Deck 22: Long-Run Economic Growth: Sources and Policies

Question 1

The Industrial Revolution began in

A) England around 1750.
B) the United States around 1820.
C) France around 1680.
D) Germany around 1780.

Answer 1

A

Question 2

According to Douglass North,the Industrial Revolution occurred in England because

A) the British Parliament took control of the government and could credibly commit to upholding property rights.
B) the British monarchy took control of the government and pledged not to raise taxes arbitrarily.
C) the British courts became tied to the king and began to refuse to enforce property rights.
D) the British Parliament instituted a command economy structure and implemented a planned economy.

Answer 2

A

Question 3

If real GDP per capita in the United States is $8,000,what will real GDP per capita in the United States be after 5 years if real GDP per capita grows at an annual rate of 3.2%?

A) $8,520
B) $9,280
C) $9,365
D) $10,560

Answer 3

C

Question 4

Small differences in economic growth rates result in small differences in living standards.

Question 5

Increasing the growth rate of GDP per capita and sustaining this growth rate in an economy can

A) increase infant mortality.
B) increase standards of living.
C) increase the level of poverty.
D) lower life expectancy.

Question 6

China's economy has grown tremendously from 1979 to the present.The reason the article gives for this growth is

A) the introduction of the centrally planned economy in 1978.
B) the introduction of market-oriented reforms in 1978.
C) the introduction of the social networking site, MySpace.
D) the total lack of governmental intervention in the economy.

Question 7

An economy that grows too slowly fails to raise living standards.

Question 8

The period of time from 1,000,000 B.C.to 1300 A.D.was a period of

A) no sustained economic growth.
B) slow and steady economic growth.
C) moderate economic growth.
D) rapid and sustained economic growth.

Question 9

The rapid growth of the Chinese economy should

A) benefit U.S. consumers as they have access to less expensive consumer goods.
B) make it more difficult for citizens of the United States to find a job.
C) not affect the mix of jobs available to citizens of the United States.
D) A and B

Question 10

What features made England in the eighteenth century the place where the Industrial Revolution occurred?

Question 11

If real GDP in the United States is growing at an annual rate of 3.2% per capita and Bolivia's real GDP per capita is growing at a rate of 1.3%,which of the following would we expect in the long run? Assume real GDP per capita in the United States begins at a level above that of real GDP per capita in Bolivia.

A) Real GDP per capita in the United States will always be 1.9% higher than real GDP per capital in Bolivia.
B) The difference between the level of real GDP per capita in the United States and real GDP per capita in Bolivia will shrink over time.
C) The difference between the level of real GDP per capita in the United States and real GDP per capita in Bolivia will increase over time.
D) The difference between the level of real GDP per capita in the United States and real GDP per capita in Bolivia will always be $1.9 trillion.

Question 12

If real GDP per capita in Ireland is estimated to be $7,400 in 2012,what will real GDP per capita be in 2017 if real GDP per capita grows at an annual rate of 2.8%?

A) $7,607
B) $8,496
C) $9,472
D) $20,720

Question 13

Some factors currently exist that inhibit the growth rate of the Chinese economy.The main reason given is

A) the introduction of free-market reforms.
B) the introduction of the relatively new resource of entrepreneurship.
C) the lack of laws that predictably enforce property rights.
D) the total lack of governmental intervention in the market place.

Question 14

Most of the countries of Africa are considered newly industrializing countries.

Question 15

If real GDP per capita in the United States is $8,000 in 2011,and if real GDP per capita is $12,000 in 2021,what is the total percent change in the growth rate of GDP per capita between 2011 and 2021?

A) 3.33%
B) 5%
C) 33%
D) 50%

Question 16

Growth in real GDP per capita for the world economy was greatest during

A) the seventeenth century.
B) the eighteenth century.
C) the nineteenth century.
D) the twentieth century.

Question 17

Significant economic growth did not begin in the world until

A) 1000 A.D.
B) 1750 A.D.
C) 1820 A.D.
D) the 20th century A.D.

