49) Growth in physical capital depends most directly upon the
A) amount of saving and investment.
B) number of irms in the nation.
C) speed of population growth.
D) amount of government expenditures.
E) level of human capital.
Skill: Level 2: Using deinitions
Section: Checkpoint 9.2
Status: Old
AACSB: Relective thinking
50) The productivity curve shifts upward when
A) physical capital increases.
B) human capital decreases.
C) hours of labor increase.
D) hours of labor decrease.
E) technology advances.
Skill: Level 3: Using models
Section: Checkpoint 9.2
Status: Old
AACSB: Analytical thinking
9.3 Economic Growth Theories: Old and New
1) Thomas Malthus was an economist who contributed to the ________ theory of growth.
A) classical
B) neoclassical
C) new growth
D) socialist
E) Keynesian
Skill: Level 1: Deinition
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
41
2) The Malthusian theory
A) is also called the classical growth theory and predicts that we will run out of resources.
B) is also called the neoclassical growth theory.
C) predicts that the real GDP per person will continue to increase as long as technology
increases.
D) claims that the subsistence wage will increase over time.
E) shows that the production function will shift upward continuously.
Skill: Level 1: Deinition
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
3) A key element of the classical growth theory is that
A) economic growth can be sustained as long as government intervention does not occur.
B) increases in technology drive economic growth.
C) an increase in population leads to increase in labor supply and a decline in real GDP per
person.
D) low taxes promote economic growth.
E) market forces drive economic growth.
Skill: Level 2: Using deinitions
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
4) The classical theory was developed in the late 18th and early 19th centuries
A) and therefore is not accepted today.
B) during a time of population decline.
C) and has proponents today who fear population growth and overpopulation.
D) and cannot be explained using the modern tool of the productivity function.
E) and still applies to the most developed nations today, though not to the less developed
nations.
Skill: Level 1: Deinition
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
42
5) Classical growth theory predicts that in the long run there will be
A) zero economic growth.
B) positive economic growth.
C) negative economic growth.
D) sustained increases in the productivity growth rate.
E) sustained increases in economic growth.
Skill: Level 2: Using deinitions
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
6) According to classical growth theory, people earn only a subsistence real income
because of growth in
A) technology.
B) capital.
C) population.
D) employment.
E) labor productivity.
Skill: Level 2: Using deinitions
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
7) Which of the following are predicted by the classical growth theory?
i. Population growth will end economic growth.
ii. Real GDP per person will return to subsistence level.
iii. Technology drives persistent economic growth.
A) i and ii
B) i, ii and iii
C) i only
D) ii only
E) i and iii
Skill: Level 2: Using deinitions
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
43
8) If real GDP per person rises above the subsistence level then, according to classical
growth theory,
A) population growth will slow down.
B) a population explosion will occur.
C) labor productivity growth permanently increases.
D) real GDP per person will remain above the subsistence level.
E) real GDP per person will fall below the subsistence level.
Skill: Level 2: Using deinitions
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
9) According to classical growth theory, if labor productivity increases,
A) the population grows and eventually real GDP returns to the subsistence level.
B) the population grows but more slowly than real GDP so that people’s incomes are
permanently higher.
C) the pursuit of proit causes further increases in capital per hour and technology and
economic growth continues indeinitely.
D) the growth rate of real GDP per person permanently increases.
E) people save more, which increases the capital per hour even more, and so economic
growth continues indeinitely.
Skill: Level 2: Using deinitions
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
10) Classical growth theory predicts that increases in real GDP per person will
A) not last because higher income leads to a population explosion.
B) last because higher growth leads to new technology.
C) last because people make choices in the pursuit of higher proits.
D) not last because higher income encourages smaller families and a lower population
growth rate.
E) last only if the government directs irms to make more investments in capital and new
technology.
Skill: Level 3: Using models
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
44
11) Classical growth theory predicts that economic growth
A) will continue at the classical rate of 3 percent forever.
B) will eventually stop because of population growth.
C) occurs because of hard-working citizens.
D) is merely an illusion.
E) decreases the supply of labor.
Skill: Level 3: Using models
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
12) The classical growth theory asserts that
A) economic growth will continue indeinitely.
B) economic growth and population growth complement each other.
C) population growth increases a nation‘s economic growth.
D) population growth will lead to people earning only a subsistence level of income.
E) population growth leads to more growth in technology.
Skill: Level 1: Deinition
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
13) In classical growth theory, if real GDP per person is above the subsistence level,
A) the economy will keep growing without limit.
B) population grows and lowers real GDP per person to its subsistence level.
C) technological growth occurs and keeps real GDP per person above its subsistence level.
D) the pursuit of proit will cause economic growth to accelerate.
E) None of the above is correct because the classical growth theory asserts that real GDP
per person can never exceed the subsistence level.
