Deck 8: Why Do Economies Grow

Question 1

In the Solow Model, the long run equilibrium is at the point where:

A) investment equals zero.
B) investment equals depreciation.
C) GDP equals K.
D) investment equals population growth.

Answer 1

investment equals depreciation.

Question 2

For economic growth to increase living standards:

A) society must discover ways of using available resources more efficiently.
B) the rate of growth of real GDP must exceed the rate of population increase.
C) society must acquire more resources.
D) the choices available to consumers must increase.

Answer 2

the rate of growth of real GDP must exceed the rate of population increase.

Question 3

If total output grows at 4 percent per year while labor and capital grow at 1.5 percent and 2.1 percent pre year, respectively, then:

A) technology grew by 3.6 percent per year.
B) technology declined by 0.4 percent per year.
C) technology grew by 0.4 percent per year.
D) there was no technological progress.

Answer 3

technology grew by 0.4 percent per year.

Question 4

Because of the principle of diminishing returns, growth promotion through capital deepening works better in countries that:

A) have a high level of real GDP per capita.
B) have high capital stock.
C) have a low capital stock.
D) have low saving rate.

Question 5

Net investment is defined as

A) the total amount of investment made in the economy.
B) the depreciation of the capital stock in the economy less gross investment.
C) the gross investment made in the economy less depreciation.
D) the gross investment made in the economy plus depreciation.

Question 6

Recall Application 7, "Lack of Property Rights Hinders Growth in Peru," to answer the following questions:
According to the application, the houses in urban slums lack:

A) electricity.
B) clear ownership of property.
C) properly functioning sewage systems.
D) water.

Question 7

Which of the following will not lead to greater economic growth?

A) more resources
B) government taxation of the private sector in order to engage in consumption spending
C) government investment in infrastructure
D) technological improvements

Question 8

Recall Application 7, "Lack of Property Rights Hinders Growth in Peru," to answer the following questions:
According to the application, the lack of clear ownership of land prevents development because:

A) owners of land are more willing to make long term investments on the land that is not clearly theirs.
B) land without clear property rights are harder for the government to tax.
C) land without clear property rights less more valuable.
D) owners of the land cannot use the land as collateral when borrowing.

Question 9

Recall Application 1 , "Global Warming, Rich Countries and Poor Countries," to answer the following questions:
Based on what you learned from the application, in what way can we improve the standard of living in poor countries?

A) Promote policies that develop air conditioning industries in poor countries.
B) Promote policies that defer global warming further into the future.
C) Promote policies that accelerate global warming.
D) Promote more international trade between poor and rich countries.

Question 10

Developing countries can benefit from the vast accumulated knowledge of developed economies if they invest in:

A) education and training.
B) health improvements.
C) population growth.
D) brain drain.

Question 11

If gross investment is 500 and depreciation is 1000, then net investment is:

A) 1000.
B) 500.
C) - 1500.
D) - 500.

Question 12

In order to increase the size of markets, and so promote faster technological innovation, countries could:

A) deregulate the food and drug industry.
B) lower taxes on stock dividends.
C) liberalize their international trade.
D) subsidize the export of electric and electronic goods.

Question 13

Which of the following outcomes hinder economic growth?

A) uncertain financial environment
B) decreased exports
C) reduced savings and investment
D) All of the above are outcomes that hinder economic growth.

Question 14

_______ is/are the knowledge and skills acquired by a worker through education and experience and used to produce goods and services.

A) Human capital
B) Physical capital
C) Natural resources
D) Technological progress

Question 15

Making comparisons of real GDP across countries is difficult because:

A) prices differ sharply across countries.
B) patters of consumption change from country to country.
C) different countries have different currencies.
D) All of the above are true.

Question 16

A person who is going to college is accumulating:

A) street smarts.
B) common sense.
C) human capital.
D) technological progress.

Question 17

Economic growth is best measured by the increase in:

A) nominal GDP.
B) household consumption.
C) real output per person.
D) investment.

Question 18

Based on what you learned from the application, which industries are negatively affected by global warming?

