31) To determine GDP from the production function, we need to know
A) the quantity of labor employed.
B) the quantity of labor available for work.
C) the unemployment rate.
D) the quantity of labor supplied by irms.
E) the real wage rate.
Skill: Level 1: Deinition
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
32) At any given time, which factor of production is NOT ixed?
A) labor
B) technology
C) entrepreneurship
D) land
E) money
Skill: Level 1: Deinition
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
33) The production function is a relationship between the amount of labor employed and
A) the maximum quantity of real GDP that can be produced.
B) the maximum quantity of nominal GDP that can be produced.
C) the wage rate paid to the workers.
D) all other resources at diferent levels of employment.
E) the amount of labor workers supply.
Skill: Level 1: Deinition
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
11
34) The production function describes the relationship between
A) the real wage and the quantity of labor supplied.
B) real GDP and the quantity of labor employed.
C) real and potential GDP.
D) real and nominal GDP.
E) potential GDP and the real wage rate.
Skill: Level 1: Deinition
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
35) The ________ describes the relationship between the amount of labor employed and real
GDP.
A) production function
B) production possibilities frontier
C) Lucas Wedge
D) inlation rate
E) Okun Gap
Skill: Level 1: Deinition
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
36) The production function shows that potential GDP increases when the
A) price level rises.
B) price level falls.
C) inlation rate falls.
D) quantity of labor employed increases.
E) the wage rate falls.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
12
37) The production function displays
A) increasing returns.
B) real returns.
C) diminishing returns.
D) average returns.
E) normal returns.
Skill: Level 1: Deinition
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
38) Diminishing returns means that
A) each additional unit of labor produces successively less real GDP.
B) hiring more labor results in less real GDP.
C) each extra unit of real GDP produced requires less labor.
D) each additional unit of labor produces successively more real GDP.
E) hiring more labor must lower the real wage rate.
Skill: Level 1: Deinition
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
39) The idea of “diminishing returns” means that real GDP ________ as the quantity of labor
increases.
A) increases at a slower rate
B) decreases at a slower rate
C) increases at a faster rate
D) decreases at a faster rate
E) does not change
Skill: Level 1: Deinition
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
13
40) According to the production function, as the quantity of labor employed increases, real
GDP increases
A) at an increasing rate.
B) at a decreasing rate.
C) at a constant rate.
D) and then eventually decreases.
E) until it reaches potential GDP, and then it no longer changes.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
41) As additional units of labor hours are employed, holding all other factors constant,
along the production function,
A) real GDP increases at an increasing rate.
B) nominal GDP decreases at an increasing rate.
C) real GDP increases at a decreasing rate.
D) real GDP increase at a constant rate.
E) real GDP initially decreases and then starts to increase.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
42) The idea that the production function exhibits _______implies that ________.
A) diminishing returns; the Lucas Wedge increases at output increases
B) diminishing returns; each additional unit of labor employed generates an ever-
decreasing amount of real GDP
C) increasing returns; potential GDP is always increasing
D) increasing returns; output should increase steadily as technology grows
E) constant returns; each additional unit of labor employed generates an increasing amount
of real GDP
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
14
43) As the quantity of labor employed increases, the production functions exhibits a
A) positive, linear relationship.
B) positive relationship, with each additional unit of labor producing less additional real
GDP.
C) positive relationship, with each additional unit of labor producing more additional real
GDP.
D) negative, linear relationship.
E) U-shaped curve.
Skill: Level 1: Deinition
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
44) Diminishing returns along a production function means that each additional hour of
labor employed
A) produces a successively smaller additional amount of real GDP.
B) produces a successively larger additional amount of real GDP.
C) produces a constant additional amount of real GDP.
D) does not produce any additional real GDP.
E) forces the real wage rate to rise.
Skill: Level 1: Deinition
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
45) The production function shows that as employment increases, real GDP
A) increases at an increasing rate.
B) increases at a decreasing rate.
C) increases at a constant rate.
D) decreases at a decreasing rate.
E) increases until it reaches potential GDP and then it starts to decrease.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
15
46) Diminishing returns, so that each additional hour of labor employed produces
successively smaller additional amounts of real GDP, exist because
A) labor is not very productive.
B) extra labor produces more output.
C) all other factors are held ixed.
D) the price level rises as more workers are employed.
E) additional workers are paid higher wage rates.
Skill: Level 1: Deinition
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
47) As more labor is hired, moving along the production function, diminishing returns
occur because
A) workers are overworked and so their productivity decreases.
