Deck 22: Long Run Economic Growth

Question 1

Extreme poverty is defined as income that is less than:

A) half of the average income in a country.
B) $2 per day.
C) the estimated cost of food for daily needs.
D) $5 per day.

Answer 1

B

Question 2

According to the text, which of the following is the best way to define economic growth?

A) an increase in a nation's real GDP from one year to the next.
B) an increase in a nation's nominal GDP from one year to the next.
C) sustained increases in a nation's real GDP over time.
D) sustained increases in a nation's real GDP per capita over time.

Answer 2

D

Question 3

According to the text, a nation's economic growth is best measured by the annual growth rate of:

A) GDP.
B) real GDP.
C) GDP per capita.
D) real GDP per capita.

Answer 3

D

Question 4

Why is a per capita measure used as the basis for a nation's economic growth rate?

A) Per capita measures focus on capital, which is the most important factor in growth.
B) This is an adjustment for the cost of living, so the measure captures growth of output rather than price.
C) Adjusting for the size of the population allows focus on the average person's situation.
D) Per capita adjustments give insights into the gap between the most and least prosperous people in a country.

Question 5

Why is a "real" measure used as the basis for a nation's economic growth rate?

A) "Real" measures focus on capital, which is the most important factor in growth.
B) This is an adjustment for the cost of living, so the measure captures growth of output rather than price.
C) Adjusting for the size of the population allows a focus on the average person's situation.
D) "Real" adjustments give insights into the gap between the most and least prosperous people in a country.

Question 6

(Table 1: GDP Measures for Countries A, B, C, and D, 2008 to 2018) Table 1 provides data on various statistics related to GDP for four countries. Which country had the highest growth rate in living standards over the decade?
$\begin{array}{l}\text { Table 1: GDP Measures for Countries A, B, C, and D, } 2008 \text { to } 2018\\\begin{array}{|l|c|c|c|c|}\hline & \text { Country A } & \text { Country B } & \text { Country C } & \text { Country D } \\\hline \begin{array}{l}\text { Average annual GDP growth } \\\text { rate }\end{array} & 4 \% & 3 \% & 7 \% & 5 \% \\\hline \begin{array}{l}\text { Average annual real GDP } \\\text { growth rate }\end{array} & 3 \% & 1 \% & 3 \% & 4 \% \\\hline \begin{array}{l}\text { Average annual growth rate of } \\\text { GDP per capita }\end{array} & 3 \% & 2 \% & 5 \% & 4 \% \\\hline \begin{array}{l}\text { Average annual growth rate of } \\\text { real GDP per capita }\end{array} & 2 \% & 0 \% & 1 \% & 3 \% \\\hline \text { GDP 2018 } & \$ 1.4 \text { trillion } & \$ 6.4 \text { trillion } & \$ 7.2 \text { trillion } & \$ 3.3 \text { trillion } \\\hline\end{array}\end{array}$

A) A
B) B
C) C
D) D

Question 7

A nation's total real GDP is NOT used as an indicator of the living standard of the people in the nation because it:

A) does not take into consideration the population of the nation.
B) is not adjusted for the average price level in the nation.
C) measures per person rather than aggregate production.
D) measures the price level rather than the output in the nation.

Question 8

(Table 2: Economic and Population Data for Countries A, B, C, and D, 2008 to 2018)
$\begin{array}{l}\text { Table 2. Economic and Population Data for Countries A, B, C, and D, } 2008 \text { to } 2018\\\begin{array}{|l|l|l|l|l|}\hline & \text { Country A } & \text { Country B } & \text { Country C } & \text { Country D } \\\hline 2008 \text { real GDP } & \$ 90 \text { million } & \$ 60 \text { million } & \$ 360 \text { million } & \$ 150 \text { million } \\\hline 2008 \text { population } & 9,000 & 20,000 & 30,000 & 50,000 \\\hline 2018 \text { real GDP } & \$ 150 \text { million } & \$ 126 \text { million } & \$ 462 \text { million } & \$ 260 \text { million } \\\hline 2018 \text { population } & 10,000 & 21,000 & 33,000 & 52,000 \\\hline\end{array}\end{array}$

-Table 2 provides information on population and real GDP for countries A, B, C, and

