Macroeconomics 26
29) An important social cost of economic growth is A) the sacrifice of current consumption required for a higher level of future consumption. B) the associated inflation. C) the associated frictional unemployment. D) the increasing inequality of income. E) the destruction of jobs due to labour skills of certain workers becoming obsolete.
E
88) The aggregate production function shows the ________ for given levels of labour and capital inputs. A) returns to scale B) the production possibilities boundary C) marginal product of labour D) marginal product of capital E) total output for society (real GDP)
E
89) Neoclassical growth theory is based on the assumption of ________ marginal returns to a single factor and ________ returns to scale exhibited by the aggregate production function. A) decreasing; constant B) increasing; constant C) increasing; increasing D) constant; decreasing E) decreasing; decreasing
A
- C - G E) NS = T - G - C
D
. A) an excess supply of loanable funds B) an excess supply of saving C) an excess demand for public saving D) an excess supply of financial capital E) an excess demand for loanable funds
E
to I2.
E
37) A decrease in government tax revenues, everything else being equal, will cause a(n)________ through the effect on aggregate consumption. A) increase in the growth rate B) decrease in national saving C) increase in national saving D) none of the aboveNthere will be no effect on national saving
B
24) The costs of economic growth include A) reduced interest rates. B) current saving must be sacrificed to increase investment in capital goods. C) declining future living standards. D) improvements in technology. E) the effects on workers whose skills are made obsolete by technical change.
E
5) If GDP in a richer country grows at the same annual rate as in a poorer country, the A) gap between their standards of living will widen over time. B) difference in their living standards will not change over time. C) gap between their standards of living will close over time as long as the rate of population growth is lower in the poorer country. D) gap between their standards of living will close over time as long as the rate of population growth is lower in the richer country. E) gap between their standards of living will close over time.
C
55) Refer to Table 26- 1. What is the level of national saving for this economy? A) $150 B) - $150 C) - $200 D) $200 E) - $50
E
76) According to the Neoclassical growth model, which of the following scenarios explains progressively smaller increase in per capita GDP? A) an increase in the capital stock B) an equal increase in both population and the stock of capital C) an increase in population D) a decrease in unemployment rates E) an equal increase in population and output
A
38) For a given level of private saving, a decrease in the government's budget deficit ________ the long- run rate of economic growth. A) will reduce B) will increase C) will leave unchanged D) will diminish E) none of the above
B
8) Over the long term, by far the most potent force for raising average material living standards is A) increasing the money supply. B) reducing inefficiencies. C) economic growth. D) appropriate fiscal policies. E) redistributing income.
C
67) According to the Neoclassical growth model, it is most likely that GDP would increase, but that average material living standards would fall, as a result of A) a better educated labour force. B) a growing capacity to develop and incorporate new innovations. C) an increase in the availability of natural resources. D) an increase in the working population. E) a fast- growing capital stock.
D
62) In the Neoclassical growth model, decreases in the population, other things being equal, would eventually result in A) decreasing GDP and falling living standards. B) increasing GDP and falling living standards. C) increasing savings and increasing living standards. D) increasing GDP and increasing living standards. E) decreasing GDP and increasing living standards.
E
104) Given the enormous world population growth of recent decades, the present needs and aspirations of the world's population can likely only be met through A) increasing knowledge and technological improvements. B) enormous increases in financial capital. C) relatively small increases in the saving rates of the developing economies. D) coordination of fiscal and monetary policies. E) reductions in the world's capital stock, as a means of controlling the exhaustion of natural resources.
A
106) Which of the following statements is true of new growth theory, and not true of Neoclassical growth theory? A) it can explain improved living standards over the long term. B) it cannot explain improved living standards over the long term. C) economic growth is the result of innovation. D) economic growth does not have an impact on resource exhaustion. E) economic growth depends only on population growth.
A
107) Investment in innovation is often considered to have increasing marginal returns because A) of market development costs and the "public good" nature of knowledge. B) R&D costs are negligible relative to firms' total costs. C) innovation is mostly through "leaning by doing". D) new products increase firms' profits. E) none of the above.
A
17) Refer to Figure 26- 1. The area marked Area 1 represents A) the opportunity cost incurred by Economy B for sacrificing current consumption, as compared to Economy A. B) the value of the investment in capital goods undertaken by Economy B. C) the opportunity cost incurred by Economy A for sacrificing current consumption, as compared to Economy B. D) the value of consumption from Year 0 to Year X in Economy A. E) the value of the investment in capital goods undertaken by Economy A.
