Chapter 25

Chapter 25 Production and Growth
TRUE/FALSE 1. If per capita real income grows by 2 percent per year, then it will double in approximately 20 years. ANS ! "I! 1 #$! 2%&0 NA' Analytic ()* +roducti,ity and growth')+ $conomic growth -S* "efinitional 2. ),er the period 1./0&2000, the 1nited States experienced an a,erage annual growth rate of real 2"+ per person of about 3 percent per year. ANS ! "I! 1 #$! 2%&1 NA' Analytic ()* +roducti,ity and growth')+ $conomic growth -S* "efinitional 4. In 2000, income per person in the 1nited States was about 12 times that in India. ANS ' "I! 1 #$! 2%&1 NA' Analytic ()* +roducti,ity and growth')+ $conomic growth -S* "efinitional 3. ),er the period 1500&2000, 6ra7il8s rate of economic growth exceeded that of *hina. ANS ' "I! 2 #$! 2%&1 NA' Analytic ()* +roducti,ity and growth')+ $conomic growth -S* "efinitional %. If a country has a higher le,el of producti,ity than another, then it also has a higher le,el of real 2"+. ANS ! "I! 2 #$! 2%&1 NA' Analytic ()* +roducti,ity and growth')+ +roducti,ity -S* Analytical 0. International data on real 2"+ per person gi,e us a sense of how standards of li,ing ,ary across countries. ANS ' "I! 1 #$! 2%&1 NA' Analytic ()* +roducti,ity and growth')+ #eal 2"+ -S* "efinitional /. #eal 2"+ per person in rich countries, such as 2ermany, is sometimes more than 10 times that of poor countries li9e +a9istan. ANS ' "I! 1 #$! 2%&1 NA' Analytic ()* +roducti,ity and growth')+ Standard of li,ing -S* "efinitional .. 6oth the standard of li,ing and the growth of real 2"+ per person ,ary widely across countries. ANS ' "I! 1 #$! 2%&1 NA' Analytic ()* +roducti,ity and growth ')+ Standard of li,ing : #eal 2"+ -S* "efinitional 5. If they could increase their growth rates slightly, countries with low income would catch up with rich countries in about ten years. ANS ! "I! 1 #$! 2%&1 NA' Analytic ()* +roducti,ity and growth ')+ $conomic growth : *atch&up effect -S* Interpreti,e 10. In the 1nited States real 2"+ per person is about ;33,000, while in some poor countries real 2"+ per person is less than ;4,000. ANS ' "I! 1 #$! 2%&1 NA' Analytic ()* +roducti,ity and growth')+ $conomic growth -S* "efinitional
13/
13.
11.
*hapter 2% <+roduction and 2rowth
Although growth rates across countries ,ary some, ran9ings of countries by income remain pretty much the same o,er time. ANS ! "I! 1 #$! 2%&1 NA' Analytic ()* +roducti,ity and growth')+ $conomic growth -S* "efinitional 12. International data on the history of real 2"+ growth rates shows that o,er the last 100 years or so, rich countries got richer and poor countries got poorer. ANS ! "I! 1 #$! 2%&1 NA' Analytic ()* +roducti,ity and growth')+ $conomic growth -S* "efinitional 14. +roducti,ity can be computed as number of hours wor9ed di,ided by output. ANS ! "I! 1 #$! 2%&2 NA' Analytic ()* +roducti,ity and growth')+ +roducti,ity -S* "efinitional 13. Indonesians, for example, ha,e a lower standard of li,ing than Americans because they ha,e a lower le,el of producti,ity. ANS ' "I! 1 #$! 2%&2 NA' Analytic ()* +roducti,ity and growth ')+ +roducti,ity : Standard of li,ing -S* Interpreti,e 1%. If *ountry A produces 0,000 units of goods and ser,ices using 000 hours of labor, and if *ountry 6 produces %,000 units of goods and ser,ices using 3%0 units of labor, then producti,ity is higher in *ountry 6 than in *ountry A. ANS ' "I! 2 #$! 2%&2 NA' Analytic ()* +roducti,ity and growth')+ +roducti,ity -S* Applicati,e 10. (i9e physical capital, human capital is a produced factor of production. ANS ' "I! 2 #$! 2%&2 NA' Analytic ()* +roducti,ity and growth ')+ +hysical capital : =uman capital -S* Interpreti,e 1/. Human capital is the term economists use to refer to the 9nowledge and s9ills that wor9ers ac>uire through education, training, and experience. ANS ' "I! 2 #$! 2%&2 NA' Analytic ()* +roducti,ity and growth')+ =uman capital -S* "efinitional 1.. A forest is an example of a nonrenewable resource. ANS ! "I! 1 #$! 2%&2 NA' Analytic ()* +roducti,ity and growth')+ -S* "efinitional 15.
Natural resources
=istorical trends in the prices of most natural resources compared to prices of other goods indicate that natural resources ha,e become scarcer o,er time. ANS ! "I! 2 #$! 2%&2 NA' Analytic ()* +roducti,ity and growth')+ Natural resources -S* Interpreti,e 20. It is possible for a country without a lot of domestic natural resources to ha,e a high standard of li,ing. ANS ' "I! 1 #$! 2%&2 NA' Analytic ()* +roducti,ity and growth ')+ Natural resources : Standard of li,ing -S* Interpreti,e

21.
135
*onstant returns to scale is the point on a production function where increasing inputs will no longer increase output. ANS ! "I! 2 #$! 2%&2 NA' Analytic ()* +roducti,ity and growth')+ *onstant returns to scale -S* Interpreti,e 22. As capital per wor9er rises, output per wor9er rises. =owe,er, the increase in output per wor9er from an addition to capital is smaller, the larger is the existing amount of capital per wor9er. ANS ' "I! 1 #$! 2%&4 NA' Analytic ()* +roducti,ity and growth')+ +roduction function -S* Analytical 24. An increase in the sa,ing rate does not permanently increase the growth rate of real 2"+ per person. ANS ' "I! 2 #$! 2%&4 NA' Analytic ()* +roducti,ity and growth')+ Sa,ing rate -S* "efinitional 23. )ther things the same, another unit of capital will increase output by more in a poor country than in a rich country. ANS ' "I! 1 #$! 2%&4 NA' Analytic ()* +roducti,ity and growth ')+ +roducti,ity : "iminishing returns -S* Interpreti,e 2%. 'he catch-up effect refers to the idea that poor countries, despite their best efforts, are not li9ely e,er to experience the economic growth rates of wealthier countries. ANS ! "I! 2 #$! 2%&4 NA' Analytic ()* +roducti,ity and growth')+ *atch&up effect -S* Interpreti,e 20. 'wo countries with the same sa,ing rates must ha,e the same growth rate of real 2"+ per person. ANS ! "I! 1 #$! 2%&4 NA' Analytic ()* +roducti,ity and growth')+ Sa,ing rate : *atch&up effect -S* "efinitional 2/. ?hen Americans in,est in #ussia, the income of #ussians @that is, #ussian 2N+A rises by more than does production in #ussia @that is, #ussian 2"+A. ANS ! "I! 4 #$! 2%&4 NA' Analytic ()* +roducti,ity and growth')+ !oreign in,estment -S* Applicati,e 2.. If your company opens and operates a branch in a foreign country, you will be engaging in foreign direct in,estment. ANS ' "I! 1 #$! 2%&4 NA' Analytic ()* International trade and finance ')+ !oreign in,estment -S* "efinitional 25. In,estment in human capital has opportunity costs, but in,estment in physical capital does not. ANS ! "I! 1 #$! 2%&4 NA' Analytic ()* +roducti,ity and growth ')+ )pportunity costs : =uman capital : +hysical capital -S* Interpreti,e 40. Incenti,es for parents to send their children to school, such as small monthly payments to parents if their children ha,e regular attendance, appear to increase school attendance. ANS ' "I! 1 #$! 2%&4 NA' Analytic ()* +roducti,ity and growth')+ $conomic growth -S* "efinitional
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41.
A country that made its courts less corrupt and its go,ernment more stable would li9ely see its standard of li,ing rise. ANS ' "I! 1 #$! 2%&4 NA' Analytic ()* +roducti,ity and growth')+ +roperty rights -S* "efinitional 42. If a country made it easier for people to establish and pro,e the ownership of their property, real 2"+ per person would li9ely rise. ANS ' "I! 1 #$! 2%&4 NA' Analytic ()* +roducti,ity and growth')+ +roperty rights -S* Interpreti,e 44. $conomists generally belie,e that inward&oriented policies are more li9ely to foster growth than outward oriented policies. ANS ! "I! 1 #$! 2%&4 NA' Analytic ()* +roducti,ity and growth')+ 'rade policy -S* "efinitional 43. If a rich country reduced subsidies to domestic producers who produce goods for which poor countries ha,e a comparati,e ad,antage, the standard of li,ing in these poor countries would li9ely rise. ANS ' "I! 1 #$! 2%&4 NA' Analytic ()* +roducti,ity and growth')+ 'rade policy -S* "efinitional 4%. )ne reason that go,ernments may find it useful to sponsor uni,ersities and basic research is that to a large extent 9nowledge is generally a pri,ate good. ANS ! "I! 1 #$! 2%&4 NA' Analytic ()* +roducti,ity and growth')+ +ublic goods -S* Interpreti,e 40. 'he population growth rate tends to be higher in de,eloped countries than in de,eloping countries. ANS ! "I! 1 #$! 2%&4 NA' Analytic ()* +roducti,ity and growth')+ +opulation growth -S* "efinitional 4/. In countries where women are discriminated against, policies that increase the li9elihood of career success and educational opportunities for women are li9ely to decrease the birth rate. ANS ' "I! 1 #$! 2%&4 NA' Analytic ()* +roducti,ity and growth')+ +opulation growth -S* "efinitional 4.. *ountries with high population growth rates tend to ha,e lower le,els of educational attainment. ANS ' "I! 1 #$! 2%&4 NA' Analytic ()* +roducti,ity and growth')+ +opulation growth -S* "efinitional 45. Studies confirm that controlling for other ,ariables such as the percentage of 2"+ de,oted to in,estment, poor countries tend to grow at a faster rate than rich countries. ANS ' "I! 1 #$! 2%&4 NA' Analytic ()* +roducti,ity and growth')+ *atch&up effect -S* "efinitional 30. An increase in capital increases producti,ity only if it is purchased and operated by domestic residents. ANS ! "I! 1 #$! 2%&4 NA' Analytic ()* +roducti,ity and growth')+ !oreign in,estment -S* "efinitional

31.
1%1
)ther things the same, an economy8s factors of production are li9ely to be used more effecti,ely if there is an economywide respect for property rights. ANS ' "I! 1 #$! 2%&4 NA' Analytic ()* +roducti,ity and growth')+ +roperty rights -S* "efinitional 32. $conomist -ichael Bremer found that world growth rates fell as population increased. ANS ! "I! 1 #$! 2%&4 NA' Analytic ()* +roducti,ity and growth')+ +opulation growth -S* "efinitional SHORT ANS 1. ER 1se the data on 1.S. real 2"+ below to compute real 2"+ per person for each year. 'hen use these numbers to compute the percentage increase in real 2"+ per person from 15./ to 200%. !ear 15./ 200% Rea" G#P $2%%% price&' ;0,34%,000 million ;11,052,000 million Popu"ation 234 million 250.0 million
ANS #eal 2"+ per person in 15./ was ;0,34%,000<234C about ;20,3.1. Income per person in 200% was ;11,052,000<250.0 C about ;4/,45/. Income per person grew by @4/,45/ & 20,3.1A<20,3.1 C about 31.2 percent. "I! ()* -S* 2. 1 #$! 2%&1 +roducti,ity and growth')+ Applicati,e NA' Analytic #eal 2"+ : $conomic growth
?hy is producti,ity related to the standard of li,ingD In your answer be sure to explain what producti,ity and standard of li,ing mean. -a9e a list of things that determine labor producti,ity.
ANS 'he standard of li,ing is a measure of how well people li,e. Income per person is an important dimension of the standard of li,ing and is positi,ely correlated with other things such as nutrition and life expectancy that ma9e people better off. +roducti,ity measures how much people can produce in an hour. As producti,ity increases, people can produce more @and use less to produce the same amountA and so their standard of li,ing increases. 'he factors that determine labor producti,ity include the amounts of physical capital @e>uipment and structuresA, human capital @9nowledge and s9illsA, and natural resources a,ailable to wor9ers, as well as the state of technological 9nowledge in society. "I! ()* -S* 4. 2 #$! 2%&1 +roducti,ity and growth')+ Interpreti,e NA' Analytic +roducti,ity : Standard of li,ing
?hat is a production functionD ?rite an e>uation for a typical production function, and explain what each of the terms represents.
ANS A production function is a mathematical representation of the relationship between the >uantity of inputs used in production and the >uantity of output produced using these inputs. A typical production function could be written as E C A !@(, B, =, NA, where E denotes the >uantity of output, ( the >uantity of labor, B the >uantity of physical capital, = the >uantity of human capital, N the >uantity of natural resources, and A is a ,ariable that reflects the a,ailable production technology. "I! ()* -S* 2 #$! 2%&2 NA' Analytic 'he Study of economics, and definitions of economics Interpreti,e ')+ +roduction function
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3. ?hat is the difference between human capital and technologyD ANS 'echnology is societyFs understanding of production techni>ues. =uman capital is the labor forceFs understanding of these ideas. A society may ha,e lots of information a,ailable about how to produce goods, but still ha,e lots of people who 9now little of this information. !or example, in the 1nited States there exists information about how best to use a butter churn and how to ma9e lye soap, but most people 9now nothing about it. "I! ()* -S* %. 2 #$! 2%&2 +roducti,ity and growth')+ Interpreti,e NA' Analytic =uman capital : 'echnology
'he catch&up effect says that countries with low income can grow faster than countries with higher income. =owe,er, in statistical studies that include many di,erse countries we do not obser,e the catch&up&effect unless we control for other ,ariables that affect producti,ity. *onsidering the determinants of producti,ity, list and explain some things that would tend to prohibit or limit a poor countryFs ability to catch up with the rich ones.
ANS 'he argument that poor countries will tend to catch up with rich ones is based on the idea that another unit of capital will increase output more in a country that has little capital than one that has much capital. So, for a gi,en share of 2"+ de,oted to in,estment, a poor country will grow faster than a rich one. 'his argument assumes that other things are the same, but share of 2"+ in,ested may be lower in a poor country and the producti,ity of in,estment may be less. A politically unstable en,ironment where property rights are unprotected or not secure tends to discourage in,estment. A country that has limited trade because of legal restrictions or geography cannot focus on producing what it produces best and so has lower producti,ity. 'o get the most out of in,estment, or e,en simply to use some types of new in,estment, re>uires ha,ing wor9ers who ha,e ac>uired some basic human capital. "I! ()* -S* 0. 4 #$! 2%&4 +roducti,ity and growth')+ Analytical NA' Analytic *atch&up effect
Some data that at first might seem pu77ling 'he share of 2"+ de,oted to in,estment was similar for the 1nited States and South Borea from 1500&1551. =owe,er, during these same years South Borea had a 0 percent growth rate of a,erage annual income per person, while the 1nited States had only a 2 percent growth rate. If the sa,ing rates were the same, why were the growth rates so differentD
ANS 'he explanation is based on the concept of diminishing returns to capital. A country that has a lot of income, and so a lot of capital, gains less by adding more capital than does a country that currently has little capital. It is easy to en,ision how a poor country without much capital could increase its output considerably with e,en a little more capital. "I! ()* -S* /. 2 #$! 2%&4 +roducti,ity and growth')+ Analytical NA' Analytic In,estment : *atch&up effect : "iminishing returns
In addition to in,estment in physical and human capital, what other public policies might a country adopt to increase producti,ityD
ANS In addition to in,estment in physical and human capital, a country might increase producti,ity by @aA specifying and enforcing property rights, @bA encouraging free trade, @cA controlling population growth, and @dA promoting research and de,elopment. "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ NA' Analytic +roducti,ity -S* "efinitional
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.. ?hy does a nation8s standard of li,ing depend on property rightsD ANS +roperty rights are an important prere>uisite for the price system to wor9 in a mar9et economy. If an indi,idual or company is not confident that claims o,er property or o,er the income from property can be protected, or that contracts can be enforced, there will be little incenti,e for indi,iduals to sa,e, in,est, or start new businesses. (i9ewise, there will be little incenti,e for foreigners to in,est in the real or financial assets of the country. 'he distortion of incenti,es will reduce efficiency in resource allocation and will reduce sa,ing and in,estment which in turn will reduce the standard of li,ing. "I! ()* -S* 2 #$! 2%&4 +roducti,ity and growth')+ Interpreti,e NA' Analytic +roperty rights
5. =ow do outward&oriented policies affect a nationFs producti,ityD ANS -ost economists belie,e that poor nations are better off pursuing outward&oriented policies that promote free trade. *ountries that use their comparati,e ad,antage in trade are, in effect, helping themsel,es through the gains from trade in the same way that nations that de,elop new technology raise their standard of li,ing. =ence, a country that eliminates trade restrictions will experience the same 9ind of economic growth that would occur after a maGor technological ad,ance. Inward&oriented trade policies are a9in to a country choosing to restrict the use of superior technologies. "I! ()* -S* 10. 1 #$! 2%&4 +roducti,ity and growth')+ Interpreti,e NA' Analytic $conomic growth
At first patents might seem li9e a deterrent to growth because in effect they restrict the use of new technology. Eet many economists belie,e that patents generate growth. $xplain why.
ANS )nce someone comes up with an idea it is often easy for others to ta9e ad,antage of it so that the idea becomes part of a society8s 9nowledge. So, 9nowledge is fre>uently a public good. ?ithout patents an in,entor8s reward for research and de,elopment of a good idea would be smaller. So, patents increase the incenti,es for firms and indi,iduals to engage in research. 'he negati,e conse>uences of temporarily restricting the use of new ideas with patents is outweighed by the increase in new ideas that patents induce. "I! ()* -S* 11. 2 #$! 2%&4 +roducti,ity and growth')+ Interpreti,e NA' Analytic $conomic growth
Some economists argue that it is possible to raise the standard of li,ing by reducing population growth. As an economist interested in incenti,es rather than coercion, what 9ind of policy would you recommend to slow population growthD
ANS Since bearing a child has an opportunity cost, policies designed to increase the opportunity cost of bearing children would li9ely reduce population growth rates. In particular, women with the opportunity to recei,e a good education and desirable employment tend to want to ha,e fewer children than do those with fewer opportunities outside the home. =ence, policies designed to increase educational and employment opportunities for women will li9ely reduce population growth rates without coercion. "I! ()* -S* 2 #$! 2%&4 +roducti,ity and growth')+ Interpreti,e NA' Analytic +opulation growth : Standard of li,ing
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12. *ompare and contrast the population theories of -althus and Bremer. ANS 'he difference is that -althus predicted that population growth would be greater than growth in the ability to increase output. =e belie,ed that people would continue to populate the earth until output reached a subsistence le,el. )n the other hand Bremer argues that population growth increased producti,ity allowing people to impro,e their standard of li,ing despite growing population. Bremer argues that with more population comes more inno,ations. 'he impro,ements in technology outweighed any ad,erse impact of the increase in population on the standard of li,ing. "I! ()* -S* 2 #$! 2%&4 +roducti,ity and growth')+ Interpreti,e NA' Analytic +opulation growth : $conomists
Sec%% ( Production and Growth

