Download True/False Questions

Chapter 1
Economic Growth: An Introduction to Scarcity and Choice
True/False Questions
1. Since 1973, the growth rate of per capita GDP in the U.S. has been lower than it was in previous
periods.
ANSWER: T
2. The three primary resources are land, labor, and capital.
ANSWER: T
3. The production possibilities curve shows the maximum combinations of goods and services that
can be produced by an economy when unemployment is below the natural rate.
ANSWER: F
4. All points on or below the production possibilities curve are attainable.
ANSWER: T
5. The economic decisions that influence growth are those that increase capital and improve
technology.
ANSWER: T
6. It pays to increase the production of capital goods if the marginal cost of the production decision
exceeds the marginal benefit.
ANSWER: F
7. It is always better for the economy to experience economic growth.
ANSWER: F
8. As resources are transferred from production of trucks to the production of computers, marginal
cost of computers decreases.
ANSWER: F
9. Technological improvement allows more output to be obtained from a given level of inputs,
thereby shifting the production possibilities curve to the right.
ANSWER: T
10. The decline in the growth of capital intensity in the United States has been caused largely by a
rapid increase in labor inputs in addition to slow growth in capital inputs.
ANSWER: T
11. The best combination of goods and services is being produced when marginal cost and marginal
benefit are equal.
ANSWER: T
12. Increases in resources, technological improvement, and efficiency improvement are all potential
sources of economic growth.
ANSWER: T
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254  Chapter 1/Economic Growth: An Introduction to Scarcity and Choice
13. Growth based on capital accumulation can be more costly than growth based on efficiency
improvement.
ANSWER: T
14. Compensation per hour has grown at about the same rate as productivity.
ANSWER: T
15. The growth of labor productivity is caused by the growth of capital relative to labor and by
technological and efficiency improvements.
ANSWER: T
16. The use of information technology (IT) capital services grew at almost 20 percent per year from
1995 to 1999.
ANSWER: T
17. Productivity per hour in Japan is almost twice as large as productivity per hour in the United
States.
ANSWER: F
18. Productivity growth rates in Japan and Europe are greater than the productivity growth rate in the
United States.
ANSWER: T
19. Per capita GDP in Japan exceeds per capita GDP in Europe because Japanese employees work
more hours.
ANSWER: T
20. According to Maddison, the structural effect, the technological diffusion effect, and the foreign
trade effect all help to explain the rapid growth in productivity in Japan and Europe.
ANSWER: T
21. The technological diffusion effect refers to shifting resources from one sector to another in an
economy.
ANSWER: F
22. The foreign trade effect refers to the increase in monopoly power that has occurred in small
countries since World War II.
ANSWER: F
23. Technology catch up offers an advantage to today's developing countries.
ANSWER: T
24. The best technology for producing popcorn and tractors is the one that requires the most
resources to produce a given combination of popcorn and tractors.
ANSWER: F
25. Correlations between high levels of economic freedom and high standards of living prove that
economic freedom causes prosperity.
ANSWER: F
Test Bank  255
26. According to some economists, low taxes, free markets and price stability promote economic
growth.
ANSWER: T
27. Adam Smiths view of the political economy in 1776 was in direct contrast to the view set forth
by Thomas Jefferson in the Declaration of Independence.
ANSWER: F
28. The large investment in human capital by East Asian countries may be one reason they have
experienced rapid income growth.
ANSWER: T
Multiple-Choice Questions
1. Which of the following was authored by Adam Smith?
a. Declaration of Independence
b. Principles of Economics
c. The Wealth of Nations
d. The Academic Scribblers
ANSWER: c
2. Which of the following statements does NOT describe China’s economic growth over the last 20
years:
a. Millions have escaped absolute poverty in China over the last 20 years.
b. More people managed to escape dire poverty during this period than in any other 20-year
period in history.
c. Despite growth, people in China had less to eat and had fewer of life’s necessities in 1991
than in 1978.
d. Adjusted for inflation, per capita GDP increased over three times from 1978 to 1995.
ANSWER: c
3. The economy in the U.S.:
a. has recently been growing at a slower rate than it has since 1820.
b. has recently been growing at a faster rate that it has since 1820.
c. has recently had a much higher growth rate than Japan and Korea.
d. has recently experienced annual growth rates of over 5 percent.
