Question 1

In 1820, Mexico had a higher real GDP per capita than did Japan. Yet now Japan is one of the richest countries in the world and Mexico is poor. Japan's high rate of economic growth can likely NOT be explained by a high:

Accepted Answer

The question asks for the factor that CANNOT explain Japan's high rate of economic growth, so we must eliminate the choices that could potentially contribute to Japan's success. A) Investment in physical capital, B) Investment in human capital, and C) Investment in technological progress are all factors that could have contributed to Japan's economic success. However, it is unlikely that a high level of government interference would lead to sustained economic growth, as excessive regulation and bureaucracy can stifle innovation and entrepreneurship. Therefore, D) Level of government interference is the best choice.

Question 2

All else equal, a nation that has a high rate of _____ will have a high rate of _____ and therefore a high growth rate of _____ capital.

Accepted Answer

When a nation has a high rate of savings, which is the portion of income not spent on current consumption, it can be channeled towards investment that leads to the formation of physical capital. Investment refers to the creation of new physical capital or the maintenance or replacement of existing capital. Therefore, a high rate of investment resulting from high savings will lead to a high growth rate of physical capital. This physical capital can be factories, machines, infrastructure, and other forms of capital used to produce goods and services. Physical capital is a key factor in economic growth and can result in increased productivity, higher incomes, and improved standards of living.

Question 3

Economic growth is likely to entail:

Accepted Answer

Economic growth usually requires higher saving because investment needs to be financed.

Question 4

In the 1960s, Japan was the fastest-growing major economy, and it also:

Accepted Answer

Japan's rapid economic growth in the 1960s was largely due to its high investment rate, which was around 30% of its GDP, substantially higher than the investment rates of other major economies at the time. This investment was largely in capital goods, such as factories and machinery, which allowed for increased productivity and output.

Question 5

The main source of Kuwait's wealth is _____, while the main source of Germany's wealth is _____.

Accepted Answer

Kuwait is known for its abundant oil reserves, which account for the majority of the country's wealth. On the other hand, Germany's economy is heavily focused on manufacturing, particularly in the automobile and machinery industries.

Question 6

Ireland's recent economic growth and improving living standard are due primarily to:

Accepted Answer

The excellent physical and human infrastructure in Ireland, including a good education system, airports, telecommunications, and shipping facilities, has played a significant role in the country's economic growth and improving living standards. While the other options may have some impact on Ireland's economy and society, they are not the primary drivers of its recent success.

Question 7

The sources of funds for investment spending are:

Accepted Answer

Investment spending is funded by savings from households, government, and foreigners. Taxes and transfer payments are not sources of funds for investment spending, and they are not always equal to U.S. spending on imports. While the government may provide support or incentives for certain types of investment, ultimately it is private investors who direct funds to their most productive uses.

Question 8

Before the twentieth century, the MOST important determinant of productivity was:

Accepted Answer

Before the twentieth century, natural resources were the most important determinant of productivity. The availability of fertile land, minerals, and other natural resources greatly influenced the productivity and economic growth of countries. Technology and physical and human capital were also important factors, but their impact was lesser compared to natural resources.

Question 9

Who established the first research and development laboratory?

Accepted Answer

Thomas Edison is credited with establishing the first research and development laboratory in Menlo Park, New Jersey in 1876. The lab was equipped with the latest scientific instruments and was the first of its kind to focus on creating new inventions and developing existing technology.

Question 10

Economies with high growth rates tend to be those that increase their:

Accepted Answer

Economies with high growth rates tend to be those that increase their human capital, which refers to the knowledge, skills, and abilities of the workforce. This can be achieved through education and training programs, as well as investments in research and development. By improving human capital, economies can increase productivity and innovation, leading to long-term economic growth.

Question 11

Economists believe that the BEST way to stimulate investment in physical capital is to encourage:

Accepted Answer

Higher rates of national saving provide more funds for investment in physical capital. This is because savings are used to finance investments, and higher savings mean more funds available for investment. Thus, policymakers can encourage investment by promoting policies that increase national saving, such as tax incentives or government savings programs.

Question 12

Which item CANNOT properly be called a part of infrastructure?

Accepted Answer

While human capital is an important aspect of economic development and productivity, it is not a physical structure or system that can be classified as infrastructure. The other options, power lines, roads and bridges, and seaports, are all physical components of infrastructure.

Question 13

In 1820, Mexico had a higher real GDP per capita than did Japan, but today Japan's real GDP per capita is higher than is Mexico's because Japan's real GDP per capita has grown at _____, and Mexico's real GDP per capita has grown at _____.

Accepted Answer

Japan's real GDP per capita has grown at a faster rate (1.9%) compared to Mexico's (1.3%), leading to Japan surpassing Mexico in terms of real GDP per capita over time.

Question 14

Which sources provide funds for investment spending? I. domestic savings
II) foreign savings
III) consumption

Accepted Answer

Investment spending can be financed by both domestic and foreign savings. Consumption is not a source of funds for investment spending.

Question 15

Technological progress is advanced through:

Accepted Answer

Technological progress is advanced through research and development as it enables the creation of new and improved technologies, products, and services. Government regulation, consumption, and infrastructure can all contribute to technological progress, but they are not the primary driving force behind it.

Question 16

Today, China is the fastest-growing major economy, and it also:

Accepted Answer

China spends a higher share of its GDP on investment goods (such as infrastructure, machinery, and research and development) than do other major economies. This has helped to fuel its rapid economic growth in recent decades.

Question 17

A country's growth rate strongly depends on how it has invested in its physical capital. Generally, countries that have used _____ as a source of their capital investment have exhibited the highest growth rate.

Accepted Answer

Domestic saving refers to the money saved within a country by its citizens and businesses. When a country has high levels of domestic saving, it can use that money to invest in physical capital, such as infrastructure and technology, which can increase productivity and economic growth. Foreign direct investment and foreign portfolio investment can also contribute to economic growth, but they are not as reliable as domestic saving, as they can be subject to fluctuations in global markets and may not always prioritize the long-term growth of the host country. Contracted globalization is not a commonly used term in this context and does not directly relate to capital investment.

Question 18

In the long run, an increase in saving will generally:

Accepted Answer

An increase in saving leads to an increase in investment, which in turn increases the capital stock and productivity of the economy. This, therefore, leads to an increase in the rate of economic growth in the long run. Thus, option C is the correct choice.

Question 19

From the standpoint of economic growth, banks are important to:

Accepted Answer

Banks are important in channeling savings into investment. They collect deposits from savers and then lend those funds to businesses and individuals who need capital to grow and invest. This helps to stimulate economic growth by creating jobs, promoting innovation, and boosting productivity. Banks also play a crucial role in creating credit, which allows people and businesses to borrow money to invest in growth opportunities.

Question 20

Roads, telephone lines, power facilities, and schools are examples of a nation's:

Accepted Answer

Infrastructure refers to the basic facilities and structures that are necessary for the functioning of a society, such as roads, bridges, water supply, and power grids. Technostructure refers to the group of technical experts and specialists who manage the technical aspects of an organization. Physiostructure and sociostructure are not commonly used terms in this context.

Quiz 9: Long-Run Economic Growth