Deck 11: Long-Run Economic Growth: Sources and Policies

Question 1

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

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

Answer 1

1900-2000 A.D.

Question 2

GDP in a country grew from $10 billion to $14 billion over the span of 5 years.The percentage change in GDP was

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

Answer 2

40%.

Question 3

In the long run,________ differences in economic growth rates result in ________ differences in GDP per capita.

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

Answer 3

small; large

Question 4

The key factors in raising standards of living in low-income countries have been increases in

A) capital accumulation and the money supply.
B) technology and knowledge.
C) foreign aid and population.
D) income and government ownership of resources.

Question 5

GDP in a country grew from $10 billion to $14 billion over the span of 5 years.The average annual growth rate of GDP was

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

Question 6

High-income countries are also referred to as

A) developing countries.
B) industrial countries.
C) growing countries.
D) agrarian countries.

Question 7

According to the World Bank,in 2006,China's GDP was approximately $2.7 trillion (or $2,700 billion). That same year,India's GDP was approximately $906.3 billion.With which of the following populations would China's standard of living have been considered higher than India's that year?

A) China's population = 1.3 billion; India's population = 1.1 billion
B) China's population = 8.3 billion; India's population = 1.1 billion
C) China's population = 500 million; India's population = 125 million
D) China's population = 3.5 billion; India's population = 1.1 billion

Question 8

The best measure of a country's standard of living is

A) GDP per labor hour.
B) GDP per unit of capital.
C) GDP per capita.
D) total nominal GDP.

Question 9

The small group of East Asian countries that experienced high rates of growth in the 1980s and 1990s are referred to as

A) newly industrializing countries.
B) countries with low standards of living.
C) education-deprived countries.
D) industrial countries.

Question 10

Entrepreneurship in China is

A) a relatively new resource.
B) the most fundamental tenet of the Communist government.
C) a result of government-controlled production.
D) the cause of China's relatively low growth rates in recent years.

Question 11

The Industrial Revolution

A) marked the beginning of significant economic growth in the world.
B) started in France around the year 1750.
C) produced goods exclusively using human or animal power.
D) had no impact on standards of living in the world.

Question 12

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

A) Japan; Hong Kong; South Korea
B) United States; Somalia; Taiwan
C) Canada; France; Singapore
D) Honduras; New Zealand; South Korea

Question 13

If a country's real GDP is rising by 3% per year while its population is rising at 5% 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 14

If GDP per capita rises by 2% between 2011 and 2012,which of the following is necessarily true?

A) Real GDP has risen by more than 2%.
B) The population has decreased.
C) The population has increased, but by less than 2%.
D) None of the above is necessarily true.

Question 15

Which of the following countries had the lowest GDP per capita in 2010?

A) France
B) Mexico
C) Burundi
D) Argentina

Question 16

Which of the following countries had the highest GDP per capita in 2010?

A) Luxembourg
B) United States
C) Japan
D) Norway

Question 17

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 seize wealth.
D) Institutional changes by the British government helped protect wealth.

Question 18

Which of the following accurately describes economic growth and standards of living between 1,000,000 B.C.and 1300 A.D.?

A) Standards of living in 1300 A.D. were substantially better than what they were in 1,000,000 B.C..
B) Standards of living substantially declined from 1,000,000 B.C. to 1300 A.D.
C) Significant economic growth took place between 1,000,000 B.C. and 1300 A.D.
D) No sustained economic growth occurred between 1,000,000 B.C. and 1300 A.D.

Question 19

According to Nobel laureate Douglass North,one reason why the Industrial Revolution occurred in England before many other countries was because the king in England consistently maintained control over the court system and the government.

Question 20

Table 22-1

Refer to Table 22-1.Based on the table above,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

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 labor force growth.
D) a slow rate of population growth.

Question 22

What is human capital?

A) labor productivity
B) buildings, equipment, and machinery owned by individuals rather than firms
C) buildings, equipment, and machinery owned by firms
D) the accumulated knowledge and skills that workers acquire from education, training, and their life experiences

Question 23

Figure 22-1

Refer to Figure 22-1.Which of the following would cause an economy to move from a point like A in the figure above to a point like B?

A) an improvement in technology
B) a decrease in capital per hour worked
C) an increase in capital per hour worked
D) a technological regression

Question 24

Most economic growth in the world occurred between 1,000,000 B.C.and 1300 A.D.

Question 25

Which factors explain labor productivity?

