Deck 7: The Standard of Living Over Time and Across Countries

Question 1

All else equal,continued increases in the labour supply in an economy will lead to

A) continued increases in the capital stock.
B) higher levels of total factor productivity.
C) smaller increases in real GDP.
D) an increase in labour's share of income.

Answer 1

C

Question 2

Which of the following is not a distinguishing characteristic of the Cobb-Douglas production function?

A) The function exhibits constant returns to scale.
B) The function exhibits diminishing returns.
C) Capital and labour both earn shares of total income equal to the value of their exponents in the production function.
D) Labours share of income cannot exceed 0.5.

Answer 2

D

Question 3

The marginal product of capital is the ________ curve for capital and the marginal product of labour is the ________ curve for labour.

A) demand; demand
B) demand; supply
C) supply; demand
D) supply; supply

Answer 3

A

Question 4

All else equal,as the labour supply increases,the marginal product of labour will

A) increase at an increasing rate.
B) increase at a decreasing rate.
C) decrease at an increasing rate.
D) decrease at a decreasing rate.

Question 5

All else equal,as the capital stock increases,the marginal product of capital will

A) increase at an increasing rate.
B) increase at a decreasing rate.
C) decrease at an increasing rate.
D) decrease at a decreasing rate.

Question 6

Suppose that the production function for the economy is Y = AK¹/⁴ᴸ³/⁴.Assume that real GDP is $8000 billion,capital stock is $32 000 billion,and the labour supply is 120 million (or 0.120 billion)workers.Total factor productivity for this economy is

A) 16.50
B) 1016.52
C) 2083.33
D) 2933.65

Question 7

In the Cobb-Douglas production function,the index of the overall level of efficiency of transforming capital and labour into real GDP is called

A) total factor productivity.
B) allocative efficiency.
C) the marginal efficiency index.
D) the transformation allocation of inputs.

Question 8

The processes a firm uses to turn inputs into outputs of goods and services are the firm's

A) production function.
B) technology.
C) total factor productivity.
D) manufacturing ideology.

Question 9

All else equal,in an economy with an upward-sloping production function,as an economy accumulates more capital goods,

A) the labour supply must increase.
B) real GDP increases.
C) the labour supply must decrease.
D) the marginal product of capital will increase.

Question 10

The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs is called the firm's

A) total factor productivity.
B) marginal production level.
C) technological ratio.
D) production function.

Question 11

In the Cobb-Douglas production function Y = AK³/⁴ᴸ¹/⁴,

A) capital is a more expensive input than labour.
B) capital is more plentiful than labour.
C) diminishing returns to capital are three times greater than are diminishing returns to labour.
D) capital has a larger share in national income than does labour.

Question 12

An increase in foreign investment in Brazil's mining industry will increase the capital stock in Brazil.All else equal,as the capital stock increases,the marginal product of capital (MPK)will

A) increase due to diminishing marginal returns.
B) decrease due to diminishing marginal returns.
C) increase since capital is not subject to diminishing marginal returns.
D) decrease since capital is not subject to diminishing marginal returns.

Question 13

The Cobb-Douglas production function represents real GDP as a function of all of the following variables except

A) capital.
B) labour.
C) the price level.
D) total factor productivity.

Question 14

Which of the following equations best represents a Cobb-Douglas production function?

A) Y = AK¹ᴸ¹
B) Y = AK³/⁴ᴸ¹/⁴
C) Y = AK¹/³ᴸ³
D) Y = AK²/³ᴸ³/²

Question 15

The marginal product of capital is always ________ and it ________ as the capital stock increases.

A) positive; increases
B) positive; decreases
C) negative; increases
D) negative; decreases

Question 16

In the aggregate production function,Y represents real GDP,K represents the capital stock,L represents the quantity of labour,and A represents an index of efficiency.Which of the following equations represents the aggregate production function?

A) Y = (K × L) / A
B) Y × A = (K × L)
C) Y = AF(K, L)
D) Y = (K × L) = A /FY

Question 17

In the aggregate production function,the symbol "A " represents an index of how efficiently the economy transforms capital and labour into real GDP."A" measures the influence

A) of any factor that determines real GDP.
B) of the quantities of capital and labour that determine real GDP.
C) of any factor that determines real GDP other than the quantities of capital and labour.
D) of the quantities of capital and labour that determine real GDP, holding other factors constant.

Question 18

Which of the following equations best represents the concept of constant returns to scale?

A) 3Y = AF(3K, 3L)
B) 2Y = 2AF(2K, 2 L)
C) 1/4Y = (AF / 4 )(4K, 4L)
D) 5Y = [AF(K, L)] / 5

Question 19

The marginal product of labour is always ________ and it ________ as the labour stock increases.

