else constant. A) labor input and real GDP B) labor input, capital input and real GDP C) technology and real GDP D) capital input and real GDP

A) Labor input and real GDP

5) Suppose a nation's population grows by 2 percent and, at the same time, its GDP grows by 5 percent. Approximately how fast will real GDP per person increase? A) 3 percent per year B) 10 percent per year C) 5 percent per year D) 2 percent per year

A) 3 percent per year 5-2 = 3

4) Using the Rule of 70, if the country of Huttodom's current growth rate of real GDP per person was 10 percent a year, how long would it take the country's real GDP per person to double? A) 7 years B) 20 years C) 10 years D) 0.7 years

A) 7 years 70/10 = 7 years

Growth Rate Formula

(GDP2-GDP1)/GDP1

3) According to the Economic Times (09/2012), Standard & Poor's forecast for India's GDP growth rate was cut by 1 percentage point to 5.5 percent as the entire Asia Pacific region feels the pressure of ongoing economic uncertainty. India has averaged 7 percent growth in GDP since 1997. Which of the following is TRUE? A) India's PPF has not shifted since 1997. B) India's PPF has been shifting rightward since 1997. C) India has been moving from a point within its PPF to points beyond its PPF. D) India's PPF has been shifting leftward since 1997.

B) India's PPF has been shifting rightward since 1997.

14) The aggregate production function is graphed as A) an upward sloping line that becomes steeper as the quantity of labor increases. B) an upward sloping line that becomes flatter as the quantity of labor increases. C) an upward sloping straight line. D) a downward sloping curve.

B) an upward sloping line that becomes flatter as the quantity of labor increases.

39) Which of the following does NOT increase labor productivity? A) physical capital growth B) increases in aggregate hours C) human capital growth D) technological advances

B) increases in aggregate hours

15) A decrease in population shifts the A) labor supply curve rightward. B) labor supply curve leftward. C) labor demand curve rightward. D) labor demand curve leftward.

B) labor supply curve leftward.

43) New growth theory proposes that real GDP per person grows because of ________ and that growth ________. A) productivity shocks; occurs randomly B) the pursuit of profit; can persist indefinitely C) technological change; can only increase above the subsistence level temporarily D) productivity shocks; can persist indefinitely

B) the pursuit of profit; can persist indefinitely

22) Potential GDP per labor hour can increase due to A) increases in population. B) increases in the quantity of money. C) increases in labor productivity. D) decreases in the quantity of capital.

C) increases in labor productivity

16) If the nation's capital stock increases so that workers become more productive, the A) supply of labor will increase. B) demand for labor will decrease. C) supply of labor will decrease. D) demand for labor will increase.

D) demand for labor will increase.

Rule of 70 formula and meaning

number of years to double = 70/growth rate estimate how long it will take the level of any variable to double

45) Classical growth theory states that A) growth is followed by increases in the population, eventually leaving real GDP per person unchanged. B) growth is maximized when everyone is fully employed. C) growth in real GDP per person is difficult in the beginning but easier in the later stages. D) advances in technology will always insure a permanent increase in real GDP per person.

A) growth is followed by increases in the population, eventually leaving real GDP per person unchanged.

37) All of the following contribute to labor productivity growth EXCEPT A) population growth. B) technological advancements. C) human capital growth. D) physical capital growth.

A) population growth.

13) When labor productivity increases, the demand for labor curve ________ and the supply of labor curve ________. A) shifts rightward; does not shift B) shifts leftward; does not shift C) shifts rightward; shifts rightward D) shifts leftward; shifts rightward

A) shifts rightward; does not shift Labor productivity increase, demand shifts to the right, supply doesn't change

49) The assumption that population growth will lead to a fall in real GDP per person rate back to subsistence level is A) central to the new growth theory. B) associated with Malthusians. C) part of the neoclassical school of growth theory. D) accepted by all economists today.

B) associated with Malthusians.

19) As labor increases, there is a A) movement along the aggregate production function, but no shift in it. B) movement along the aggregate production function and real GDP will increase less with each additional increase in labor. C) movement along the aggregate production function and real GDP will decrease less with each additional increase in labor. D) shift of the aggregate production function, but no movement along i

B) movement along the aggregate production function and real GDP will increase less with each additional increase in labor.

42) Which growth theory predicts perpetual growth? A) classical growth theory B) new growth theory C) neoclassical growth theory D) None of the above answers is correct.

B) new growth theory

23) An advance in technology increases the productivity of labor. As a result, the nation's production function shifts ________ and the ________ labor curve shifts rightward. A) downward; supply of B) upward; demand for C) upward; supply of D) downward; demand for

B) upward; demand for

44) A central proposition of the new growth theory is that A) government direction and oversight is necessary for consistent growth. B) growth is often just an illusion fostered by growth accounting. C) knowledge is not subject to diminishing returns. D) growth will cease but prosperity will persist.

C) knowledge is not subject to diminishing returns.

12) The quantity of labor supplied depends on the A) price of output not the money wage rate nor the real wage rate. B) money wage rate not the real wage rate. C) real wage rate not the money wage rate. D) level of profits.

C) real wage rate not the money wage rate

48) Which of the following ideas apply to the neoclassical growth theory? I. The rate of technological change influences the rate of economic growth. II. Technological change promotes saving and investment. III. Convergence of economic growth rates across countries. A) I only B) III only C) I and II D) I, II and III

D) I, II and III

10) Real GDP grows when I. the quantities of the factors of production grow II. persistent advances in technology make factors of production increasing III. human capital grows

D) I, II, and III

6) Suppose real GDP for a country is $13 trillion in 2015, $14 trillion in 2016, $15 trillion in 2017, and $16 trillion in 2018. Over this time period, the real GDP growth rate is A) constant. B) negative. C) increasing. D) decreasing.

D) decreasing

18) The real wage rate will fall if the A) labor demand curve shifts rightward and the labor supply curve does not shift. B) labor supply curve shifts leftward and the labor demand curve does not shift. C) labor demand curve shifts rightward more than the labor supply curve shifts rightward. D) labor supply curve shifts rightward and the labor demand curve does not shift.

D) labor supply curve shifts rightward and the labor demand curve does not shift.

31) Human capital is A) the saving done by human beings. B) the investment people make in industries that make capital goods. C) a measure of the labor productivity of workers. D) people's knowledge and skills.

D) people's knowledge and skills.

17) In the labor market, an increase in labor productivity ________ the real wage rate and ________ the level of employment. A) lowers; decreases B) raises; decreases C) lowers; increases D) raises; increases

D) raises; increases

50) Neoclassical growth theory proposes that A) real GDP growth is caused by growth in the population. B) discoveries result from choices that increase profits. C) technological progress increases the population growth rate and drives down real wages. D) real GDP per person grows because technological change increases profit opportunities.

D) real GDP per person grows because technological change increases profit opportunities.

21) An advance in technology will A) not shift the production function but will lead to a movement down along the production function. B) not shift the production function but will lead to a movement up along the production function. C) shift the production function downward. D) shift the production function upward.

D) shift the production function upward.

38) The Industrial Revolution in England in large was the result of A) growth in human capital. B) population growth. C) technological innovations that were financed mainly by government spending. D) technological innovations encouraged by the patent system.

D) technological innovations encouraged by the patent system.