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Quiz: <span class="invisibleNumber06"></span>Chapter 6 Pos...
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Chapter 6 Post-Reading Quiz
1. In the expression for economic growth, x =(1+g)tx the variable x represents
t
0
t
A. any quantity of interest.
B. real GDP.
C. real consumption.
D. real investment per capita.
Answer: A
2. In the formula for economic growth, the variable g represents
A. the growth rate per period.
B. the initial level of x.
C. the final level of x.
D. no answer is correct.
Answer: A
3. Imagine that you receive a contract at work that states your wages will increase at a rate of 3.5%
each year, to account for inflation. If you are earning $100,000 right now, how many years will it
take for you to start earning $200,000 per year?
A. 20 years.
B. 10 years.
C. you will never earn that much.
D. 70 years.
Answer: A
4. If real GDP per capita has increased over the course of time, we would conclude
A. the real GDP must be in decline but at a greater rate than population.
B. the population must be increasing faster than real GDP is growing.
C. the population must be increasing more slowly than real GDP is growing.
D. there has environmental damage that offsets growth so that people are no better off.
Answer: C
5. If the growth rate of GDP in China is 9% annually, how long will it take for their GDP to quadruple?
A. approximately 16 years
B. approximately 8 years
C. approximately 3 years
D. approximately 14.5 years
Answer: A
6. If China experiences a 10% annual growth rate in real GDP, compared to Germany which
experiences a 2% annual growth rate, by how many years will China’s GDP double, sooner than
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Quiz: <span class="invisibleNumber06"></span>Chapter 6 Pos...
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Germany’s?
A. 7 years sooner
B. 28 years sooner
C. 35 years sooner
D. 4 years sooner
Answer: B
7. If Vermont citizens embrace the "buy local" philosophy and strive for more self-sufficiency, this will
A. have no effect on output and employment.
B. lead to better products at lower prices.
C. impoverish them over time.
D. enrich them over time.
Answer: C
8. According to Thomas Malthus and David Ricardo, farming will experience diminishing return and
thus as population increases
A. output per capita will rise.
B. income of landlords will fall since they have less fertile land.
C. people will become poorer due to less specialization and trade.
D. human capital will accumulate as people leave farming.
Answer: C
9. Imagine that a nation has imported a large quantity of combines and tractors to use in their
farming industry. The impact on economic growth would be to
A. cause a default on the foreign debt.
B. decrease economic growth because of the interest charged in the foreign debt.
C. lead to a decrease in economic growth due to the diminishing returns to capital.
D. likely increase economic growth, which in turn will enable the country to repay its foreign
debt in the future.
Answer: D
10. Imagine that a country begins an aggressive expansion of tuition-free colleges, funded by taxes.
How would this affect economic growth in the long run?
A. Growth would decrease, as the stock of tools including structures and equipment have
decreased in quality.
B. Growth would increase, as the productive knowledge and skills that workers acquire
through education, training, and experience would lead to greater productivity.
C. There would be no measurable impact on economic growth since the taxes slow growth.
D. Growth would increase, as the structures and equipment used in the productive process
has improved.
Answer: B
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11. If the production function relates inputs to outputs, it is logical that the growth in inputs would
determine the growth of outputs. This was the basic insight of Robert Solow. Output growth, then,
depends on the growth in
A. physical capital.
B. labor and human capital.
C. technological change.
D. all answers are correct.
Answer: C
12. Imagine a situation where a country experiences a loss of the most educated and skilled workers,
who have left the country in order to pursue better opportunities elsewhere. How would this
impact economic growth?
A. Human capital has declined, which will cause skilled wages to rise economic growth to
increase.
B. Human capital has declined, which will cause economic growth to decrease.
C. Physical capital must also decline, which will cause economic growth to decrease.
D. Technological change will cause economic growth to increase effectively replacing the lost
workers.
Answer: B
13. At Chicago Cubs games, residents across the street from Wrigley Field can watch the game from
their apartment windows. How would we describe this economic problem?
A. There is no economic problem with this market function.
B. There is a supply problem created by the empty seats.
C. There is a free-rider problem.
D. There is an economic growth problem.
Answer: C
14. Economies of scale means that if we double the inputs to a production process the outputs more
than double. In electricity generation for example, two small plants produce less than one large
plant for the same use of coal, nuclear or other fuel. The effect of economies of scale on growth is
to
A. reduce average cost as quantity increases and thereby slow growth as people lose their
jobs.