A) A
B) B
C) C
D) D

Question 9

(Table 2: Economic and Population Data for Countries A, B, C, and D, 2008 to 2018)
$\begin{array}{l}\text { Table 2. Economic and Population Data for Countries A, B, C, and D, } 2008 \text { to } 2018\\\begin{array}{|l|l|l|l|l|}\hline & \text { Country A } & \text { Country B } & \text { Country C } & \text { Country D } \\\hline 2008 \text { real GDP } & \$ 90 \text { million } & \$ 60 \text { million } & \$ 360 \text { million } & \$ 150 \text { million } \\\hline 2008 \text { population } & 9,000 & 20,000 & 30,000 & 50,000 \\\hline 2018 \text { real GDP } & \$ 150 \text { million } & \$ 126 \text { million } & \$ 462 \text { million } & \$ 260 \text { million } \\\hline 2018 \text { population } & 10,000 & 21,000 & 33,000 & 52,000 \\\hline\end{array}\end{array}$

-Table 2 provides information on population and real GDP for countries A, B, C, and

A) A
B) B
C) C
D) D

Question 10

(Table 2: Economic and Population Data for Countries A, B, C, and D, 2008 to 2018)
$\begin{array}{l}\text { Table 2. Economic and Population Data for Countries A, B, C, and D, } 2008 \text { to } 2018\\\begin{array}{|l|l|l|l|l|}\hline & \text { Country A } & \text { Country B } & \text { Country C } & \text { Country D } \\\hline 2008 \text { real GDP } & \$ 90 \text { million } & \$ 60 \text { million } & \$ 360 \text { million } & \$ 150 \text { million } \\\hline 2008 \text { population } & 9,000 & 20,000 & 30,000 & 50,000 \\\hline 2018 \text { real GDP } & \$ 150 \text { million } & \$ 126 \text { million } & \$ 462 \text { million } & \$ 260 \text { million } \\\hline 2018 \text { population } & 10,000 & 21,000 & 33,000 & 52,000 \\\hline\end{array}\end{array}$

-Table 2 provides information on population and real GDP for countries A, B, C, and

A) A
B) B
C) C
D) D

Question 11

(Table 3: Economic Data for Countries A, B, C, and D, 2008 to 2018) Table 3 provides data on real GDP, real GDP per capita, and growth in real GDP per capita over a decade. Which country had the highest growth rate in living standards over the decade 2008 to 2018?
$\begin{array}{l}\text { Table 3. Economic Data for Countries A, B, C, and D, } 2008 \text { to } 2018\\\begin{array}{|l|l|l|l|l|}\hline & \text { Country A } & \text { Country B } & \text { Country C } & \text { Country D } \\\hline 2008 \text { real GDP } & \$ 5,000 & \$ 7,000 & \$ 15,000 & \$ 33,000 \\\text { per capita } & & & & \\\hline 2008 \text { real GDP } & \$ 500 \text { billion } & \$ 300 \text { billion } & \$ 900 \text { billion } & \$ 2 \text { trillion } \\\hline 2018 \text { real GDP } & \$ 9,000 & \$ 10,000 & \$ 20,000 & \$ 36,000 \\\text { per capita } & & & & \\\hline 2018 \text { real GDP } & \$ 910 \text { billion } & \$ 430 \text { billion } & \$ 1.4 \text { trillion } & \$ 2.2 \text { trillion } \\\hline\end{array}\end{array}$

A) A
B) B
C) C
D) D

Question 12

(Table 3: Economic Data for Countries A, B, C, and D, 2008 to 2018) Table 3 provides data on real GDP, real GDP per capita, and growth in real GDP per capita over a decade. Which country had the lowest growth rate in living standards over the decade 2008 to 2018?
$\begin{array}{l}\text { Table 3. Economic Data for Countries A, B, C, and D, } 2008 \text { to } 2018\\\begin{array}{|l|l|l|l|l|}\hline & \text { Country A } & \text { Country B } & \text { Country C } & \text { Country D } \\\hline 2008 \text { real GDP } & \$ 5,000 & \$ 7,000 & \$ 15,000 & \$ 33,000 \\\text { per capita } & & & & \\\hline 2008 \text { real GDP } & \$ 500 \text { billion } & \$ 300 \text { billion } & \$ 900 \text { billion } & \$ 2 \text { trillion } \\\hline 2018 \text { real GDP } & \$ 9,000 & \$ 10,000 & \$ 20,000 & \$ 36,000 \\\text { per capita } & & & & \\\hline 2018 \text { real GDP } & \$ 910 \text { billion } & \$ 430 \text { billion } & \$ 1.4 \text { trillion } & \$ 2.2 \text { trillion } \\\hline\end{array}\end{array}$