A
18) Refer to Figure 26- 1. Suppose Economy A jumps to the path of Economy B at Year 0 by increasing the share of GDP that is saved. In that case, which of the following statements about Economy A is true? A) By Year Y, the increase in consumption made possible by the economy's higher growth rate equals the consumption sacrificed in earlier years. B) By Year X, Economy A is saving and investing the same share of its national income as it would have been had it stayed on its original path. C) By Year X, Economy A is better off in terms of material living standards for having jumped to the path of Economy B. D) By jumping to a new growth path at Year 0, Economy A has increased the share of national income that is consumed. E) Economy A will not be able to regain the losses in consumption it incurs by jumping to the path of Economy B.
A
25) Long- run economic growth can help alleviate the problems of poverty by A) generating more resources that can be used to reduce income inequality. B) creating new low- paying jobs for the unemployed. C) reallocating income away from low- value production to increase the incentives for high- value production. D) increasing investment in human capital. E) requiring increased saving on the part of most of the population.
A
34) Consider a closed economy in the long run. A country with a low national saving rate (as a fraction of real GDP) is likely to have A) a low growth rate because sustained high investment is not possible with low saving. B) an AS curve moving continually to the right. C) trouble achieving potential real national income in the short run. D) either a high or low growth rate depending on the investment schedule. E) a high growth rate because aggregate expenditure will be high out of any given income.
A
36) Which of the following statements concerning national saving is true? A) An increase in the rate of saving will lead to a short- run reduction in national income, but to higher economic growth in the long run. B) A country's saving rate is unrelated to its growth rate. C) An increase in the rate of saving will lead to a reduction in consumption and therefore to both a short- run and a long- run decrease in national income. D) An increase in the rate of saving will cause an immediate increase in national income, but may cause a drop in national income in the long- run. E) An increase in the rate of saving will always be offset by a reduction in private investment.
A
40) For a given level of national income, a decrease in private consumption or government purchases will cause the equilibrium interest rate to A) decrease and the flow of investment to increase. B) increase and the flow of investment to increase. C) decrease and the flow of investment to decrease. D) increase and the flow of national saving to fall. E) increase and the flow of investment to decrease.
A
50) In the long run, an increase in the demand for investment pushes ________ the real interest rate, encourages ________ saving by households, and leads to a ________ future growth rate of potential output. A) up; more; higher B) down; less; lower C) up; more; lower D) up; less; lower E) down; less; higher
A
59) The Neoclassical growth model assumes that, with a given state of technology, increases in the use of a single factor will eventually A) decrease the average product of the factor. B) lead to a decrease in total output by the factor. C) lead to an increase in the marginal output of the factor. D) lead to an increase in the material standard of living. E) increase the average product of the factor.
A
65) "Embodied technical change" is said to occur when A) older capital equipment is replaced with different, more productive, capital. B) the capital- labour ratio is increasing. C) innovations in the organization of production take place which do not involve changes in the form of capital used. D) the labour force acquires new skills that can be used across a wide range of industries. E) techniques of managerial control are improved.
A
66) A central assumption of the Neoclassical growth model is that A) there are diminishing marginal returns to a single factor. B) there are increasing marginal returns to capital investment. C) long- run growth arises only from technological innovation. D) long- run growth arises from correcting market failures. E) there are constant marginal returns to investment.
A
69) In Neoclassical growth theory, average material living standards in an economy could fall when A) additional units of capital are added to the other factors. there is equal percentage growth in capital and labour inputs. technology improves. additional units of labour are added to the other factors. there is a decline in the population. D 70) In Neoclassical growth theory, increasing the amount of capital employed in production ________ the average standard of living as long as the marginal product of capital exceeds zero. A) unambiguously raises B) at first raises but eventually reduces C) has no effect on D) unambiguously reduces E) at first reduces but eventually raises
A
80) According to the Neoclassical growth theory, sustained rising material living standards can only be explained by A) technological change. growth in physical capital. growth in human capital. balanced growth of labour and capital. growth in the labour force. A 81) Sustained economic growth in the long run would be fostered by A) technological improvements embodied in physical or human capital. B) expansionary fiscal policy. C) expansionary monetary policy. D) elimination of an output gap. E) decreasing excise taxes on consumer goods.
