Question 1

Scenario 7-1. An economy's production form takes the form Y = AF(L, K, H, N).
-Refer to Scenario 7-1. In the production function, which of the following represents technology?

Accepted Answer

In the production function, A represents technology. It stands for the level of technology or technical knowledge available to the producers which impacts the efficiency of other factors of production like labor, capital, and natural resources.

Question 2

"When workers already have a large quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity only slightly." This statement

Accepted Answer

The statement assumes that the quantities of human capital, natural resources, and technology are being held constant, so the addition of more capital would only lead to a slight increase in productivity. It does not suggest an unconventional view of the production process or that capital is subject to increasing returns.

Question 3

Accumulating capital

Accepted Answer

Accumulating capital involves diverting resources towards investment, which means that society must forego some consumption goods in the present. This is referred to as a consumption-savings tradeoff. Option B is incorrect because accumulating capital typically results in higher consumption in the future, not the present. Option C is incorrect because accumulating capital usually involves higher saving rates, not lower ones. Finally, option D is incorrect because accumulating capital always involves tradeoffs.

Question 4

Scenario 7-1. An economy's production form takes the form Y = AF(L, K, H, N).
-Refer to Scenario 7-1. If the production function has the constant-returns-to-scale property, then it is possible that the specific form of the production function is

Accepted Answer

The answer of Scenario 7-1. An economy's production form takes...

Question 5

All else equal, if there are diminishing returns, then if a country raised its capital by 100 units last year and by 100 units this year,

Accepted Answer

If there are diminishing returns, then the increase in output will be less pronounced as more capital is added. Therefore, the increase in output last year (with the first 100 units of capital) will be greater than the increase in output this year (with an additional 100 units of capital).

Question 6

"When workers have a relatively small quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity by a relatively large amount." This statement

Accepted Answer

The statement is consistent with the view that capital is subject to diminishing returns. According to the concept of diminishing returns, as the amount of one input (in this case, capital) increases while other inputs remain constant, the productivity of that input will eventually decrease. However, in the initial stages of increasing capital for workers who have a relatively small quantity of it, the additional unit of capital will increase their productivity by a relatively large amount, indicating that the concept of diminishing returns has not yet fully set in. Thus, option B is the correct choice. Option A is incorrect because the statement does not mention anything about production functions having constant returns to scale. Option C is incorrect because the statement implies that giving additional capital to workers can increase productivity faster when starting from a relatively lower level.

Question 7

Scenario 7-1. An economy's production form takes the form Y = AF(L, K, H, N).
-Refer to Scenario 7-1. If the production function has the constant-returns-to-scale property, then if we know the values of A, K/L, H/L, and N/L, we also know the value of

Accepted Answer

If the production function has constant returns to scale, knowing A, K/L, H/L, and N/L allows us to determine labor productivity, which is output per worker (Y/L).

Question 8

Country A and country B both increase their capital stock by one unit. Output in country A increases by 15 while output in country B increases by 12. Other things the same, diminishing returns implies that country A is

Accepted Answer

The answer of Country A and country B both increase...

Question 9

"When workers already have a large quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity only slightly." This statement

Accepted Answer

The answer of "When workers already have a large quantity...

Question 10

Scenario 7-1. An economy's production form takes the form Y = AF(L, K, H, N).
-Refer to Scenario 7-1. If the production function has the constant-returns-to-scale property, then it could be rewritten as

Accepted Answer

If the production function has constant returns to scale, it means that increasing inputs in the same proportion will lead to a proportional increase in output. Therefore, we can divide the production function by L to get the output per unit of labor (Y/L). The remaining inputs should also be adjusted proportionally. Choice A is the only option that meets this requirement.

Question 11

All else equal, if there are diminishing returns, then which of the following is true if a country increases its capital by one unit?

Accepted Answer

If there are diminishing returns, each additional unit of capital will contribute less to output than the previous unit. Therefore, adding one more unit of capital will increase output, but the increase will be less than what was gained from the previous unit of capital. This means that output will rise but by less than it did when the previous unit was added.

Question 12

When a society decides to increase its quantity of physical capital, the society

Accepted Answer

When a society decides to increase its quantity of physical capital, it means that society is investing in the production and expansion of its economy in the future. This requires sacrificing some consumption in the present, as resources are diverted from producing consumer goods and services towards the production of physical capital. Therefore, society is deciding to consume fewer goods and services in the present.

Question 13

One of the Ten Principles of Economics in Chapter 1 is that people face tradeoffs. The growth that arises from capital accumulation is not a free lunch. It requires that society

Accepted Answer

The principle of facing tradeoffs means that individuals and societies must make choices about how to allocate their resources. When it comes to capital accumulation, it requires sacrificing consumption goods and services now in order to invest in capital goods (like factories and machines) that will lead to more production and consumption in the future. Conservation and recycling of resources may also play a role in this process, but the key tradeoff is between current consumption and investment in future growth.