A) A
B) B
C) C
D) D

Question 13

(Table 3: Economic Data for Countries A, B, C, and D, 2008 to 2018) Table 3 provides data on real GDP, real GDP per capita, and growth in real GDP per capita over a decade. Which country had the lowest standard of living in 2018?
$\begin{array}{l}\text { Table 3. Economic Data for Countries A, B, C, and D, } 2008 \text { to } 2018\\\begin{array}{|l|l|l|l|l|}\hline & \text { Country A } & \text { Country B } & \text { Country C } & \text { Country D } \\\hline 2008 \text { real GDP } & \$ 5,000 & \$ 7,000 & \$ 15,000 & \$ 33,000 \\\text { per capita } & & & & \\\hline 2008 \text { real GDP } & \$ 500 \text { billion } & \$ 300 \text { billion } & \$ 900 \text { billion } & \$ 2 \text { trillion } \\\hline 2018 \text { real GDP } & \$ 9,000 & \$ 10,000 & \$ 20,000 & \$ 36,000 \\\text { per capita } & & & & \\\hline 2018 \text { real GDP } & \$ 910 \text { billion } & \$ 430 \text { billion } & \$ 1.4 \text { trillion } & \$ 2.2 \text { trillion } \\\hline\end{array}\end{array}$

A) A
B) B
C) C
D) D

Question 14

The histogram below shows real GDP per capita and the economic growth for select countries between 1913 and 2016. Which country had the greatest economic growth?

A) China
B) South Korea
C) United States
D) Germany

Question 15

The histogram below shows real GDP per capita and the economic growth for select countries between 1913 and 2016. Which country had the least economic growth?

A) China
B) Mexico
C) India
D) Argentina

Question 16

According to the rule of 70, how long will it take for Macroland's real GDP per capita to double if it has an annual growth rate of 2.5%?

A) 2.5 years
B) 28.0 years
C) 35.7 years
D) 72.5 years

Question 17

According to the rule of 70, what annual growth rate would allow a country's output to double in 14 years?

A) 1.4%
B) 2.0%
C) 5.0%
D) 56.0%

Question 18

According to the rule of 70, what annual growth rate would allow a country's output to double in 25 years?

A) 2.5%
B) 2.8%
C) 4.5%
D) 7.0%

Question 19

What is the formula to calculate doubling time according to the rule of 70?

A) doubling time = f(k,h,n)
B) doubling time = f(g,y,n)
C) g/70 = doubling time
D) 70/g = doubling time

Question 20

According to the rule of 70, how long will it take for Macroland's real GDP per capita to double if its annual growth rate is 3.5%?

A) 3.5 years
B) 20.0 years
C) 35.0 years
D) 73.5 years

Question 21

Which statement is correct with regard to sustained growth rates?

A) Small differences in growth rates across countries make little difference over time.
B) Large differences in growth rates across countries make little difference over time.
C) Small differences in growth rates across countries have a large impact over time.
D) A country with a higher growth rate is currently more prosperous than a country with a lower growth rate.

Question 22

A country's productivity is measured by:

A) capital per worker.
B) average education level.
C) output per capita.
D) GDP per hour worked.

Question 23

Which of the following is NOT a key issue that is used to explain the long-run poverty or prosperity in a country?

A) productivity
B) physical capital per worker
C) current employment versus unemployment levels
D) technological progress

Question 24

By definition, an increase in productivity occurs:

A) when an increase in the amount of resources leads to higher output.
B) anytime that total output rises.
C) when unemployment rates fall.
D) when output per unit of input rises.

Question 25

With sustained economic growth, the production possibilities frontier of a country:

A) shifts inward toward the graph's origin.
B) shifts outward farther from the graph's origin.
C) rotates around its midpoint to a steeper slope.
D) rotates around its midpoint to a flatter slope.

