Question 1

Which of the following is an example of an investment in human capital?

Accepted Answer

A)  enrolling in a course to improve your computer skills 
B)  purchasing a computer to increase the productivity of your workers 
C)  installing a new piece of software on your computer which enables you to read documents online 
D)  accepting a job in the computer industry

Question 2

The model of aggregate demand and long-run aggregate supply predicts that, all other things unchanged, improved technology will

Accepted Answer

A)  reduce employment. 
B)  lower real wages. 
C)  increase the demand for labor and boost real wages. 
D)  increase the supply of labor and boost real wages.

Question 3

If output per capita doubles in 24 years and the population doubles in 18 years, what is the growth rate of output?

Accepted Answer

A)  4% per year 
B)  5% per year 
C)  6% per year 
D)  7% per year

Question 4

Figure 8-6 
-Refer to Figure 8-6. Assume that the economy is initially in long-run equilibrium. What happens if the price of oil, a key input, increases significantly in the economy?

Accepted Answer

A)  The long-run aggregate supply and the short-run aggregate supply curves shift left. 
B)  The short-run aggregate supply curve shifts left. 
C)  The aggregate demand and the short-run aggregate supply curves shift left. 
D)  The long-run aggregate supply, the short-run aggregate supply, and the aggregate demand curves shift left.

Question 5

The position of the long-run aggregate supply curve is determined by the aggregate production function and the demand and supply curves for labor.

Accepted Answer

A) True 
 B)False

Question 6

A curve that relates an economy's total output to the total amount of labor employed, holding all other determinants of output constant, is called

Accepted Answer

A)  an input-output matrix. 
B)  an average output function. 
C)  a marginal product function. 
D)  an aggregate production function.

Question 7

Why is the long-run aggregate supply curve vertical? Explain the factors that determine the position of the long-run aggregate supply curve.

Accepted Answer

The answer of Why is the long-run aggregate supply curve...

Question 8

Economic growth occurs when

Accepted Answer

A)  nominal GDP increases. 
B)  GDP per capita in the short run increases. 
C)  a nation's capacity to produce increases. 
D)  there is a movement along the production possibility curve resulting in increased personal consumption expenditures.

Question 9

Economic growth is represented by an outward shift of the production possibilities curve.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following equations is correct?

Accepted Answer

A)  % growth rate of output per capita  % growth rate of output + % growth rate of population 
B)  % growth rate of output per capita  % growth rate of output - % growth rate of population 
C)  % growth rate of output per capita  % growth rate of output * % growth rate of population 
D)  % growth rate of output per capita  % growth rate of output ÷ % growth rate of population

Question 11

Figure 8-5  Panel (a) shows an economy's aggregate production function, Panel (b) shows the labor market and Panel (c) shows the economy's long-run aggregate supply curve.
-Refer to Figure 8-5. If a change in technology moves the aggregate production function in Panel (a) upwards, what happens to the economy's potential output?

Accepted Answer

A)  Potential output remains unchanged. 
B)  Potential output increases. 
C)  Potential output decreases. 
D)  Potential output could increase or decrease depending on what happens in the labor market.

Question 12

Suppose that real GDP per capita of Monrovia is $30,000. RGDP per capita in Westova is $15,000. Suppose that rate of growth of real GDP per capita in Monrovia is 3.17% per year and in Westova it is 6.34% per year. Using the rule of 72, calculate how many years it will take for RGDP per capita in Westova to catch up with RGDP per capita in Monrovia.

Accepted Answer

A)  approximately 11 years 
B)  approximately 23 years 
C)  approximately 34 years 
D)  approximately 46 years

Question 13

Figure 8-2 
-Refer to Figure 8-2. The movement from point R inside the frontier CD to point P on the frontier CD 
I. will increase real RGDP.
II. will increase the size of the nation's labor force.
III. represents economic growth.

Accepted Answer

A)  I only 
B)  I and II only 
C)  I and III only 
D)  I, II, and III

Question 14

In the long run, economic growth will lead to 
I. the opportunity to produce more consumer goods.
II. the opportunity to produce more capital goods.
III. a higher material standard of living.
IV. a more equitable distribution of income.

Accepted Answer

A)  III and IV only 
B)  I, II, and III only 
C)  I, III, and IV only 
D)  I, II, III, and IV

Question 15

Which of the following events would be most likely to increase an economy's potential output?

Accepted Answer

A)  a tax increase 
B)  an increase in transfer payments by the government 
C)  an improvement in technology 
D)  an increase in net exports

Question 16

The rate of economic growth per capita in Mamoogia from 2006 to 2010 was 3.6% per year, while in Kennan, over the same period it was 7.2%. In 2010, per capita real GDP was $28,900 in Mamoogia and $12,700 in Kennan. Assume the growth rate for each country remains the same. Calculate the percentage difference in their levels of potential output in 2050.

Accepted Answer

A)  Kennan's potential output will be about 32% lower than Mamoogia's potential output. 
B)  Kennan's potential output will be about 76% lower than Mamoogia's potential output. 
C)  Kennan's potential output will be about 32% higher than Mamoogia's potential output. 
D)  Kennan's potential output will be about 76% higher than Mamoogia's potential output.

Question 17

Figure 8-1 
-Refer to Figure 8-1. A cyclical increase in real GDP is represented by a movement

Accepted Answer

A)  from D to C. 
B)  from D to E. 
C)  from F to A. 
D)  from A to B.

Question 18

For a given level of technology, a higher rate of economic growth can probably be achieved only if a country's citizens are prepared to

Accepted Answer

A)  accept lower real wages today in exchange for higher real wages in the future. 
B)  work longer hours. 
C)  increase their demand for goods and services. 
D)  sacrifice some present consumption.

Question 19

Use the rule of 72 to determine how long it takes for real GDP to double if real GDP grows at 3% per year.

Accepted Answer

A)  12 years 
B)  24 years 
C)  36 years 
D)  72 years

Question 20

Over the past century, the average household income in the United States

Accepted Answer

A)  has increased in nominal terms but has decreased in real terms. 
B)  has increased in nominal terms but has remained constant in real terms. 
C)  has increased in real terms. 
D)  has increased only marginally both in real and nominal terms.

Exam 8: Economic Growth