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121. Amy discovers a way to produce water heaters so they are less expensive and use less natural
gas. Amy’s discovery is
a. physical capital. If Amy’s discovery leads to lower natural gas prices, it has made natural gas
less scarce.
b. physical capital. If Amy’s discovery leads to lower natural gas prices, it has made natural gas
scarcer.
c. technological knowledge. If Amy’s discovery leads to lower natural gas prices, it has made
natural gas less scarce.
d. technological knowledge. If Amy’s discovery leads to lower natural gas prices, it has made
natural gas scarcer.
122. Which of the following statements about inputs is correct?
a. A forest is an example of a natural resource; it is also an example of a renewable resource.
b. There is no distinction between human capital and technological knowledge.
c. Human capital is a non-produced factor of production.
d. Physical capital is a non-produced factor of production.
6152 Production and Growth
123. Which of the following statements is true?
a. Natural resources per worker influence productivity only when those natural resources are
renewable.
b. The prices of most natural resources are stable or falling relative to other prices.
c. Technology requires greater use of natural resources.
d. The terms human capital and technological knowledge are used interchangeably.
124. Which of the following statements is true?
a. The quantity of natural resources per worker can influence productivity.
b. Technological knowledge and human capital are closely related.
c. Over long periods of time, the prices of most natural resources are stable or falling, relative to
other prices.
d. All of the above are correct.
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125. Which of the following lists contains, in this order, natural resources, human capital, and physical
capital?
a. For a restaurant: the land the restaurant was built on, the money it borrowed to buy supplies,
the freezers where the chops and steaks are kept.
b. For a furniture company: wood, the skills and knowledge of its workers, saws.
c. For a railroad: fuel, railroad engines, railroad tracks.
d. None of the above is correct.
126. Which of the following lists contains, in this order, natural resources, physical capital, and human
capital?
a. For a shoe factory: leather, hand tools, the managers’ knowledge of shoe making.
b. For a steel mill: the blast furnaces, iron ore, the workers.
c. For an airline: oil used to make jet fuel, the pilots’ knowledge of flying, jets.
d. None of the above is correct.
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127. Other things the same, which of the following would increase productivity?
a. an increase in either human or physical capital
b. an increase in human capital but not an increase in physical capital
c. an increase in physical capital but not an increase in human capital
d. neither an increase in human capital nor an increase in physical capital
128. Which of the following would increase productivity?
a. an increase in the physical capital stock per worker
b. an increase in human capital per worker
c. an increase in natural resources per worker
d. All of the above are correct.
129. Which of the following is a determinant of productivity?
a. human capital per worker
b. physical capital per worker
c. natural resources per worker
d. All of the above are correct.
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130. Which of the following is a determinant of productivity?
a. human capital per worker
b. physical capital per worker
c. natural resources per worker
d. All of the above are correct.
131. Which of the following statements is correct?
a. Productivity is a determinant of human capital per worker.
b. Technological knowledge is a determinant of productivity.
c. Human capital and technological knowledge are the same thing.
d. All of the above are correct.
132. Country A has twice as many workers as Country B. Country A also has twice as much
physical capital, twice as much human capital, and access to twice as many natural resources as
Country B. Assuming constant-returns to scale, which of the following is higher in Country A?
a. both output per worker and productivity
b. output per worker but not productivity
c. productivity but not output per worker
d. neither productivity nor output per worker
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133. Suppose a country imposes new restrictions on how many hours people can work. If these
restrictions reduce the total number of hours worked in the economy, but all other factors that
determine output are held fixed, then
a. productivity and output both rise.
b. productivity rises and output falls.
c. productivity falls and output rises.
d. productivity and output fall.
134. Suppose a country reduces restrictions on how many hours people can work. If reducing these
restrictions increase the total number of hours worked in the economy, but all other factors that
determine output are held fixed, then
a. productivity and output both rise.
b. productivity rises and output falls.
c. productivity falls and output rises.
d. productivity and output fall.
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135. Other things the same, which of the following could explain an increase in productivity?
a. either an increase in human capital or an increase in physical capital
b. an increase in human capital but not an increase in physical capital
c. an increase in physical capital but not an increase in human capital
d. neither an increase in human capital nor an increase in physical capital
136. In the equation for the production function Y/L represents
a. productivity.
b. output.
c. the availability of natural resources.
d. the amount of human capital.
137. In the equation for the production function H/L represents
a. natural resources per worker.
b. human capital per worker.
c. output per worker.
d. physical capital per worker.
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138. In a particular production process, if the quantities of all inputs used double, then the quantity of
output doubles as well. This means that
a. the production process cannot be enhanced by technological advances.
b. no mathematical representation of the relevant production function can be formulated.
c. the relevant production function has the limits–to–growth property.
d. the relevant production function has the constant-returns-to-scale property.
