63. Which of the following is consistent with the catch-up effect?
a.
The United States had a higher growth rate before 1900 than after.
b.
After World War II the United States had lower growth rates than war-ravaged European countries.
c.
Although the United States has a relatively high level of output per person, its growth rate is rather modest
compared to some countries.
d.
All of the above are correct.
64. Over the period 1960-1990,
a.
South Korea had a higher growth rate than the United States because it had a higher ratio of investment to
GDP.
b.
the United States had a higher growth rate than South Korea because it had a higher ratio of investment to
GDP.
c.
South Korea had a higher growth rate than the United States even though it had a similar ratio of investment to
GDP.
d.
the United States had a higher growth rate than South Korea even though it had a similar ratio of investment to
real GDP.
65. Fretonia and Libstien are the same except Fretonia has a larger capital stock. Both countries undertake policies that
raise their saving rates to the same higher level. We would expect that
a.
both countries would have permanent increases in their growth rates, but the increase would initially be larger
in Fretonia.
b.
both countries would have permanent increases in their growth rates, but the increase would initially be
smaller in Fretonia.
c.
both countries would have temporary increases in their growth rates, but the increase would be larger in
Fretonia.
d.
both countries would have temporary increases in their growth rates, but the increase would be smaller in
Fretonia.
66. Fretonia and Libstien are the same except Fretonia has a larger capital stock. Both countries undertake policies that
raise their saving rates to the same higher level. We would expect that
a.
both countries would have permanent increases in their growth rates, but the increase would initially be larger
in Fretonia.
b.
both countries would have permanent increases in their growth rates, but the increase would initially be
smaller in Fretonia.
c.
both countries would have temporary increases in their growth rates, but the increase would be larger in
Fretonia.
d.
both countries would have temporary increases in their growth rates, but the increase would be smaller in
Fretonia.
67. If an American-based firm opens and operates a new clothing factory in Honduras, then it is engaging in
a.
b.
c.
d.
68. If an American-based firm opens and operates a factory in China, then it is engaging in
a.
b.
c.
d.
69. In the 1800s, Europeans purchased stock in American companies that used the funds to build railroads and factories.
The Europeans who did this engaged in
a.
foreign portfolio investment.
b.
indirect domestic investment.
c.
foreign direct investment.
d.
foreign indirect investment.
70. In recent decades Americans have increased their purchase of stocks of foreign-based companies. The Americans who
have bought these stocks were engaged in
a.
foreign portfolio investment.
b.
indirect domestic investment.
c.
foreign direct investment.
d.
foreign indirect investment.
71. Suppose that an American opens and operates a candy factory in Finland. This is an example of
a.
foreign direct investment. American saving is used to finance Finish investment.
b.
foreign direct investment. American saving is used to finance American investment.
c.
foreign portfolio investment. American saving is used to finance Finish investment.
d.
foreign portfolio investment. American saving is used to finance American investment.
72. Suppose that an American company opens and operates a restaurant in Ireland. This is an example of
a.
foreign direct investment. American saving is used to finance Irish investment.
b.
foreign direct investment. American saving is used to finance American investment.
c.
foreign portfolio investment. American saving is used to finance Irish investment.
d.
foreign portfolio investment. American saving is used to finance American investment.
73. Foreign saving is used for domestic investment when foreigners engage in
a.
foreign direct investment.
b.
foreign portfolio investment.
c.
either foreign direct investment or foreign portfolio investment.
d.
None of the above is correct.
74. If WarmWear, a U.S.manufacturer of winter clothing, opens a new factory in Austria, then
a.
Austrian GNP increases by more than Austrian GDP, because GDP includes income earned by foreigners
working in Austria.
b.
Austrian GNP increases by more than Austrian GDP, because GDP excludes income earned by foreigners
working in Austria.
c.
Austrian GNP increases by less than Austrian GDP, because GDP includes income earned by foreigners
working in Austria.
d.
Austrian GNP increases by less than Austrian GDP, because GDP excludes income earned by foreigners
working in Austria.
