Question 1

What is the difference between human capital and technology?

Accepted Answer

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Question 2

Poor countries often have a difficult time attracting foreign direct investment funds because
A) wages are low in poor countries.
B) investment risks are quite low in poor countries so rates of return are low.
C) property rights are not protected so investors fear their property may be confiscated.
D) All of the above are correct.

Accepted Answer

Poor countries often have weak property rights protection which can deter foreign direct investment as investors fear that their investment may be confiscated. While wages may be low in poor countries, it is not necessarily a determining factor in attracting foreign direct investment. Investment risks may also be high in poor countries due to political instability or insufficient infrastructure, leading to lower rates of return.

Question 3

Why does a nation's standard of living depend on property rights?

Accepted Answer

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Question 4

An important link between politics and economics is that
A) democracies are more productive than non-democracies.
B) democracies must constantly make difficult budgetary choices.
C) political instability is incompatible with long-term private investment.
D) conservative governments tend to focus development on military industries.

Accepted Answer

Political instability creates uncertainty and risk for private investors, which can hinder long-term investment and economic growth. Stable political systems provide a more predictable environment and encourage private investment. Therefore, political stability is a crucial link between politics and economics. The other options are not necessarily true or relevant to the relationship between politics and economics.

Question 5

Which of the following expenditures to enhance productivity is most likely to convey a positive externality?
A) Megabank buys a new computer.
B) Nathalie pays her university tuition fees.
C) Exxon leases a new oil field.
D) General Motors buys a new drill press.

Accepted Answer

Nathalie's payment of tuition fees is likely to enhance her own productivity, but it may also enhance the productivity of society as a whole by increasing the quality of the labor force. This positive externality occurs because, as Nathalie learns more, she may be better equipped to develop new technologies or provide services that benefit others in society.

Question 6

A key benefit of foreign direct investment to poorer countries is
A) they gain all the returns on such investment.
B) that such investment is very reliable.
C) they avoid the need to have their own stock market.
D) they gain state-of-the-art technological knowledge.

Accepted Answer

Foreign direct investment often involves the transfer of technology, knowledge, and expertise to the host country. This can help improve productivity, increase efficiency, and enhance the skill set of workers in the country. As a result, the recipient country can improve its economic growth potential, generate higher-paying jobs, and increase its competitiveness.

Question 7

Why is productivity related to the standard of living? In your answer be sure to explain what productivity and standard of living mean. Make a list of things that determine labour productivity.

Accepted Answer

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Question 8

Countries like South Korea and Singapore have shown tremendous growth rates in recent years because
A) of diminishing returns.
B) of the catch-up effect.
C) of lower levels of domestic investment in recent years.
D) they have limited international trade.

Accepted Answer

The catch-up effect refers to the phenomenon where less developed economies experience faster rates of economic growth as they adopt technologies, practices, and policies already in use in more developed economies. Both South Korea and Singapore have experienced this phenomenon, leading to their tremendous growth rates in recent years.

Question 9

What is a production function? Write an equation for a typical production function, and explain what each of the terms represents.

Accepted Answer

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Question 10

In addition to investment in physical and human capital, what other public policies might a country adopt to increase productivity?

Accepted Answer

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Question 11

Suppose everyone working the land in Exland knows the usefulness of investing in land irrigation systems. Those who work the land may choose not to invest in these profitable irrigation systems as long as
A) the investment is too expensive.
B) the natural climate, such as abundant rain, makes the irrigation projects unnecessary.
C) their property rights, with respect to the land, are subject to change.
D) the government dictates the choice of investment.

Accepted Answer

Property rights that are subject to change create uncertainty for landowners, making them less likely to invest in long-term projects like irrigation systems.

Question 12

To increase growth, governments should do all of the following except
A) encourage foreigners to invest in your country.
B) encourage saving and investment.
C) nationalize major industries.
D) encourage research and development.
E) promote free trade.

Accepted Answer

Nationalizing major industries can often lead to inefficiencies and decreased economic growth. Instead, promoting private sector investment and free market competition is typically more effective in driving economic growth.

Question 13

Some economists argue that it is possible to raise the standard of living by reducing population growth. As an economist interested in incentives rather than coercion, what kind of policy would you recommend to slow population growth?

