Deck 6: Long-Run Economic Growth: Sources and Policies

Question 1

Which of the following countries was identified as a newly industrialising country in the 1980s and1990s, but is not identified as high-income country?

A)United States
B)Australia
C)Hong Kong
D)Brazil

Answer 1

Hong Kong

Question 2

________ is considered a newly industrialised country, ________ a developing country, and ________ a high income country.

A)Japan; Hong Kong; South Korea
B)Malaysia; Malawi; Japan
C)Canada; Singapore; Malawi
D)Honduras; New Zealand; South Korea

Answer 2

Malaysia; Malawi; Japan

Question 3

Economically, the best measure of a country's standard of living is:

A)GDP per unit of capital.
B)GDP per capita.
C)GDP Per hour of labour.
D)total GDP.

Answer 3

GDP per capita.

Question 4

GDP in a country grew from $10 billion to $14 billion over the span of five years. The average annual growth rate of GDP was:

A)4%.
B)7%.
C)10%.
D)40%.

Question 5

Since the world began, most records show that little or no increases in real GDP per capita occurred until around the 1800s.

Question 6

What do economists call the small group of East Asian countries that experienced high rates of growth in the 1980s and 1990s?

A)education deprived countries
B)countries with low standards of living
C)newly industrialising countries
D)industrial countries

Question 7

Which of the following is not a reason why the Industrial Revolution occurred when and where it did?

A)The British government was committed to upholding private property rights.
B)The British government was able to eliminate arbitrary increases in taxes.
C)The British government was able to more easily nationalise firms.
D)Institutional changes by the British government helped in protecting wealth.

Question 8

Which of the following accurately describes economic growth and standards of living from BC to 1300 AD?

A)Standards of living in 1300 AD were substantially better than what they were BC.
B)Standards of living substantially declined from BC to 1300 AD.
C)Significant economic growth took place from BC to 1300 AD.
D)No sustained economic growth occurred from BC to 1300 AD.

Question 9

In the long run, _________ differences in GDP per capita are the result of _______________differences in economic growth rates.

A)small; large
B)large; no
C)large; small
D)small; no

Question 10

Which of the following countries was identified as a newly industrialised country as of 2014?

A)Philippines
B)Canada
C)Taiwan
D)Singapore

Question 11

The Industrial Revolution in Britain:

A)marked the beginning of significant economic growth in the world.
B)started around the year 1950.
C)produced goods exclusively using human or animal power.
D)had no impact on standards of living in the world.

Question 12

Calculate the GDP per capita for each country in the following table. Which country has the highest standard of living? Why?

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Question 13

GDP in a country grew from $10 billion to $15 billion over the span of five years. The percentage change in GDP was:

A)4%.
B)7%.
C)40%.
D)50%.

Question 14

If a country's real GDP is rising by 4% per year while its population is rising at 3% per year, which of the following is true?

A)The country's standard of living is falling.
B)The country's standard of living is rising.
C)Growth in nominal GDP outweighs growth in the population.
D)Growth in nominal GDP is less than the growth in the population.

Question 15

Describe the pattern of growth in GDP per capita in the world before the Industrial Revolution.
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Question 16

Mechanical power from around 1750 onward led to significant increases in labour productivity and economic growth.

Question 17

In comparing China and Japan in terms of growth rates and standards of living, we find:

A)life expectancy is longer in China than in Japan.
B)GDP growth rates currently are higher in China, while the standard of living is lower.
C)infant mortality is higher in Japan.
D)life expectancy at birth is higher in China than in Japan.

Question 18

Use the following table to calculate the average annual growth rate in GDP. Also calculate the total percentage change in growth from 2015 to 2018. Explain the difference between the average annual growth rate in real per capita GDP from 2015 to 2018 and the total percentage change in growth from 2015 to 2018.

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Question 19

During which of the following periods was global growth in GDP per capita the strongest?

A)Prior to 500 AD.
B)500 AD to 1800 AD.
C)1800-1900 AD.
D)1900-2000 AD.

Question 20

Refer to Table 6.1 for the following question.
Table 6.1

Refer to Table 6.1. Which country has a higher standard of living and why?

A)Sweden has a higher standard of living because their GDP is higher.
B)Ireland has a higher standard of living because their GDP per capita is higher.
C)Sweden has a higher standard of living because their GDP per capita is higher.
D)Ireland has a higher standard of living because growth in GDP is greater in Ireland than in Sweden.