ANSWER: b
4. Which statement is FALSE?
a. Brazil has been successful at closing its economic gap with the United States.
b. The growth rates of per capita GDP in the U.S. and in Japan have slowed in the years since
1973.
c. China’s per capita GDP growth has dramatically increased since 1973.
d. Since 1990, the U.S. has gained a growth advantage over Japan.
ANSWER: a
256  Chapter 1/Economic Growth: An Introduction to Scarcity and Choice
5. Economic stagnation has become a concern because:
a. growth rates in industrialized countries have declined significantly over the 1973 - 1990 time
period.
b. Third World countries have experienced extremely high growth rates since 1972.
c. growth rates in Third World countries have declined significantly over the 1973 - 1990 time
period.
d. growth rates in all countries have stagnated since 1972.
ANSWER: a
6. The U.S. growth rates for the 1990-99 has:
a. increased compared to 1973-90 period.
b. decreased compared to1973-90 period.
c. has remained the same as that of 1973-90 period.
d. has stagnated at low rates.
ANSWER: a
7. The three primary resources are:
a. land, labor, and stocks.
b. land, labor, and capital.
c. land, capital, and equipment.
d. land, labor, and entrepreneurship.
ANSWER: b
8. Capital resources consist of:
a. land and physical capital.
b. physical and human capital.
c. land and human capital.
d. labor and human capital.
ANSWER: b
9. Resources found in nature, such as land, water, forests, mineral deposits, and air are:
a. land.
b. labor.
c. capital.
d. natural resources.
ANSWER: a
10. Efforts and services of people in production of goods and services are:
a. land
b. labor.
c. capital.
d. human capital.
ANSWER: b
11. Man-made, durable items used in the production processes are:
a. land.
b. labor.
c. capital.
d. equipment.
ANSWER: c
Test Bank  257
12. A production possibilities curve shows:
a. the maximum combinations of two goods or services that can be produced when resources
are fully used and the best technology is employed.
b. the minimum combinations of two goods or services that can be produced when resources
are fully used and the best technology is employed.
c. the maximum combinations of two goods or services that can be produced when the
unemployment rate in the economy is not above 6 percent.
d. the maximum combinations of two goods or services that can be produced when the
economy is at the trough of the business cycle.
ANSWER: a
13. In an economy that produces only popcorn and tractors, which statement best describes the
opportunity cost of an additional tractor?
a. The purchase price of the new tractor.
b. The value of the popcorn that must be given up so that the tractor may be produced.
c. The purchase price of one unit of popcorn.
d. The value of the tractor gained minus the value of the popcorn given up.
ANSWER: b
14. The best technology is:
a. the technology that is cutting-edge technology.
b. the technology that will maximize a business's average cost of production.
c. the technology that is the most diffused throughout the economy.
d. the technology that requires the fewest resources to produce a good.
ANSWER: d
15. If an economy is currently producing at the point where marginal benefit and marginal cost are
equal, we know that:
a. the best technology is not being used.
b. the economy should change its allocation of resources.
c. unemployment exists in the economy.
d. the best combination of goods and services is being produced.
ANSWER: d
16. In a world of scarcity:
a. if we want to produce more of one good, we have to produce less of something else.
b. there is no limit to what can be produced.
c. the marginal cost of additional units of a good declines as more of the good is produced.
d. we can have it all!
ANSWER: a
17. Which of the following statements is correct?
a. It is desirable to invest in more capital goods for future economic growth only if the marginal
benefit of the investment exceeds the marginal cost.
b. The marginal benefit of capital goods will increase as more capital goods are produced.
c. In order to produce capital goods, more consumption goods must be produced in the present.
d. As additional units of capital goods are produced, the marginal productivity of capital will
increase, because labor will have more capital with which to work.
ANSWER: a
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18. A change in the best technology that allows more to be produced with a given amount of
resources is referred to as:
a. technological gain.
b. technical efficiency change.
c. technological growth.
d. technological improvement.
ANSWER: d
19. A change from the use of less than the best to the best technology is referred to as:
a. efficiency progress.
b. efficiency change.
c. efficiency improvement.
d. efficiency growth.