)ULT*PLE CHO*CE 1. 'he a,erage income in a rich country, such as the 1nited States or Hapan, is more than a. 4 times, but less than % times, the a,erage income in a poor country, such as Indonesia or Nigeria. b. % times, but less than 10 times, the a,erage income in a poor country, such as Indonesia or Nigeria. c. 10 times, but less than 20 times, the a,erage income in a poor country, such as Indonesia or Nigeria. d. more than 20 times the a,erage income in a poor country, such as Indonesia or Nigeria. * Analytic "efinitional "I! ()* 1 #$! 2%&0 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 2.
),er the past century in the 1nited States, real 2"+ per person has grown, on a,erage, by about a. 1 percent per year. b. 2 percent per year. c. 4 percent per year. d. % percent per year. 6 Analytic "efinitional "I! ()* 1 #$! 2%&0 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 4.
"uring the past century the a,erage growth rate of 1.S. real 2"+ per person implies that it doubled, on a,erage, about e,ery a. 100 years. b. /0 years. c. 4% years. d. 2% years. * Analytic Interpreti,e "I! ()* 1 #$! 2%&0 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 3.
In the 1nited States, as measured by real 2"+ per person, a,erage income is about how many times as high as a,erage income a century agoD a. 2 b. 3 c. 0 d. . " Analytic "efinitional "I! ()* 1 #$! 2%&0 +roducti,ity and growth')+ $conomic growth
ANS NA' -S*

%. ),er the last century, 1.S. real 2"+ per person grew at a rate of about a. 2 percent per year, so that it is now 2 times as high as it was a century ago. b. 2 percent per year, so that it is now . times as high as it was a century ago. c. 3 percent per year, so that it is now 2 times as high as it was a century ago. d. 3 percent per year, so that it is now . times as high as it was a century ago. 6 Analytic "efinitional "I! ()* 1 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
1%%
ANS NA' -S* 0.
),er the past 100 years, 1.S. real 2"+ per person has doubled about e,ery 4% years. If, in the next 100 years, it doubles e,ery 2% years, then a century from now 1.S. real 2"+ per person will be a. 3 times higher than it is now. b. . times higher than it is now. c. 12 times higher than it is now. d. 10 times higher than it is now. " Analytic Interpreti,e "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* /.
),er the past century in the 1nited States, a,erage income as measured by real 2"+ per person has grown about a. 3 percent per year, which implies a doubling about e,ery 1. years. b. 3 percent per year, which implies a doubling about e,ery . years. c. 2 percent per year, which implies a doubling about e,ery 4% years. d. 2 percent per year, which implies a doubling about e,ery 1. years. * Analytic Interpreti,e "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* ..
In which of the following countries has economic growth been sufficiently strong in recent history to propel that country from being among the poorest in the world to being among the richest in the worldD a. India b. -exico c. Nigeria d. Singapore " Analytic "efinitional "I! ()* 1 #$! 2%&0 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 5.
A,erage income has been stagnant for many years in a. Argentina. b. Singapore. c. Nigeria. d. All of the abo,e are correct. * Analytic "efinitional "I! ()* 1 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 10.
?hich of the following statements is correctD a. 'he le,el of real 2"+ is a good gauge of economic prosperity, and the growth of real 2"+ is a good gauge of economic progress. b. 'he le,el of real 2"+ is a good gauge of economic progress, and the growth of real 2"+ is a good gauge of economic prosperity. c. 'he le,el of real 2"+ is a good gauge of economic prosperity, and the le,el of real 2"+ per person is a good gauge of economic progress. d. 'he le,el of real 2"+ is a good gauge of economic progress, and the le,el of real 2"+ per person is a good gauge of economic prosperity.
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ANS NA' -S*

A Analytic Interpreti,e "I! ()* 2 #$! 2%&0 +roducti,ity and growth')+ $conomic growth
Sec%+ ( Production and Growth ( Econo,ic Growth around the

)ULT*PLE CHO*CE 1.
or"d
Eou are told that *ountry A experienced growth of real 2"+ per person of 3 percent per year throughout the 1500s. In ,iew of other countries8 experience, you would ha,e to characteri7e *ountry A8s growth as a. exceptionally high. b. moderately high. c. moderately low. d. exceptionally low. A Analytic Interpreti,e "I! ()* 1 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 2.
Eou are told that *ountry A experienced growth of real 2"+ per person of 0.% percent per year throughout the 1500s. In ,iew of other countries8 experience, you would ha,e to characteri7e *ountry A8s growth as a. exceptionally high. b. moderately high. c. moderately low. d. exceptionally low. " Analytic Interpreti,e "I! ()* 1 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 4.
As of 2000, using real 2"+ per person as a measure, we would classify a. the 1nited States and -exico as ad,anced economies and 6angladesh as a middle&income country. b. *anada as an ad,anced economy, -exico as a middle&income country, and -ali as a poor country. c. Hapan and India as ad,anced economies and -exico as a poor country. d. Hapan as an ad,anced economy, the 1nited Bingdom as a middle&income country, and Argentina as a poor country. 6 Analytic Interpreti,e "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ Standard of li,ing
ANS NA' -S* 3.
),er the period 1500&2000, which of the following countries experienced the highest a,erage annual growth rate of real 2"+ per personD a. Indonesia b. India c. +a9istan d. 6ra7il " Analytic "efinitional "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* %.
A nationFs standard of li,ing is best measured by its a. real 2"+. b. real 2"+ per person. c. nominal 2"+. d. nominal 2"+ per person. 6 Analytic Interpreti,e "I! ()* 1 #$! 2%&1 +roducti,ity and growth')+ Standard of li,ing
ANS NA' -S*

0. If one wants to 9now how the material well&being of the a,erage person has changed o,er time in a gi,en country, one should loo9 at the a. le,el of real 2"+. b. growth rate of nominal 2"+. c. growth rate of real 2"+. d. growth rate of real 2"+ per person. " Analytic Interpreti,e "I! ()* 1 #$! 2%&1 +roducti,ity and growth')+ Standard of li,ing
1%/
ANS NA' -S* /.
'he le,el of real 2"+ person a. differs widely across countries, but the growth rate of real 2"+ per person is similar across countries. b. is ,ery similar across countries, but the growth rate of real 2"+ per person differs widely across countries. c. and the growth rate of real 2"+ per person are similar across countries. d. and the growth rate of real 2"+ per person ,ary widely across countries. " Analytic Interpreti,e "I! ()* 1 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* ..
?hich of the following statements is correctD In 2000, a. real income per person in the 1.S. was about 0 times that in *hina. b. real income per person in *hina was about 2 times that in India. c. the typical resident of India had less real income than the typical resident of $ngland in 1./0. d. All of the abo,e are correct. " Analytic "efinitional "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ Standard of li,ing
ANS NA' -S* 5.
?hich of the following statements is correctD a. In 1./0, real income per person was higher in the 1nited Bingdom than in any other country at that time. b. 6etween 1./0 and 2000, India experienced significantly stronger growth of real income per person than did the 1nited States. c. 6etween 1./0 and 2000, the 1nited States experienced significantly stronger growth of real income per person than did *anada. d. All of the abo,e are correct. A Analytic "efinitional "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ Standard of li,ing
ANS NA' -S* 10.
In 2000, real 2"+ per person in 6angladesh was a. about 4 times as high as it was in the 1.S. in 1./0. b. about twice as high as it was in the 1.S. in 1./0. c. about the same as it was in the 1.S. in 1./0. d. less than it was in the 1.S. in 1./0. " Analytic "efinitional "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ Standard of li,ing
ANS NA' -S* 11.
In 2000, the typical 6angladeshi had about a. 1<% the real income of a typical American a century ago. b. 2<4 the real income of a typical American a century ago. c. 2 times as much real income as that of a typical American a century ago. d. 3 times as much real income as that of a typical American a century ago. 6 Analytic "efinitional "I! ()* 1 #$! 2%&1 +roducti,ity and growth')+ Standard of li,ing
ANS NA' -S*
1%.
12.

?hich of the following countries had the highest growth rate o,er the last 100 or so yearsD a. 6ra7il b. 2ermany c. *anada d. 1nited States A Analytic "efinitional "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 14.
In recent decades, a,erage income in some $ast Asian countries, such as South Borea, Singapore, and 'aiwan, has risen about a. 2 percent per year. b. 3 percent per year. c. / percent per year. d. 10 percent per year. * Analytic "efinitional "I! ()* 1 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 13.
In some $ast Asian countries, a,erage income, as measured by real 2"+ per person, has recently grown at an a,erage annual rate that implies output will double about e,ery a. 10 years. b. 1% years. c. 20 years. d. 2% years. A Analytic "efinitional "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 1%.
*ountries that grew the fastest o,er the last 100 or so years had growth rates of real income per person of about a. 0.% percent per year. b. 1.% percent per year. c. 2.0 percent per year. d. 2.% percent per year. " Analytic "efinitional "I! ()* 1 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 10.
)f the following countries, which grew most slowly, in terms of real 2"+ per person, o,er the last 100 yearsD a. 6ra7il b. -exico c. *hina d. 1nited States " Analytic "efinitional "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 1/.
In the length of one generation, which of the following countries has gone from being among the poorest countries in the world to being among the richestD a. *had b. $thiopia c. India d. South Borea " Analytic "efinitional "I! ()* 1 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S*

1.. A,erage income has been stagnant for many years in a. Ireland. b. Singapore. c. $thiopia. d. All of the abo,e are correct. * Analytic "efinitional "I! ()* 1 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
1%5
ANS NA' -S* 15.
?hich list contains, in this order, a country whose real 2"+ per person grew faster and one whose real 2"+ per person grew slower than real 2"+ per person in the 1.S. o,er the last 100 yearsD a. *hina, +a9istan b. 1nited Bingdom, *hina c. +a9istan, Argentina d. Argentina, Hapan A Analytic "efinitional "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 20.
*ountries that ha,e lower le,els of real 2"+ per person than the 1nited States a. tend to ha,e growth rates that are higher than that of the 1nited States. b. tend to ha,e growth rates that are about the same as that of the 1nited States. c. tend to ha,e growth rates that are lower than that of the 1nited States. d. in some cases ha,e growth rates that are higher than that of the 1nited States and in other cases lower than that of the 1nited States. " Analytic Interpreti,e "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 21.
?hich of the following is correctD a. ),er the last 100 years Hapan had a higher a,erage growth rate than the 1nited States. It follows that, today, the standard of li,ing in Hapan is higher than in the 1nited States. b. 'he typical person in 6angladesh today has about twice the real income of a typical American 100 years ago. c. 'he typical citi7en of *hina today has about one&half as much real income as the typical citi7en of America today. d. None of the abo,e is correct. " Analytic "efinitional "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 22.
?hich of the following does the le,el of real 2"+ measureD a. total real income b. producti,ity c. the standard of li,ing d. All of the abo,e are correct. A Analytic "efinitional "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ #eal 2"+
ANS NA' -S* 24.
?hich of the following is correctD a. *ountries with the highest growth rates o,er the last 100 years are the ones that had the highest le,el of real 2"+ 100 years ago. b. -ost countries ha,e had little fluctuation around their a,erage growth rates during the past 100 years. c. 'he ran9ing of countries by income changes substantially o,er time. d. ),er the last 100 years, Hapan had the highest real 2"+ growth rate, and now has the highest real 2"+ per person.
100
ANS NA' -S* 23.

* Analytic Interpreti,e "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
),er the last 100 years which of the following had growth rates higher than that of the 1nited StatesD a. the 1nited Bingdom b. 6angladesh c. 6ra7il d. None of the abo,e is correct. * Analytic "efinitional "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 2%.
?hich of the following nations experienced a,erage rates of economic growth of less than 2 percent o,er the last 100 yearsD a. 6angladesh b. +a9istan c. 1nited Bingdom d. All of the abo,e are correct. " Analytic "efinitional "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 20.
In 1./0, the richest country in the world was a. the 1nited States. b. Spain. c. the 1nited Bingdom. d. 2ermany. * Analytic "efinitional "I! ()* 1 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 2/.
?hich of the following countries had the highest le,el of real 2"+ per person in 2000D a. 2ermany b. 1nited Bingdom c. 1nited States d. Hapan * Analytic "efinitional "I! ()* 1 #$! 2%&1 +roducti,ity and growth')+ Standard of li,ing
ANS NA' -S* 2..
?hich of the following countries had the lowest le,el of real 2"+ per person in 2000D a. +a9istan b. Indonesia c. -exico d. *hina A Analytic "efinitional "I! ()* 1 #$! 2%&1 +roducti,ity and growth')+ Standard of li,ing
ANS NA' -S* 25.
?hich of the following pairs of countries experienced approximately the same rate of growth of real income per person o,er the last 100 or so yearsD a. 2ermany and Hapan b. Indonesia and the 1nited Bingdom c. the 1nited States and Hapan d. -exico and +a9istan 6 Analytic "efinitional "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S*

40.
101
(ast year real 2"+ per person in the imaginary nation of )lympus was 3,%00. 'he year before it was 3,2%0. 6y about what percentage did )lympian real 2"+ per person grow during the periodD a. 3.0 percent b. %.2 percent c. %.5 percent d. 0.% percent * Analytic Applicati,e "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 41.
(ast year real 2"+ in the imaginary nation of )ceania was %01.0 billion and the population was 2.2 million. 'he year before, real 2"+ was %00.0 billion and the population was 2.0 million. ?hat was the growth rate of real 2"+ per person during the yearD a. 12 percent b. 10 percent c. 3 percent d. 2 percent " Analytic Applicati,e "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 42.
In 2000 real 2"+ in the imaginary nation of +opulia was /%0 billion and the population was 4 million. In 200/ real 2"+ was 50/.% billion and the population was 4.4 million. ?hat was the growth rate of real 2"+ per person during the yearD a. 10 percent b. 13 percent c. 1/ percent d. 21 percent A Analytic Applicati,e "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 44.
In 200/, the imaginary nation of !reedonia had a population of 2,/00 and real 2"+ of 10,200,000. In 200. it had a population of 2,%00 and real 2"+ of 13,030,000. ?hat was the growth rate of real 2"+ per person in !reedonia between 200/ and 200.D a. &2.3 percent b. &0./ percent c. 3.3 percent d. %.2 percent A Analytic Applicati,e "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 43.
In 2000, the imaginary nation of Iiloxia had a population of %,000 and real 2"+ of %00,000. In 200/ it had a population of %,100 and real 2"+ of %20,200. ),er the year in >uestion, real 2"+ per person in Iiloxia grew by a. 2 percent, which is high compared to a,erage 1.S. growth o,er the last one&hundred years. b. 2 percent, which is about the same as a,erage 1.S. growth o,er the last one&hundred years. c. 3 percent, which is high compared to a,erage 1.S. growth o,er the last one&hundred years. d. 3 percent, which is about the same as a,erage 1.S. growth o,er the last one&hundred years. 6 Analytic Applicati,e "I! ()* 4 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S*
102
4%.

