Deck 21: Economic Growth and Rising Living Standards

Question 1

The employment-population ratio is

A) percentage of the population unemployed
B) percentage of the population employed
C) the same as the unemployment rate
D) always greater than 1
E) percentage of the population employed by the private sector.

Answer 1

percentage of the population employed

Question 2

Rich countries (measured by GDP per capita)tend to have __________ infant mortality rates,__________ life expectancies at birth,and __________ adult literacy rates than poor countries.

A) higher;higher;higher
B) lower;higher;higher
C) lower;lower;higher
D) lower;lower;lower
E) lower;higher;lower

Answer 2

lower;higher;higher

Question 3

An increase in the supply of labor will,everything else equal,

A) increase the real wage rate and increase employment
B) increase the real wage rate and decrease employment
C) reduce the real wage rate and increase employment
D) reduce the real wage rate and decrease employment
E) increase the demand for labor and increase employment

Answer 3

reduce the real wage rate and increase employment

Question 4

Which of the following is a common way of measuring the average standard of living?

A) The unemployment rate plus the inflation rate
B) Real GDP divided by the price level
C) The unemployment rate multiplied by the population
D) Real GDP divided by the population
E) Inflation rate divided by the population

Question 5

According to Thomas Malthus,the human race is doomed to suffer repeated famines and wars because

A) population and food supply both increase arithmetically
B) population and food supply both increase geometrically
C) population increases arithmetically while food supply increases geometrically
D) population increases geometrically while food supply increases arithmetically
E) population increases exponentially while food supply increases geometrically

Question 6

Which of the following could cause economic growth?

A) Growth in productivity
B) Growth in the employment-population ratio
C) Growth in the average number of hours worked
D) Growth in the population
E) All of these

Question 7

If labor supply increases,the wage rate increases.

Question 8

Economic growth is defined as a long-run increase in an economy's

A) resources
B) employment rate
C) total output of goods and services
D) level of profits
E) money supply

Question 9

The three most important sources of economic growth are

A) increases in employment,protection of resources,and changes in technology
B) decreases in employment,decreases in the money supply,and improvements in technology
C) increases in employment,increases in the capital stock,and reductions in environmental pollution
D) increases in employment,increases in the capital stock,and improvements in technology
E) increases in employment,decreases in the money supply,and increases in capital stock

Question 10

If output grows faster than the population,the average standard of living will

A) rise
B) fall
C) remain the same
D) stagnate
E) rise and then fall

Question 11

Growth in employment can result from either an increase in labor supply or an increase in labor demand.

Question 12

If labor supply decreases,what will happen to the real wage rate,employment,and real output,assuming no change in labor demand?

A) The real wage will increase,employment will decrease,and real output will increase.
B) The real wage will decrease,employment will decrease,and real output will increase.
C) The real wage will increase,employment will decrease,and real output will decrease.
D) The real wage will increase,employment will increase,and real output will increase.
E) The real wage will decrease,employment will increase,and real output will increase.

Question 13

In the 1970s and 1980s policies that required retirement of people over age 65 were repealed.Which variable would this directly affect?

A) The employment-population ratio
B) Productivity
C) Average hours
D) Population
E) Technology

Question 14

Refer to Figure 9-1.If labor supply shifts from S₁ to S₂,what will happen to the real hourly wage rate?

A) It will remain constant and employment will increase to 130 million
B) It will fall to $15 and employment will increase to 120 million
C) It will fall to $10 and employment will remain at 110 million
D) It will fall to $15 and employment will remain at 110 million
E) It will fall to $15 and employment will fall to 100 million

Question 15

An increase in the supply of labor will,everything else equal,

A) increase the full-employment level of output
B) decrease the full-employment level of output
C) move the economy from a recession toward full employment
D) reduce total employment
E) have no impact on total employment

Question 16

Which of the following mathematical statements is correct

A) Total Output=Productivity x Average Hours x the employment-population ratio x Population
B) Total Output=Productivity / Average Hours x the employment-population ratio / Population
C) Total Output=Productivity + Average Hours + the employment-population ratio + Population
D) Total Output=(Productivity x Average Hours)/ (the employment-population ratio x Population)
E) Total Output=Productivity x Average Hours x the employment-population ratio

Question 17

Thomas Malthus argued that population grows geometrically and the food supply grows arithmetically.