ANSWER: c
20. A point outside the production possibilities curve refers to a combination that would be:
a. attainable.
b. efficient.
c. inefficient.
d. unattainable.
ANSWER: d
21. If the economy moves from a point inside its production possibilities curve to a point on its
production possibilities curve, there has been:
a. Efficiency improvement.
b. Technological improvement.
c. Efficiency growth.
d. Technological growth.
ANSWER: a
22. Which of the following would result in an outward shift of the production possibilities curve?
a. Efficiency improvement.
b. A decrease in capital.
c. Technological improvement.
d. A decrease in land.
ANSWER: c
23. If society wishes to increase living standards while minimizing sacrifices of present
consumption, it should encourage:
a. growth in the labor supply.
b. growth in capital.
c. decreases in capital.
d. technological improvement.
ANSWER: d
24. Which of the following statements about economic growth is FALSE?
a. Greater economic growth means sacrificing in the present for the future.
b. Greater economic growth is always desirable.
c. Capital accumulation can result in economic growth.
d. Labor force growth can increase GDP, but not usually enough to increase living standards.
ANSWER: b
Test Bank  259
25. Growth in productivity, output per hour, determines how quickly:
a. technological improvement can grow.
b. compensation per hour can grow.
c. efficiency improvement can grow.
d. capital resources can grow.
ANSWER: b
26. Which of the following could not result in an increase in labor productivity?
a. A new economic institution.
b. An increase in the capital stock.
c. Growth in the supply of labor.
d. Widespread use of a new electronic pocket secretary that tells you how to arrange your daily
activities in the most efficient manner.
ANSWER: c
27. The increase in the growth rate of capital intensity in the 1990s was due in large part to:
a. a rapid growth in the labor supply.
b. a slower growth in the labor supply.
c. a rapid growth in agricultural technology capital.
d. a rapid growth in use of information technology capital.
ANSWER: d
28. Expert economists believe that the capital intensity effect on productivity in the “new economy”
is mainly tied to the:
a. increases in production of “new goods.”
b. increases in labor intensity.
c. increases in capital services from IT assets.
d. increases in land intensity.
ANSWER: c
29. During 1970s and 1980s, a period of rapid scientific advances:
a. technical change grew at an unprecedented rate in the manufacturing sector.
b. technical change all but disappeared from the U.S. economy.
c. there were positive changes in technical efficiency in the manufacturing sector.
d. labor productivity growth in the manufacturing sector was greater than it was during the
1960s.
ANSWER: b
30. Some people feel that continuing low levels of productivity growth in the U.S. economy is a
result of:
a. measurement error.
b. increased foreign competition.
c. a decrease in prices.
d. an increase in the return that could be earned from research and development.
ANSWER: a
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31. Which of the following are used to explain the low levels of productivity growth that have
persisted in the service sector during the 1980s?
a. measurement error.
b. a lack of competitive pressures.
c. It is difficult to measure output in service industries.
d. All of above.
ANSWER: d
32. If the United States wants productivity to increase it should:
a. increase educational quality.
b. invest less in capital.
c. produce more consumer goods.
d. decrease the rate of growth in the labor supply.
ANSWER: a
33. Studies indicate that:
a. there is no relation between productivity and the real wage.
b. there is a direct link between the real wage and productivity.
c. there is an inverse relation between the real wage and productivity.
d. changes the real wage lead to changes in productivity.
ANSWER: b
34. According to Maddison, the lead economy operating at the technological frontier is:
a. Japan.
b. West Germany.
c. the United States.
d. Great Britain.
ANSWER: c
35. Japanese per capita GDP is close to that of the United States' because:
a. hourly productivity in Japan exceeds that of the U.S.
b. the average hours worked in the U.S. exceed the average hours worked in Japan.
c. the average hours worked in Japan exceed the average hours worked in the U.S.
d. the Japanese government has pursued a policy of balancing the budget.
ANSWER: c
36. Productivity growth rates in Japan and Europe exceed those in the United States because:
a. Japanese and European workers are more productive than their American counterparts.
b. capital intensity has increased faster in Europe and Japan.
c. managers of Japanese and European firms are more efficient than managers of firms in the
United States.
d. employment has grown slowly in the United States.