A) positive; increases
B) positive; decreases
C) negative; increases
D) negative; decreases

Question 20

The aggregate production function is an equation that shows the relationship between ________ and ________.

A) the inputs employed by firms; the maximum output firms can produce with those inputs
B) the inputs employed by an individual firm in an economy; the average of the inputs employed by all firms in an economy
C) the output produced by an individual firm in an economy; the average of the output produced by all firms in an economy
D) the average level of capital used in production in an economy; the average level of labour used in production in an economy

Question 21

Suppose that the production function for the economy is Y = AK⁰.⁵ᴸ⁰.⁵.If the capital stock = 40 000,the quantity of labour = 10 000,and the efficiency index = 3,real GDP is

A) $60 000.
B) $75 000.
C) $150 000.
D) $300 000.

Question 22

Suppose that the production function for the economy is Y = AK⁰.²ᴸ⁰.⁸.If the capital stock = 40 000,the quantity of labour = 10 000,and the efficiency index = 1,real GDP is

A) $13 195.08.
B) $16 000.00.
C) $16 946.34.
D) $28 000.00.

Question 23

A firm that wishes to maximize profits will continue to purchase capital goods until the

A) nominal rental price of capital = MPK.
B) real rental price of capital = MPK.
C) nominal rental price of capital = the real rental price of capital.
D) nominal rental price of capital = the price level.

Question 24

Figure 7.1

Refer to Figure 7.1.All else equal,an increase in the number of workers will cause a

A) shift from PF₁ to PF₂.
B) shift from PF₂ to PF₁.
C) movement up and to the right along PF₁.
D) movement down and to the left along PF₂.

Question 25

Suppose that the production function is Y = AK⁰.⁷ᴸ⁰.³,the number of workers equals 800,the capital stock is $150 000,and total factor productivity is 3.What is the value of real GDP? What will happen to real GDP if total factor productivity doubles?

Question 26

Suppose that the production function for the economy is Y = AK⁰.⁵ᴸ⁰.⁵.If the capital stock = 40 000,the quantity of labour = 10 000,and the efficiency index = 3,the equilibrium real rental price of capital is

A) $0.33.
B) $0.75.
C) $1.00.
D) $2.22.

Question 27

Suppose that the production function for the economy is Y = AK⁰.⁵ᴸ⁰.⁵.If the capital stock ?= 40 000,the quantity of labour = 10 000,and the efficiency index = 3,the equilibrium real wage is

A) $3.
B) $4.50.
C) $9.
D) $16.67.

Question 28

A firm that wishes to maximize profits will continue to hire labour until the

A) real wage = MPL.
B) nominal wage = MPL.
C) nominal wage = the real wage.
D) nominal wage = the price level.

Question 29

Suppose that the production function for the economy is Y = AK⁰.²ᴸ⁰.⁸.If the capital stock = 40 000,the quantity of labour = 10 000,and the efficiency index = 1,the marginal product of capital is

A) $0.066.
B) $0.20.
C) $1.05.
D) $1.58.

Question 30

Figure 7.1

Refer to Figure 7.1.All else equal,an increase in the capital stock will cause a

A) shift from PF₁ to PF₂.
B) shift from PF₂ to PF₁.
C) movement up and to the right along PF₁.
D) movement down and to the left along PF₂.

Question 31

Suppose that the production function for an economy is Y = AK¹/³ᴸ²/³.On one graph,show the production function undergoing two equal increases in workers,holding capital and total factor productivity constant,and on a second graph show the production function undergoing two equal increases in total factor productivity,holding capital and labour constant.Explain what happens to real GDP in each situation.

Question 32

Figure 7.1

Refer to Figure 7.1.All else equal,an increase in total factor productivity will cause a

A) shift from PF₁ to PF₂.
B) shift from PF₂ to PF₁.
C) movement up and to the right along PF₁.
D) movement down and to the left along PF₂.

Question 33

If the marginal product of labour is less than the nominal wage divided by the price of output,a firm that wishes to maximize profits will

A) hire more labour.
B) lay off workers.
C) maintain its current level of workers.
D) raise the real wage.

Question 34

Diminishing marginal returns do not exist for increases in

A) capital stock.
B) labour.
C) total factor productivity.
D) Diminishing marginal returns exist for all of the above answers.

Question 35

Suppose that the production function is Y = AK?.³???.??,the number of workers equals 800,the capital stock is $150 000,and real GDP is $750 000.What is the value of total factor productivity?

Question 36

Explain why the differences in GDP per capita actually understate the true difference in living standards between countries.

Question 37

If the nominal rental price of capital divided by the price of output is less than the marginal product of capital,a firm that wishes to maximize profits will

A) purchase more capital goods.
B) purchase fewer capital goods.
C) maintain the current level of capital goods.
D) allow capital goods to wear out without purchasing additional capital goods.