A
83) If a country experiences growth in "total factor productivity", then A) there is some growth in real GDP that cannot be accounted for by growth in capital or the labour force. B) all growth in real GDP can be explained by growth in the capital stock. C) material standards of living are falling. D) none of the growth in real GDP can be accounted for by growth in capital and the labour force. E) all growth in real GDP can be explained by growth in the labour force.
A
94) Consider an aggregate production function Y = F(K, L) that displays diminishing marginal returns to labour. If the amount of capital is held constant and the amount of labour used in production is increasing, then A) each additional unit of labour will add less to total output than the previous unit of labour. B) each additional unit of labour will add more to total output than the previous unit of labour. C) there are increasing returns to scale. D) there are constant returns to scale. E) total output increases in proportion to the increases in labour.
A
108) Which of the following makes technological change endogenous in the new growth theories? A) innovation is largely through "learning by doing" B) the "private good" nature of knowledge C) the negative relationship between innovation and adverse economic shocks D) the negative relationship between innovation and competitive markets E) the cheap and instantaneous diffusion of technological knowledge among firms
A 109) Resource exhaustion is not considered to be among the main factors that limit economic growth because A) the population growth rate is decreasing over time and projected to be negative in the future. B) technological advances change the nature of production over time and also make more resources available for extraction. C) different types of inputs are used in production over time. D) resources can be obtained from other planets as technology advances. E) none of the above. Answer: B
23) For a given level of technology, a more rapid rate of economic growth can probably be achieved only if a country's citizens are prepared to A) pay more taxes. B) sacrifice some present consumption. C) decrease interest rates. D) increase their demand for goods and services. E) redistribute income.
B
3) The compounding of economic growth rates means that A) a large increase in investment today has little effect on national income over the long run. B) small changes in sustained growth rates can have a significant impact on national income over several decades. C) a 2 percent annual growth rate of GDP will double national income in 27 years. D) consumers should not save, given the low real returns that compounding produces. E) a 10 percent annual rate of return will double an investment in less than 6 years.
B
4) If per capita GDP in a richer country grows at a faster annual rate than in a poorer country, A) the gap between their standards of living will close over time as long as the rate of population growth is higher in the poorer country. B) the gap between their standards of living will widen over time. C) the difference in their living standards will not change over time. D) whether the gap in living standards widens or closes over time depends on the absolute size of the relative growth rates. E) the gap between their standards of living will close over time.
B
51) Data from most industrialized countries show that countries with high investment rates (as a percentage of GDP) tend to be countries A) with the highest levels of GDP. B) with high rates of economic growth. C) with the highest levels of per capita GDP. D) with the lowest rate of national saving. E) with a negative relationship between investment and the rate of economic growth.
B
52) Consider a closed economy with real GDP in the long run of $400, consumption expenditures of $250, government purchases of $75, and net tax revenue of $20. What is the level of national saving? A) $230 B) $75 C) $55 D) $225 E) $95
B
The table below shows aggregate values for a hypothetical economy. Suppose that this economy has real GDP equal to potential output. Potential GDP $2500 Net Tax Revenues $50 Government Purchases $200 Investment $100 Consumption $2350 Net Exports - $135 TABLE 26-1 53) Refer to Table 26- 1. What is the level of private saving for this economy? A) $300 B) $100 C) $50 D) $150 E) $200
B
. A) an excess demand for loanable funds B) an excess demand for investment C) an excess supply of loanable funds D) an excess demand for financial capital E) an excess supply of public saving
C
10) If real income grows at approximately 4 percent per year, the number of years it will take for real income to double is approximately A) 5. B) 12. C) 18. D) 36. E) 72.
C
11) Of the variables listed below, the best measure of a nation's average material standard of living is A) percent change in nominal GDP. B) per capita nominal GDP. C) per capita real GDP. D) nominal GDP. E) real GDP.
C
19) Refer to Figure 26- 1. Which of the following costs of economic growth are reflected in this diagram? A) lower real interest rate B) environmental degradation C) the sacrifice of current consumption D) resource exhaustion E) none of the above
C
2) In the long run, changes in average material living standards are best shown by A) population growth. B) improvements in monetary policy. C) growth in real per capita GDP. D) improvements in fiscal policy. E) growth in real GDP.
