Chapter 6 Econ

Which of the following statements regarding human capital is INCORRECT? A) Human capital is the accumulated skill and knowledge of human beings. B) Education is the only vehicle for the creation of human capital because training simply reinforces what has already been learned. C) The accumulation of human capital is the source of both increased productivity and technological advance. D) Writing and mathematics, the most basic of human skills, are crucial elements in economic progress.

B) Education is the only vehicle for the creation of human capital because training simply reinforces what has already been learned.

The real wage rate equals A) (money wage rate)/(price level). B) (price level)/(money wage rate). C) (money wage rate) × (price level). D) (money wage) + (number of hours worked)/(price level).

(money wage rate)/(price level)

Which one of the following statements about growth theories is correct?

A) In the new growth theory, knowledge is not subject to diminishing returns.

________ predicts that real GDP per person can grow indefinitely.

A) New growth theory

New growth theory proposes that real GDP per person grows because of ________ and that growth ________.

A) the pursuit of profit; can persist indefinitely

Because the productivity of labor decreases as the quantity of labor employed increases A) the quantity of labor a firm demands increases as the real wage rate decreases. B) the quantity of labor a firm demands increases as the money wage rate decreases. C) the labor demand curve shifts right as the real wage rate decreases. D) the aggregate production function shifts upward as the real wage rate decreases.

A) the quantity of labor a firm demands increases as the real wage rate decreases.

Neoclassical growth theory proposes that

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

When labor productivity increases, the demand for labor curve ________ and the supply of labor curve ________.

B) shifts rightward; does not shift

Savings is an important factor influencing economic growth because saving A) can finance new investment and capital formation. B) helps the economy maintain the current level of total expenditures when a recession begins. C) provides a fund for wages needed from any unexpected population growth.

D) All of the above answers are correct

The Rule of 70 is used to

estimate how long it will take the level of any variable to double

An increase in labor productivity ________ the real wage rate and an increase in population ________ the real wage rate.

raises; lowers

An aggregate production function shows the relationship between

real GDP and the quantity of labor employed

An increase in saving that leads to more capital accumulation ________ labor productivity. A) increases B) does not change C) decreases D) probably changes but in an ambiguous direction

A) increases

If the saving rate increases, a country's growth rate of real GDP per hour of labor ________ and capital per hour of labor ________.

A) increases; increases

Within neoclassical growth theory, technological change ________ saving and ________ investment.

A) increases; increases

Employment and (total) potential GDP increase if the

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

Neoclassical growth theory

A) predicts that growth rates and incomes per person throughout the world will converge.

If the price level rises by 5 percent and workers' money wage rates remain constant, firms A) quantity of labor demanded will decrease. B) quantity of labor demanded will increase. C) supply of jobs will decrease. D) None of the above answers are correct.

A) quantity of labor demanded will decrease.

As the real wage rate increases, the

A) quantity of labor supplied increases.

In the labor market, an increase in labor productivity ________ the real wage rate and ________ the level of employment.

A) raises; increases

According to the new growth theory, competition

A) reduces profit

An increase in the working-age population results in a

C) rightward shift of the supply of labor curve and an increase in potential GDP.

The supply of labor curve A) has a negative slope. B) is independent of the wage rate. C) shows how much labor workers are willing to supply at various real wage rates. D) is usually vertical

C) shows how much labor workers are willing to supply at various real wage rates.

The labor demand curve slopes downward because

C) the firm maximizes profits by hiring more labor when the real wage rate falls.

The notion that technological change is not random but instead is driven by the pursuit of profits is an essential element of

C) the new growth theory.

According to the classical growth theory of Thomas Malthus, A) labor productiv ity increases continuously. B) the population growth rate is fixed. C) technological advances lead to permanent increases in real GDP per person. D) increases in real GDP per person are only temporary.

D) increases in real GDP per person are only temporary.

Factors that influence labor productivity include ________.

D) physical capital, human capital, and technology

Because of the choices people make in the pursuit of profit, new growth theory argues that

D) the economy can enjoy persisting economic growth

The supply of labor curve is

Upward Sloping

An increase in a nation's population results in

a movement along the production function.

The best definition for economic growth is

a sustained expansion of production possibilities measured as the increase in real GDP over a given period.

As a result of the rightward shift in the demand curve for labor from LD0 to LD1, the equilibrium level of employment ________ and potential GDP ________.

increases; increases

Labor productivity is A) real GDP per hour of labor times the hours of work. B) real GDP per hour of labor times the number of people. C) real GDP per hour of labor. D) the rate of change in real GDP per hour of labor

real GDP per hour of labor.

