Problem Set
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LECTURE 3: PRODUCTION AND GROWTH
1. Which of the following is correct?
a. Although levels of real GDP per person vary substantially from country to country, the growth
rate of real GDP per person is similar across countries.
b. Productivity is not closely linked to government policies.
c. The level of real GDP per person is a good gauge of economic prosperity, and the growth
rate of real GDP per person is a good gauge of economic progress.
d. Productivity may be measured by the growth rate of real GDP per person.
2. Cedar Valley Furniture uses 5 workers working 8 hours to produce 80 rocking chairs. What is
the productivity of these workers?
a. 2 chairs per hour.
b. 1 hour per chair.
c. 80 chairs.
d. None of the above are correct.
3. Which of the following lists contains, in this order, natural resources, human capital, and
physical capital?
a. For a restaurant: the produce used to make salad, the things the Chef learned at Cooking
b. School, the freezers where the steaks are kept.
c. For a furniture company: wood, the company cafeteria, saws.
d. For a railroad: fuel, railroad engines, railroad tracks.
e. None of the above are correct.
4. If an economy with constant returns to scale were to double its physical capital stock, its
available natural resources, and its human capital, but leave the size of the labor force the
same,
a. its ouput would stay the same and so would its productivity.
b. its output and productivity would increase, but less than double.
c. its ouput and productivity would increase by more than double.
d. None of the above are correct.
5. Which of the following is correct?
a. Productivity is hours worked divided by output produced.
b. Americans have a higher standard of living than Indonesians because American workers are
more productive than Indonesian workers.
c. Changes in the market prices of most resources indicate that they are becoming
increasingly scarce.
d. All of the above are correct
6. Human capital is the:
a. knowledge and skills that workers acquire through education, training, and experience.
b. stock of equipment and structures that is used to produce goods and services.
c. total number of hours worked in an economy.
d. same thing as technological knowledge.
7. If, in some European country, real GDP/person in 2004 is €18,073 and real GDP/person in
2005 is €18,635, what is the growth rate of real output per person over this period?
a. 3.1 percent
Problem Set
b. 3.0 percent
c. 18.6 percent
d. 5.62 percent
8. Which of the following describes an increase in technological knowledge?
a. A farmer sends his child to agricultural college and the child returns to work on the farm.
b. A farmer hires another day labourer.
c. A farmer buys another tractor.
d. A farmer discovers that it is better to plant in the spring rather than in the fall.
9. Our standard of living is most closely related to
a. how hard we work.
b. our supply of capital, because everything of value is produced by machinery.
c. our productivity, because our income is equal to what we produce.
d. our supply of natural resources, because they limit production.
10. Once a country is wealthy,
a. it no longer needs any human capital.
b. capital becomes more productive due to the "catch-up effect."
c. it may be harder for it to grow quickly because of the diminishing returns to capital.
d. it is nearly impossible for it to become relatively poorer.
11. Which of the following statements is true?
a. Countries all have the same growth rate and level of output because any country can obtain
the same factors of production.
b. Countries have great variance in both the level and growth rate of GDP/person; thus, poor
countries can become relatively rich over time.
c. Countries may have a different level of GDP/person but they all grow at the same rate.
d. Countries may have a different growth rate but they all have the same level of GDP/person.
12. In what way is a college degree a form of capital?
13. What does the level of a nation’s GDP measure? What does the growth rate of GDP measure?
Would you rather live in a nation with a high level of GDP and a low growth rate or in a nation
with a low level of GDP and a high growth rate?