Question 18

An increasing percentage of women are in the work force.Which variable does this directly affect?

A) The employment-population ratio
B) Productivity
C) Average hours
D) Population
E) Technology

Question 19

Gross Domestic Product (GDP)per capita is

A) GDP in current dollars
B) GDP adjusted for inflation
C) GDP per person
D) GDP per dollar spent
E) GDP per day

Question 20

According to the classical model,total employment will increase when

A) the birth rate increases
B) the government creates more jobs
C) the labor force increases
D) individuals receive more education
E) there is a recession

Question 21

If the labor demand decreases,what will happen to the real wage,employment,and output,assuming no change in the labor supply?

A) The real wage will increase,employment will decrease,and real output will increase.
B) The real wage will decrease,employment will decrease,and real output will increase.
C) The real wage will increase,employment will decrease,and real output will decrease.
D) The real wage will increase,employment will increase,and real output will increase.
E) The real wage will decrease,employment will decrease,and real output will decrease.

Question 22

Which of the following could shift the labor supply curve and increase employment?

A) An increase in the number of firms
B) An increase in income tax rates
C) Increased spending on welfare programs
D) Increased federal funding for education
E) A decrease in income tax rates

Question 23

Which combination of government policies would be most likely to increase labor supply?

A) Increasing income tax rates and cutting transfer payments to the needy
B) Decreasing income tax rates and cutting transfer payments to the needy
C) Decreasing income tax rates and increasing subsidies to businesses for hiring certain kinds of workers
D) Increasing income tax rates and cutting subsidies to business
E) Cutting transfer payments to the needy and increasing subsidies to business

Question 24

Refer to Figure 9-1.If labor supply shifts from S₂ to S₁,what will happen to the real hourly wage rate?

A) It will remain constant and employment will increase to 130 million
B) It will rise to $15 and employment will increase to 120 million
C) It will rise to $10 and employment will remain at 110 million
D) It will rise to $15 and employment will remain at 110 million
E) It will rise to $20 and employment will fall to 110 million

Question 25

Which of the following best describes what has happened to the U.S.labor supply and labor demand over the past 50 years?

A) Labor supply increased and labor demand decreased.
B) Both labor supply and labor demand decreased.
C) Labor supply did not change but labor demand increased.
D) Both labor supply and labor demand increased.
E) Labor supply increased but labor demand did not change.

Question 26

If you observed that the both the wage rate and employment increased,which of the following would be a possible explanation?

A) A decrease in labor demand
B) An increase in labor demand that outpaced an increase in labor supply
C) A decrease in labor demand coupled with an increase in labor supply
D) A decrease in labor supply
E) An increase in labor supply that outpaced an increase in labor demand

Question 27

If labor supply and labor demand both increase,employment

A) and the real wage rate will both increase
B) will increase but the real wage rate will fall
C) will increase but the real wage rate will remain constant
D) and the real wage rate will remain constant
E) will increase but the effect on the real wage rate will depend on the magnitude of the shifts

Question 28

Which combination of government policies would be most likely increase labor demand?

A) Increasing subsidies to education and increasing subsidies to businesses for hiring new employees
B) Reducing income tax rates and cutting transfer payments to the needy
C) Raising income tax rates and cutting transfer payments to the needy
D) Reducing subsidies to education and increasing subsidies to businesses for hiring new employees
E) Increasing subsidies to education and reducing subsidies to businesses for hiring new employees.

Question 29

If you observed the wage rate decreasing while employment increased,which of the following would be a possible explanation?