(ast year +anglossia had real 2"+ of 2/.0 billion. 'his year it had real 2"+ of 41.% billion. ?hich of the following changes in population is consistent with a % percent growth rate of real 2"+ per person o,er the last yearD a. 'he population decreased from .. million to .3 million. b. 'he population decreased from /% million to /4 million. c. 'he population increased from 3% million to %0 million. d. 'he population increased from 00 million to 02 million. * Analytic Analytical "I! ()* 4 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 40.
?hich of the following is indicated by the data on real income per person for ,arious countries o,er the past 100 or so yearsD a. If, in a relati,ely poor country, real income per person had grown by 4.% percent per year for the last 100 years, it would be a relati,ely rich country today. b. #ich countries became richer and poor countries became poorer. c. In the 1nited States, real income per person today is about four times as high as it was 100 years ago. d. All of the abo,e are correct. A Analytic Interpreti,e "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 4/.
?hich of the following is not correctD a. Across countries there are large differences in the a,erage income per person. 'hese differences are reflected in large differences in the >uality of life. b. ?ith a growth rate of about 2 percent per year, a,erage income per person doubles about e,ery 4% years. c. 'he ran9ing of countries by a,erage income changes ,ery little o,er time. d. In some countries real income per person has changed ,ery little o,er many years. * Analytic Interpreti,e "I! ()* 2 #$! 2%&1 +roducti,ity and growth')+ Income : $conomic growth
ANS NA' -S*
Sec%2 ( Production and Growth ( Producti-it./ *t& Ro"e and #eter,inant&

)ULT*PLE CHO*CE 1. 'he one ,ariable that stands out as the most significant explanation of large ,ariations in li,ing standards around the world is a. producti,ity. b. population. c. preferences. d. prices. A "I! 1 #$! 2%&2 Analytic ()* +roducti,ity and growth +roducti,ity : Standard of li,ing -S* Interpreti,e In determining li,ing standards, producti,ity plays a 9ey role a. for indi,iduals, but not for nations. b. for nations, but not for indi,iduals. c. for both nations and indi,iduals. d. for neither nations nor indi,iduals. * "I! 1 #$! 2%&2 Analytic ()* +roducti,ity and growth Standard of li,ing : +roducti,ity -S* Interpreti,e
ANS NA' ')+ 2.
ANS NA' ')+

4. 'he >uantity of goods and ser,ices produced from each unit of labor input is called a. standard of li,ing. b. producti,ity. c. capitali7ed >uantity. d. the 9nowledge base. 6 Analytic "efinitional "I! ()* 1 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
104
ANS NA' -S* 3.
Productivity is defined as a. the amount of difficulty that is in,ol,ed in producing a gi,en >uantity of goods and ser,ices. b. the >uantity of labor that is re>uired to produce one unit of goods and ser,ices. c. the >uantity of goods and ser,ices produced from each unit of labor input. d. the >uantity of goods and ser,ices produced o,er a gi,en amount of time. * Analytic "efinitional "I! ()* 1 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' -S* %.
?hich of the following is correctD a. Although le,els of real 2"+ per person ,ary substantially from country to country, the growth rate of real 2"+ per person is similar across countries. b. +roducti,ity is not closely lin9ed to go,ernment policies. c. 'he le,el of real 2"+ per person is a good gauge of economic prosperity, and the growth rate of real 2"+ per person is a good gauge of economic progress. d. +roducti,ity may be measured by the growth rate of real 2"+ per person. * Analytic Interpreti,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 0.
+erry accumulated a lot of mathematical s9ills while in high school, college, and graduate school. $conomists include these s9ills as part of +erry8s a. standard of learning. b. technological 9nowledge. c. physical capital. d. human capital. " Analytic "efinitional "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ =uman capital
ANS NA' -S* /.
?hat term do economists use to describe the relationship between the >uantity of inputs used and the >uantity of output producedD a. production function b. input function c. capital function d. returns to scale A "I! Analytic ()* +roduction function 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
ANS NA' ')+ ..
?hich of the following items plays a role in determining producti,ityD a. physical capital b. natural resources c. technological 9nowledge d. All of the abo,e are correct. " Analytic Interpreti,e "I! ()* 1 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' -S*
103
5.

'echnological 9nowledge a. is the same thing as human capital. b. can be disco,ered but it can ne,er be 9ept secret. c. is a determinant of producti,ity. d. does not play a role in the relationship that economists call the production function. * Analytic Interpreti,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ 'echnology
ANS NA' -S* 10.
Industrial machinery is an example of a. a factor of production that in the past was an output from the production process. b. technological 9nowledge. c. a production function. d. an item which always has the property called constant returns to scale. A "I! Analytic ()* +hysical capital 2 #$! 2%&2 'he Study of economics, and definitions of economics -S* Interpreti,e
ANS NA' ')+ 11.
Industrial machinery is an example of a. a factor of production that in the past was an output from the production process. b. physical capital. c. something that influences producti,ity. d. All of the abo,e are correct. " "I! 2 #$! 2%&2 Analytic ()* 'he Study of economics, and definitions of economics +hysical capital : +roducti,ity -S* Interpreti,e ?hich of the following statements about inputs is correctD a. A forest is an example of a natural resourceJ it is also an example of a renewable resource. b. 'here is no distinction between human capital and technological 9nowledge. c. =uman capital is a non&produced factor of production. d. +hysical capital is a non&produced factor of production. A Analytic Interpreti,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ Inputs
ANS NA' ')+ 12.
ANS NA' -S* 14.
"espite its status as one of the richest countries in the world, Hapan a. has a ,ery low le,el of producti,ity. b. has few natural resources. c. has ,ery little human capital. d. engages in a relati,ely small amount of international trade. 6 Analytic Interpreti,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ Natural resources
ANS NA' -S* 13.
'he notion that our ability to conser,e natural resources is growing more rapidly than their supplies are dwindling is supported by the fact that a. most economists do not regard the a,ailability of natural resources as a determinant of producti,ity. b. the >uantity of natural resources does not enter into any production function. c. inflation&adGusted prices of natural resources are stable or falling o,er time. d. inflation&adGusted prices of natural resources are rising o,er time. * Analytic Interpreti,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ Natural resources
ANS NA' -S*

1%. ?hich of the following statements is correctD a. 6y definition, all natural resources are nonrenewable. b. -ar9et prices gi,e us reason to belie,e that natural resources are a limit to economic growth. c. An economy must be blessed with ample >uantities of natural resources if it is to be a highly producti,e economy. d. "ifferences in natural resources can explain some of the differences in standards of li,ing around the world. " Analytic Interpreti,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ Natural resources
10%
ANS NA' -S* 10.
'he a,erage amount of goods and ser,ices produced from each hour of a wor9erFs time is called a. 2"+. b. per capita 2"+. c. producti,ity. d. technological 9nowledge. * Analytic "efinitional "I! ()* 1 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' -S* 1/.
!or a gi,en year, producti,ity in a particular country is most closely matched with that countryFs a. le,el of real 2"+ o,er that year. b. le,el of real 2"+ di,ided by hours wor9ed o,er that year. c. growth rate of real 2"+ di,ided by hours wor9ed o,er that year. d. growth rate of real 2"+ per person o,er that year. 6 Analytic Interpreti,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity : #eal 2"+
ANS NA' -S* 1..
+roducti,ity a. is nearly the same across countries, and so pro,ides no help explaining differences in the standard of li,ing across countries. b. explains ,ery little of the differences in the standard of li,ing across countries. c. explains some, but not most of the differences in the standard of li,ing across countries. d. explains most of the differences in the standard of li,ing across countries. " Analytic Interpreti,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' -S* 15.
?hich of the following is a correct way to measure producti,ityD a. "i,ide the number of hours wor9ed by the >uantity of output. b. "i,ide the >uantity of output by the number of hours wor9ed. c. "i,ide the >uantity of output by the >uantity of physical capital. d. "i,ide the change in the >uantity of output by the change in the number of hours wor9ed. 6 Analytic "efinitional "I! ()* 1 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' -S* 20.
*edar Ialley !urniture uses % wor9ers, each wor9ing . hours, to produce .0 roc9ing chairs. ?hat is the producti,ity of these wor9ersD a. 2 chairs per hour b. 10 chairs per hour c. 1 hour per chair d. .0 chairs A Analytic Applicati,e "I! ()* 1 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' -S*
100
21.

In one day Alpha *abinet *ompany made 30 cabinets with 420 hours of labor. ?hat was their producti,ityD a. 1<. cabinet per hour b. . hours per cabinet c. 30 cabinets d. None of the abo,e is correct. A Analytic Applicati,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' -S* 22.
Eou and your friend wor9 together for 3 hours to produce a total of 12 futons. ?hat is producti,ityD a. 12 futons b. 23 futons c. 4 futons per hour of labor d. 1.% futons per hour of labor " Analytic Applicati,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' -S* 24.
A barber shop produces 50 haircuts a day. $ach barber in the shop wor9s . hours per day and produces the same number of haircuts per hour. If the shop8s producti,ity is 4 haircuts per hour of labor, then how many barbers does the shop employD a. 2 b. 4 c. 3 d. 0 * Analytic Applicati,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' -S* 23.
Nathan owns a ba9ery that ba9es only ca9es. All of his ba9ers wor9 . hours per day. In 2000, he employed % ba9ers and they produced 200 ca9es each day. In 200/, he employed 0 ba9ers and they produced 235 ca9es each day. In Nathan8s ba9ery, producti,ity a. decreased by 2.44 percent between 2000 and 200/. b. increased by 2.44 percent between 2000 and 200/. c. increased by 4./% percent between 2000 and 200/. d. increased by 23.%0 percent between 2000 and 200/. * Analytic Applicati,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' -S* 2%.
In 200/, -odern $lectronics, Inc. produced 00,000 calculators, employing .0 wor9ers, each of whom wor9ed . hours per day. In 200., the same firm produced /0,%00 calculators, employing .% wor9ers, each of whom wor9ed 10 hours per day. 6etween 200/ and 200., producti,ity at -odern $lectronics a. decreased by 3.00 percent. b. remained constant. c. increased by ..44 percent. d. increased by 2/.%0 percent. A Analytic Applicati,e "I! ()* 4 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' -S* 20.
*onsider two countries. *ountry A has a population of 1,000, of whom .00 wor9 . hours a day to ma9e 12.,000 final goods. *ountry 6 has a population of 2,000, of whom 1,.00 wor9 0 hours a day to ma9e 2/0,000 final goods. a. *ountry A has higher producti,ity and higher real 2"+ per person than country 6. b. *ountry A has lower producti,ity and lower real 2"+ per person than country 6. c. *ountry A has higher producti,ity, but lower real 2"+ per person than country 6. d. *ountry 6 has lower producti,ity, but higher real 2"+ per person than country 6.

ANS NA' -S* 2/. 6 Analytic Applicati,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity : #eal 2"+
10/
?or9land has a population of 10,000, of whom /,000 wor9 . hours a day to produce a total of 223,000 final goods. (aborland has a population of %,000, of whom 3,000 wor9 12 hours a day to produce a total of 120,000 final goods. a. ?or9land has higher producti,ity and higher real 2"+ per person than (aborland. b. ?or9land has higher producti,ity but lower real 2"+ per person than (aborland. c. ?or9land has lower producti,ity but higher real 2"+ per person than (aborland. d. ?or9land has lower producti,ity and lower real 2"+ per person than (aborland. 6 Analytic Applicati,e "I! ()* 4 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity : #eal 2"+
ANS NA' -S* 2..
*ountry A has a population of 1,000, of whom /00 wor9ed an a,erage of . hours a day and had a producti,ity of 2.%. *ountry 6 has a population of .00, of whom %00 wor9ed . hours a day and had producti,ity of 4.0. 'he country with the higher real 2"+ was a. country A, and the country with higher real 2"+ per person was country A. b. country A, and the country with higher real 2"+ per person was country 6. c. country 6, and the country with higher real 2"+ per person was country A. d. country 6, and the country with higher real 2"+ per person was country 6. 6 Analytic Analytical "I! ()* 4 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity : #eal 2"+
ANS NA' -S* 25.
(ast year a country had .00 wor9ers who wor9ed an a,erage of . hours and produced 12,.00 units. 'his year the country had 1000 wor9ers who wor9ed an a,erage of . hours and produced 13,000 units. 'his country8s producti,ity was a. higher this year than last year. A possible source of this change in producti,ity is a change in the si7e of the capital stoc9. b. higher this year than last year. A change in the si7e of the capital stoc9 does not affect producti,ity. c. lower this year than last year. A possible source of this change in producti,ity is a change in the si7e of the capital stoc9. d. lower this year than last year. A change in the si7e of the capital stoc9 does not affect producti,ity. * Analytic Applicati,e "I! ()* 4 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' -S* 40.
?hich of the following statements is trueD a. +roducti,ity is calculated as hours wor9ed di,ided by output produced. b. Americans ha,e a higher standard of li,ing than Indonesians because American wor9ers are more producti,e than Indonesian wor9ers. c. 'rends in the mar9et prices of most resources indicate that they ha,e become increasingly scarce o,er time. d. All of the abo,e are correct. 6 Analytic Interpreti,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' -S* 41.
?hich of the following is not correctD a. *ountries that ha,e had higher output growth per person ha,e typically done so without higher producti,ity growth. b. A countryFs standard of li,ing and its producti,ity are closely related. c. +roducti,ity refers to output produced per hour of wor9. d. Increases in producti,ity can be used to increase output or leisure. A Analytic Interpreti,e "I! ()* 1 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' -S*
10.
42.

