Macroeconomics Chapter 7

Classify each example as either relating to human capital, physical capital, or technology. An increase in the number of company cars impacts

physical capital

Classify each example as either relating to human capital, physical capital, or technology. An increase in the number of company computers affects

physical capital

Worker productivity is one of the most important factors that help determine the performance of an economy. Which definition best describes productivity?

production per worker

Categorize the statements according to whether they promote economic growth or inhibit economic growth. a. Laws against theft _____________ economic growth.

promote

The potential output of an economy depends on three factors: human capital, physical capital, and technology. For each item below, indicate whether it affects human capital, physical capital, or technology. a. An improvement in adult literacy

human capital

Classify each example as either relating to human capital, physical capital, or technology. A doctor's knowledge about a new cancer treatment affects

human capital

Classify each example as either relating to human capital, physical capital, or technology. An increase in adult literacy affects

human capital

Classify each example as either relating to human capital, physical capital, or technology. An increase in the number of college gradudates impacts

human capital

Classify each example as either relating to human capital, physical capital, or technology. More people graduating from culinary school affects

human capital

Ruritania's Ministry of Economics has considered various plans to stimulate economic growth in the kingdom. Which source of productivity growth does the best proposal directly influence?

human capital

The average rate of growth for slow-growth countries is around 2% per year, and for fast-growth, greater than 5% per year. If instead the growth rate is 7%, the doubling time for the economy is

10 years

Institutions can promote economic growth by increasing saving and investment, promoting the development of new technologies, and ensuring that resources flow to their most productive uses. Identify whether each institution encourages growth or restricts growth. d. Heavy government regulation __________________ economic growth.

restricts

The average rate of growth for slow-growth countries is around 2% per year, and for fast-growth, greater than 5% per year. Suppose the growth rate of the economy is 2%. The size of the economy roughly doubles every

35 years

True or False: As economies grow in size, it is easier to grow at a high rate.

False

True or False: The Rule of 70 measures how long it takes for a value to triple.

False

True or False: An economy with extensive natural resources that are easy to exploit and are marketable has an asset that is useful in achieving higher rates of growth.

True

Consider the interaction between labor and capital within the production process and answer the following questions. What would likely happen if the amount of capital employed per worker grew?

Wages would rise because workers would become more productive.

Which of the statements clearly demonstrates that total factor productivity is increasing? Assume the aggregate production function is upward sloping and exhibits diminishing returns. a) Physical capital per worker and human capital per worker decrease, but real GDP per worker remains unchanged. b) The size of the labor force falls due to emigration which leads to a decrease in real GDP and human capital per worker. Real GDP per worker remains unchanged and physical capital per worker increases. c) Real GDP per worker grows at the same rate as human capital per worker. d) Physical capital per capita, human capital per capita, and real GDP per capita remain constant.

a) Physical capital per worker and human capital per worker decrease, but real GDP per worker remains unchanged.

Why is increased technological knowledge for a nation important for growth? a) It allows the nation to be more productive in goods and services that it produces. b) Increased technological knowledge causes simultaneous increases in human capital and physical capital. c) Technological knowledge allows output to increase instantly. d) All of the above. e) None of the above.

a) it allows the nation to be more productive in goods and services that it produces

For living standards to rise, what must occur? a) Output must grow faster than the population. b) Nominal GDP must grow faster than the population. c) The capital stock must grow faster than the population. d) The labor force must grow faster than the population

a) output must grow faster than the population

Donny, of Donny's Doughnuts, bakes and sells 100 dozen doughnuts a day using one mixer and one fryer. His rival, Sunshine, of Sunshine's Doughnuts, produces 180 dozen doughnuts a day using two mixers and two fryers. Both shops use the exact same technology to make doughnuts and have the same number of workers and the same size building. Donny and Sunshine both increase their capital equipment by one mixer and one fryer. How much should Sunshine realistically expect her production to increase with the new equipment?

about 50 dozen

Donny, of Donny's Doughnuts, bakes and sells 100 dozen doughnuts a day using one mixer and one fryer. His rival, Sunshine, of Sunshine's Doughnuts, produces 180 dozen doughnuts a day using two mixers and two fryers. Both shops use the exact same technology to make doughnuts and have the same number of workers and the same size building. Donny and Sunshine both increase their capital equipment by one mixer and one fryer. How much should Donny realistically expect his production to increase with the new equipment?

about 80 dozen

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

Donny, of Donny's Doughnuts, bakes and sells 100 dozen doughnuts a day using one mixer and one fryer. His rival, Sunshine, of Sunshine's Doughnuts, produces 180 dozen doughnuts a day using two mixers and two fryers. Both shops use the exact same technology to make doughnuts and have the same number of workers and the same size building. Donny and Sunshine both increase their capital equipment by one mixer and one fryer. Which shop will benefit the most from its expansion? a) The local weight‑loss clinic, because the number of doughnuts consumed will increase. b) Donny, because his workers currently have less available capital to work with. c) Sunshine, because her operation was producing more doughnuts to start with. d) The shops will benefit equally because they are using the same quantity of equipment.

b) Donny, because his workers currently have less available capital to work with.

