B. Supply will shift left and demand will not change.
C. Demand will shift right and supply will not change.
D. Demand will shift left and supply will not change.
60. What effect would we expect in the market for loanable funds if people increase their
saving?
A. Supply will shift right and demand will not change.
B. Supply will shift left and demand will not change.
C. Demand will shift right and supply will not change.
D. Demand will shift left and supply will not change.
61. Suppose that a business discovers an opportunity that requires funds to exploit. What effect
would this have in the market for loanable funds?
A. It will increase interest rates and the quantity of funds lent will rise.
B. It will decrease interest rates and the quantity of funds lent will rise.
C. It will increase interest rates and the quantity of funds lent will fall.
D. It will decrease interest rates and the quantity of funds lent will fall.
62. Suppose that consumers decide to save less and spend more. What effect would this have in
the market for loanable funds?
A. It will increase interest rates and the quantity of funds lent will rise.
B. It will decrease interest rates and the quantity of funds lent will rise.
C. It will increase interest rates and the quantity of funds lent will fall.
D. It will decrease interest rates and the quantity of funds lent will fall.
63. Steven Landsburg has suggested that Scrooge, a character invented by Charles Dickens, was
not really so bad. What could Landsburg be suggesting would happen in the market for loanable
funds if all the misers of the world sold their assets and gave the money to the poor?
A. Supply would shift left, causing investment to fall.
B. Supply would shift right, causing interest rates to rise.
C. Demand would shift left, causing investment to fall.
D. Demand would shift right, causing interest rates to rise.
64. Haiti has a lower literacy rate (the percentage of those over 15 who can read and write)
compared to other Latin American and Caribbean countries. Where does this low literacy rate fit
into the factors that explain the wealth of nations?
A. It indicates that Haiti is short of physical capital.
B. It shows that it lacks entrepreneurship.
C. It shows a lack of natural resources.
D. It indicates that Haiti is short on human capital.
65. In the early 2000s, analysts feared that low academic achievement in math in the United
States may reduce U.S. economic growth by as much as half a percentage point per year. In
terms of factors leading to growth, the low math scores indicate that the U.S. may be at a
growing disadvantage in terms of:
A. social capital.
B. human capital.
C. growth-compatible institutions.
D. technology.
66. In the early 2000s, analysts feared that low academic achievement in math in the United
States may reduce U.S. economic growth by as much as half a percentage point per year. This
“drag will become increasingly apparent…as other countries dismantle regulatory obstacles and
alter tax laws that put them at a disadvantage.” In terms of sources of growth, the quotation
suggests that some other countries are currently at a disadvantage because of:
A. social capital.
B. human capital.
C. growth-compatible institutions.
D. technology.
67. When the government of India lowered tariff barriers and removed the need for approvals
for routine industrial expansion, what source of growth did this reform change directly?
A. Physical capital
B. Human capital
C. Technology
D. Growth-compatible institutions
68. Some economists argue that well-functioning capital markets that allow funds to move from
those who have but do not need funds to those who need but do not have funds, are essential for
rapid economic growth. Well-functioning capital markets are an example of:
A. physical capital.
B. human capital.
C. growth-compatible institutions.
D. entrepreneurship.
69. If legally owning a business can spur growth, why don’t all business owners legalize their
businesses?
A. Excessive regulations often make running a legalized business more cumbersome.
B. Legally owning a business opens new avenues for obtaining loans.
C. Legalizing a business has no impact on business practices, so why do it?
D. Business owners don’t care about economic growth.
70. Over the last three decades, the Chinese government has adopted a series of market-oriented
reforms that have shifted control of many parts of the Chinese economy from government
officials to private individuals. These reforms have most likely stimulated China’s growth for
which of the following reasons?
A. They have provided individuals with a greater incentive to be efficient
B. They have decreased domestic competition
C. They have increased economies of scale
D. They have decreased entrepreneurship
71. The Indian government is known for creating obstacles to foreign investment with tariffs,
investment caps and tons of red tape. What effect does “red tape” have on growth?