A) A decrease in labor demand
B) A decrease in labor demand coupled with a decrease in labor supply
C) An increase in labor supply
D) A decrease in labor supply
E) It is not possible for the wage rate to decrease while employment is increasing

Question 30

Government policies designed to increase the skills of the work force shift the labor demand curve to the right,increasing employment and total output.

Question 31

Refer to Figure 9-2.An increase in output from A to B could be caused by an increase in

A) labor demand only
B) labor supply only
C) labor demand or in labor supply
D) technology only
E) the capital stock

Question 32

If both labor demand and labor supply fall,what will happen to the real wage,employment,and output?

A) The real wage will increase,real output will increase,but the effect on employment depends upon the magnitudes of the shifts.
B) The real wage will increase,but the effects of employment and real output depend upon the magnitudes of the shifts.
C) The real wage,employment,and real output will all decrease.
D) Employment and real output will decrease,but the effect on the real wage depends upon the magnitudes of the shifts.
E) The real wage,employment,and real output will all increase.

Question 33

In the U.S.over the past century,increases in labor

A) supply have outpaced increases in labor demand,causing the average wage rate to fall
B) supply have outpaced increases in labor demand,causing the average wage rate to rise
C) demand have outpaced increases in labor supply,causing the average wage rate to fall
D) demand have outpaced increases in labor supply,causing the average wage rate to rise
E) demand have occurred at the same pace as increases in labor supply,so the average wage rate has remained unchanged

Question 34

If labor demand increases,the market wage rate will

A) increase
B) decrease
C) remain stable
D) decrease initially and then rise by a larger amount
E) decrease initially and then rise by a small amount

Question 35

Which of the following is a reason why the labor demand curve would shift rightward?

A) A decrease in the amount of capital equipment
B) An increase in educational attainment of the population
C) A shift to earlier retirement
D) An increase in population
E) An increase in the number of two-family households

Question 36

Everything else equal,an increase in the demand for labor will

A) increase the real wage rate,employment,and real output
B) reduce the real wage rate,employment,and real output
C) increase the real wage rate but decrease employment and real output
D) reduce the real wage rate but increase employment and real output
E) increase the real wage rate and employment,but leave real output unchanged

Question 37

Growth in employment can result

A) from an increase in labor supply only
B) from an increase in labor demand only
C) from changes in technology only
D) from an increase in either labor supply or labor demand
E) only when the wage rate falls

Question 38

Economists who focus on long-run growth suggest that the government could lower taxes on labor income in order to increase employment.

Question 39

Which of the following statements best describes the U.S.labor force since World War II?

A) Total employment grew,but the labor force participation rate fell.
B) Total employment grew,and so did the labor force participation rate.
C) Total employment grew,but the labor force participation rate remained unchanged.
D) Total employment remained constant,but the labor force participation rate fell.
E) Total employment remained constant,but the labor force participation rate rose.

Question 40

Which of the following would lead to an (eventual)increase in the labor force by shifting the labor demand curve?

A) A trend toward earlier retirement ages
B) An increase in the working-age population
C) A reduction in the number of guaranteed student loans
D) An increase in college work-study programs
E) A decrease in personal income tax rates

Question 41

What would be the effect on the loanable funds market of an increase in the corporate profits tax? (Assume that the government maintains a balanced budget. )

A) The demand for funds would decrease,lowering the interest rate and leading to lower private investment.
B) The demand for funds would increase,raising the interest rate and leading to higher private investment.
C) Both the demand and the supply of funds would increase,lowering the interest rate and leading to lower private investment.
D) The supply of funds would increase,lowering the interest rate and leading to higher private investment.
E) The supply of funds would decrease,raising the interest rate and leading to lower private investment.

Question 42

For the capital stock to grow,production of capital goods must

A) exceed the inflation rate
B) exceed 15 percent of GDP
C) exceed the depreciation of existing capital
D) increase from the previous year
E) exceed the growth of the labor force

Question 43

Which of the following is a stock variable?

