Exam 2 chapter 9

Question 1

According to the classical growth theory of Thomas Malthus
Answers:
technological advances lead to permanent increases in real GDP per person.
the population growth rate is fixed.
increases in real GDP per person are only temporary.
labor productivity increases continuously.

Answer 1

increases in real GDP per person are only temporary.

Question 2

When cyclical unemployment is zero,
Answers:
the unemployment rate equals the natural unemployment rate.
cyclical and frictional unemployment are zero.
frictional unemployment is zero.
structural unemployment is zero.

Answer 2

the unemployment rate equals the natural unemployment rate.

Question 3

Workers who pursue an education directly increase their
Answers:	
human capital.
physical capital.
saving.
financial capital.

Answer 3

human capital.

Question 4

If a rich country grows at a faster rate than a poor one, then
Answers:
whether or not the living standards gap widens or closes over time depends on the absolute size of the relative growth rates.
the gap in their standard of living will close over time.
the gap in their standard of living will widen over time.
the difference in their living standards will not change over time.

Answer 4

the gap in their standard of living will widen over time.

Question 5

Which of the following is consistent with classical growth theory?
Answers:
Competition destroys innovation and decreases profit.
Real GDP per person will never permanently increase.
As real GDP increases, there will be a decrease in the rate of population growth.
Real GDP per person will increase because technological change induces investment.

Answer 5

Real GDP per person will never permanently increase.

Question 6

Using the Rule of 70, if the country of Flowerdom’s current growth rate of real GDP per person was 7 percent a year, how long would it take the country’s real GDP per person to double?

Answer 6

10 years

Question 7

Technological change
nswers:	
has no effect on employment.
lowers the real wage rate.
increases potential GDP.
decreases labor productivity.

Answer 7

increases potential GDP.

Question 8

The term “capital,” as used in macroeconomics, refers to
Answers:
financial wealth.
the plant, equipment, buildings, and inventories of raw materials and semi-finished goods.
investment.
the sum of investment and government purchases of goods.

Answer 8

the plant, equipment, buildings, and inventories of raw materials and semi-finished goods.

Question 9

Labor growth depends mainly on ________ and labor productivity growth depends mainly on ________.
Answers:
growth in real GDP per person; technological advances
growth in real GDP per person; growth rate of capital
population growth; technological advances
population growth; increases in real GDP

Answer 9

population growth; technological advances

Question 10

Which theory emphasizes the significance of new discoveries that can be used by many people at the same time?
Answers:	
new growth theory
neoclassical growth theory
classical growth theory
None of the above answers are correct.

Answer 10

new growth theory

Question 11

An assumption of classical growth theory is that when ________ the population growth rate ________.
Answers:
people become more skilled; decreases
the real wage rate falls; increases
real GDP per person exceeds the subsistence level; increases
saving declines; decreases

Answer 11

real GDP per person exceeds the subsistence level; increases

Question 12

Other things remaining the same, the greater the expected profit,
Answers:
the steeper is the investment demand curve.
the less the amount of investment.
the flatter is the investment demand curve.
the greater the amount of investment.

Answer 12

the greater the amount of investment.

Question 13

The three types of unemployment are
Answers:	
frictional, structural, and cyclical.
voluntary, part-time, and cyclical.
voluntary, involuntary, and structural.
frictional, part-time, and involuntary.

Answer 13

frictional, structural, and cyclical.

Question 14

According to new growth theory, technological change is driven by
Answers:
government policies.
random chance.
firms’ attempts to increase their profit.
foreign firms’ attempts to increase their sales in the domestic market.

Answer 14

firms’ attempts to increase their profit.

Question 15

If the population increases in our growth model, then potential GDP \_\_\_\_\_\_\_\_ and employment \_\_\_\_\_\_\_\_.
Answers:	
decreases; decreases
decreases; increases
increases; increases
increases; decreases

Answer 15

increases; increases

Question 16

Activities that encourage faster growth are
Answers:
investment in new capital and human capital.
taxes on saving that serve to encourage more spending and less saving.
developing trade barriers to protect national industries.
high levels of consumption and low levels of savings.

