Chapter 7 - CHAPTER 7 PRODUCTION AND GROWFH 113 ., l...

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Unformatted text preview: CHAPTER 7 PRODUCTION AND GROWFH 113 ., l Self-Test . True/ False Questlons l. The United States should grow faster than japan because the United States has a larger economy. 2. Evidence ofrising prices for natural resources demonstrates that . nonrenewable resources will become so scarce that economic grthh will be limited. 3. The rate ofeconomic growth is probably underestimated. 4. Human capital refers to human~made capital such as tools and machinery. as opposed to natural capital such as rivers and timber. 5. [Fa production function exhibits constant returns to scale. then doubling all of the inputs doubles output. 6. In very poor countries. paying parents to send their children to school may increase the education ot‘poor children and decrease the use ot‘child labor. 7. An increase in capital should cause the growth rate or a relatively poor country to increase more than that of a rich country. 8. An increase in the rate of saving and investment permanently increases a country‘s rate of growth. 9. A country can only increase its level of‘investment by increasing its saving. a ll). The only factor ot‘production that is not "produced" is natural resources. 1 1. Investment in human capital and technology may be particularly productive because of positive spillover effects. 12. IFGertnans invest in the US. economy by building a new Mercedes factory. in the future US. GDP will rise by more than US. GNP. 13. Most economists believe that inward—oriented policies that protect infant industries improve the growth rates of developing nations. '- 14. Economic evidence supports the predictions ot‘Thonias Malthus regarding the effects of population growth and the food supply on the standard of ‘_._. . living. 15. The opportunity cost ot‘additional growth is that someone must forgo . k ‘ I current consumption. * .| Multiple—Choice Questions _.n..-. I. A reasonable measure of the standard oFliving in a country is i ‘ a. real GDP per person. b. real GDP. i ' c. nominal GDP per person. d. nominal GDP. e. the growth rate of nominal GDP per person. 2. Many East Asian countries are growing very quickly because a. they have enormous natural resources. b. they are imperialists and have collected wealth from previous victories in war. they save and invest an unusually high percentage of their GDP. they have always been wealthy and will continue to be wealthy. which is known as the “snowball effect.” r‘, :0- 114 PART IV THE REAL ECONOMY IN THE LONG RUN J; (L ()- \X/"hk‘ll .1 niltmn hiis wry htth‘ (}])I’ per pvrmn. ii. it ix dtmincd in twin; rcliitivch‘ p001“ tbrcxvcr. h. it inuxt hc ii \IIHH niitioni t‘. it hm thc potentml tu grmv rt‘liitiwiy quickly dut' m the “'tuitch—up t‘fibt't.“ ti, (In nicrtxm’ ll] txipitii] will likcly hiiw hfth‘ HHPJLT on output. c. none utithc iihm‘c IS true. Ont‘c ii country ix \\'L’.]]]\'. .I. it ix’ utxirh' inipm‘s'ihic {or it it) hurtnnc rclatm‘h' ptmrt‘r. h. it inin‘ he hin'dcr fur it to grow quickly hcmusc orthc diniinixhing returns it) t‘tipitiii. t: CJPILII hccmncx‘ “1011‘ prudut‘tiw due to the HCJtCh‘*UP t‘fil‘tt.” ti. it no lungvr ncvds‘ tiny 1111111‘11] LKIPiEJIV tx nunt' utithc iihmx‘ is true. Thy upportunit)‘ (mt of‘growth is‘ i ii ruiuction in t‘urrcnt immtnicnt. h. .i rctiut‘uun in current siiving. c. i reduction in turrcnt COIHUIHPUOIL {1‘ ii ruiuctiun in tiixcs‘. I’ur izxqili'n lawl t}/i(‘t‘/lll(’/O_Q)'. \\'c xhuulti cxpcct tin incrtxiw in liihcn‘ pruductivity within ii iriuon whcn thcrc i\ an iHCl‘LXHC in tuith urthc thilmving (awe/ii .r 1111111411] capital per \\'0]‘kCI". h. physitzil capital pcr \th‘kur. r. IMI’UI‘J] I‘C\'()Ul't‘k‘\ per “tn-km: ti. iilhm‘. \Vhit‘h ofthc ililhm'ing wucrncnh‘ i\‘ Irma: ii. (iuuntricx‘ may hilw a thflbrcnt lcvcl ofUIH’ pcr pcrs‘uu. but they all grow At the \HHL’ mtc. h (buntrics nm'y hiiw ii tlifibrcnt grmvth izlttr. but they .1“ hiiu‘ thc \(nnc Inc] of (ii )I’ per pcrs‘on. t: (‘uuntricx‘ till hut thc mine grtm'th mu“ \lllti low] «)f‘uutput bCCthC tiny cuuntry txin uhmin the x‘innc (“11¢th urprmhictimi. L]. Countrit‘s hich grunt \xirliincc in hath the luv] (111d grtm'th ixitt‘ UHHH’ pur pt‘rx‘un: thth. punt cutlntriw tuiu hCCOHIC rciativch' rit‘h m't'r tinn‘. Hu pi‘utiui‘tiun i-LIIIKTIOI] mhihits L‘onxtiint rcturns‘ to «My. .L tiuuhling .11] 0tth inputx hiis iihx‘olutvly in) iinpact on output hcmuw output ix L‘UIISLIHL h. doubling .iH ufthc inputx‘ douth output. t1 timihhng iii] 0th inputx‘ niurc than dutihlt‘x‘ untput tiut‘ [U {llL‘ (.IEL‘h-UP crirt‘t. ti. tiuuhhng till ufthc inputs It‘s‘s‘ thiin douhlcs nutput duc [0 diminishingy returns; (Tuppcr ix‘ tin cmniplc Hi; i. llllllml] tnipiml. h physitxll tuipitiil. L: J rcncwiihlc H‘lflll‘fll rcsuuri‘tx ti, ii ilonrcncwuhlc ntltuml I‘L,‘\UU]‘L‘U. k“ tt‘t‘hnulogy. M' u....__4-.L._-.- '-_-.._.u‘_u*‘_.—g.-a..