Chapter 18
Policies and Prospects for Global Economic Growth
18.1 Labor Resources and Economic Growth
1) According to the text, population growth in many poor countries does not generally result in
increased labor resources because
A) many people do not join the labor force. B) many people join the labor force.
C) many people work two jobs. D) most jobs are for middle age workers.
2) Suppose that the real Gross Domestic Product (GDP) growth rate for a country was 4 percent
and the population growth rate was 7 percent. What would the per capital real Gross Domestic
Product (GDP) growth rate be for this country?
A) 3 percent B) 4 percent C) 3 percent D) 4 percent
3) If population growth occurs while jobs are difficult to obtain or labor force participation does
not increase,
A) there may be little or no increase in a nation s labor resources.
B) a nation s labor resources will still continue to increase in both quality and quantity.
C) economic growth will be robust because any population gain is a plus.
D) per capita GDP is likely to increase sharply.
4) If the level of aggregate real Gross Domestic Product (GDP) remains constant, a reduction in the
population
A) directly increases per capita real GDP.
B) directly reduces per capita real GDP.
C) indirectly reduces per capita real GDP.
D) has no effect on real per capita real GDP.
5) If real per capita Gross Domestic Product (GDP) grows at a constant annual rate of 4 percent
and the annual population growth rate increases from 1 percent to 2 percent, the annual rate of
growth of per capita real GDP will
A) increase. B) decrease.
C) remain unchanged. D) increase or decrease depending.
6) Suppose a nation s rate of growth of per capita real Gross Domestic Product (GDP) is 3 percent
and its rate of growth in real GDP is 4 percent. Given this information, the nation s population
growth rate is approximately equal to
A) 1 percent B) 2 percent C) 3 percent D) 7 percent
7) Suppose a nation s real Gross Domestic Product (GDP) grows at a constant rate of 5 percent per
year while its population grows 2 percent annually. Given this information, this nation s annual
rate of per capita real GDP growth is approximately equal to
A) 1 percent B) 2 percent C) 3 percent D) 5 percent
8) Over the past decade, a nation s real Gross Domestic Product (GDP) grew at a constant rate of 10
percent per year while its population grew 8 percent annually. Forecasters predict that during
the coming decade, real GDP will continue to grow 10 percent annually, but the population
growth rate is expected to drop to 6 percent annually. If the forecasters are correct, which of the
following will be true?
A) The annual rate of growth of per capita real GDP will decline from 4 percent to 2 percent.
B) The annual rate of growth of per capita real GDP will decline from 2 percent to 1 percent.
C) The annual rate of growth of per capita real GDP will increase from 2 percent to 4 percent.
D) The annual rate of growth of per capita real GDP will increase from 2 percent to 6 percent.
9) The term economic freedom means
A) the right to own private property. B) the right to trade goods and services.
C) the right to own financial assets. D) all the above.
10) According to the text, the 17 countries with high degrees of economic freedom
A) account for 81 percent of total world output.
B) account for less than 25 percent of total world output.
C) have the weakest economies.
D) have low productivity.
11) With respect to economic freedom, which is true?
A) Three out of four people live in nations with governments that grant residents high
degrees of economic freedom.
B) Where governments do not grant residents a high degree of economic freedom, economic
growth rates tend to be above the annual average for the world s nations.
C) About three dozen nations with governments unwilling to grant much in the way of
economic freedom are home to two thirds of the world s population. Even so, these
countries produce over 50 percent of the world s output.
D) As economic freedom increases, so does a nation s prospects for economic growth.
12) In the determination of economic growth, political freedom
A) is more important than economic freedom.
B) appears to be less important than economic freedom.
C) contributes little to job growth.
D) is equally as important as economic freedom.
13) Political freedom can sometimes moderately reduce economic growth because
A) special interest groups may gain at the expense of the overall economy.
B) campaign contributions rob the economy of investment.
C) most jobs are in unions that are politically connected.
D) none of the above.
14) In nondemocratic countries that have experienced consistent economic growth and
improvements in their standards of living,
A) there is no tendency to become more democratic over time because the current political
situation is economically successful.
