SN_24: Economic Growth in the Global Economy True or False

1. Human welfare is greatly influenced by long-term changes in a nations capacity to produce goods and services. 2. Emphasis on the short run of the business cycle can ignore the longer-term dynamic changes that affect output and real incomes. 3. Economic growth is usually measured by the annual percent change in the nominal output of goods and services per capita. 4. Along the production possibilities curve, the economy is producing at its potential output, sometimes called its natural level of output. 5. Another way of saying that economic growth shifted the production possibilities curve outward is that it increased potential output. 6. Greater stocks of land, labor, or capital can shift the production possibilities curve outward. 7. The Rule of 70 says that the number of years necessary for a nation to double its output is approximately equal to the nations growth rate divided by 70. 8. The richest or most-developed countries today have many times the per capita output of the poorest or least developed countries. 9. Economic growth is a complex process involving many important factors, no one of which completely dominates. 10. If the quantity of physical capital in a country increases at the same time that the quantity or quality of labor resources used falls, that country would experience economic growth as a result. 11. Technological advances, even without any change in the quantity or quality of the labor resources used, tend to lead to economic growth. 12. An increase in labor input does not necessarily increase output per capita. 13. A limited resource base is no obstacle to economic growth. 14. Both the initial development process and the sustained growth of an economy are dependent on a large natural resource base. 15. Technological advances involve both invention and innovation. 16. Because new technology must be introduced into productive use by someone who weighs estimates of the benefits of the new technology against estimates of the costs, that person the entrepreneuris an important economic factor in the growth process. 17. Technological advance permits us to economize on labor, land, or even capital. 18. One of the most important determinants of economic growth is the saving rate. 19. Investment alone does not guarantee economic growth. 20. An important link between research and development and capital investment means that when capital depreciates over time, it is replaced with new equipment that embodies the latest technology. 21. In most developed countries, property rights are effectively protected by the government; but in developing countries, such protection is not normally the case. 22. Free-trade policies will tend to increase the value of total output in an economy.

23. Trade can make economies more productive, even if individual enterprises dont become more efficient. 24. The correlation between per capita output and the proportion of the population that is unable to read and write is small. 25. Education is both a consequence of economic growth and a cause of economic growth.

Multiple Choice Questions

1. John Maynard Keynes, who once said that in the long run, we are all dead, was primarily concerned with a. long-run economic growth. b. long-run price stability. c. redirecting short-run fluctuations in the business cycle. d. Keynes was equally concerned with all these issues. 2. Economic growth refers to a(n) in the output of goods and services in an economy. The greater the economic growth, the goods citizens and their descendants will have to consume. a. decrease; less b. decrease; more c. increase; more d. increase; less 3. How much the economy can produce at its natural rate of output depends on a. technology. b. the quantity of available natural resources. c. the productivity of labor. d. the stock of available capital. e. all of the above. 4. The standard of living will decline if a. nominal GDP grows at a faster rate than real GDP. b. nominal GDP grows at a slower rate than real GDP. c. the rate of population growth exceeds the rate of growth of real GDP. d. the rate of population growth is less than the rate of growth of real GDP. 5. Which of the following would not result in increasing the natural rate of output in a country? a. increasing current consumption by reducing current saving b. draining swampland to allow cultivation c. improving the transportation system d. raising the fraction of resources that the country devotes to education e. All of the above would tend to increase the natural rate of output in a country. 6. According to the Rule of 70, if a nation grows at a rate of 5 percent per year, it will take roughly for national income to double. a. 10 years b. 7 years c. 70 years d. 14 years e. none of the above 7. According to the Rule of 70, a. if a country is growing at 7 percent per year, its output will double in approximately 10 years. b. if a country is growing at 3.5 percent per year, its output will double in approximately 20 years. c. if a country is growing at 1 percent per year, its output will double in approximately 70 years. d. all of the above are true. e. none of the above is true.

8. In the long run, the most important determinant of a nations standard of living is a. its rate of productivity growth. b. its ability to export cheap labor. c. its ability to control the nations money supply. d. its endowment of natural resources. 9. If both the capital stock and the technology in a country increased, other things being equal, the countrys potential output would a. rise. b. fall. c. remain unchanged. d. change in an indeterminate direction. 10. Technological advances can be a. labor saving. b. capital saving. c. land (natural resource) saving. d. any of the above. 11. If a country increased its saving rate, a. its current consumption would have to fall. b. its current consumption would have to rise. c. its future consumption possibilities will fall. d. its future consumption possibilities will rise. e. both a and d will occur. 12. High rates of saving and investment in a country a. guarantee rapid economic growth. b. tend to increase economic growth but do not guarantee it. c. will result in greater economic growth if they are accompanied by advances in technology than if they are not. d. will result in greater economic growth if they are accompanied by more investment in human capital than if they are not. e. will result in all of the above except a. 13. Economic growth tends to be greater in countries where a. the government effectively protects property rights. b. more resources are devoted to research and development. c. there is greater freedom to trade freely. d. any of the above is true. 14. In a country that has an unstable government or judiciary, would you expect to see more entrepreneurial activity, or less? a. less, because an unstable economy has fewer entrepreneurs b. less, because of an unreliable infrastructure for protecting property rights c. more, because of fewer governmental restrictions d. more, because of less taxation of commercial and research activities 15. Other things being equal, the higher the rate of savings across countries, a. the higher the rate of change of real GDP per capita. b. the lower the rate of change of real GDP per capita. c. the lower the productivity of labor. d. the lower the rate of investment. ---------- END ----------