Question 26

If Macroland has a higher economic growth rate than Econia over a twenty-year period, then Macroland's production possibilities frontier (PPF) will:

A) shift outward more rapidly than Econia's PPF during the time period.
B) shift inward more rapidly than Econia's PPF during the time period.
C) rotate around its midpoint, and Econia's PPF will rotate in the opposite direction.
D) remain stationary while production moves to a higher point on the curve. Econia's PPF is also stationary, and production moves to a slightly higher point on its curve.

Question 27

Which of the following factors does NOT impact productivity?

A) human capital per worker
B) inclusive institutions
C) physical capital per worker
D) labor force participation rate

Question 28

The production possibility frontier can be used to show economic growth as a sustained long-run increase in GDP. What does each panel shows about capital goods and growth of the economy?

A) Panel A: fewer capital goods and rapid growth; Panel B: more capital goods and slower growth
B) Panel A: more capital goods and slower growth; Panel B: fewer capital goods and rapid growth
C) Panel A: more capital goods and rapid growth; Panel B: fewer capital goods and slower growth
D) Panel A: fewer capital goods and slower growth; Panel B: more capital goods and rapid growth

Question 29

What causes a production possibilities frontier to shift outward?

A) reductions in inflation rates
B) reductions in unemployment rates
C) increases in available money
D) increases in resources or technology

Question 30

Human capital per worker affects productivity because:

A) having more machines per human allows workers to be more productive.
B) funds to pay salaries are necessary if firms are to attract productive workers.
C) the skill and knowledge levels of workers are positively related to their productivity.
D) replacing humans with machines raises the efficiency of production.

Question 31

High tax rates on personal income that are used to fund high salaries for government leaders are an example of government acting as an:

A) inclusive institution.
B) investor in human capital.
C) extractive institution.
D) equalizing institution.

Question 32

The laws, practices, and customs through which all individuals have the opportunity to create wealth are referred to as _____ institutions.

A) exclusive
B) inclusive
C) extractive
D) growth

Question 33

Which of the following policies would be associated with an extractive institution?

A) A flat 5% tax rate applies to all income of all individuals.
B) The fees for obtaining a business license to start a new business are reduced.
C) Strict limits are imposed on the importing of automobiles.
D) Laws allow all adult citizens to vote.

Question 34

Laws that make it easier for citizens to start new business would help to create:

A) inclusive institutions.
B) exclusive institutions.
C) human capital.
D) physical capital.

Question 35

What term is used to describe a situation in which laws, customs, or practices in a society give select groups the ability to gain wealth by draining it from the population at large?

A) exclusive institutions
B) inclusive institutions
C) extractive institutions
D) growth institutions

Question 36

What do most economists believe regarding public policies that have a goal of fostering economic growth?

A) The same policy approaches will work equally well in all countries.
B) Poor and wealthy countries may need to use different policy approaches to maximize growth.
C) Economic growth is not possible for every country.
D) Public policy has little impact on economic growth in a country.

Question 37

Which answer is NOT a reason that encouraging international trade can foster economic growth in developing nations?

A) Trade allows countries to specialize in production based on comparative advantage.
B) Trade creates competitive pressures on companies to increase efficiency and productivity.
C) Trade creates competitive pressures to improve product quality.
D) Trade equally benefits all industries within a country.

Question 38

Hernando De Soto says that land reform will enhance economic growth and development in developing nations. What is meant by the term "land reform"?

A) fertilizing and irrigating land to increase its productivity
B) giving peasants ownership of small plots of land their families had farmed for generations
C) reducing tax rates on land ownership
D) imposing strict environmental controls on land to preserve its productivity into the future

Question 39

What is a difference between foreign aid and foreign direct investment?

A) Foreign aid cannot be given to fund physical capital investments; foreign direct investment provides funding only for physical capital investments.
B) Foreign aid is available for emergencies; foreign direct investment is for the same type of help in nonemergency situations.
C) Those providing funds typically do not gain ownership rights when foreign aid is provided but do gain ownership rights through foreign direct investment.
D) Foreign aid is a purchase of foreign property at a deep discount; foreign direct investment is the purchase of foreign property at a market price.