- .m- CHAPTER 7 PRODUCTlON AND GROWFH 1“. Which ot'the followingr statements regarding the impact ot‘ population growth on productivity is ink“? a: There is no evidence yet that rapid population growth stretches natural resources to the point that it limits growth in prmluctivity. l1. Rapid population growth may dilute the capital stock. lowering productivity. c. Rapid population growth may promote technological progress. increasinf,y productivity. d. All otthe above are true. I l. Thomas Malthus argued that a. technological progress will continuously generate improvements in productivity and living standards. h. lalaor is the only true {actor of production. c. an ever-increasing population is constrained only by the food supply. resulting in chronic tamines. d. private charities and government aid will improve the \xr'eltare otthe poor. e_ noiie ottlie above is true. 12, Madelyn goes to college and reads manv hooks while at school. Her education increases which of the followingr factors or production? .1. human capital h. physical capital c. natural resources d. technology c. All otthe above would be increased. l3. \Vhich otthe following describes an increase in technological knowledge? a. A farmer discovers that it is hetter to plant in the spring rather than‘in the {all h. A farmer huys another tractor, c. A farmer hires another day laborer. d. A farmer sends his child to agricultural college and the child returns to work on the farm. l4. Our standard ofliviiig is most closely related to a. how hard we work. o. our supply of capital because everything of value is produced by machinery. it our supply otnatural resources because they limit production. d. our productivity liecause our income is equal to what we produce. l5. \X’hieh ot‘the following is an example oldineign portfolio investment? a. A naturalized US. citizen. who was originally horn in (lei-many. huvs stock in Ford. and Ford uses the proceeds to buy a new plant. h. Toyota builds a new plant in 'l'ennessee. c, Toyota buys stock in Ford. and Ford uses the proceeds to build a new plant in Michigan. d_ Ford builds a new plant in Michigan. e. None or the above is an example otloreign portfolio investment. lo. \Vhich otthe {followingy government policies is least likely to increase growth in Africa? .1. increase expenditures on public education h. increase restrictions on the importing ot'japanese automobiles and electronics t1 eliminate civil war d. reduce restrictions on toreign capital investment t. Pill olithe aliove would increase grt‘iwth. 115 116 PART N l Advanced Critical Thinking You are having a discussion with other Generation Xers.The conversation turns to a THE REAL ECONOMY IN THE LONG RUN 17. 18. 1‘). 20. supposed lack of growth and opportunity in the United States when compared to some Asian countries such as japan, South Korea,Taiwan, and SingaporeYour roommate says, “These Asian countries must have cheated somehowThat’s the only way they could have possibly grown so quickly." 1. IfMazda builds a new plant in Illinois, a. in the future. US. GDP will rise more than US. GNP. b. in the future, US. GDP will rise less than US. GNP. c. in the future. US. GDP and GNP will both fall because some income from this investment will accrue to foreigners. d. there has been an increase in foreign portfolio investment in the United States. e. none of the above is true. If real GDP per person in 2006 is $18,073 and real GDP per person in 2007 is 5318.635, what is the growth rate of real output over this period? a. 3.0 percent b. 3.1 percent c. 5.62 percent d. 18.1) percent e. 18.6 percent Which of the following expenditures to enhance productivity is most likely to emit a positive externality? a. Megabank buys a new computer. b. Susan pays her college tuition. c. Exxon leases a new oil field. d. General Motors buys a new drill press. To increase growth, governments should do all of the following except 3. promote free trade. b. encourage saving and investment. c. encourage foreigners to invest in your country. d. encourage research and development. b. e. nationalize major industries. 1 Have you learned anything in this chapter that would make you question your roommates assertion? 7 Lu 8. (i‘ ll. Ex) 5. fit qy Hi (4 Lu ‘). 2H. F: the prices of natural resourees. .itliusteil For inflation. tire stable or Killing. so our ability to conserve these resources is growing.’ more rapidly thini their supplies are dwindling. T F: human capital is the knowledge and skills of workers. T T T F: due to diminishing returns to C'Jplml‘ growth rises temporarily. F: it can attract foreign investment. T T T F; most economists believe that 0U[\le‘kl‘Ul‘lClll’Ctl policies improve growth. F: Mitlthus provements in tootl production.Thus. people are llllthl‘Cfl'llllJtCLl technological im— not doomed to live .it suhsistence. T kltiltiple—Clmice Questions ti ti tl C l3 J l) l) c fidvamteei (‘Zrii‘iezil “thinking: l . Yes. There are many sourees ot‘ growth .Hltl ii country can influence ill of them except natural resources japans growth is explainahle. lntleetl. till of the high‘growth Asian countries have extremely high investment iis ii percentage otV(}l)l’i , 3‘ CHAPTER 7 PRODUCTlON AND GROWTH No. The opportunity cost of investment is that \ZOIHL‘OIK‘ 1]“le {OI-:40 Clll‘ll‘lll’ CURISUIHPUOI] l1] ()HlCl‘ ' to stive imd invest. 119 ...
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Chapter 7 - CHAPTER 7 PRODUCTION AND GROWFH 113 ., l...

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