ANSWER: b
37. According to Maddison, technical change is occurring more rapidly in Japan than in the United
States because of:
a. the structural effect.
b. the effect of technological diffusion.
c. the effect of foreign trade.
d. All of the above.
ANSWER: d
Test Bank  261
38. The structural effect refers to:
a. changes in productivity caused by shifts in economic activity from one part of the economy
to another.
b. changes in productivity caused by the employment of new technology.
c. changes in productivity caused by enacting government programs that increase the quality of
the labor force.
d. changes in productivity caused by implementing new production techniques.
ANSWER: a
39 Maddison's technological diffusion effect refers to:
a. shifts in economic activity from one sector to another.
b. transfers in technology from one country to another.
c. increasing the capital-labor ratio in developing countries.
d. increasing the quality of the labor force in developing countries.
ANSWER: b
40. The Boskin Commission claims that the Consumer Price Index is inaccurate because it fails to
consider quality improvements in some goods and services. Which of the following examples
have probably experienced major quality improvements over the last 10 to 15 years?
a. Number 2 pencils
b. Apples
c. Cataract removal surgery
d. Baseballs
ANSWER: c
Critical Thinking Multiple-Choice Questions
41. Sheila currently does economic consulting for a firm. When she uses her skills to prepare a
consulting report she is acting as:
a. land in the production process.
b. labor in the production process.
c. capital in the production process.
d. human input into the production process.
ANSWER: b
42. Oil deposits found on the north slope in Alaska would be an example of:
a. land.
b. labor.
c. capital.
d. natural resources.
ANSWER: a
43. A robot on an assembly line would be an example of:
a. land.
b. labor.
c. capital.
d. equipment.
ANSWER: c
262  Chapter 1/Economic Growth: An Introduction to Scarcity and Choice
44. Which of the following is an example of capital?
a. 100 shares of Intel stock.
b. A $1,000 government bond.
c. A $100 dollar bill.
d. A computer used by a secretary.
ANSWER: d
Use the following diagram to answer questions 45 – 48.
Housing
900
.A
.B
850
775
0
D
100
.
200
.C
300
Cars
45. The best technology is being used at:
a. point A.
b. point D.
c. any point beyond the production possibilities curve.
d. none of the points shown represent use of the best technology.
ANSWER: a
46. A point at which the economy might be technically inefficient would be:
a. A.
b. B.
c. C.
d. D.
ANSWER: d
47. The sacrifice of moving from point B to point A is:
a. 850 units of housing.
b. 75 units of housing.
c. 100 units of cars.
d. 200 units of cars.
ANSWER: c
Test Bank  263
48. As we move down the production possibilities curve from point A to point C, there will be:
a. an increase in both the marginal cost and marginal benefit of cars.
b. a decrease in both the marginal cost and marginal benefit of cars.
c. a decrease in the marginal cost of cars and an increase in the marginal benefit of cars.
d. an increase in the marginal cost of cars and a decrease in the marginal benefit of cars.
ANSWER: d
49. Suppose the economy is producing at a point on its production possibilities curve where the
marginal benefit of an additional unit of housing is $70,000 while the marginal cost of an
additional unit of housing is $78,000. In this instance:
a. the production of housing should decrease.
b. the production of housing should increase.
c. the production of housing should not be changed.
d. the production of housing should be increased only if there are homeless people.
ANSWER: a
50. Suppose the economy is producing at a point on its production possibilities curve where the
marginal benefit of an additional unit of capital is $45. The marginal cost of an additional unit of
capital is $30. In this instance:
a. the production of capital should decrease.
b. the production of capital should increase.
c. the production of capital should not be changed.
d. the production of capital should be decreased if many people in society are unemployed.
ANSWER: b
51. The management department's secretary has just gotten a new computer that allows him to do
reports in less time. This is an example of:
a. efficiency progress.
b. efficiency change.
c. efficiency improvement.
d. efficiency growth.
ANSWER: c
52. Engines Incorporated has just developed a revolutionary engine that will allow trucks to haul
their loads across the country without stopping for fuel. This is an example of:
a. technological improvement.
b. technological progress.
c. technical efficiency change.
d. technological growth.
