Question 1

The Neoclassical growth model assumes that,with a given state of technology,increases in the use of a single factor will eventually

Accepted Answer

A) increase the average product of the factor. 
B) decrease the average product of the factor. 
C) lead to an increase in the marginal output of the factor. 
D) lead to a decrease in total output by the factor. 
E) lead to an increase in the material standard of living. 
A) increase the average product of the factor. 
B) decrease the average product of the factor. 
C) lead to an increase in the marginal output of the factor. 
D) lead to a decrease in total output by the factor. 
E) lead to an increase in the material standard of living. B

Question 2

The diagram below shows the market for financial capital in the long run when real GDP is equal to potential output,Y*.   FIGURE 25-3
-Refer to Figure 25-3.The equilibrium interest rate in this market is ________% and the equilibrium flow of investment and saving is ________ billion dollars.

Accepted Answer

A) 1; 50 
B) 2; 60 
C) 3; 70 
D) 4; 80 
E) 5; 90 
A) 1; 50 
B) 2; 60 
C) 3; 70 
D) 4; 80 
E) 5; 90 C

Question 3

According to some modern theories of long-run economic growth,successive increments of investment have ________ returns since some fixed costs are ________ for subsequent firms.

Accepted Answer

A) constant; identical 
B) increasing; lower 
C) increasing; higher 
D) decreasing; higher 
E) decreasing; lower 
A) constant; identical 
B) increasing; lower 
C) increasing; higher 
D) decreasing; higher 
E) decreasing; lower B

Question 4

The table below shows aggregate values for a hypothetical economy.Suppose that this economy has real GDP equal to potential output.
   TABLE 25-2
-Refer to Table 25-2.What is the level of national saving for this economy?

Accepted Answer

A) -$200 
B) -$150 
C) -$50 
D) $150 
E) $250 
A) -$200 
B) -$150 
C) -$50 
D) $150 
E) $250

Question 5

In new theories of "endogenous growth," increasing marginal returns to investment can occur because

Accepted Answer

A) investment costs for followers can be higher than for pioneers. 
B) knowledge provides the input that allows investment to be profitable. 
C) many investments require large fixed costs,the benefits of which are not available to subsequent firms. 
D) little risk is associated with the process of innovation for technological followers. 
E) early investors create an infrastructure favorable to followers. 
A) investment costs for followers can be higher than for pioneers. 
B) knowledge provides the input that allows investment to be profitable. 
C) many investments require large fixed costs,the benefits of which are not available to subsequent firms. 
D) little risk is associated with the process of innovation for technological followers. 
E) early investors create an infrastructure favorable to followers.

Question 6

If a country experiences growth in "total factor productivity" (i.e.,the "Solow residual"),then

Accepted Answer

A) all growth in real GDP can be explained by growth in the labour force. 
B) all growth in real GDP can be explained by growth in the capital stock. 
C) there is some growth in real GDP that cannot be accounted for by growth in capital or the labour force. 
D) none of the growth in real GDP can be accounted for by growth in capital and the labour force. 
E) material standards of living are falling. 
A) all growth in real GDP can be explained by growth in the labour force. 
B) all growth in real GDP can be explained by growth in the capital stock. 
C) there is some growth in real GDP that cannot be accounted for by growth in capital or the labour force. 
D) none of the growth in real GDP can be accounted for by growth in capital and the labour force. 
E) material standards of living are falling.

Question 7

The Neoclassical growth model assumes that with a given state of technology,

Accepted Answer

A) increases in the use of a single factor bring increasing returns. 
B) increases in the use of a single factor result in constant returns. 
C) increases in GDP are possible only if all factors are increased at an equal rate. 
D) growth in GDP happens only if the labour force grows more quickly than the amount of physical capital. 
E) the standard of living will decrease if the labour force grows more quickly than the amount of physical capital. 
A) increases in the use of a single factor bring increasing returns. 
B) increases in the use of a single factor result in constant returns. 
C) increases in GDP are possible only if all factors are increased at an equal rate. 
D) growth in GDP happens only if the labour force grows more quickly than the amount of physical capital. 
E) the standard of living will decrease if the labour force grows more quickly than the amount of physical capital.