Neoclassical growth theory attributes economic growth to

technological change.

Classical growth theory proposes that real GDP growth is ________ and that real GDP per person will ________ the subsistence level

temporary; temporarily be above

In the above figure, what is the full-employment real wage rate and quantity of hours per year?

A) $40 and 60 billion hours per year

Which growth theory models growth as a perpetual motion machine?

A) new growth theory

In neoclassical growth theory, technological change ________.

A) occurs by chance

If the real wage rate is such that the quantity of labor supplied by workers is less than the quantity of labor demanded by firms,

B) there is a shortage of labor.

If the labor market is in equilibrium and then the labor supply curve shifts rightward,

B) there will be a surplus of labor at the original equilibrium rate

An important foundation of the new growth theory is that

B) we will get more technological advances the greater the rewards people receive from making technological advances.

The labor force participation rate

C) increases as the real wage rate increases.

In the above figure, at the real wage rate of $50

C) there is a surplus of 60 billion hours per year.

Of the following Asian countries, which has the lowest level of real GDP per person? A) China B) Korea C) Singapore D) Hong Kong

China

The aggregate production function shows that an economy increases its real GDP in the short run by

using more labor.

Over the last 100 years, the average U.S. growth rate in real GDP per person was about A) 2 percent per year. B) 6 percent per year. C) 12.5 percent per year. D) 1 percent per year.

2 percent per year

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) 2 percent per year C) 5 percent per year D) 10 percent per year

3 percent per year

Population increases are the limiting factor in the growth process in

A) classical growth theory

The view that population growth occurs when real GDP per person exceeds the amount necessary to sustain life is part of the ________.

A) classical growth theory

Full employment corresponds to

A) equilibrium in the labor market, with real GDP being equal to potential GDP

The assumption that population growth will lead to a fall in real GDP per person rate back to subsistence level is

B) associated with Malthusians.

Economic growth tends to be higher in a country that

B) has an economy open to international trade.

A problem with the neoclassical growth theory is its

B) inability to explain persistent differences between countries GDP growth rates.

On the job training is an example of

B) investment in human capital.

According to new growth theory ________.

B) knowledge does not experience diminishing returns

According to neoclassical growth theory, the higher real GDP per person from economic growth will

B) last because there is no link between growth and population.

Which theory emphasizes the significance of new discoveries that can be used by many people at the same time? A) neoclassical growth theory B) new growth theory C) classical growth theory D) None of the above answers are correct.

B) new growth theory

Labor growth depends mainly on ________ and labor productivity growth depends on ________.

B) population growth; technological advances

The Industrial Revolution in England in large was the result of

B) technological innovations encouraged by the patent system.

If real GDP is $13,500 billion and aggregate hours are 110 billion, labor productivity equals A) $6.75 per hour. B) $104 per hour. C) $123 per hour. D) $675 per hour.

C) $123 per hour.

Which of the following is TRUE regarding the labor market? I.The labor supply curve slopes upward because firms maximize profits as they hire more workers. II.If the real wage rate falls, the quantity of labor firms demand increases. III.The demand for labor curve slopes downward because as the real wage rate falls, workers demand to work fewer hours.

C) II only II.If the real wage rate falls, the quantity of labor firms demand increases.

Which of the following is associated with classical growth theory? I.Growth in real GDP can continue indefinitely. II.Technological growth increases as the population grows. III. Population explosions bring real GDP per person back to subsistence levels.

C) III Population explosions bring real GDP per person back to subsistence levels.

Which of the following ideas apply to the neoclassical growth theory? I.Technological change results from chance. II.Growth in real GDP stops if technology stops advancing.

C) both I and II

New growth theory assumes that

C) knowledge does not experience diminishing returns.

If capital per worker rises, A) labor productivity decreases. B) no technological progress occurs. C) labor productivity increases. D) firms respond by raising their prices.

C) labor productivity increases.

An increase in productivity relates to

C) producing the same output with fewer labor hours.

If the price level rises by 3 percent and workers' money wages increase by 3 percent, then the A) quantity of labor demand will decrease. B) quantity of labor demand will increase. C) quantity of labor demanded does not change because there is no change in the real wage rate. D) Any of the above could occur depending on the magnitude on the dollar increase in the price level versus the dollar increase in the wage rate.