Accepted Answer

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Question 14

Inward-oriented policies hold back economic growth because
A) international trade leads to lower domestic employment.
B) they encourage the brain drain.
C) infant industries are unable to compete with the rest of the world.
D) they do not allow a country to take advantage of the gains from trade.

Accepted Answer

Inward-oriented policies limit a country's ability to participate in international trade and take advantage of the gains from trade, which can ultimately hinder economic growth. By not allowing for the import of necessary goods and services, infant industries are unable to gain access to the technology and resources they need to be able to compete with other countries. This can lead to a lack of innovation and competitiveness in the long run. Additionally, international trade can lead to lower prices and greater variety for consumers, and can ultimately lead to greater economic growth through increased demand and job creation.

Question 15

At first patents might seem like a deterrent to growth because in effect they restrict the use of new technology. Yet many economists believe that patents generate growth. Explain why.

Accepted Answer

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Question 16

If, in some European country, real GDP/person in 2011 is €18,073 and real GDP/person in 2012 is €18,635, what is the growth rate of real output per person over this period?
A) 2.0 per cent
B) 3.1 per cent
C) 18.0 per cent
D) 18.6 percent
E) 5.62 per cent

Accepted Answer

The growth rate formula is: [(GDP in year 2 - GDP in year 1) / GDP in year 1] x 100%
Substituting values, we get: [(€18,635 - €18,073) / €18,073] x 100% = 3.1%
Therefore, the growth rate of real output per person over this period is 3.1 percent.

Question 17

How do outward-oriented policies affect a nation's productivity?

Accepted Answer

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Question 18

The catch-up effect says that countries with low income can grow faster than countries with higher income. However, in statistical studies that include many diverse countries we do not observe the catch-up-effect unless we control for other variables that affect productivity. Considering the determinants of productivity, list and explain some things that would tend to prohibit or limit a poor country's ability to catch up with the rich ones.

Accepted Answer

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Question 19

Compare and contrast the population theories of Thomas Malthus and Michael Kremer.

Accepted Answer

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Question 20

Which of the following would decrease the likelihood that foreign business firms will invest in a country?
A) a low corporate profit tax rate
B) political stability
C) a well-established legal system
D) political instability

Accepted Answer

Political instability is the most likely factor to decrease the likelihood that foreign business firms will invest in a country. This is because political instability can lead to disruptions in the economy and uncertainty regarding future policies and regulations. Additionally, it may create a less welcoming environment for foreign businesses, as the government may prioritize local companies or be less responsive to the needs of foreign investors. The other options listed are factors that may increase the likelihood of foreign investment.

Quiz 22: Production and Growth

What is the difference between human capital and technology?

Poor countries often have a difficult time attracting foreign direct investment funds because

Why does a nation's standard of living depend on property rights?

An important link between politics and economics is that

Which of the following expenditures to enhance productivity is most likely to convey a positive externality?

A key benefit of foreign direct investment to poorer countries is

Why is productivity related to the standard of living? In your answer be sure to explain what productivity and standard of living mean. Make a list of things that determine labour productivity.

Countries like South Korea and Singapore have shown tremendous growth rates in recent years because

What is a production function? Write an equation for a typical production function, and explain what each of the terms represents.

In addition to investment in physical and human capital, what other public policies might a country adopt to increase productivity?

Suppose everyone working the land in Exland knows the usefulness of investing in land irrigation systems. Those who work the land may choose not to invest in these profitable irrigation systems as long as

To increase growth, governments should do all of the following except

Some economists argue that it is possible to raise the standard of living by reducing population growth. As an economist interested in incentives rather than coercion, what kind of policy would you recommend to slow population growth?

Inward-oriented policies hold back economic growth because

At first patents might seem like a deterrent to growth because in effect they restrict the use of new technology. Yet many economists believe that patents generate growth. Explain why.

If, in some European country, real GDP/person in 2011 is €18,073 and real GDP/person in 2012 is €18,635, what is the growth rate of real output per person over this period?

How do outward-oriented policies affect a nation's productivity?

Compare and contrast the population theories of Thomas Malthus and Michael Kremer.

Which of the following would decrease the likelihood that foreign business firms will invest in a country?