B) political freedom is apt to decrease over time as governments become more controlling.
C) the rise of special interest groups usually promotes competition and growth.
D) there is a tendency to become democratic over time.
15) Country X has experienced GDP growth of 6 percent and a population growth of 4 percent.
What is this country s growth of per capita real GDP?
A) 2 percent B) 10 percent C) 6 percent D) 2 percent
16) Assume that a country has had a relatively steady growth of aggregate real GDP. A higher
population growth tends to
A) reduce the growth of per capita real GDP.
B) increase the growth of per capita real GDP.
C) increase the level of economic freedom.
D) increase the level of dead capital.
17) The rate of growth in real GDP minus the rate of growth of the population is the
A) rate of growth of nominal GDP. B) unemployment rate.
C) population growth rate. D) rate of growth of per capita real GDP.
18) What is the annual rate of growth of per capita real GDP if real GDP grows at a constant rate of
5 percent per year and the annual rate of population growth is 3 percent?
A) 1.7 percent B) 2 percent C) 5 percent D) 8 percent
19) What is the annual rate of growth of per capita real GDP if real GDP grows at a constant rate of
4 percent per year and the annual rate of population growth is 3 percent?
A) 1 percent B) 3 percent C) 4 percent D) 87 percent
20) What will happen to the annual rate of growth of per capita real GDP if real GDP grows at a
constant rate of 4.5 percent and the annual rate of population growth goes from 3 percent to 3.5
percent?
A) The annual rate of growth of per capita real GDP will increase from 7.5 percent to 8
percent.
B) The annual rate of growth of per capita real GDP will increase from 1.5 percent to 1
percent.
C) The annual rate of growth of per capita real GDP will remain unchanged.
D) The annual rate of growth of per capita real GDP will decrease from 1.5 percent to 1
percent.
21) Assume that in the economy real GDP grows at a constant rate. There has just been a decrease in
the rate of growth of the population. This implies that the
A) rate of growth of per capita real GDP will decrease.
B) rate of growth of per capita real GDP will increase.
C) rate of growth of capital accumulation will decrease.
D) rate of growth of capital accumulation will increase.
22) What will happen to the annual rate of growth of per capita real GDP if the annual rate of
population growth increases and the annual rate of growth of real GDP goes down?
A) It will increase since an increase in population means an increase in labor that translates
into an increase in real GDP.
B) It will increase since the annual rate of growth of real GDP does not influence the growth
rate of per capita real GDP.
C) It will decrease since an increase in the growth rate of population and a decrease in the
growth rate of real GDP both work to decrease the growth of per capita real GDP.
D) The effect will depend upon whether the rate of population growth is greater than or less
than the rate of growth of real GDP.
23) A higher population growth rate can potentially lead to a higher rate of growth in per capita
real GDP if
A) it leads to an increase in the amount of dead capital.
B) it leads to greater democracy in a nation.
C) young workers replace older workers.
D) there is a greater labor force participation rate.
24) Which of the following equations is correct?
A) Rate of growth of per capita real GDP rate of growth in real GDP rate of growth of
population
B) Rate of growth of per capita real GDP rate of growth in real GDP rate of growth of
population
C) Rate of growth in real GDP rate of growth of per capita real GDP rate of growth of
population
D) Rate of growth in real GDP rate of growth of per capita real GDP rate of growth of
population
25) The rights to own private property and to exchange goods with minimal government
interference is
A) capital freedom. B) population freedom.
C) economic freedom. D) political freedom.
26) Economic freedom is
A) the right to vote in an election for a political leader.
B) the right to own private property and to exchange goods with minimal government
interference.
C) the amount of control that the government has in a market.
D) present as long as private individuals own businesses.
27) Economic freedom is
A) important in leading to positive economic growth.
B) not an important factor in leading to positive economic growth.
C) a confusing concept since the more economic freedom residents in a country have the
lower the level of economic growth.
D) a concept in theory since no country has pure economic freedom and therefore cannot be
analyzed with respect to economic growth.
