50) Countries with higher rates of saving
A) experience lower growth rates in the future.
B) have a large population.
C) have a greater number of poor people.
D) have higher rates of growth.
51) Economic growth depends on
A) low tax rates.
B) high government spending.
C) high rates of consumption.
D) increases in the capital stock as a result of saving.
52) Which one of the following is TRUE?
A) Saving deters economic growth, because it takes money out of circulation.
B) Saving enables economic growth by providing for investment in the capital stock.
C) International comparisons have found no relationship between the rate of saving and the level
of per capita real GDP.
D) Economies with sophisticated credit markets, such as the United States, have no need for
saving.
53) Of the following nations, the country with the highest saving rate is
A) the United States.
B) Japan.
C) Mexico.
D) Ethiopia.
54) Regarding the role of saving in economic growth, studies indicate that
A) there is a positive relationship between economic growth and saving.
B) there is no relationship between economic growth and saving.
C) there is a negative relationship between economic growth and saving.
D) there is both a positive and a negative relationship between economic growth and saving.
55) Which of the following is an important factor affecting economic growth?
A) the rate of saving
B) exchange rates
C) the rate of interest
D) the level of prices
56) An increase in a country’s saving rate will tend to cause which of the following in the long
run?
A) a reduction in per capita real GDP
B) an increase in economic growth
C) an increase in the unemployment rate
D) an increase in the rate of inflation
57) In order to be able to consume more in the future, you have to consume
A) less today and save the difference.
B) more today to increase supply.
C) more consumer goods.
D) fewer capital goods.
58) Higher saving rates mean higher future growth rates because
A) the interest earned from savings gives you more wealth.
B) the banks have more money to distribute to their shareholders.
C) saving contributes to less investment, which yields a larger capital stock.
D) saving contributes to more investment, which yields a larger capital stock.
59) In order for a nation to be able to consume more in the future, it needs to
A) consume less today in aggregate and save the difference between consumption and income.
B) consume more today in aggregate and borrow the difference between consumption and
income.
C) produce more today in aggregate and save the difference between consumption and
production.
D) produce less today in aggregate and save the difference between consumption and income.
60) Proponents of the new growth theory argue that which of the following is a determinant of
economic growth?
A) An effective system of patent protection
B) The quality and size of the nation’s human capital
C) The proportion of income that goes into research and development
D) All of the above
61) Which of the following are mentioned as forces of the new growth theory that influence
economic growth?
I. Technology
II. New ideas
III. Innovations
A) I only
B) I and II only
C) I and III only
D) II and III only
E) I, II, and III
62) A key idea of the new growth theory is that
A) technology is not an important determinant of economic growth.
B) economic growth is not as important as leisure time growth.
C) the greater the rewards for technological advances, the greater the number of technological
advances.
D) the rewards associated with technological advances have little to do with the actual rate of
invention or innovation.
63) New growth theory supports the idea that
I. economic growth can continue as long as we keep finding new ideas.
II. increases in human capital can lead to greater rates of economic growth.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
64) According to the new growth theory, economic growth will continue with
A) the development of new ideas.
B) increases in population growth.
C) development of natural resources.
D) an increased focus on labor-intensive jobs.
65) All of the following are factors that raise economic development EXCEPT
A) establishing a legal system.
B) an educated work force.
C) reducing trade barriers.
D) government control of the country’s resources.
66) Innovation typically increases when
A) market incentives and private property rights are encouraged.
B) government controls the resource base.
C) high taxes are present.
D) the legal system is weak.
67) The development of a strain of wheat that will yield two crops per year rather than one crop
per year is an example of economic growth resulting from
A) capital accumulation.
B) increased gross investment.
C) technological progress.
D) an increase in per capita real income.
68) According to new growth theory, as technology becomes more important to growth, so does
A) human capital.
B) military spending.
C) increasing taxes.
D) increasing trade barriers.
69) Economists typically agree that the special protection given to owners of patents tends to
A) reduce expenditures on research and development.
