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EC110 Chapter 3

Multiple Choice Questions GDP

1) Suppose that in 2020, real GDP grew in Estonia by 3% and the population increased by 5%. Therefore, in 2020, Estonia experienced

A) economic growth and an increase in living standards.

B) no economic growth and no increase in living standards.

C) no economic growth, but an increase in living standards.

D) economic growth, but not an increase in living standards.

2) If real GDP per capita in the United States is $8,000, what will real GDP per capita in the United States be after 5 years if real GDP per capita grows at an annual rate of 3.2%?

A) $8,520

B) $9,280

C) $9,365

D) $10,560

Calculations: 8,000 x (1 + 3.2%)^5 = $9,365

3) If real GDP per capita in Ireland is estimated to be $7,400 in 2016, what will real GDP per capita be in 2021 if real GDP per capita grows at an annual rate of 2.8%?

A) $7,607

B) $8,496

C) $9,472

D) $20,720

Calculations: 8,000 x (1 + 2.8%)^5 = $8,496

4) Increasing the growth rate of GDP per capita and sustaining this growth rate in an economy can

A) increase standards of living.

B) lower life expectancy.

C) increase infant mortality.

D) increase the level of poverty.

5) If a country’s real GDP is rising by 3% per year while its population is rising at 5% per year, which of the following is true?

A) The country’s standard of living is falling.

B) Growth in nominal GDP is less than the growth in the population.

C) The country’s standard of living is rising.

D) Growth in nominal GDP outweighs growth in the population

6) The key factors in raising standards of living in low-income countries have been increases in

A) income and government ownership of resources.

B) foreign aid and population.

C) capital accumulation and the money supply.

D) technology and knowledge

7) Which of the following is not one of the three sources of technological change?

A) increases in human capital

B) better means of organizing and managing production

C) better machinery and equipment

D) additional amounts of existing capital

8) Which of the following would you expect to result in faster economic growth?

A) a decrease in the average level of education in the economy

B) a decrease in research and development spending

C) a decrease in the stock of capital per worker

D) the invention of new computers that increase labor productivity

9) An economy can improve its standard of living by

A) increasing the amount of capital available per hour worked.

B) reducing the amount of human capital workers have

C) organizing production so that the quantity of goods produced per hour will decrease.

D) all of the above

10) When additions of input to a fixed quantity of another input lead to progressively smaller increases in output, we say we are facing

A) negative returns.

B) diminishing returns.

C) accelerating returns.

D) decreasing production.

11) When an economy faces diminishing returns,

A) the per-worker production function shifts to the left.

B) the per-worker production function shifts to the right.

C) the slope of the per-worker production function becomes steeper as capital per hour worked increases.

D) the slope of the per-worker production function becomes flatter as capital per hour worked increases.

12) Suppose that an increase in capital per hour worked from $15,000 to $20,000 increases real GDP per hour worked by $500. If capital per hour worked increases further to $25,000, by how much would you expect real GDP per hour worked to increase if there are diminishing returns?

A) by more than $5,000 but less than $20,000

B) by more than $500 but less than $5,000

C) by less than $500

D) by exactly $500

13) Technological improvements are more likely to occur if

A) entrepreneurs are compensated with higher profits for taking risks.

B) the economy is centrally planned.

C) economic decisions are made by politicians rather than entrepreneurs.

D) companies face little competition in their markets.

14) Which of the following government provisions would help increase the accumulation of knowledge capital?

A) copyrights

B) patents

C) education subsidies

D) All of the above are correct.

15) Refer to Figure 11-3. Technological change is shown in the figure above by the movement from

A) B to E.

B) B to C.

C) B to A.

D) B to D.

16) Refer to Figure 11-3. Which of the following would cause an economy to move from a point like A in the figure above to a point like B?

A) an improvement in technology

B) an increase in capital per hour worked

C) a decrease in capital per hour worked

D) a technological regression

17) What is human capital?

A) the accumulated knowledge and skills that workers acquire from education, training, and their life experiences

B) labor productivity

C) buildings, equipment, and machinery owned by individuals rather than firms

D) buildings, equipment, and machinery owned by firms

18) In the long run, a country will experience an increasing standard of living only if it experiences

A) continuous technological change.

B) a high rate of labor force growth.

C) a slow rate of population growth.

D) a high rate of consumption.

19) The easiest way for a country to obtain access to technology is through  

A) enacting policies to promote property rights.

B) subsidizing education and training.

C) promoting policies to enhance saving.

D) promoting foreign direct investment.

20) Because of the productivity slowdown in the United States from the mid-1970s through the mid-1990s,

A) real GDP per capita grew more slowly.

B) the standard of living increased in the United States.

C) real GDP per capita grew more rapidly.

D) the standard of living did not change.

21) Some economists argue that the productivity slowdown from mid-1970s to mid-1990s actually didn’t happen, but just “appeared” to happen because

A) increased spending on health and safety raised worker productivity.

B) exports were becoming a less important part of the economy, and it was hard to measure decreases in output from exports.

C) new environmental laws had passed and forced firms to spend to reduce pollution, and this spending did not raise output.

D) of the high inflation levels of the 1970s.

22) A policy that offers parents a tax reduction based on how much they are saving for their children’s college education should ________ the equilibrium level of loanable funds and ________ the rate of long-term growth.

A) decrease; increase

B) increase; decrease

C) increase; increase

D) decrease; decrease

23) All of the following are reasons why China is unlikely to maintain high enough rates of productivity growth to catch-up with the standard of living in the United States except

A) much of China’s growth is likely due to the transition from a centrally-planned economy to a market economy.

B) the Chinese migration of rural workers to more productive urban jobs.

C) because of the low birth rate in China, the labor force will soon decline.

D) the United States invests more in research and development. than does China.

24) If property rights are not enforced in a country,

A) entrepreneurs are unlikely to risk their own funds investing in such an economy.

B) that country will grow more rapidly because of the reduction of law suits.

C) the market system will still work smoothly.

D) that country’s growth rate will not be affected.

25) Policies to promote growth by increasing saving and investment work through

A) increasing the supply of loanable funds, increasing the interest rate, raising the level of investment in physical capital.

B) decreasing the supply of loanable funds, lowering the interest rate, raising the level of investment in physical capital.

C) increasing the supply of loanable funds, lowering the interest rate, raising the level of investment in physical capital.

D) increasing the supply of loanable

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