Question 14

Consider three imaginary countries. In Mainland, saving amounts to $4,000 and consumption amounts to $8,000; in Upland, saving amounts to $2,000 and consumption amounts to $15,000; and in Lowland, saving amounts to $6,000 and consumption amounts to $11,000. The saving rate is

Accepted Answer

The saving rate is calculated by dividing saving by total income (saving plus consumption).

In Mainland: saving rate = 4000 / (4000 + 8000) = 0.33 
In Upland: saving rate = 2000 / (2000 + 15000) = 0.12 
In Lowland: saving rate = 6000 / (6000 + 11000) = 0.35

Therefore, the saving rate is higher in Lowland than in Mainland, and it is higher in Mainland than in Upland. Answer choice B is the only one that fits this description.

Question 15

The traditional view of the production process is that capital is subject to

Accepted Answer

According to the traditional view of the production process, as more units of capital are added to the production process, the marginal product of capital will eventually decrease due to diminishing returns. This means that the additional units of capital become less and less productive as more capital is added to the process.

Question 16

If there are diminishing returns to capital, then

Accepted Answer

The answer of If there are diminishing returns to capital,...

Question 17

Country A and country B are the same except country A currently has a lower level of capital. Assuming diminishing returns, if both countries increase their capital by 100 units and other factors that determine output are unchanged, then

Accepted Answer

The answer of Country A and country B are the...

Question 18

Consider three imaginary countries. In Aziria, saving amounts to $3,000 and consumption amounts to $7,000; in Graniva, saving amounts to $2,000 and consumption amounts to $8,000; and in Tanistan, saving amounts to $4,500 and consumption amounts to $10,500. The saving rate is

Accepted Answer

The answer of Consider three imaginary countries. In Aziria, saving...

Question 19

In an economy where net exports are zero, if saving rises in some period, then in that period

Accepted Answer

In an economy where net exports are zero, if saving rises, it implies that less of the income is being used for consumption, hence consumption falls. The increased saving leads to more funds being available for investment, causing investment to rise.

Question 20

Other things the same, when an economy increases its saving rate

Accepted Answer

When an economy increases its saving rate, households and firms save more of their income, which means that they are spending less on consumption. Therefore, in the short run, consumption falls as a result of the increased saving rate. However, in the long run, the increased saving rate leads to higher investment, which can increase productivity and production, and thus raise consumption in the future.

Quiz 7: Production and Growth

Scenario 7-1. An economy's production form takes the form Y = AF(L, K, H, N) . -Refer to Scenario 7-1. In the production function, which of the following represents technology?

"When workers already have a large quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity only slightly." This statement

Accumulating capital

Scenario 7-1. An economy's production form takes the form Y = AF(L, K, H, N) . -Refer to Scenario 7-1. If the production function has the constant-returns-to-scale property, then it is possible that the specific form of the production function is

All else equal, if there are diminishing returns, then if a country raised its capital by 100 units last year and by 100 units this year,

"When workers have a relatively small quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity by a relatively large amount." This statement

Scenario 7-1. An economy's production form takes the form Y = AF(L, K, H, N) . -Refer to Scenario 7-1. If the production function has the constant-returns-to-scale property, then if we know the values of A, K/L, H/L, and N/L, we also know the value of

Country A and country B both increase their capital stock by one unit. Output in country A increases by 15 while output in country B increases by 12. Other things the same, diminishing returns implies that country A is

"When workers already have a large quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity only slightly." This statement

Scenario 7-1. An economy's production form takes the form Y = AF(L, K, H, N) . -Refer to Scenario 7-1. If the production function has the constant-returns-to-scale property, then it could be rewritten as

All else equal, if there are diminishing returns, then which of the following is true if a country increases its capital by one unit?

When a society decides to increase its quantity of physical capital, the society

One of the Ten Principles of Economics in Chapter 1 is that people face tradeoffs. The growth that arises from capital accumulation is not a free lunch. It requires that society

Consider three imaginary countries. In Mainland, saving amounts to $4,000 and consumption amounts to $8,000; in Upland, saving amounts to $2,000 and consumption amounts to $15,000; and in Lowland, saving amounts to $6,000 and consumption amounts to $11,000. The saving rate is

The traditional view of the production process is that capital is subject to

If there are diminishing returns to capital, then

Country A and country B are the same except country A currently has a lower level of capital. Assuming diminishing returns, if both countries increase their capital by 100 units and other factors that determine output are unchanged, then

Consider three imaginary countries. In Aziria, saving amounts to $3,000 and consumption amounts to $7,000; in Graniva, saving amounts to $2,000 and consumption amounts to $8,000; and in Tanistan, saving amounts to $4,500 and consumption amounts to $10,500. The saving rate is

In an economy where net exports are zero, if saving rises in some period, then in that period

Other things the same, when an economy increases its saving rate