I Multiple choice questions:
1. Which of the following statements is correct?
a The level of real GDP is a good gauge of economic prosperity, and the growth of
. real GDP is a good gauge of economic progress.
b The level of real GDP is a good gauge of economic progress, and the growth of
. real GDP is a good gauge of economic prosperity.
c The level of real GDP is a good gauge of economic prosperity, and the level of
. real GDP per person is a good gauge of economic progress.
d The level of real GDP is a good gauge of economic progress, and the level of real
. GDP per person is a good gauge of economic prosperity.
2. Last year real GDP in the imaginary nation of Oceania was 561.0 billion and the
population was 2.2 million. The year before, real GDP was 500.0 billion and the
population was 2.0 million. What was the growth rate of real GDP per person during the
year?
a 12 percent
.
b 10 percent
.
c 4 percent
.
d 2 percent
.
3. The quantity of goods and services produced from each unit of labor input is called
a standard of living.
.
b productivity.
.
c capitalized quantity.
.
d the knowledge base.
.
4. Perry accumulated a lot of mathematical skills while in high school, college, and graduate
school. Economists include these skills as part of Perry’s
a standard of learning.
.
b technological knowledge.
.
c physical capital.
.
d human capital.
.
5. What term do economists use to describe the relationship between the quantity of inputs
used and the quantity of output produced?
a production function
.
b input function
.
c capital function
.
d returns to scale
.
6. In one day Alpha Cabinet Company made 40 cabinets with 320 hours of labor. What was
their productivity?
a 1/8 cabinet per hour
.
b 8 hours per cabinet
.
c 40 cabinets
.
d None of the above is correct.
.
7. Cedar Valley Furniture uses 5 workers, each working 8 hours, to produce 80 rocking
chairs. What is the productivity of these workers?
a 2 chairs per hour
.
b 10 chairs per hour
.
c 1 hour per chair
.
d 80 chairs
.
8. You and your friend work together for 4 hours to produce a total of 12 futons. What is
productivity?
a 12 futons
.
b 24 futons
.
c 3 futons per hour of labor
.
d 1.5 futons per hour of labor
.
9. Consider two countries. Country A has a population of 1,000, of whom 800 work 8 hours
a day to make 128,000 final goods. Country B has a population of 2,000, of whom 1,800
work 6 hours a day to make 270,000 final goods.
a Country A has higher productivity and higher real GDP per person than country
. B.
b Country A has lower productivity and lower real GDP per person than country B.
.
c Country A has higher productivity, but lower real GDP per person than country
. B.
d Country B has lower productivity, but higher real GDP per person than country
. B.
10. Which of the following is considered human capital?
a the comfortable chair in your dorm room where you read economics texts
.
b the amount you get paid each week to work at the library
.
c the things you have learned this semester
.
d any capital goods that require a human to be present to operate
.
11. Which of the following is an example of a renewable natural resource?
a fish
.
b soybeans
.
c wood
.
d All of the above are correct.
.
12. Which of the following is human capital?
a textbooks
.
b hand held power tools
.
c understanding how to repair cars
.
d All of the above are correct.
.
13. Which of the following would be considered physical capital?
a the refrigerators at Uncle Bob’s restaurant
.
b rivers on which goods are transported
.
c the skills and knowledge of a lawyer
.
d All of the above are correct.
.
14. The inputs into production of goods and services that are provided by nature, such as
land, rivers, and mineral deposits are called
a physical capital.
.
b natural resources.
.
c human capital.
.
d technological knowledge.
.
15. Your company discovers a better way to produce mousetraps, but your better methods are
not apparent from the mousetraps themselves. Your knowledge of how to more
efficiently produce mousetraps is
a common technological knowledge.
.
b common, but not technological, knowledge.
.
c proprietary technological knowledge.
.
d proprietary, but not technological, knowledge.
.
16. Which of the following would increase productivity?
a an increase in the physical capital stock per worker
.
b an increase in human capital per worker
.
c an increase in natural resources per worker
.
d All of the above are correct.
.
17. If there are constant returns to scale, the production function can be written as
a xY = 2xAF(L, K, H, N).
.
b Y/L = A F(xL, xK, xH, xN).
.
c Y/L = A F( 1, K/L, H/L, N/L).
.
d L = AF(Y, K, H, N).
.
18. If a production function has constant returns to scale, output can be doubled if
a labor alone doubles.
.
b all inputs but labor double.
.
c all of the inputs double.
.
d None of the above is correct.
.
19. Suppose there are constant returns to scale. Now suppose that over time a country
doubles its workers, its natural resources, its physical capital, and its human capital, but
its technology is unchanged. Which of the following would double?
a both output and productivity
.
b output, but not productivity
.
c productivity, but not output
.
d neither productivity nor output
.
20. A country with a relatively low level of real GDP per person is considering adopting two
policies to promote economic growth. The first is to decrease barriers to trade. The
second is to restrict foreign portfolio investment. Which of these policies do most
economists say promote growth?
a. Both the first and the second
b. The first but not the second
c. The second but not the first
d. Neither the first nor the second
21. What term do economists use to describe the relationship between the quantity of inputs
used and the quantity of output produced?
a production function
.
b input function
.
c capital function
.
d returns to scale
.
