Practice Problems 37-40 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. When measuring a nation's standard of living, of the following, the best measure is: A. nominal GDP. B. market GDP. C. real GDP. D. nominal GDP per capita. E. real GDP per capita. 2. A country's living standard is best measured by the: A. per capita nominal GDP. B. real GDP. C. nominal GDP. D. per capita real GDP. E. unemployment rate. 3. Which of the following is a chief measure of economic growth over time? A. Inflation. B. Increases in real per capita GDP. C. Decline in real interest rates. D. Increases in the available labor supply. E. The value of the nation s currency. 4. Suppose a panel of economists is predicting that a nation's real GDP per capita will have an average annual growth rate of 2%. Based upon the Rule of 70, how many years will it take for this nation's real GDP per capita to double? A. 35 B. 70 C. 140 D. 20 E. 50 5. If real GDP doubles in 10 years, its average annual growth rate is approximately. A. 1% B. 2% C. 3% D. 4% E. 7% 6. Assume an economy whose real GDP per capita is growing at a constant rate over a 17.5-year period doubles in size at the end of that period. What must the growth rate of real GDP per capita be for this economy? A. 1% B. 2% C. 4% D. 15% E. 10% 7. According to the rule of 70, if a country doubles its level of real GDP per capita every 20 years, that country must be growing at a rate of: A. 2%. B. 3.5%. C. 35%. D. 70%. E. 5%
8. According to the rule of 70, if a country's real GDP per capita grows at a rate of 2% instead of at a rate of 3%, it would take _ for that country to double its level of real GDP per capita. A. 35 additional years B. 11.67 additional years C. 23.3 additional years D. 30 additional years E. 15 additional years. 9. To find the approximate number of years it takes the economy to double, one would: A. divide its growth rate by 70. B. divide 70 by its growth rate. C. divide its growth rate by 100. D. multiply its growth rate by 20. E. multiply its growth rate by 70 10. Which of the following choices would be a factor that contributes to a nation's rapid long-run economic growth? A. Faster technological progress. B. Faster population growth. C. Less physical capital per worker. D. Lower levels of average human capital. E. Higher tax rates on high-tech industries. 11. Productivity declines when: A. the number of hours worked exceeds the number of workers. B. population growth exceeds real GDP growth. C. the ratio of adult civilians employed outside the home rises. D. real GDP growth exceeds population growth. E. the literacy rate grows and more workers complete college. 12. Productivity is equal to: A. real GDP divided by number of workers. B. real GDP divided by number of capital inputs. C. number of workers per machine. D. total output produced. E. real GDP divided by the unemployment rate. 13. According to the Rule of 70, if a country s real GDP per capita has doubled in 20 years, the nation s growth rate has been approximately : A. 3.5% B. 6% C. 7% D. 1% E. 2% 14. Human capital refers to: A. output per worker. B. the education and knowledge embodied in the workforce. C. society's investment in capital goods. D. people working with capital goods. E. management information systems.
15. Economic growth will likely involve: A. a reduction in investment. B. a decrease in the capital stock. C. higher saving. D. lower saving. E. a downward shift in the aggregate. 16. Technological progress allows workers to produce more: A. because it increases the amount of physical capital available. B. because it increases the amount of human capital available. C. even when the amount of physical capital and human capital do not change. D. only if the amount of physical capital grows at the same rate. E. only if the amount of human capital grows at the same rate. 17. An increase in the amount of physical capital per worker _, while technological progress. A. makes the aggregate steeper; changes the slope of the aggregate B. makes the aggregate steeper; makes the aggregate flatter C. moves the economy along the aggregate ; shifts up the aggregate D. shifts up the aggregate ; moves the economy along the aggregate E. moves the economy along the aggregate ; shifts down the aggregate 18. If technology advances, then: A. more output can be obtained from the same inputs. B. more inputs are needed to produce the same output. C. less output can be obtained from the same inputs. D. less can be obtained even with more inputs. E. the same amount of output can be obtained from the same inputs. 19. Workers today are more productive than workers in the past because: A. workers now are physically stronger on average. B. workers now have more physical capital embodying better technology to work with. C. there are more workers now working with the same number of machines than in the past. D. they are paid more. E. workers are threatened with dismissal more often. 20. Long-run economic growth has been mostly dependent on: A. rising productivity. B. a low unemployment rate. C. an increase in the population which eventually leads to an increase in the labor population. D. countries following the rule of 70. E. free trade. 21. Physical capital would include: A. the education or knowledge a worker has in his or her physical being. B. the tools a worker has to work with. C. the money available for the worker to use. D. shares of stock. E. the natural resources a worker has to work with.