A) agriculture in rich countries and light manufacturing in poor countries
B) agriculture and light manufacturing in poor and rich countries
C) agriculture and light manufacturing in rich countries
D) agriculture and light manufacturing in poor countries

Question 19

Zambia, a country in Africa, experienced an average GNP per capita growth rate of - 0.83 percent between 1960 and 2008. Based on this information, which of the following is true?

A) Population in 1960 is higher than in 2008.
B) GNP per person in 1960 is higher than in 2008.
C) GNP per person in 1960 is lower than in 2008.
D) GNP in 1960 is higher than in 2008.

Question 20

Recall Application 5, "The Role of Political Factors in Economic Growth," to answer the following questions:
According to the application, can technological growth exist in authoritarian institutions like the one experienced in China today?

A) Yes, and the growth is expected to be sustained.
B) no.
C) Yes, but it may not be sustained.
D) Yes, but only if authoritarian regimes prevent change.

Question 21

Recall Application 3, "Sources of Growth in China and India," to answer the following questions:
According to the application, which country is expected to see their GDP per capita gap with the U.S. decrease in the future?

A) India
B) China
C) both China and India
D) neither China nor India

Question 22

Figure 8.3
Refer to Figure 8.3. Compared to point A, being at point B implies:

A) a higher income level.
B) a higher level of capital.
C) a higher level of investment.
D) all of the above

Question 23

Recall Application 1 , "Global Warming, Rich Countries and Poor Countries," to answer the following questions:
Based on what you learned from the application, a one degree Celsius increase in temperatures:

A) decreases a poor country's exports by up to 1.9 percentage points.
B) decreases a poor country's exports by up to 5.7 percentage points.
C) decreases a rich country's exports by up to 5.7 percentage points.
D) increases a rich country's exports by up to 1.9 percentage points.

Question 24

Real GDP per capita is measured as:

A) GDP (adjusted for inflation) divided by the population growth rate.
B) the population growth rate divided by GDP (adjusted for inflation).
C) the population divided by GDP (adjusted for inflation).
D) GDP (adjusted for inflation) divided by population.

Question 25

Which of the following is not considered investment in human capital?

A) an individual decides to enroll in a vocational training program
B) the government increases the level of unemployment benefits
C) a firm engages in on- the- job training
D) the government expands its programs to improve health care

Question 26

In the Solow Model, an increase in the capital stock (K) by 10 percent, (holding L constant) will result in an

A) increase in Y by less than 10 percent.
B) increase in Y be more than 10 percent.
C) a decrease in Y by 10 percent.
D) a decrease in Y by less than 10 percent.

Question 27

Recall Application 6, "Culture, Evolution, and Economic Growth," to answer the following questions:
According to the application, the research of Galor and Moav concluded that the sources of evolution was genetic because:

A) they found that richer families had a longer life expectancy.
B) they found that families with fewer children invested more in their human capital.
C) the family tree of most successful individuals in England could be traced back to the royal family.
D) poorer families were more determined to succeed than those in richer families.

Question 28

A(n) _______ in the capital stock can _______ output, without a corresponding labor force _______.

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

Question 29

"Growth accounting" is concerned with explaining which of the following?

A) sources of interest rate changes
B) sources of output growth
C) sources of unemployment
D) sources of inflation

Question 30

Recall Application 5, "The Role of Political Factors in Economic Growth," to answer the following questions:
According to the application, China's political institution is considered:

A) nonexistent.
B) democratic.
C) participatory.
D) authoritarian.

Question 31

Governments in developing countries can promote economic growth by:

A) increasing the taxes on education.
B) decreasing the subsidies for exports.
C) decreasing the taxes on imports.
D) increasing subsidies for education.

Question 32

Figure 8.1
Refer to Figure 8.1. What will happen to the long run equilibrium if the economy changes saving rates from s1 to s2?

A) K will decrease and the long run equilibrium will move from point D to Point A.
B) K will increase and the long run equilibrium will move from point A to Point E.
C) K will increase and the long run equilibrium will move from point D to Point E.
D) K will decrease and the long run equilibrium will move from point D to Point E.

