Macroeconomics final exam
benefits of growth
-allows everyone to have more -allows govt to avoid hard questions
sources of growth
1.Growth-compatible institutions. 2.Investment and accumulated capital. 3.Available resources. 4.Technological development. 5.Entrepreneurship.
The rule of 72 implies that a country will double its income in about 9 years if its growth rate is:
8%
The rule of 72 implies that a country with a growth rate of 8 percent will double its income in about:
9 years
Growth compatible institutions: a. have incentives built into them that lead people to put forth effort. b. encourage people to pursue activities that inhibit growth in others. c. allow people to gain income for themselves by creating impediments for others. d. encourage people to spend a lot of time in leisure pursuits.
a
The law of diminishing marginal productivity implies that opportunity cost: -increases as one input is increased to produce successive units of output. -increases as all inputs are increased to produce successive units of output. -is constant as one input is increased to produce successive units of output. -is constant as all inputs are increased to produce successive units of output.
a
The legal system is an example of: a. social capital. b. physical capital. c. human capital. d. entrepreneurial capital.
a
Which of the following does not provide an example of network externalities? A) A patent B) A language C) The telephone system D) The Internet
a
Network externality
an externality in which the use by one individual makes a technology more valuable to other people
growth
an increase in potential output
According to the Classical growth model, population growth: a. eventually reduces output. b. eventually reduces output per worker. c. does not affect output. d. does not affect output per worker.
b
If output increases by 2 percent and population growth is 3 percent, per capita output: a.falls by about 5 percent. b.falls by about 1 percent. c. grows by about 1 percent. d. grows by about 5 percent.
b
If the positive externalities associated with learning by doing are sufficiently great, production will be characterized by: A) decreasing returns to scale. B) increasing returns to scale. C) increasing marginal productivity. D) diminishing marginal productivity.
b
Many economists now deemphasize capital accumulation as a source of growth because: -capital accumulation no longer affects growth. -capital accumulation alone does not necessarily lead to growth. Correct -the value of the capital stock no longer depends upon technology and needs of society. -capital has been defined so narrowly that it has become a less useful concept.
b
Positive externalities of technological change result from: -capital accumulation. -the common knowledge embodied in many technologies. Correct -patents. -increasing returns to scale.
b
Small differences in growth rates can create large differences in income levels because of: a. specialization. b. compounding. c. the division of labor. d. Say's Law.
b
Technological development: -makes it impossible to obtain more of the same things. -alters the nature of production and consumption. Correct -does not depend on economic incentives. -does not depend on institutions.
b
Which of the following is not likely to contribute to economic growth? A) Technological development. B) Government planning. C) Institutions with incentives compatible with growth. D) Entrepreneurship.
b
as a result of the Great Depression, economic thought placed greater emphasis on: -long-run growth. -short-run fluctuations. Correct -international transactions. -the problem of inflation.
b
why do markets seem unfair
because of the effect that they have on the distribution of income
According to the Classical growth model, an economy that increases its saving will grow: a. slowly because consumption and aggregate demand will be reduced. b. slowly because interest rates will fall, causing investment to decline. c. quickly since the increase in saving will permit greater investment. Correct d. quickly since the increase in saving will permit more rapid technological progress.
c
Compounding means that changes in living standards depend: A) only on the initial level of income. B) only on the accumulation of changes in income since the initial year. C) on both the initial level of income and the accumulation of changes in income every year since the initial year. D) on neither the initial level of income nor the accumulation of changes in income since the initial year.
c
If per capita output falls by 2 percent and population grows by 3 percent, output: -falls by 5 percent. -falls by 1 percent. -grows by 1 percent. -grows by 5 percent.
c
If the positive externalities associated with learning by doing are sufficiently great, production will be characterized by: -decreasing returns to scale. -increasing marginal productivity. -increasing returns to scale. Correct -diminishing marginal productivity.
c
The rule of 72 implies that a country with a growth rate of 6 percent will double its income in about: -6 years. -8 years. -12 years. Correct -16 years.