75. Suppose a U.S. automaker builds and operates a new factory in Italy. Future production from such an investment will
a.
increase Italian GDP more than it increases Italian GNP.
b.
increase Italian GNP more than it increases Italian GDP.
c.
have no affect on Italian GNP, but will increase Italian GDP.
d.
have no affect on either Italian GDP or GNP.
76. Suppose Japanese-based Toshiba Corporation builds and operates a new computer factory in the United States. Future
production from such an investment will
a.
increase U.S. GNP more than it increases U.S. GDP.
b.
increase U.S. GDP more than it increases U.S. GNP.
c.
have no affect on U.S. GNP, but will increase U.S. GDP.
d.
have no affect on U.S. GNP or GDP.
77. The opening of a new American-owned factory in Algeria would tend to increase Algeria’s GDP more than it
increases Algeria’s GNP because
a.
some of the income from the factory accrues to people who do not live in Algeria.
b.
gross domestic product is income earned within a country by both residents and nonresidents, whereas gross
national product is the income earned by residents of a country while producing both at home and abroad.
c.
all of the income from the factory is included in Algeria’s GDP.
d.
All of the above are correct.
78. If a Japanese company opens a new factory in South Korea, it makes
a.
foreign direct investment. The factory will make a bigger impact on South Korea’s GDP than on its GNP.
b.
foreign direct investment. The factory will make a bigger impact on South Korea’s GNP than on its GDP.
c.
foreign portfolio investment. The factory will make a bigger impact on South Korea’s GDP than on its GNP.
d.
foreign portfolio investment. The factory will make a bigger impact on South Korea’s GNP than on its GDP.
79. When Chile experiences investment from abroad, it experiences, as a result,
a.
an increase in productivity.
b.
a decrease in Gross National Product (GNP).
c.
lower wages for Chilean workers.
d.
None of the above is correct.
80. If companies from foreign countries build and operate factories in China, then China’s productivity
a.
and the wages of Chinese workers increase.
b.
increases but the wages of Chinese workers decrease.
c.
decreases but the wages of Chinese workers increase.
d.
and the wages of Chinese workers decrease.
81. Investment from abroad
a.
is a way for poor countries to learn the state-of-the-art technologies developed and used in richer countries.
b.
is viewed by economists as a way to increase growth.
c.
often requires removing restrictions that governments have imposed on foreign ownership of domestic capital.
d.
All of the above are correct.
82. An organization that tries to encourage the flow of investment to poor countries is the
a.
World Bank.
b.
Organization of Less Developed Countries.
c.
Alliance of Developing Countries.
d.
International Development Alliance.
83. A country’s human capital increases
a.
if its workers become better educated or healthier.
b.
only if its workers become better educated.
c.
only if its workers become healthier.
d.
None of the above is correct.
84. Investment in
a.
physical capital, unlike investment in human capital, has an opportunity cost.
b.
physical capital, like investment in human capital, has an opportunity cost.
c.
human capital is particularly attractive because it involves no externalities.
d.
human capital has been shown to be relatively unimportant, relative to investment in physical capital, for a
country’s long-run economic success.
85. Which of the following is generally an opportunity cost of investment in human capital?
a.
future job security
b.
forgone present wages
c.
increased earning potential
d.
All of the above are correct.
86. In the U.S., each additional year of schooling has historically raised a person’s wage on average by about
a.
2 percent.
b.
5 percent.
c.
10 percent.
d.
15 percent.
87. Educational attainment tends to be
a.
low in countries with high population growth.
b.
low in countries with low population growth.
c.
high in countries with high population growth.
d.
None of the above are true.
88. In the U.S., each additional year of schooling has historically raised a person’s wage on average by about
a.
5 percent. In less developed countries the gap between the wages of educated and uneducated workers is
smaller.
b.
10 percent. In less developed countries the gap between the wages of educated and uneducated workers is
smaller.
c.
5 percent. In less developed countries the gap between the wages of educated and uneducated workers is
larger.
d.
10 percent. In less developed countries the gap between the wages of educated and uneducated workers is
larger.