22. A barber shop produces 96 haircuts a day. Each barber in the shop works 8 hours per day
and produces the same number of haircuts per hour. If the shop’s productivity is 3
haircuts per hour of labor, then how many barbers does the shop employ?
a 2
.
b 3
.
c 4
.
d 6
.
23. Nathan owns a bakery that bakes only cakes. All of his bakers work 8 hours per day. In
2006, he employed 5 bakers and they produced 200 cakes each day. In 2007, he
employed 6 bakers and they produced 249 cakes each day. In Nathan’s bakery,
productivity
a decreased by 2.33 percent between 2006 and 2007.
.
b increased by 2.33 percent between 2006 and 2007.
.
c increased by 3.75 percent between 2006 and 2007.
.
d increased by 24.50 percent between 2006 and 2007.
.
24. Which of the following would not be considered physical capital?
a a new factory building
.
b a computer used to help Mercury Delivery Service keep track of its orders
.
c on-the-job training
.
d a desk used in an accountant's office
.
25. If there are diminishing returns to capital, then
a capital produces fewer goods as it ages.
.
b old ideas are not as useful as new ones.
.
c increases in the capital stock eventually decrease output.
.
d increases in the capital stock increase output by ever smaller amounts.
.
26. The catch-up effect refers to the idea that
a saving will always catch-up with investment spending.
.
b it is easier for a country to grow fast and so catch-up if it starts out relatively
. poor.
c population eventually catches-up with increased output.
.
d if investment spending is low, increased saving will help investment to "catch-
. up."
27. Suppose that there are diminishing returns to capital. Suppose also that two countries are
the same except one has more capital per worker and so it has more real GDP per worker
than the other. Finally, suppose that the saving rate in both countries increases from 4
percent to 7 percent. Over the next ten years we would expect that
a. the growth rate will not change in either country.
b. the country that started with less capital per worker will grow faster.
c. the country that started with more capital per worker will grow faster.
d. both countries will grow and at the same rate.
28. Suppose that an American opens and operates a candy factory in Finland. This is an
example of
a. foreign direct investment. American saving is used to finance Finish investment.
b. foreign direct investment. American saving is used to finance American investment.
c. foreign portfolio investment. American saving is used to finance Finish investment.
d. foreign portfolio investment. American saving is used to finance American investment.
29. In the 1800s, Europeans purchased stock in American companies that used the funds to
build railroads and factories. The Europeans who did this engaged in
a. foreign portfolio investment.
b. indirect domestic investment.
c. foreign direct investment.
d. foreign indirect investment.
30. A management professor discovers a way for corporate management to operate more
efficiently. He publishes his findings in a journal. His findings are
a. proprietary and common knowledge.
b. neither proprietary nor common knowledge.
c. proprietary, but not common, knowledge.
d. common, but not proprietary, knowledge.
31. Living standards in the United States have risen tremendously over the years, mainly due to:
a. trade protection from competition from countries with low wages
b. the forceful efforts of labor unions
c. successive increases in the minimum wage
d. relentless increases in the productivity of labor over the years
32. A poor country starts at a _____level of capital, an extra unit of capital will lead to a
_____increase in the output.
a. high/ large
b. high/ small
c. low/ large
d. low/ small
33. Vietnam’s ICOR was 5 in the period 2000-2007, it means
a. Vietnam needed 1 units of capital to make 5 units of economic growth
b. Vietnam needed 5 units of labor to make 1 units of economic growth
c. Vietnam needed 5 units of capital to make 1 units of economic growth
d. None of the above
34. You and your friend work together for 4 hours to produce a total of 12 dream catchers. What
is productivity?
a. dream catchers per hour of labor
b. 1.5 dream catchers per hour of labor
c. 24 dream catchers per hour of labor
d. 12 dream catchers per hour of labor
II Short answer questions:
1. What is a production function? Write an equation for a typical production function, and
explain what each of the terms represents.
2. Some data that at first might seem puzzling: The share of GDP devoted to investment
was similar for the United States and South Korea from 1960-1991. However, during
these same years South Korea had a 6 percent growth rate of average annual income per
person, while the United States had only a 2 percent growth rate. If the saving rates were
the same, Explain the growth rates so different for two countries.
3. In addition to investment in physical and human capital, what other public policies might
a country adopt to increase productivity?
4. Use the data on U.S. real GDP below to compute real GDP per person for each year.
Then use these numbers to compute the percentage increase in real GDP per person from
1993 to 2012
Year Real GDP (2009 prices) Population
1993 $9,510,800 million 257.8 million
2012 $15,470,700 million 313.85 million
5. Country A has a population of 1,000, of whom 800 work 8 hours a day to make 128,000
final goods. Country B has a population of 2,000, of whom 1,800 work 6 hours a day to
make 270,000 final goods. Calculate the productivity and real GDP per person of each
countries.
6. Last year real GDP in the imaginary nation of Oceania was 561.0 billion and the
population was 2.2 million. The year before, real GDP was 500.0 billion and the
population was 2.0 million. What was the growth rate of real GDP per person during the
year?
7. Why is productivity related to the standard of living? In your answer, explain what
productivity and standard of living mean. Make a list of things that determine labour
productivity.
8. The catch-up effect says that countries with low income can grow faster than countries
with higher income. However, in statistical studies that include many diverse countries
we do not observe the catch-up-effect unless we control for other variables that affect
productivity. Considering the determinants of productivity, list and explain some things
that would tend to prohibit or limit a poor country's ability to catch up with the rich ones.