139. If your firm’s production function has constant returns to scale, then if you double all your inputs,
your firm’s output will
a. double and productivity will rise.
b. double but productivity will not change.
c. more than double and productivity will rise.
d. more then double but productivity will not change.
140. If your firm’s production function has constant returns to scale, and if you double all your inputs,
then your firm‘s productivity will
a. not change.
b. increase but not double.
c. double.
d. more than double.
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141. In a particular production process, if the quantities of all inputs used are increased by 60%, then
the quantity of output increases by 60% as well. This means that
a. the production process cannot be enhanced by technological advances.
b. no mathematical representation of the relevant production function can be formulated.
c. the relevant production function has the limits-to–growth property.
d. the relevant production function has constant-returns-to-scale.
142. If your firm’s production function has constant returns to scale and you increase all your inputs
by 60%, then your firm’s output will
a. not change.
b. increase, but by less than 60%
c. increase by 60%
d. increase by more than 60%.
143. You bake cookies. One day you double the time you spend, double the number of chocolate
chips, flour, eggs, and all your other inputs, and bake twice as many cookies. Your cookie
production function has
a. decreasing returns to scale.
b. zero returns to scale.
c. constant returns to scale.
d. increasing returns to scale.
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144. You sell cupcakes. One day you double the time you spend and double all your inputs, and make
twice as many cupcakes. Your cupcake production function has
a. decreasing returns to scale.
b. zero returns to scale.
c. constant returns to scale.
d. increasing returns to scale.
145. If there are constant returns to scale, the production function can be written as
a. xY = 2xAF(L, K, H, N).
b. Y/L = A F(xL, xK, xH, xN).
c. Y/L = A F( 1, K/L, H/L, N/L).
d. L = AF(Y, K, H, N).
146. If a production function has constant returns to scale, output can be doubled if
a. labor alone doubles.
b. all inputs but labor double.
c. all of the inputs double.
d. None of the above is correct.
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147. Suppose there are constant returns to scale. Now suppose that over time a country doubles its
workers, its natural resources, its physical capital, and its human capital, but its technology is
unchanged. Which of the following would double?
a. both output and productivity
b. output, but not productivity
c. productivity, but not output
d. neither productivity nor output
148. An economy’s production function has the constant-returns-to-scale property. If the economy’s
labor force doubled
and all other inputs stayed the same, then real GDP would
a. stay the same.
b. increase by exactly 50 percent.
c. increase by exactly 100 percent.
d. increase, but not necessarily by either 50 percent or 100 percent.
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149. If the number of workers in an economy doubled, all other inputs stayed the same, and there
were constant returns to scale, productivity would
a. fall to less than one-half of its former value.
b. fall, but it would still be greater than one-half of its former value.
c. stay the same.
d. rise but less than double.
150. If an economy with constant returns to scale were to double its physical capital stock, its
available natural resources, and its human capital, but leave the size of the labor force the same,
a. its output would stay the same and so would its productivity.
b. its output and productivity would increase, but less than double.
c. its output and productivity would increase by more than double.
d. None of the above is correct.
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151. A certain production process requires only two types of inputs — capital and labor. In 2006, 100
units of labor and 50 units of capital were employed, and 100 units of output were produced. In
2013, 112 units of labor and 56 units of capital were employed. If the production process displays
constant returns to scale, then how many units of output were produced in 2013?
a. 100
b. 112
c. 124
d. 144
152. In the production function , which symbol reflects the state of technology?
a. A
b. K
c. H
d. N
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Scenario 25-1. An economy’s production form takes the form Y = AF(L, K, H, N).
153. Refer to Scenario 25-1. K represents the quantity of
a. human capital only.
b. physical capital only.
c. human capital and physical capital combined.
d. nonrenewable natural resources.
154. Refer to Scenario 25-1. In the production function, which of the following represents
technology?
a. A
b. K
c. H
d. N
155. Refer to Scenario 25-1. If the production function has the constant-returns–to–scale property,
then it can be rewritten as
a. Y/L = AF(1, K/L, H/L, N/L)
b. Y/L = AF(L, 1, H/L, N/L)
c. Y/L = AF(L, K/L, 1, N/L)
d. Y/L = AF(L, K/L, H/L, 1)
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156. Refer to Scenario 25-1. If the production function has the constant-returns-to–scale property,
then if we know the values of A, K/L, H/L, and N/L, we also know the value of
a. output.
b. labor productivity.
c. A.
d. All of the above are correct.