Question 38

In Canada,economists estimate capital's share and labour's share of total income have been about ________,respectively.

A) 1/2 and 1/2
B) 4/5 and 1/5
C) 1/3 and 2/3
D) 3/4 and 1/4

Question 39

An increase in foreign investment in Brazil's mining industry will increase the capital stock in Brazil.Holding labour and total factor productivity constant,continued increases in the capital stock will lead to

A) larger and larger increases in real GDP.
B) smaller and smaller increases in real GDP.
C) larger and larger decreases in real GDP.
D) small increases, followed by small decreases, in real GDP.

Question 40

Suppose that the production function for the economy is Y = AK⁰.²ᴸ⁰.⁸.If the capital stock = 40 000,the quantity of labour = 10 000,and the efficiency index = 1,the marginal product of labour is

A) $0.80.
B) $1.06.
C) $1.32.
D) $5.26.

Question 41

Suppose that the production function for the economy is: Y = AK¹/⁴ᴸ³/⁴.Assume that A = 1000,the capital stock is $32 000 billion,and the labour force is 120 million (or 0.120 billion)workers.The value of the marginal product of capital is

A) $0.0147.
B) $0.0213.
C) $0.0597.
D) $0.25.

Question 42

Suppose that the production function for the economy is: Y = AK¹/⁴ᴸ³/⁴.Assume that real GDP is $8000 billion,capital stock is $32 000 billion,and the labour supply is 120 million (or 0.120 billion)workers.An increase in the capital stock of $1 billion will increase real GDP by

A) $0.03125 billion.
B) $0.0625 billion.
C) $0.25 billion.
D) $1 billion.

Question 43

Suppose that the production function for the economy is: Y = AK¹/⁴ᴸ³/⁴.Assume that real GDP is $8000 billion,capital stock is $32 000 billion,and the labour supply is 120 million (or 0.120 billion)workers.The value of the marginal product of capital is ________ per dollar of capital.

A) $0.0625
B) $0.133
C) $0.16
D) $1.00

Question 44

Suppose that the production function for the economy is: Y = AK¹/⁴ᴸ³/⁴.Assume that A = 1000,the current capital stock is $32 000 billion,and the labour force is 120 million (or 0.120 billion)workers.All else equal,if the capital stock increases by $8000,the value of the marginal product of labour will be

A) $18 021.09.
B) $20 223.24.
C) $21 625.30.
D) $60 070.29.

Question 45

All else equal,if the demand for capital decreases and the supply of capital does not change,the equilibrium real rental cost of capital will ________ and the equilibrium quantity of capital will ________.

A) increase; increase
B) decrease; not change
C) decrease; decrease
D) not change; decrease

Question 46

Explain how firms choose the amount of capital goods to purchase and the amount of labour to hire.

Question 47

Suppose that the production function is Y = AK²/⁵ᴸ³/⁵.Assume that real GDP is $5000 billion,capital stock is $15 000 billion,and the labour supply is 75 million workers.What are the values for the marginal product of labour and the marginal product of capital? Show this data graphically.

Question 48

Explain the relationships between the marginal product of labour and the demand for labour,and the marginal product of capital and the demand for capital.

Question 49

Which of the following is a way to measure of real GDP per capita?

A) (Labour productivity) × (Fraction of the population working)
B) (Nominal GDP) / (Real GDP)
C) (Total factor productivity) / (Capital stock)
D) (Real GDP) × (Population)

Question 50

Suppose that the production function for the economy is: Y = AK¹/⁴ᴸ³/⁴.Assume that real GDP is $8000 billion,capital stock is $32 000 billion,and the labour supply is 120 million (or 0.120 billion)workers.An increase of one worker will increase real GDP by

A) $8.
B) $50 000.
C) $720 000.
D) $6 000 000.

Question 51

The per worker production function shows the relationship between

A) the labour force and the capital stock.
B) the supply of labour and the population.
C) the hours worked and the number of workers.
D) real GDP per worker and capital per worker.

Question 52

All else equal,if the demand for labour increases and the supply of labour does not change,the equilibrium real wage will ________ and the equilibrium quantity of labour will ________.

A) increase; increase
B) increase; not change
C) decrease; decrease
D) not change; increase

Question 53

Suppose that the production function for the economy is: Y = AK¹/⁴ᴸ³/⁴.Assume that A = 1000,the capital stock is $32 000 billion,and the current labour force is 120 million (or 0.120 billion)workers.All else equal,if the labour force increases by 20 million workers,the value of the marginal product of capital will be

A) $0.0104.
B) $0.0239.
C) $0.0639.
D) $0.0717.

Question 54

Of the determinants of real GDP per capita,the more important one is

A) the capital-labour ratio.
B) the size of the labour force.
C) total factor productivity.
D) the hours worked by the labour force.