89. The return to schooling for society is higher than the return to schooling for the individual if
a.
the concept of diminishing returns applies to education.
b.
the concept of constant returns to scale applies to education.
c.
human capital conveys positive externalities.
d.
investment in human capital involves no opportunity costs.
90. Educated people may generate ideas that increase production. These ideas
a.
produce a return to society from education that is greater than the return to the individual.
b.
could justify government subsides for education.
c.
are external benefits of education.
d.
All of the above are correct.
91. Which of the following is an example of the “brain drain?”
a.
A country’s most highly educated workers emigrate to rich countries.
b.
A country has such a poor educational system that human capital falls over time.
c.
The population of a country grows so fast that the educational system can’t keep up.
d.
A country steals patented technology from another country.
92. Suppose a person receives an education in her home country. Which of the following will tend to make the increase in
GDP of the person’s home country larger than the increase in this person’s income?
a.
externalities and brain drain
b.
externalities but not brain drain
c.
brain drain but not externalities
d.
neither externalities nor brain drain
93. Economist Robert Fogel focused on which of the following factors as one determinant of long-run economic growth?
a.
education
b.
research and development
c.
nutrition
d.
trade restrictions
a.
5 percent
b.
10 percent
c.
20 percent
95. According to research by Robert Fogel, people in Britain grew taller because of
a.
genetics. However this increase in height had no effect on productivity.
b.
genetics. This increase in height is associated with higher productivity.
c.
higher caloric intake. However, this increase in height had no effect on productivity.
d.
higher caloric intake. This increase in height is associated with higher productivity.
96. According to research by Robert Fogel, what proportion of the increase in the standard of living in Britain between
1790 and 1980 can be accounted for by greater caloric intake?
a.
10 percent
b.
20 percent
c.
30 percent
d.
40 percent
97. Which of the following terms is used to refer to the ability of people to exercise authority over the resources they
own?
a.
natural rights
b.
property rights
c.
input control
d.
collective control
98. Which of the following statements is correct?
a.
In an economy-wide sense, property rights are an important prerequisite for the price system to work.
b.
Property rights give people the ability to exercise authority over the resources they own.
c.
Based on the available evidence, the existence of well-established and well-enforced property rights appears to
be associated with an enhanced standard of living.
d.
All of the above are correct.
99. In some countries it is time consuming and costly to establish ownership of property. Reforms to reduce these costs
would likely
a.
have no affect on either real GDP nor productivity
b.
raise real GDP and productivity.
c.
raise real GDP but not productivity.
d.
raise productivity but not real GDP.
100. Government corruption
a.
impedes the coordinating power of markets and discourages investment.
b.
impedes the coordinating power of markets but does not discourage investment.
c.
does not impede the coordinating power of markets, but does discourage investment.
d.
can neither impede the coordinating power of markets nor discourage investment.
101. The dictator of Turan has recently begun to arbitrarily seize farms belonging to his political opponents, and he has
given the farms to his friends. His friends don’t know much about farming. The courts in Turan have ruled that the
seizures are illegal, but the dictator has ignored the rulings. Other things equal, we would expect that the growth rate in
Turan will
a.
fall temporarily, but will return to where it was when the new owners learn how to farm.
b.
increase because the total amount of human capital in the country will increase as the new owners learn how to
farm.
c.
fall and remain lower for a long time.
d.
not be affected unless widespread civil disorder or civil war results.
102. The dictator of a country requires that companies planning to open or expand must pay a large fee to file an
application one year prior to building new factories or expanding existing ones. Other things the same, in the long run this
requirement would
a.
reduce real GDP per person and productivity.
b.
reduce real GDP per person but not productivity.
c.
reduce productivity but not real GDP per person.
d.
None of the above is correct.
103. Suppose that a new government is elected in Eurnesia. The new government takes steps toward improving the court
system and reducing government corruption. The citizens of Eurnesia find these efforts credible and outsiders believe
these changes will be effective and long lasting. These changes will probably
a.
raise real GDP per person and productivity in Eurnesia.
b.
raise real GDP per person but not productivity in Eurnesia.
c.
raise productivity but not real GDP per person in Eurnesia.
d.
raise neither productivity nor real GDP per person in Eurnesia.