+roducti,ity is the a. 9ey determinant of li,ing standards, and growth in producti,ity is the 9ey determinant of growth in li,ing standards. b. 9ey determinant of li,ing standards, but growth in producti,ity is not the 9ey determinant of growth in li,ing standards. c. not the 9ey determinant of li,ing standards, but growth in producti,ity is the 9ey determinant of growth in li,ing standards. d. not the 9ey determinant of li,ing standards, and growth in producti,ity is not the 9ey determinant of growth in li,ing standards. A "I! 1 #$! 2%&2 Analytic ()* +roducti,ity and growth +roducti,ity : Standard of li,ing -S* Interpreti,e 6oth 'om and Herry wor9 10 hours a day. 'om can produce six bas9ets of goods per hour while Herry can produce four bas9ets of the same goods per hour. It follows that 'omFs a. producti,ity is greater than HerryFs. b. output is greater than HerryFs. c. standard of li,ing is higher than HerryFs. d. All of the abo,e are correct. " "I! 1 #$! 2%&2 Analytic ()* +roducti,ity and growth +roducti,ity : Standard of li,ing -S* Interpreti,e ?aldo wor9s eight hours and produces / units of goods per hour. $merson wor9s six hours and produces 10 units of goods per hour. a. ?aldo8s producti,ity and output are greater than $merson8s. b. ?aldo8s producti,ity is greater than $merson8s but his output is less. c. $merson8s producti,ity and output are greater than ?aldo8s. d. $merson8s producti,ity is greater than ?aldo8s but his output is less. * Analytic Applicati,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' ')+ 44.
ANS NA' ')+ 43.
ANS NA' -S* 4%.
In . hours, SonGa produces . units of goods and ser,ices. In 10 hours, $mma produces 5 units of goods and ser,ices. It follows that a. SonGa8s producti,ity is higher than $mma8s. b. $mma8s producti,ity is higher than SonGa8s. c. $mma8s income per hour will be higher than SonGa8s. d. SonGa8s income per day will be higher than $mma8s. A Analytic Applicati,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' -S* 40.
-ary loo9s o,er reports on four of her wor9ers. Hac9 made 2% bas9ets in % hours. ?alter made 40 bas9ets in 0 hours. #udy made 30 bas9ets in 10 hours. Sam made 22 bas9ets in four hours. ?ho has the greatest producti,ityD a. Hac9 b. ?alter c. #udy d. Sam 6 Analytic Applicati,e "I! ()* 1 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' -S*

4/. #eal !oods produced 300,000 cans of diced tomatoes in 200/ and 300,000 cans of diced tomatoes in 200.. 'hey employed the same number of labor hours each year. #elati,e to their producti,ity in 200/, their producti,ity in 200. was a. 0 percent lower. b. unchanged. c. 0 percent higher. d. 1% percent higher. " Analytic Applicati,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
105
ANS NA' -S* 4..
In 200/, Angel !oods produced 400,000 bags of tortilla chips, employing 12,000 hours of labor. In 200., Angel !oods produced 42%,000 bags of tortilla chips, employing 14,000 hours of labor. #elati,e to their producti,ity in 200/, their producti,ity in 200. a. decreased by 2.1 percent. b. was unchanged. c. increased by 1.4 percent. d. increased by 2.4 percent. 6 Analytic Applicati,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' -S* 45.
"ilbert8s Incorporated produced %,000,000 units of accounting software in 2003. At the start of 200% the pointy&haired boss reduced total annual hours of employment from 10,000 to .,000 and production was 3,.00,000. 'hese numbers indicate that producti,ity a. fell by 3K. b. fell by 20K. c. rose by 12K. d. rose by 20K. " Analytic Applicati,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' -S* 30.
"ilbert8s Incorporated produced 0,000,000 units of software in 200%. At the start of 2000 the pointy&haired boss raised employment from 10,000 total annual hours to 13,000 annual hours and production was /,000,000 units. 6ased on these numbers what happened to producti,ityD a. It fell by about 10./K. b. It stayed the same. c. It rose by about 10./K. d. It rose by about 30K. A Analytic Applicati,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' -S* 31.
'he 9ey determinant of a the standard of li,ing in a country is a. the amount of goods and ser,ices produced from each hour of a wor9erFs time. b. the total amount of goods and ser,ices produced within the country. c. the total amount of its physical capital. d. its growth rate of real 2"+. A "I! 1 #$! 2%&2 Analytic ()* +roducti,ity and growth Standard of li,ing : +roducti,ity -S* Interpreti,e ?hich of the following is a determinant of producti,ityD a. human capital per wor9er b. physical capital per wor9er c. natural resources per wor9er d. All of the abo,e are correct.
ANS NA' ')+ 32.
1/0
ANS NA' -S* 34.

" Analytic Interpreti,e "I! ()* 1 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
'he inputs used to produce goods and ser,ices are also called a. producti,ity indicators. b. capitali7ation producers. c. production functions. d. factors of production. " "I! Analytic ()* !actors of production 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
ANS NA' ')+ 33.
'he +eapod #estaurant uses all of the following to produce ,egetarian meals. ?hich of them is an example of physical capitalD a. the ownerFs 9nowledge of how to prepare ,egetarian entrees b. the money in the ownerFs account at the ban9 from which she borrowed money c. the tables and chairs in the restaurant d. the land the restaurant was built on * "I! Analytic ()* +hysical capital 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
ANS NA' ')+ 3%.
'he e>uipment and structures a,ailable to produce goods and ser,ices are called a. physical capital. b. human capital. c. the production function. d. technology. A "I! Analytic ()* +hysical capital 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
ANS NA' ')+ 30.
'he saws, lathes, and drill presses that woodwor9ers at *edar Ialley !urniture use to produce furniture are called a. human capital. b. physical capital. c. natural resources. d. technological 9nowledge. 6 "I! Analytic ()* +hysical capital 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
ANS NA' ')+ 3/.
?hich of the following would not be considered physical capitalD a. a new factory building b. a computer used to help -ercury "eli,ery Ser,ice 9eep trac9 of its orders c. on&the&Gob training d. a des9 used in an accountantFs office * "I! Analytic ()* +hysical capital 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
ANS NA' ')+ 3..
?hich of the following is physical capitalD a. the strength of wor9ers b. the 9nowledge of wor9ers c. financial assets li9e cash and bonds d. the e>uipment in a factory " "I! Analytic ()* +hysical capital 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
ANS NA' ')+

35. ?hich of the following would be considered physical capitalD a. the refrigerators at 1ncle 6ob8s restaurant b. ri,ers on which goods are transported c. the s9ills and 9nowledge of a lawyer d. All of the abo,e are correct. A "I! Analytic ()* +hysical capital 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
1/1
ANS NA' ')+ %0.
?hich of the following terms do we use to mean the same thing as physical capitalD a. assembly line b. manual labor c. capital d. factor of production * "I! Analytic ()* +hysical capital 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
ANS NA' ')+ %1.
=uman capital is the a. 9nowledge and s9ills that wor9ers ac>uire through education, training, and experience. b. stoc9 of e>uipment and structures that is used to produce goods and ser,ices. c. total number of hours wor9ed in an economy. d. same thing as technological 9nowledge. A "I! Analytic ()* =uman capital 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
ANS NA' ')+ %2.
?hich of the following is considered human capitalD a. 9nowledge ac>uired from early childhood education programs b. 9nowledge ac>uired from grade school c. 9nowledge ac>uired from on&the&Gob training d. All of the abo,e are correct. " "I! Analytic ()* =uman capital 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
ANS NA' ')+ %4.
?hich of the following is human capitalD a. a student loan b. understanding how to use a companyFs accounting software c. training ,ideos for new corporate employees d. All of the abo,e are correct. 6 "I! Analytic ()* =uman capital 2 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
ANS NA' ')+ %3.
?hich of the following is considered human capitalD a. the comfortable chair in your dorm room where you read economics texts b. the amount you get paid each wee9 to wor9 at the library c. the things you ha,e learned this semester d. any capital goods that re>uire a human to be present to operate * "I! Analytic ()* =uman capital 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
ANS NA' ')+ %%.
?hich of the following best illustrates the human capital of a sur,i,or stranded on an islandD a. the fishing poles she has produced b. the in,ention of a better fishing lure c. the fresh fruit and fish on and around the island d. her pre,ious training in a sur,i,al course
1/2
ANS NA' ')+ %0.

" "I! Analytic ()* =uman capital 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* Interpreti,e
?hich of the following is a part of your economics professorFs human capitalD a. the things she learned at some prestigious uni,ersity b. her copy of -an9iwFs text c. her chal9 holder d. All of the abo,e are correct. A "I! Analytic ()* =uman capital 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
ANS NA' ')+ %/.
?hich of the following is human capitalD a. textboo9s b. hand held power tools c. understanding how to repair cars d. All of the abo,e are correct. * "I! Analytic ()* =uman capital 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
ANS NA' ')+ %..
?hich of the following would be human capital and physical capital, respecti,elyD a. for an accounting firm, the accountants8 9nowledge of tax laws and computer software b. for a grocery store, grocery carts and shel,ing c. for a school, chal9board and des9s d. for a library, the building and the reference librarians8 9nowledge of the Internet A "I! 1 #$! 2%&2 Analytic ()* 'he Study of economics, and definitions of economics =uman capital : +hysical capital -S* "efinitional ?hich of the following would be human capital and physical capital, respecti,elyD a. for an accounting firm, the accountants8 9nowledge of tax laws and the number of hours wor9ed by those accountants b. for a grocery store, grocery carts and cash registers. c. for a restaurant, the chefs8 9nowledge about preparing food and e>uipment in the 9itchen d. for a library, the building and the reference librarians8 9nowledge of the Internet * "I! 1 #$! 2%&2 Analytic ()* 'he Study of economics, and definitions of economics =uman capital : +hysical capital -S* "efinitional Natural resources a. are inputs pro,ided by nature. b. are inputs such as land, ri,ers, and mineral deposits. c. ta9e two forms renewable and nonrenewable. d. All of the abo,e are correct. " "I! Analytic ()* Natural resources 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
ANS NA' ')+ %5.
ANS NA' ')+ 00.
ANS NA' ')+ 01.
'he inputs into production of goods and ser,ices that are pro,ided by nature, such as land, ri,ers, and mineral deposits are called a. physical capital. b. natural resources. c. human capital. d. technological 9nowledge. 6 "I! Analytic ()* Natural resources 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
ANS NA' ')+

02. ?hich of the following lists contains, in this order, natural resources, human capital, and physical capitalD a. !or a restaurant the land the restaurant was built on, the things the *hef learned at *oo9ing School, the free7ers where the chops and stea9s are 9ept. b. !or a furniture company wood, the company cafeteria, saws. c. !or a railroad fuel, railroad engines, railroad trac9s. d. None of the abo,e is correct. A "I! 1 #$! 2%&2 Analytic ()* 'he Study of economics, and definitions of economics Natural resources : +hysical capital : =uman capital -S* "efinitional ?hich of the following is an example of a nonrenewable resourceD a. coal b. honey c. li,estoc9 d. All of the abo,e are correct. A "I! Analytic ()* Natural resources 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
1/4
ANS NA' ')+ 04.
ANS NA' ')+ 03.
?hich of the following is an example of a renewable natural resourceD a. the 9nowledge possessed by scientists b. carpenters8 labor ser,ices c. lumber d. All of the abo,e are correct. * "I! Analytic ()* Natural resources 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
ANS NA' ')+ 0%.
?hich of the following is an example of a renewable natural resourceD a. fish b. soybeans c. wood d. All of the abo,e are correct. " "I! Analytic ()* Natural resources 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
ANS NA' ')+ 00.
In a mar9et economy, scarcity of resources is most clearly reflected in a. supply. b. demand. c. mar9et prices. d. the stoc9 of the resource. * Analytic Scarcity "I! ()* -S* 2 #$! 2%&2 Scarcity, tradeoffs, and opportunity cost "efinitional
ANS NA' ')+ 0/.
In a mar9et economy, we 9now that a resource has become scarcer when a. its price rises relati,e to other prices. b. it is non&renewable and some of it is used. c. people search for substitutes. d. All of the abo,e are correct. A Analytic Scarcity "I! ()* -S* 2 #$! 2%&2 Scarcity, tradeoffs, and opportunity cost Interpreti,e
ANS NA' ')+
1/3
0..

In a mar9et economy, we 9now that a resource has become scarcer when a. both the demand for the good and the supply of the good ha,e increased. b. both the demand for the good and the supply of the good ha,e decreased. c. the demand for the good has increased and the supply has decreased. d. the demand for the good has decreased and the supply has remained constant. * Analytic Scarcity "I! ()* -S* 2 #$! 2%&2 Scarcity, tradeoffs, and opportunity cost Interpreti,e
ANS NA' ')+ 05.
If the price of a good has risen o,er time, a. it must ha,e become more scarce. b. it must ha,e become less scarce. c. it has become more scarce only if the price adGusted for inflation has risen. d. it has become less scarce only if the price adGusted for inflation has risen. * Analytic Scarcity "I! ()* -S* 2 #$! 2%&2 Scarcity, tradeoffs, and opportunity cost Interpreti,e
ANS NA' ')+ /0.
In a mar9et economy, the real, or inflation&adGusted, price of a resource measures its a. contribution to re,enue. b. relati,e scarcity. c. producti,ity. d. contribution to efficiency. 6 "I! Analytic ()* Natural resources 1 #$! 2%&2 Scarcity, tradeoffs, and opportunity cost -S* "efinitional
ANS NA' ')+ /1.
2reater scarcity of a natural resource is indicated a. by an increase in the price of the resource, whether the price increase is less than or greater than the rate of inflation. b. only by an increase in the price of the resource that is less than the rate of inflation. c. only by an increase in the price of the resource that is greater than the rate of inflation. d. only by an increase in the price of the resource that is caused by a decrease in supply and is greater than the rate of inflation. * "I! Analytic ()* Natural resources 2 #$! 2%&2 Scarcity, tradeoffs, and opportunity cost -S* Interpreti,e
ANS NA' ')+ /2.
=istorically, the mar9et prices of most natural resources @adGusted for inflationA ha,e a. increased. b. remained stable. c. remained stable or decreased. d. decreased. * "I! Analytic ()* Natural resources 2 #$! 2%&2 Scarcity, tradeoffs, and opportunity cost -S* "efinitional
ANS NA' ')+ /4.
'he beha,ior of mar9et prices o,er time indicates that natural resources a. are a limit to economic growth. b. are unrelated to economic growth. c. are not a limit to economic growth. d. are the maGor determinant of producti,ity. * "I! 1 #$! 2%&2 Analytic ()* +roducti,ity and growth Natural resources : $conomic growth
ANS NA' ')+
-S*
Interpreti,e

/3. ?hich of the following statements is trueD a. Natural resources per wor9er influence producti,ity only when those natural resources are renewable. b. 'he prices of most natural resources are stable or falling relati,e to other prices. c. 'echnology re>uires greater use of natural resources. d. 'he terms human capital and technological knowledge are used interchangeably. 6 "I! Analytic ()* Natural resources 2 #$! 2%&2 Scarcity, tradeoffs, and opportunity cost -S* Interpreti,e
1/%
ANS NA' ')+ /%.
?hich of the following statements is trueD a. 'he >uantity of natural resources per wor9er can influence producti,ity. b. 'echnological 9nowledge and human capital are closely related. c. ),er long periods of time, the prices of most natural resources are stable or falling, relati,e to other prices. d. All of the abo,e are correct. " "I! 2 #$! 2%&2 Analytic ()* Scarcity, tradeoffs, and opportunity cost Natural resources : +roducti,ity -S* Interpreti,e If natural resources had become scarcer, then we would expect their a. prices to ha,e risen more than inflation as they ha,e. b. prices to ha,e risen more than inflation, but they ha,e not. c. 9nown >uantities to ha,e fallen as they ha,e. d. 9nown >uantities to ha,e fallen but they ha,e not. 6 "I! Analytic ()* Natural resources 2 #$! 2%&2 Scarcity, tradeoffs, and opportunity cost -S* Interpreti,e
ANS NA' ')+ /0.
ANS NA' ')+ //.
If an inexpensi,e alternati,e to oil were found, the price of oil adGusted for inflation a. would decline as the alternati,e would reduce the demand for oil. b. would decline as the alternati,e would reduce the supply of oil. c. would increase as the alternati,e would increase the demand for oil. d. would increase as the alternati,e would increase the supply of oil. A "I! Analytic ()* Natural resources 4 #$! 2%&2 Scarcity, tradeoffs, and opportunity cost -S* Applicati,e
ANS NA' ')+ /..
A leading en,ironmental group recently published a report contending that humans are running a Lresource deficitL because we are using natural resources faster than they can be regenerated. 'he group claims that this means that economic growth will e,entually stop, and will e,en be re,ersed. An economist would a. agree with the report, and would point to rising natural resource prices as e,idence. b. agree with the report, but wouldnFt thin9 it was important because growth will not slow down for se,eral centuries. c. disagree with the report, in part because it ignores the mitigating effects of technological change. d. disagree with the report because labor and capital are the primary determinants of growth, and since they are plentiful, growth will not slow down. * "I! Analytic ()* Natural resources 2 #$! 2%&2 Scarcity, tradeoffs, and opportunity cost -S* Interpreti,e
ANS NA' ')+ /5.
If a good has become more scarce, then we 9now for sure that a. the demand for it increased. b. the supply of it decreased. c. either the demand for it increased or the supply of it decreased. d. both the supply of it and the demand for it decreased. * Analytic Scarcity "I! ()* -S* 4 #$! 2%&2 Scarcity, tradeoffs, and opportunity cost Interpreti,e
ANS NA' ')+
1/0
.0.

