ECON 1BB3 Lecture 6: Macroeconomics – week 6
ECON 1BB3 Full Course Notes
1) Which of the following things would increase the value of Total Factor Productivity (TFP)?
a. A new production method that can produce smaller, more efficient microchips.
b. None of the other answers.
c. A company hires a large amount of workers after building a brand new factory.
d. Foreign investors invest in physical capital.
2) The country of Rupertopia has one factory for all its workers in 2011 and 2012. There were 100 workers in 2011 and 150 workers in 2012. Additionally, there were 200 people living in Rupertopia in 2011 and 1,000 people in 2012. Real GDP was one million dollars in 2011 and two million dollars in 2012. Which of the following statements regarding labor productivity is true:
a. Labor productivity in Rupertopia exhibits constant returns.
b. Labor productivity in Rupertopia exhibits increasing returns.
c. Labor productivity in Rupertopia exhibits diminishing returns.
d. More information is needed to determine whether labor productivity in Rupertopia exhibits diminishing, constant, or increasing returns.
3) Which of the following changes would help to improve a country's productivity level?
a. Improvements in the health of workers
b. None of the other answers.
c. Tuition increases at local Universities
d. A lower birth rate
4) When workers already have a large quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity only slightly. This statement:
a. is an assertion that capital is subject to increasing returns.
b. is made under the assumption that the quantities of human capital, natural resources, and technology are being held constant.
c. represents an unconventional view of the production process.
d. All of the other answers are correct.
5) Economic growth can be influenced by government policies. Which of the following can influence the economy's growth rate?
a. All of the other answers are correct
b. Promoting research and development of technologies
c. Fostering education
d. Maintaining property rights
According to estimates presented in the textbook, which of the following factors made the smallest contribution to U.S. growth between 1928 and 1997?
B) Human capital.
C) Physical capital.
According to economist Hernando DeSoto, the lack of formal property rights in many poor countries limits economic growth because informal property rights:
A) lead to excessive investment in physical, social, and human capital.
B) limit the amount that businesses and households can borrow.
C) result in excessive government regulation.
D) decrease the labor force participation rate.
The theory of convergence depends on the assumption that:
A) population growth falls to replacement levels in all nations.
B) factors of production are mobile across borders.
C) technological advancement slows.
D) production functions have constant returns to scale.
The surge in foreign direct investment experienced by China and India in the early 2000s can best be explained by:
A) their higher marginal productivity of capital, which leads to lower production costs.
B) their lower marginal productivity of capital, which leads to lower production costs.
C) the limits they impose on factor mobility.
D) technological agglomeration.
The idea behind Say's Law is that people work because:
A) they like to work.
B) they want to buy things.
C) they want to accumulate wealth.
D) work gives them social status.
People's knowledge is a type of capital, called human capital.
The law of diminishing marginal productivity applies whenever:
A) output is increased.
B) all inputs are increased.
C) only one input is increased.
D) decreasing returns to scale are present.
The theory of convergence argues that poor nations should, if they pursue the right policies,
A) grow at the same rate as rich nations.
B) grow faster than rich nations.
C) develop the same social-welfare structures as rich nations.
D) stop their exploitation by the rich nations.
If increasing returns to scale exist, then an increase in output of exactly 3 percent is most likely to be produced by:
A) a decrease in all inputs of 3 percent.
B) an increase in all inputs of less than 3 percent.
C) an increase in all inputs of 3 percent.
D) an increase in all inputs of more than 3 percent.
The production function is best represented in the following form:
A) Output = A.
B) Output = f(Labor, Capital, Land).
C) Output = A%u2022f(Labor, Capital, Land).
D) Output = [A%u2022f(Labor, Capital, Land)]b.
The effect of economic growth generally has been to make:
A) the poor poorer and the rich richer.
B) the poor richer and the rich poorer.
C) all income levels richer.
D) the rich richer but not affect the poor.
Scale economies describe what happens to output when:
A) one input changes.
B) all inputs change by the same percentage.
C) technology changes.
D) institutions change.
1. According to economists today, economic growth depends on:
4) resources and technology.
5) resources, technology, and institutions.
2. Which of the following is FALSE?
1) Real-world observations shape economic theory.