Question 18

If real GDP per capita in the United States is $8,000 in 2011,and if real GDP per capita is $12,000 in 2021,what is the average annual percent change in the growth rate of GDP per capita between 2011 and 2021?

A) 3.33%
B) 5%
C) 33%
D) 50%

Question 19

Between 1960 and 2010,deaths among children have

A) declined in most high-income countries and have risen in most low-income countries.
B) declined in nearly all countries, including most low-income countries.
C) remained relatively unchanged in most high-income countries and have declined in most low-income countries.
D) declined in most high-income countries and have remained relatively unchanged in most low-income countries.

Question 20

Suppose that in 2011 real GDP grew in Estonia by 3% and that the population increased by 5%.Therefore in 2011,Estonia experienced

A) economic growth, but not an increase in living standards.
B) economic growth and an increase in living standards.
C) no economic growth, but an increase in living standards.
D) no economic growth and no increase in living standards.

Question 21

Which of the following is not one of the three sources of technological change?

A) additional amounts of existing capital
B) better machinery and equipment
C) increases in human capital
D) better means of organizing and managing production

Question 22

Suppose that an increase in capital per hour worked from $15,000 to $20,000 increases real GDP per hour worked by $500.If capital per hour worked increases further to $25,000,by how much would you expect real GDP per hour worked to increase if there are diminishing returns?

A) by less than $500
B) by exactly $500
C) by more than $500 but less than $5,000
D) by more than $5,000 but less than $20,000

Question 23

An economy can improve its standard of living by

A) organizing production so that the quantity of goods produced per hour will decrease.
B) reducing the amount of human capital workers have.
C) increasing the amount of capital available per hour worked.
D) all of the above

Question 24

When additions of input to a fixed quantity of another input lead to progressively smaller increases in output,we say we are facing

A) diminishing returns.
B) negative returns.
C) accelerating returns.
D) decreasing production.

Question 25

Figure 22-1
Refer to Figure 22-1.Technological change is illustrated in the per-worker production function in the figure above by a movement from

A) A to B.
B) B to C.
C) B to A.
D) D to C.

Question 26

In a small European country,it is estimated that changing the level of capital from $8 million to $10 million will increase real GDP from $2 million to $3 million.If the number of hours worked in the labor force does not change,what does this information tell you about the slope of the per-worker production function in this range?

A) The slope is -2.
B) The slope is 1/2.
C) The slope is 2.
D) The slope is 4.

Question 27

Figure 22-1
Refer to Figure 22-1.Many countries in Africa strongly discouraged and prohibited foreign direct investment in the 1950s and 1960s.By doing so,these countries were essentially preventing a moment from

A) A to B.
B) B to C.
C) B to A.
D) D to C.

Question 28

Figure 22-1
Refer to Figure 22-1.Suppose the per-worker production function in the figure above represents the production function for the U.S.economy.If the United States decided to double its support of university research,this would cause a movement from

A) A to B.
B) B to C.
C) B to A.
D) D to C.

Question 29

In a small European country,it is estimated that a $10,000 increase in capital per hour worked will increase real GDP per hour worked by $300.Based on this information,what is the slope of the per-worker production function in this range?

A) 0.03
B) 3.3
C) 33.3
D) 333

Question 30

An economic growth model explains

A) changes in real GDP per capita in the long run.
B) how changes in the money supply affect real interest rates.
C) changes in government tax policies over time.
D) the growth rate of the price level over time.

Question 31

If the per-worker production function shifts down,

A) it now takes more capital per hour worked to get the same amount of real GDP per hour worked.
B) an economy can increase its real GDP per hour worked without changing the level of capital per hour worked.
C) the per-worker production function becomes steeper.
D) positive technological change has occurred in the economy.

Question 32

Because of diminishing returns,an economy can continue to increase real GDP per hour worked only if

A) there are decreases in human capital.
B) the per-worker production function shifts downward.
C) there continue to be decreases in capital per hour worked.
D) there is technological change.