28) It has been noted that a country that grants a considerable amount of economic freedom will
experience
A) positive rates of per capita income growth.
B) negative rates of per capita income growth.
C) low levels of political freedom.
D) dead capital.
29) The right to openly support and democratically select national leaders is
A) capital freedom. B) population freedom.
C) economic freedom. D) political freedom.
30) Which statement is true about a comparison of economic freedom with political freedom?
A) Economic freedom cannot exist without political freedom.
B) Economic freedom leads to positive economic growth while political freedom leads to
negative economic growth.
C) Political freedom is more important than economic freedom when considering positive
economic growth.
D) Economic freedom is more important than political freedom when considering positive
economic growth.
31) Which of the following statements is true about the relationship between high birthrates and
real GDP growth?
A) High birthrates in countries with little economic freedom will lead to higher labor force
participation rates that in turn lead to higher growth of real GDP.
B) High birthrates reduce per capita incomes, and a lack of economic freedom inhibits real
GDP growth.
C) There is no relationship between birthrates and real GDP growth.
D) The influence that birthrates have on real GDP growth is the same in countries whether or
not economic freedom exits.
32) Population growth is more likely to contribute to economic growth when
A) economic freedom is present.
B) capital accumulation is limited.
C) technological progress is limited.
D) the labor force participation rate does not increase.
33) A major contributor to a country s real rate of economic growth is its real GDP growth relative
to its
A) inflation. B) unemployment rate.
C) money growth. D) none of the above.
34) Economic freedom by its nature suggests
A) minimal government interference. B) zero government.
C) a lack of laws and regulations. D) economic anarchy.
35) Political freedom seems to be ________ important to growth than economic freedom.
A) less B) more C) equally D) critically
36) Which of the following best represents economic growth?
A) an increase in nominal GDP
B) an increase in real GDP
C) an increase in the per capita nominal GDP
D) an increase in the per capita real GDP
37) Economic growth is measured by
A) the annual percentage change in nominal GDP.
B) the annual percentage change in the unemployment rate.
C) the annual percentage change in per capita nominal GDP.
D) the annual percentage change in per capita real GDP.
38) If the average annual growth rate in real GDP for a nation during the last decade was 4 percent
per year and the average annual population growth rate was 3 percent per year during the same
period, then the average annual growth rate of per capita GDP was
A) 1.00 percent. B) 1.00 percent. C) 0.75 percent. D) 1.33 percent.
39) The percentage change in per capita real GDP measures economic growth because it takes into
account all of the following variables EXCEPT
A) the percentage change in population.
B) the percentage change in the inflation rates.
C) the percentage change in nominal GDP.
D) the percentage change in the quality of life.
40) Which of the following is a barrier to economic growth in many developing nations?
A) the shortage of labor
B) the lack of natural resources
C) the lack of economic freedom
D) the low level of restrictions in the labor market
41) A reduction in the rate of population growth
A) always causes an increase in economic growth.
B) never causes an increase in economic growth.
C) may or may not cause an increase in economic growth.
D) will cause a reduction in economic growth if accompanied by an increase in the rate of
growth of real GDP.
42) The right to private property and ability to exchange goods and services freely is known as
A) political freedom. B) economic freedom.
C) constitutional freedom. D) external freedom.
43) The per capita real GDP is the
A) rate of growth in real GDP plus the population growth rate.
B) real GDP divided by the population.
C) rate of growth in real GDP times the population growth rate.
D) rate of growth in real GDP minus the population growth rate.
44) Which of the following is the term used to describe the expansion of a country s per capita real
GDP?
A) economic growth B) technological change
C) change in the labor force D) change in factor incomes
45) The general set of rights to own private property and exchange goods, services, and financial
assets with minimal government interference is defined as
A) capitalism. B) market socialism.
C) economic freedom. D) economic privilege.
46) The right to openly support and to elect leaders in a democratic way is known as
A) political freedom. B) economic freedom.
C) constitutional freedom. D) external freedom.