A. It discourages entrepreneurship
B. It discourages leisure
C. It encourages learning by doing
D. It encourages specialization
72. All of the following are important sources of growth except:
A. institutions with incentives compatible with growth.
B. technological development.
C. decreasing returns to scale.
D. capital accumulation.
73. Growth compatible institutions:
A. have incentives built into them that lead people to put forth effort.
B. encourage people to pursue activities that inhibit growth in others.
C. allow people to gain income for themselves by creating impediments for others.
D. encourage people to spend a lot of time in leisure pursuits.
74. Which of the following would tend to inhibit growth?
A. Private property
B. Limited liability for corporate owners
C. Requiring government to approve all economic activity
D. Freedom from regulation
75. A resource the United States lacked in the 20th century and had to import was:
A. minerals.
B. land.
C. labor.
D. technological creativity.
76. One reason why the Soviet Union grew slowly in the 20th century compared to the United
States and Western Europe was that it:
A. did not invest as much in capital goods.
B. invested in too many consumer goods.
C. licensed too many private enterprises, creating destructive competition.
D. did not provide incentives for individuals to produce what consumers valued.
77. Factory buildings are an example of:
A. social capital.
B. physical capital.
C. human capital.
D. entrepreneurial capital.
78. Many economists now de-emphasize capital accumulation as a source of growth because:
A. capital accumulation no longer affects growth.
B. capital accumulation alone does not necessarily lead to growth.
C. the value of the capital stock no longer depends upon technology and needs of society.
D. capital has been defined so narrowly that it has become a less useful concept.
79. Which of the following is an example of the development of human capital?
A. Designing robots used to manufacture cars
B. Contributing to well-developed financial markets
C. Conducting on-the-job training
D. Fostering trust among firms that allows short-term credit
80. The legal system is an example of:
A. social capital.
B. physical capital.
C. human capital.
D. entrepreneurial capital.
81. Technological development:
A. makes it impossible to obtain more of the same things.
B. alters the nature of production and consumption.
C. does not depend on economic incentives.
D. does not depend on institutions.
82. An innovator who creates new products and new ways to get business done is referred to as:
A. a manager.
B. a capitalist.
C. an entrepreneur.
D. a creditor.
83. The law of diminishing marginal productivity implies that increasing only one input will:
A. not increase output.
B. lead to smaller and smaller increases in output.
C. lead to identical increases in output.
D. lead to larger and larger increases in output.
84. The law of diminishing marginal productivity applies whenever:
A. output is increased.
B. all inputs are increased.
C. only one input is increased.
D. decreasing returns to scale are present.
85. The law of diminishing marginal productivity implies that opportunity cost:
A. increases as one input is increased to produce successive units of output.
B. increases as all inputs are increased to produce successive units of output.
C. is constant as one input is increased to produce successive units of output.
D. is constant as all inputs are increased to produce successive units of output.
86. According to the Classical growth model, the most important source of economic growth is:
A. population growth.
B. capital accumulation.
C. technological development.
D. increasing returns to scale.
87. The growth model in which capital accumulation plays the key role is called the:
A. new growth model.
B. Classical growth model.
C. new Classical growth model.
D. Keynesian model.
88. The most important policy implication of the Classical growth model is that:
A. policies to slow population growth will accelerate economic growth.
B. policies to stimulate technological development will stimulate economic growth.
C. policies to stimulate saving and investment will stimulate economic growth.
D. budget deficits will stimulate economic growth.
89. According to the Classical growth model, an economy that increases its saving will grow:
A. slowly because consumption and aggregate demand will be reduced.
B. slowly because interest rates will fall, causing investment to decline.
C. quickly since the increase in saving will permit greater investment.
D. quickly since the increase in saving will permit more rapid technological progress.
90. According to long-run growth models, which of the following is least likely to increase
potential output?
