Deck 20: Economic Growth

Question 1

The labour demand curve slopes downward because

A)workers supply more hours of work when the real wage rate rises.
B)workers supply fewer hours of work when the real wage rate rises.
C)the firm maximises profits by hiring more labour when the real wage rate rises.
D)the firm maximises profits by hiring more labour when the real wage rate falls.

Answer 1

D

Question 2

According to the new growth theory, competition

A)reduces profit.
B)increases profit.
C)is only theoretical because all firms are growing at some rate.
D)has no impact on real profit, only nominal profit.

Answer 2

A

Question 3

All of the following lead to more rapid economic growth EXCEPT

A)supporting more research and development.
B)encouraging higher rates of saving.
C)restricting international trade.
D)encouraging higher quality education.

Answer 3

C

Question 4

Real GDP grows when

A)Only I
B)Only II
C)Both I and III
D)I, II and III

Question 5

If the real wage rate is such that the quantity of labour supplied equals the quantity of labour demanded,

A)real GDP equals potential GDP.
B)a full- employment equilibrium occurs.
C)the opportunity cost effect of not working equals the income effect.
D)Both answers A and B are correct.

Question 6

A problem with the neoclassical growth theory is its

A)comparison of the economy to a perpetual motion machine.
B)prediction that population growth lowers the real wage rate.
C)inability to explain persistent differences between countries' GDP growth rates.
D)prediction that population growth raises the real wage rate.

Question 7

Which theory emphasises the significance of new discoveries that can be used by many people at the same time?

A)Neoclassical growth theory
B)Classical growth theory
C)New growth theory
D)None of the above answers are correct.

Question 8

If real GDP is $800 million and aggregate labour hours are 20 million, labour productivity is
.

A)$16,000 million
B)$40 per hour
C)$160 per hour
D)$40 million

Question 9

We are interested in long- term growth primarily because it brings

A)higher price levels.
B)lower price levels.
C)trade wars with our trading partners.
D)higher standards of living.

Question 10

The gaps between the Australia and the Asian countries of Hong Kong, Singapore, South Korea and China have been

A)remaining fairly constant.
B)increasing.
C)decreasing.
D)There are no gaps between these Asian countries and Australia.

Question 11

According to new growth theory, .

A)knowledge does not experience diminishing returns
B)knowledge is subject to the law of diminishing returns
C)growth rates and income levels per person around the globe will converge
D)ever- advancing productivity keeps the population growth rate high

Question 12

Which of the following has NOT been one of the primary sources of economic growth over the last 200 years?

A)Investment in human capital
B)Resource conservation
C)Discoveries of new technology
D)Investment in new capital

Question 13

Which of the following ideas apply to the neoclassical growth theory?

A)I only
B)II only
C)Both I and II
D)Neither I nor II

Question 14

Along the aggregate production function, as the quantity of labour rises, real GDP

A)rises.
B)stays the same.
C)falls.
D)may fall, rise or stay the same.

Question 15

The neoclassical growth theory says, in part, that

A)a population explosion driven by economic growth will end economic growth.
B)technology does not play a role in economic growth.
C)technological change leads to economic growth.
D)the differences in nation's growth rates will persist indefinitely.

Question 16

Which of the following is associated with classical growth theory?

A)I
B)II
C)III
D)I and III

Question 17

New growth theory economists believe that

A)I only
B)II only
C)Both I and II
D)Neither I nor II

Question 18

People base their labour supply on the because they care about .

A)real wage; the equality of money wages and the price level
B)money wage; a surplus of labour
C)real wage; what their earnings will buy
D)money wage; the amount of labour firms demand

Question 19

In the labour market, an increase in labour productivity _ the real wage rate and the level of employment.

A)raises; decreases
B)raises; increases
C)lowers; decreases
D)lowers; increases

Question 20

Suppose that in 2009 a country has a population of 1 million and real GDP of $1 billion. In 2010, the population is 1.1 million and real GDP is $1.1 billion. The real GDP per person growth rate is

A)$1,000.
B)zero.
C)negative.
D)positive.

Question 21

The notion that technological change is not random but instead is driven by the pursuit of profits is an essential element of

A)the perpetual growth theory.
B)the neoclassical growth theory.
C)the new growth theory.
D)the classical growth theory.