B) the wage rate paid is too low and so workers decrease their work efort.
C) there are ixed quantities of other resources.
D) the real wage rate must increase in order to hire additional workers.
E) real GDP increases more rapidly the more workers are hired.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
48) A reason a nation faces diminishing returns along a production function is because
A) unemployment always exists.
B) potential GDP is ixed.
C) the quantity of physical capital is ixed.
D) full employment is not possible.
E) the wage rate is ixed while moving along the production function.
Skill: Level 1: Deinition
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
16
49) ________ in the United States ________ in most European countries.
A) GDP per hour; is greater than GDP per hour
B) Average weekly hours; are greater than average weekly hours
C) The Okun Gap; is equal to the Okun Gap
D) The Lucas Wedge; is greater than the Lucas Wedge
E) Both A and B are true.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: Old
AACSB: Written and oral communication
50) The gap in GDP between the United States and Europe can be explained by the fact
that
A) U.S. labor is more productive than European labor.
B) prices are higher in the United States.
C) the Okun Gap is larger in the United States.
D) income taxes are higher in the United States.
E) equilibrium employment is higher in Europe.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: Old
AACSB: Written and oral communication
51) Employing an additional 1 billion hours of labor increases real GDP by $12 billion.
Employing another 1 billion hours beyond the irst 1 billion increases real GDP by $11
billion. Hence we can conclude from this information that as employment increases, real
GDP
A) increases at an increasing rate.
B) decreases at an increasing rate.
C) decreases at a decreasing rate.
D) increases at a decreasing rate.
E) falls from $12 billion to $11 billion as more workers are hired.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
17
52) If adding an initial 100 billion labor hours per year increases real GDP by $3 trillion,
diminishing returns informs us that an additional 100 billion labor hours per year will
increase real GDP by
A) exactly $3 trillion.
B) less than $3 trillion.
C) more than $3 trillion.
D) either exactly $3 trillion or by less than $3 trillion, depending on whether the real wage
rate remains constant or rises.
E) some amount but there is not enough information to tell by how much.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
53) The table above gives a nation‘s production function. Which of the following is NOT an
attainable combination of real GDP and labor?
A) real GDP of $4.0 trillion and labor of 90 billion hours per year
B) real GDP of $4.7 trillion and labor of 110 billion hours per year
C) real GDP of $4.0 trillion and labor of 70 billion hours per year
D) real GDP of $5.2 trillion and labor of 90 billion hours per year
E) real GDP of $5.5 trillion and labor of 150 billion hours per year
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
18
54) In 2011, real GDP in the United States was $60 per hour worked. In major European
economies, real GDP averaged on $48 per hour worked. This diference is explained by the
points that ________ and ________.
A) Americans work more hours than Europeans; Americans produce more per hour than
Europeans
B) Americans are equally as productive as Europeans; Americans work more hours on
average
C) Americans work the same number of hours per week as Europeans on average;
Americans are less productive due to technology diferences
D) Americans take more vacations than Europeans; Americans take more sick days than
Europeans
E) Americans work less hours than Europeans; Americans take less sick days than
Europeans
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: New
AACSB: Application of knowledge
55) The above igure shows a nation‘s production function. Point A is
A) attainable if the economy is ineicient.
B) unattainable given the state of the economy.
C) attainable if the nation uses resources eiciently.
D) the maximum amount of real GDP the nation can produce.
E) the labor market equilibrium quantity of employment and real GDP.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
19
56) The above igure shows a nation‘s production function. Point B is
A) unattainable.
B) attainable if the nation uses resources ineiciently.
C) attainable if the nation uses resources eiciently.
D) the maximum amount of real GDP the nation can ever produce.
E) Both answers C and D are correct.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
57) The above igure shows a nation‘s production function. Point C is
A) unattainable given the nation’s resource level.
B) attainable if the nation uses resources eiciently.
C) attainable if the nation uses resources ineiciently.
D) the maximum amount of real GDP the nation can produce.
E) the labor market equilibrium point.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
58) The above igure shows a nation‘s production function. Point B is ________ and ________
because ________.
A) attainable; eicient; the nation is using resources eiciently
B) attainable; ineicient; the nation is using resources ineiciently
C) unattainable; ineicient; the nation is using resources ineiciently
D) unattainable; ineicient; the nation is using resources eiciently but they could be more
eicient
E) unattainable; eicient; the nation would be using resources eiciently if they could
attain this level of production
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: New
AACSB: Analytical thinking
20