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Chapter 25



True/False
Indicate whether the statement is true or false.
 

 1. 

The United States should grow faster than Japan because the United States has a larger economy.
 

 2. 

Evidence of rising prices for natural resources demonstrates that non-renewable resources will become so scarce that economic growth will be limited.
 

 3. 

The rate of economic growth is probably underestimated.
 

 4. 

Human capital refers to human-made capital such as tools and machinery, as opposed to natural capital such as rivers and timber.
 

 5. 

If a production function exhibits constant returns to scale, then doubling all of the inputs doubles output.
 

 6. 

In very poor countries, paying parents to send their children to school may increase the education of poor children and decrease the use of child labour.
 

 7. 

An increase in capital should cause the growth rate of a relatively poor country to increase more than that of a rich country.
 

 8. 

An increase in the rate of saving and investment permanently increases a country's rate of growth.
 

 9. 

A country can only increase its level of investment by increasing its saving.
 

 10. 

The only factor of production that is not "produced" is natural resources.
 

 11. 

Investment in human capital and technology may be particularly productive because of positive spillover effects.
 

 12. 

If Germans invest in the UK economy by building a new Volkswagen factory, in the future UK GDP will rise by more than UK GNP.
 

 13. 

Most economists believe that inward-oriented policies that protect infant industries improve the growth rates of developing nations.
 

 14. 

Economic evidence supports the predictions of Thomas Malthus regarding the effects of population growth and the food supply on the standard of living.
 

 15. 

The opportunity cost of additional growth is that someone must forgo current consumption.
 

Multiple Choice
Identify the choice that best completes the statement or answers the question.
 

 16. 

A reasonable measure of the standard of living in a country is
a.
real GDP per person.
b.
nominal GDP per person.
c.
real GDP.
d.
the growth rate of nominal GDP per person.
e.
nominal GDP.
 

 17. 

Many East Asian countries are growing very quickly because
a.
they save and invest an unusually high percentage of their GDP.
b.
they have always been wealthy and will continue to be wealthy, which is known as the "snowball effect."
c.
they are imperialists and have collected wealth from previous victories in war.
d.
they have enormous natural resources.
 

 18. 

When a nation has very little GDP per person,
a.
it is doomed to being relatively poor forever.
b.
none of these answers
c.
an increase in capital will likely have little impact on output.
d.
it has the potential to grow relatively quickly due to the "catch-up-effect."
e.
it must be a small nation.
 

 19. 

Once a country is wealthy,
a.
it no longer needs any human capital.
b.
capital becomes more productive due to the "catch-up effect."
c.
none of these answers
d.
it may be harder for it to grow quickly because of the diminishing returns to capital.
e.
it is nearly impossible for it to become relatively poorer.
 

 20. 

The opportunity cost of growth is
a.
a reduction in current investment.
c.
a reduction in taxes.
b.
a reduction in current consumption.
d.
a reduction in current saving.
 

 21. 

For a given level of technology, we should expect an increase in productivity within a nation when there is an increase in each of the following except
a.
labour.
c.
human capital/worker.
b.
physical capital/worker.
d.
natural resources/worker.
 

 22. 

Which of the following statements is true?
a.
Countries all have the same growth rate and level of output because any country can obtain the same factors of production.
b.
Countries have great variance in both the level and growth rate of GDP/person; thus, poor countries can become relatively rich over time.
c.
Countries may have a different level of GDP/person but they all grow at the same rate.
d.
Countries may have a different growth rate but they all have the same level of GDP/person.
 

 23. 

If a production function exhibits constant returns to scale, doubling all of the inputs
a.
more than doubles output due to the catch-up effect.
b.
has absolutely no impact on output because output is constant.
c.
less than doubles output due to diminishing returns.
d.
doubles output.
 

 24. 

Copper is an example of
a.
a renewable natural resource.
b.
human capital.
c.
physical capital.
d.
technology.
e.
a non-renewable natural resource.
 

 25. 

Which of the following statements regarding the impact of population growth on productivity is true?
a.
There is no evidence, yet, that rapid population growth stretches natural resources to the point that it limits growth in productivity.
b.
all of these answers
c.
Rapid population growth may dilute the capital stock, lowering productivity.
d.
Rapid population growth may promote technological progress, increasing productivity.
 

 26. 

Thomas Malthus argued that
a.
population growth in the future would be subject to diminishing returns
b.
an ever increasing population is constrained only by the food supply, resulting in chronic famines.
c.
technological progress will continuously generate improvements in productivity and living standards.
d.
labour is the only true factor of production.
e.
private charities and government aid will improve the welfare of the poor.
 

 27. 

Which of the following best describes the rate of growth in productivity in the United States over the last fifty years? Productivity:
a.
growth has been steady over the last 50 years.
b.
has been growing more slowly every decade since World War II.
c.
grew quickly in the 1950s and 1960s, more slowly from the early 1970s through 1995, and then quickly again.
d.
grew slowly from the 1950s through the 1970s, and then began to accelerate, probably due to advances in computer technology.
e.
has been growing more quickly every decade since World War II.
 

 28. 

Which of the following describes an increase in technological knowledge? A farmer:
a.
sends his child to agricultural college and the child returns to work on the farm.
b.
hires another day labourer.
c.
buys another tractor.
d.
discovers that it is better to plant in the spring rather than in the autumn.
 

 29. 

Our standard of living is most closely related to
a.
how hard we work.
b.
our supply of capital, because everything of value is produced by machinery.
c.
our productivity, because our income is equal to what we produce.
d.
our supply of natural resources, because they limit production.
 

 30. 

Which of the following is an example of foreign portfolio investment?
a.
Toyota builds a new plant in the north of England.
b.
EDF of France buys shares in Scottish & Southern Energy of the UK, and Scottish & Southern Energy uses the proceeds to build a new hydro-electric power station in Scotland.
c.
Deutsche Bank of Germany buys some new software from a UK supplier.
d.
JCB builds a new plant near Manchester.
e.
None of these answers.
 

 31. 

Which of the following government policies is least likely to increase growth in Africa?
a.
increase expenditures on public education
b.
eliminate civil war
c.
All of these answers would increase growth.
d.
reduce restrictions on foreign capital investment
e.
increase restrictions on the importing of American tractors and electronics
 

 32. 

If Toyota builds a new plant in the north of England,
a.
there has been an increase in foreign portfolio investment in the UK.
b.
once the plant starts producing cars UK GDP will rise less than UK GNP.
c.
once the plant starts producing cars UK GDP and GNP will both fall because some income from this investment will accrue to foreigners.
d.
once the plant starts producing cars UK GDP will rise more than UK GNP.
 

 33. 

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.
3.0 per cent
b.
3.1 per cent
c.
18.0 per cent
d.
18.6 percent
e.
5.62 per cent
 

 34. 

Which of the following expenditures to enhance productivity is most likely to emit a positive externality?
a.
Megabank buys a new computer.
c.
Exxon leases a new oil field.
b.
Nathalie pays her university tuition fees.
d.
General Motors buys a new drill press.
 

 35. 

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.
 



 
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