A) technological change; the quantity of labor per hour worked
B) diminishing returns; the quantity of labor per hour worked
C) diminishing returns; the quantity of capital per hour worked
D) technological change; the quantity of capital per hour worked

Question 26

The per-worker production function has a ________ slope,indicating that increases in capital per hour worked ________ real GDP.

A) negative; increase
B) positive; increase
C) negative; decrease
D) positive; decrease

Question 27

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

Question 28

The Soviet Union consistently increased the amount of capital available to its workers,but found that increases in capital resulted in progressively smaller and smaller increases in GDP per worker.This phenomenon is referred to as

A) a rising standard of living.
B) diminishing returns to capital.
C) new growth theory.
D) a shift of the per-worker production function.

Question 29

If an outflow of workers leaves a country with a smaller but more productive workforce and the capital per hour worked does not change,there will be ________ the per-worker production function in that country.

A) a movement up
B) a movement down
C) an upward shift of
D) a downward shift of

Question 30

Figure 22-1

Refer to Figure 22-1.Technological change is shown in the figure above by the movement from

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

Question 31

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

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

Question 32

If,after an outflow of workers in a country,it now takes more capital per hour worked to get the same amount of GDP per hour worked,this indicates ________ the per-worker production function in that country.

A) a movement up
B) a movement down
C) an upward shift of
D) a downward shift of

Question 33

New growth theory

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

Question 34

A small economy increased its capital per hour worked (K/L)from $40,000 to $50,000.As a result,real GDP per worker (Y/L)grew from $20,000 to $25,000.If the economy increases its capital per hour worked by another $10,000 to $60,000,but there is no change in technology,by how much more and in what direction will output per worker change?

A) Output per worker will increase by exactly $5,000.
B) Output per worker will increase by more than $5,000.
C) Output per worker will increase by less than $5,000.
D) Output per worker will fall by more than $5,000.

Question 35

Which of the following describes the Soviet Union's economy through most of the second half of the 20th century?

A) The Soviet economy grew rapidly in the later half of the 20th century.
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 labor through immigration policy in the 1950s.

Question 36

Technological change will

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

Question 37

If there is a change in the ability of a firm to produce a given level of output with a given level of inputs,we say there is

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

Question 38

In 2010,South America had a lower average GDP per capita than any other continent.

Question 39

Table 22-2

Refer to Table 22-2.Calculate the GDP per capita for each country in the table.Which country has the highest standard of living? Why?

Question 40

An economic growth model

A) explains changes in nominal GDP per capita in the long run.
B) explains changes in real GDP per capita in the long run.
C) explains changes in nominal GDP per capita in the short run.
D) explains changes in real GDP per capita in the short run.

Question 41

Figure 22-2

Refer to Figure 22-2.Suppose the economy gains more capital per hour worked and experiences technological change.This is shown in the figure above by the movement

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

Question 42

Figure 22-2

Refer to Figure 22-2.The movement from A to B to C illustrates

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

Question 43

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 44

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 45

Figure 22-2

Refer to Figure 22-2.Using the per-worker production function in the figure above,the largest changes in an economy's standard of living would be achieved by a movement from

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

Question 46

In a small Asian country,it is estimated that a $10,000 increase in capital per hour worked will increase real GDP per hour worked by $600. Based on this information,what is the slope of the per-worker production function in this range?

A) 0.06
B) 6.6
C) 66.6
D) 666

Question 47

In a small Asian country,it is estimated that changing the level of capital from $8 million to $12 million will increase real GDP from $4 million to $6 million. What level of GDP would you expect the economy to be able to reach if spending on capital continued to rise to $16 million,assuming no technological change and no change in the hours of work?

A) GDP would increase further, but by less than $2 million.
B) GDP would increase further by exactly $2 million.
C) GDP would increase further by more than $2 million
D) GDP would increase further by exactly $8 million.

Question 48

Figure 22-2

Refer to Figure 22-2. Many countries in Africa strongly discouraged and prohibited foreign direct investment in the 1950s and 1960s. By doing so,these countries were essentially preventing a moment from

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

Question 49

If the slope of the per-worker production function is 1/4 in a given range,how will a $10,000 increase in capital per hour worked affect real GDP per hour worked in the same given range?