Question 22

The BEST definition for economic growth is

A)a sustained expansion of production goods over a given period.
B)a sustained expansion of consumption goods over a given period.
C)a sustained expansion of production possibilities measured as the increase in real GDP over a given period.
D)a sustained expansion of production possibilities measured as the increase in nominal GDP over a given period.

Question 23

If the quantity of labour and quantity of capital grow more quickly, then real GDP will

A)stay fixed at potential GDP.
B)grow more quickly.
C)not grow fast enough.
D)grow more slowly.

Question 24

Greater labour force participation by households at higher real wages rate is one reason that

A)the demand for labour curve is upward- sloping.
B)the demand for labour curve is downward- sloping.
C)the supply of labour curve is downward- sloping.
D)the supply of labour curve is upward- sloping.

Question 25

Of the following Asian countries, which has the lowest level of real GDP per person?

A)China
B)Singapore
C)Hong Kong
D)South Korea

Question 26

A central proposition of the new growth theory is that

A)growth is often just an illusion fostered by growth accounting.
B)growth will cease but prosperity will persist.
C)knowledge is not subject to diminishing returns.
D)government direction and oversight is necessary for consistent growth.

Question 27

Countries or regions in which real GDP per person has not grown as fast as in the United States since 1960 include

A)Japan.
B)countries in Africa.
C)Canada.
D)Hong Kong.

Question 28

Which of the following is used to calculate the standard of living?

A)Real GDP/aggregate hours
B)Real GDP/population
C)((Real GDP in the current year - real GDP in previous year)/real GDP in previous year)× 100
D)(Nominal GDP/real GDP)× 100

Question 29

Since 1960, which of the following countries had average growth rates in real GDP per person higher than that of the United States?

A)South Korea
B)Singapore
C)Hong Kong
D)All of the above answers are correct.

Question 30

The curvature of the production function shows that as employment increases, the productivity of labour

A)remains positive but decreases.
B)decreases and becomes negative.
C)remains constant.
D)remains positive and increases.

Question 31

The real wage rate measures the

A)dollar value of an hour of work.
B)dollar value of what a worker could earn in another job.
C)average weekly earnings in dollars of a worker.
D)quantity of goods and services that an hour of work will buy.

Question 32

Economic growth tends to be higher in a country that

A)has a low savings rate.
B)does not grant patents to inventors.
C)has an economy open to international trade.
D)has an undeveloped system of property rights.

Question 33

Using the Rule of 70, if the country of Flowerdom's current growth rate of real GDP per person is 7 per cent a year, how long would it take the country's real GDP per person to double?

A)10 years
B)49 years
C)1 year
D)2 years

Question 34

Activities that encourage faster growth are

A)taxes on saving that serve to encourage more spending and less saving.
B)investment in new capital and human capital.
C)developing trade barriers to protect national industries.
D)high levels of consumption and low levels of savings.

Question 35

The real wage rate equals

A)(money wage rate)× (price level).
B)(price level)/(money wage rate).
C)(money wage rate)/(price level).
D)(money wage rate)+ (number of hours worked)/(price level).

Question 36

If the price level rises by 4 per cent and workers' money wage rates increase by 2 per cent, then the

A)the supply curve of labour shifts rightward.
B)quantity of labour supplied increases.
C)quantity of labour supplied does not change because there is no change in the real wage rate.
D)quantity of labour supplied decreases.

Question 37

If the labour market is in equilibrium and then the labour supply curve shifts rightward,

A)there will be a surplus of labour at the original equilibrium wage rate.
B)the equilibrium wage rate will rise.
C)there will be a surplus of jobs at the new equilibrium.
D)there will be a shortage of labour at the original equilibrium wage rate.

Question 38

All of the following contribute to labour productivity growth EXCEPT

A)physical capital growth.
B)human capital growth.
C)technological advancements.
D)population growth.

Question 39

Suppose the money wage rate and the price level both fall by 5 per cent. As a result,

A)the quantity of labour demanded increases.
B)the quantity of labour demanded does not change because there is no change in the real wage.
C)people are worse off and there is more unemployment.
D)the quantity of labour demanded decreases.

Question 40

If the price level rises relative to the money wage rate, firms the quantity of labour they demand and workers the quantity of labour they supply.

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

Question 41

Over the last 100 years, the average growth rate in real GDP per person in Australia was

A)2.1 per cent per year.
B)1.7 per cent per year.
C)4.3 per cent per year.
D)3.6 per cent per year.