Question 40

Foreign direct investment occurs when an investor in one country:

A) makes an investment in business activities in another country that gives the investor ownership rights.
B) makes an investment in human capital in another country to provide a direct link for negotiations.
C) provides a gift of funding directly to a foreign business to keep the foreign owners from losing ownership of the company.
D) provides funding for priority capital investments at the direction of the foreign government.

Question 41

Which of the following is a public policy to foster economic growth that typically would be favored by the government of a developing country rather than a high-income country?

A) Protect intellectual property rights.
B) Subsidize research and development.
C) Reduce corruption, and increase transparency.
D) Bring together productive workers.

Question 42

Which of the following is NOT a common foreign source of funds for capital investments in developing countries?

A) loans from foreign lenders
B) foreign aid
C) foreign investments in the developing country's stock market
D) extra tax revenues

Question 43

Which of the following is NOT a way that economic growth is often harmed when corruption is widespread?

A) Innovation may not occur when connections with government officials rather than new types of products are the factors that open doors for a business to expand sales.
B) When bribes are paid frequently, the cost of doing business is higher.
C) When political connections provide advantages to favored firms, the favored firms lose incentive to operate as efficiently as possible.
D) Taxes are raised on everyone, which adds the efficiency of all firms.

Question 44

Worker productivity can be improved through investments in:

A) wage increases, infrastructure, and price reductions.
B) income transfers, research, and tax reductions.
C) healthcare, education, and infrastructure.
D) education, population growth, and irrigation.

Question 45

Which of the following is a public policy to foster economic growth that typically would be favored by the government of a developing country rather than a high-income country?

A) Foster research and development activities.
B) Help workers be more mobile to foster agglomeration centers.
C) Protect intellectual property rights.
D) Increase the level of international trade.

Question 46

Which of the following is a public policy to foster economic growth that typically would be favored by the government of a high-income country rather than a developing country?

A) Foster research and development activities.
B) Develop a more market-focused economy.
C) Reduce corruption.
D) Increase the level of international trade.

Question 47

What is a difference between developing and high-income countries that needs to be considered by policymakers when designing policies that foster economic growth?

A) Innovation is more important to growth in high-income countries because they are more likely to have reached the level of diminishing returns to investments in capital.
B) Innovation is more important to growth in developing countries because technology developed abroad may not be beneficial to those in poverty.
C) Increasing the level of capital per worker will typically yield higher returns in high-income countries where workers are more educated.
D) Additional investment in education has a higher return in high-income countries where the investment takes workers to more advanced skill levels than in countries with a lower average education level.

Question 48

Which of the following is a public policy to foster economic growth that typically would be favored by the government of a high-income country rather than a developing country?

A) Reduce corruption.
B) Encourage international trade.
C) Foster agglomeration of similar industries.
D) Improve the infrastructure.

Question 49

Some countries seek the advantages of agglomeration. What are advantages of agglomeration?

A) Per unit costs may be lower when production occurs on a larger scale.
B) When a country gains global market share in an industry, its dominance provides higher profits to producers.
C) Agglomeration allows workers to produce remotely from any location, providing more even job growth across a country.
D) Some industries are more productive when workers in the industry regularly interact with other workers in the same industry or closely related industries.

Question 50

Generally, what is the relationship between the abundance of a country's natural resource endowment and the country's development level?

A) There is a positive relationship between natural resource endowment and prosperity.
B) There is a negative relationship between natural resource endowment and prosperity.
C) The relationship between natural resource endowment and prosperity is positive when countries are poor, and it is negative when countries reach middle- and high-income levels.
D) There is no consistent relationship between resource endowment and prosperity.

Question 51

Which of the following is an argument that natural resources are a blessing?

A) Natural resources are available in relatively fixed amounts.
B) Reliance on natural resources for development seems to be associated with extractive institutions.
C) Reliance on a particular natural resource such as oil allows an economy to become highly specialized.
D) Natural resources are important factors of production that can help a country produce goods.

Question 52

Almost all of the high-income countries that have been able to prosper due to their natural resource endowment have relied heavily on abundant supplies of:

A) water.
B) oil and natural gas.
C) precious gemstones.
D) fertile farmland.

Question 53

Among the countries where natural resources have been key to high incomes, what natural resource has been most important?

