ECON 202 CH 12 Study Guide

The property that poorer countries tend to grow more rapidly than richer countries

Catch-Up Effect

A production process where doubling all inputs doubles output

Constant Returns to Scale

Most economists believe that inward-oriented policies that protect infant industries improve the growth rates of developing nations.

False

The knowledge and skills that workers acquire through education, training, and experience

Human capital

The rate of economic growth is probably underestimated.

True

Which of the following describes an increase in technological knowledge? a. A farmer discovers that it is better to plant in the spring rather than in the fall. b. A farmer buys another tractor. c. A farmer hires another day laborer. d. A farmer sends his child to agricultural college, and the child returns to work on the farm.

A) a farmer discovers that it is better to plant in the spring rather than in the fall.

Madelyn goes to college and reads many books while at school. Her education increases which of the following factors of production? a. human capital b. physical capital c. natural resources d. technology e. All of the above would be increased.

A) human capital

If Mazda builds a new plant in Illinois, a. in the future, U.S. GDP will rise more than U.S. GNP. b. in the future, U.S. GDP will rise less than U.S. GNP. c. in the future, U.S. GDP and GNP will both fall because some income from this investment will accrue to foreigners. d. there has been an increase in foreign portfolio investment in the United States. e. None of the above is true.

A) in the future, U.S. GDP will rise more than U.S. GNP

A reasonable measure of the standard of living in a country is a. real GDP per person. b. real GDP. c. nominal GDP per person. d. nominal GDP. e. the growth rate of nominal GDP per person.

A) real GDP per person

If real GDP per person in 2009 is $18,073 and real GDP per person in 2010 is $1 8,635, what is the growth rate of real output over this period? a. 3.0 percent b. 3.1 percent c. 5.62 percent d. 18.0 percent e. 18.6 percent

B) 3.1 Percent

Evidence of rising prices for natural resources demonstrates that nonrenewable resources will become so scarce that economic growth will be limited.

False

Human capital refers to human-made capital such as tools and machinery, as opposed to natural capital such as rivers and timber.

False

Which of the following expenditures to enhance productivity is most likely to emit a positive externality? a. Megabank buys a new computer. b. Susan pays her college tuition. c. Exxon leases a new oil field. d. General Motors buys a new drill press.

B) Susan pays her college tuition

If a production function exhibits constant returns to scale, doubling all of the inputs a. has absolutely no impact on output because output is constant. b. doubles output. c. more than doubles output due to the catch-up effect. d. less than doubles output due to diminishing returns.

B) doubles output

Which of the following government policies is least likely to increase growth in Africa? a. increase expenditures on public education b. increase restrictions on the importing of Japanese automobiles and electronics c. eliminate civil war d. reduce restrictions on foreign capital investment e. All of the above would increase growth.

B) increase restrictions on the importing of Japanese automobiles and electronics

Once a country is wealthy, a. it is nearly impossible for it to become relatively poorer. b. it may be harder for it to grow quickly because of the diminishing returns to capital. c. capital becomes more productive due to the "catch-up effect." d. it no longer needs any human capital. e. none of the above is true.

B) it may be harder for it to grow quickly because of the diminishing returns to capital

Which of the following is an example of foreign portfolio investment? a. A naturalized U.S. citizen, who was originally born in Germany, buys stock in Ford, and Ford uses the proceeds to buy a new plant. b. Toyota builds a new plant in Tennessee. c. Toyota buys stock in Ford, and Ford uses the proceeds to build a new plant in Michigan. d. Ford builds a new plant in Michigan. e. None of the above is an example of foreign portfolio investment.

C) Toyota buys stock in Ford, and Ford uses the proceeds to build a new plant in Michigan.

Thomas Malthus argued that a. technological progress will continuously generate improvements in productivity and living standards. b. labor is the only true factor of production. c. an ever-increasing population is constrained only by the food supply, resulting in chronic famines. d. private charities and government aid will improve the welfare of the poor. e. None of the above is true.

C) an ever- increasing population is constrained only by the food supply, resulting in chronic famines.

The opportunity cost of growth is a reduction in a. current investment. b. current saving. c. current consumption. d. taxes.

