Chapter 25/Production and Growth ✦ 147 Chapter 25 Production and Growth If one wants to know how the material wellbeing of the average person has changed over time the appropriate measure to look at is the growth a rate of real GDP b rate of nominal GDP c rate of per capita real GDP d in the percentage of the labor force that is employed ANSWER: c rate of per capita real GDP SECTION: 1 OBJECTIVE: 1 Per capita real GDP differs from per capita nominal GDP in that real GDP a measures the opportunity cost of growth b has been adjusted for the time value of money c has been adjusted for inflation d has been discounted to the present ANSWER: c has been adjusted for inflation SECTION: 1 OBJECTIVE: 1 Poor countries are poor for all of the following reasons except a their technology is less than modern b their labor productivity is low c foreign investment funds are difficult to attract d their labor force is too small ANSWER: d their labor force is too small SECTION: 1 OBJECTIVE: 2 Of the following, which country experienced the fastest growth rate for the period 1900–1998? a United States b Japan c Canada d Brazil ANSWER: b Japan SECTION: 1 OBJECTIVE: 2 Which of the following represents a productivityenhancing investment in human capital? a a new laborsaving technology b a new health clinic c a new factory that will employ 1,000 workers d an increase in fringe benefits, such as paid vacations and overtime pay ANSWER: b a new health clinic SECTION: 2 OBJECTIVE: 2 148 ✦ Chapter 25/Production and Growth If the capital stock increases faster than employment, then we would expect a both output and labor productivity to rise b output to rise but labor productivity to fall c both output and labor productivity to fall d output to fall but labor productivity to rise ANSWER: a both output and labor productivity to rise SECTION: 2 OBJECTIVE: 2 As its capital stock increases, a nation will a move to the right along a fixed production function b move to the left along a fixed production function c find its production function shifting up d find its production function shifting down ANSWER: c find its production function shifting up SECTION: 2 OBJECTIVE: 2 An increase in the capital stock causes labor productivity to a decrease and the standard of living to increase b increase and the standard of living to increase c decrease and the standard of living to decrease d increase while the standard of living remains constant ANSWER: b increase and the standard of living to increase SECTION: 2 OBJECTIVE: 2 If 100 lumberjacks generate $5,000 in real GDP, the output per laborer would be a .02 b .05 c 50 d 100 ANSWER: c 50 SECTION: 2 OBJECTIVE: 2 10 Labor productivity, measuring the output per worker, a increases with increases in technology b decreases with increases in technology c increases with increases in capital stock d is impossible to measure since so many workers are involved in the service sector ANSWER: a increases with increases in technology SECTION: 2 OBJECTIVE: 2 11 Investments in human capital are often opposed because a investments in plant and machinery are more important b the increase in productivity comes with opportunity costs to workers and firms c investments in plant and machinery will have greater monetary payoffs d they rarely lead to longterm economic growth ANSWER: b the increase in productivity comes with opportunity costs to workers and firms SECTION: 2 OBJECTIVE: 3 Chapter 25/Production and Growth ✦ 149 12 One reason the prices of some exhaustible natural resources have fallen is a their supply has decreased rapidly b the demand for them has increased quite rapidly c technical progress has increased their supply d they are not subject to diminishing returns ANSWER: c technical progress has increased their supply SECTION: 2 OBJECTIVE: 23 13 Historical evidence indicates that scarcity of natural resources has a caused slower world economic growth b nearly stopped economic growth in most countries throughout the world c not limited economic growth d limited economic growth, but only in highgrowth countries ANSWER: c not limited economic growth SECTION: 2 OBJECTIVE: 3 th The data on U.S. growth rates during the last half of the 20 century suggest that when the savings rate increases the rate of a growth can increase or decrease depending on the phase of the business cycle the economy is in b economic growth increases c economic growth decreases d economic growth is unaffected ANSWER: b economic growth increases SECTION: 2 OBJECTIVE: 3 14 15 The most direct opportunity cost of having large families in a poor country such as Egypt is the a loss of its customs and traditions b benefit of having more hands to help in agricultural production c larger tax revenues