Which term refers to a nation's transportation and communications networks, power generating facilities, educational institutions, and legal, economic, and financial systems? a) public sector b) infrastructure c) utilities d) capital stock

b) infrastructure

Which provisions provide incentives for innovation? a) home buyers tax credit provision b) patent systems c) copyright laws d) research and development tax credit provisions

b) patent systems c) copyright laws d) research and development tax credit provisions

Which statement is not true? a) The legal enforcement of contracts promotes economic growth. b) Price signals distorted by extreme inflation or deflation lead to uncertainty and lower the ability of citizens to make good decisions. c) Countries with relatively large public sector shares in the economy have the highest growth rates in GDP per capita. d) Establishing and protecting property rights are key elements that promote economic growth

c) Countries with relatively large public sector shares in the economy have the highest growth rates in GDP per capita.

The benefits of economic growth in a country include a(n): a) reduction in the life expectancy of the country's population. b) increase in the birth rate in the country. c) better standard of living for the country's citizens. d) decrease in the foreign investment to the country.

c) better standard of living for the country's citizens

What is the catch‑up effect concerning developed and developing countries? Developing countries a) Developing countries have lower productivity per unit of capital because they are better at developing new technology. b) never can catch up to developed countries. c) may grow faster than developed countries because they lack the most basic tools and capital investment leads to higher productivity growth. d) have greater productivity per unit of capital because they are better at developing new technologies.

c) may grow faster than developed countries because they lack the most basic tools and capital investment leads to higher productivity growth.

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? a) To reduce risk and encourage entrepreneurship, require the government to take control of and operate any businesses that do not earn a profit for two consecutive years, including providing salaries for the workers and managers equal to the average for that industry plus 10%. b) To lower unemployment by discouraging layoffs, require businesses to continue paying the salary of any worker who loses his or her job until he or she finds a new one. c) To enhance efficiency and minimize the size of the private sector, require private firms to enter into partnerships whereby ownership of firms is split equally between the government and private owners. d) To increase the general level of skills in the labor force, develop higher levels of quantitative skills through free classes at community colleges.

d) To increase the general level of skills in the labor force, develop higher levels of quantitative skills through free classes at community colleges.

Economic growth is most accurately measured by changes in which variable? a) the capital stock b) wages c) nominal GDP d) real GDP

d) real GDP

Institutions can promote economic growth by increasing saving and investment, promoting the development of new technologies, and ensuring that resources flow to their most productive uses. Identify whether each institution encourages growth or restricts growth. e. Patents and copyrights ___________ economic growth

encourage

Institutions can promote economic growth by increasing saving and investment, promoting the development of new technologies, and ensuring that resources flow to their most productive uses. Identify whether each institution encourages growth or restricts growth. a. A competitive market system ____________________ economic growth.

encourages

Institutions can promote economic growth by increasing saving and investment, promoting the development of new technologies, and ensuring that resources flow to their most productive uses. Identify whether each institution encourages growth or restricts growth. b. Free trade __________________ economic growth.

encourages

The potential output of an economy depends on three factors: human capital, physical capital, and technology. For each item below, indicate whether it affects human capital, physical capital, or technology. b. An increase in the college student population

human capital

Categorize the statements according to whether they promote economic growth or inhibit economic growth. b. Regulations that make creating small businesses difficult ________________ economic growth.

inhibit

Categorize the statements according to whether they promote economic growth or inhibit economic growth. c. The creation of a price ceiling on gold _______________ economic growth.

inhibits

Categorize the statements according to whether they promote economic growth or inhibit economic growth. e. Governmental corruption _________________ economic growth

inhibits

Categorize the statements according to whether they promote economic growth or inhibit economic growth. f. A commitment by a nation's central bank to print money to pay for government expenditures _______________ economic growth.

inhibits

Economic growth allows countries to:

invest for the future, providing the basis for additional growth

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

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

The rule of 70 estimates the:

number of years it takes a value to double given a consistent growth rate

The potential output of an economy depends on three factors: human capital, physical capital, and technology. For each item below, indicate whether it affects human capital, physical capital, or technology. d. The acquisition of computers by companies

physical capital

Over time, small differences in economic growth can lead to large differences in wealth because of the:

power of compounding

Categorize the statements according to whether they promote economic growth or inhibit economic growth. d. The creation of a system of patent law ___________________ economic growth.

promotes

Categorize the statements according to whether they promote economic growth or inhibit economic growth. g. The use of competitive markets to allocate goods and services _______________ economic growth.

promotes

Economic growth is normally measured by the growth in a country's:

real GDP

Institutions can promote economic growth by increasing saving and investment, promoting the development of new technologies, and ensuring that resources flow to their most productive uses. Identify whether each institution encourages growth or restricts growth. c. Protectionist trade policies ________________ economic growth.

restrict

Institutions can promote economic growth by increasing saving and investment, promoting the development of new technologies, and ensuring that resources flow to their most productive uses. Identify whether each institution encourages growth or restricts growth. f. Command‑based systems ____________ economic growth.

restrict

Classify each example as either relating to human capital, physical capital, or technology. A new cancer treatment affects

technology

Classify each example as either relating to human capital, physical capital, or technology. New distribution techniques affect

technology

The potential output of an economy depends on three factors: human capital, physical capital, and technology. For each item below, indicate whether it affects human capital, physical capital, or technology. c. The development of smaller mp3 players

technology

The potential output of an economy depends on three factors: human capital, physical capital, and technology. For each item below, indicate whether it affects human capital, physical capital, or technology. e. New distribution techniques

technology

Consider the interaction between labor and capital within the production process and answer the following questions. How do economists refer to the amount of capital employed per worker?

the capital-labor ratio