A) oil
B) trees
C) water
D) labor

Question 54

What is a vulnerability in a country such as Mongolia, where reliance on an industry based in natural resources (mining) has been a key factor in fostering economic growth?

A) Growth in the natural resource endowment in other countries could allow them to catch up with the country relying on natural resources to foster its growth.
B) The prices of primary products (such as minerals and oil) are typically more stable than the prices of manufactured products, reducing growth potential.
C) The endowment of natural resources typically expands more rapidly than other resources.
D) The endowment of a nonrenewable natural resource (such as minerals or oil) could run out.

Question 55

Which one of the following is NOT an argument against foreign aid?

A) The funds may be used to benefit the lifestyle of government leaders rather than increase productivity.
B) Foreign aid often comes in the form of loans with excessive interest rates.
C) When foreign aid is easily available as a safety net, there is a risk that the economy may become dependent on aid rather than develop self-reliance.
D) Foreign aid reduces the amount of tax revenue available for schools and infrastructure in the recipient country.

Question 56

The argument that foreign aid is ineffective in helping developing countries includes the idea that:

A) people in developing countries have more unmet basic needs than those in high-income countries.
B) as part of humanity, people in high-income countries have a responsibility to help others even if the methods of help are not perfectly effective.
C) the presence of extractive institutions may keep intended beneficiaries from benefitting from foreign aid.
D) many developing countries have benefited from foreign aid.

Question 57

Which of the following is an argument against foreign aid?

A) It is a moral imperative to help those who are suffering.
B) The return on investment in education or capital will be higher in a developing country than a high-income country.
C) There are many cases where the aid has been diverted away from the intended purpose.
D) An extra dollar makes a bigger relative difference to a poor person than a wealthy person.

Question 58

Which of the following is a reason that growth rates in high-income countries appear to be falling?

A) The service sector has been the fastest-growing sector in many high-income nations, and many services have not had increases in productivity.
B) Increased foreign aid is diverting investment funds to developing countries and reducing investment in high-income countries.
C) The growth in jobs has primarily been in low-skill jobs, which do not add as much to national output as high-skill jobs.
D) Population growth rates have accelerated, making it harder to achieve growth in per capita measures.

Question 59

Over the past century, technical advances have led to machines that have replaced workers in many occupations. What impact has this had in labor markets?

A) In the long run, unemployment rates have not increased. As jobs are lost in one industry, new opportunities seem to develop in other industries.
B) In the long run, unemployment rates have increased. As workers are replaced by machines, few jobs are available.
C) Labor markets increasingly need more low-skill workers and fewer high-skill workers.
D) Automation has reduced the number of jobs requiring reasoning and judgment.

Question 60

Which statement provides an example of why an economy might be more productive than its real GDP per capita statistics indicate?

A) A part-time worker could work full-time but is working only part-time.
B) Fewer encyclopedia books are manufactured and purchased because people can acquire the knowledge easily through the Internet without making a purchase.
C) People start to go out to eat more often rather than preparing meals for themselves.
D) Individuals may be working at jobs for which they are overqualified.

Question 61

Which is NOT one of the three debates in development economics?

A) Is economic growth slowing down for high-income countries?
B) Are natural resources a blessing or a curse?
C) Should economic growth be a priority?
D) Is foreign aid an effective way to help developing countries?

Question 62

The simplified production function y = f(k, h, n) indicates that output:

A) depends on crafts and skills, human effort, and national boundaries.
B) is determined by technology, health, and natural resources.
C) at a given level of technology is determined by capital stock, health, and national boundaries.
D) at a given level of technology is determined by the stocks of physical capital, human capital, and natural resources.

Question 63

Why are natural resources emphasized less than other factors in a nation's production function?

A) Changing the amount of natural resources would have little impact on total production.
B) The amount of natural resources is relatively fixed.
C) Natural resources are used for consumption, not production.
D) The size of a natural resource base has a negative relationship with output.

Question 64

As the quantity of one input rises while the amounts of other inputs remain constant, output tends to rise by smaller and smaller increments. This pattern is referred to as the:

A) law of diminishing returns.
B) rising inefficiency of inputs.
C) return reduction of variable inputs.
D) law of functional return reductions.

