Deck 22: Production and Growth

Question 1

Many East Asian countries are growing very quickly because

A) they save and invest an unusually high percentage of their GDP.
B) they have always been wealthy and will continue to be wealthy, which is known as the "snowball effect."
C) they are imperialists and have collected wealth from previous victories in war.
D) they have enormous natural resources.

Answer 1

A

Question 2

An increase in capital should cause the growth rate of a relatively poor country to increase more than that of a rich country.

Answer 2

True

Question 3

If the capital stock increases faster than employment, then we would expect

A) both output and labour productivity to rise.
B) output to rise but labour productivity to fall.
C) both output and labour productivity to fall.
D) output to fall but labour productivity to rise.

Answer 3

A

Question 4

Per capita real GDP differs from per capita nominal GDP in that real GDP

A) measures the opportunity cost of growth.
B) has been adjusted for the time value of money.
C) has been adjusted for inflation.
D) has been discounted to the present.

Question 5

Poor countries are poor for all of the following reasons except

A) their technology is less than modern.
B) their labour productivity is low.
C) foreign investment funds are difficult to attract.
D) their labour force is too small.

Question 6

For a given level of technology, we should expect an increase in productivity within a nation when there is an increase in each of the following except

A) labour.
B) physical capital/worker.
C) human capital/worker.
D) natural resources/worker.

Question 7

The opportunity cost of additional growth is that someone must forgo current consumption.

Question 8

The rate of economic growth is probably underestimated.

Question 9

If a production function exhibits constant returns to scale, then doubling all of the inputs doubles output.

Question 10

The only factor of production that is not "produced" is natural resources.

Question 11

Most economists believe that inward-oriented policies that protect infant industries improve the growth rates of developing nations.

Question 12

The United Kingdom should grow faster than Belgium because the United Kingdom has a larger economy.

Question 13

Once a country is wealthy,

A) it no longer needs any human capital.
B) capital becomes more productive due to the "catch-up effect."
C) none of these answers
D) it may be harder for it to grow quickly because of the diminishing returns to capital.
E) it is nearly impossible for it to become relatively poorer.

Question 14

The opportunity cost of growth is

A) a reduction in current investment.
B) a reduction in current consumption.
C) a reduction in taxes.
D) a reduction in current saving.

Question 15

An increase in the rate of saving and investment permanently increases a country's rate of growth.

Question 16

Human capital refers to human-made capital such as tools and machinery, as opposed to natural capital such as rivers and timber.

Question 17

If Germans invest in the UK economy by building a new Volkswagen factory, in the future UK GDP will rise by more than UK GNP.

Question 18

Which of the following statements is true?

A) Countries all have the same growth rate and level of output because any country can obtain the same factors of production.
B) Countries have great variance in both the level and growth rate of GDP/person; thus, poor countries can become relatively rich over time.
C) Countries may have a different level of GDP/person but they all grow at the same rate.
D) Countries may have a different growth rate but they all have the same level of GDP/person.

Question 19

A reasonable measure of the standard of living in a country is

A) real GDP per capita.
B) nominal GDP per person.
C) real GDP.
D) the growth rate of nominal GDP per person.
E) nominal GDP.

Question 20

When a nation has very little GDP per capita,

A) it is doomed to being relatively poor forever.
B) none of these answers
C) an increase in capital will likely have little impact on output.
D) it has the potential to grow relatively quickly due to the "catch-up-effect."
E) it must be a small nation.

Question 21

Ownership of natural resources is not necessary for an economy to be highly productive because

A) productivity depends only on human capital.
B) productivity depends only on the quantity of labour a country has.
C) natural resources can be acquired through international trade.
D) natural resources are less important than a country's stock of capital goods.

Question 22

Labour productivity, measuring the output per worker,

A) increases with increases in technology.
B) decreases with increases in technology.
C) increases with increases in capital stock.
D) is impossible to measure since so many workers are involved in the service sector.

Question 23

Our standard of living is most closely related to

A) how hard we work.
B) our supply of capital, because everything of value is produced by machinery.
C) our productivity, because our income is equal to what we produce.
D) our supply of natural resources, because they limit production.