A) The interest rate
B) Real GDP
C) Investment in physical capital
D) Physical capital
E) Investment in human capital

Question 44

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

A) both output and labor productivity to rise
B) output to rise but labor productivity to fall
C) both output and labor productivity to fall
D) output to fall but labor productivity to rise
E) output to rise but labor productivity to remain unchanged

Question 45

The reform of the welfare system passed by Congress and signed by President Clinton changed the benefits for welfare recipients as it

A) decreased the number of people eligible for benefits,increased the benefit amount for those still eligible,and set a maximum coverage period of five years
B) decreased the number of people eligible for benefits,cut the benefit amount for those still eligible,and set a maximum coverage period of three years
C) increased the number of people eligible for benefits,cut the benefit amount for those still eligible,and set a maximum coverage period of three years
D) decreased the number of people eligible for benefits,cut the benefit amount for those still eligible,and set a maximum coverage period of five years
E) froze the number of people eligible for benefits,cut the benefit amount for those still eligible,and set a maximum coverage period of three years

Question 46

Reducing business taxes or providing specific investment incentives can shift the demand for loanable funds curve

A) rightward,slow the growth of the capital stock,and improve the standard of living
B) rightward,speed the growth of the capital stock,and improve the standard of living
C) leftward,speed the growth of the capital stock,and reduce the standard of living
D) rightward,speed the growth of the capital stock,and reduce the standard of living
E) leftward,slow the growth of the capital stock,and reduce the standard of living

Question 47

If the government increases funding to college work-study programs,which of the following would happen in the labor market?

A) Wages will increase and the labor force will increase.
B) The labor force will decrease but there will be an ambiguous change in the wage.
C) Wages will decrease and the labor force will increase.
D) The labor force will increase but there will be an ambiguous change in the wage.
E) Wages will increase and the labor force will decrease.

Question 48

Refer to Figure 9-3.The elimination of an investment tax credit that decreases the demand for loanable funds from D₂ to D₁ will decrease investment spending by

A) $400 billion and leave the interest rate unchanged
B) $100 billion and leave the interest rate unchanged
C) $100 billion and decrease the interest rate by 2 percentage points
D) $200 billion and leave the interest rate unchanged
E) $500 billion and decrease the interest rate by 2 percentage points

Question 49

An increase in government spending will increase the government budget deficit,which tends to increase interest rates,increase saving,crowd out private investment,stimulate capital formation,and slow the level of economic activity.

Question 50

Everything else equal,an increase in the supply of loanable funds will

A) lower the interest rate and reduce investment spending
B) lower the interest rate and increase investment spending
C) increase the demand for funds
D) increase the interest rate and reduce investment spending
E) increase the interest rate and increase investment spending

Question 51

What would be the effect of a reduction in the corporate profits tax?

A) Investment would decrease,the production function would shift downward,productivity would decrease,and so would output.
B) Investment would increase,the production function would shift upward,productivity would increase and output would decrease.
C) Investment would increase,the production function would shift upward,and both productivity and output would increase.
D) Investment would decrease,the production function would shift downward,and both productivity and output would increase.
E) Investment would increase,the production function would shift upward,productivity would decrease and output would increase.

Question 52

An increase in the capital stock causes labor productivity to

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

Question 53

Reducing the government's budget deficit will certainly increase economic growth.

Question 54

An increase in the corporate profits tax would shift the demand for loanable funds curve to the left.

