PRACTICE TEST 17

(Bassam AbuAlFoul)

Chapter 17 Economic Growth Part I. Multiple Choice: Choose the best answer for the following questions.
1. Most economists believe that: a. increased investment leads to higher economic growth. b. higher economic growth leads to lower investment. c. increased investment does not affect economic growth. d. increased investment causes increasing marginal productivity. 2. Which of the following would be most likely to improve the standard of living of a poorer nation? a. development of strong labor unions b. policies that increase educational opportunities for a country's population c. adoption of trade barriers (higher tariffs and quotas) d. widespread use of price controls to allocate goods and resources 3. Which one of the following countries would most likely be considered a poorer nation? a. Canada b. West Germany c. Japan d. Pakistan 4. Which of the following is NOT a determinant of productivity? a. physical capital b. human capital c. wages d. technological knowledge 5. Which of the following is likely to lead to a decrease in birth rates? a. decreasing the opportunity cost of having children b. more desirable employment for women c. less desirable employment for women d. increasing the cost of birth control 6. Which of the following statements is correct? a. In general, a given level of investment in a poor country will lead to greater economic growth than the same level of investment in a rich country. b. If a nation invests more, its economic growth rate will be permanently higher. c. A nation must have abundant natural resources if it is to experience rapid economic growth. d. Increased economic growth through increased investment does not have an opportunity cost. 7. Productivity refers to: a. the rate at which a nation's income grows. b. the amount of goods and services produced from each hour of a worker's time. c. the amount of dollars invested in the stock market. d. the amount of human and physical capital available in an economy. 8. Which of the following might government encourage in order to increase productivity? a. encourage investment from abroad b. encourage its citizens to save more c. strictly enforce property rights

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d. all of the above 9. Why does political instability and insecurity of property rights retard economic growth? a. Fear that private property will be confiscated substantially reduces the incentive of individuals to invest and create wealth. b. When property rights are insecure, foreign investors are more willing to invest in the country. c. Savings flow into a country if individuals fear their property is insecure. d. Political instability and corruption can enhance the coordinating power of the market. 10. What is the best measure of productivity? a. an increase in total real GDP b. an increase in total nominal GDP c. an increase in output per hour of work d. a increase in nominal GDP per worker 11. Compared to richer countries, poorer countries are generally characterized by: a. high real GDP per person. b. political stability. c. rapid population growth. d. strongly enforced property rights. 12. In recent decades, the population of poorer countries has generally: a. grown very slowly. b. grown more rapidly than the population of richer countries. c. grown at approximately the same rate as richer countries. d. grown much less rapidly than the population of richer countries. 13. Suppose Toyota builds a car plant in Brazil. This is an example of: a. foreign portfolio investment. b. foreign direct investment. c. foreign indirect investment. d. foreign growth enhancers. 14. Which of the following factors would be most likely to encourage capital formation in a poorer nation? a. the expectation of sustained high rates of inflation in the future b. the expectation that property rights would remain secure c. the expectation that a struggle between capitalist and socialist forces would lead to major structural change in the economy d. an increase in corporate taxes in order to finance an expanded government welfare program 15. Which of the following is most likely to contribute to the growth of a poorer country? a. price controls that keep the cost of agricultural products low b. rapid population growth c. exchange rate controls and export restrictions d. secure property rights and political stability 16. Which of the following is the most important source of differences in living standards between nations (and between time periods)? a. non pecuniary working conditions b. percentage of the labor force that is unionized c. the distribution of income d. productivity

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17. Generally speaking from society's viewpoint, the returns to research and development undertaken by firms: a. is a public good. b. is a private good. c. should never be supported by government. d. will never occur if a system of patents is not put into place. 18. An increase in saving means that: a. economic growth will slow. b. labor productivity will fall. c. fewer consumer goods and services will be produced. d. unemployment will increase. 19. Which of the following would be considered human capital? a. a robot on an assembly line b. a calculator c. a college education d. a college classroom 20. Suppose that factory output rose from 50,000 units to 55,000 units while labor hours rose from 1100 to 1200. Which of the following is true? a. Labor productivity remained unchanged. b. Labor productivity increased slightly. c. Labor productivity decreased slightly. d. Labor productivity increased sharply. 21. If the political leaders of a country wanted to promote economic growth, which of the following policy alternatives would be most effective? a. price controls on agricultural products in order to keep the price of food cheap b. a government program that supported research and development activities c. increased trade restraints d. policies restricting foreign investment in the country 22. The four determinants of a country's productivity are: a. physical capital, human capital, financial capital, and natural resources. b. financial capital, natural resources, physical capital, and technological knowledge. c. physical capital, natural resources, technological knowledge, and government fiscal and monetary policies. d. physical capital, human capital, natural resources, and technological knowledge. 23. Which of the following changes would we expect to result in higher productivity? a. higher birth rates b. a less educated work force c. a decrease in the capital/labor ratio d. improved technology 24. Which of the following is generally a serious obstacle to the economic growth of poorer nations? a. lack of knowledge about modern technology b. the unavailability of natural resources c. a slow rate of population growth d. a low rate of capital formation as the result of political and economic instability 25. According to the catch-up effect: a. countries that start off poor tend to grow more rapidly than countries that start off rich. b. countries that start off poor tend to grow less rapidly than countries that start off rich. c. nations with relatively high living standards grow faster than nations with lower living standards. d. countries that start off rich undertake more investment than countries that start off poor.

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Part II: Internet:

You are also encouraged to visit the web site for your textbook which is rich in learning resources and materials related to each chapter. In addition, you can test your knowledge with the online quizzes. The internet address was provided in the course syllabus. Here it is again: http://highered.mcgrawhill.com/sites/007712961x/student_view0/index.html

ANSWERS (For Part I): 1. a. increased investment leads to higher economic growth.
2. b. policies that increase educational opportunities for a country's population 3. d. Pakistan 4. c. wages 5. b. more desirable employment for women 6. a. In general, a given level of investment in a poor country will lead to greater economic growth than the same level of investment in a rich country. 7. b. the amount of goods and services produced from each hour of a worker's time 8. d. all of the above 9. a. Fear that private property will be confiscated substantially reduces the incentive of individuals to invest and create wealth. 10. c. an increase in output per hour of work 11. c. rapid population growth. 12. b. grown more rapidly than the population of richer countries. 13. b. foreign direct investment. 14. b. the expectation that property rights would remain secure 15. d. secure property rights and political stability 16. d. productivity 17. a. is a public good. 18. c. fewer consumer goods and services will be produced. 19. c. a college education 20. b. Labor productivity increased slightly. 21. b. a government program that supported research and development activities 22. d. physical capital, human capital, natural resources, and technological knowledge. 23. d. improved technology 24. d. a low rate of capital formation as the result of political and economic instability 25. a. countries that start off poor tend to grow more rapidly than countries that start off rich.

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