C) quantity of labor demanded does not change because there is no change in the real wage rate.

Labor productivity, real GDP per labor hour, increases if A) saving and investment cause an increase in the quantity of capital per worker. B) there is an increase in the accumulation of human capital. C) new technologies are continuously discovered. D) All of the above answers are correct.

D) All of the above answers are correct.

Since 1960, which of the following countries had average growth rates in real GDP per person higher than that of the United States? A) Singapore B) Hong Kong C) South Korea D) All of the above answers are correct

D) All of the above answers are correct.

If the real wage rate is such that the quantity of labor supplied equals the quantity of labor demanded, A) a full-employment equilibrium occurs. B) real GDP equals potential GDP. C) the opportunity cost effect of not working equals the income effect. D) Both answers A and B are correct.

D) Both answers A and B are correct.

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.

D) I, II and III

Which of the following policy actions could speed productivity growth? I.Tax incentives to encourage saving. II.Encouraging international trade. III.Directing public funds toward financing basic research.

D) I, II, and III

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

D) I, II, and III.

Which of the following statements is correct? A) When the real wage increases, the labor supply curve shifts rightward. B) When the real wage increases, the labor supply curve shifts leftward. C) When the real wage decreases, the labor s upply curve shifts leftward. D) None of the above statements are correct.

D) None of the above statements are correct.

Saving and investment that increase a nation's capital lead to A) slower growth because there is a lack of consumption. B) a decrease in labor productivity as capital is used to replace labor. C) a decrease in the amount of capital per worker. D) an increase in labor productivity.

D) an increase in labor productivity.

Neoclassical growth theory predicts that China's economic growth rate will ________.

D) eventually converge to the U.S. economic growth rate.

According to new growth theory, technological change is driven by

D) firms' attempts to increase their profit

The aggregate production function is graphed as

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

Suppose real GDP for a country is $13 trillion in 2007, $14 trillion in 2008, $15 trillion in 2009, and $16 trillion in 2010. Over this time period, the real GDP growth rate is A) increasing. B) decreasing. C)constant. D) negative.

decreasing

The relationship between the labor employed by a firm and the real wage rate is shown by the

demand for labor curve

If the nation's capital stock increases so that workers become more productive, the

demand for labor will increase

If a nation's population grows, then

growth in real GDP per person will be less than the growth of real GDP.

The aggregate production function relating real GDP to labor hours

has a positive slope and becomes steeper as employment increases.

According to the law of diminishing returns, an additional unit of

labor produces less output than the previous unit.

The real wage rate will fall if the

labor supply curve shifts rightward and the labor demand curve does not shift

The country of Kemper is on its aggregate production function at point W in the above figure. If the population increases with no change in capital or technology, the economy will A) move to point such as Y. B) remain at point W. C) move to point such as X. D) move to point such as Z.

move to point such as X.

The country of Kemper is on its aggregate production function at point W in the above figure. The government of Kemper passes a law that makes 4 years of college mandatory for all citizens. After all citizens have their education, the economy will A) move to point such as Y. B) remain at point W. C) move to point such as X. D) move to point such as Z.

move to point such as Z.

The real wage rate measures the A) quantity of goods and services that an hour of work will buy. B) average weekly earnings in dollars of a worker. C) dollar value of an hour of work. D) dollar value of what a worker could earn in another job.

quantity of goods and services that an hour of work will buy.

An increase in physical capital or a technological advance A) raises the real wage rate. B) decreases the quantity of labor employed. C) shifts the pro duction function downward. D) decreases demand for labor

raises the real wage rate.

Which of the following is used to calculate the standard of living? A) real GDP/population B) ((real GDP in the current year — real GDP in previous year)/real GDP in previous year) x 100 C) the one-third rule D) real GDP/aggregate hours

real GDP/population

The aggregate production function shows how ___ _____ varies with ________.

real GDP; labor

The curvature of the production function shows that as employment increases, the productivity of labor

remains positive but decreases.

Human capital is the

skill and knowledge accumulated by humans.

An increase in the population and hence the supply of labor causes a

surplus of labor at the original real wage rate and the real wage rate will fall

Over the past fifty years, there has been substantial closure of the gap in real GDP per person between which of the following groups of countries?

the United States and Japan

Which of the following is NOT an important factor affecting growth in labor productivity? A) the saving rate B) the speed with which prices fall C) the growth rate of physical capital D) the growth rate of labor productivity

the speed with which prices fall