Question 55

A rightward shift of the economy's labor supply curve would result from a(n)

A) cut in income tax rates or an increase in welfare benefits to the needy
B) cut in income tax rates or a cut in benefits to the needy
C) increase in income tax rates or a cut in benefits to the needy
D) increase in income tax rates or an increase in benefits to the needy
E) cut in income tax rates or a freeze on benefits to the needy

Question 56

As its capital stock increases,a nation will

A) move rightward along a fixed production function
B) move leftward along a fixed production function
C) find its production function shifting upward
D) find its production function shifting downward
E) experience no change in the marginal product of labor

Question 57

Refer to Figure 9-3.An investment tax credit that increases the demand for loanable funds from D₁ to D₂ will increase investment spending by

A) $400 billion and leave the interest rate unchanged
B) $100 billion and leave the interest rate unchanged
C) $100 billion and increase the interest rate by 2 percentage points
D) $200 billion and leave the interest rate unchanged
E) $500 billion and increase the interest rate by 2 percentage points

Question 58

Government policies that help increase the skills of the workforce or that subsidize employment more directly would

A) decrease employment and increase output
B) increase employment and decrease output
C) increase employment and increase output
D) increase unemployment and decrease output
E) increase unemployment and increase output

Question 59

An increase in the demand for loanable funds will,everything else equal,

A) increase the supply of funds
B) lower the interest rate and reduce investment spending
C) lower the interest rate and increase investment spending
D) raise the interest rate and reduce investment spending
E) raise the interest rate and increase investment spending

Question 60

In some developing countries,labor productivity has remained stagnant or fallen because

A) the capital stock has grown at about the same rate or more slowly than the population
B) the capital stock has grown faster than the population
C) the population has decreased
D) foreign labor has been utilized
E) wages have dropped

Question 61

Refer to Figure 9-4.Which of the following policies would most likely shift the supply of loanable funds curve from S₁ to S₂?

A) Introduction of an investment tax credit
B) Cutting the corporate profits tax rate
C) Increasing personal income tax rates
D) Eliminating taxes on interest income
E) Decreasing the government's budget deficit

Question 62

How would budget deficit reduction through reduced government spending affect economic growth?

A) It would not affect economic growth because the budget deficit and economic growth are unrelated.
B) It would stimulate economic growth.
C) It would hinder economic growth.
D) It would not affect economic growth because the positive and negative effects of deficit reduction would cancel each other out.
E) It depends on which government programs are cut to achieve deficit reduction.

Question 63

A decrease in government spending would

A) lower the interest rate,which is unlikely to influence private investment spending
B) raise the interest rate and decrease private investment spending
C) lower the interest rate and decrease private investment spending
D) raise the interest rate and increase private investment spending
E) lower the interest rate and increase private investment spending

Question 64

The skills and knowledge possessed by workers are referred to as

A) labor capital
B) human technology
C) labor tools
D) labor technology
E) human capital

Question 65

In the loanable funds market,an increase in the desire to save is translated into a(n)

A) increase in investment spending and slower growth in the capital stock
B) decrease in investment spending and slower growth in the capital stock
C) decrease in investment spending and faster growth in the capital stock
D) increase in investment spending and faster growth in the capital stock
E) increase in investment spending but with no growth in the capital stock

Question 66

Government budget deficits

A) discourage household saving,which increases interest rates and reduces planned investment spending
B) encourage household saving,which increases the funds available for planned investment spending
C) reduce the demand for funds,lower interest rates,and increase planned investment spending
D) discourage planned investment spending by putting upward pressure on interest rates
E) stimulate economic growth by encouraging capital investment

Question 67

If the government lowered the capital gains tax,what would be the effect in the loanable funds market? (Assume the government does not run a budget deficit. )

A) Both the supply and demand for funds would increase,lowering the interest rate and raising investment spending.
B) The supply of funds would decrease,raising the interest rate and lowering investment spending.
C) The supply of funds would decrease,lowering both the interest rate and investment spending.
D) The supply of funds would increase,lowering both the interest rate and investment spending.
E) The supply of funds would increase,lowering the interest rate and raising investment spending.

Question 68

Governments have learned that a(n)

A) increased budget deficit tends to reduce interest rates and increase investment,thus increasing the growth of the capital stock
B) reduced budget deficit tends to reduce interest rates and increase investment,thus increasing the growth of the capital stock
C) reduced budget deficit tends to increase interest rates and increase investment,thus increasing the growth of the capital stock
D) reduced budget deficit tends to increase interest rates and increase investment,thus reducing the growth of the capital stock
E) increased budget deficit tends to increase interest rates and increase investment,thus reducing the growth of the capital stock

Question 69

Which of the following would not enhance economic growth?