government will collect from families d sacrifice of per capita material goods and services needed in the development process ANSWER: d sacrifice of per capita material goods and services needed in the development process SECTION: 2 OBJECTIVE: 3 16 Poor countries often have a difficult time attracting foreign investment funds because a wages are low in poor countries b investment risks are quite low in poor countries so rates of return are low c property rights are not protected so investors fear their property may be confiscated d All of the above are correct ANSWER: c property rights are not protected so investors fear their property may be confiscated SECTION: 3 OBJECTIVE: 4 17 Which of the following would decrease the likelihood that foreign business firms will invest in a country? a a low corporate profit tax rate b political stability c a wellestablished legal system d political instability ANSWER: d political instability SECTION: 3 OBJECTIVE: 4 150 ✦ Chapter 25/Production and Growth 18 Which of the following countries achieved economic growth, in part, by mandating a reduction in population growth? a the former Soviet Union b Great Britain c China d Hong Kong ANSWER: c China SECTION: 3 OBJECTIVE: 4 19 Most countries that are developing with slow growth rates are characterized by a inadequate labor forces b a high proportion of the population under the age of 15 c unfertile and uncultivable soil d low total productivity but high per capita productivity ANSWER: b a high proportion of the population under the age of 15 SECTION: 3 OBJECTIVE: 4 20 A high proportion of the population under the age of 15 undermines economic growth because a the young require more infrastructure than older people b the young require more capital goods than older people c they present such a huge increase in human capital d the young consume but they do not produce ANSWER: d the young consume but they do not produce SECTION: 3 OBJECTIVE: 4 21 Countries like South Korea and Singapore have shown tremendous growth rates in recent years because a of diminishing returns b of the catchup effect c of lower levels of domestic investment in recent years d they have limited international trade ANSWER: b of the catchup effect SECTION: 3 OBJECTIVE: 4 22 Inwardoriented policies stall economic growth because a international trade leads to lower domestic employment b they encourage the braindrain c infant industries are unable to compete with the rest of the world d they do not allow a country to take advantage of the gains from trade ANSWER: d they do not allow a country to take advantage of the gains from trade SECTION: 3 OBJECTIVE: 4 23 Suppose everyone working the land in Exland knows the usefulness of investing in land irrigation systems but those who work the land may choose not to invest in these profitable irrigations systems as long as a the investment is too expensive b the natural climate, such as abundant rain, makes the irrigation projects unnecessary c their property rights, with respect to the land, are subject to change d the government dictates the choice of investment ANSWER: c their property rights, with respect to the land, are subject to change SECTION: 3 OBJECTIVE: 4 Chapter 25/Production and Growth ✦ 151 24 A singular important link between politics and economics in countries that are attempting to increase their economic growth rates is that a democracies are more productive than non democracies b democracies must constantly make difficult budgetary choices c political instability is incompatible with longterm private investment d conservative governments tend to focus development on military industries ANSWER: c political instability is incompatible with longterm private investment SECTION: 3 OBJECTIVE: 4 25 The main reason that some countries have serious reservations about increasing foreign direct investment in their countries is because they a think this will cause political instability b believe that tax revenues will fall c anticipate many of their most productive workers will leave the country d fear a return to colonialism ANSWER: d fear a return to colonialism SECTION: 3 OBJECTIVE: 4 ...148 ✦ Chapter 25/ Production and Growth If the capital stock increases faster than employment, then we would expect... the increase in productivity comes with opportunity costs to workers and firms SECTION: 2 OBJECTIVE: 3 Chapter 25/ Production and Growth ✦ 149 12 One reason the prices of some exhaustible natural resources have fallen is... a wellestablished legal system d political instability ANSWER: d political instability SECTION: 3 OBJECTIVE: 4 150 ✦ Chapter 25/ Production and Growth 18 Which of the following countries achieved economic growth, in part, by mandating a reduction in