Deck 15: How Economies Grow  

Question 1

Economic growth means

A) an increase in nominal GDP.
B) being in the expansionary phase of the business cycle.
C) an increase in the per capita nominal GDP.
D) an increase in the per capita real GDP.

Answer 1

an increase in the per capita real GDP.

Question 2

An increase in population

A) always leads to economic growth.
B) never leads to economic growth.
C) can lead to economic growth.
D) cannot lead to economic growth.

Answer 2

can lead to economic growth.

Question 3

The speed at which the production possibilities curve shifts outward indicates

A) the rate of economic growth.
B) the rate of unemployment.
C) the level of labor force participation.
D) the process of research and development.

Answer 3

the rate of economic growth.

Question 4

Which one of the following is FALSE?

A) Saving contributes to economic growth by allowing for capital formation.
B) Labor productivity increases when the average output per worker rises.
C) Technology always progresses at a steady rate.
D) Nations with high rates of saving generally have high economic growth rates.

Question 5

Which one of the following is FALSE?

A) There will be more technological advances when those who provide them are rewarded.
B) Technological advances contribute to economic growth.
C) Innovation involves the transformation of something new into something that benefits the economy.
D) While innovation is prevalent in the economy, it is really inventions that are the force behind economic growth.

Question 6

When there is economic growth in a country,

A) it will consume more today at the expense of future output.
B) the material well-being of the average citizen increases.
C) the distribution of income becomes less equal.
D) the distribution of income becomes more equal.

Question 7

Investment spending

A) is a component of aggregate supply.
B) is not a component of aggregate demand.
C) contributes to economic growth.
D) does not contribute to economic growth.

Question 8

Small differences in economic growth rates add up to big differences over time because of

A) complacency.
B) compacting.
C) compromising.
D) compounding.

Question 9

Economic growth is defined as

A) the increase of all individuals' wealth.
B) the increase in a country's use of resources.
C) the increase in a country's productive capabilities.
D) the increase in a country's urbanization.

Question 10

When there is economic growth, it is illustrated on a country's production possibilities curve by a

A) shift outward.
B) shift inward.
C) movement along the curve toward more manufactured goods.
D) movement along the curve toward more agricultural goods.

Question 11

When there is economic growth is a country, the distribution of output and income

A) will always become less equal.
B) will always become more equal.
C) can change in any number of ways.
D) will be unaffected.

Question 12

Economic growth can be shown by

A) the production possibilities curve becoming flatter.
B) the production possibilities curve becoming steeper.
C) a rightward shift in the production possibilities curve.
D) an increase in the price level.

Question 13

Which of the following does NOT contribute to economic growth?

A) Saving
B) Unemployment
C) Capital formation
D) Labor productivity

Question 14

Economic growth

A) is always positive.
B) is always negative.
C) can occur without any change to the economy at large.
D) has costs and benefits associated with it.

Question 15

A 1% change in the annual growth rate of a country has

A) very little impact on the economy of a country.
B) a large impact in the future due to compounding.
C) a small impact in the current year, and smaller impact in the future because of compounding.
D) a large impact on the economy in the current year, but not in the future.

Question 16

Investment in human capital

A) has no effect on economic growth.
B) has a positive effect on economic growth.
C) takes funds away from other areas of investment by the government and therefore has a negative impact on economic growth.
D) is of little importance in contributing to economic growth.

Question 17

Which one of the following is TRUE?

A) Japan and Germany have higher saving rates than does the United States.
B) The United States has about the same saving rate as does Singapore.
C) Saving slows economic growth by taking money out of circulation.
D) There is no empirical evidence to show that saving rates are related to economic growth.

Question 18

Studies indicate that

A) there is a positive relationship between economic growth and saving.
B) there is no relationship between economic growth and saving.
C) there is a negative relationship between economic growth and saving.
D) saving does not contribute to capital formation.