157. Refer to Scenario 25-1. If the production function has the constant-returns-to-scale property,
then it is possible that the specific form of the production function is
a. Y = 4L + 2K + 3H + N
b. Y = (L + K + H + N)/4
c. Y =2
d. Y = 4
158. Which of the following statements is correct?
a. Growth of productivity is the main determinant of growth in living standards.
b. Common knowledge and proprietary technology are both important for the economy’s
production of goods and services.
c. The terms capital and physical capital refer to the same thing.
d. All of the above are correct.
159. Which of the following statements is correct?
a. Human capital per worker is a determinant of productivity.
b. A nation cannot be highly productive in producing goods and services without abundant
quantities of natural resources.
c. Human capital and technological knowledge are the same thing.
d. All technological knowledge is proprietary.
160. A basic principle of economics is that a country’s standard of living depends on its
a. quantity of physical capital.
b. abundance of natural resources.
c. ability to produce goods and services.
d. ability to thrive economically without having to interact with other countries.
161. In order for the standard of living within a country to be enhanced over time, which of the
following is essential?
a. The role of the country’s government in the economy must become larger.
b. The population of the country must increase.
c. More domestic natural resources must be discovered and used.
d. The level of productivity must increase.
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Multiple Choice – Section 03: Economic Growth and Public Policy
1. Consider three imaginary countries. In Aziria, saving amounts to $3,000 and consumption amounts
to $7,000; in Graniva, saving amounts to $2,000 and consumption amounts to $8,000; and in
Tanistan, saving amounts to $4,500 and consumption amounts to $10,500. The saving rate is
a. higher in Aziria than in Tanistan, and it is higher in Tanistan than in Graniva.
b. higher in Graniva than in Tanistan, and it is higher in Tanistan than in Aziria.
c. higher in Tanistan than in Graniva, and it is the same in Graniva and Aziria.
d. higher in Aziria than in Graniva, and it is the same in Aziria and Tanistan.
2. Consider three imaginary countries. In Aire, saving amounts to $4,000 and consumption amounts to
$12,000; in Bovina, saving amounts to $3,000 and consumption amounts to $24,000; and in Cartar,
saving amounts to $10,000 and consumption amounts to $50,000. The saving rate is
a. higher in Aire than in Cartar, and it is higher in Cartar than in Bovina.
b. higher in Cartar than in Aire, and it is higher in Aire than in Bovina.
c. higher in Cartar than in Bovina, and it is the same in Bovina and Aire.
d. higher in Aire than in Bovina, and it is the same in Aire and Cartar.
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3. One of the Ten Principles of Economics in Chapter 1 is that people face tradeoffs. The growth that
arises from capital accumulation is not a free lunch. It requires that society
a. conserve resources for future generations.
b. sacrifice consumption goods and services now in order to enjoy more consumption in the future.
c. recycle resources so that future generations can produce goods and services with the
accumulated capital.
d. None of the above is correct.
4. In an economy where net exports are zero, if saving rises in some period, then in that period
a. consumption and investment fall.
b. consumption falls and investment rises.
c. consumption rises and investment falls.
d. consumption rises and investment falls.
5. Other things the same, when an economy increases its saving rate
a. consumption and production rise now.
b. consumption rises now and production rises later
c. consumption falls now and production rises later.
d. consumption falls now and production falls later.
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6. When a society decides to increase its quantity of physical capital, the society
a. can avoid the usual need to face trade-offs.
b. is apparently not very concerned about its rate of economic growth in the future.
c. is in effect deciding to consume fewer goods and services in the present.
d. is in effect deciding to save less of its current income in the present.
7. Accumulating capital
a. requires that society sacrifice consumption goods in the present.
b. allows society to consume more in the present.
c. decreases saving rates.
d. involves no tradeoffs.
8. “When workers already have a large quantity of capital to use in producing goods and services,
giving them an additional unit of capital increases their productivity only slightly.” This statement
a. represents the traditional view of the production process.
b. is an assertion that capital is subject to diminishing returns.
c. is made under the assumption that the quantities of human capital, natural resources, and
technology are being held constant.
d. All of the above are correct.
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9. “When workers already have a large quantity of capital to use in producing goods and services,
giving them an additional unit of capital increases their productivity only slightly.” This statement
a. represents an unconventional view of the production process.
b. is an assertion that capital is subject to increasing returns.
c. is made under the assumption that the quantities of human capital, natural resources, and
technology are being held constant.
d. All of the above are correct.
10. “When workers have a relatively small quantity of capital to use in producing goods and services,
giving them an additional unit of capital increases their productivity by a relatively large amount.”
This statement
a. is an assertion that production functions have the property of constant returns to scale.
b. is consistent with the view that capital is subject to diminishing returns.
c. is inconsistent with the view that it is easier for a country to grow fast if it starts out relatively
poor.
d. All of the above are correct.