Question 1

Historical economic research shows that the accumulated investment in human capital during the last 300 years has produced:

Accepted Answer

The answer of Historical economic research shows that the accumulated...

Question 2

When relative prices are taken into consideration, the country with the highest level of real GDP per capita in 2008 was:

Accepted Answer

When adjusting for relative prices (i.e. purchasing power parity), Luxembourg had the highest level of real GDP per capita in 2008.

Question 3

Innovations that come about through inventive activity designed specifically to reduce costs is known as:

Accepted Answer

Induced innovation is the process of creating inventions and innovations with the specific purpose of reducing costs and increasing efficiency. This type of innovation is typically driven by market forces and competition, and can often lead to significant improvements in productivity and economic growth.

Question 4

Suppose that during the last year growth in output due to growth in labor and capital was 4%. If output grew at a rate of 6%, it must be the case that:

Accepted Answer

The 2% gap between the 4% growth due to labor and capital and the overall growth of 6% must be attributed to technological progress since it is the only factor not mentioned in the initial statement. Therefore, choice A is the correct answer. The other choices are incorrect because there is no information to support them.

Question 5

The best measure of economic growth is:

Accepted Answer

Real GDP per capita is considered the best measure of economic growth because it takes into account both population growth and inflation. An increase in real GDP per capita indicates an improvement in the standard of living for individuals in the economy. Other measures may not accurately reflect changes in the economy's overall well-being.

Question 6

Recall Application 3, "Sources of Growth in China and India," to answer the following questions:
-According to the application, why did China grow much faster than India from 1978 to 2004?

Accepted Answer

According to the application, China invested more in physical capital (factories, infrastructure, etc.) than India, and this allowed for faster technological progress and economic growth. India, on the other hand, invested more in human capital (education, healthcare, etc.).

Question 7

Using a production possibility curve, economic growth is represented as:

Accepted Answer

Economic growth is represented by a shifting of the production possibility curve outward, indicating an increase in the economy's productive capacity. This can happen due to factors such as technological advancements, increased investment in capital, or an expansion of the labor force.

Question 8

Governments in developing countries can hinder economic growth by:

Accepted Answer

All of the given options can hinder economic growth in developing countries for the following reasons:
A) Export taxes can raise production costs, reduce competitiveness in international markets, and discourage foreign investment.
B) Restrictive financial regulations can limit access to credit for local businesses, discourage foreign investment, and reduce the efficiency of the financial sector.
C) High inflation can reduce purchasing power, create uncertainty, discourage savings, and increase interest rates, which can reduce investment and growth. Therefore, pursuing any or all of these policies can hinder economic growth in developing countries.

Question 9

Recall Application 4, "Growth Accounting and Information Technology," to answer the following questions:
-According to the application, the proponents of the "New Economy" believe that the increased labor productivity is caused by:

Accepted Answer

The proponents of the "New Economy" believe that the increased labor productivity is caused by the computer and internet revolution.

Question 10

Figure 8.1
-Refer to Figure 8.1. If the saving rate is s1, the economy reaches the long run equilibrium at:

Accepted Answer

The answer of  Figure 8.1
-Refer to Figure 8.1. If...

Question 11

If the economy experiences an increase in the amount of capital stock per worker, then we say that the economy is experiencing:

Accepted Answer

When an economy experiences an increase in the amount of capital stock per worker, it is referred to as capital deepening. This means that the economy is investing more resources in capital goods, such as machinery and equipment, which allows workers to be more productive and produce more output per unit of time. This increase in productivity can lead to economic growth and an increase in living standards.

Question 12

Bob has been working for a mortgage company for the last 14 years. When Bob first worked in the company, the company was paying him $12 per hour. This year, he makes $24 per hour. What is the average growth rate of his wage over the past 14 years?

Accepted Answer

The average growth rate can be calculated using the formula for compound annual growth rate (CAGR): CAGR = (Ending Value/Beginning Value)^(1/Number of Years) - 1. Plugging in the values: CAGR = ($24/$12)^(1/14) - 1 ≈ 0.0507 or 5.07%, which is approximately 5% per year.

Question 13

Recall Application 4, "Growth Accounting and Information Technology," to answer the following questions:
-According to the application, Robert Gordon's study found that technological growth was found:

Accepted Answer

Robert Gordon's study found that technological growth was confined in the durable goods manufacturing industry only, highlighting the limited scope of technological advancements during the period analyzed.

Question 14

If a county has a growth rate of approximately 0.7 percent each year, it will take about:

Accepted Answer

The formula to find the number of years it takes for output to double is 70 divided by the annual growth rate. Therefore, for a growth rate of 0.7%, it will take approximately 100 years for output to double. However, if the growth rate was 3%, it would only take about 23 years for output to double. Choice B is the only one that correctly states both of these timeframes.

Question 15

Which of the following would prevent a farmer from making improvements to land to make it more valuable?

Accepted Answer

The lack of property rights would prevent a farmer from making improvements to land because they wouldn't have legal ownership of the land or the ability to sell or profit from any improvements they made.

Question 16

An increase in capital stock:

Accepted Answer

An increase in capital stock can cause economic growth as it leads to increased production and output. It also leads to an increase in the demand for labor as more capital equipment requires more workers to operate and maintain it. Additionally, an increase in capital stock can enhance labor productivity as workers are provided with better tools and equipment to work with. Therefore, all of the above choices are correct.

Question 17

Figure 8.3
-Refer to Figure 8.3. Which of the following will not move the economy from K1 to K3?

Accepted Answer

According to the Solow-Swan model, a higher depreciation rate leads to a lower steady-state level of capital per worker (K*), while a higher saving rate leads to a higher steady-state level of K*. Therefore, increasing the saving rate or decreasing the depreciation rate will move the economy from K1 to K3. However, a higher depreciation rate (Choice C) will have the opposite effect and move the economy to a lower level of K*.

Question 18

Using the rule of 70, how many years would it take for David's income to double if he was to experience a 4 percent increase in income each year?

Accepted Answer

The rule of 70 states that you can estimate the number of years it takes for a quantity to double by dividing 70 by the annual growth rate. For a 4% increase, 70 / 4 = 17.5 years.

Question 19

Which of the following is a public investment in infrastructure?

Accepted Answer

Building a new sewage treatment plant is a public investment in infrastructure as it is a facility that serves the entire community and is necessary for the proper functioning of the city's sewage system.

Question 20

Other things equal, relatively poor countries tend to grow _______ than relatively rich countries and this is known as _______.

Accepted Answer

Relatively poor countries tend to grow more quickly than rich countries due to the convergence theory, which suggests that poorer economies will catch up to richer ones as they adopt existing technologies and practices.

Quiz 8: Why Do Economies Grow