Download Chapter 16 Economic Growth

Chapter 16 Economic Growth
1. Suppose that a nation’s Real GDP increased from $4 trillion in year 1 to $6 trillion in
year two and that population during this period grew from 100 million to 150 million.
What can we conclude about this nation’s growth?
a. Real GDP grew by 50 percent, but there was no growth in per capita Real GDP.
b. Per capita Real GDP grew by 50 percent.
c. Real GDP grew by 50 percent, but per capita Real GDP fell during this time period
d. none of the above
ANS:
a. Correct.
b. Incorrect. Because both Real GDP and population grew by 50 percent, there was no
growth in GDP per capita.
c. Incorrect. Because both Real GDP and population grew by 50 percent, there was no
growth in GDP per capita.
d. Incorrect. Answer A is correct.
2. Economic growth, which is a complex process, does not depend on which of the
following?
a. society’s needs for adequate housing, food, and clothing
b. technological advances
c. property rights structure
d. natural resources
ANS:
a. Correct.
b. Incorrect. Growth does depend on technological advances.
c. Incorrect. Growth does depend on a country’s property rights structure.
d. Incorrect. Growth does depend on the availability of natural resources
3. The relationship between an economy’s growth, its production possibilities frontier
(PPF), and the economy’s long-run aggregate supply curve (LRAS) is that growth is
shown by
a. an outward shift in the PPF and by a leftward shift in the LRAS curve.
b. an outward shift in both the PPF and the LRAS curve.
c. a leftward shift in the PPF and a rightward shift in the LRAS curve.
d. a movement down the PPF and a movement up the LRAS.
ANS:
a. Incorrect. Growth causes both the PPF and the LRAS curves to shift to the right.
b. Correct.
c. Incorrect. Growth causes both the PPF and the LRAS curves to shift to the right.
d. Incorrect. Growth causes both the PPF and the LRAS curves to shift to the right.
© 2010 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be
different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
4. The difference between economic growth from an efficient level of production versus
economic growth from an inefficient level of production is that growth
a. is not possible if the economy if already efficient whereas growth is possible if the
economy is inefficient at present.
b. can occur only if the PPF shifts to the right if the economy is efficient whereas growth
can occur without a shift in the PPF if the economy is currently inefficient.
c. is not desirable if the economy is currently efficient whereas growth is desirable if the
economy if currently inefficient.
d. none of the above
ANS:
a. Incorrect. The difference is that in the first case the economy is on the PPF whereas in
the second case the economy is operating inside the PPF. For growth to occur in the first
case, the PPF must shift to the right.
b. Correct.
c. Incorrect. Growth can occur only if the PPF shifts to the right if the economy is
efficient, whereas growth can occur without a shift in the PPF if the economy is currently
inefficient.
d. Incorrect. The correct answer is B.
5. In neoclassical growth theory, the role of technology is
a. ignored.
b. treated as an endogenous variable.
c. treated as one of three resources: labor, technology, and capital.
d. considered, but technology is treated as an exogenous variable.
ANS:
a. Incorrect. Technology is considered, but technology is treated as an exogenous
variable.
b. Incorrect. Technology is considered, but technology is treated as an exogenous
variable.
c. Incorrect. In the neoclassical model there are only two resources: labor and capital.
d. Correct.
6. What is meant by the term "absolute real economic growth"?
a. Taking the absolute value of the rate of economic growth so that recessions and
expansions can be made comparable.
b. An increase in Real GDP from one period to the next.
c. Increases in Real GDP that occur when recessionary gaps are being eliminated, or
decreases in Real GDP that occur when inflationary gaps are being eliminated.
d. none of the above
ANS:
a. Incorrect. Absolute Real economic growth is defined as an increase in Real GDP from
one period to the next.
b. Correct.
© 2010 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be
different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
c. Incorrect. Absolute Real economic growth is defined as an increase in Real GDP from
one period to the next.
d. Incorrect. Answer B is correct.
7. How is per capita Real GDP calculated?
a. Real GDP divided by population
b. Real GDP divided by nominal GDP
c. nominal GDP divided by per-capita personal income
d. per-capita personal income multiplied by the inflation rate
ANS:
a. Correct.
b. Incorrect. Per capita Real GDP is calculated by dividing Real GDP by the population.
c. Incorrect. Per capita Real GDP is calculated by dividing Real GDP by the population.
d. Incorrect. Per capita Real GDP is calculated by dividing Real GDP by the population.
8. Why would the development of a property rights system help promote economic
growth?
a. Because economic growth is really generated by theft, and everyone knows that
property is theft.
b. Economic growth is promoted around the world by governments that take away
people's land and other resources and give them to corporations.
c. If people are able to keep a large share of the income that they earn from their labor or
from their capital, this income creates an incentive for further investment, risk-taking,
and for research and development.
d. none of the above
ANS:
a. Incorrect. If people are able to keep a large share of the income that they earn from
their labor or from their capital, this income creates an incentive for further investment,
risk-taking, and for research and development.
b. Incorrect. If people are able to keep a large share of the income that they earn from
their labor or from their capital, this income creates an incentive for further investment,
risk-taking, and for research and development.
c. Correct.
d. Incorrect. Answer C is correct.
9. An economy growing at a steady rate of 5 percent per year doubles in size approximately every
__________ years.
a. 20
b. 14.4
c. 10
d. 25.1
ANS:
a. Incorrect. Using the Rule of 72 we can see that the economy would double in size in
approximately 72/5 years.
© 2010 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be
different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
b. Correct.
c. Incorrect. Using the Rule of 72 we can see that the economy would double in size in
approximately 72/5 years.
d. Incorrect. Using the Rule of 72 we can see that the economy would double in size in
approximately 72/5 years.
10. What is the basic idea underlying the new growth theory, and how does it relate to
neoclassical growth theory?
a. Neoclassical growth theory emphasized labor and capital resources, and had little to
say about the source and the role of technology.
b. The new growth theory holds that technology is endogenous; ideas and knowledge are
a central part of the economic system, and we can control the quantity and the quality of
technology.
c. The new growth theory emphasizes labor and capital resources, and has little to say
about the source and the role of technology.
d. Both (a) and (b).
ANS:
a. Incorrect. Neoclassical growth theory does emphasize labor and capital reserves, but
the new growth theory also holds that technology is endogenous, therefore D is the best
answer.
b. Incorrect. The new growth theory holds that technology is endogenous, but
neoclassical growth theory also emphasizes labor and capital resources, there D is the
best answer.
c. Incorrect. Neoclassical growth theory emphasizes labor and capital resources.
d. Correct.
© 2010 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be
different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.