Question 33

What are some of the reasons used to explain improvements in health,education,democracy,and political stability in many low-income countries?

Question 34

Which of the following would you expect to result in faster economic growth?

A) the invention of new computers that increase labor productivity
B) a decrease in the average level of education in the economy
C) a decrease in the stock of capital per worker
D) a decrease in research and development spending

Question 35

Figure 22-1
Refer to Figure 22-1.Diminishing marginal returns is illustrated in the per-worker production function in the figure above by a movement from

A) A to C.
B) B to C.
C) C to D.
D) D to C.

Question 36

When an economy faces diminishing returns,

A) the slope of the per-worker production function becomes steeper as capital per hour worked increases.
B) the slope of the per-worker production function becomes flatter as capital per hour worked increases.
C) the per-worker production function shifts to the left.
D) the per-worker production function shifts to the right.

Question 37

In the early 1900s,Henry Ford revolutionized the automotive manufacturing industry by instituting the assembly line.What impact did the assembly line method for producing automobiles have on the per-worker production function for Ford?

A) It became flatter.
B) It shifted up.
C) It shifted down.
D) It became linear.

Question 38

Figure 22-1
Refer to Figure 22-1.Using the per-worker production function in the figure above,the largest changes in an economy's standard of living would be achieved by a movement from

A) A to B to C.
B) B to C to D.
C) C to B to A.
D) D to C to B.

Question 39

Figure 22-1
Refer to Figure 22-1.Within a country,the impact of wars and revolutions and their subsequent destruction of capital is reflected in the per-worker production function in the figure above by a movement from

A) A to B.
B) B to C.
C) B to A.
D) C to A.

Question 40

If the Commerce Department adjusts the growth rate of GDP downward for the first quarter of 2011,and the Bureau of Labor Statistics adjusts the number of hours worked upward for the first quarter of 2011,what will the Bureau of Labor Statistics do in terms of revising the figures on the growth rate of labor productivity for the first quarter of 2011?

A) The BLS will adjust the growth rate downwards.
B) The BLS will adjust the growth rate upwards.
C) The BLS will not change the growth rate of productivity.
D) The BLS will adjust the level of labor productivity upward and the growth rate downward.

Question 41

Knowledge capital is

A) rival.
B) nonrival.
C) nonexcludable.
D) both B and C

Question 42

Firms free ride on the research and development of other firms when they

A) buy a firm's newly developed product, and then give it away to consumers.
B) use knowledge other firms have developed without paying for that knowledge.
C) license a new technology from a firm that developed the new technology.
D) choose a level of research and development that is inefficiently high.

Question 43

The Soviet Union's economy grew rapidly in terms of GDP per hour worked in the 1950s,but eventually this growth slowed.Why did this occur?

A) Capital per hour worked grew rapidly from 1950 to 1980, but technological change occurred very slowly.
B) Capital per hour worked grew slowly, but technological change grew very rapidly.
C) Increasing implementation of new technologies eventually suffered diminishing marginal returns.
D) The centrally planned economy invested too heavily in technological change.

Question 44

A patent grants an inventor exclusive rights to a product for how long?

A) 14 years
B) 17 years
C) 20 years
D) the lifetime of the product

Question 45

If the slope of the per-worker production function is 1/2 in a given range,how will a $10,000 increase in capital per hour worked affect real GDP per hour worked in the same given range?

A) Real GDP per hour worked will increase by $5,000.
B) Real GDP per hour worked will increase by $20,000.
C) Real GDP per hour worked will increase by $10,000.
D) Real GDP per hour worked will decrease by $20.000.

Question 46

Figure 22-2
Refer to Figure 22-2.Assuming no technological change,if the United States increases capital per hour worked by $40,000 every year between 2010 and 2014,we would expect to see

A) real GDP per hour worked will increase by the same increment each year between 2010 and 2014.
B) real GDP per hour worked will be lower in 2014 than it was in 2010.
C) the per-worker production function will get flatter over time.
D) the per-worker production function will shift up every year there is increase in capital per hour worked.