Increase in physical capital per worker Growth rate of productivity First 1% increase in physical capital per worker 0.55% increase in real GDP per worker Second 1% increase in physical capital per worker 0.40% increase in real GDP per worker Third 1% increase in physical capital per worker 0.35% increase in real GDP per worker Table 38-1: Hypothetical Relationship between Physical Capital per Worker and the Growth Rate of Productivity 22. Use Table 38-1. The accompanying table represents a hypothetical relationship between physical capital per worker and the growth rate of productivity. This table indicates that the economy is experiencing: A. increasing returns to physical capital per worker. B. decreasing total productivity. C. constant total productivity. D. diminishing returns to physical capital per worker. E. constant returns to physical capital per worker. 23. Which of the following contributes to economic development? A. Low saving and investment rates. B. A command socialist economic system. C. Investment in infrastructure. D. Complete absence of government involvement. E. High rates of absenteeism at the workplace. 24. All else equal, a nation that has a high rate of will cause a high rate of _ and therefore a higher growth rate of _ capital. A. investment; savings; human B. savings; investment; natural C. savings; investment; physical D. savings; consumption; physical E. consumption; investment; natural 25. Long-run economic growth is: A. higher in countries when it has a weak rule of law and excessive government intervention. B. lower in countries when it has a strong government and independent judiciary. C. lower in countries when the courts enforce property rights and a government that protects its citizens. D. higher in countries when it has a strong rule of law and political stability. E. higher in countries when it has a strong rule of law and a corrupt judiciary. 26. Economies with higher growth rates tend to be those that have: A. large amounts of natural resources. B. a stable government that protects property rights. C. high levels of government regulation. D. a large defense budget. E. high rates of illiteracy. 27. Economies with higher growth rates tend to be those that increase their: A. government regulation. B. human capital. C. consumption. D. resources. E. defense budgets.
Figure 39-1: Technological Progress and Productivity Growth 28. Use the Technological Progress and Productivity Growth Figure 39-1. Which of the following moves would be most likely to result over time from excessive government intervention that results in a decline in property rights? A. A to B B. B to C C. C to B D. C to A E. B to A 29. Greenhouse gas emission is an example of: A. a negative externality. B. a public good. C. a positive externality. D. a private good. E. a problem that cannot be solved with economic incentives. 30. Economists mostly agree that the problem of climate change should involve government action in the form of market-based incentives such as: A. tax rebates to those helping the environment. B. a reduction in the personal income tax for being green. C. a carbon tax or a cap and trade system. D. a reduction in the price of green cars and appliances. E. a reduction in the tax on gasoline. 31. Investment spending: A. must be paid for by consumption by domestic households. B. comes from either savings from domestic households or savings of foreign households. C. is paid for by capital outflows. D. must be paid for by government spending. E. rises when consumption rises. 32. Programs that provide early education to children from impoverished families are an example of government investing in A. human capital B. political stability C. natural resources D. banking systems E. infrastructure
33. A government action that would spur economic growth would be A. removal of childhood vaccination programs. B. faster population growth. C. universal access to affordable education. D. higher taxes on income from savings. E. a declining stock of physical capital. 34. When the value of an asset falls due to age, wear, or obsolescence, it is called: A. devaluation. B. depreciation. C. deflation. D. disinflation. E. degeneration. 35. A nation s capital stock will continue to grow if the growth rate of new A. capital investment exceeds the rate of inflation. B. capital investment exceeds the rate of consumer spending. C. capital investment exceeds the rate of depreciation on existing capital. D. consumer spending exceeds the rate of unemployment. E. consumer spending exceeds the rate of inflation. investment goods b c f d a e consumer goods Figure 40-1: Growth in Production Possibilities 36. (Figure 40-1: Economic Growth in Production Possibilities) Which of the following movements is considered economic growth? A. d to f B. a to b C. b to c D. f to d E. e to c
37. (Figure 40-1: Economic Growth in Production Possibilities) Economic growth is best represented by a movement from A. d to e B. a to c C. b to c D. f to a E. e to f 38. (Figure 40-1: Economic Growth in Production Possibilities) Of the following choices, which combination of investment and consumer goods would provide the greatest potential for future long term growth? A. a B. b C. c D. d E. e 39. The economy of Foxystan has seen an increase in real potential GDP. Foxystan must have experienced A. economic growth and a rightward shift of LRAS. B. economic growth and a rightward shift of SRAS. C. a recessionary gap and a rightward shift of LRAS. D. economic growth and a rightward shift of AD. E. an inflationary gap and a rightward shift of SRAS. 40. Which of the following choices is most likely to create a rightward shift of the LRAS curve? A. Consumer spending B. Contractionary monetary policy C. Expansionary fiscal policy D. Depreciation of physical capital E. Research and development