Answer 16

investment in new capital and human capital.

Question 17

The neoclassical growth theory says, in part, that
Answers:
the differences in nation’s growth rates will persist indefinitely.
technological change leads to economic growth.
technology does not play a role in economic growth.
a population explosion driven by economic growth will end economic growth.

Answer 17

technological change leads to economic growth.

Question 18

The decreasing slope of a production function reflects
Answers:	
rising unemployment.
diminishing returns.
increasing aggregate demand.
decreasing costs.

Answer 18

diminishing returns.

Question 19

Neoclassical growth theory
Answers:
predicts that the faster growing underdeveloped nations will overtake and then surpass the industrial nations.
predicts that growth rates and incomes per person throughout the world will converge.
makes no predictions about the relative growth or incomes among countries.
predicts that nations that enjoy a technological advantage will maintain that advantage.

Answer 19

predicts that growth rates and incomes per person throughout the world will converge.

Question 20

If the nominal interest rate is 8 percent and the current inflation rate is 3 percent, approximately what is the real interest rate?

Answer 20

5%

Question 21

U6 measure of unemployment is approximately \_\_\_\_\_\_\_ the U3 measure of unemployment.
Answers:	
triple
150%
75%
double

Answer 21

double

Question 22

Human capital is
Answers:
the saving done by human beings.
the investment made in industries that make capital goods.
a measure of the labor productivity of workers.
people’s knowledge and skills.

Answer 22

people’s knowledge and skills.

Question 23

Which growth theory models growth as a perpetual motion machine?
Answers:
neoclassical growth theory
new growth theory
classical growth theory
all growth theories model growth as a perpetual motion machine

Answer 23

new growth theory

Question 24

According to the new growth theory
Answers:
the rate of technological progress is determined by chance.
the concept of a labor market is not necessary.
the labor demand curve does not shift rightward over time.
knowledge is not subject to diminishing returns.

Answer 24

knowledge is not subject to diminishing returns.

Question 25

Labor productivity, real GDP per labor hour, increases if
Answers:
new technologies are continuously discovered.
there is an increase in the accumulation of human capital.
saving and investment cause an increase in the quantity of capital per worker.
All of the answers are correct.

Answer 25

All of the answers are correct.

Question 26

We are interested in long-term growth primarily because it brings
Answers:	
higher standards of living.
higher price levels.
lower price levels.
trade wars with our trading partners.

Answer 26

higher standards of living.

Question 27

If new capital or technology increases labor productivity, the supply of labor \_\_\_\_\_\_\_\_ and the demand for labor \_\_\_\_\_\_\_\_.
Answers:	
increases; decreases
increases; increases
decreases; stays the same
stays the same; increases

Answer 27

stays the same; increases

Question 28

Which of the following policy actions could speed productivity growth?
I.	Tax incentives to encourage saving
II.	Encouraging international trade
III.	Directing public funds toward financing basic research
Answers:	
II only
I and III
I only
I, II, and III

Answer 28

I, II, and III

Question 29

Neoclassical growth theory attributes economic growth to
Answers:	
increasing population growth.
fiscal policy.
technological change.
the law of diminishing returns.

Answer 29

technological change.

Question 30

Factors that influence labor productivity include ________.
Answers:
the inflation rate, the real wage rate, and the exchange rate
the labor demand curve
physical capital, human capital, and technology
physical capital, the real wage rate, and technology

Answer 30

physical capital, human capital, and technology

Question 31

Over the last 100 years, the average U.S. growth rate in real GDP per person was about
Answers:	
1 percent per year.
2 percent per year.
6 percent per year.
12.5 percent per year.

Answer 31

2 percent per year.

