Econ- Exam 2

Which of the following is consistent with classical growth theory? a. Real GDP per person will never permanently increase. b. Competition destroys innovation and decreases profit. c. Real GDP per person will increase because technological change induces investment. d. As real GDP increases, there will be a decrease in the rate of population growth.

a. Real GDP per person will never permanently increase.

If the nominal interest rate is 8 percent and the current inflation rate is 3 percent, approximately what is the real interest rate? a. 11 percent b. 3 percent c. 5 percent d. 8 percent

c. 5 percent

The view that population growth occurs when real GDP per person exceeds the amount necessary to sustain life is part of the ________. a. new growth theory b. modern theory of population growth c. classical growth theory d. neoclassical growth theory

c. classical growth theory

Workers who pursue an education directly increase their a. physical capital. b. saving. c. human capital. d. financial capital.

c. human capital.

Technological change a. decreases labor productivity. b. has no effect on employment. c. increases potential GDP. d. lowers the real wage rate.

c. increases potential GDP.

The gap between real GDP per person in Africa and real GDP per person in the United States has been a. there is no gap in real GDP per person between Africa and the United States. b. remaining fairly constant. c. increasing. d. decreasing.

c. increasing.

Factors that influence labor productivity include ________. a. physical capital, the real wage rate, and technology b. the labor demand curve c. physical capital, human capital, and technology d. the inflation rate, the real wage rate, and the exchange rate

c. physical capital, human capital, and technology

U6 measure of unemployment is approximately _______ the U3 measure of unemployment. a. double b. triple c. 150% d. 75%

a. double

According to new growth theory, technological change is driven by a. firms' attempts to increase their profit. b. random chance. c. government policies. d. foreign firms' attempts to increase their sales in the domestic market.

a. firms' attempts to increase their profit.

Which theory emphasizes the significance of new discoveries that can be used by many people at the same time? a. new growth theory b. neoclassical growth theory c. classical growth theory d. None of the above answers are correct.

a. new growth theory

All of the following contribute to labor productivity growth EXCEPT: a. population growth. b. human capital growth. c. physical capital growth. d. technological advancements.

a. population growth.

We are interested in long-term growth primarily because it brings a. higher standards of living. b. higher price levels. c. trade wars with our trading partners. d. lower price levels.

a. higher standards of living.

According to the classical growth theory of Thomas Malthus a. increases in real GDP per person are only temporary. b. labor productivity increases continuously. c. technological advances lead to permanent increases in real GDP per person. d. the population growth rate is fixed.

a. increases in real GDP per person are only temporary.

Activities that encourage faster growth are a. investment in new capital and human capital. b. taxes on saving that serve to encourage more spending and less saving. c. developing trade barriers to protect national industries. d. high levels of consumption and low levels of savings.

a. investment in new capital and human capital.

According to the law of diminishing returns, an additional unit of a. labor produces less output than the previous unit. b. labor decreases output. c. capital produces more output than an additional unit of labor. d. labor produces more output than the previous unit.

a. labor produces less output than the previous unit.

Neoclassical growth theory a. predicts that growth rates and incomes per person throughout the world will converge. b. predicts that the faster growing underdeveloped nations will overtake and then surpass the industrial nations. c. predicts that nations that enjoy a technological advantage will maintain that advantage. d. makes no predictions about the relative growth or incomes among countries.

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

In the labor market, an increase in labor productivity ________ the real wage rate and ________ the level of employment. a. raises; increases b. lowers; increases c. raises; decreases d. lowers; decreases

a. raises; increases

Neoclassical growth theory attributes economic growth to a. technological change. b. fiscal policy. c. the law of diminishing returns. d. increasing population growth.

a. technological change.

Other things remaining the same, the greater the expected profit, a. the greater the amount of investment. b. the less the amount of investment. c. the steeper is the investment demand curve. d. the flatter is the investment demand curve.

a. the greater the amount of investment.

When cyclical unemployment is zero, a. the unemployment rate equals the natural unemployment rate. b. structural unemployment is zero. c. cyclical and frictional unemployment are zero. d. frictional unemployment is zero.

a. the unemployment rate equals the natural unemployment rate.

If the population increases in our growth model, then potential GDP ________ and employment ________. a. increases; decreases b. increases; increases c. decreases; increases d. decreases; decreases

b. increases; increases

According to the new growth theory a. the concept of a labor market is not necessary. b. knowledge is not subject to diminishing returns. c. the rate of technological progress is determined by chance. d. the labor demand curve does not shift rightward over time.

b. knowledge is not subject to diminishing returns.

