CAS EC 102 Lecture 7: Technological change and the New Growth Theory
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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
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. |
A competitive firm’s short-run demand for labor will rise when the price of its product rises.
True | |
False |
As the wage rate rises, the marginal revenue product of labor increases.
True | |
False |
A competitive firm’s demand for labor always slopes down in the short-run, but may slope upwards or downwards in the long run.
True | |
False |
When labor an capital are complements in production, a higher wage will cause a firm to use more capital in the long run.
True | |
False |
If labor is a regressive factor, then a firm’s long-run demand for labor may or may not be downward sloping.
True | |
False |
The short-run demand curve for labor for a firm in any type of market for its output coincides with
the upward-sloping portion of the marginal revenue product curve. | |
the downward-sloping portion of the marginal revenue product curve. |
the downward-sloping portion of the marginal product curve. | |
the marginal labor cost curve. |
An increase in the price of labor will, in the short run, cause a competitive firm’s
marginal cost to increase, the quantity it sells to decrease, and therefore reduce the quantity of labor demanded. | |
price of its output to increase, leaving the quantity of labor demanded unchanged. |
marginal revenue product of labor to decrease, and therefore reduce demand for labor. | |
marginal revenue product of labor to increase, and therefore increase demand for labor. |
Which of the following would cause the firm’s short-run demand curve for labor to shift to the right?
A decrease in the wage rate. | |
An increase in the price of the firm’s product. |
An increase in the rental rate paid to capital. | |
A decrease in the amount of complementary capital available. |
If increased capital usage reduces the firm’s short-run demand for labor, then
labor is a regressive factor. | |
labor and capital are complements in production. |
labor and capital are substitutes in production. | |
labor is a Giffen factor. |
When is the law of demand violated for labor? That is, with regards to the law of labor demand, when does an increase in the wage not lead to a reduction in the quantity of labor demanded?
Never. | |
When the substitution and scale effects are in opposition, with the scale effect being the larger. |
When labor is a regressive factor. | |
When labor earns zero economic rent. |
If the wage rate rises, then the firm’s long-run marginal costs change, which in turn affects the firm’s output level and its employment of labor. This phenomenon is known as
the substitution effect. | |
the scale effect. |
the regressive-factor effect. | |
the factor-price effect. |
When will the scale effect of a wage increase cause a reduction in the quantity of labor demanded?
Always. | |
When labor is not a regressive factor. |
When labor and capital are substitutes in production. | |
When labor and capital are complements in production. |
Consider the usual case where a higher wage rate increases a firms’ marginal costs. In this case, the industry’s demand curve for labor
is more wage inelastic than the individual firms’ demand curves would indicate. | |
coincides with the horizontal sum of individual firms’ demand curves. |
contains only substitution effects but no scale effects. | |
is horizontal at the going wage rate. |
To maximize profits, a monopolist will hire the quantity of labor at which marginal revenue product of labor
is downward sloping and equal to the market wage rate. | |
is downward sloping and equal to marginal labor cost. |
minus marginal labor cost is maximized. | |
is maximized. |
A firm’s revenue minus its factor payments equals
zero. | |
the profits or losses earned by the firm. |
the quasi-rents earned by the factors of production. | |
the firm’s total revenue. |
As the amount of labor used in production increases, total product
increases at low levels of labor and decreases at higher levels of labor. | |
increases at high levels of labor and decreases at low levels of labor. |
always increases. | |
always decreases. |
A profit-maximizing price taker will produce at a level where
the wage equals the marginal product of labor. | |
the marginal revenue product of labor equals the price of their output. |
the wage rate equals the price of their output. | |
the marginal revenue product of labor equals the wage rate. |
If the wage rate is $10 per hour and one worker can produce 2 units of output per hour, then the marginal cost of production is
$5. | |
$10. |
$20. | |
The answer cannot be determined from the information given. |
A firm’s long-run demand for labor is more wage-elastic than its short-run demand for labor.
True | |
False |
A monopsonist’s short-run demand curve for labor coincides with its marginal revenue product of labor curve.
True | |
False |
Workers will receive higher wages when an employer faces an upward-sloping supply curve for labor.
True | |
False |
The profit an owner receives is equivalent to the rent received for her entrepreneurial services.
True | |
False |
When high levels of labor are employed, total production tends to increase at a decreasing rate.
True | |
False |
The substitution effect on labor always decreases the quantity of labor demanded when the wage rate increases.
True | |
False |
A firm’s marginal revenue product of labor equals the marginal product of labor multiplied by the per-unit cost of labor.