Question 8

Consider the long-run theory of investment,saving and growth.In the long-run version of our macro model (with real GDP equal to Y*),the equilibrium interest rate is determined where

Accepted Answer

A) aggregate demand equals aggregate expenditure. 
B) desired national saving equals desired investment. 
C) the nominal price level equals the real price level. 
D) desired consumption equals desired investment. 
E) desired saving equals desired consumption. 
A) aggregate demand equals aggregate expenditure. 
B) desired national saving equals desired investment. 
C) the nominal price level equals the real price level. 
D) desired consumption equals desired investment. 
E) desired saving equals desired consumption.

Question 9

The diagram below show the market for financial capital assuming that national income is constant at potential GDP,Y*.   FIGURE 25-2
-Refer to Figure 25-2.Suppose national saving is reflected by NS0 and investment demand is reflected by I0D.If the real interest rate is i1,there is ________ which will drive the interest rate down until it reaches i*.

Accepted Answer

A) an excess demand for financial capital 
B) an excess demand for investment 
C) an excess supply of financial capital 
D) an excess supply of public saving 
A) an excess demand for financial capital 
B) an excess demand for investment 
C) an excess supply of financial capital 
D) an excess supply of public saving

Question 10

The Neoclassical growth model assumes that,with a given state of technology,increases in the use of a single factor eventually cause the

Accepted Answer

A) average product of the factor to increase. 
B) marginal product of the factor to fall. 
C) marginal product of the factor to increase at an increasing rate. 
D) marginal product of the factor to increase but at a decreasing rate. 
E) material standard of living to increase. 
A) average product of the factor to increase. 
B) marginal product of the factor to fall. 
C) marginal product of the factor to increase at an increasing rate. 
D) marginal product of the factor to increase but at a decreasing rate. 
E) material standard of living to increase.

Question 11

An increase in the government budget surplus,everything else constant,will cause a(n)

Accepted Answer

A) decrease in national saving. 
B) increase in national saving. 
C) decrease in the growth rate. 
D) equal increase in private consumption. 
E) equal decrease in private investment. 
A) decrease in national saving. 
B) increase in national saving. 
C) decrease in the growth rate. 
D) equal increase in private consumption. 
E) equal decrease in private investment.

Question 12

The diagram below shows the market for financial capital in the long run when real GDP is equal to potential output,Y*.   FIGURE 25-3
-Refer to Figure 25-3.Suppose the interest rate in this market for financial capital is 2%.Which of the following statements correctly describes the adjustment that will occur in this market?

Accepted Answer

A) The excess supply of saving will push up the real interest rate,which will decrease the quantity demanded of investment and increase the quantity supplied of saving. 
B) The excess demand for investment will push up the real interest rate,which will decrease the quantity demanded of investment and increase the quantity supplied of saving. 
C) The excess supply of saving will push down the real interest rate,which will decrease the quantity demanded of investment and increase the quantity supplied of saving. 
D) The excess demand for investment will push down the real interest rate,which will decrease the quantity demanded of investment and increase the quantity supplied of saving. 
E) The excess demand for investment will push up the real interest rate,which will increase the quantity demanded of investment and decrease the quantity supplied of saving. 
A) The excess supply of saving will push up the real interest rate,which will decrease the quantity demanded of investment and increase the quantity supplied of saving. 
B) The excess demand for investment will push up the real interest rate,which will decrease the quantity demanded of investment and increase the quantity supplied of saving. 
C) The excess supply of saving will push down the real interest rate,which will decrease the quantity demanded of investment and increase the quantity supplied of saving. 
D) The excess demand for investment will push down the real interest rate,which will decrease the quantity demanded of investment and increase the quantity supplied of saving. 
E) The excess demand for investment will push up the real interest rate,which will increase the quantity demanded of investment and decrease the quantity supplied of saving.