The wage rate will fall if the a. labor demand curve shifts rightward more than the labor supply curve shifts rightward. b. labor supply curve shifts rightward and the labor demand curve does not shift. c. labor demand curve shifts rightward and the labor supply curve does not shift. d. labor supply curve shifts leftward and the labor demand curve does not shift.

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

Human capital is a. a measure of the labor productivity of workers. b. people's knowledge and skills. c. the saving done by human beings. d. the investment made in industries that make capital goods.

b. people's knowledge and skills.

Labor growth depends mainly on ________ and labor productivity growth depends on ________. a. growth in real GDP per person; technological advances b. population growth; technological advances c. population growth; increases in real GDP d. growth in real GDP per person; growth rate of capital

b. population growth; technological advances

An assumption of classical growth theory is that when ________ the population growth rate ________. a. saving declines; decreases b. real GDP per person exceeds the subsistence level; increases c. people become more skilled; decreases d. the real wage rate falls; increases

b. real GDP per person exceeds the subsistence level; increases

The neoclassical growth theory says, in part, that a. the differences in nation's growth rates will persist indefinitely. b. technological change leads to economic growth. c. technology does not play a role in economic growth. d. a population explosion driven by economic growth will end economic growth.

b. technological change leads to economic growth.

If a rich country grows at a faster rate than a poor one, then a. the gap in their standard of living will close over time. b. the gap in their standard of living will widen over time. c. the difference in their living standards will not change over time. d. whether or not the living standards gap widens or closes over time depends on the absolute size of the relative growth rates.

b. the gap in their standard of living will widen over time.

Which theory of economic growth concludes that growth can continue indefinitely? a. the classical theory b. the new theory c. the neoclassical theory d. all of the theories

b. the new theory

The term "capital," as used in macroeconomics, refers to a. investment. b. the plant, equipment, buildings, and inventories of raw materials and semi-finished goods. c. financial wealth. d. the sum of investment and government purchases of goods.

b. the plant, equipment, buildings, and inventories of raw materials and semi-finished goods.

Labor productivity is a. the rate of change in real GDP per hour of labor. b. real GDP per hour of labor times the hours of work. c. real GDP per hour of labor or real GDP per worker. d. real GDP per hour of labor times the number of people.

c. real GDP per hour of labor or real GDP per worker.

Using the Rule of 70, if the country of Flowerdom's current growth rate of real GDP per person was 7 percent a year, how long would it take the country's real GDP per person to double? a. 1 year b. 49 years c. 2 years d. 10 years

d. 10 years

Over the last 100 years, the average U.S. growth rate in real GDP per person was about a. 6 percent per year. b. 12.5 percent per year. c. 1 percent per year. d. 2 percent per year.

d. 2 percent per year.

Labor productivity, real GDP per labor hour, increases if a. new technologies are continuously discovered. b. there is an increase in the accumulation of human capital. c. saving and investment cause an increase in the quantity of capital per worker. d. All of the answers are correct.

d. All of the answers 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 a. I only b. III only c. I and II d. I, II and III

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 a. II only b. I and III c. I only d. I, II, and III

d. I, II, and III

The decreasing slope of a production function reflects a. decreasing costs. b. increasing aggregate demand. c. rising unemployment. d. diminishing returns.

d. diminishing returns.

Which growth theory models growth as a perpetual motion machine? a. all growth theories model growth as a perpetual motion machine b. neoclassical growth theory c. classical growth theory d. new growth theory

d. new growth theory

Labor growth depends mainly on ________ and labor productivity growth depends mainly on ________. a. growth in real GDP per person; growth rate of capital b. population growth; increases in real GDP c. growth in real GDP per person; technological advances d. population growth; technological advances

d. population growth; technological advances

U.S. investment is financed from a. private borrowing, government budget deficits, and lending to the rest of the world. b. private saving, government budget deficits, and borrowing from the rest of the world. c. private saving and borrowing from the rest of the world only. d. private saving, government budget surpluses, and borrowing from the rest of the world.

d. private saving, government budget surpluses, and borrowing from the rest of the world.

According to the new growth theory, competition a. increases profit. b. is only theoretical because all firms are growing at some rate. c. has no impact on real profit, only nominal profit. d. reduces profit.

d. reduces profit.

An increase in the working-age population results in a a. rightward shift of demand for labor curve and an increase in potential GDP. b. rightward shift of the demand for labor curve and no change in potential GDP. c. leftward shift of the supply of labor curve and a decrease in potential GDP. d. rightward shift of the supply of labor curve and an increase in potential GDP.

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

If new capital or technology increases labor productivity, the supply of labor ________ and the demand for labor ________. a. decreases; stays the same b. increases; decreases c. increases; increases d. stays the same; increases

d. stays the same; increases