Skill: Level 3: Using models
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
45
14) Classical growth theory predicts
A) a slowdown in population growth over time.
B) real GDP per person will remain at the subsistence level over time.
C) sustained increases in economic growth in the long run.
D) the population growth rate slows as real GDP per person rises.
E) sustained increases in the standard of living in the long run.
Skill: Level 2: Using deinitions
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
15) The new growth theory was developed by ________ and proposes that ________.
A) Paul Romer; the desire for proits drives increases in real GDP per person
B) Robert Solow; increases in technology growth are responsible for economic growth
C) Thomas Malthus; increases in population drive wages to their subsistence level
D) Adam Smith; markets will determine the appropriate economic growth rate
E) Ben Bernanke; changes in the money supply drive economic growth
Skill: Level 2: Using deinitions
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
16) In explaining economic growth, new growth theory stresses the role played by
A) human choices.
B) population moderation.
C) women in the workforce.
D) the participation rate of elderly workers.
E) the government in directing the nation‘s investments.
Skill: Level 2: Using deinitions
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
46
17) According to the new growth theory, which of the following promote economic growth?
i. discoveries that bring proit
ii. choices that expand human capital
iii. random events that create technology change
A) i and iii
B) i and ii
C) i, ii and iii
D) ii only
E) i only
Skill: Level 2: Using deinitions
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
18) In new growth theory, growth in real GDP per person occurs because
i. human capital grows indeinitely.
ii. technology advances as a result of choices individuals make.
iii. proit incentives encourage technological change.
A) i only
B) ii only
C) iii only
D) both i and iii
E) i, ii, and iii
Skill: Level 2: Using deinitions
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
19) New growth theory asserts that
i. human capital grows because of choices.
ii. discoveries result from choices.
iii. competition brings proits.
A) i only
B) ii only
C) iii only
D) both i and iii
E) both i and ii
Skill: Level 2: Using deinitions
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
20) According to the new growth theory, real GDP per person grows because
A) the population increases.
B) the labor force participation rate increases.
C) people make choices in pursuit of proits.
D) the retirement age increases.
E) the government subsidizes irms’ research and development.
47
Skill: Level 1: Deinition
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
21) The new growth theory asserts that proits are
A) permanent, because they are derived from discoveries.
B) temporary, because the discoveries that lead to proits are eventually used by all.
C) an illusion, since costs are never fully covered.
D) permanent, because physical activities can be replicated.
E) not an essential component determining whether the economy grows or not.
Skill: Level 2: Using deinitions
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
22) The new growth theory asserts that
A) the population growth rate will increase when real GDP per person increases.
B) a discovery can be used by only one person, the discoverer.
C) technology improves slowly while population grows rapidly.
D) production processes can be replicated at many diferent irms in the economy.
E) eventually people earn only a subsistence living.
Skill: Level 1: Deinition
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
48
23) A central theme of the new growth theory is that
A) irms don’t really experience proit.
B) humans can work harder than previously thought.
C) the economy doesn’t experience diminishing returns.
D) irms don’t experience diminishing returns.
E) the government is more eicient than private markets.
Skill: Level 3: Using models
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
24) The new growth theory
A) corrects for poor estimates of population growth.
B) eliminates technological advances from the growth picture.
C) applies to only very poor, less-developed nations.
D) explains the source of technological advances.
E) asserts that economic growth can be rapid but can only persist for a limited period of
time.
Skill: Level 3: Using models
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
25) New growth theory asserts that ________ will lead us to greater productivity and
economic growth.
A) new machinery
B) government regulation
C) unlimited wants
D) leisure time
E) nothing
Skill: Level 1: Deinition
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
49
26) Which of the following statements is likely to be made by someone who believes in the
new growth theory?
A) Population growth will limit long-run gains in real GDP per person.
B) Competition will encourage discoveries of new ideas leading to greater economic
growth.
C) Although technological changes increase real GDP, these changes are random and
unexplainable.
D) Choices made by human capital are likely to be ineicient.
E) Economic growth will eventually slow.
Skill: Level 2: Using deinitions
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
27) The new growth theory’s comparison of the economy to a perpetual motion machine
implies that
A) permanent growth is not possible.
B) the economy will forever create and destroy jobs.
C) overpopulation will eventually overtake the resources of the planet.
D) technology changes just happen.
E) labor productivity has no inluence on the economy.
Skill: Level 2: Using deinitions
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
28) Which of the following theories predicts that there can be no sustained rise in real GDP
per person above the subsistence level?
i. Classical growth theory
ii. New growth theory
A) i only
B) ii only
C) Neither i nor ii
D) Both i and ii
E) None of the above because whether the rise in real GDP per person is sustained or not
depends on what created the rise.
Skill: Level 1: Deinition
Section: Checkpoint 9.3
Status: Old
AACSB: Relective thinking
50