B. raises average cost in the long run since there is "no free lunch."
C. to raise growth rates by lowering average cost until economies of scale dissipate.
D. raise growth rates indefinitely as average costs continuously fall.
Answer: C
15. When new technologies arise people often lose their jobs as a result. The Luddites in England
attacked shop floor machines in the 19th century as the cause of their unemployment. Yet
technological change is considered by economists as a source of growth. This is because
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A. in the long run workers released by technological change find even more productive things
to do.
B. workers enjoy the extra leisure brought by the technological change.
C. workers leave countries with rapid technological progress and find jobs in slower growing
economies.
D. technological destroys the human species making labor more scarce.
Answer: A
16. “Institutions of Economic Growth” include all of the following, except a
A. dependable legal system.
B. closed market.
C. honest government.
D. political stability.
Answer: B
17. When people lose their jobs the unemployment rate rises. Unemployment wastes labor, an
important factor of production. If output growth depends on the growth of factors of production,
unemployment must slow growth down. How then can technological change and outsourcing and
off-shoring, jobs going overseas, be good for economic growth?
A. In the long run growth depends on technological change but job loss to other countries is
always bad for the U.S.
B. In the long run growth depends on full employment and immigration. Technological change
and offshore manufacturing will only hurt growth.
C. In the long run growth depends on specialization and trade, both of which are enhanced by
technological and the international division of labor.
D. Job loss and unemployment lead to large increases in leisure, self-sufficiency, buying local
and other quality of life enhancements that improve human productivity in the long run.
Answer: C
18. Section: Fact Two: Everyone Used to Be Poor
The historical record shows that sustainable growth in real per capita GDP:
A. never occurred.
B. occurred dramatically in the first 1000 years and then slowed down.
C. occurred at the same pace throughout the past 2000 years.
D. occurred mainly in the past 200 years.
Answer: D
19. Section: Incentives and Institutions
According to the textbook, the major factor explaining the dramatic difference in per capita GDP
between North and South Korea is the difference in:
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A. institutions.
B. natural resources.
C. foreign capital investment.
D. the belief in the social interest.
Answer: A
20. Which of the following has the greatest potential for solving free rider problems?
A. property rights
B. stable political system
C. education
D. rule of law
Answer: A
21. Increases in human capital can come from
A. employing better equipment.
B. formal education and on-the-job training.
C. attending university.
D. increasing capital per worker.
Answer: B
22. Between 1978 and 1983, food production in China rose by 50% and 170 million people rose above
the international poverty line. This occured because of
A. the institution of the “it is glorious to be rich” policy.
B. the abandonment of collective property and the return to private property rights in
farming.
C. the fall of communism in China.
D. the teaching of Mao Zedong.
Answer: B
23. What nation takes around 203 days and 127% of income per capita to start a business?
A. Haiti
B. Azerbaijan
C. Peru
D. United States
Answer: A
24. When industries are limited by the size of the domestic market, opening trade to the world
markets will likely lead to ______________ and ____________ real GDP per capita in the
domestic country.
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A. economies of scale; increase
B. economies of scale; decrease
C. diseconomies of scale; increase
D. diseconomies of scale; decrease
Answer: A
25. Virtually every indicator of societal well-being tends to increase with wealth.
Answer: True
26. Let's figure out how long it will take for the average Indian to be as wealthy as the average
Western European is today. Note that all numbers are adjusting for inflation. India's GDP per
capita is $3,000, and let's say that real output per person there grows at 5 percent per year. Using
the rule of 70, how many years will it take for India to reach Italy's current level of GDP per
capita, about $24,000 per year?
A. 42 years
B. 14 years
C. 28 years.
D. 12 years
Answer: A
27. Which of the following is an example of the "free rider problem"?
A. National Public Radio (NPR) cannot raise enough revenue to produce better shows, because
there is no way to stop people from listening to the show even though they do not pay.
B. A local deli loses revenue because of predatory shop lifting.
C. American airlines lose money due to customers using free passes to take flights which were
given out as a promotion.
D. all of the above
Answer: A
28. Every country that is now rich has
A. colonized poorer countries in the past.
B. has passed through the demographic transition.
C. decimated its own native population.
D. exploited its own natural resources.
Answer: B
29. One of the main causes of economic growth is
A. technological change borrowed from other countries.
B. investment in human capital.
C. women entering the labor force and thereby reducing fertility rates.
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D. all answers are correct.
Answer: A
D
30. Abundant natural resources, such as oil and natural gas, do not always cause income per capita to
rise and can perpetuate poverty. This is known as the "resource curse" and is due to
A. falling petroleum prices following increases in proven reserves.
B. producing for profit and not people.
C. governments nationalizing the resource using proceeds for political purposes.
D. environmental damage that arises from resource extraction.
Answer: C
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