2) Economic theory shapes policy decisions.
3) Policies affect real-world events.
4) Economic theory has no impact on real-world events.
5) None of these statements is false.
3. After the Great Depression, the main focus of macroeconomics was:
1) growth theory.
2) the study of business cycles.
3) the study of stock markets.
4) the study of why businesses fail.
4. The Solow Growth Model serves as a foundation of:
1) macroeconomic theory.
2) microeconomic theory.
3) growth theory.
4) all economic theory.
5. According to the Solow Growth Model, which of the following is/are the primary source(s) of economic growth?
A - Natural resources
B - Human capital
C - Physical capital
D - A and B
E - A and C
F- B and C
G- A, B, and C
6. According to the Solow Growth Model, the marginal product of capital is:
1) zero and increases as the quantity of capital increases
2) zero and decreases as the quantity of capital increases.
3) negative and increases as the quantity of capital increases.
4) negative and decreases as the quantity of capital increases.
5) positive and increases as the quantity of capital increases.
6) positive and decreases as the quantity of capital increases.
7. If building new capital is costless and the capital depreciation rate is zero, then an economy will reach a steady state in which the marginal product of capital is:
1) equal to zero.
2) greater than zero.
3) less than zero.
8. Which of the following is true for an economy before it reaches the steady-state?
1) Investment and net investment are both positive.
2) Investment is positive but net investment is zero.
3) Investment is zero but net investment is positive.
4) Investment and net investment are both zero.
9. The idea of convergence suggests that when underdeveloped nations begin to develop, they typically have _____________ growth rates as they catch up to the developed nations.
4) very low
10. Which of the following is true after allowing for sustained technological advance in the Solow Growth Model?
I. The steady-state situation is avoidable.
II. The marginal product of each unit of capital will increase.
III. A diminishing marginal product is avoidable.
Only I only II
I and II
I and III
II and III
I, II, and III
11. What is the primary difference between the basic Solow model and the second Solow model?
1) The models are theoretically similar. The second Solow model is only more mathematically complex than the basic model.
2) The second Solow model allows for technological change, while the basic model doesn't.
3) The basic Solow model features diminishing returns, in contrast to the second model.
4) The marginal product eventually becomes zero in the basic model, while such a situation is avoidable in the second Solow model.
12. All of the following can result in economic growth except:
1) improved schools and colleges.
2) a boost in population growth.
3) a favorable climate.
4) an improved health care system.
13. Which of the following will result in a movement along with the aggregate production function?
I. a technological advancement
II. training of the workforce
III. an increase in the country's capital stock
I and II
I and III
II and III
I, II, and III
14. Which of the following is NOT true about technological change in the Solow model?
1) Technological change is random.
2) Technological change occurs exogenously.
3) Technological change is driven by the incentives of the innovators.
4) Technological change is not due to any inherent characteristics of the economy.
15. What is the key difference between the new growth theory and the growth theory as envisioned by Solow?
1) There is no difference; technological change is endogenous in both these theories.
2) There is no difference; technological change is exogenous in both these theories.
3) Technological change is endogenous in the new growth theory and exogenous in the Solow theory.
4) Technological change is exogenous in the new growth theory and endogenous in the Solow theory.
16. Which of the following was proposed by the new growth theory?
I. Capital resources cannot grow indefinitely.
II. Technological change is caused by factors inside the economy.
III. Technological changes are entirely unpredictable events.
IV. Institutions matter.
I and II
I and IV
II and IV
III and IV
I, II, III, and IV
17. All of the following except _____________ are barriers to natural growth.
2) political instability
3) high tax rates
4) free markets
5) All of these are barriers to natural growth.
18. Which of the following is supported by the modern growth theory?
A - Population growth is an obstacle to economic growth.
B - Competition encourages the discovery of new goods and services, which leads to economic growth.
C - A country can grow faster if it disengages itself from international trade with foreign nations.
D - Taxes should be abolished, as they hurt incentives necessary for economic growth.
All of these. A and B
A, B, and D
19. According to the new growth theory, the low living standards in many developing countries can be explained by a lack of:
A - natural resources.
B - free markets.
C - sound institutions.
D - strong military resources.
all of these.
B and C.
A and D.