C
26) Long- term economic growth A) alleviates all poverty. B) is achieved only by changes in factor- utilization rates. C) improves average material living standards. D) leads to equal income distribution. E) is the result of expansionary fiscal policy.
C
35) Consider the market for loanable funds for a closed economy in the long run. Other things being equal, a country with a high national saving rate will tend to have A) a high growth rate because aggregate expenditure will be high out of any given income. B) trouble achieving potential real national income in the short run. C) a high growth rate because sustained high investment is possible with high saving. D) either a high or low growth rate depending on the investment demand schedule. E) an AS curve moving continually to the left.
C
39) For a given level of national income, a decrease in private consumption or government purchases will cause the equilibrium interest rate to A) increase and the flow of investment to increase. B) decrease and the flow of national saving to decrease. C) decrease and the flow of national saving to increase. D) increase and the flow of investment to decrease. E) increase and the flow of national saving to decrease.
C
56) If the government has a budget deficit of $400 and the country's level of national saving is $200, then private saving must be A) - $400. B) $200. C) $600. D) $800. E) $400.
C
61) In the Neoclassical growth model, whenever diminishing returns applies, increases in the population, other things being equal, are accompanied by A) increasing GDP and constant living standards. B) decreasing GDP and falling living standards. C) increasing GDP and falling living standards. D) increasing GDP and increasing living standards. E) decreasing GDP and increasing living standards.
C
7) A common measure of a country's rate of economic growth is A) the level of output per capita. B) the level of real gross domestic product. C) the change in output per capita. D) the capital- output ratio. E) the marginal efficiency of capital.
C
72) The Neoclassical growth model assumes that with a given state of technology, A) increases in the use of a single factor bring increasing returns. B) growth in GDP happens only if the labour force grows more quickly than the amount of physical capital. C) the standard of living will decrease if the labour force grows more quickly than the amount of physical capital. D) increases in the use of a single factor result in constant returns. E) increases in GDP are possible only if all factors are increased at an equal rate.
C
77) Real GDP is not a good measure of average material living standards because A) it excludes the role of imported goods. B) it is sensitive to the base year chosen in its calculation. C) it does not take into account the growth in the population. D) it is biased by the changes in the inflation rate. E) none of the above.
C
78) The main properties of a Neoclassical aggregate production function are ________ and ________. A) increasing returns to scale; increasing marginal returns B) increasing returns to scale; diminishing marginal returns C) constant returns to scale; diminishing marginal returns D) decreasing returns to scale; diminishing marginal returns E) constant returns to scale; constant marginal returns
C
82) When a new personal computer is purchased to replace an old one, and the new PC is much better and faster than the old one, there has been A) a disembodied technical change. B) a fall in the output per unit of capital. C) an embodied technical change. D) a rise in the capital- output ratio. E) capital "deepening".
C
84) The growth of "total factor productivity", or the "Solow residual", is equal to the growth in real GDP A) accounted for by changes in all factors of production but excluding technological changes. B) that cannot be accounted for by changes in the labour force. C) that cannot be accounted for by changes in the quantities of labour and capital. D) that cannot be accounted for by changes in technology. E) accounted for by changes in all factors of production and including technological changes.
C
85) An example of "embodied technical change" is A) the strengthening of social infrastructure, such as delivery of basic health- care services. B) education that teaches a wider portion of the labour force basic numeracy. C) the replacement of old computer chips with new ones designed for faster processing. D) better methods of inventory control. E) the development of better intellectual property law.
C
1) Over a long period of time, perhaps many years, changes in real GDP come primarily from A) leftward shifts of the AD curve. B) upward shifts of the AE curve. C) upward shifts of the AS curve. D) continuous increases in potential GDP. E) rightward shifts of the AD curve.
D
20) If a country transfers resources from the production of consumption goods to the production of capital goods, the result will be to A) raise current living standards. B) raise current consumption. C) decrease the long- run growth rate. D) raise future consumption. E) lower future living standards.
D
28) Alleviation of poverty is easier in a growing economy mainly because A) everyone, including the poor, benefits equally from growth. B) poor individuals are relatively easier to be identified in a growing economy. C) individuals are more likely to object to the redistribution of income when they earn more. D) nobody has to be made worse off when the increment to income caused by growth is redistributed. E) none of the above.