Question 21

Labour productivity can be explained by:

A)technological change and the quantity of capital per hour.
B)diminishing returns and the quantity of labour per hour.
C)diminishing returns and the quantity of capital per hour.
D)technological change and the quantity of labour per hour.

Question 22

Suppose the economy gains more capital per hour worked and experiences technological change. This is shown in Figure 6.1 by the movement from:

A)E to B to D.
B)A to B to C.
C)A to E.
D)A to D.

Question 23

An increase in ________ shifts ________ the production function, and makes it possible to produce a higher level of GDP with ________ capital per hour worked.

A)technology; down; the same amount of
B)technology; up; the same amount of
C)consumption; up; a lesser amount
D)labour productivity; down; the same amount of

Question 24

Refer to Figure 6.1 for the following questions.
Figure 6.1

The movement from A to E in Figure 6.1 illustrates:

A)negative technological change.
B)a decline in capital per worker.
C)zero returns to capital.
D)diminishing returns to labour.

Question 25

If the per-worker production function shifts up:

A)it now takes more capital per hour worked to get the same amount of real GDP per hour worked.
B)an economy can increase its real GDP per hour worked without changing the level of capital per hour worked.
C)the per-worker production function becomes flatter.
D)negative technological change has occurred in the economy.

Question 26

In Figure 6.1, more capital per hour worked is shown by the movement from:

A)B to D.
B)A to B.
C)B to E.
D)B to A.

Question 27

According to 'new growth theory', the accumulation of ________ capital is subject to diminishing returns at the ________ level, but not at the level of the economy as a whole.

A)physical; firm
B)technological; personal
C)knowledge; firm
D)physical; production

Question 28

How do economic growth rates affect a nation's standard of living?
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Question 29

What are the three common ways of classifying the world economies based on their level of economic development?
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Question 30

In the long run, a country will experience an increasing standard of living only if it experiences:

A)a high rate of consumption.
B)continuous technological change.
C)a high rate of labour force growth.
D)a slow rate of population growth.

Question 31

Refer to Figure 6.1 for the following questions.
Figure 6.1

The movement from A to B to C in Figure 6.1 illustrates:

A)an improvement in technology.
B)a decline in capital per worker.
C)diminishing returns to capital.
D)diminishing returns to labour.

Question 32

What changes are explained by an economic growth model?

A)Real GDP per capita in the long run
B)Nominal GDP per capita in the long run
C)Real GDP per capita in the short run
D)Nominal GDP per capita in the short run

Question 33

Which of the following combination of points illustrates changes in the Soviet Union's economy from 1950-1980, as illustrated in Figure 6.1?

A)E to B
B)B to D
C)B to E
D)A to B to C

Question 34

Refer to Figure 6.1 for the following questions.
Figure 6.1

The movement from A to D in Figure 6.1 illustrates:

A)an improvement in technology.
B)a decline in capital per worker.
C)diminishing returns to capital.
D)diminishing returns to labour.

Question 35

The 'per-worker production function' shows the relationship between ________ per hour worked and ________ per hour worked, holding ________ constant.

A)labour; real GDP; technology
B)capital; real GDP; technology
C)labour; capital; real GDP
D)capital; labour; real GDP

Question 36

Which of the following is true about technological change?

A)It will shift down the per-worker production function.
B)It will shift up the per-worker production function.
C)It will move the economy to a point beneath the per-worker production function.
D)It will move the economy along a given per-worker production function.

Question 37

A change in the ability of a firm to produce a given level of output with a given level of inputs is called:

A)human capital investment.
B)an increase in labour productivity
C)technological change.
D)a movement along a given per-worker production function.

Question 38

'New growth theory' states that increases in ________ capital will result in ________ at the ________ level.

A)knowledge; increasing returns to scale; firm
B)physical; decreasing returns to scale; firm
C)knowledge; decreasing returns to scale; economy
D)knowledge; increasing returns to scale; economy

Question 39

Which of the following describes the Soviet Union's economy between 1950 and the 1980s?