104. If a newly elected government takes actions that makes its country’s courts more efficient and less corrupt, then
a.
producers will have greater confidence that they will benefit from their efforts.
b.
producers are likely to be more specialized.
c.
buyers and sellers will be more likely to honor contracts.
d.
All of the above are correct.
105. Inward-oriented policies
a.
include imposing tariffs and other trade restrictions.
b.
have generally increased productivity and growth in the countries that pursued them.
c.
promote the production of goods and services that the country produces most efficiently.
d.
All of the above are correct.
106. Inward-oriented policies
a.
are generally supported by economists.
b.
are primarily concerned with the development of human capital.
c.
in some ways are like prohibiting the use of certain technologies.
d.
All of the above are correct.
107. Which of the following will increase a country’s real GDP per person?
a.
imposing restrictions on foreign trade and foreign investment
b.
imposing restrictions on foreign trade and reducing restrictions on foreign investment
c.
reducing restrictions on foreign trade and imposing restrictions on foreign investment
d.
reducing restrictions on foreign trade and foreign investment
108. An increase in capital will increase real GDP per person
a.
more in a poor country than a rich country. The increase in real GDP per person will be larger if the addition
to capital is from domestic rather than foreign investment.
b.
more in a poor country than a rich country. The increase in real GDP per person will be the same whether the
addition to capital is from domestic or foreign investment.
c.
less in a poor country than a rich country. The increase in real GDP per person will be larger if the addition to
capital is from domestic rather than foreign investment.
d.
less in a poor country than a rich country. The increase in real GDP per person will be the same whether the
addition to capital is from domestic or foreign investment.
109. An increase in capital will increase real GNP per person
a.
more in a poor country than a rich country. The increase in real GNP per person will be larger if the addition
to capital is from domestic rather than foreign investment.
b.
more in a poor country than a rich country. The increase in real GNP per person will be larger if the addition
to capital is foreign rather than from domestic investment.
c.
less in a poor country than a rich country. The increase in real GNP per person will be larger if the addition to
capital is from domestic rather than foreign investment.
d.
less in a poor country than a rich country. The increase in real GNP per person will be larger if the addition to
capital is foreign rather than from domestic investment.
110. Countries that pursued outward-oriented policies in the 20th century
a.
experienced lower rates of economic growth than did countries that pursued inward-oriented policies.
b.
experienced higher levels of political instability than did countries that pursued inward-oriented policies.
c.
include Singapore, South Korea, and Taiwan.
d.
All of the above are correct.
111. Countries with more than 80 percent of their population living within 100 kilometers of a coast will have an average
GDP per person that is
a.
around four times a country with less than 20 percent of the population living near the coast.
b.
around ten times a country with less than 20 percent of the population living near the coast.
c.
around twenty times a country with less than 20 percent of the population living near the coast.
d.
around fifty times a country with less than 20 percent of the population living near the coast.
112. The president of Suldinia, a developing country, proposes that his country needs to help domestic firms by reducing
trade restrictions.
a.
These are outward-oriented policies and most economists believe they would have beneficial effects on growth
in Suldinia.
b.
These are outward-oriented policies and most economists believe they would have adverse effects on growth
in Suldinia.
c.
These are inward-oriented policies and most economists believe they would have beneficial effects on growth
in Suldinia.
d.
These are inward-oriented policies and most economists believe they would have adverse effects on growth in
Suldinia.
113. In the past there have been violent protests against the World Bank and the World Trade Organization. The protesters
argued that these institutions promote free trade and also encourage corporations in rich countries to invest in poor
countries. The protesters contended that these practices make rich countries richer and poor countries poorer. An
economist would
a.
disagree with the protesters because these practices will help make both rich and poor countries richer.
b.
disagree with the protesters about free trade, but would agree with the protesters about corporate investment.
c.
disagree with the protesters about corporate investment, but would agree with the protesters about free trade.
d.
agree with the protesters.