Question 65

A production function that exhibits diminishing returns helps to explain the reason that:

A) developing countries tend to stay poor.
B) the gap between developing countries and high-income countries tends to keep growing.
C) high-income countries do not have fixed technology that limits developing countries.
D) there is a catch-up growth phenomenon where a developing country is able to grow more rapidly than a high-income country.

Question 66

The ability of poor countries to grow more rapidly than high-income countries is known as the:

A) diminishing returns syndrome.
B) underdog advantage.
C) catch-up effect.
D) resource compensation factor.

Question 67

The main driver of economic growth in high-income countries tends to be _____, and much of the growth in developing country economies stems from:

A) capital investment; education.
B) technology transfer; capital investment.
C) catch-up growth; natural resources.
D) technology; catch-up growth.

Question 68

Developing a new hybrid type of corn plant that has a higher yield than other varieties of corn is an example of:

A) a technological change.
B) an increase in the natural resource of land.
C) an investment in human capital.
D) the catch-up effect.

Question 69

Training farmers about growing a new hybrid variety of corn plant that has a higher yield than other varieties of corn is an example of:

A) investment in physical capital.
B) technological change.
C) expanding natural resources.
D) investment in human capital.

Question 70

A new industrial sewing machine is developed that allows garments to be produced more quickly and efficiently than before. The development of this machine is an example of:

A) an advance in technology.
B) an investment in human capital.
C) an investment in physical capital.
D) a movement along a production function.

Question 71

A new industrial sewing machine is developed that allows garments to be produced more quickly and efficiently than before. Training workers in how to operate the new sewing machine is an example of:

A) an advance in technology.
B) an investment in human capital.
C) an investment in physical capital.
D) a movement along a production function.

Question 72

A new industrial sewing machine is developed that allows garments to be produced more quickly and efficiently than before. Manufacturing the new type of sewing machine is an example of:

A) an advance in technology.
B) an investment in human capital.
C) an investment in physical capital.
D) a movement along a production function.

Question 73

The graph below illustrates the concept of a production function and diminishing returns, where area 1 and area 2 respectively represent:

A) low production function; high production function
B) diminishing returns; catch-up growth
C) rich nations; poor nations
D) poor nations; rich nations

Question 74

The graph below illustrates the concept of a production function and diminishing returns, where an increase in k results in a:

A) large increase in real GDP per worker in area 1.
B) small increase in real GDP per worker in area 1.
C) large increase in real GDP per worker in area 2.
D) small increase in real GDP per worker in both area 1 and area 2.

Question 75

In a global economy, firms can position themselves for greater growth potential if they consider input and output markets to be _____ rather than:

A) diversified; specialized.
B) extractive; inclusive.
C) places for investments; places to earn returns.
D) international; domestic.

Question 76

Conducting business internationally rather than in one country provides a benefit of greater _____ but this comes with a risk of facing:

A) growth potential; unfavorable institutions.
B) competition; reduced costs.
C) cultural diversity; more potential customers.
D) price variation; cost variation.

Question 77

Why would the return on investment in elementary education in a developing country yield a higher rate of return than the same dollar size investment in elementary education in a high-income country?

A) The greater need for education in the developing country will induce it to make more efficient use of the funds.
B) High-income countries often are more corrupt, so part of the funds are spent to pay bribes there.
C) There is a greater need for higher education in the high-income country, so elementary education investments are not preferable.
D) Diminishing returns to investment in elementary education are likely to be more pronounced in the high-income country.

Question 78

The catch-up effect occurs when:

A) a country is able to improve its rule of law by enforcing laws more quickly.
B) a low-income country has higher economic growth rates than high-income countries, reducing the gap between their standards of living.
C) a country encourages similar industries to locate close to each other geographically.
D) diminishing returns on investments gradually lead to no returns, so investors catch up with noninvestors.

Question 79

Factors that determine productivity include all of the following EXCEPT:

A) advancement of technology.
B) natural resources per capita.
C) human capital per worker.
D) money per capita.

Question 80

One policy approach that is especially helpful for governments of high-income countries to use to foster economic growth is to:

A) raise the exchange rate to increase the incentive for trade.
B) grant patents and copyrights to allow inventors to gain a return.
C) improve access to primary education to ensure that the workforce has basic skills.
D) provide property rights to the poor.