A)The Soviet economy grew rapidly due to an increase in capital per worker.
B)The Soviet economy increased capital per worker very slowly from 1950 through 1980.
C)The Soviet economy grew slowly because of the slow rate of technological change.
D)The Soviet economy grew because it added labour through immigration - its policy in the 1950s.

Question 40

Refer to Figure 6.1 for the following questions.
Figure 6.1

The movement from E to B to D in Figure 6.1 illustrates:

A)an improvement in technology.
B)a decline in capital per worker.
C)diminishing returns to capital.
D)increasing returns to labour.

Question 41

Economist Paul Romer argued that:

A)technological change was determined by forces outside of the market.
B)at the firm level, diminishing returns to labour occur.
C)at the economy level, knowledge capital is subject to increasing returns.
D)knowledge capital is excludable but rival.

Question 42

What reasons does Paul Romer give to support his claim that firms 'free ride' on 'knowledge capital'?
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Question 43

Suggest two policies the government could pursue to help increase the accumulation of knowledge.
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Question 44

Technological change causes a movement along a per-worker production function.

Question 45

The Soviet Union's economic growth rate slowed despite rapid increases in capital per hour worked.

Question 46

Using the points on the following diagram, identify which combinations of these points illustrate diminishing returns to capital. Give a brief explanation to support your answer.

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Question 47

Knowledge capital is ________ in production and ________. As a result, firms ________ free ride.

A)non-rival; non-excludable; can
B)non-rival; excludable; can
C)rival; non-excludable; cannot
D)non-rival; non-excludable; cannot

Question 48

For how long does a patent give a firm the exclusive legal right to a product in Australia?

A)10 years
B)17 years
C)20 years
D)50 years

Question 49

According to Joseph Schumpeter (1942), the 'theory of creative destruction' describes a process by which:

A)new products unleash a gale of destruction that creates other new products.
B)new products unleash a gale of destruction that drives old products out of the market.
C)new products are created by the destruction of capital.
D)the creation of new products never involves the destruction of old products.

Question 50

If a book, film, or piece of software was created today, for how long would Australian copyright law guarantee exclusive legal rights to the creator to use the creation?

A)10 years
B)20 years
C)the creator's lifetime plus 50 years for the creator's heirs
D)the creator's lifetime plus 70 years for the creator's heirs

Question 51

Which of the following is not a policy that can increase the accumulation of knowledge capital?

A)subsidised research and development
B)patent laws to encourage innovation
C)free provision of education
D)removing patent laws to allow for the spread of knowledge

Question 52

Your friend owns an ice cream stand which he works by himself. He produces about 25 ice creams per hour. He wants to be able to produce twice as many ice creams per hour so he buys a second machine. He notices that he can only produce 10 more ice creams an hour. He jokes that he could have doubled his output with the second machine if he only had four hands. Using your knowledge of the production process, explain to your friend what you think has happened when he added more capital to his production process.
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Question 53

Starting at point E in the following diagram, identify which combinations of points illustrate technological change. Give a brief explanation to support your answer.

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Question 54

The economic growth model focuses on the long-run increase in the productivity of capital.

Question 55

Because 'knowledge capital' is non-excludable and non-rival, firms have an incentive to ________ the research and development of other firms.

A)make bids on
B)not use
C)ignore
D)'free ride' on

Question 56

What is the 'economic growth model'?
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Question 57

The owner of a firm wants some advice on how to increase productivity. Suggest three ways the entrepreneur could increase labour productivity through improving technology.
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Question 58

According to 'new growth theory', the market will lead firms to accumulate the efficient level of knowledge capital.

Question 59

According to Joseph Schumpeter, which of the factors of production is central to economic growth?

A)land
B)labour
C)natural resources
D)the entrepreneur

Question 60

Which of the following is true about 'new growth theory'?

A)It states that the rate of technological change is determined outside the working of the market system.
B)It does not adequately explain the factors that determine productivity.
C)It states that the rate of technological change is unaffected by economic incentives.
D)It states that the rate of technological change is caused by economic incentives.

Question 61

Because Australian labour markets are more controlled and regulated than those in many European countries, labour productivity has grown relatively faster in Australia.

Question 62

The economic growth model predicts that ________ across countries will converge over time.

A)income levels
B)GDP per capita
C)foreign direct investment rates
D)growth rates

Question 63

What does the economic growth model predict?