Question 13

The diagram below show the market for financial capital assuming that national income is constant at potential GDP,Y*.   FIGURE 25-2
-Refer to Figure 25-2.Suppose national saving is reflected by NS0 and investment demand is reflected by I0D.Now suppose the government implements a revenue-neutral tax policy that encourages investment.What is the effect on the quantity of national saving?

Accepted Answer

A) There is no effect on NS or ID and the quantity of national saving supplied remains at I*. 
B) National saving shifts to   ,and the quantity of national saving supplied rises to I2. 
C) Investment demand shifts to I1D and the quantity of national saving supplied rises to I1. 
D) Investment demand shifts to I1D,national saving shifts to NS1,and the quantity of national saving rises to I3. 
E) National saving shifts to   ,investment demand shifts to I1D,and the quantity of national saving rises to      . 
A) There is no effect on NS or ID and the quantity of national saving supplied remains at I*. 
B) National saving shifts to   ,and the quantity of national saving supplied rises to I2. 
C) Investment demand shifts to I1D and the quantity of national saving supplied rises to I1. 
D) Investment demand shifts to I1D,national saving shifts to NS1,and the quantity of national saving rises to I3. 
E) National saving shifts to   ,investment demand shifts to I1D,and the quantity of national saving rises to      .

Question 14

Consider the long-run theory of investment,saving,and growth.For a given level of private saving,an increase in government purchases will likely ________ the economy's long-run growth rate.

Accepted Answer

A) slow down 
B) accelerate 
C) not affect 
D) increase 
E) Not enough information to know 
A) slow down 
B) accelerate 
C) not affect 
D) increase 
E) Not enough information to know

Question 15

The table below shows aggregate values for a hypothetical economy.Suppose that this economy has real GDP equal to potential output.
   TABLE 25-3
-Refer to Table 25-3.What is the level of public saving for this economy?

Accepted Answer

A) -$200 
B) -$100 
C) $200 
D) $300 
E) $500 
A) -$200 
B) -$100 
C) $200 
D) $300 
E) $500

Question 16

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

Accepted Answer

A) a disembodied technical change. 
B) a rise in the capital-output ratio. 
C) a fall in the output per unit of capital. 
D) an embodied technical change. 
E) capital "deepening." 
A) a disembodied technical change. 
B) a rise in the capital-output ratio. 
C) a fall in the output per unit of capital. 
D) an embodied technical change. 
E) capital "deepening."

Question 17

Over a long period of time,perhaps many years,changes in real GDP come primarily from

Accepted Answer

A) upward shifts of the AS curve. 
B) upward shifts of the AE curve. 
C) rightward shifts of the AD curve. 
D) continuous increases in potential GDP. 
E) leftward shifts of the AD curve. 
A) upward shifts of the AS curve. 
B) upward shifts of the AE curve. 
C) rightward shifts of the AD curve. 
D) continuous increases in potential GDP. 
E) leftward shifts of the AD curve.

Question 18

Consider the long-run theory of investment,saving and growth.For a given level of national income,a decrease in private consumption or government purchases will cause the equilibrium interest rate to

Accepted Answer

A) increase and the flow of national saving to fall. 
B) increase and the flow of investment to increase. 
C) increase and the flow of investment to decrease. 
D) decrease and the flow of investment to decrease. 
E) decrease and the flow of investment to increase. 
A) increase and the flow of national saving to fall. 
B) increase and the flow of investment to increase. 
C) increase and the flow of investment to decrease. 
D) decrease and the flow of investment to decrease. 
E) decrease and the flow of investment to increase.

Question 19

The table below shows aggregate values for a hypothetical economy.Suppose that this economy has real GDP equal to potential output.
   TABLE 25-3
-Refer to Table 25-3.What is the level of combined budget surpluses of all levels of government in this economy?