?hich of the following best states economistsF understanding of the facts concerning the relationship between natural resources and economic growthD a. A country with no or few domestic natural resources is destined to be poor. b. "ifferences in natural resources ha,e ,irtually no role in explaining differences in standards of li,ing. c. Some countries can be rich mostly because of their natural resources and countries without natural resources need not be poor, but can ne,er ha,e ,ery high standards of li,ing. d. Abundant domestic natural resources may help ma9e a country rich, but e,en countries with few natural resources can ha,e high standards of li,ing. " "I! 2 #$! 2%&2 Analytic ()* +roducti,ity and growth Natural resources : $conomic growth
ANS NA' ')+ .1.
-S*
Interpreti,e
In the country of Suchnott, the price of sil,er increased from ;40 per ounce to ;42 per ounce during a time when the o,erall price le,el increased by % percent. "uring this period, the real price of sil,er a. increased. b. decreased. c. stayed the same. d. might ha,e increased, decreased or stayed the sameJ more information is needed to be sure. A Analytic +rices "I! ()* -S* 2 #$! 2%&2 Scarcity, tradeoffs, and opportunity cost Applicati,e
ANS NA' ')+ .2.
Suppose o,er the last year that the price of recycled aluminum increased from ;.00 a ton to ;500 a ton. ),er the same time a measure of the o,erall price le,el increased from 120 to 140. 'he price of recycled aluminum increased by a. less than inflation, but this doesn8t necessarily mean it became scarcer. b. less than inflation, and this means it became scarcer. c. more than inflation, and this means it became scarcer. d. more than inflation, but this doesn8t necessarily mean that it become scarcer. * "I! Analytic ()* +rices : Scarcity 2 #$! 2%&2 Scarcity, tradeoffs, and opportunity cost -S* Applicati,e
ANS NA' ')+ .4.
Suppose o,er the last year that the price of iron ore increased from ;1,200 a ton to ;1,400 a ton. ),er the same time a measure of the o,erall price le,el increased from 10. to 1./. 'he price of iron ore increased by a. less than inflation, and this means it became relati,ely less scarce. b. less than inflation, and this means it became scarcer. c. more than inflation, and this means it became scarcer. d. more than inflation, but this doesn8t necessarily mean that it become scarcer. A "I! Analytic ()* +rices : Scarcity 2 #$! 2%&2 Scarcity, tradeoffs, and opportunity cost -S* Applicati,e
ANS NA' ')+ .3.
After adGusting for inflation, o,er time the prices of most natural resources ha,e been a. steady or falling, meaning that our ability to conser,e them is growing more rapidly than their supplies are dwindling. b. steady or falling, meaning that their supplies are dwindling more rapidly than our ability to conser,e them is growing. c. rising, meaning that our ability to conser,e them is growing more rapidly than their supplies are dwindling. d. rising, meaning that their supplies are dwindling more rapidly than our ability to conser,e them is growing. A "I! 1 #$! 2%&2 Analytic ()* Scarcity, tradeoffs, and opportunity cost Natural resources : +rices -S* Interpreti,e
ANS NA' ')+

.%. +roprietary technology is 9nowledge that is a. 9nown but no longer used much. b. 9nown, but only recently disco,ered. c. 9nown mostly by only those in a certain profession. d. 9nown only by the company that disco,ered it. " Analytic 'echnology "I! ()* -S* 1 #$! 2%&2 'he Study of economics, and definitions of economics "efinitional
1//
ANS NA' ')+ .0.
+roprietary technology is technology that is a. widely used because it is easy to learn. b. widely used because the go,ernment subsidi7es its use. c. not widely used because people could, but ha,e not, ta9en the time to learn how to apply it. d. not widely used because it is 9nown or controlled only by the company that disco,ered it. " Analytic 'echnology "I! ()* -S* 1 #$! 2%&2 'he Study of economics, and definitions of economics "efinitional
ANS NA' ')+ ./.
A management professor disco,ers a way for corporate management to operate more efficiently. =e publishes his findings in a Gournal. =is findings are a. proprietary and common 9nowledge. b. neither proprietary nor common 9nowledge. c. proprietary, but not common, 9nowledge. d. common, but not proprietary, 9nowledge. " Analytic 'echnology "I! ()* -S* 1 #$! 2%&2 'he Study of economics, and definitions of economics "efinitional
ANS NA' ')+ ...
Eour company disco,ers a better way to produce mousetraps, but your better methods are not apparent from the mousetraps themsel,es. Eour 9nowledge of how to more efficiently produce mousetraps is a. common technological 9nowledge. b. common, but not technological, 9nowledge. c. proprietary technological 9nowledge. d. proprietary, but not technological, 9nowledge. * Analytic 'echnology "I! ()* -S* 1 #$! 2%&2 'he Study of economics, and definitions of economics "efinitional
ANS NA' ')+ .5.
'echnological 9nowledge refers to a. human capital. b. a,ailable information on how to produce things. c. resources expended transmitting societyFs understanding to the labor force. d. All of the abo,e are technological 9nowledge. 6 Analytic 'echnology "I! ()* -S* 2 #$! 2%&2 'he Study of economics, and definitions of economics Interpreti,e
ANS NA' ')+ 50.
'homas $dison recei,ed patents on many of his in,entions. ?hile the patents existed, his ideas were a. public goods and proprietary 9nowledge. b. public goods but not proprietary 9nowledge. c. pri,ate goods and proprietary 9nowledge. d. pri,ate goods but not proprietary 9nowledge. * Analytic 'echnology "I! ()* -S* 2 #$! 2%&2 'he Study of economics, and definitions of economics Interpreti,e
ANS NA' ')+
1/.
51.

'he relationship between the >uantity of output created and the >uantity of inputs needed to create it is called a. the capital accumulation function. b. technological 9nowledge. c. the production function. d. human capital. * "I! Analytic ()* +roduction function 1 #$! 2%&2 'he Study of economics, and definitions of economics -S* "efinitional
ANS NA' ')+ 52.
An understanding of the best ways to produce goods and ser,ices is called a. human capital. b. physical capital. c. technology. d. producti,ity. * Analytic 'echnology "I! ()* -S* 1 #$! 2%&2 'he Study of economics, and definitions of economics "efinitional
ANS NA' ')+ 54.
Suppose that o,er the last ten years producti,ity grew faster in )ceania than in !reedonia and the population of both countries was unchanged. a. It follows that real 2"+ per person must be higher in )ceania than in !reedonia. b. It follows that real 2"+ per person grew faster in )ceania than in !reedonia. c. It follows that the standard of li,ing must be higher in )ceania than in !reedonia. d. All of the abo,e are correct. 6 Analytic Applicati,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity : #eal 2"+
ANS NA' -S* 53.
Suppose that real 2"+ grew more in *ountry A than in *ountry 6 last year. a. *ountry A must ha,e a higher standard of li,ing than country 6. b. *ountry AFs producti,ity must ha,e grown faster than country 6Fs. c. 6oth of the abo,e are correct. d. None of the abo,e is correct. " "I! 4 #$! 2%&2 Analytic ()* +roducti,ity and growth +roducti,ity : Standard of li,ing -S* Analytical ?hich of the following would increase producti,ityD a. an increase in the physical capital stoc9 per wor9er b. an increase in human capital per wor9er c. an increase in natural resources per wor9er d. All of the abo,e are correct. " Analytic Interpreti,e "I! ()* 1 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' ')+ 5%.
ANS NA' -S* 50.
?hich of the following would, by itself, re,eal the most about a country8s standard of li,ingD a. its le,el of capital b. the number of hours wor9ed c. its a,ailability of natural resources d. its producti,ity " "I! 2 #$! 2%&2 Analytic ()* +roducti,ity and growth +roducti,ity : Standard of li,ing -S* Interpreti,e
ANS NA' ')+

5/. =uman capital is a. the same thing as technological 9nowledge. b. the same thing as labor. c. the tools and e>uipment operated by humans. d. 9nowledge and s9ills that wor9ers ha,e ac>uired. " Analytic "efinitional "I! ()* 1 #$! 2%&2 +roducti,ity and growth')+ =uman capital
1/5
ANS NA' -S* 5..
Suppose a country imposes new restrictions on how many hours people can wor9. If these restrictions reduce the total number of hours wor9ed in the economy, but all other factors that determine output are held fixed, then a. producti,ity and output both rise. b. producti,ity rises and output falls. c. producti,ity falls and output rises. d. producti,ity and output fall. 6 Analytic Analytical "I! ()* 4 #$! 2%&2 +roducti,ity and growth')+ +roducti,ity
ANS NA' -S* 55.
?hich of the following would be considered physical capitalD a. the a,ailable 9nowledge on how to ma9e semiconductors b. a taxi&cab dri,er8s 9nowledge of the fastest routes to ta9e c. bulldo7ers, bac9hoes and other construction e>uipment d. All of the abo,e are correct. * Analytic Interpreti,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ +hysical capital
ANS NA' -S*
100. )ther things the same, which of the following could explain an increase in producti,ityD a. either an increase in human capital or an increase in physical capital b. an increase in human capital but not an increase in physical capital c. an increase in physical capital but not an increase in human capital d. neither an increase in human capital nor an increase in physical capital ANS NA' ')+ A "I! 2 #$! 2%&2 Analytic ()* +roducti,ity and growth +roducti,ity : =uman capital : +hysical capital -S*
Interpreti,e
101. ?hich of the following is correctD a. )nce adGustment is made for inflation, the prices of most natural resources ha,e been about steady or falling. b. 'echnological progress has allowed us to substitute renewable resources for some nonrenewable resources. c. 'echnological progress has made once&crucial natural resources less necessary. d. All of the abo,e are correct. ANS NA' -S* " Analytic Interpreti,e "I! ()* 1 #$! 2%&2 +roducti,ity and growth')+ Natural resources
102. 2i,en that a country8s real output has increased, in which of the following cases can we be sure that its producti,ity also has increasedD a. 'he total number of hours wor9ed rose. b. 'he total number of hours wor9ed stayed the same. c. 'he total number of hours wor9ed fell. d. 6oth b and c are correct. ANS NA' -S* " Analytic Interpreti,e "I! ()* 2 #$! 2%&2 +roducti,ity and 2rowth ')+ )utput : +roducti,ity
1.0
104. 1sing the notation and production function in the text, Y<L is a. producti,ity. b. output. c. the a,ailability of natural resources. d. the amount of human capital. ANS NA' ')+ A Analytic +roducti,ity "I! ()* -S* 1 #$! 2%&2 'he Study of economics, and definitions of economics Interpreti,e
103. 1sing the production function and notation in the text, H<L measures a. natural resources per wor9er. b. human capital per wor9er. c. output per wor9er. d. physical capital per wor9er. ANS NA' ')+ 6 "I! Analytic ()* +roduction function 2 #$! 2%&2 'he Study of economics, and definitions of economics -S* Interpreti,e
10%. In a particular production process, if the >uantities of all inputs used are increased by 00 percent, then the >uantity of output increases by 00 percent as well. 'his means that a. the production process cannot be enhanced by technological ad,ances. b. no mathematical representation of the rele,ant production function can be formulated. c. the rele,ant production function has the limits&to&growth property. d. the rele,ant production function has the constant&returns&to&scale property. ANS NA' ')+ " "I! 2 #$! 2%&2 Analytic ()* +roducti,ity and growth +roduction function : *onstant returns to scale -S*
Interpreti,e
100. If your firm8s production function has constant returns to scale, and if you doubled all your inputs, then your firmFs output would a. not change. b. increase, but by less than double. c. double. d. more than double. ANS NA' ')+ * "I! 1 #$! 2%&2 Analytic ()* 'he Study of economics, and definitions of economics *onstant returns to scale -S* "efinitional
10/. Eou ba9e coo9ies. )ne day you double the time you spend, double the number of chocolate chips, flour, eggs, and all your other inputs, and ba9e twice as many coo9ies. Eour coo9ie production function has a. decreasing returns to scale. b. 7ero returns to scale. c. constant returns to scale. d. increasing returns to scale. ANS NA' ')+ * "I! 1 #$! 2%&2 Analytic ()* 'he Study of economics, and definitions of economics +roduction function : *onstant returns to scale -S* Interpreti,e
10.. If there are constant returns to scale, the production function can be written as a. xY C 2xAF@L, K, H, NA. b. Y<L C A F@x(, xK xH, xNA. c. Y<L C A F@ 1, K<L, H<L N<LA. d. L C A!@E, B, =, NA. ANS NA' ')+ * "I! 2 #$! 2%&2 Analytic ()* 'he Study of economics, and definitions of economics *onstant returns to scale -S* Interpreti,e

105. If a production function has constant returns to scale, output can be doubled if a. labor alone doubles. b. all inputs but labor double. c. all of the inputs double. d. None of the abo,e is correct. ANS NA' ')+ * "I! 1 #$! 2%&2 Analytic ()* 'he Study of economics, and definitions of economics *onstant returns to scale -S* Interpreti,e
1.1
110. Suppose there are constant returns to scale. Now suppose that o,er time a country doubles its wor9ers, its natural resources, its physical capital, and its human capital, but its technology is unchanged. ?hich of the following would doubleD a. both output and producti,ity b. output, but not producti,ity c. producti,ity, but not output d. neither producti,ity nor output ANS NA' ')+ 6 "I! 4 #$! 2%&2 Analytic ()* +roducti,ity and growth +roduction function : *onstant returns to scale -S*
Analytical
111. An economy8s production function has the constant&returns&to&scale property. If the economy8s labor force doubled and all other inputs stayed the same, then real 2"+ would a. stay the same. b. increase by exactly %0 percent. c. increase by exactly 100 percent. d. increase, but not necessarily by either %0 percent or 100 percent. ANS NA' ')+ " "I! 4 #$! 2%&2 Analytic ()* +roducti,ity and growth *onstant returns to scale : #eal 2"+
-S*
Analytical
112. If the number of wor9ers in an economy doubled, all other inputs stayed the same, and there were constant returns to scale, producti,ity would a. fall to less than one&half of its former ,alue. b. fall, but it would still be greater than one&half of its former ,alue. c. stay the same. d. rise but less than double. ANS NA' ')+ 6 "I! 4 #$! 2%&2 Analytic ()* +roducti,ity and growth *onstant returns to scale : +roducti,ity -S*
Analytical
114. If an economy with constant returns to scale were to double its physical capital stoc9, its a,ailable natural resources, and its human capital, but lea,e the si7e of the labor force the same, a. its output would stay the same and so would its producti,ity. b. its output and producti,ity would increase, but less than double. c. its output and producti,ity would increase by more than double. d. None of the abo,e is correct. ANS NA' ')+ 6 "I! 4 #$! 2%&2 Analytic ()* +roducti,ity and growth +roduction function : +roducti,ity -S* Analytical
Scenario 25(+. An economy8s production form ta9es the form Y C AF@L, K, H, NA. 113. Re0er to Scenario 25(+. 1sing the notation in the text, K represents the >uantity of a. human capital only. b. physical capital only. c. human capital and physical capital combined. d. nonrenewable natural resources.
1.2
ANS NA' -S*

6 Analytic Interpreti,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ +roduction function
11%. Re0er to Scenario 25(+. In the production function, which ,ariable would increase in ,alue as technology impro,edD a. A b. K c. H d. N ANS NA' -S* A Analytic Interpreti,e "I! ()* 2 #$! 2%&2 +roducti,ity and growth')+ +roduction function
110. Re0er to Scenario 25(+. If the production function has the constant&returns&to&scale property, then it could be rewritten as a. Y!L " AF#1 K!L H!L N!L$ b. Y!L " AF#L 1 H!L N!L$ c. Y!L " AF#L K!L 1 N!L$ d. Y!L " AF#L K!L H!L 1$ ANS NA' ')+ A "I! 2 #$! 2%&2 Analytic ()* +roducti,ity and growth +roduction function : *onstant returns to scale -S*
Interpreti,e
11/. Re0er to Scenario 25(+. If the production function has the constant&returns&to&scale property, then if we 9now the ,alues of A, K<L, H<L and N<L, we also 9now the ,alue of a. output. b. labor producti,ity. c. A. d. All of the abo,e are correct. ANS NA' ')+ 6 "I! 2 #$! 2%&2 Analytic ()* +roducti,ity and growth +roduction function : *onstant returns to scale -S*
Interpreti,e
11.. Re0er to Scenario 25(+. If the production function has the constant&returns&to&scale property, then it is possible that the specific form of the production function is a. Y " 3L % 2K % 4H % N b. Y C @L M K M H % N$!& c. Y "' d. Y " & ANS NA' ')+ * "I! 4 #$! 2%&2 Analytic ()* +roducti,ity and growth +roduction function : *onstant returns to scale -S*
Analytical
Sec%1 ( Production and Growth ( Econo,ic Growth and Pu2"ic Po"ic.

