Topic 3

TOPIC 3 Part A: Multiple Choice Questions
1. The key determinant of a person's standard of living in a country is a. the amount of goods and services produced from each hour of a worker's time. b. the total amount of goods and services produced within the country. c. the total amount of its physical capital. d. its growth rate of real GDP. 2. Suppose there are constant returns to scale. Now suppose that over time a country doubles its workers, its natural resources, and its human capital, but its technology is unchanged. Which of the following would double? a. both output and productivity b. output, but not productivity c. productivity, but not output d. neither productivity nor output 3. Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has more capital and so more real GDP per person than the other. Finally, suppose that the saving rate in both countries increases from 5 percent to 6 percent. Over the next ten years we would expect that a. the growth rate will not change in either country. b. the country that started with less capital will grow faster. c. the country with started with more capital will grow faster. d. both countries will grow at the same rate. 4. Suppose a country reduces trade restrictions. This country would be pursing an a. inward policy, which most economists believe has beneficial effects on the economy. b. inward policy, which most economists believe has adverse effects on the economy. c. outward policy, which most economists believe has beneficial effects on the economy. d. outward policy, which most economists believe has adverse effects on the economy. 5. Consider two countries. Country A has a population of 1,000, of whom 800 work 8 hours a day to make 128,000 final goods. Country B has a population of 2,000 of whom 1,800 work 6 hours a day to make 270,000 final goods a. Country A has higher productivity and higher real GDP per person than country B. b. Country A has lower productivity and lower real GDP per person than country B. c. Country A has higher productivity, but lower real GDP per person than country B. d. Country B has lower productivity, but higher real GDP per person than country B. 6. Which of the following is considered human capital? a. knowledge acquired from early childhood education programs b. knowledge acquired from grade school c. knowledge acquired from on-the-job training d. All of the above are correct. 7. The traditional view of the production process is that capital is subject to a. diminishing returns, so that other things the same real GDP in poor countries should grow at a faster rate than in rich countries.
b. diminishing returns, so that other things the same real GDP in poor countries should grow at a slower rate than in rich countries. c. increasing returns, so that other things the same real GDP in poor countries should grow at a faster rate than in rich countries. d. increasing returns, so that other things the same real GDP in poor countries should grow at a slower rate than in rich countries. 8. Outward-oriented policies a. prevent countries from taking advantage of gains from trade. b. have generally led to high growth for the countries that pursued them. c. receive little support from economists, despite such polices success. d. None of the above is correct 9. If an economy with constant returns to scale were to double its physical capital stock, its available natural resources, and its human capital, but leave the size of the labor force the same, a. its output would stay the same and so would its productivity. b. its output and productivity would increase, but less than double. c. its output and productivity would increase by more than double. d. None of the above is correct. 10. Which of the following would be human capital and physical capital respectively? a. for an accounting firm, the accountants knowledge of tax laws and computer software b. for a grocery store, grocery carts and shelving c. for a school, chalkboard and desks d. for a library, the building and the reference librarians knowledge of the Internet 11. Consider two countries. Country A has a population of 1,000, of whom 800 work 8 hours a day to make 128,000 final goods. Country B has a population of 2,000 of whom 1,800 work 6 hours a day to make 270,000 final goods a. Country A has higher productivity and higher real GDP per person than country B. b. Country A has lower productivity and lower real GDP per person than country B. c. Country A has higher productivity, but lower real GDP per person than country B. d. Country B has lower productivity, but higher real GDP per person than country B. 12. Technological knowledge refers to a. human capital. b. available information on how to produce things. c. resources expended transmitting society's understanding to the labor force. d. All of the above are technological knowledge.
Part B: Short Answer Questions
Question 1: Why does a nations standard of living depend on property rights? Question 2: Why is productivity related to the standard of living? In your answer be sure to explain what productivity and standard of living mean. Make a list of things that determine labor productivity.

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TOPIC 3 Part A: Multiple Choice Questions

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