Question 33

The country of Needia has recently suffered a decline in its growth rate from 3 to 2 percent per year. How many more years will it now take for output to double in Needia?

A) 12
B) 7
C) 23
D) 21

Question 34

An increase in human capital:

A) increases the productivity of labor only if there is a corresponding technological change.
B) increases the productivity of labor.
C) increases the capital- labor ratio.
D) decreases the productivity of labor.

Question 35

Because the dK line is drawn as a straight line, then the Solow Model assumes that:

A) the depreciation rate in the economy is constant.
B) the total depreciation in the economy is constant.
C) the higher the level of capital, the lower the amount of total depreciation.
D) the total depreciation in the economy is zero.

Question 36

Real GDP was 120 in year 1 and 140 in year 2. In this case, the growth rate of real GDP would be:

A) 17 percent.
B) 14 percent.
C) 117 percent.
D) 86 percent.

Question 37

According to the rule of 70, if Variable A grows at x% each year, then Variable A will double in approximately:

A) 70x years.
B) x/70 years.
C) 70/x years.
D) 70(1- x) years.

Question 38

Recall Application 2, "Growth Need Not Cause Increased Inequality," to answer the following questions:
According to the application, Kuznets' theory states that as a country develops:

A) income inequality initially increases and then narrows over time.
B) income inequality decreases faster early on than later in time.
C) pollution initially increases and then narrows over time.
D) differences in wages and salaries decrease.

Question 39

Proponents of new growth theory believe that countries at the edge of the technological frontier should invest more on:

A) advanced higher education
B) basic education.
C) A and B.
D) neither A nor B.

Question 40

Figure 8.1
Refer to Figure 8.1. If the saving rate were s1 and the economy's level of K is at K1, then:

A) the saving rate in the economy will increase.
B) the level of capital K in the economy will increase.
C) the saving rate in the economy will decrease.
D) the level of capital K in the economy will decrease.

Question 41

If the population of Country A is 400 and the real GDP per capita of Country A is $200,000 , then the GDP in country A is:

A) $500.
B) $50.
C) $8,000,000.
D) $80,000,000.

Question 42

Which of the following countries ran trade deficits in the 19th century to build vast railroad systems?

A) Australia
B) Canada
C) the United States
D) All of the above are correct.

Question 43

Which of the following is not an investment in human capital?

A) Local governments begin providing free hepatitis vaccinations to any resident who wants one.
B) The Ferris Advertising Agency replaces its secretary's typewriters with personal computers.
C) The Precision Tool Company teaches all its workers how to repair the machines in the factory.
D) Older workers return to school to update their skills.

Question 44

Figure 8.1
Refer to Figure 8.1. If the saving rate were s1 and the economy's level of K is at K1, then:

A) the capital stock will decrease over time.
B) the capital stock is constant over time.
C) the capital stock will first increase, then decrease over time.
D) the capital stock will increase over time.

Question 45

Saving is defined as:

A) income that is not consumed.
B) money in my savings account.
C) money in my checking account.
D) consumption that is not earned.

Question 46

Recall Application 2, "Growth Need Not Cause Increased Inequality," to answer the following questions:
According to the application, Kuznets' theory states that as a country develops, income inequality:

A) follows an inverted U pattern.
B) follows a downward sloping line.
C) follows an upward sloping line.
D) follows a pattern similar to a horizontal line.

Question 47

Recall Application 5, "The Role of Political Factors in Economic Growth," to answer the following questions:
According to the application, why can't technological growth exist sustainably in authoritarian institutions?

A) because authoritarian regimes have difficulties in coping with change
B) because authoritarian regimes usually develop military over technology
C) because authoritarian regimes persecute scientists
D) because authoritarian regimes usually use religion as a tool to stay in power

Question 48

Suppose that growth in output that can be attributed to growth in labor and capital is 3%. If output grows at a rate of 5%, it must be the case that:

A) the economy is not spending enough on acquiring human capital.
B) growth in capital exceeds growth in labor.
C) both labor and capital are becoming more productive.
D) growth in labor exceeds growth in capital.