)ULT*PLE CHO*CE 1. N?hen wor9ers already ha,e a large >uantity of capital to use in producing goods and ser,ices, gi,ing them an additional unit of capital increases their producti,ity only slightly.O 'his statement a. represents the traditional ,iew of the production process. b. is an assertion that capital is subGect to diminishing returns. c. is made under the assumption that the >uantities of human capital, natural resources, and technology are being held constant. d. All of the abo,e are correct. " Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ "iminishing returns
ANS NA' -S*

2.
1.4
N?hen wor9ers ha,e a relati,ely small >uantity of capital to use in producing goods and ser,ices, gi,ing them an additional unit of capital increases their producti,ity by a relati,ely large amount.O 'his statement a. is an assertion that production functions ha,e the property of constant returns to scale. b. is consistent with the ,iew that capital is subGect to diminishing returns. c. is inconsistent with the ,iew that it is easier for a country to grow fast if it starts out relati,ely poor. d. All of the abo,e are correct. 6 Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ "iminishing returns
ANS NA' -S* 4.
?hen a society decides to increase its >uantity of physical capital, the society a. can a,oid the usual need to face trade&offs. b. is apparently not ,ery concerned about its rate of economic growth in the future. c. is in effect deciding to consume fewer goods and ser,ices in the present. d. is in effect deciding to sa,e less of its current income in the present. * Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ In,estment
ANS NA' -S* 3.
'he catch&up effect can help explain a. the spectacular economic growth experienced by South Borea o,er the years 1500 to 1550. b. the spectacular economic growth experienced by the 1nited States o,er the years 1500 to 1550. c. why the diminishing&returns property is no longer ta9en seriously by economists. d. why the ?orld 6an9 is more inclined to encourage the flow of capital to ad,anced economies rather than to de,eloping economies. A Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ *atch&up effect
ANS NA' -S*
Fi3ure 25(+4 )n the hori7ontal axis, K<L represents capital @KA per wor9er @LA. )n the ,ertical axis, Y<L represents output @YA per wor9er @LA.
Y!L
K!L
%. Re0er to Fi3ure 25(+4 'he cur,e becomes flatter as the amount of capital per wor9er increases because of a. increasing returns to capital. b. increasing returns to labor. c. diminishing returns to capital. d. diminishing returns to labor.
1.3
ANS NA' -S* 0.

* Analytic Interpreti,e "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ "iminishing returns
Re0er to Fi3ure 25(+4 'he shape of the cur,e is consistent with which of the following statements about the economy to which the cur,e appliesD a. In the long run, a higher sa,ing rate leads to a higher le,el of producti,ity. b. In the long run, a higher sa,ing rate leads to a higher le,el of income. c. In the long run, a higher sa,ing rate leads to neither a higher growth rate of producti,ity nor a higher growth rate of income. d. All of the abo,e are correct. " "I! 2 #$! 2%&4 Analytic ()* +roducti,ity and growth "iminishing returns : $conomic growth -S*
ANS NA' ')+ /.
Interpreti,e
Re0er to Fi3ure 25(+4 'he shape of the cur,e is consistent with which of the following statements about the economy to which the cur,e appliesD a. In the long run, a higher sa,ing rate leads to a higher growth rate of producti,ity. b. In the long run, a higher sa,ing rate leads to a higher growth rate of income. c. #eturns to capital become increasingly smaller as the amount of capital per wor9er increases. d. All of the abo,e are correct. * "I! 2 #$! 2%&4 Analytic ()* +roducti,ity and growth "iminishing returns : $conomic growth -S*
ANS NA' ')+ ..
Interpreti,e
Re0er to Fi3ure 25(+4 *hoose a point anywhere on the cur,e and call it point A. If the economy is at point A in 200/, then it will definitely remain at point A in 200. if, between 200/ and 200., a. the >uantity of physical capital remains constantJ the number of wor9ers doublesJ and human capital, natural resources, and technology all double as well. b. the >uantity of physical capital doublesJ human capital, natural resources, and technology all double as wellJ and the number of wor9ers remains constant. c. the >uantity of physical capital doublesJ the number of wor9ers doublesJ and human capital, natural resources, and technology all double as well. d. the >uantity of physical capital doublesJ the number of wor9ers doublesJ and human capital, natural resources, and technology remain constant. " Analytic Analytical "I! ()* 4 #$! 2%&4 +roducti,ity and growth')+ "iminishing returns
ANS NA' -S* 5.
In,estment in a. physical capital, unli9e in,estment in human capital, has an opportunity cost. b. physical capital, li9e in,estment in human capital, has an opportunity cost. c. human capital is particularly attracti,e because it in,ol,es no externalities. d. human capital has been shown to be relati,ely unimportant, relati,e to in,estment in physical capital, for a country8s long&run economic success. 6 "I! 2 #$! 2%&4 Analytic ()* +roducti,ity and growth +hysical capital : =uman capital -S* Interpreti,e 'he return to schooling for society is higher than the return to schooling for the indi,idual if a. the concept of diminishing returns applies to education. b. the concept of constant returns to scale applies to education. c. human capital con,eys positi,e externalities. d. in,estment in human capital in,ol,es no opportunity costs. * Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ =uman capital : $xternalities
ANS NA' ')+ 10.
ANS NA' -S*

11. Studies on health, nutrition, and li,ing standards suggest that a. short height can be an indicator of malnutrition. b. wor9ers8 height and their producti,ity are unrelated. c. nations8 economic de,elopment and their wor9ers8 eating habits are unrelated. d. there is no causal lin9 between nutrition and economic growth. A "I! 2 #$! 2%&4 Analytic ()* +roducti,ity and growth +roducti,ity : $conomic growth -S* Interpreti,e
1.%
ANS NA' ')+ 12.
?hich of the following terms is used to refer to the ability of people to exercise authority o,er the resources they ownD a. natural rights b. property rights c. input control d. collecti,e control 6 Analytic "efinitional "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ +roperty rights
ANS NA' -S* 14.
In countries that experience political instability, standards of li,ing tend to be low because of a. ,iolations of diminishing returns. b. excessi,e le,els of caloric inta9e. c. lac9 of respect for property rights. d. attempts by go,ernment officials to thwart the catch&up effect. * "I! 2 #$! 2%&4 Analytic ()* +roducti,ity and growth +roperty rights : Standard of li,ing -S* Interpreti,e *ountries that pursued outward&oriented policies in the 20th century a. experienced lower rates of economic growth than did countries that pursued inward&oriented policies. b. experienced higher le,els of political instability than did countries that pursued inward&oriented policies. c. include Singapore, South Borea, and 'aiwan. d. All of the abo,e are correct. * Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ !ree trade
ANS NA' ')+ 13.
ANS NA' -S* 1%.
#apid population growth a. was hailed by 'homas #obert -althus as the 9ey to future economic growth. b. tends to lead to higher le,els of educational attainment. c. is the main reason that less de,eloped nations are poor. d. may depress economic prosperity by reducing the amount of capital which each wor9er has to wor9 with. " Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ +opulation growth
ANS NA' -S* 10.
It has been suggested that a possible benefit of rapid population growth is the li9elihood that when there are more people, then there are more a. teachers, and so students ac>uire more 9nowledge and s9ills. b. people to disco,er things, and so technological progress is rapid. c. sa,ers, and so capital per wor9er tends to increase o,er time. d. consumers, and so economic growth is more rapid. 6 Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ +opulation growth
ANS NA' -S*
1.0
1/.

)ne of the 'en +rinciples of $conomics in *hapter 1 is that people face tradeoffs. 'he growth that arises from capital accumulation is not a free lunch. It re>uires that society a. conser,e resources for future generations. b. sacrifice consumption goods and ser,ices now in order to enGoy more consumption in the future. c. recycle resources so that future generations can produce goods and ser,ices with the accumulated capital. d. None of the abo,e is correct. 6 Analytic Interpreti,e "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ In,estment
ANS NA' -S* 1..
Accumulating capital a. re>uires that society sacrifice consumption goods in the present. b. allows society to consume more in the present. c. decreases sa,ing rates. d. in,ol,es no tradeoffs. A Analytic Interpreti,e "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ *apital : Sa,ing
ANS NA' -S* 15.
'he traditional ,iew of the production process is that capital is subGect to a. constant returns. b. increasing returns. c. diminishing returns. d. diminishing returns for low le,els of capital, and increasing returns for high le,els of capital. * Analytic "efinitional "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ "iminishing returns
ANS NA' -S* 20.
If there are diminishing returns to capital, then a. capital produces fewer goods as it ages. b. old ideas are not as useful as new ones. c. increases in the capital stoc9 e,entually decrease output. d. increases in the capital stoc9 increase output by e,er smaller amounts. " Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ "iminishing returns
ANS NA' -S* 21.
In the long run, a higher sa,ing rate a. cannot increase the capital stoc9. b. means that people must consume less in the future. c. increases the le,el of producti,ity. d. None of the abo,e is correct. * Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ Sa,ing
ANS NA' -S* 22.
In the long run, a higher sa,ing rate a. cannot increase the capital stoc9. b. increases the growth rate of income. c. increases the growth rate of producti,ity. d. None of the abo,e is correct. " Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ Sa,ing
ANS NA' -S*

24. In the long run, an increase in the sa,ing rate a. doesn8t change the le,el of producti,ity or income. b. raises the le,els of both producti,ity and income. c. raises the le,el of producti,ity but not the le,el of income. d. raises the le,el of income but not the le,el of producti,ity. 6 Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ Sa,ing : +roducti,ity
1./
ANS NA' -S* 23.
If a country were to increase its sa,ing rate, then in the long run it would also increase its a. le,el of income. b. growth rate of income. c. growth rate of producti,ity. d. All of the abo,e are correct. A Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ Sa,ing
ANS NA' -S* 2%.
If a country8s sa,ing rate declined, then other things the same, in the long run the country would ha,e a. lower producti,ity, but not lower real 2"+ per person. b. lower producti,ity and lower real 2"+ per person. c. lower real 2"+ per person, but not lower producti,ity d. neither lower producti,ity nor lower real 2"+ per person. 6 Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ Sa,ing : +roducti,ity
ANS NA' -S* 20.
If a countryFs sa,ing rate increases, then in the long run a. both producti,ity growth and income growth increase. b. only producti,ity growth increases. c. only income growth increases. d. neither producti,ity growth nor income growth increase. " Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ Sa,ing : +roducti,ity
ANS NA' -S* 2/.
If a countryFs sa,ing rate increases, then in the long run a. producti,ity is higher but real 2"+ per person is not higher. b. real 2"+ per person is higher but producti,ity is not higher. c. producti,ity and real 2"+ per person are both higher. d. neither producti,ity nor real 2"+ per person is higher. * Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ Sa,ing : +roducti,ity
ANS NA' -S* 2..
)ther things the same, a country that increases its sa,ing rate increases a. its future producti,ity and future real 2"+. b. neither its future producti,ity nor future real 2"+. c. its future producti,ity, but not its future real 2"+. d. its future real 2"+, but not its future producti,ity. A Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ Sa,ing : +roducti,ity
ANS NA' -S* 25.
)ther things the same, a country that increases its sa,ings rate will ha,e a. higher future capital and higher future real 2"+ per person. b. higher future capital but not higher future real 2"+ per person. c. higher future real 2"+ per person but not higher future capital. d. neither higher future capital nor higher future real 2"+ per person.
1..
ANS NA' -S* 40.

A Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ Sa,ing : *apital
Suppose 'ur9ey increases its sa,ing rate. In the long run a. the growth rates of producti,ity and real 2"+ per person increase. b. producti,ity and real 2"+ per person increase. c. the growth rate of producti,ity increases, and real 2"+ per person increases. d. producti,ity increases, and the growth rate of real 2"+ per person increases. 6 Analytic Applicati,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ Sa,ing
ANS NA' -S* 41.
Suppose that Slo,enia underta9es a policy to increase its sa,ing rate. 'his policy will li9ely a. ha,e no impact on 2"+ growth. b. lead to higher 2"+ growth for a few years. c. lead to higher 2"+ growth for a period of se,eral decades. d. lead to a permanently higher growth rate. * Analytic Applicati,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ Sa,ing
ANS NA' -S* 42.
Suppose that a country increased its sa,ing rate. In the long run it would ha,e a. higher producti,ity, and another unit of capital would increase output by more than before. b. higher producti,ity, but another unit of capital would increase output by less than before. c. lower producti,ity, and another unit of capital would increase output by more than before. d. lower producti,ity, but another unit of capital would increase output by less than before. 6 Analytic Analytical "I! ()* 4 #$! 2%&4 +roducti,ity and growth')+ Sa,ing : "iminishing returns
ANS NA' -S* 44.
)ther things e>ual, relati,ely poor countries tend to grow a. slower than relati,ely rich countriesJ this is called the po,erty trap. b. slower than relati,ely rich countriesJ this is called the fall&behind effect. c. faster than relati,ely rich countriesJ this is called the catch&up effect. d. faster than relati,ely rich countriesJ this is called the constant&returns&to&scale effect. * Analytic "efinitional "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ *atch&up effect
ANS NA' -S* 43.
Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has more capital per wor9er and so it has more real 2"+ per wor9er than the other. !inally, suppose that the sa,ing rate in both countries increases from 3 percent to / percent. ),er the next ten years we would expect that a. the growth rate will not change in either country. b. the country that started with less capital per wor9er will grow faster. c. the country that started with more capital per wor9er will grow faster. d. both countries will grow and at the same rate. 6 Analytic Applicati,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ *atch&up effect
ANS NA' -S*

4%.
1.5
Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has less capital and so less real 2"+ per person. Suppose that both increase their sa,ing rate from 4 percent to 3 percent. In the long run a. both countries will ha,e permanently higher growth rates of real 2"+ per person, and the growth rate will be higher in the country with more capital. b. both countries will ha,e permanently higher growth rates of real 2"+ per person, and the growth rate will be higher in the country with less capital. c. both countries will ha,e higher le,els of real 2"+ per person, and the temporary increase in growth in the le,el of real 2"+ per person will ha,e been greater in the country with more capital. d. both countries will ha,e higher le,els of real 2"+ per person, and the temporary increase in growth in the le,el of real 2"+ per person will ha,e been greater in the country with less capital. " Analytic Applicati,e "I! ()* 4 #$! 2%&4 +roducti,ity and growth')+ *atch&up effect
ANS NA' -S* 40.
#eal 2"+ per person is ;40,000 in *ountry A, ;20,000 in *ountry 6, and ;11,000 in *ountry *. Sa,ing per person is ;1,000 in all three countries. )ther things e>ual, we would expect that a. all three countries will grow at the same rate. b. *ountry A will grow the fastest. c. *ountry 6 will grow the fastest. d. *ountry * will grow the fastest. " Analytic Applicati,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ *atch&up effect
ANS NA' -S* 4/.
)ther things the same, if a country increased its sa,ing rate, in 30 years or so it would li9ely ha,e a. higher producti,ity, and a higher growth rate of real 2"+. b. higher producti,ity, but not a higher growth rate of real 2"+. c. the same producti,ity and growth of real 2"+ it began with. d. None of the abo,e is correct. 6 Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ Sa,ing
ANS NA' -S* 4..
?hich of the following best describes the response of output as time passes to an increase in the sa,ing rateD a. 'he growth rate of output does not change. b. 'he growth rate of output increases and gets e,en larger as time passes. c. 'he growth rate of output increases and does not change as time passes. d. 'he growth rate of output increases, but diminishes to its former le,el as time passes. " Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ Sa,ing : "iminishing returns
ANS NA' -S* 45.
An increase in the sa,ing rate would, other things the same, a. increase growth more for a poor country than for a rich country, and raise growth permanently. b. increase growth more for a poor country than for a rich country, but raise growth temporarily. c. increase growth more for a rich country than for a poor country, and raise growth permanently. d. increase growth more for a rich country than for a poor country, but raise growth temporarily. 6 Analytic Applicati,e "I! ()* 4 #$! 2%&4 +roducti,ity and growth')+ *atch&up effect
ANS NA' -S* 30.
*onsider three imaginary countries. In )ld Eor9, sa,ing amounts to ;4,000 and consumption amounts to ;/,000J in New !ran9, sa,ing amounts to ;2,000 and consumption amounts to ;.,000J and in 2an7ee, sa,ing amounts to ;3,%00 and consumption amounts to ;10,%00. 'he sa,ing rate is a. higher in )ld Eor9 than in 2an7ee, and it is higher in 2an7ee than in New !ran9. b. higher in New !ran9 than in 2an7ee, and it is higher in 2an7ee than in )ld Eor9. c. higher in 2an7ee than in New !ran9, and it is the same in New !ran9 and )ld Eor9. d. higher in )ld Eor9 than in New !ran9, and it is the same in )ld Eor9 and 2an7ee.
150
ANS NA' -S* 31.