D
31) For a given level of private saving, an increase in the growth of government purchases will likely ________ the economy's long- run growth rate. A) accelerate B) increase C) not affect D) slow down E) Not enough information to know
D
57) Consider the Neoclassical growth model. The effect of an increase in population (or the labour force) in an economy, with everything else held constant, is A) a decrease in per capita output. an inward shift of the production possibilities boundary. an increase in per capita national income. an increasingly aging population. a decrease in the capital- output ratio. A 58) One important assumption of the Neoclassical growth model is that, with a given state of technology, A) the return from successive units of a single factor increases over time. B) increases in the use of a single factor result in constant returns. C) increases in the use of a single factor bring increasing returns. D) increases in the use of single factor bring diminishing returns. E) increases in GDP are possible only if all factors are increased at an equal rate.
D
68) In Neoclassical growth theory, an increase in the labour force ________ total output and ________ total output per person. A) increases; increases B) increases; leaves constant C) leaves constant; reduces D) increases; reduces E) leaves constant; leaves constant
D
75) According to the Neoclassical growth model, which of the following scenarios explains improvements in long- run material living standards? A) an equal increase in both population and the stock of capital B) an equal increase in both population and output C) a decrease in unemployment rates D) an increase in the stock of physical capital E) an increase in population
D
14) The theory of economic growth concentrates on the ________ over the long run, not on ________. A) factor utilization rates; growth of real GDP B) factor utilization rates; growth of the supplies of factors C) growth of real GDP; growth of potential GDP D) growth of investment in capital goods; short- run fluctuations of investment E) growth of potential output; fluctuations of output around potential
E
16) Refer to Figure 26- 1. Which of the following statements about Economies A and B are correct? A) Economies A and B will have equal material living standards beginning at Year Y. B) Economy A will sustain higher material living standards than Economy B in the long run. C) Economies A and B will have equal material living standards beginning at Year 0. D) Economies A and B will have equal material living standards beginning at Year X. E) Economy B will sustain higher material living standards than Economy A in the long run.
E
22) One of the costs of long- run economic growth is A) declining future living standards. B) that current consumption must be sacrificed to increase investment in capital goods. C) current increases in investment may only generate greater consumption in the distant future. D) lower interest rates. E) both B and C are correct.
E
30) If government policies are to be successful in enhancing a country's long- run growth rate, they likely work through generating A) lower levels of current consumption. B) greater private investment in physical capital. C) an upward shift in the AS curve. D) an increase in current consumption and a reduction in saving. E) both A and B are correct.
E
32) For a given level of national income, an increase in private consumption or government purchases will cause national saving to A) increase. B) grow at a constant rate. C) exceed investment. D) remain unchanged from its initial level. E) decrease.
E
33) An increase in the government budget surplus, everything else constant, will cause a(n) A) equal decrease in private investment. B) decrease in national saving. C) decrease in the growth rate. D) equal increase in private consumption. E) increase in national saving.
E
42) Consider the market for loanable funds in the long run. The national saving curve is upward sloping because an increase in the real interest rate A) leads households to increase their current consumption. B) decreases the supply of public saving. C) leads to an increase in investment demand. D) decreases the supply of private saving. E) leads households to reduce their current consumption.
E
43) Consider the market for loanable funds in the long run. The investment demand curve is downward sloping because A) an increase in the real interest rate reflects a lower opportunity cost to firms of using loanable funds. B) an increase in the real interest rate leads to an increase in investment demand. C) all components of desired investment are positively related to the real interest rate. D) a decrease in the real interest rate reflects a higher opportunity cost to firms of using loanable funds. E) all components of desired investment are negatively related to the real interest rate.
E
6) A common measure of a country's level of productivity is A) the average efficiency of capital. B) per capita GDP. C) the capital- output ratio. D) output per capita. E) output per unit of labour input.
E
71) The Neoclassical theory of economic growth led economics to be referred to as the "dismal science" because of its emphasis on A) growing inequality of income. B) increasing damage to the environment. C) the immoral behaviour of firms. D) increasing government intervention in the economy. E) diminishing returns in production.