Question 47

Which of the following government policies would most likely result in an increase in economic growth?

A) a decrease in the life of a patent from 20 years to 15 years
B) a decrease in the interest rate at which the government provides student loans
C) a decrease in government spending on grants issued through the National Institutes of Health
D) decreased copyright protection on music and movies

Question 48

Why do some firms choose not to file for a patent and instead try to keep the results of their research a trade secret?

A) because firms must disclose information about the product or process being patented in a patent application
B) because trade secrets are never divulged
C) because a patent only gives the inventor exclusive rights to a product or process for 5 years
D) because trade secrets provide the same exclusive legal rights to a product as a patent does

Question 49

Under the Soviet system of communism,

A) managerial pay was determined by the extent to which managers could lower the per-unit costs of production.
B) technological progress was slow because managers had little incentive to develop new technologies.
C) competitive pressures in the Soviet Union allowed the country's technological progress to keep pace with the rest of the world.
D) the per-worker production function in the Soviet Union shifted up more rapidly than production functions in other countries.

Question 50

Which of the following government provisions would help increase the accumulation of knowledge capital?

A) patents
B) copyrights
C) education subsidies
D) All of the above are correct.

Question 51

Technological improvements are more likely to occur if

A) the economy is centrally planned.
B) entrepreneurs are compensated with higher profits for taking risks.
C) economic decisions are made by politicians rather than entrepreneurs.
D) companies face little competition in their markets.

Question 52

Knowledge capital is nonrival in the sense that

A) two people can use the same knowledge to develop and produce a product.
B) firms do not compete to be the first to develop new technologies.
C) no single company can be excluded from the benefits of new technologies.
D) firms can benefit from the research and development of rival firms without paying for that benefit.

Question 53

Paul Romer,an economist at Stanford University,is most closely associated with what economic theory?

A) new growth theory
B) labor productivity theory
C) the process of creative destruction
D) the Communist Manifesto

Question 54

According to new growth theory,

A) physical capital is nonexcludable.
B) knowledge capital is excludable.
C) knowledge capital is subject to increasing returns.
D) knowledge capital is rival and excludable.

Question 55

Creative destruction means that

A) firms develop new products that replace old products in the economy, thereby encouraging economic growth.
B) economic growth can only be sustained if capital depreciates rapidly.
C) knowledge capital can be created through a system of government subsidies for education and research and development.
D) research and development should only be financed if research and development is incremental (a result of making small changes to existing products).

Question 56

According to Joseph Schumpeter,economic growth is achieved through

A) focusing only on making old products better rather than inventing new ones.
B) centralizing economic production.
C) a process termed "creative destruction."
D) removing the entrepreneur from the production function.

Question 57

According to new growth theory,

A) technological change is influenced by economic incentives.
B) centrally-planned economies are the most efficient.
C) growth in real GDP per capita occurs only if there are increasing returns.
D) economic growth is determined by forces outside the control of the market system.

Question 58

Because firms can free ride on the research and development of other firms,

A) firms choose a level of research and development where the marginal cost of research is equal to the economy's marginal return of research.
B) firms choose a level of research and development where the marginal cost of research is above the economy's marginal return of research.
C) firms choose a level of research and development where the marginal cost of research is below the economy's marginal return of research.
D) firms choose a level of research and development where the marginal cost of research is below the individual firm's marginal return of research.

Question 59

In a small European country,it is estimated that changing the level of capital from $8 million to $10 million will increase real GDP from $2 million to $3 million.What level of GDP would you expect the economy to be able to reach if spending on capital continued to rise to $12 million,assuming no technological change and no change in the hours of work?

A) GDP would increase further, but by less than $1 million.
B) GDP would increase further by exactly $1 million.
C) GDP would increase further by more than $1 million
D) GDP would increase further by exactly $4 million.