Question 49

Education can contribute to economic growth through:

A) a better integration of technology and workers' skills.
B) the faster adaptation of existing technologies.
C) the faster discovery of new technologies.
D) all of the above.

Question 50

Recall Application 6, "Culture, Evolution, and Economic Growth," to answer the following questions:
According to the application, the differences in the survival rates of the rich and the poor in England caused a change in culture in the form of:

A) increased hard work.
B) reduced violent behaviors.
C) increased thrift and prudence.
D) All of the above are correct.

Question 51

In the Solow Model, an increase in the saving rate will not result in an increase in

A) the capital stock.
B) the output.
C) investment.
D) the population.

Question 52

Recall Application 3, "Sources of Growth in China and India," to answer the following questions:
According to the application, the source of growth for India and China were:

A) increased physical capital stock.
B) increased human capital stock.
C) both A and B are correct.
D) neither A nor B is correct.

Question 53

Convergence refers to the hypothesis that:

A) it is easier for a country to grow relatively quickly if it starts out poor.
B) rich countries must always bail out poor countries.
C) saving must be equal to investment in the macroeconomy.
D) none of the above

Question 54

Induced innovations are:

A) inventive activities designed specifically to reduce cost.
B) random instances of technological progress.
C) impossible to support through research and development efforts.
D) technologies sponsored by the government, like the early Internet.

Question 55

Recall Application 2, "Growth Need Not Cause Increased Inequality," to answer the following questions:
According to the application, Piketty and Saez found that _______ contribute to income inequality in countries that experience growth.

A) the nature of the tax system
B) social norms
C) perceived fairness of compensation
D) All of the above are correct.

Question 56

Which of the following statements is true?

A) Investment in public capital is a source of economic growth, but investment in private capital is not.
B) Investment in private capital is a source of economic growth, but investment in public capital is not.
C) Investment in both private and public capital is conducive to economic growth and higher productivity.
D) Neither investment in private nor public capital has any effect on economic growth and productivity.

Question 57

Based on growth accounting, which of the following would not cause a reduction in output?

A) a reduction in employment
B) a reduction in interest rates
C) a reduction in the number of hours worked
D) a reduction in the capital stock

Question 58

If Julie expects that her salary will increase by 10 percent per year, how many years will it take for her salary to double?

A) 10
B) 20
C) 7
D) 5

Question 59

A method used to determine the contribution to economic growth from increased capital, labor and technological progress is called:

A) technological progress.
B) growth accounting.
C) production function.
D) economic growth.

Question 60

Recall Application 2, "Growth Need Not Cause Increased Inequality," to answer the following questions:
According to the application, the U.S. experience refutes Kuznets' theory because:

A) income inequality has decreased faster than what the theory predicted.
B) income inequality did not follow the predicted "U" pattern.
C) income inequality has continued to increase as income kept on growing.
D) taxes have grown faster than personal income.

Question 61

Historical economic research shows that the accumulated investment in human capital during the last 300 years has produced:

A) more productive workers.
B) taller workers.
C) heavier workers.
D) all of the above

Question 62

When relative prices are taken into consideration, the country with the highest level of real GDP per capita in 2008 was:

A) Germany.
B) Luxembourg.
C) Japan.
D) the United States.

Question 63

Innovations that come about through inventive activity designed specifically to reduce costs is known as:

A) endogenous growth.
B) creative destruction.
C) induced innovation.
D) virtuous circle.

Question 64

Suppose that during the last year growth in output due to growth in labor and capital was 4%. If output grew at a rate of 6%, it must be the case that:

A) technological progress increased by 2%.
B) the ratio of capital to labor increased by 2%.
C) capital grew faster than labor.
D) labor grew faster than capital.

Question 65

The best measure of economic growth is:

A) an increase in real GDP per capita.
B) an increase in real GDP.
C) an increase in capital stock per capita.
D) an increase in nominal GDP per capita.