" Analytic Applicati,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ Sa,ing
'he traditional ,iew of the production process is that capital is subGect to a. diminishing returns, so that other things the same, real 2"+ in poor countries should grow at a faster rate than in rich countries. b. diminishing returns, so that other things the same, real 2"+ in poor countries should grow at a slower rate than in rich countries. c. increasing returns, so that other things the same, real 2"+ in poor countries should grow at a faster rate than in rich countries. d. increasing returns, so that other things the same, real 2"+ in poor countries should grow at a slower rate than in rich countries. A "I! 2 #$! 2%&4 Analytic ()* +roducti,ity and growth *atch&up effect : "iminishing returns
ANS NA' ')+ 32.
-S*
Applicati,e
'he traditional ,iew that the production process has diminishing returns implies that a. the increase in output growth from an increase in the sa,ing rate rises o,er time, and that, other things the same, rich countries should grow faster than poor ones. b. the increase in output growth from an increase in the sa,ing rate falls o,er time, and that, other things the same, rich countries should grow faster than poor ones. c. the increase in output growth from an increase in the sa,ing rate rises o,er time, and that, other things the same, poor countries should grow faster than rich ones. d. the increase in output growth from an increase in the sa,ing rate falls o,er time, and that, other things the same, poor countries should grow faster than rich ones. " "I! 2 #$! 2%&4 Analytic ()* +roducti,ity and growth "iminishing returns : *atch&up effect
ANS NA' ')+ 34.
-S*
Applicati,e
)n a production function, as capital per wor9er increases, output per wor9er a. increases. 'his increase is larger at larger ,alues of capital per wor9er. b. increases. 'his increase is smaller at larger ,alues of capital per wor9er. c. decreases. 'his decrease is larger at larger ,alue of capital per wor9er. d. decreases. 'his decrease is smaller at larger ,alue of capital per wor9er. 6 "I! 2 #$! 2%&4 Analytic ()* +roducti,ity and growth +roduction function : "iminishing returns
ANS NA' ')+ 33.
-S*
Interpreti,e
'he slope of the production function with capital per wor9er on the hori7ontal axis and output per wor9er on the ,ertical axis a. is positi,e and gets steeper as capital per wor9er rises. b. is positi,e and gets flatter as capital per wor9er rises. c. is negati,e and gets steeper as capital per wor9er rises. d. is negati,e and gets flatter as capital per wor9er rises. 6 "I! 2 #$! 2%&4 Analytic ()* +roducti,ity and growth +roduction function : "iminishing returns
ANS NA' ')+ 3%.
-S*
Interpreti,e
'he catch&up effect refers to the idea that a. sa,ing will always catch&up with in,estment spending. b. it is easier for a country to grow fast and so catch&up if it starts out relati,ely poor. c. population e,entually catches&up with increased output. d. if in,estment spending is low, increased sa,ing will help in,estment to Lcatch&up.L 6 Analytic "efinitional "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ *atch&up effect
ANS NA' -S*

30. 'he logic behind the catch&up effect is that a. wor9ers in countries with low incomes will wor9 more hours than wor9ers in countries with high incomes. b. the capital stoc9 in rich countries deteriorates at a higher rate because it already has a lot of capital. c. new capital adds more to production in a country that doesnFt ha,e much capital than in a country that already has much capital. d. None of the abo,e is correct. * Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ *atch&up effect
151
ANS NA' -S* 3/.
?hich of the following countries benefited significantly from the catch&up effect in the last half of the twentieth centuryD a. $thiopia b. the 1nited States c. *anada d. South Borea " Analytic "efinitional "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ *atch&up effect
ANS NA' -S* 3..
?hich of the following is consistent with the catch&up effectD a. 'he 1nited States had a higher growth rate before 1500 than after. b. After ?orld ?ar II the 1nited States had lower growth rates than war&ra,aged $uropean countries. c. Although the 1nited States has a relati,ely high le,el of output per person, its growth rate is rather modest compared to some countries. d. All of the abo,e are correct. " Analytic Applicati,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ *atch&up effect
ANS NA' -S* 35.
),er the period 1500&1551, a. South Borea had a higher growth rate than the 1nited States because it had a higher ratio of in,estment to 2"+. b. the 1nited States had a higher growth rate than South Borea because it had a higher ratio of in,estment to 2"+. c. South Borea had a higher growth rate than the 1nited States e,en though it had a similar ratio of in,estment to 2"+. d. the 1nited States had a higher growth rate than South Borea e,en though it had a similar ratio of in,estment to real 2"+. * Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ *atch&up effect
ANS NA' -S* %0.
(ower $>uitorial and 1pper $>uitorial are the same except (ower $>uitorial has a larger capital stoc9. 6oth countries underta9e policies that raise their sa,ing rates to the same higher le,el. ?e would expect that a. both countries would ha,e permanent increases in their growth rates, but the increase would initially be larger in (ower $>uitorial. b. both countries would ha,e permanent increases in their growth rates, but the increase would initially be smaller in 1pper $>uitorial. c. both countries would ha,e temporary increases in their growth rates, but the increase would be larger in (ower $>uitorial. d. both countries would ha,e temporary increases in their growth rates, but the increase would be smaller in (ower $>uitorial. " Analytic Applicati,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ *atch&up effect
ANS NA' -S*
152
%1.

If an American&based firm opens and operates a new watch factory in +anama, then it is engaging in a. foreign portfolio in,estment. b. foreign financial in,estment. c. foreign direct in,estment. d. indirect foreign in,estment. * Analytic "efinitional "I! ()* 1 #$! 2%&4 International trade and finance ')+ !oreign in,estment
ANS NA' -S* %2.
In the 1.00s, $uropeans purchased stoc9 in American companies that used the funds to build railroads and factories. 'he $uropeans who did this engaged in a. foreign portfolio in,estment. b. indirect domestic in,estment. c. foreign direct in,estment. d. foreign indirect in,estment. A "I! 1 #$! 2%&4 Analytic ()* International trade and finance !oreign in,estment : $conomic growth -S*
ANS NA' ')+ %4.
"efinitional
Suppose that an American opens and operates a candy factory in !inland. 'his is an example of a. foreign direct in,estment. American sa,ing is used to finance !inish in,estment. b. foreign direct in,estment. American sa,ing is used to finance American in,estment. c. foreign portfolio in,estment. American sa,ing is used to finance !inish in,estment. d. foreign portfolio in,estment. American sa,ing is used to finance American in,estment. A Analytic "efinitional "I! ()* 1 #$! 2%&4 International trade and finance ')+ !oreign in,estment
ANS NA' -S* %3.
!oreign sa,ing is used for domestic in,estment when foreigners engage in a. foreign direct in,estment. b. foreign portfolio in,estment. c. either foreign direct in,estment or foreign portfolio in,estment. d. None of the abo,e is correct. * Analytic Interpreti,e "I! ()* 1 #$! 2%&4 International trade and finance ')+ !oreign in,estment
ANS NA' -S* %%.
Suppose 1.S.&based Intel *orporation builds and operates a new computer chip factory in =onduras. !uture production from such an in,estment would a. increase =onduran 2"+ more than it would increase =onduran 2N+. b. increase =onduran 2N+ more than it would increase =onduran 2"+. c. not affect =onduran 2N+, but would increase =onduran 2"+. d. ha,e no affect on either =onduran 2"+ or 2N+. A "I! 2 #$! 2%&4 Analytic ()* International trade and finance !oreign in,estment : 2ross domestic product : 2ross national product Applicati,e Suppose Hapanese&based Sony *orporation builds and operates a new digital camera factory in the 1nited States. !uture production from such an in,estment would a. increase 1.S. 2N+ more than it would increase 1.S. 2"+. b. increase 1.S. 2"+ more than it would increase 1.S. 2N+. c. not affect 1.S. 2N+, but would increase 1.S. 2"+. d. ha,e no affect on 1.S. 2N+ or 2"+. 6 "I! 2 #$! 2%&4 Analytic ()* International trade and finance !oreign in,estment : 2ross domestic product : 2ross national product Applicati,e
ANS NA' ')+ -S* %0.
ANS NA' ')+ -S*

%/. 'he opening of a new American&owned factory in $gypt would tend to increase $gyptFs 2"+ more than it increases $gyptFs 2N+ because a. some of the income from the factory accrues to people who do not li,e in $gypt. b. gross domestic product is income earned within a country by both residents and nonresidents, whereas gross national product is the income earned by residents of a country while producing both at home and abroad. c. all of the income from the factory is included in $gyptFs 2"+. d. All of the abo,e are correct. " "I! 2 #$! 2%&4 Analytic ()* International trade and finance !oreign in,estment : 2ross domestic product : 2ross national product Applicati,e ?hen -exico experiences in,estment from abroad, it experiences, as a result, a. an increase in producti,ity. b. a decrease in 2ross National +roduct @2N+A. c. lower wages for -exican wor9ers. d. None of the abo,e is correct. A "I! 2 #$! 2%&4 Analytic ()* International trade and finance !oreign in,estment : +roducti,ity -S* Applicati,e In,estment from abroad a. is a way for poor countries to learn the state&of&the&art technologies de,eloped and used in richer countries. b. is ,iewed by economists as a way to increase growth. c. often re>uires remo,ing restrictions that go,ernments ha,e imposed on foreign ownership of domestic capital. d. All of the abo,e are correct. " Analytic Interpreti,e "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ !oreign in,estment
154
ANS NA' ')+ -S* %..
ANS NA' ')+ %5.
ANS NA' -S* 00.
An organi7ation that tries to encourage the flow of in,estment to poor countries is the a. ?orld 6an9. b. )rgani7ation of (ess "e,eloped *ountries. c. Alliance of "e,eloping *ountries. d. International "e,elopment Alliance. A "I! 1 #$! 2%&4 Analytic ()* +roducti,ity and growth !oreign in,estment : ?orld 6an9 -S* "efinitional In the 1.S., each additional year of schooling has historically raised a personFs wage on a,erage by about a. 2 percent. b. % percent. c. 10 percent. d. 1% percent. * Analytic "efinitional "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ ?ages
ANS NA' ')+ 01.
ANS NA' -S* 02.
'he term human capital can be used to describe a. technology. b. uns9illed labor. c. expenditures that result in increased in,estment from abroad. d. health. " Analytic "efinitional "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ =uman capital
ANS NA' -S*
153
04.

In the 1.S., each additional year of schooling has historically raised a personFs wage on a,erage by about a. % percent. In less de,eloped countries the gap between the wages of educated and uneducated wor9ers is smaller. b. 10 percent. In less de,eloped countries the gap between the wages of educated and uneducated wor9ers is smaller. c. % percent. In less de,eloped countries the gap between the wages of educated and uneducated wor9ers is larger. d. 10 percent. In less de,eloped countries the gap between the wages of educated and uneducated wor9ers is larger. " Analytic "efinitional "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ ?ages
ANS NA' -S* 03.
?hich of the following is generally an opportunity cost of in,estment in human capitalD a. future Gob security b. forgone present wages c. increased earning potential d. All of the abo,e are correct. 6 Analytic Interpreti,e "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ =uman capital
ANS NA' -S* 0%.
$ducated people may generate ideas that increase production. 'hese ideas a. produce a return to society from education that is greater than the return to the indi,idual. b. could Gustify go,ernment subsides for education. c. are external benefits of education. d. All of the abo,e are correct. " Analytic Interpreti,e "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 00.
?hich of the following is an example of the Lbrain drainDL a. A countryFs most highly educated wor9ers emigrate to rich countries. b. A country has such a poor educational system that human capital falls o,er time. c. 'he population of a country grows so fast that the educational system canFt 9eep up. d. A country steals patented technology from another country. A Analytic Interpreti,e "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ =uman capital
ANS NA' -S* 0/.
$conomist #obert !ogel focused on which of the following factors as one determinant of long&run economic growthD a. education b. research and de,elopment c. nutrition d. trade restrictions * Analytic "efinitional "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 0..
According to research by #obert !ogel, what proportion of the 6ritish population in 1/.0 was so malnourished that they could not perform manual laborD a. 30 percent b. 20 percent c. 10 percent d. % percent 6 Analytic "efinitional "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ $conomic growth
ANS NA' -S*

05.
15%
#oughly what percentage of growth in real 2"+ per person in 6ritain between 1/50 and 15.0 was accounted for by impro,ed nutrition according to the estimates of #obert !ogelD a. 40 percent b. 20 percent c. 10 percent d. % percent A Analytic "efinitional "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* /0.
?hich of the following statements is correctD a. In an economy&wide sense, property rights are an important prere>uisite for the price system to wor9. b. +roperty rights gi,e people the ability to exercise authority o,er the resources they own. c. 6ased on the a,ailable e,idence, the existence of well&established and well&enforced property rights appears to be associated with an enhanced standard of li,ing. d. All of the abo,e are correct. " Analytic Interpreti,e "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ +roperty rights
ANS NA' -S* /1.
'he dictator of 'uran has recently begun to arbitrarily sei7e farms belonging to his political opponents, and he has gi,en the farms to his friends. =is friends donFt 9now much about farming. 'he courts in 'uran ha,e ruled that the sei7ures are illegal, but the dictator has ignored the rulings. )ther things e>ual, we would expect that the growth rate in 'uran will a. fall temporarily, but will return to where it was when the new owners learn how to farm. b. increase because the total amount of human capital in the country will increase as the new owners learn how to farm. c. fall and remain lower for a long time. d. not be affected unless widespread ci,il disorder or ci,il war results. * Analytic Applicati,e "I! ()* 4 #$! 2%&4 +roducti,ity and growth')+ +olitical beha,ior
ANS NA' -S* /2.
'he dictator of a certain country re>uires that companies planning to open or expand must pay a large fee to file an application one year prior to building new factories or expanding existing ones. )ther things the same, in the long run this re>uirement would a. reduce real 2"+ per person and producti,ity. b. reduce real 2"+ per person but not producti,ity. c. reduce producti,ity but not real 2"+ per person. d. None of the abo,e is correct. A Analytic Applicati,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ +roperty rights
ANS NA' -S* /4.
Suppose that a new go,ernment is elected in (awrencia. 'he new go,ernment ta9es steps toward impro,ing the court system and reducing go,ernment corruption. 'he citi7ens of (awrencia find these efforts credible and outsiders belie,e these changes will be effecti,e and long lasting. 'hese changes will probably a. raise real 2"+ per person and producti,ity in (awrencia. b. raise real 2"+ per person but not producti,ity in (awrencia. c. raise producti,ity but not real 2"+ per person in (awrencia. d. raise neither producti,ity nor real 2"+ per person in (awrencia. A Analytic Applicati,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ +roperty rights
ANS NA' -S*
150
/3.

Inward&oriented policies a. include imposing tariffs and other trade restrictions. b. ha,e generally increased producti,ity and growth in the countries that pursued them. c. promote the production of goods and ser,ices that the country produces most efficiently. d. All of the abo,e are correct. A 'rade policy "I! -S* 1 "efinitional #$! 2%&4
ANS ')+ /%.
Inward&oriented policies a. are generally supported by economists. b. are primarily concerned with the de,elopment of human capital. c. in some ways are li9e prohibiting the use of certain technologies. d. All of the abo,e are correct. * Analytic Interpreti,e "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ 'rade policy
ANS NA' -S* /0.
'he president of Impro,ia, a de,eloping country, proposes that his country needs to help domestic firms by imposing trade restrictions. a. 'hese are outward&oriented policies and most economists belie,e they would ha,e beneficial effects on growth in Impro,ia. b. 'hese are outward&oriented policies and most economists belie,e they would ha,e ad,erse effects on growth in Impro,ia. c. 'hese are inward&oriented policies and most economists belie,e they would ha,e beneficial effects on growth in Impro,ia. d. 'hese are inward&oriented policies and most economists belie,e they would ha,e ad,erse effects on growth in Impro,ia. " Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ 'rade policy
ANS NA' -S* //.
In the past there ha,e been ,iolent protests against the ?orld 6an9 and the ?orld 'rade )rgani7ation. 'he protesters argued that these institutions promote free trade and also encourage corporations in rich countries to in,est in poor countries. 'he protesters contended that these practices ma9e rich countries richer and poor countries poorer. An economist would a. disagree with the protesters because these practices will help ma9e both rich and poor countries richer. b. disagree with the protesters about free trade, but would agree with the protesters about corporate in,estment. c. disagree with the protesters about corporate in,estment, but would agree with the protesters about free trade. d. agree with the protesters. A Analytic Applicati,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ 'rade policy
ANS NA' -S* /..
)utward&oriented policies a. allow countries to ta9e ad,antage of gains from trade. b. ha,e generally led to high growth for the countries that pursued them. c. recei,e widespread support from economists. d. All of the abo,e are correct. " Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ 'rade policy
ANS NA' -S*

/5. ?hen a country remo,es trade barriers and imports toys and exports farm machinery, a. its growth slows. b. its producti,ity decreases. c. it is essentially transforming farm machinery into toys. d. its economic well&being decreases while that of the country that sells toys increases. * Analytic Applicati,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ 'rade policy
15/
ANS NA' -S* .0.
Suppose a country reduces trade restrictions. 'his country would be pursing an a. inward policy, which most economists belie,e has beneficial effects on the economy. b. inward policy, which most economists belie,e has ad,erse effects on the economy. c. outward policy, which most economists belie,e has beneficial effects on the economy. d. outward policy, which most economists belie,e has ad,erse effects on the economy. * Analytic Interpreti,e "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ 'rade policy
ANS NA' -S* .1.
National defense and 9nowledge are generally considered to be a. pri,ate goods. b. public goods. c. proprietary goods. d. societal goods. 6 Analytic +ublic goods "I! ()* 1 #$! 2%&4 'he Study of $conomics, and definitions of economics -S* "efinitional
ANS NA' ')+ .2.
+atents turn new ideas into a. public goods, and increase the incenti,e to engage in research. b. public goods, but decrease the incenti,e to engage in research. c. pri,ate goods, and increase the incenti,e to engage in research. d. pri,ate goods, but decrease the incenti,e to engage in research. * Analytic +ri,ate goods "I! ()* 1 #$! 2%&4 'he Study of $conomics, and definitions of economics -S* Interpreti,e
ANS NA' ')+ .4.
)nce an idea enters societyFs pool of 9nowledge, the 9nowledge becomes a a. societal good. b. pri,ate good. c. public good. d. proprietary good. * Analytic +ublic goods "I! ()* 1 #$! 2%&4 'he Study of $conomics, and definitions of economics -S* "efinitional
ANS NA' ')+ .3.
In medie,al $urope an important technological ad,ance was the use of the padded horse collar for plowing. )nce this idea was thought of, other people used it. 'his illustrates that 9nowledge is generally a a. public good. b. societal good. c. pri,ate good. d. normal good. A Analytic +ublic goods "I! ()* 1 #$! 2%&4 'he Study of $conomics, and definitions of economics -S* Interpreti,e
ANS NA' ')+
15.
.%.