c
Haiti has a lower literacy rate (the percentage of those over 15 who can read and write) compared to other Latin American and Caribbean countries. Where does this low literacy rate fit into the factors that explain the wealth of nations? a. It indicates that Haiti is short of physical capital. b. It shows that it lacks entrepreneurship. c. It shows a lack of natural resources. d. It indicates that Haiti is short on human capital.
d
If per capita output increases by 5 percent and output grows by 3 percent, the population must be: A) falling at a rate of 8 percent. B) increasing at a rate of 2 percent. C) increasing at a rate of 8 percent. D) falling at a rate of 2 percent.
d
Markets help to promote growth by: A) encouraging self-sufficiency. B) undermining a nation's comparative advantage. C) reducing specialization and the division of labor. D) increasing specialization and the division of labor.
d
New growth theory emphasizes the importance of all of the following except: A) technology. B) learning by doing .C) positive externalities. D) diminishing marginal productivity
d
Some economists argue that well-functioning capital markets that allow funds to move from those who have but do not need funds to those who need but do not have funds,are essential for rapid economic growth. Well-functioning capital markets are anexample of: A) human capital. B) entrepreneurship. C) physical capital. D) growth-compatible institutions.
d
When the supply of loanable funds (savings) increases, the interest rate _____ and the quantity of loanable funds demanded (investment) ________
falls increases
According to new growth theory, the primary source of growth is capital.
false
Diminishing marginal productivity implies that a proportional increase in all inputs will produce a less than proportional increase in output.
false
potential output
highest amount of output an economy can produce from existing producing processes and resources
Markets help to promote growth by:
increasing specialization and division of labor
when below potential output, an economy is operating ______ its PPC
inside
social capital
is the habitual way of doing things that guides people in how they approach production
per capita growth
means the country is producing more goods and services per person % change in output − % change in population
Learning by doing
meant to improve the methods of production through experience overcomes the law of diminishing marginal productivity because it increases the productivity of workers In the new growth theory, growth potential is unlimited and can accelerate over time.
does capital accumulation lead to growth
not necessarily -capital may become obsolete -includes human capital + social capital also
at potential output, an economy is operating ______ its PPC
on
short run focus is on how to get the economy ...
operating at potential
growth focuses on shifting ______ the PPC
out
productivity
output per unit of input
disadvantages of growth
pollution resource exhaustion destruction of natural habitat
human capital
skills that workers gain from experience, education, and on-the-job training
what increases productivity + growth
specialization division of labor
Law of diminishing marginal productivity
states that as more and more of a variable input is added to an existing fixed input, eventually the additional output produced with that additional input falls
long-run growth focuses on
supply -assumes demand is sufficient to buy whatever is supplied
Say's law
supply creates its own demand -people work and supply goods b/c they want other goods
Unlike Classical growth theory, new growth theory emphasizes the importance of: .
tech
entrepreneurship
the ability to get things done using creativity, vision, willingness to accept risk, and a talent for translating vision into reality
specialization
the concentration of individuals on certain aspects of production
classical growth model
the more capital an economy has, the faster it will grow savings -> investment -> increase in capital -> growth
division of labor
the splitting up of a task to allow for specialization of production
technology
the way we make goods and supply services. -Changes fuel growth. -Advances shift the production possibility curve outward by making workers more productive.
New growth theory
theory that emphasizes the role of technology in the growth process tech advance -> investment -> further tech advance -> growth
per capita output
total output / total population
t or f growth in income improves avg living standards
ture
does growth raise the incomes of the poor
yes -has reduced the number of hours the average person needs to work to buy consumer goods
General policies that are good for growth include
•Encouraging saving and investment. •Formalizing property rights and reducing bureaucracy and corruption. •Providing more of the right kind of education. •Promoting policies that encourage technological innovation. Promoting policies that allow taking advantage of specialization
rule of 72
•The number of years to double income 72/ growth rate. •If France's income grows at 3% per annual rate, it will double in 24 years (72/3).