Question 19

The relationship between savings rates and growth rates is

A) inverse.
B) direct.
C) weak.
D) non-existent.

Question 20

Higher savings rates mean higher future growth rates because

A) the interest earned from saving gives you more money.
B) the banks have more money to distribute to their shareholders.
C) saving leads to less investment, which leads to more capital stock.
D) saving leads to more investment, which leads to more capital stock.

Question 21

Economists concerned with innovation and knowledge conclude that

A) invention is more important than innovation in spurring economic growth.
B) the amount of technological innovation in an economy is independent of the rewards offered for innovation.
C) rates of global economic growth are limited by the amount of raw materials available.
D) economic growth can continue as long as we keep coming up with new ideas.

Question 22

Research has shown that the growth of developing countries is most strongly enhanced by

A) increasing the money supply.
B) providing incentives to have large families.
C) providing colleges and universities.
D) providing a good secondary education.

Question 23

Which one of the following is FALSE?

A) Increases in the capital stock can improve the productivity of labor.
B) Increases in labor productivity can enhance economic growth.
C) Increases in the size of the labor force improve labor productivity.
D) Labor productivity contributes to economic growth.

Question 24

The reason that the government offers inventors exclusive rights to their product is to

A) reduce economic hierarchies.
B) create an equal distribution of wealth.
C) maximize consumer well-being.
D) promote innovation.

Question 25

A document issued by the government to protect an invention from being imitated is called

A) a compound.
B) an innovation.
C) a patent.
D) a stock certificate.

Question 26

Often, it is entrepreneurs who undertake the innovations that are necessary to bring inventions to the marketplace. What empirical pattern, then, would you expect to observe in an international comparison?

A) Countries with higher rates of entrepreneurship have higher rates of poverty.
B) Countries with higher rates of entrepreneurship have lower rates of immigration.
C) Countries with higher rates of entrepreneurship have lower rates of economic growth.
D) Countries that protect the property rights of entrepreneurs have higher rates of economic growth.

Question 27

Which one of the following is TRUE?

A) In the U.S., research and development is funded both by private firms and by governments.
B) The lack of well-defined property rights in the U.S. means that entrepreneurs do not expect to capture the benefits of innovations they bring to the marketplace
C) The U.S. is running out of natural resources, and therefore it will soon experience a drop in the rate of economic growth
D) Improvements in labor productivity over the past 50 years have created chronic unemployment in the U.S.

Question 28

Which of the following is NOT an important foundation for economic growth?

A) A high level of government spending
B) Incentives for entrepreneurship
C) Property rights
D) Saving

Question 29

Which of the following is an obstacle to economic development?

A) Poorly defined property rights
B) Secondary education
C) Immigration
D) Saving

Question 30

Which one of the following factors is NOT considered by economists to be directly related to the rate of economic growth?

A) The rate of saving
B) The prevalence of secondary education
C) The extensiveness of well-defined property rights
D) The ability of the government to confiscate property for its own use

Question 31

Saving is an important component of economic growth because saving finances

A) taxes.
B) investment.
C) consumption.
D) exports.

Question 32

Economic growth is reflected in

A) an increase in tax revenue.
B) growth of the money supply.
C) increases the equilibrium level of real per capita GDP.
D) increases in the level of employment.

Question 33

The ideal way to measure economic growth is

A) to see how much personal disposable income has increased.
B) to listen to the politicians.
C) to measure how much the production possibilities curve has shifted.
D) to get a measure of inflation.

Question 34

-Refer to Table 15.1. Which country had the largest increase in per capita real GDP?

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

Question 35

-Refer to Table 15.1. Which country had the smallest increase in per capita real GDP?

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

Question 36

Suppose two countries have identical growth rates of real GDP and the same initial value of per capita real GDP. Which of the following could then differ between the two?