A. increased levels of entrepreneurship
B. higher levels of saving and capital accumulation
C. increased aggregate demand
D. more rapid development of growth-compatible institutions
91. According to Malthus, a fixed quantity of land and a growing population combined to
produce:
A. continuous but variable economic growth.
B. accelerating economic growth.
C. a stationary state in which growth ceased.
D. a stationary state in which the economy grew, but at a fixed and unchangeable rate.
92. Classical economists predicted that population growth would eventually reduce economic
growth because they believed:
A. in the law of diminishing marginal productivity.
B. in the law of increasing marginal productivity.
C. that production involved decreasing returns to scale.
D. that production involved increasing returns to scale.
93. According to the Classical growth model, population growth:
A. eventually reduces output.
B. eventually reduces output per worker.
C. does not affect output.
D. does not affect output per worker.
94. Classical growth economists who applied the law of diminishing marginal productivity to
capital concluded that:
A. both output and per capita output could grow indefinitely.
B. output could grow indefinitely but per capita output could not.
C. per capita output could grow indefinitely but output could not.
D. neither output nor per capita output could grow indefinitely.
95. Jamaica has far less capital than Singapore. Based on this, the Classical growth model
would predict that as each accumulates more capital Jamaica would grow:
A. more rapidly than Singapore.
B. at the same rate as Singapore.
C. at a slower rate than Singapore.
D. at a rate that rises and then falls compared to Singapore.
96. Which economist who stressed the importance of the entrepreneur in economic growth?
A. Adam Smith.
B. Thomas Malthus.
C. Karl Marx.
D. Joseph Schumpeter.
97. New growth theory emphasizes the importance of increases in what factor in explaining
growth?
A. Capital
B. Labor
C. Technology
D. Land
98. New growth theory emphasizes the importance of all of the following except:
A. positive externalities.
B. diminishing marginal productivity.
C. technology.
D. learning by doing.
99. Unlike Classical growth theory, new growth theory emphasizes the importance of:
A. the law of diminishing marginal productivity.
B. human capital.
C. population growth.
D. technology.
100. How do investment in technology and investment in capital differ?
A. They have similar effects on output so they have no important differences from an economic
point of view.
B. They have different effects on output because of the positive externalities associated with
investments in capital.
C. They have different effects on output because of the positive externalities associated with
investments in technology.
D. They have the same effects on output but investments in technology are much more closely
tied to the level of saving than investments in capital.
101. A positive externality is the positive effect that:
A. an action has on the decision maker.
B. an action has on others that is not taken into account by the decision maker.
C. external forces have on society as a whole.
D. external forces have on a decision maker.
102. Positive externalities of technological change result from:
A. capital accumulation.
B. the common knowledge embodied in many technologies.
C. patents.
D. increasing returns to scale.
103. Patents:
A. eliminate the positive externalities associated with new technologies.
B. reduce the positive externalities associated with new technologies.
C. do not affect the positive externalities associated with new technologies.
D. increase the positive externalities associated with new technologies.
104. Learning by doing suggests that:
A. greater experience increases efficiency.
B. greater experience increases production costs.
C. diminishing marginal productivity occurs more rapidly.
D. patents are more valuable.
105. If the positive externalities associated with learning by doing are sufficiently great,
production will be characterized by:
A. decreasing returns to scale.
B. increasing marginal productivity.
C. increasing returns to scale.
D. diminishing marginal productivity.
106. According to new growth theory, per capita growth is:
A. limited by diminishing marginal productivity.
B. limited by learning by doing.
C. unlimited if production is characterized by increasing returns to scale.
D. unlimited if production is characterized by constant marginal productivity.
107. Technological lock-in:
A. occurs when standardization on a technology blocks the adoption of more efficient
technologies.
B. occurs when network externalities are absent.
C. increases the efficiency with which technology is used.
D. is no longer possible because of the development of network externalities.
108. Which of the following does not provide an example of network externalities?
A. The Internet
B. The telephone system
C. A language
D. A patent
109. Network externalities:
A. can explain why more efficient technologies displace less efficient technologies.
B. can explain why the economy fails to adopt the most efficient technologies.
C. reduce the cost of switching to new technologies without network externalities.
D. can explain why technological lock-in no longer occurs.
110. Microsoft Word is the most widely used word processing program. Which of the following
explanations for its popularity uses the lock-in hypothesis?
A. Build a better mousetrap and the world beats a path to your door. MS Word is the better
mousetrap.
B. Because MS Word is the standard in business, it is difficult to use other word processing
programs and share documents.
C. MS Word is priced below other competing programs; Microsoft can afford to price it low
because it sells so many copies.
D. Although MS Word is not the cheapest word processor, its ratio of features to price is better
than the competitors