Question 32

Which of the following ideas apply to the neoclassical growth theory?
I. The rate of technological change influences the rate of economic growth.
II. Technological change promotes saving and investment.
III. Convergence of economic growth rates across countries
Answers:
I only
III only
I and II
I, II and III

Answer 32

I, II and III

Question 33

The view that population growth occurs when real GDP per person exceeds the amount necessary to sustain life is part of the \_\_\_\_\_\_\_\_.
Answers:	
new growth theory
neoclassical growth theory
classical growth theory
modern theory of population growth

Answer 33

classical growth theory

Question 34

The gap between real GDP per person in Africa and real GDP per person in the United States has been
Answers:
remaining fairly constant.
decreasing.
there is no gap in real GDP per person between Africa and the United States.
increasing.

Answer 34

increasing.

Question 35

The wage rate will fall if the
Answers:
labor supply curve shifts rightward and the labor demand curve does not shift.
labor demand curve shifts rightward more than the labor supply curve shifts rightward.
labor demand curve shifts rightward and the labor supply curve does not shift.
labor supply curve shifts leftward and the labor demand curve does not shift.

Answer 35

labor supply curve shifts rightward and the labor

Question 36

In the labor market, an increase in labor productivity \_\_\_\_\_\_\_\_ the real wage rate and \_\_\_\_\_\_\_\_ the level of employment.
Answers:	
lowers; decreases
raises; decreases
raises; increases	
lowers; increases

Answer 36

raises; increases

Question 37

According to the law of diminishing returns, an additional unit of
Answers:
capital produces more output than an additional unit of labor.
labor produces less output than the previous unit.
labor produces more output than the previous unit.
labor decreases output.

Answer 37

labor produces less output than the previous unit.

Question 38

According to the law of diminishing returns, an additional unit of
Answers:
capital produces more output than an additional unit of labor.
labor produces less output than the previous unit.
labor produces more output than the previous unit.
labor decreases output.

Answer 38

labor produces less output than the previous unit.

Question 39

According to the new growth theory, competition
Answers:
reduces profit.
has no impact on real profit, only nominal profit.
increases profit.
is only theoretical because all firms are growing at some rate.

Answer 39

reduces profit.

Question 40

An increase in the working-age population results in a
Answers:
rightward shift of demand for labor curve and an increase in potential GDP.
leftward shift of the supply of labor curve and a decrease in potential GDP.
rightward shift of the supply of labor curve and an increase in potential GDP.
rightward shift of the demand for labor curve and no change in potential GDP.

Answer 40

rightward shift of the supply of labor curve and an increase in potential GDP.

Question 41

U.S. investment is financed from
Answers:
private saving and borrowing from the rest of the world only.
private borrowing, government budget deficits, and lending to the rest of the world.
private saving, government budget deficits, and borrowing from the rest of the world.
private saving, government budget surpluses, and borrowing from the rest of the world.

Answer 41

private saving, government budget surpluses, and borrowing from the rest of the world.

Question 42

Which theory of economic growth concludes that growth can continue indefinitely?
Answers:	
the classical theory
the new theory
the neoclassical theory
all of the theories

Answer 42

the new theory

Question 43

All of the following contribute to labor productivity growth EXCEPT:
Answers:	
population growth.
human capital growth.
technological advancements.
physical capital growth.

Answer 43

population growth.

Question 44

Labor growth depends mainly on ________ and labor productivity growth depends on ________.
Answers:
population growth; increases in real GDP
growth in real GDP per person; technological advances
growth in real GDP per person; growth rate of capital
population growth; technological advances

Answer 44

population growth; technological advances

Question 45

Labor productivity is
Answers:
real GDP per hour of labor times the number of people.
real GDP per hour of labor times the hours of work.
the rate of change in real GDP per hour of labor.
real GDP per hour of labor or real GDP per worker.

Answer 45

real GDP per hour of labor or real GDP per worker.