Accepted Answer

A) $50 
B) $100 
C) $500 
D) -$200 
E) -$500 
A) $50 
B) $100 
C) $500 
D) -$200 
E) -$500

Question 20

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

Accepted Answer

A) redistribute income. 
B) sacrifice some present consumption. 
C) increase their demand for goods and services. 
D) increase exports. 
E) decrease interest rates. 
A) redistribute income. 
B) sacrifice some present consumption. 
C) increase their demand for goods and services. 
D) increase exports. 
E) decrease interest rates.

Exam 25: Long-Run Economic Growth

The Neoclassical growth model assumes that,with a given state of technology,increases in the use of a single factor will eventually

The diagram below shows the market for financial capital in the long run when real GDP is equal to potential output,Y*. FIGURE 25-3 -Refer to Figure 25-3.The equilibrium interest rate in this market is ________% and the equilibrium flow of investment and saving is ________ billion dollars.

According to some modern theories of long-run economic growth,successive increments of investment have ________ returns since some fixed costs are ________ for subsequent firms.

The table below shows aggregate values for a hypothetical economy.Suppose that this economy has real GDP equal to potential output. TABLE 25-2 -Refer to Table 25-2.What is the level of national saving for this economy?

In new theories of "endogenous growth," increasing marginal returns to investment can occur because

If a country experiences growth in "total factor productivity" (i.e.,the "Solow residual"),then

The Neoclassical growth model assumes that with a given state of technology,

Consider the long-run theory of investment,saving and growth.In the long-run version of our macro model (with real GDP equal to Y*),the equilibrium interest rate is determined where

The Neoclassical growth model assumes that,with a given state of technology,increases in the use of a single factor eventually cause the

An increase in the government budget surplus,everything else constant,will cause a(n)

Consider the long-run theory of investment,saving,and growth.For a given level of private saving,an increase in government purchases will likely ________ the economy's long-run growth rate.

The table below shows aggregate values for a hypothetical economy.Suppose that this economy has real GDP equal to potential output. TABLE 25-3 -Refer to Table 25-3.What is the level of public saving for this economy?

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

Over a long period of time,perhaps many years,changes in real GDP come primarily from

Consider the long-run theory of investment,saving and growth.For a given level of national income,a decrease in private consumption or government purchases will cause the equilibrium interest rate to

The table below shows aggregate values for a hypothetical economy.Suppose that this economy has real GDP equal to potential output. TABLE 25-3 -Refer to Table 25-3.What is the level of combined budget surpluses of all levels of government in this economy?

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

Economic Issues and Concepts

Economic Theories,Data,and Graphs

Demand, Supply, and Price

Elasticity

Price Controls and Market Efficiency

Consumer Behaviour

Producers in the Short Run

Producers in the Long Run

Competitive Markets

Monopoly, cartels, and Price Discrimination

Imperfect Competition and Strategic Behaviour

Economic Efficiency and Public Policy

How Factor Markets Work

Labour Markets and Income Inequality

Interest Rates and the Capital Market

Market Failures and Government Intervention

The Economics of Environmental Protection

Taxation and Public Expenditure

What Macroeconomics Is All About

The Measurement of National Income

The Simplest Short-Run Macro Model

Adding Government and Trade to the Simple Macro Model

Output and Prices in the Short Run

From the Short Run to the Long Run: The Adjustment of Factor Prices

Money and Banking

Money, Interest Rates, and Economic Activity

Monetary Policy in Canada

Inflation and Disinflation

Unemployment Fluctuations and the Nairu

Government Debt and Deficits

The Gains From International Trade

Trade Policy

Exchange Rates and the Balance of Payments

Filters

The diagram below shows the market for financial capital in the long run when real GDP is equal to potential output,Y*. FIGURE 25-3 -Refer to Figure 25-3.The equilibrium interest rate in this market is % and the equilibrium flow of investment and saving is billion dollars.

According to some modern theories of long-run economic growth,successive increments of investment have returns since some fixed costs are for subsequent firms.