A) Subsidies for investments in physical capital
B) An increase in the corporate profits tax
C) Subsidies for investments in human capital
D) A tax cut that encourages saving
E) Subsidies for research and development expenditures

Question 70

Refer to Figure 9-6.Starting from a $200 billion deficit,the government reduces spending and eliminates the deficit.Investment spending will

A) decrease by $100 billion
B) decrease by $200 billion
C) increase by $100 billion
D) increase by $200 billion
E) not be affected by government budget deficit

Question 71

Refer to Figure 9-6.Starting from a balanced budget,the government runs a budget deficit of $200 billion.Investment spending will

A) decrease by $100 billion
B) decrease by $200 billion
C) increase by $100 billion
D) increase by $200 billion
E) not be affected by government budget deficit

Question 72

Which of the following policies would be most likely to encourage households to save more?

A) Significant reductions in the social safety net
B) Increasing social security benefits to all recipients,regardless of their contribution into the system
C) Elimination of the tax deduction on individual retirement account (IRA)contributions
D) Replacement of sales and excise taxes with an income tax
E) Elimination of government insurance of bank deposits

Question 73

Which of the following will lower the interest rate and increase investment spending?

A) An increase in the demand for loanable funds
B) A decrease in the demand for loanable funds
C) An increase in the supply of loanable funds
D) A decrease in the supply of loanable funds
E) An equal and simultaneous decrease in the demand for and supply of loanable funds

Question 74

Which of the following is the definition of a capital gain?

A) An increase in a firm's capital stock
B) Profit earned from selling a financial asset
C) The dividend earned from a company's stock
D) Taxes saved by selling a share of corporate stock
E) The profit earned by a corporation

Question 75

Human capital is defined as

A) the skills and knowledge possessed by workers
B) the tools used by labor
C) equipment and machinery used to train workers
D) buildings purchased by households rather than by businesses
E) equipment and machinery used to aid household production and increase available leisure time

Question 76

A decrease in the government's budget deficit will

A) increase the supply of loanable funds,lower the interest rate,and increase investment spending
B) reduce the supply of loanable funds,raise the interest rate,and reduce investment
C) increase the demand for loanable funds,raise the interest rate,and reduce investment spending
D) reduce the demand for loanable funds,lower the interest rate,and increase investment spending
E) increase the supply of loanable funds,reduce the demand for loanable funds,leave the interest rate unchanged,and increase investment spending

Question 77

Refer to Figure 9-5.An increase in the supply of loanable funds from S₁ to S₂ will,everything else equal,

A) lower the interest rate to 6 percent and investment spending to $350 billion
B) leave the interest rate and investment spending unchanged
C) lower the interest rate to 6 percent and increase investment spending to $500 billion
D) lower the interest rate to 6 percent and increase investment spending to $550 billion
E) lower the interest rate to 6 percent and keep investment spending at $400 billion

Question 78

Which of the following would be most likely to encourage households to save a greater proportion of their income?

A) a reduction in the sales tax rate
B) an increase in the capital gains tax rate
C) an elimination of tariffs (taxes on imported goods)
D) changing to a flat income tax (with a single tax rate charged on all income)
E) changing from an income tax to a consumption tax

Question 79

If households experienced greater uncertainty about their economic future,which of the following would occur in the market for loanable funds?

A) Both the supply and demand for funds would increase,lowering the interest rate and raising investment spending.
B) The supply of funds would decrease,raising the interest rate and lowering investment spending.
C) The supply of funds would decrease,lowering both the interest rate and investment spending.
D) The supply of funds would increase,lowering both the interest rate and investment spending.
E) The supply of funds would increase,lowering the interest rate and raising investment spending.

Question 80

Human capital is the equipment and machinery used directly by workers.