Economic Growth & Why Nations Fall

Suppose that a certain country's real GDP is $2,500 and has a population of 20 people. Therefore, real GDP per capita is: a) $125. b) $2,480. c) $2,520. d) $50,000.

a) $125.

Which of the following is among the benefits of economic growth in the United States over the last three decades? a) A reduction in property crime. b) Interest on U.S. Treasury securities fell to approximately 3%. c) Inflation has remained constant at approximately 3%. d) Unemployment has not deviated from the natural rate of unemployment.

a) A reduction in property crime.

Which of the following would increase the quality of the labor force? a) Expanding college degree programs. b) Reducing capital equipment. c) Exploiting mineral deposits. d) Relaxing immigration restrictions.

a) Expanding college degree programs

Which of the following illustrates how to calculate the number of years it takes the growth rate to double in value using the Rule of 70? a) Number of years to double in value = 70/Growth rate b) Number of years to double in value = Growth rate/70 c) Number of years to double in value = 70 x Growth rate d) Number of years to double in value = 70 + Growth rate

a) Number of years to double in value = 70/Growth rate

What is real GDP? a) The total value of final goods and services produced in a country in a year, measured using prices in a base year. b) The total value of final goods and services produced in a country in a year, measured using current prices. c) The total value of final goods and services produced in a country and by a country's citizens abroad in a year, measured using prices in a base year. d) The total value of final goods and services produced in a country in a year, measured using future prices.

a) The total value of final goods and services produced in a country in a year, measured using prices in a base year.

An increase in a country's real GDP per capita generally translates into: a) a higher standard of living for most of its residents. b) a higher cost of living. c) a lower standard of living for most of its residents. d) a lower cost of living.

a) a higher standard of living for most of its residents.

Land, a factor of production, includes: a) mineral deposits, oil, natural gas, and water. b) the mental and physical talents of people. c) manufactured products that are used to produce other goods and services. d) the ability to use resources in creative ways to produce goods and services.

a) mineral deposits, oil, natural gas, and water.

According to the modern growth theory, economic growth is driven most by: a) new knowledge gained by technical change. b) increased capital market investments. c) increased productivity produced by a larger population. d) increases in human capital investments.

a) new knowledge gained by technical change.

Hiring unemployed workers to increase production is likely to produce _____ growth. a) short-run b) intermediate-run c) long-run d) zero

a) short-run

A production function: a) shows the output that is produced using different combinations of inputs combined with existing technology. b) shows the output that is produced using different combinations of technology combined with existing inputs. c) shows the output that is most highly valued by consumers. d) shows the most desired production method for a given level of output.

a) shows the output that is produced using different combinations of inputs combined with existing technology.

Using the Rule of 70, how long does it take for a value to double if the growth rate is 10%? a) Less than one year. b) 7 years c) 10 years d) 40 years

b) 7 years

Which of the following plays the MOST significant role in economic growth? a) Increasing the quantity of land and natural resources. b) Improvements in technology and ideas. c) Increasing the capital-to-labor ratio. d) Increasing the quality of the labor force.

b) Improvements in technology and ideas.

Which of the following is a source of productivity growth? a) Decreasing the capital-to-labor ratio. b) Increasing the labor force participation rate. c) Increasing environmental regulations. d) Reducing immigration.

b) Increasing the labor force participation rate.

Which of the following would not increase human capital? a) Lowering tuition rates at public universities. b) Reducing on-the-job training programs. c) Expanding grants to low-income college students. d) Decreasing interest rates on college loans.

b) Reducing on-the-job training programs.

Which of the following is an example of the primary explanation for the extraordinary economic growth the United States has enjoyed over the past century? a) Greater literacy rates. b) The development of the Internet. c) Higher rates of immigration. d) An increased capital-to-labor ratio.

b) The development of the Internet.

Government spending on _____ is considered a contribution to human capital. a) transportation networks b) public education c) public assistance programs d) infrastructure

b) public education

Government spending on _____is considered a contribution to physical capital which leads to productivity growth. a) public assistance programs b) telecommunication networks c) college financial aid programs d) medical research

b) telecommunication networks

High-speed rail networks were largely invented and perfected by the Japanese, Germans, and French at a high cost. China was able to expand its rail network at a lower cost, allowing it to develop an even more advanced rail network than its predecessors. This is an example of: a) productivity. b) the catch-up effect. c) increasing returns to capital. d) diminishing returns to capital.

b) the catch-up effect.

If $1,000 grows at a compound growth rate of 5%, it means that: a) the original $1,000 increases by $50 each year. b) the original $1,000 as well as each year's increase, increases by 5% each year. c) the original $1,000 increases by 5% the first year, but after that, only the interest increases by 5%. d) the original $1,000 increases by 1% every year for the 5 years.

b) the original $1,000 as well as each year's increase, increases by 5% each year.

If a country's annual growth rate is 10%, about how much will its current GDP of $5 billion be in 7 years? a) $5.7 billion b) $7 billion c) $10 billion d) $12 billion

c) $10 billion

If a production fucntion is given by 5K + 2L, what is the level of output if capital equals 10 and labor equals 100? a) 50 b) 120 c) 250 d) 520

c) 250

Production workers in country A have $1,500 of capital invested per worker. Production workers in country B have $1,000 of capital invested per worker. Production workers in country C have $2,500 of capital invested per worker. Production workers in country D have $500 of capital invested per worker. Which country has the highest labor productivity? a) Country A b) Country B c) Country C d) Country D

c) Country C

Suppose that country A has a 5% growth rate and country B has a 10% growth rate and that each country has a real GDP of $3 million. After 7 years, country A's real GDP will be approximately _____, and country B's real GDP will be approximately _____. a) $15 million; $30 million b) $6 million; $6 million c) between $3 million and $6 million; $6 million d) $6 million; less than $4.5 million

c) between $3 million and $6 million; $6 million

An innovation that speeds processing time and makes workers more productive is likely to produce _____ growth. a) short-run b) intermediate-run c) long-run d) zero

c) long-run

Physical capital, a factor of production, includes: a) mineral deposits, oil, natural gas, and water. b) the mental and physical talents of people. c) manufactured products that are used to produce other goods and services. d) the ability to use resources in creative ways to produce goods and services.

c) manufactured products that are used to produce other goods and services.

Machinery used in factories and cash registers used in retail stores are part of: a) land. b) labor c) physical capital. d) entrepreneurial ability.

c) physical capital.

Short-run growth occurs: a) when an economy finds new resources. b) when all resources are fully utilized. c) when an economy makes use of existing but underutilized resources. d) when an economy finds ways to use existing resources better.

c) when an economy makes use of existing but underutilized resources.

Using the Rule of 70, assume it takes five years for the initial value to double. What is the growth rate? a) 1% b) 5% c) 10% d) 14%

d) 14%

When each additional unit of capital provides a smaller increase in output than the previous unit of capital, which of the following has occurred? a) Productivity b) Catch-up effect c) Increasing returns to capital d) Diminishing returns to capital

d) Diminishing returns to capital

Which of the following is NOT a common benefit that comes with economic growth? a) Improved life expectancy. b) Higher standards of living. c) Increased educational attainment. d) Higher interest rates on saving accounts.

d) Higher interest rates on saving accounts.

Which of the following is NOT a source of productivity growth? a) Increasing the capital-to-labor ratio. b) Increasing the labor force participation rate. c) Improvements in technology. d) Reducing immigration.

d) Reducing immigration.

The most important factor in improving a country's standard of living is likely to be: a) low interest rates. b) high rates of inflation. c) a large budget surplus. d) economic growth.

d) economic growth.