Question 55

Along the per worker production function,as the capital-labour ratio ________,increases in output per worker become progressively ________.

A) increases; larger
B) increases; smaller
C) decreases; larger
D) decreases; smaller

Question 56

Suppose that the production function for the economy is: Y = AK¹/⁴ᴸ³/⁴.Assume that A = 1000,the capital stock is $32 000 billion,and the labour force is 120 million (or 0.120 billion)workers.The value of the marginal product of labour is

A) $14 290.17.
B) $17 043.29.
C) $20 451.95.
D) $22 724.33.

Question 57

When graphing the per worker production function,________ is on the horizontal axis and ________ is on the vertical axis.

A) labour; real GDP
B) the capital stock; real GDP
C) the capital-labour ratio; real GDP per worker
D) capital per worker; the labour force

Question 58

Suppose that the production function for the economy is Y = AK⁰.²⁵ᴸ⁰.⁷⁵,A = 2,?K = 100 000,and L = 60 000.What are the values of real GDP,the real wage,and the real rental cost of capital? Show this data using graphs of the aggregate production function,the aggregate capital market,and the aggregate labour market.

Question 59

The supply curves for labour and capital are ________ and the demand curves for labour and capital are ________.

A) upward sloping; downward sloping
B) vertical; horizontal
C) vertical; downward sloping
D) upward sloping; vertical

Question 60

Suppose that the production function for the economy is: Y = AK¹/⁴ᴸ³/⁴.Assume that real GDP is $8000 billion,capital stock is $32 000 billion,and the labour supply is 120 million (or 0.120 billion)workers.The value of the marginal product of labour is ________ per worker.

A) $30 000
B) $50 000
C) $66 667
D) $90 000

Question 61

The two basic ways for workers to acquire human capital are

A) formal education and "learning by doing."
B) purchases in the capital market and trade.
C) increases in the capital stock and increases in total factor productivity.
D) training and intuition.

Question 62

Suppose y = Ak¹/⁴,the capital-labour ratio is $40 000 per worker,the level of total factor productivity is 800,70% of the population works,and there are 70 million workers.Real GDP per worker is

A) $5000.00.
B) $7919.60.
C) $11 313.71.
D) $14 142.14.

Question 63

The Chinese economic reforms of 1978 opened China to international trade and investment.These reforms gave China access to new capital and technology,which

A) allowed China to decrease its capital-labour ratio and increase labour productivity.
B) increased China's total factor productivity and standard of living.
C) accelerated Chinese productivity to a level where Chinese real GDP per capita is now on par with that in Canada.
D) rapidly increased productivity in China and convinced Chinese officials to expand the reforms to include complete privatization of its financial system.

Question 64

Which of the following would be the least likely to increase total factor productivity?

A) private investment in research and development
B) increases in human capital
C) the establishment of strong property rights
D) increases in the population growth rate

Question 65

Suppose y = Ak¹/³,the capital-labour ratio is $30 000 per worker,the level of total factor productivity is 400,50% of the population works,and there are 50 million workers.Real GDP per worker is

A) $9861.69.
B) $12 424.66.
C) $15 530.82.
D) $18 067.92.

Question 66

What is human capital? How do workers acquire human capital?

Question 67

Two of the most important factors that influence total factor productivity are

A) the stock of knowledge that the world possesses and the associated level of technology.
B) the quantity and quality of labour available in an economy.
C) capital accumulation and the total level of investment in an economy.
D) population growth rates and the geographic location of the population.

Question 68

Countries with a low standard of living have low levels of total factor productivity.List five reasons that account for the low levels of total factor productivity.

Question 69

What two factors determine output per worker? Explain which of the two is more important.

Question 70

Which of the following would be the least likely to increase total factor productivity?

A) a well-functioning financial system
B) government control of production and property
C) technological advances
D) improvements in education

Question 71

Assuming that total factor productivity is constant,describe the effect of an increase in the capital-labour ratio on the per worker production function.What happens to the marginal product of labour,the marginal product of capital,and real GDP per capita?

Question 72

Suppose y = Ak¹/⁴,the capital-labour ratio is $40 000 per worker,the level of total factor productivity is 800,70% of the population works,and there are 70 million workers.Real GDP per capita is

A) $3500.00.
B) $5543.72.
C) $7919.60.
D) $9899.50.

Question 73

Suppose y = Ak¹/³,the capital-labour ratio is $30 000 per worker,the level of total factor productivity is 400,50% of the population works,and there are 50 million workers.Real GDP per capita is

A) $4930.85.
B) $6212.33.
C) $7765.41.
D) $9033.96.

Question 74

Explain how a well-functioning financial system can increase total factor productivity and promote economic growth.