A) Life expectancies
B) The distribution of wealth
C) The distribution of income
D) All of the above

Question 37

Economic growth occurs when

A) there is an increase in the amount of capital.
B) there is an increase in the inflation rate.
C) there is an increase in the unemployment rate.
D) the production possibilities curve becomes flatter.

Question 38

The rate of economic growth is determined by

A) the rate of growth of the labor force.
B) the rate of growth of the capital stock.
C) the rates of growth of capital and labor productivity.
D) All of the above.

Question 39

An improvement in labor productivity refers to

A) a reduction in the unemployment rate.
B) working more overtime hours.
C) producing the same output with fewer labor hours.
D) producing the same output with more labor hours.

Question 40

Economic growth reflects an increase in _________ _________ real GDP.

Question 41

Economic growth reflects an _________ in the material well-being of the average citizen.

Question 42

The speed at which the production possibilities curve shifts outward gives an indication of the rate of _________ _________ .

Question 43

Small changes in the rate of economic growth add up to big differences in the standard of living over time because of _________ .

Question 44

An increase of one percentage point in the rate of economic growth over this nation's history would have led to _________ times our current standard of living.

Question 45

To have more consumption in the future, you have to _________ less today.

Question 46

Saving is important for economic growth because it allows for _________ .

Question 47

Capital formation can be hindered if the rate of _________ is too low.

Question 48

In general, countries with high rates of saving have seen _________ economic growth than countries with low rates of saving.

Question 49

Saving allows for _________ formation which can increase labor productivity.

Question 50

Economic growth arises from increases in the capital stock, in the _________ force, or improvements in labor and capital productivity.

Question 51

Advances in technology will be more plentiful when there are _________ for those who provide them.

Question 52

The process of transforming an invention into something that benefits the economy is known
as _________.

Question 53

The productivity of _________ is equal to real domestic output divided by the number of workers.

Question 54

Improvements in the quality of the labor force are known as investments in _________ capital.

Question 55

The type of education that appears to contribute most strongly to growth in developing countries is _________ education.

Question 56

You can invest in your own human capital by going to _________, obtaining on-the-job-training, and teaching yourself new skills.

Question 57

Well-defined property rights contribute to _________ formation.

Question 58

The threat of _________ appears to discourage capital formation in developing countries as foreign-based businesses are reluctant to invest resources that might later be subject to confiscation by the domestic government.

Question 59

Empirical evidence suggests that higher saving rates lead to _________ rates of economic growth.

Question 60

Because of compounding, a small difference in the annual growth rate will amount to a _________ difference in standards of living over time.

Question 61

Historically, new technologies have moved relatively slowly from invention to _________ to widespread use.

Question 62

Improvements in labor productivity allow a given number of _________ to produce a greater amount of output.

Question 63

Well-defined _________ rights can lead to economic growth because they provide an incentive to create wealth.

Question 64

Why is economic growth measured as the change in per capita real GDP, rather than just the change in the level of GDP?

Question 65

Why is economic growth measured as the change in real per capita GDP rather than the change in nominal per capita GDP?

Question 66

How is economic growth depicted on a production possibilities graph?

Question 67

If an economy is experiencing economic growth, what is happening to its equilibrium level of real GDP?

Question 68

Why do small differences in the annual growth rate add up to big differences over time?

Question 69

What is the definition of labor productivity?

Question 70

Why is saving an important contributor to economic growth?

Question 71

How does an increase in the capital stock affect labor productivity?

Question 72

How can you enhance your own human capital?

Question 73

How does the existence of patents enhance economic growth?

Question 74

What is nationalization?

Question 75

How does the threat of nationalization affect economic growth?

Question 76

Why are poorly defined property rights an obstacle to economic growth?

Question 77

How is economic growth enhanced by research and development?

Question 78

Why is it impossible to predict how the distribution of income is affected simply from knowing a country's growth rate?

Question 79

The rate of economic growth is the same thing as the rate of inflation.

Question 80

The rate of economic growth is measured as the rate of increase in real per capita GDP.