Question 66

Recall Application 3, "Sources of Growth in China and India," to answer the following questions:
According to the application, why did China grow much faster than India from 1978 to 2004?

A) China had a faster population growth rate than India, causing faster technological progress.
B) China invested less in physical capital and was able to increase technological progress slower than India.
C) China invested more in physical capital and was able to increase technological progress faster than India.
D) China had better government induced growth policies than India.

Question 67

Using a production possibility curve, economic growth is represented as:

A) a shifting of the curve inward.
B) a flatter curve.
C) a shifting of the curve outward.
D) a steeper curve.

Question 68

Governments in developing countries can hinder economic growth by:

A) promoting policies that tax exports.
B) enforcing laws that inhibit the growth of the financial sector.
C) pursuing policies that lead to high inflation.
D) All of the above are policies that hinder economic growth.

Question 69

Recall Application 4, "Growth Accounting and Information Technology," to answer the following questions:
According to the application, the proponents of the "New Economy" believe that the increased labor productivity is caused by:

A) more defined property rights.
B) innovations in healthcare.
C) agricultural innovations.
D) the computer and internet revolution.

Question 70

Figure 8.1
Refer to Figure 8.1. If the saving rate is s1, the economy reaches the long run equilibrium at:

A) pt. E.
B) pt. D.
C) pt. C.
D) pt. A.

Question 71

If the economy experiences an increase in the amount of capital stock per worker, then we say that the economy is experiencing:

A) technological progress.
B) capital depreciation.
C) capital deepening.
D) capital widening.

Question 72

Bob has been working for a mortgage company for the last 14 years. When Bob first worked in the company, the company was paying him $12 per hour. This year, he makes $24 per hour. What is the average growth rate of his wage over the past 14 years?

A) 20 percent per year
B) 7 percent per year
C) 10 percent per year
D) 5 percent per year

Question 73

Recall Application 4, "Growth Accounting and Information Technology," to answer the following questions:
According to the application, Robert Gordon's study found that technological growth was found:

A) to be confined in the durable goods manufacturing industry only.
B) in every industry.
C) in construction, mining and agricultural sectors only.
D) to be confined to computers only.

Question 74

If a county has a growth rate of approximately 0.7 percent each year, it will take about:

A) 49 years for its output to double, but only take about 23 years to double if its growth rate was 3 percent per year.
B) 100 years for its output to double, but only take about 23 years to double if its growth rate was 3 percent per year.
C) 49 years for its output to double, but only take about 10 years to double if its growth rate was 3 percent per year.
D) 100 years for its output to double, but only take about 49 years to double if its growth rate was 3 percent per year.

Question 75

Which of the following would prevent a farmer from making improvements to land to make it more valuable?

A) the lack of property rights
B) a government that enforces contracts
C) the presence of a market economy
D) the lack of education

Question 76

An increase in capital stock:

A) causes economic growth.
B) increases the demand for labor.
C) enhances labor productivity.
D) all of the above

Question 77

Figure 8.3
Refer to Figure 8.3. Which of the following will not move the economy from K1 to K3?

A) a lower depreciation rate
B) a higher saving rate
C) a higher depreciation rate
D) All of the above are correct.

Question 78

Using the rule of 70, how many years would it take for David's income to double if he was to experience a 4 percent increase in income each year?

A) 22
B) 35
C) 28
D) 17.5

Question 79

Which of the following is a public investment in infrastructure?

A) The federal government makes it easier for college students to obtain loans and this increases the number of students attending college.
B) Residents of a suburban housing development hire a private security force because they have been concerned about crime.
C) Southstar Steel has two office buildings separated by one- half mile. The company lays a fiber optic cable between the buildings to take advantage of new technology.
D) The city of Robesonia builds a new sewage treatment plant.

Question 80

Other things equal, relatively poor countries tend to grow _______ than relatively rich countries and this is known as _______.

A) more slowly; divergence
B) more slowly; convergence
C) more quickly; convergence
D) more quickly; divergence