E
73) In the Neoclassical growth model, the law of diminishing marginal returns implies that capital accumulation leads to ever A) larger increases in GDP but smaller decreases in living standards. B) larger levels of unemployment but small increases in the standard of living. C) larger levels of unemployment but larger increases in the standard of living. D) larger decreases in GDP and large decreases in living standards. E) smaller increases in GDP and living standards.
E
74) A person who returns to school to improve her computer skills is an example of an increase in A) the labour force. B) technological capital. C) financial capital. D) physical capital. E) human capital.
E
79) Balanced growth of labour and capital in the Neoclassical growth model A) cannot explain rising material living standards. B) will not increase the level of per capita GDP. C) will result in a constant level of GDP. D) is a natural outcome of long- run equilibrium. E) both A and B are correct.
E
12) Which of the following is the best example of the acquisition of human capital? A) A worker communicates more quickly and accurately with suppliers because of upgrades to communications software. B) A government- sponsored program increases the amount of investment available per worker. C) A worker receives new machinery enabling him/her to do the amount of work that was formerly done by two workers. D) A computer chip manufacturer introduces a faster processor for micro- computing. E) A worker takes a training course that increases his/her productivity.
E 13) The four fundamental determinants of economic growth include all of the following EXCEPT: A) growth in financial capital B) technological improvement C) growth in human capital D) growth in the labour force E) growth in physical capital Answer: A
63) In the Neoclassical growth model, increases in the stock of physical capital, other things being equal, will lead to A) increasing GDP and falling living standards. B) decreasing GDP and falling living standards. C) increasing GDP and decreased national wealth. D) decreasing GDP and increasing living standards. E) increasing GDP and increasing living standards.
E 64) In the Neoclassical growth model, if capital and labour grow at the same rate, we will observe A) rising GDP but falling living standards. B) increasing living standards but only for workers using labour- intensive production. C) increasing living standards but only for workers using capital- intensive production. D) rising GDP but no change in living standards. E) rising GDP and increasing living standards. Answer: D
90) An aggregate production function exhibits constant returns to scale when a one percent increase in labour input A) along with a one percent increase in capital produces one percent more output. B) induces a one percent increase in capital input. C) along with a one percent increase in capital produces the same amount of output. D) along with a one percent decrease in capital produces the same amount of output. E) produces a one percent increase in output.
A
. D) investment demand shifts to I1D, national saving shifts to NS1, and the quantity of national saving rises to I3. E) none of the above.
B
. D) the real interest rate falls because of the decrease in the budget surplus. E) the real interest rate rises because of the decrease in the budget surplus.
B
102) In new theories of "endogenous growth", increasing marginal returns to investment can occur for all of the following reasons EXCEPT: A) investment costs for followers can be less than for pioneers. B) low risk is associated with the process of innovation for technological leaders. C) knowledge provides the input that allows investment to produce increasing returns. D) many investments require large fixed costs, the benefits of which are available to subsequent firms. E) early investors create an infrastructure favorable to followers.
B
105) Modern growth theories are more optimistic than Neoclassical growth theories because the former emphasize the unlimited potential of _________. A) modern labour B) knowledge- driven technological change C) economic theory D) modern capital E) more educated government policy making
B
27) Consuming fewer goods today in order to invest resources in capital goods is the ________ of economic growth. A) investment cost B) opportunity cost C) total cost D) social cost E) external cost
B
54) Refer to Table 26- 1. What is the level of public saving for this economy? A) $150 B) - $150 C) - $200 D) - $50 E) $200
B
60) The Neoclassical growth model assumes that, with a given state of technology, increases in the use of a single factor eventually cause the A) marginal product of the factor to increase at an increasing rate. B) marginal product of the factor to fall. C) material standard of living to increase. D) average product of the factor to increase. E) marginal product of the factor to increase but at a decreasing rate.
B
87) The so- called "Solow residual" A) is an alternative to a measure of "total factor productivity". B) is an underestimate of the amount of technological change when embodied technological progress occurs. C) is an overestimate of the amount of technological change when embodied technological progress occurs. D) takes embodied technological change into consideration. E) refers to the amount of GDP growth that cannot be explained by the growth in technological change.
B
92) Consider the aggregate production function Y = F(K, L). If the inputs K and L are increased by 5 percent each and total output (Y) increases by 5 percent as a result, then this production function is displaying A) diminishing marginal returns. B) constant returns to scale. C) a change in technology. D) increasing returns to scale. E) decreasing returns to scale.