47) Laws that make it difficult to start a new business lead to a
A) high rate of economic growth. B) low rate of economic growth.
C) more political freedom. D) laissez faire.
48) If a country has a 4 percent annual growth in real GDP and a one percent growth in population,
its per capita growth of real GDP is
A) five percent. B) four percent.
C) three percent. D) 1/4 0.25 percent.
49) In general, a country that adheres to the rule of law has
A) a higher level of real GDP per capita.
B) a lower level of real GDP per capita.
C) no relationship to the level of real GDP per capita.
D) an inverse relationship to the level of real GDP per capita.
50) An increase in population growth in a country
A) always causes an increase in labor resources.
B) may not necessarily cause an increase in per capita real GDP.
C) may not cause an increase in labor resources in rich countries because employers will cut
down on the number of hours required of workers.
D) will always cause an increase in per capita real GDP.
51) Explain the role of economic freedom in economic development.
18.2 Capital Goods and Economic Growth
1) Dead capital is
A) machinery that fails to operate properly.
B) machinery that requires constant maintenance.
C) any capital resource that lacks clear title of ownership.
D) a capital resource that depreciates rapidly.
2) The significance of dead capital is that
A) it is difficult to allocate to its most efficient use.
B) its fixed cost is too high.
C) it is being removed from its most efficient use.
D) it replaces too many workers.
3) Developing countries are damaged by dead capital because
A) it replaces too many workers, creating unemployment.
B) resulting inefficiencies greatly reduce the rate of return on investment.
C) it must be sold as scrap.
D) none of the above.
4) Which of the following has contributed to developing countries poor economic performance?
A) Low population growth B) Corruption
C) High capital investment D) Foreign direct investment
5) According to your text, is there any relationship between bureaucratic inefficiency and
economic growth?
A) Yes the two are positively related.
B) Yes, but only in the most economically developed nations.
C) Yes the two are inversely related.
D) No. Some nations economies thrive in spite of their inefficient governments while others
collapse under the weight of stifling bureaucracies.
6) Which of the following represents dead capital?
A) capital that has worn out over time B) capital that has become obsolete
C) capital that lacks clear title of ownership D) none of the above
7) Dead capital refers to
A) a capital resource that lacks clear title ownership.
B) a capital resource whose owner is deceased.
C) a capital resource jointly owned by more than one person.
D) a capital resource that has no more useful life.
8) There is a(n) ________ relationship between a nation s rate of growth in real GDP per capita and
bureaucratic inefficiency.
A) direct B) inverse C) proportional D) undefined
9) Any capital resource that lacks clear title ownership is
A) the result of foreign direct investment. B) dead capital.
C) capital destruction. D) free capital.
10) The role that dead capital plays in a country s economic growth is that
A) growth increases because the dead capital is replaced with more technologically efficient
capital.
B) growth increases since the firms using the dead capital are using it for free.
C) growth neither increases nor is impaired by dead capital.
D) growth is impaired since the capital cannot be allocated to its most efficient use.
11) The relationship of dead capital to inefficient production is
A) without clear ownership it is not possible to sell or transfer a resource so that it can be used
efficiently.
B) that outdated equipment will lead to inefficient production.
C) nonexistent since the capital is already dead.
D) that when the dead capital is replaced by more technologically advanced capital, economic
growth occurs.
12) The following are impediments to economic growth EXCEPT
A) dead capital. B) increased education.
C) lack of economic freedom. D)
b
ureaucratic inefficiency.
13) When a country has a large amount of dead capital,
A) there is too much political freedom.
B) there is a large amount of economic growth.
C) large amounts of capital will be inefficiently employed.
D) a country s exports increase.
14) One of the most significant barriers to economic growth in the world s poorest nations is
A) environmental issues. B) political freedom.
C) dead capital. D) U.S. government interference.
15) The inefficiencies associated with dead capital can
A) lead to increased consumption.
B) reduce the rate of return on investment.
C) increase the amount of investment as businesses look for more technologically advanced
capital.
D) lead to more economic freedom as firms try to get rid of the inefficient capital.