Question 42

During 2011, the country of Economia had a real GDP of $115 billion and the population was 0.9 billion. In 2010, real GDP was $105 billion and the population was 0.85 billion. In 2011, real GDP per person was

A)$135.
B)$124.
C)$117.
D)$128.

Question 43

Neoclassical growth theory assumes that technological progress

A)is determined by investment.
B)is a purely chance event.
C)is determined by saving.
D)responds to economic incentives.

Question 44

Saving and investment that increase a nation's capital stock lead to

A)slower growth because there is a lack of consumption.
B)an increase in labour productivity.
C)a decrease in labour productivity as capital is used to replace labour.
D)a decrease in the amount of capital per worker.

Question 45

When the population increases with no change in labour productivity, employment and potential GDP .

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

Question 46

If a nation's population grows, then,

A)growth in real GDP per person will be greater than the growth of real GDP.
B)there must be an increase in real GDP per person.
C)growth in real GDP per person will be less than the growth of real GDP.
D)there can be no economic growth.

Question 47

Moving along the aggregate production function shows the relationship between , holding all else constant.

A)labour input and real GDP
B)capital input and real GDP
C)labour input, capital input and real GDP
D)technology and real GDP

Question 48

An assumption of classical growth theory is that when the population growth rate
.

A)people become more skilled; decreases
B)saving declines; decreases
C)the real wage rate falls; increases
D)real GDP per person exceeds the subsistence level; increases

Question 49

An important foundation of the new growth theory is that

A)we will get more technological advances the more the government is involved in deciding which technology to pursue.
B)the growth rate of the capital stock is more important than the growth rate of new knowledge in generating economic growth.
C)we will get more technological advances the greater the rewards people receive from making technological advances.
D)improvements in labour productivity are poor measures of technological growth.

Question 50

Full employment corresponds to

A)equilibrium in the labour market, with real GDP being equal to potential GDP.
B)equilibrium in the labour market, and real GDP exceeding potential GDP.
C)being at the point where the marginal product of labour equals zero.
D)labour demand being greater than labour supply and real GDP being equal to potential GDP.

Question 51

Classical growth theory states that

A)growth in real GDP per person is difficult in the beginning but easier in later stages.
B)advances in technology will always ensure a permanent increase in real GDP per person.
C)growth is maximised when everyone is fully employed.
D)growth is followed by increases in the population, eventually leaving real GDP per person unchanged.

Question 52

Which of the following is consistent with classical growth theory?

A)Real GDP per person will never permanently increase.
B)As real GDP increases, there will be a decrease in the rate of population growth.
C)Competition destroys innovation and decreases profit.
D)Real GDP per person will increase because technological change induces investment.

Question 53

According to the law of diminishing returns, an additional unit of

A)labour decreases output.
B)labour produces more output than the previous unit.
C)capital produces more output than an additional unit of labour.
D)labour produces less output than the previous unit.

Question 54

Technological change

A)has no effect on employment.
B)lowers the real wage rate.
C)increases potential GDP.
D)decreases labour productivity.

Question 55

In the above figure, the equilibrium real wage rate is

A)$10 per hour.
B)$20 per hour.
C)$15 per hour.
D)None of the above

Question 56

The aggregate production function shows how varies with _ .

A)leisure time; labour
B)labour; capital
C)real GDP; labour
D)labour; leisure time

Question 57

If the price level increases, but workers' money wage rates remain constant, which of the following is true?

A)I only
B)I and II
C)II and III
D)I, II and III

Question 58

According to neoclassical growth theory, the higher real GDP per person from economic growth will

A)not last because the population will increase.
B)last indefinitely regardless of any other factor.
C)last because there is no link between growth and population.
D)last as long as technological change continues.

Question 59

Ongoing economic growth in real GDP per person requires all of the following EXCEPT

A)the discovery of new technologies.
B)investment in human capital.
C)population growth.
D)saving and investment in new capital.

Question 60

Several factors are important for achieving faster economic growth. Which of the following is one of those factors?

A)Expansion of international trade
B)Promotion of consumption expenditure
C)Increased government expenditure
D)Increased taxes on saving

Question 61

Savings is an important factor influencing economic growth because saving

A)helps the economy maintain the current level of total expenditures when a recession begins.
B)provides a fund for wages needed from any unexpected population growth.
C)can finance new investment and capital formation.
D)All of the above answers are correct.