B
97) The "new" theories of growth emphasize that basic research ________ to price and profit signals. A) and product development are both unrelated B) and product development are both directly related C) is unaffected by but product development is directly related D) is directly related and product development is inversely related E) is directly related and population growth is inversely related
B
98) According to the "new" growth theory, increasing marginal returns to capital investment is A) impossible, and is thus a weak source of growth. B) possible after initial fixed costs of innovation have been borne. C) possible only if the capital is government- owned infrastructure. D) possible, but only in the early stages of innovation before imitators rush in to drive prices down. E) impossible because diminishing returns are unavoidable.
B
FIGURE 26-1 15) Refer to Figure 26- 1. Which of the following statements best describes what we know about the difference between the two economies at Year 0? A) Economy B's households are consuming a larger percentage of GDP than Economy A's households. B) Economy A's households are consuming a larger percentage of GDP than Economy B's households. C) There is no opportunity cost of economic growth for Economy A at Year 0. D) Economy A has a higher level of real GDP at Year 0 than Economy B. E) There is no opportunity cost for economic growth for Economy B at Year 0.
B
101) According to some modern theories of long- run growth, successive increments of investment have ________ returns since some fixed costs are ________ for subsequent firms. A) decreasing; higher B) decreasing; lower C) increasing; lower D) constant; identical E) increasing; higher
C
93) Consider the aggregate production function Y = F(K, L). If the inputs K and L are increased by 5 percent each, and the production function displays constant returns to scale, then total output will increase by ________ percent. A) more than 5 B) less than 5 C) 5 D) 0 E) Not enough information to determine.
C
96) The "new" theories of economic growth emphasize that the pace of technological change is ________ to economic signals, and that it is ________ to the economic system. A) unresponsive; exogenous B) responsive; exogenous C) responsive; endogenous D) unresponsive; endogenous E) unresponsive; unrelated
C
95) Modern or "new" theories of long- run economic growth are based on the assumptions that technological change is mainly ________ to an economy and that investment yields ________ marginal returns. A) exogenous; constant B) exogenous; increasing C) endogenous; decreasing D) endogenous, increasing E) exogenous; diminishing
D
99) New theories of growth based on the idea that growth is endogenous A) assume that the rate of growth of the economy is equal to the rate of population growth. B) ignore the role of technology. C) incorporate factors such as central- bank behaviour. D) stress the role of knowledge and learning in the economy's rate of growth. E) assume that the growth rate of technology is exogenous.
D
103) Compared to Neoclassical growth theory, newer "endogenous growth" theories are more ________ regarding the prospect of continuous increases in the standard of living, due in part to its emphasis on the ________. A) pessimistic; endogeneity of technological change B) pessimistic; increasing birth rates as a result of higher real income per capita C) pessimistic; accelerating depletion of natural resources D) optimistic; accelerating depletion of natural resources E) optimistic; endogeneity of technological change
E
91) An aggregate production function exhibits increasing returns to capital when A) each additional unit of capital increases the number of jobs by more than one percent. B) a one percent increase in capital produces no change in output. C) no change in capital produces a one percent increase in output. D) a one percent decrease in capital produces an increase in the marginal product of capital. E) each additional unit of capital has a higher marginal product than the previous unit.
E
.
C
86) The Solow residual is an estimate of changes in A) physical capital. B) labour. C) technology. D) human capital. E) economic growth.
C
9) If real income grows at approximately 2 percent per year, the number of years it will take for real income to double is approximately A) 5. B) 12. C) 24. D) 36. E) 72.
D
21) One of the benefits of long- run economic growth is A) growth in nominal GDP greater than real GDP. B) decreased productive capacity. C) decreased current saving and increased current consumption. D) increased future interest rates. E) a greater ability to reduce inequality.
E
100) With respect to long- run economic growth, one rationale for the idea that there may be increasing marginal returns to investment is that A) the investment costs to "followers" are lower than those for "pioneers". B) as further investment takes place the economy moves upward to the left along the marginal product schedule. C) initial investment shifts the the aggregate demand schedule to the left, making further investment less costly. D) initial investment shifts the the investment demand schedule to the left, making further investment less costly. E) as further investment takes place the economy moves down to the right along the marginal product schedule.
A