16) When government inefficiencies exist,
A) a country tends to grow at a slower rate.
B) a country tends to grow at a faster rate.
C) economic growth is not influenced.
D) dead capital is usually not a problem.
17) When government inefficiencies exist and government officials can be bribed, then
A) dead capital will not exist.
B) the country will have positive economic growth.
C) a bribe will increase the cost of investing in capital.
D) property rights will be more secure since an official has been bribed to grant ownership to
the business.
18) Which of the following is NOT true about dead capital?
A) Dead capital can lead to a situation where resources are not efficiently employed.
B) Dead capital can inhibit economic growth.
C) Companies will be less likely to want to invest when a country has a lot of dead capital.
D) Dead capital will lead to higher investment returns.
19) Dead capital is
A) unlikely to have any productive use.
B) unlikely to be applied to its most efficient use.
C) useful only if employed in a labor intensive production process.
D) useful only if employed in a capital intensive production process.
20) Which one of the following statements is true?
A) Dead capital is most frequently found in countries with well defined property rights.
B) Dead capital is most frequently found in the most prosperous countries.
C) It is easy for dead capital resources to be allocated to their best possible use.
D) It is difficult for dead capital resources to be insured or traded.
21) Dead capital is most likely to exist when
A) there are restrictions on imports.
B) there are restrictions on exports.
C) property rights are well defined.
D) residents of a country face barriers to establishing legal ownership of resources.
22) Extensive government restrictions on the use of capital are likely to
A) create dead capital.
B) enhance economic growth.
C) enhance economic freedom.
D) result in capital resources being devoted to their most efficient uses.
23) Economic growth is enhanced when
A) special interest groups acquire the political power to restrict competition.
B) capital resources are devoted to their most efficient use.
C) there are barriers to establishing legal ownership of capital resources.
D) scarce resources are made available for all citizens free of charge.
24) The problem of dead capital can be eliminated by
A) changing the structure of import tariffs.
B) increasing the labor force participation rate.
C) making it easier for people to establish legal ownership of productive capital.
D) restricting population growth.
25) Countries with the highest degrees of governmental bureaucratic inefficiency index
A) typically are nations with the highest real GDP per capita.
B) typically are nations with the lowest real GDP per capita.
C) normally have the lowest measured levels of dead capital.
D) normally have the highest measured levels of economic freedom.
26) Dead capital is
A) a capital resource that lacks a clear title of ownership.
B) a capital resource that is obsolete.
C) a capital resource that is used to produce non competitive products.
D) a capital resource associated with the defense industry.
27) When there is a building that is used for production, but no one has clear property rights to it,
A) resources are guided to their best use by the invisible hand.
B) this is known as dead capital and causes efficient production.
C) this is known as dead capital and causes no production.
D) this is known as dead capital and causes inefficient production.
28) All of the following are major factors limiting economic growth in developing countries
EXCEPT
A) dead capital. B) deregulation.
C) inefficient government regulation. D) corruption.
29) Countries with a high level of bureaucratic inefficiency tend to have low rates of real GDP
growth because
A) of complications that keep capital goods from flowing to their most efficient use.
B) of poor accounting practices when determining real GDP.
C) of poor management skill development in companies.
D) they facilitate capital goods development.
30) The tolerance of bribe taking by government officials
A) reduces economic uncertainty because all investors are aware of the practice.
B) reduces economic efficiency because rules governing property rights are not regularly
enforced.
C) reduces government expenditures
b
ecause public employees can be paid less.
D) reduces the need for government to impose taxes on poor people.
31) As productive capital goods are established in developing nations,
A) developed nations will become less prosperous.
B) they will be less likely to engage in international trade.
C) these countries will experience higher rates of economic growth.
D) portfolio investment will be replaced by loans from international aid agencies.
32) All of the following are examples of institutions that promote real economic growth EXCEPT
A) an efficient judicial system used to enforce contracts.
B) patent laws that protect innovation.
C) complex rules associated with business licensing used to promote careful business growth.
D) strong law enforcement used to protect business interests.