A) Real GDP per hour worked will increase by $2,500.
B) Real GDP per hour worked will increase by $40,000.
C) Real GDP per hour worked will increase by $10,000.
D) Real GDP per hour worked will decrease by $40.000

Question 50

Figure 22-2

Refer to Figure 22-2.Within a country,the impact of wars and revolutions and their subsequent destruction of capital is reflected in the per-worker production function in the figure above by a movement from

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

Question 51

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) labor productivity; down; the same amount of

Question 52

Because knowledge capital is nonexcludable and nonrival,firms have an incentive to ________ on the research and development of other firms.

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

Question 53

When firms benefit from the results of research and development they didn't pay for,we say firms

A) are litigious.
B) free ride.
C) invest in knowledge capital.
D) maintain a level playing field.

Question 54

In a small Asian country,it is estimated that changing the level of capital from $8 million to $12 million will increase real GDP from $5 million to $6 million. If the number of hours worked in the labor force does not change,what does this information tell you about the slope of the per-worker production function in this range?

A) The slope is -4.
B) The slope is 1/4.
C) The slope is 4.
D) The slope is 8.

Question 55

Figure 22-2

Refer to Figure 22-2.The movement from E to B to D in the figure above illustrates

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

Question 56

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 57

Figure 22-2

Refer to Figure 22-2.Suppose the per-worker production function in the figure above represents the production function for the U.S.economy. If the United States decided to cut its support of university research in half,this would cause a movement from

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

Question 58

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

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

Question 59

Figure 22-2

Refer to Figure 22-2.Which of the following combinations of points illustrates changes in the Soviet Union's economy from 1950 to 1980?

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

Question 60

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

A) nonrival; nonexcludable; can
B) nonrival; excludable; can
C) rival; nonexcludable; cannot
D) nonrival; nonexcludable; cannot

Question 61

Which of the following accurately describes growth rates in the United States from 1900 to the present?

A) Growth rates rose until the 1970s; then fell until the present.
B) Growth rates have risen continuously from 1900 to the present.
C) Growth rates rose until the 1970s, slowed until the 1990s; then rose up to the present.
D) Growth rates have fallen continuously from 1900 to the present.

Question 62

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

Question 63

Technological change allows the economy to produce more output with the same amount of capital and labor.

Question 64

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

Question 65

During which of the following periods was the U.S.growth rate the slowest?

A) 1900-1949
B) 1950-1972
C) 1973-1994
D) 1995-2008

Question 66

According to the text,there are three ways the government can help increase the accumulation of knowledge capital.What are they?

A) protecting intellectual property rights, subsidizing research and development, and subsidizing education
B) increasing taxes on firms, eliminating patents, and increasing the minimum wage
C) encouraging the use of trade secrets, expanding student loan programs, and increasing the minimum wage
D) reducing taxes on capital, increasing Social Security payments, and lowering the exchange rate

Question 67

Your friend owns a snow cone stand that he works by himself.He produces about 25 snow cones per hour.He wants to be able to produce twice as many snow cones per hour so he buys a second machine.He notices that he can only produce 10 more snow cones 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.

Question 68

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.

Question 69

An explanation for the productivity slowdown from 1973 through 1995 is

A) measurement problems.
B) creative destruction.
C) a decline in oil prices.
D) an increase in labor quality.

Question 70

The easiest way for a country to obtain access to technology is through

A) subsidizing education and training.
B) promoting foreign direct investment.
C) promoting policies to enhance saving.
D) enacting policies to promote property rights.

Question 71

According to new growth theory,firms accumulate the efficient level of both physical and knowledge capital.

Question 72

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

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

Question 73

According to Joseph Schumpeter,the theory of creative destruction describes a process by which

A) some new products unleash a gale of destruction that drive other new products out of the market.
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 74

Some economists argue that the productivity slowdown from mid-1970s to mid-1990s actually didn't happen,but just "appeared" to happen because

A) services were becoming a more important part of the economy and it was hard to measure increases of output from services.
B) new environmental laws had passed and forced firms to spend to reduce pollution, and this spending did not raise output.
C) increased spending on health and safety raised worker productivity.
D) A and B
E) B and C

Question 75

A copyright grants the creator of a book,film,or piece of software exclusive legal rights to use the creation for how long?

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

Question 76

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

Question 77

Because of the productivity slowdown in the United States from the mid-1970s through the mid-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 the United States.

Question 78

Table 22-3

Refer to Table 22-3.Use the table above to calculate the annual growth rate in GDP.Also calculate the total percentage change in the growth from 2008 through 2011.Explain the difference between the average annual growth rate in real per capita GDP from 2008 through 2011 and the total percentage change in growth from 2008 and 2011.

Question 79

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

Question 80

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