A)GDP per capita of poor countries will grow more rapidly than in rich countries.
B)GDP per capita of rich countries will grow more rapidly than in poor countries.
C)governments must centrally direct the economy for economic growth to occur.
D)GDP per capita of poor countries will never change.

Question 64

The productivity slowdown experienced in Australia from the mid-1970s to the mid-1990s was actually a global phenomenon.

Question 65

Empirical evidence from 1960-2012 shows that convergence in economic growth is occurring in which of the following cases?

A)Low income industrial countries are catching up to high income industrial countries.
B)Low income developing countries are catching up to high income industrial countries.
C)Low income industrial countries are catching up to high income developing countries.
D)All low income countries are catching up to all high income countries.

Question 66

Some economists argued that the productivity slowdown of the mid-1970s to the early 1990s was due to changes in oil prices that:

A)increased production costs, causing firms to reorganise production to conserve energy, which reduced output per worker.
B)decreased production costs, causing firms to reorganise production to conserve energy, which reduced output per worker.
C)increased production costs, causing firms to reorganise production to conserve energy, which increased output per worker.
D)decreased production costs, causing firms to increase production, which reduced output per worker.

Question 67

The best explanation of the labour productivity slowdown in Australia from 1973 through the early 1990s is:

A)tariff protection.
B)market deregulation.
C)high oil prices during that period.
D)technological change occurring too rapidly.

Question 68

The decline in labour productivity rates between 2006 and 2015 resulted in:

A)a rise in labour union membership.
B)an increase in government spending on infrastructure.
C)increased market regulations.
D)decreased investment in technology.

Question 69

What reasons explain the increase in productivity growth rates that occurred in Australia from the early 1990s to the early 2000s?
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Question 70

Information technology industries such as computers, mobile phones, computer programming and software:

A)significantly increased labour productivity in the 1990s in Australia.
B)have significantly reduced labour productivity as they have created distractions at work.
C)are unlikely to increase labour productivity into the future, as their benefits have already been gained.
D)increased labour productivity in the 1980s in Australia, but led to a slowdown in labour productivity in the 1990s.

Question 71

Investment and technological changes led to strong economic growth and productivity growth in Australia for approximately 30 years after the end of World War II.

Question 72

Use production functions from the economic growth model to explain why America grew at a much faster rate than the Soviet Union in the latter half of the 20th century.
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Question 73

What period in Australia's economic history is known as the 'Long Boom'?

A)1940-1970
B)1991-1994
C)2006-2012
D)1861-1891

Question 74

The Australian economy experienced a faster increase in productivity between 1995 and 2008 compared to most other leading industrial economies in the G7. Which of the following helps to explain this?

A)Australian unions imposed stricter work rules as compared to unions in the G7.
B)Australian government regulations impose stricter work rules as compared to government regulations in the G7.
C)Australian labour markets were more flexible than labour markets in many other industrial countries.
D)Australian workers could obtain unemployment benefit payments for a longer period of time as compared to the G7 countries.

Question 75

Which of the following was not experienced in the Australian economy from the mid- to late-1800s?

A)an expansion of the labour force
B)a booming export market
C)an increase in capital per hour worked
D)a general decline in labour productivity due to a lack of capital

Question 76

Which of the following is not an explanation for the revival in the growth of productivity starting in Australia in the early 1990s?

A)Information and communication innovations that were increasingly geared toward improving business processes and not consumer products.
B)High productivity growth in the agricultural sector.
C)Internet use that had increased the efficiency of how firms buy and sell to each other and to consumers.
D)Mobile phones and wireless Internet access increased worker flexibility.

Question 77

One of the results of Paul Romer's new growth theory is that investment in research and development will be too low in an economy. Explain how he comes to this conclusion.
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Question 78

Because of the productivity slowdown in Australia from the mid-1970s through to the early 1990s:

A)real GDP per capita grew more rapidly.
B)real GDP per capita grew more slowly.
C)the standard of living did not change.
D)the standard of living increased in Australia.

Question 79

High oil prices consistently explain why productivity growth rates slow down.

Question 80

Given the fact that the productivity slowdown affected all industrial countries, which of the following explanations for the productivity slowdown in Australia is not likely to be correct?

A)a deterioration of Australia's education system causing a decline in the quality of labour
B)tariff protection
C)lack of sufficient technological change
D)highly regulated markets