Question 62

Equilibrium in the labour market

A)means that resources are allocated inefficiently.
B)occurs when actual GDP is equal to potential GDP.
C)cannot occur if the production function is shifting upward.
D)can happen only when real GDP exceeds potential GDP.

Question 63

is the knowledge and skill that people have obtained from education and on- the- job training.

A)Technology
B)Human capital
C)Capital
D)Labour productivity

Question 64

If a rich country grows at a faster rate than a poor one, then

A)the difference in their living standards will not change over time.
B)the gap in their standards of living will widen over time.
C)the gap in their standards of living will close over time.
D)Whether or not the living standards gap widens or closes over time depends on the absolute size of the relative growth rates.

Question 65

An advance in technology will

A)shift the production function downward.
B)not shift the production function but will lead to a movement down along the production function.
C)not shift the production function but will lead to a movement up along the production function.
D)shift the production function upward.

Question 66

All of the following would stimulate economic growth EXCEPT

A)decreasing taxes on consumption (for instance, decreasing a sales tax)and increasing income taxes.
B)encouraging international trade.
C)decreasing tuition charges at state universities.
D)subsidising basic research.

Question 67

In the illustration above, which figure shows an aggregate production function?

A)Figure A
B)Figure B
C)Figure C
D)Figure D

Question 68

According to empirical evidence,

A)international trade stimulates economic growth in richer nations, but actually slows economic growth in developing economies.
B)international trade stimulates economic growth in developing economies, but actually slows economic growth in richer nations.
C)providing international aid to developing nations does not have a positive effect on economic growth.
D)providing international aid to developing nations stimulates economic growth.

Question 69

According to the neoclassical growth theory,

A)increases in labour productivity are only temporary.
B)higher saving rates generate permanently faster growth in GDP per person.
C)technological change depends on people's choices.
D)forces other than GDP growth determine population growth.

Question 70

Which of the following directly creates growth in labour productivity?

A)I only
B)II only
C)I and II
D)I and III

Question 71

Neoclassical growth theory

A)predicts that nations that enjoy a technological advantage will maintain that advantage.
B)predicts that the faster growing underdeveloped nations will overtake and then surpass the industrial nations.
C)predicts that growth rates and incomes per person throughout the world will converge.
D)makes no predictions about relative growth or incomes among countries.

Question 72

A movement along the aggregate production function is the result of a change in

A)capital.
B)the quantity of labour.
C)technology.
D)interest rates.

Question 73

Which of the following statements about world growth during the last half of the 20th century is correct?

A)Growth rates in South American countries have exceeded those in North America.
B)In every decade, Japan has experienced faster growth than the United States.
C)Due to rapid growth, real GDP per person in China is now about 50 per cent of that in the United States.
D)Real GDP per person in Hong Kong and Singapore are approaching or surpassing that of the United States.

Question 74

Factors that influence labour productivity include .

A)physical capital, human capital and technology
B)the labour demand curve
C)physical capital, the real wage rate and technology
D)the inflation rate, the real wage rate and the exchange rate

Question 75

Labour productivity is

A)real GDP per hour of labour multiplied by the number of people.
B)the rate of change in real GDP per hour of labour.
C)real GDP per hour of labour multiplied by the hours of work.
D)real GDP per hour of labour.

Question 76

Which of the following statements is correct?

A)I only
B)II only
C)Both I and II
D)Neither I nor II

Question 77

The quantity of labour supplied depends on the

A)price of output not the money wage rate nor the real wage rate.
B)money wage rate not the real wage rate.
C)level of profits.
D)real wage rate not the money wage rate.

Question 78

Which of the following statements about Australia's long- term growth trends is FALSE?

A)African countries have fallen further behind Australia in recent years.
B)Economic growth rates have been steady, except for the business cycle.
C)Economic growth rates were faster in the 1990s than in the 1970s and 1980s.
D)Economic growth rates have generally been faster in Japan than in Australia.

Question 79

Classical growth theory proposes that real GDP growth is and that real GDP per person will _ the subsistence level.

A)permanent; temporarily be above
B)temporary; temporarily be above
C)permanent; always be above
D)temporary; be above and below

Question 80

If the quantity of capital per worker in the economy increases,

A)the stock of financial assets held by the public increases.
B)the stock of human capital necessarily increases.
C)the amount of money held by workers increases.
D)labour productivity increases.