Question 24

Which of the following represents a productivity-enhancing investment in human capital?

A) a new labour-saving technology
B) a new health clinic
C) a new factory that will employ 1,000 workers
D) an increase in fringe benefits, such as paid vacations and overtime pay

Question 25

An increase in the capital stock causes labour productivity to

A) decrease and the standard of living to increase.
B) increase and the standard of living to increase.
C) decrease and the standard of living to decrease.
D) increase while the standard of living remains constant.

Question 26

Data on growth rates and investment suggest that

A) there is no correlation between investment and economic growth.
B) high investment leads to more rapid economic growth.
C) high growth countries invest less than slower growing countries.
D) growth rates are constant over time.

Question 27

Which of the following statements regarding the impact of population growth on productivity is true?

A) There is no evidence, yet, that rapid population growth stretches natural resources to the point that it limits growth in productivity.
B) all of these answers
C) Rapid population growth may dilute the capital stock, lowering productivity.
D) Rapid population growth may promote technological progress, increasing productivity.

Question 28

Human capital is

A) the capital, such as machinery, owned by humans.
B) the amount of physical capital per person in the economy.
C) the knowledge and skills that individual people have.
D) the capital that has been produced by humans.

Question 29

A result of having rapid population growth in a poor country such as Bangladesh is

A) loss of the country's customs and traditions.
B) having more hands to help in agricultural production.
C) larger tax revenues that will be collected by the government from families.
D) difficulty in providing workers with the tools and skills they need to achieve high levels of productivity.

Question 30

Education might lead to someone coming up with an improved method of producing some particular good that is then taken up by all producers of that good. This is an example of

A) productivity.
B) a patent.
C) a positive externality.
D) the brain drain.

Question 31

If 10 farmers generate €500,000 in real GDP, the output per worker would be

A) €2,000
B) €5,000
C) €50,000
D) €500,000

Question 32

Copper is an example of

A) a renewable natural resource.
B) human capital.
C) physical capital.
D) technology.
E) a non-renewable natural resource.

Question 33

If a production function exhibits constant returns to scale, doubling all of the inputs

A) more than doubles output due to the catch-up effect.
B) has absolutely no impact on output because output is constant.
C) less than doubles output due to diminishing returns.
D) doubles output.

Question 34

Thomas Malthus argued that

A) population growth in the future would be subject to diminishing returns
B) an ever increasing population is constrained only by the food supply, resulting in chronic famines.
C) technological progress will continuously generate improvements in productivity and living standards.
D) labour is the only true factor of production.
E) private charities and government aid will improve the welfare of the poor.

Question 35

Which of the following is an example of foreign portfolio investment?

A) Toyota builds a new plant in the north of England.
B) EDF of France buys shares in Scottish & Southern Energy of the UK.
C) Deutsche Bank of Germany buys some new software from a UK supplier.
D) JCB builds a new plant near Manchester.
E) None of these answers.

Question 36

If Toyota builds a new plant in the north of England,

A) there has been an increase in foreign portfolio investment in the UK.
B) once the plant starts producing cars UK GDP will rise less than UK GNP.
C) once the plant starts producing cars UK GDP and GNP will both fall because some income from this investment will accrue to foreigners.
D) once the plant starts producing cars UK GDP will rise more than UK GNP.

Question 37

Which of the following describes an increase in technological knowledge? A farmer:

A) sends his child to agricultural college and the child returns to work on the farm.
B) hires another day labourer.
C) buys another tractor.
D) discovers that it is better to plant in the spring rather than in the autumn.

Question 38

Which of the following government policies is least likely to increase growth in Africa?

A) increase expenditures on public education
B) eliminate civil war
C) All of these answers would increase growth.
D) reduce restrictions on foreign capital investment
E) increase restrictions on the importing of European tractors and electronics

Question 39

In poorer countries, some investments in human capital may not be made because

A) of shortages of water and other natural resources.
B) families need their children to work to grow food and/or to earn income.
C) investment in physical capital is more important.
D) they rarely lead to long-term economic growth.