C) current consumption

When a nation has very little GDP per person, a. it is doomed to being relatively poor forever. b. it must be a small nation. c. it has the potential to grow relatively quickly due to the "catch-up effect." d. an increase in capital will likely have little impact on output. e. none of the above is true.

C) it has the potential to grow relatively quickly due to the "catch-up effect"

. Many East Asian Countries are growing very quickly because a. they have enormous natural resources. b. they are imperialists and have collected wealth from previous victories in war. c. they save and invest an unusually high percentage of their GDP. d. they have always been wealthy and will continue to be wealthy, which is known as the "snowball effect."

C) they save and invest an unusually high percentage of their GDP

Which of the following statements is true? a. Countries may have a different level of GDP per person, but they all grow at the same rate. b. Countries may have a different growth rate, but they all have the same level of GDP per person. c. Countries all have the same growth rate and level of output because any country can obtain the same factors of production. d. Countries have great variance in both the level and growth rate of GDP per person; thus, poor countries can become relatively rich over time.

D) Countries have great variance in both the level and growth rate of GDP per person, thus, poor countries can become relatively rich overtime.

Copper is an example of a. human capital. b. physical capital. c. a renewable natural resource. d. a nonrenewable natural resource. e. technology.

D) a nonrenewable natural resource

Which of the following statements regarding the impact of population growth on productivity is true? a. There is no evidence yet that rapid population growth stretches natural resources to the point that it limits growth in productivity. b. Rapid population growth may dilute the capital stock, lowering productivity. c. Rapid population growth may promote technological progress, increasing productivity. d. All of the above are true.

D) all of the above are true

For a given level of technology, we should expect an increase in labor productivity within a nation when there is an increase in each of the following except a. human capital per worker. b. physical capital per worker. c. natural resources per worker. d. labor.

D) labor

Our standard of living is most closely related to a. how hard we work. b. our supply of capital because everything of value is produced by machinery. c. our supply of natural resources because they limit production. d. our productivity because our income is equal to what we produce.

D) our productivity because our income is equal to what we produce

When the incremental increase in output declines as equal increments of an input are added to production

Diminishing Returns

To increase growth, governments should do all of the following except a. promote free trade. b. encourage saving and investment. c. encourage foreigners to invest in your country. d. encourage research and development. e. nationalize major industries.

E) nationalize major industries

When the actions of one person affect a bystander

Externality

Production Inputs such as labor, capital, and natural resources

Factors of Production

A country can only increase its level of investment by increasing its saving.

False

An increase in the rate of saving and investment permanently increases a country's rate of growth.

False

Economic evidence supports the predictions of Thomas Malthus regarding the effects of population growth and the food supply on the standard of living.

False

The United States should grow faster than Japan because the United States has a larger economy.

False

Capital investment financed with foreign money but operated by domestic residents

Foreign Portfolio Investment

Capital investment owned and operated by foreigners

Foreign direct investment

The annual percentage change in output

Growth Rate

Restricting international trade to protect fledgling domestic industry from foreign competition

Infant-Industry Argument

Policies that increase international trade restrictions

Inward-Oriented Policies

Inputs into production provided by nature

Natural Resources

A natural resource that is limited in supply

Nonrenewable Resource

Policies that decrease international trade restrictions

Outward-Oriented Policies

The stock of equipment and structures used to produce output

Physical Capital

The relationship between inputs and outputs from production

Production function

The quantity of production from each unit of labor input

Productivity

The ability of people to exercise control over their resources

Property Rights

A good that we may all use at the same time without diminishing another's benefits

Public Good

The quantity of goods and services available for the average individual in the economy

Real GDP per person

Natural resource that can be reproduced

Renewable Resource

A society's understanding about the best ways to produce goods and services

Technological Knowledge

An increase in capital should cause the growth rate of a relatively poor country to increase more than that of a rich country

True

If Germans invest in the U.S. economy by building a new Mercedes factory, in the future U.S. GDP will rise by more than U.S. GNP.

True

If a production function exhibits constant returns to scale, then doubling all of the inputs doubles output.

True

In very poor countries, paying parents to send their children to school may increase the education of poor children and decrease the use of child labor.

True

Investment in human capital and technology may be particularly productive because of positive spillover effects.

True

The only factor of production that is not "produced' is natural resources.

True

The opportunity Cost of additional growth is that someone must forgo current consumption.

True