Question 60

Figure 22-2
Refer to Figure 22-2.Based on the per-worker production function above,if the economy raises capital per hour worked from $35,000 to $40,000,by how much will real GDP per hour worked increase?

A) $150
B) $1,850
C) $2,000
D) $5,000

Question 61

The productivity slowdown of the mid-1970s can be explained by which of the following?

A) excessive use of fiscal policy
B) large increases in research and development
C) a decline in labor quality
D) diminishing marginal returns

Question 62

Why do some economists point to a decline in the quality of labor as an explanation for the productivity slowdown in the mid-1970s?

A) The average level of education of citizens of the United States rose dramatically during this period of time.
B) The skill level required to perform many jobs increased during this period of time, although the skills of the labor force did not increase as quickly.
C) Scores on standardized tests during that period of time began to rise.
D) Increases in the amount of capital available reduced labor quality.

Question 63

In the United States,the annual growth rate of real GDP per hour worked between 1995 and 2010 averaged

A) -0.3%.
B) 2.1%.
C) 6.9%.
D) 10.2%.

Question 64

One drawback of the patent system is that firms must disclose to the public information about the product or process.

Question 65

Growth in real GDP per hour worked in the United States was slowest during what period of time?

A) 1900-1949
B) 1950-1972
C) 1973-1994
D) 1995-2008

Question 66

Growth in the United States from 1800 to 1900 can be characterized as

A) positive and increasing.
B) positive and flat.
C) positive and decreasing.
D) negative.

Question 67

Is knowledge capital subject to the law of diminishing returns? Explain.

Question 68

The "new economy" that emerged in the mid-1990s is based on

A) manufacturing.
B) financial services.
C) information technology.
D) retail sales.

Question 69

Describe the process of "creative destruction" using a specific example.

Question 70

Explain how advances in technology are critical to sustaining economic growth,even if capital per hour worked is consistently increasing.Provide a graph of a per-worker production function to support your answer.

Question 71

Which of the following advances contributed to the "new economy" of the mid-1990s?

A) the increased use of the Internet in selling products and services
B) expanded cell phone use
C) the lower cost and increased availability of laptop computers
D) all of the above

Question 72

Human capital refers to the percentage of the working-age population in the labor force.

Question 73

Some economists argue that the apparent slowdown in economic growth in the United States during the mid-1970s may not really have reduced the standard of living because

A) spending on new government regulations such as the Clean Air Act increased output dramatically without increasing the standard of living of Americans.
B) significant improvements in the quality of services occurred, although the quantity of these services did not increase much during this time.
C) changes in well-being are accurately reflected in statistics measuring economic growth.
D) higher production costs from higher oil prices raised production and transportation costs and reduced output.

Question 74

Explain how market economies are generally better able to achieve technological progress than are centrally planned economies.

Question 75

The rate of growth of productivity in the United States was positive during the 20th century.

Question 76

Which of the following explains the ability of the U.S.economy to avoid diminishing marginal returns and experience accelerating growth in the early to mid-20th century?

A) continuing technological change
B) immigration
C) additions of a greater amount of capital of the same quality
D) a decrease in the quality of labor

Question 77

Which of the following is true regarding the productivity slowdown in the United States during the mid-1970s?

A) The productivity slowdown occurred despite a rising quality of labor.
B) The productivity slowdown was unique to the United States as foreign countries experienced unprecedented rates of growth during that time.
C) High oil prices raised the costs of doing business for markets worldwide, and reduced output worldwide as well.
D) The move toward a "New Economy" ended in the early 1970s, resulting in less technological progress in the United States during the mid-1970s.

Question 78

Provide examples of three kinds of government policies that can help increase the accumulation of knowledge capital and explain why government policies are often necessary to encourage the accumulation of knowledge capital.

Question 79

Starting at point B in the diagram below,identify which combinations of points illustrate technological change.Give a brief explanation to support your answer.

Question 80

Technological change is the key to sustaining economic growth.