True | |
False |
Tastes and preferences are relevant to individual choices for consumption but not relevant to choices for supplying labor.
True | |
False |
A higher wage will always cause a worker to increase the quantity of labor supplied.
True | |
False |
The substitution and income effects of a wage increase both cause consumption to rise.
True | |
False |
A worker’s labor supply may either rise or fall when nonlabor income increases, depending on whether the substitution effect or the income effect dominates.
True | |
False |
When an increase in marginal productivity increases workers’ nonlabor income, the effect on the quantity of labor supplied is ambiguous/uncertain.
True | |
False |
A technological improvement that is permanent is more likely to raise employment than one that is temporary.
True | |
False |
Other factors being constant, firms that provide on-the-job training to workers will tend to pay higher wages.
True | |
False |
If there is discrimination, employers engage in it a cost.
True | |
False | |
Human capital tends to increase over the course of a person’s life.
True | |
False |
In the indifference curve budget line model of labor supply,
labor is measured along the horizontal axis and leisure is measured along the vertical axis. | |
labor is measured along the horizontal axis and consumption is measured along the vertical axis. |
consumption is measured along the horizontal axis and labor is measured along the vertical axis. | |
consumption is measured along the horizontal axis and leisure is measured along the vertical axis. |
In the indifference curve budget line model of labor supply, the slope of the indifference curve is used to measure
the wage rate. | |
labor’s marginal product. |
the worker’s nonlabor income. | |
the marginal value of leisure. |
If a worker has chosen a quantity of labor where the marginal value of leisure exceeds the wage rate, she would be better off by
choosing less leisure. | |
providing fewer hours of labor. |
providing more hours of labor. | |
staying at this combination of labor and consumption. |
When there is an increase in the wage rate there will be
both a substitution effect and an income effect. | |
only a substitution effect. |
only a substitution effect. | |
either a substitution effect or an income effect. |
When the wage rate rises, the substitution effect leads a worker to
increase consumption while the income effect leads to a decrease in consumption. | |
decrease consumption while the income effect leads to an increase in consumption. |
increase consumption, as does the income effect. | |
substitution sleep for other leisure. |
Consider the indifference curve budget line model of labor supply, and assume consumption and leisure are both normal goods. A higher wage rate would result in
more consumption and less leisure. | |
a reduction in the worker’s marginal value of leisure. |
reduced consumption if the income effect is larger than the substitution effect. | |
increased labor only if the substitution effect outweighs the income effect. |
When the wage rate rises, a worker chooses to replace some leisure hours with work hours, even if he would remain equally well off. This phenomenon is known as
compensating differential. | |
the income effect. |
the substitution effect. | |
intertemporal substitution. |
Which of the following will shift a worker’s labor supply curve to the left?
Higher nonlabor income. | |
A lower wage rate, assuming the substitution effect dominates the income effect. |
New machinery that substitutes for labor and lowers its marginal product. | |
A decrease in the marginal value of leisure. |
Which of the following would cause a rightward shift in the labor demand curve?
Manna from heaven. | |
A rise in the wage rate. |
A rise in workers’ marginal productivity. | |
A decline in workers’ nonlabor incomes. |
When some jobs are inherently more risky or unpleasant than other jobs, different workers will be paid different wages because of
differences in human capital. | |
differing access to capital. |
compensating differentials | |
discrimination. |
Discrimination is difficult to measure empirically because
it is hard to measure and control for differences in marginal productivity. | |
data on racial and gender differences is rarely available. |
discrimination is practiced by very few employers. | |
economists find no significant wage differentials due to gender or race. |
Intertemporal substitution dictates that
people will work less in periods of high productivity. | |
people will spend more in periods of high productivity. |
people will work more in periods of high productivity. | |
people will spend less in periods of high productivity. |
A decrease in the wage rate causes the budget line to
become flatter. | |
become steeper. |
shift upward. | |
shift downward. |
An increase in the marginal productivity of labor will tend to
shift the labor supply curve rightward if the change is temporary. | |
result in an increase in employment if the change is temporary. |
result in an increase in employment if the change is permanent. | |
all of the above. |
A downward shift in a worker’s budget line is a result of
an increase in the wage rate. | |
a decrease in the wage rate. |
an increase in nonlabor income. | |
a decrease in nonlabor income |
One deficiency of the labor-leisure indifference curve analysis is that because indifference curves are always tangent to the worker’s budget line, the model cannot explain why some people choose not to work.
True | |
False |