Question 1

Many economists argue that an incentive to save is

Accepted Answer

A)  high income tax rates. 
B)  a tax on consumption rather than on income. 
C)  a tax on income rather than a tax on consumption. 
D)  greater government regulation of the banking and securities industries. 
E)  strengthening the property rights that savers have to the physical capital they purchase.

Question 2

According to neoclassical growth theory, technological advances are the result of

Accepted Answer

A)  chance. 
B)  people's decisions. 
C)  massive investment by the government on research and development efforts. 
D)  discoveries resulting from choices. 
E)  competition.

Question 3

A central theme of the new growth theory is that

Accepted Answer

A)  firms don't really experience profit. 
B)  humans can work harder than previously thought. 
C)  the economy doesn't experience diminishing returns. 
D)  firms don't experience diminishing returns. 
E)  the government is more efficient than private markets.

Question 4

$$\begin{array} { c c c } 
\hline \text { Year } & \begin{array} { c } 
\text { Real GDP } \
\text { (trillions of 2005 dollars) }
\end{array} & \begin{array} { c } 
\text { Population } \
\text { (millions of people) }
\end{array} \
\hline 2007 & 7.00 & 100.0 \
2008 & 7.50 & 105.0 \
2009 & 8.25 & 110.0 \
\hline
\end{array}$$
-Using the data in the table above, the growth rate of real GDP for 2008 is equal to

Accepted Answer

A)  9.09 percent. 
B)  7.00 percent. 
C)  5.00 percent. 
D)  4.76 percent. 
E)  10.0 percent.

Question 5

Labor productivity equals

Accepted Answer

A)  real GDP. 
B)  real GDP per hour of labor. 
C)  the total production of labor. 
D)  the quantity of labor hours divided by real GDP. 
E)  real GDP divided by the amount of human capital.

Question 6

Over the past 100 years, real GDP per person in the United States has grown at an average rate of about ________ per year.

Accepted Answer

A)  1 percent 
B)  2 percent 
C)  5 percent 
D)  10 percent 
E)  7.5 percent

Question 7

In the classical growth theory, economic growth leads to increases in labor supply which ________ real GDP and ________ the real wage rate.

Accepted Answer

A)  increases; lowers 
B)  increases; raises 
C)  decreases; lowers 
D)  decreases; raises 
E)  increases; does not affect

Question 8

Sustained increases in real GDP per person depend on

Accepted Answer

A)  increases in the quantity of labor. 
B)  increases in the population. 
C)  increases in average hours. 
D)  increases in labor productivity. 
E)  decreases in labor productivity.

Question 9

In the long run, most of the growth in aggregate hours comes from

Accepted Answer

A)  population growth. 
B)  advances in technology. 
C)  increases in the labor force participation rate. 
D)  increases in labor productivity. 
E)  None of the above answers is correct because the premise of the question is wrong since aggregate hours will not grow in the long run.

Question 10

The theory that suggests that our unlimited wants will lead to perpetual economic growth is the

Accepted Answer

A)  classical growth theory. 
B)  sustained growth theory. 
C)  neoclassical growth theory. 
D)  new growth theory. 
E)  Keynesian growth theory.

Question 11

Economic growth is a sustained expansion of production possibilities measured as the increase in ________ over a given period.

Accepted Answer

A)  real GDP 
B)  real GDP per person 
C)  the standard of living 
D)  capital per person 
E)  population

Question 12

If Country A's real GDP per person is growing at 6 percent and Country B's real GDP per person is growing at 3 percent, then

Accepted Answer

A)  the standard of living is higher in Country A. 
B)  the standard of living is higher in Country B. 
C)  the standard of living is growing more rapidly in Country A. 
D)  we cannot say whose standard of living is growing more rapidly without knowing the population growth rate. 
E)  we cannot say whose standard of living is growing more rapidly without knowing the growth rate of real GDP.

Question 13

Why is economic growth so slow or non-existent in many third world countries?
 What policies would you propose to improve the situation?

Accepted Answer

The answer of Why is economic growth so slow or...

Question 14

Explain the difference between the measurement of the standard of living and the measurement of labor productivity.Would you expect the growth in labor productivity to be the same as or quite different than the growth in the standard of living?

Accepted Answer

The answer of Explain the difference between the measurement of...

Question 15

If the stock of physical capital (that is machinery, equipment, etc.) and human capital remain the same and the population increases, then

Accepted Answer

A)  labor productivity will increase. 
B)  labor productivity will decrease. 
C)  the standard of living will increase. 
D)  the new labor will be more productive. 
E)  real GDP decreases.

Question 16

The idea of continuous economic growth as a "perpetual motion machine" best reflects the prediction of which growth theory?

Accepted Answer

A)  the classical growth theory 
B)  the traditional growth theory 
C)  the neoclassical growth theory 
D)  the new growth theory 
E)  no growth theory

Question 17

One possible way of achieving faster economic growth is to

Accepted Answer

A)  encourage saving. 
B)  protect the economy from international trade. 
C)  limit investment because investment adds nothing to production today. 
D)  eliminate property rights because they prevent people from using other people's ideas. 
E)  tax saving so that people spend more and businesses make more profit.

Question 18

Economic growth is enhanced by

Accepted Answer

A)  free international trade. 
B)  limiting international trade so that the domestic economy can prosper. 
C)  discouraging saving, because increased saving means less spending. 
D)  ignoring incentive systems. 
E)  increasing welfare payments to the poor so they can afford to buy goods.

Question 19

Which of the following theories predicts that there can be no sustained rise in real income above the subsistence level?
i. Classical growth theory
ii. Neoclassical growth theory
iii. New growth theory

Accepted Answer

A)  i only 
B)  ii only 
C)  iii only 
D)  Both i and ii 
E)  None of the above because all the growth theories predict that there will be a sustained rise above the subsistence level.

Question 20

Suppose real GDP grows at 7 percent per year and the population grows at 2 percent per year.How many years will it take for real GDP and real GDP per person to double?

Accepted Answer

The answer of Suppose real GDP grows at 7 percent...

Exam 9: Economic Growth