Question 40

Thomas Malthus's predictions turned out to be wrong due to

A) technological advances such as those during the Industrial Revolution.
B) smaller populations now than in the time of Malthus.
C) the effects of brain-drain.
D) unlimited natural resources.

Question 41

What is the difference between human capital and technology?

Question 42

Poor countries often have a difficult time attracting foreign direct investment funds because

A) wages are low in poor countries.
B) investment risks are quite low in poor countries so rates of return are low.
C) property rights are not protected so investors fear their property may be confiscated.
D) All of the above are correct.

Question 43

Why does a nation's standard of living depend on property rights?

Question 44

An important link between politics and economics is that

A) democracies are more productive than non-democracies.
B) democracies must constantly make difficult budgetary choices.
C) political instability is incompatible with long-term private investment.
D) conservative governments tend to focus development on military industries.

Question 45

Which of the following expenditures to enhance productivity is most likely to convey a positive externality?

A) Megabank buys a new computer.
B) Nathalie pays her university tuition fees.
C) Exxon leases a new oil field.
D) General Motors buys a new drill press.

Question 46

A key benefit of foreign direct investment to poorer countries is

A) they gain all the returns on such investment.
B) that such investment is very reliable.
C) they avoid the need to have their own stock market.
D) they gain state-of-the-art technological knowledge.

Question 47

Why is productivity related to the standard of living? In your answer be sure to explain what productivity and standard of living mean. Make a list of things that determine labour productivity.

Question 48

Countries like South Korea and Singapore have shown tremendous growth rates in recent years because

A) of diminishing returns.
B) of the catch-up effect.
C) of lower levels of domestic investment in recent years.
D) they have limited international trade.

Question 49

What is a production function? Write an equation for a typical production function, and explain what each of the terms represents.

Question 50

In addition to investment in physical and human capital, what other public policies might a country adopt to increase productivity?

Question 51

Suppose everyone working the land in Exland knows the usefulness of investing in land irrigation systems. Those who work the land may choose not to invest in these profitable irrigation systems as long as

A) the investment is too expensive.
B) the natural climate, such as abundant rain, makes the irrigation projects unnecessary.
C) their property rights, with respect to the land, are subject to change.
D) the government dictates the choice of investment.

Question 52

To increase growth, governments should do all of the following except

A) encourage foreigners to invest in your country.
B) encourage saving and investment.
C) nationalize major industries.
D) encourage research and development.
E) promote free trade.

Question 53

Some economists argue that it is possible to raise the standard of living by reducing population growth. As an economist interested in incentives rather than coercion, what kind of policy would you recommend to slow population growth?

Question 54

Inward-oriented policies hold back economic growth because

A) international trade leads to lower domestic employment.
B) they encourage the brain drain.
C) infant industries are unable to compete with the rest of the world.
D) they do not allow a country to take advantage of the gains from trade.

Question 55

At first patents might seem like a deterrent to growth because in effect they restrict the use of new technology. Yet many economists believe that patents generate growth. Explain why.

Question 56

If, in some European country, real GDP/person in 2011 is €18,073 and real GDP/person in 2012 is €18,635, what is the growth rate of real output per person over this period?

A) 2.0 per cent
B) 3.1 per cent
C) 18.0 per cent
D) 18.6 percent
E) 5.62 per cent

Question 57

How do outward-oriented policies affect a nation's productivity?

Question 58

The catch-up effect says that countries with low income can grow faster than countries with higher income. However, in statistical studies that include many diverse countries we do not observe the catch-up-effect unless we control for other variables that affect productivity. Considering the determinants of productivity, list and explain some things that would tend to prohibit or limit a poor country's ability to catch up with the rich ones.

Question 59

Compare and contrast the population theories of Thomas Malthus and Michael Kremer.

Question 60

Which of the following would decrease the likelihood that foreign business firms will invest in a country?

A) a low corporate profit tax rate
B) political stability
C) a well-established legal system
D) political instability