ANSWER: a
264  Chapter 1/Economic Growth: An Introduction to Scarcity and Choice
Use the following diagram to answer questions 53 – 54.
Consumption
Goods
.A
.B
D
.
.C
0
Capital Goods
53. Production at which of the above points would result in the greatest long-term growth in GDP?
a. A.
b. B.
c. C.
d. D.
ANSWER: c
54. Suppose the marginal benefit of moving from point B to point C is $500 while the marginal cost
is $350. We know that:
a. the economy should produce additional capital goods.
b. the economy should produce additional consumption goods.
c. the economy should stay at point B.
d. the economy should move from point B to point A.
ANSWER: a
55. As a result of free trade, the power of monopolies has declined in Small Land. This is an
example of:
a. the effect of technological diffusion.
b. the catch-up effect.
c. the structural change effect.
d. the foreign trade effect.
ANSWER: d
56. Which of the following is an example of the technological diffusion effect?
a. The United States enacts a policy requiring all workers to attend annual training sessions in
order to upgrade their skills.
b. Brazil enacts a wage-price control policy in attempts to decrease the rate of inflation.
c. Russia imports new computer technology from the United States.
d. In Korea, there is a major shift of resources out of the agricultural sector into the
manufacturing sector.
ANSWER: c
Test Bank  265
Use the following diagram to answer questions 57 – 59.
57. Which of the points represents an inefficient production combination of pizza and ovens?
a. A.
b. B.
c. C.
d. D.
ANSWER: c
58. Which of the points represents an unattainable production combination of pizza and ovens?
a. A.
b. B.
c. C.
d. D.
ANSWER: d
59. Which of the points represent an attainable and efficient production combination of pizza and
ovens?
a. A and B.
b. B and C.
c. C and D.
d. D and A.
ANSWER: a
266  Chapter 1/Economic Growth: An Introduction to Scarcity and Choice
Use the following diagram to answer questions 60 – 61.
60. Which combination of pizza and ovens at present (p0-p0) would more likely result in growth
congruent with production possibilities curve (p1-p1) in the future?
a. A.
b. B.
c. C.
d. D.
ANSWER: a
61. Which combination of pizza and ovens at present (p0-p0) would more likely result in growth
congruent with production possibilities curve (p2-p2) in the future?
a. A.
b. B.
c. C.
d. D.
ANSWER: b
Essay and Discussion Questions
1. Evaluate the following statement. "Technical progress may be a less costly means of
achieving long-term economic growth than increasing capital."
This statement could be correct. The student should recognize that both technical progress and
increasing the amount of capital resources will shift the production possibilities curve outward.
However, in the case of increasing capital resources, there is a sacrifice of current consumption.
A smaller or perhaps no sacrifice is likely to be associated with technical progress.
2. Why have some Asian countries experienced more rapid growth than some Latin
American and African countries?
The student should discuss the contribution of human capital to rapid growth. Maddison also
points to several other attributes, appropriate incentives for individual decision makers, markets
that allow prices to fluctuate, and a legal system that is obeyed and generates trust has led to the
West German success in accumulating capital and in generating technical change. For many
years, East Germany did not have the foundations of a well-functioning market economy in
place. The absence of these foundations does much to explain the lack of economic success in
East Germany.
Test Bank  267
3. Explain what is meant by the following statement. "The stagnation of productivity growth
in the 1980s may simply be a mirage."
Some feel that the stagnation of productivity growth in the 1980s is simply a result of
measurement error. In order to measure productivity, one must know both price and output.
Both of these variables are very difficult to measure accurately in the service sector of the
economy. To the extent that they are measured incorrectly, productivity figures will be
inaccurate.
4. "If the United States is to remain number one in productivity, it must increase the quality
of its labor force." Is this statement true or false? Defend your answer.
This statement is true. Although labor quality had little do with the decrease in productivity
growth in the 1970s, there is some evidence that is a factor in slower productivity growth in the
1980s. In today's economy, the most important skills for the labor force are its literacy and
problem-solving skills. These are the skills that many young adults have not acquired in school.
As a result, some economists argue that if the United States wishes to remain a leader in
productivity, it must improve its labor quality.