ECON 1020 Lecture Notes - Lecture 38: Capital Formation, Human Capital

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erinchimpanzee657

17 May 2017

School

University of Manitoba

Department

Economics

Course

ECON 1020

Professor

Ryan A.Compton

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ECON 1020 Full Course Notes

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The canadian population and the size of the labour force have both expanded significantly. 1945-2011: total population grew from 12 million to 34 million and the labour force increased from 4. 5 million to over 18 million. Five factors appear to explain changes in productivity growth rates: Quantity of capital has increased greatly over time. Quantity of capital equipment available per worker in canada. Public investment in canada"s infrastructure has also grown. Infrastructure: the capital goods usually provided by the public. This publically owned capital complements private capital sector for the use of its citizens and firms. Contribute to a worker"s stock of human capital. Human capital: the accumulation of prior investments in education, training, health, and other factors that increase productivity. Formal education but also on the job training post-secondary education is subsidized in canada is a factor for. 15% of growth the increase in the number of university students.

Related Questions

1. According to economists today, economic growth depends on:

1) resources.

2) technology.

3) institutions.

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.

1) higher

2) lower

3) similar

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

Only III

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.

1) corruption

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.

erinbuffalo510

Question 3

According to Joseph Schumpeter, the theory of creative destruction describes a process by which

	A	some new products unleash a gale of destruction that drive other new products out of the market.
B		new products unleash a gale of destruction that drives old products out of the market.
C		new products are created by the destruction of capital.
D		the creation of new products never involves the destruction of old products.

Question 4

Which of the following countries had the highest GDP per capita in 2012?

		A Qatar
B		United States
C		Japan
D		Norway

Question 5

________ save a ________ of their income. This ________ capital in their economy and raises economic growth.

	A	Developing countries; large proportion; decreases
B		Developing countries; small proportion; increases
C		High-income countries; large proportion; increases
D		High-income countries; small proportion; increases

Question 6

The demand for loanable funds is determined by the willingness of ________ to borrow money to engage in new investment projects.

A		government
B		households
C		banks
D		firms

Question 7

The U.S. economy has been more stable since 1950.

True

False

Question 8

When the economy reaches a trough in a business cycle, which of the following will occur?

A		Income, production, and employment will continue to fall.
B		Income, production, and employment will begin to rise.
C		Income and production will rise, but employment will continue to fall.
D		Employment rises, but income and production will continue to fall.

Question 9

In a closed economy, what is the relationship between saving and investment?

A		Saving is greater than investment.
B		Investment is greater than saving.
C		Investment is equal to saving.
D		Investment may be greater or smaller than saving.

Question 10

The per-worker production function shows the relationship between ________ per hour worked and ________ per hour worked, holding ________ constant.

A		labor; real GDP; technology
B		capital; real GDP; technology
C		labor; capital; real GDP
D		capital; labor; real GDP

Question 11

New growth theory states that increases in ________ capital will result in ________ at the ________ level.

	A	knowledge; increasing returns to scale; firm
	B	physical; decreasing returns to scale; firm
	C	knowledge; decreasing returns to scale; economy
D		knowledge; increasing returns to scale; economy

Question 12

Which of the following is not a reason why the Industrial Revolution occurred when and where it did?

A		The British government was committed to upholding private property rights.
B		The British government was able to eliminate arbitrary increases in taxes.
C		The British government was able to more easily seize wealth.
D		Institutional changes by the British government helped protect wealth.

Question 13

Growth in real GDP per capita for the world economy was greatest during

A		the seventeenth century.
B		the eighteenth century.
C		the nineteenth century.
D		the twentieth century.

Question 14

Which of the following is a normative statement about economic growth?

A		Economic growth is associated with higher labor productivity growth.
B		Economic growth increases GDP per capita.
C		Economic growth hurts developing countries.
D		Foreign direct investment stimulates economic growth.

Question 15

The effect of a recession on a company like Whirlpool Corporation is such that

A		sales decline more sharply for Whirlpool as compared to firms that do not produce durable goods.
B		profits fall less sharply as compared to firms that do not produce durable goods.
C		the decline in sales is more short-lived as compared to firms that do not produce durable goods.
D		there is no difference in the impact of the recession on its profits as compared to firms that do not produce durable goods.

Question 16

For the recessions in the United States since the 1950s,

A		cyclical unemployment has been non-existent.
B		unemployment rises on average by about 1.2 percentage points 12 months after a recession begins.
C		unemployment falls on average by 2 percentage points 12 months after a recession begins.
D		unemployment rises on average about 5 percentage points 12 months after a recession begins.