In,entors often obtain patents on new products and processes, thereby turning new ideas into a. pri,ate goods and increasing the incenti,e to engage in research. b. pri,ate goods but decreasing the incenti,e to engage in research. c. public goods and increasing the incenti,e to engage in research. d. public goods but decreasing the incenti,e to engage in research. A Analytic +ri,ate goods "I! ()* 1 #$! 2%&4 'he Study of $conomics, and definitions of economics -S* Applicati,e
ANS NA' ')+ .0.
-althus predicted that the power of population a. was greater than the power of the earth to produce subsistence. =is forecast was on the mar9. b. was greater than the power of the earth to produce subsistence. =is forecast was off the mar9. c. was less than the power of the earth to produce subsistence. =is forecast was on the mar9. d. was less than the power of the earth to produce subsistence. =is forecast was off the mar9. 6 "I! 1 #$! 2%&4 Analytic ()* +roducti,ity and growth $conomists : +opulation growth -S* Interpreti,e A rapid increase in the number of wor9ers, other things the same, is li9ely in the short term to a. raise real 2"+ per person, but decrease real 2"+. b. decrease both real 2"+ and real 2"+ per person. c. raise both real 2"+ and real 2"+ per person. d. raise real 2"+, but decrease real 2"+ per person. " Analytic Interpreti,e "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ +opulation growth
ANS NA' ')+ ./.
ANS NA' -S* ...
?hich of the following is not correctD a. *hina allows only one child per family and couples that ,iolate this rule are subGect to substantial fines. b. In de,eloped countries, population growth is consistently about 4 percent per yearJ in de,eloping countries it is consistently about % percent per year. c. $ducational attainment tends to be lowest in countries with the highest population growth. d. $conomists generally belie,e that a country that decreases a high population growth rate can increase its economic growth rate. 6 Analytic Interpreti,e "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ +opulation growth
ANS NA' -S* .5.
?hich of the following countries achie,ed higher economic growth, in part by mandating a reduction in population growthD a. 2reat 6ritain b. *hina c. Australia d. !rance 6 Analytic "efinitional "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ +opulation growth
ANS NA' -S* 50.
?hich of the following is an obser,ation made by economist -ichael BremerD a. ?orld growth rates increased as the population increased. b. 'echnological progress allows for increasing population because of ad,ances in agriculture. c. ?orld population is growing so rapidly that soon it will outstrip natural resources and our standard of li,ing will decline. d. All of the abo,e are obser,ations made by Bremer. A Analytic "efinitional "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ +opulation growth
ANS NA' -S*

51. ?hich of the following is correctD a. If de,eloping countries limit career and educational opportunities for women, birth rates are li9ely to be lower. b. 2rowth rates in de,eloped and de,eloping countries are nearly the same. c. =istorically, in periods where the rate of population growth was high, so was the rate of growth in world real 2"+ per person. d. None of the abo,e is correct. * Analytic "efinitional "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ +opulation growth
155
ANS NA' -S* 52.
?hich of the following is trueD a. Bremer argued that with greater population, society would generate more ideas so that growth of real 2"+ per person could continue. -althus argued that increasing population would outstrip agricultural production. b. Bremer argued that increases in population would reduce the amount of human and physical capital per wor9er so that e,entually the standard of li,ing would decline. -althus argued that increases in technology would allow increased output growth so that e,en with population growth, society would enGoy a higher standard of li,ing. c. -althus argued that with greater population, society would generate more ideas so that growth of real 2"+ per person could continue. Bremer argued that increasing population would outstrip agricultural production. d. -althus argued that increases in population would reduce the amount of human and physical capital per wor9er so that e,entually the standard of li,ing would decline. Bremer argued that increases in technology would allow increased output growth so that e,en with population growth, society would enGoy a higher standard of li,ing. A Analytic "efinitional "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ +opulation growth
ANS NA' -S* 54.
),er extended periods of time, population growth a. has no effect on the standard of li,ing. b. has uncertain effects on the standard of li,ing. c. clearly raises the standard of li,ing. d. clearly lowers the standard of li,ing. 6 "I! 2 #$! 2%&4 Analytic ()* +roducti,ity and growth +opulation growth : Standard of li,ing -S*
ANS NA' ')+ 53.
Interpreti,e
)n the basis of theory and empirical e,idence, economists ha,e reached se,eral conclusions about economic growth. ?hich of the following is not one of these conclusionsD a. A relati,ely simple way to increase growth rates permanently is to increase a countryFs sa,ing rate. b. 2rowth is generally inhibited rather than promoted by policies li9e protecti,e tariffs. c. ?ell&established property rights that are enforced by fair and efficient courts are important to economic growth. d. *ountries with few domestic natural resources still ha,e opportunities for economic growth. A Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 5%.
All else e>ual, which of the following would tend to cause real 2"+ per person to riseD a. a change from outward&oriented policies to inward&oriented policies b. an increase in in,estment in human capital c. a wea9ening of property rights d. All of the abo,e are correct. 6 Analytic Interpreti,e "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ $conomic growth
ANS NA' -S*
200
50.

?hich of the following statements is not correctD a. 'he catch&up effect is based on the assumption of diminishing returns to capital. b. In,estment in poor countries by citi7ens of rich countries is one way poor countries can learn new technologies. c. -althus argued that charity and go,ernment aid was an effecti,e way to reduce po,erty. d. +eace and Gustice are 9eys to growth. * Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 5/.
Senator Noitall says that in order to help poor countries de,elop, the 1nited States should 1. +re,ent 1.S. corporations from in,esting in poor countries because they ta9e profits that the poor countries should ha,eJ 2. Not import goods from poor countries that use child laborJ 4. ?or9 to promote political stability in poor countriesJ and 3. #educe poor countries8 reliance on mar9et forces in their economies. =ow many of these ideas are li9ely to help poor countries growD a. 1 b. 2 c. 4 d. 3 A Analytic Applicati,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 5..
Senator Smith says that in order to help poor countries de,elop, the 1nited States should 1. +re,ent 1.S. corporations from in,esting in poor countries because they ta9e profits that the poor countries should ha,eJ 2. reduce or eliminate subsidi7es to 1.S. producers when poor countries ha,e a comparati,e ad,antage producing those goods the 1.S. subsidi7esJ 4. ?or9 to promote political stability in poor countriesJ and 3. #educe poor countries reliance on mar9et forces in their economies. =ow many of these ideas are li9ely to help poor countries growD a. 1 b. 2 c. 4 d. 3 6 Analytic Applicati,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ $conomic growth
ANS NA' -S* 55.
'he president of a poor country has announced that he will implement the following measures which he claims are designed to increase growth 1. #educe corruption in the legal systemJ 2. #educe reliance on mar9et forces because they allocate goods and ser,ices in an unfair mannerJ 4. #estrict in,estment in domestic industries by foreigners because they ta9e some of the profits out of the countryJ 3. $ncourage trade with neighboring countriesJ and %. Increase the fraction of 2"+ de,oted to consumption. =ow many of these measures will ha,e a positi,e effect on growthD a. 1 b. 2 c. 4 d. 3 6 Analytic Applicati,e "I! ()* 4 #$! 2%&4 +roducti,ity and growth')+ $conomic growth
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100. 'he $conomic "e,elopment -inister of a country has a list of things she thin9s may explain her countryFs low growth of real 2"+ per person relati,e to other countries. She as9s you to pic9 the one you thin9 most li9ely explains her countryFs low growth. ?hich of the following contributes to low growthD a. poorly enforced property rights b. outward&oriented trade policies c. policies that permit foreign in,estment d. All of the abo,e are correct.

ANS NA' -S* A Analytic Applicati,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ $conomic growth
201
101. Some poor countries appear to be falling behind rather than catching up with rich countries. ?hich of the following could explain the failure of a poor county to catch upD a. 'he poor country has outward&oriented trade policies. b. 'he poor country allows foreign direct in,estment. c. 'he poor country has poorly de,eloped property rights. d. All of the abo,e are correct. ANS NA' ')+ * "I! 2 #$! 2%&4 Analytic ()* +roducti,ity and growth $conomic growth : +roperty rights -S* Applicati,e
102. )ther things the same, a country that increases its sa,ing rate increases a. its future producti,ity and future real 2"+. b. neither its future producti,ity nor future real 2"+. c. its future producti,ity, but not its future real 2"+. d. its future real 2"+, but not its future producti,ity. ANS NA' -S* A Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ Sa,ing : +roducti,ity
104. In an economy where net exports are 7ero, if sa,ing rises in some period, then in that period a. consumption and in,estment fall. b. consumption falls and in,estment rises. c. consumption rises and in,estment falls. d. consumption rises and in,estment falls. ANS NA' -S* 6 Analytic Interpreti,e "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ Sa,ing : In,estment
103. )ther things the same, if a country raises its sa,ing rate, then in the long run a. both the le,el and growth rate of real 2"+ are unchanged. b. the le,el of real 2"+ is higher but the growth rate of real 2"+ is unchanged. c. both the le,el and growth rate of real 2"+ are higher. d. None of the abo,e are correct. ANS NA' -S* 6 Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ Sa,ing : In,estment
10%. All else e>ual, if there are diminishing returns, then which of the following is true if a country increases its capital by one unitD a. )utput will rise by more than it did when the pre,ious unit was added. b. )utput will rise but by less than it did when the pre,ious unit was added. c. )utput will fall by more than it did when the pre,ious unit was added. d. )utput will fall but by less then it did when the pre,ious unit was added. ANS NA' -S* 6 Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ "iminishing returns
100. All else e>ual, if there are diminishing returns, then if a country raised its capital by 100 units last year and by 100 units this year, a. the increase in output was greater for this year than last year. b. the increase in output was greater last year than this year. c. the increase in output is the same in both years. d. None of the abo,e is necessarily correct.
202
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6 Analytic Applicati,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ "iminishing returns
10/. All else e>ual, if there are diminishing returns, then what happens to producti,ity if both capital and labor increaseD a. +roducti,ity will definitely fall. b. +roducti,ity will definitely be unchanged. c. +roducti,ity will definitely rise. d. None of the abo,e are necessarily correct. ANS NA' ')+ " "I! 4 #$! 2%&4 Analytic ()* +roducti,ity and growth "iminishing returns : +roducti,ity -S* Analytical
10.. *ountry A and country 6 are the same except country A currently has a lower le,el of capital. Assuming diminishing returns, if both countries increase their capital by 100 units and other factors that determine output are unchanged, then a. output in country A increases by more than in country 6. b. output in country A increases by the same amount as in country 6. c. output in country A increases by less than in country 6. d. None of the abo,e is necessarily correct. ANS NA' ')+ A "I! 2 #$! 2%&4 Analytic ()* +roducti,ity and growth "iminishing returns : *atch&up effect -S*
Applicati,e
105. A country with a relati,ely low le,el of real 2"+ per person is considering adopting two policies to promote economic growth. 'he first is to increase barriers to trade. 'he second is to restrict foreign portfolio in,estment. ?hich of these policies would most economist thin9 would promote growthD a. both the first and the second b. the first but not the second c. the second but not the first d. neither the first nor the second ANS NA' ')+ " "I! 1 #$! 2%&4 Analytic ()* +roducti,ity and growth !ree trade : !oreign in,estment -S* Interpreti,e
110. )ther things the same, higher population growth a. raises the amount of physical capital per wor9er and there is some e,idence that it raises the pace of technological progress. b. raises the amount of physical capital per wor9er, but there is some e,idence that it reduces the pace of technological progress. c. reduces the amount of physical capital per wor9er, but there is some e,idence that it raises the pace of technological progress. d. reduces the amount of physical capital per wor9er and there is some e,idence that it reduces the pace of technological progress. ANS NA' -S* * Analytic "efinitional "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ +opulation growth
111. $lectronics firms may be able to get patents on their ideas. "oing so ma9es their ideas a. pri,ate goods rather than public goods. 'his gi,es people more incenti,e to engage in research. b. pri,ate goods rather than public goods. 'his gi,es people less incenti,e to engage in research. c. public goods rather than pri,ate goods. 'his gi,es people more incenti,e to engage in research. d. public goods rather than pri,ate goods. 'his gi,es people more incenti,e to engage in pri,ate research. ANS NA' -S* A Analytic Interpreti,e "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ +ri,ate goods : +ublic goods

112. If "ar9 Nights, a 1.S.manufacturer of winter clothing, opens a new factory in Austria, then a. Austrian 2N+ increases by more than Austrian 2"+, which includes income earned by foreigners wor9ing in Austria. b. Austrian 2N+ increases by more than Austrian 2"+, which excludes income earned by foreigners wor9ing in Austria. c. Austrian 2N+ increases by less than Austrian 2"+, which includes income earned by foreigners wor9ing in Austria. d. Austrian 2N+ increases by less than Austrian 2"+, which excludes income earned by foreigners wor9ing in Austria. ANS NA' ')+ -S* * "I! 2 #$! 2%&4 Analytic ()* +roducti,ity and growth !oreign in,estment : 2ross domestic product : 2ross national product "efinitional
204
114. ?hich of the following is correctD a. 'here is no debate about the effects of higher population growth on economic growth. b. Natural resources clearly place limits on growthJ there is simply no way to reduce either the amount or type of natural resources needed to produce goods. c. =ow much an increase in capital increases a country8s output is independent of that country8s current le,el of capital. d. $conomists argue that outward rather than inward policies are li9ely to promote economic growth. ANS NA' -S* " Analytic Interpreti,e "I! ()* 2 #$! 2%&4 +roducti,ity and growth')+ $conomic growth
113. ?hich of the following pro,ide benefits to society at large and not Gust to the person@sA who pursues itD a. both technological 9nowledge that is a public good and education b. technological 9nowledge that is a public good, but not education c. education, but not technological 9nowledge that is a public good d. neither education, nor technological 9nowledge that is a public good ANS NA' -S* A Analytic Interpreti,e "I! ()* 1 #$! 2%&4 +roducti,ity and growth')+ 'echnology : +ublic goods
11%. 6y sa,ing more, a country a. has more resources for capital goods. 'he increase in capital raises producti,ity. b. has more resources for capital goods. 'he increase in capital reduces producti,ity. c. has fewer resources for capital goods. 'he decrease in capital raises producti,ity. d. has fewer resources for capital goods. 'he decrease in capital reduces producti,ity. ANS NA' -S* A Analytic Interpreti,e "I! ()* 1 #$! 2%&1 +roducti,ity and growth')+ Sa,ing : +roducti,ity
Sec%5 ( Production and Growth ( Conc"u&ion

)ULT*PLE CHO*CE 1. $conomists differ in their ,iews of the role of the go,ernment in promoting economic growth. At the ,ery least, the go,ernment should a. lend support to the in,isible hand by maintaining property rights and political stability. b. limit foreign in,estment to industries that donFt already exist in the country. c. impose trade restrictions to protect the interests of domestic producers and consumers. d. subsidi7e 9ey industries. A Analytic Applicati,e "I! ()* 1 #$! 2%&3 +roducti,ity and growth')+ $conomic growth
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Chapter 25

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Chapter 25 Production and Growth

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