Question 17

You are an economic advisor to the president. You are asked to recommend a policy to promote long-term economic growth in the economy. Which of the following policies would you choose?

A		a reduction in sales taxes
B		an investment tax credit
C		a reduction in taxes on luxury yachts
D		All of these

Question 18

In comparison to a government that runs a balanced budget, when the government runs a budget deficit,

	A	the equilibrium interest rate will fall.
	B	business investment will fall.
	C	household savings will fall.
	D	None of these

Question 19

If labor productivity growth slows down in a country, this means that the growth rate in ________ has declined.

A		labor force participation
B		the quantity of goods or services that can be produced by one hour of work
C		the working-age population
D		nominal GDP

Question 20

Policies to promote growth by increasing saving and investment work through

A		decreasing the supply of loanable funds, lowering the interest rate, raising the level of investment in physical capital.
B		increasing the supply of loanable funds, increasing the interest rate, raising the level of investment in physical capital.
C		increasing the supply of loanable funds, lowering the interest rate, lowering the level of investment in physical capital.
D		increasing the supply of loanable funds, lowering the interest rate, raising the level of investment in physical capital.

31. A country's tax system influences the attractiveness of investing in that country and affects the relative level of profitability for an MNC.

a. True

b. False

32. Points inside a production possibilities frontier represent

a. unattainable production combinations

b. efficiency

c. situations where supply exceeds demand

d. unemployment of resources

33. Firms in a high-wage nation like the U.S. can compete effectively with imports from low-wage nations if

a. the U.S. reduces tariffs on imports

b. low-wage nations impose tariffs on U.S. made goods

c. labor productivity is higher in the low-wage nation

d. labor productivity is higher in the U.S.

34. Assume that production in the United States is valued at $100,000. National income is therefore $100,000. Of their income, workers save $2000, pay $6,000 in taxes, spend $89,000 on consumer goods, and spend $2000 on imports. Businesses spend $5,000 in new investment spending. And, foreigners spend $1000 on exports. To avoid any problems of inflation or unemployment, the government should have a budget deficit or surplus of:

a. $2,000 surplus

b. $1,000 deficit

c. $2,000 deficit

d. $1000 surplus

e. $0 deficit

35. Autarky means-----------------------------------------------------------------

a. the absence of government

b. lack of agriculture

c. self-sufficient, in the absence of international trade

d. short of exchange rates

36. The more people there are----------------------, the less the public as a whole will spend on goods and services.

a. unemployed

b. underemployed

c. employed

d. as discouraged workers

37, Which of the following theories holds that countries will produce and export products that use large amounts of production factors that they have in abundance?

a. Mercantilism

b. The theory of absolute advantage

c. The factor endowment theory

d. None of the above.

38. Suppose that a consumer has a marginal propensity to consume of 0.79. If this consumer earns an extra $1220, her saving would be expected to increase by-----------------------------

39. Many countries in Asia, Africa, and South America-----------------------

a. Are developing countries

b. Are industrialized nations

c. Have a high demand for nonessential products

d. Do not trade

40. Which two of the following are regarded as the main aims of the World Trade Organization (WTO)?

a) To eliminate discrimination in world trade

b) To provide financial assistance to countries with debt

c) To reduce tariff barriers

d) To make infant industry protection illegal

e) To help give preferences to smaller economies

b) and e) a) and c) a) and d) c) and e) b) and d)

41. Last year Sophia's nominal income increased by 12% while the price level rose by 5.5%. Consequently, Sophia's real income:

a. rose by approximately 7%

b. fell by approximately 1%

c. rose by approximately 2%

d. ------------------------------------

42. Consumer surplus

a. is always positive.

b. for a particular unit of consumption is computed by taking the difference between quantity demand and quantity supplied.

c. for all units consumed is the area below demand and below market price over all the units consumed.

d. added to producer surplus provides a measure of the net gain to society from the production and consumption of the good.

43. A decline in Real GDP for six or more consecutive months is called-------------------------------

a. A trough

b. A recession

c. An expansion

d. A recovery

44. What do we call the situation where capital grows faster than the labor force?

a. economic growth

b. technological change

c. productivity growth

d. capital deepening

45. The terms of trade are-------------------------------------------

a. the cost of transportation between countries

b. the ratio of wages in two countries

c. the terms which are used in the trade negotiations

d. the rate at which two products can be exchanged

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ECON 1020 Lecture Notes - Lecture 38: Capital Formation, Human Capital

ECON 1020 Full Course Notes

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