B) increase expenditures on research and development.
C) reduce economic growth.
D) reduce productivity.
70) The transformation of an invention into something that benefits the economy is known as
A) an innovation.
B) a patent.
C) an externality.
D) magical growth.
71) When the government grants an inventor a patent
A) he has the exclusive right to make, sell or use his invention for 5 years.
B) the patent holder has less incentive to invest in R&D because one successful invention
removes the need to develop others.
C) the patent holder is guaranteed a profit on his invention.
D) the protection of a current invention would increase spending on R&D.
72) Regarding open economies, economists tend to find evidence that
A) the more closed an economy is, the higher the rate of growth the economy will experience.
B) trade tariffs tend to improve economic growth.
C) free trade encourages a more rapid spread of technology, and hence increases economic
growth.
D) open economies tend to have access to smaller markets than do closed economies.
73) According to the text, data supports the conclusion that lower trade barriers
A) help boost per capita real Gross Domestic Product (GDP) growth.
B) help to increase welfare payments.
C) decrease the standard of living in the country.
D) decrease life expectancy.
74) Free trade is viewed as key to economic development because
A) it encourages a faster spread of technology.
B) it encourages a country’s exports only.
C) it brings in expensive new technology.
D) none of the above is correct.
75) Which of the following does free trade encourage?
A) more rapid spread of technology
B) higher rates of economic growth
C) domestic industries’ access to larger markets
D) all of the above
76) Paul Romer’s theory on the importance of knowledge differs from traditional theory in that
Romer
A) argues that an investment-knowledge cycle allows a once-and-for-all increase in investment
to permanently raise a country’s growth rate, while traditional theory argues that a once-and-for-
all increase in investment leads to a higher standard of living but not to a higher growth rate.
B) argues, that investment is not important in promoting growth, but that the acquisition of
knowledge is the sole determinant of economic growth.
C) argues, that an investment-knowledge cycle exists which requires that investment rates keep
increasing or else growth rates will fall, while traditional theory argues that growth rates will not
fall, although they will not increase either.
D) emphasizes investment rates while traditional theory emphasizes the importance of
knowledge as a factor of production.
77) According to economist Paul Romer, economies seeking high economic growth must
A) encourage consumption by households.
B) invest in knowledge.
C) drastically lower their standards of living.
D) reduce their population growth by adopting a one-child policy.
78) For developing countries, one of the more effective ways to become more developed is
A) to invest in human capital.
B) to invest more in the military.
C) to increase trade barriers.
D) to reduce direct foreign investment.
79) What does the fact that U.S. students are falling behind other nations’ students in math and
science have to do with economic growth?
A) Nothing. People in the United States just don’t like to fall behind in anything as a matter of
pride.
B) If U.S. students don’t excel in math and science, the nation will see fewer plays written and
fewer pieces of music composed.
C) Better technology, a key to economic growth, depends largely on math and science skills.
D) Math and science skills don’t foster economic growth, but it takes math skills to calculate a
nation’s rate of economic growth.
80) Human capital is
A) the saving done by human beings.
B) the knowledge and skills that people in the work force acquire through education and training.
C) a measure of the labor productivity of workers.
D) the investment people make in industries that make capital goods.
81) Which of the following is TRUE of trends in the number of new U.S. patents?
A) There was a steady increase in new patents throughout the 1970s.
B) There was a surge in new patents in the latter part of the 1990s.
C) The number of new patents granted each year has remained unchanged since the early 1970s.
D) The number of new patents granted each year declined by more than 50 percent after 2001.
82) Traditionally, economists regarded improvements in technology as
A) the most important factor that helped explain economic growth, and basically the only factor
that would cause economic growth.
B) an outside factor that helped explain economic growth.
C) an important factor in explaining economic growth that was due to economic forces that also
could easily be explained.
D) unrelated to economic growth in any systematic way.
83) Which of the following is NOT associated with the new growth theory?
A) natural resources
B) research
C) technology
D) innovation
84) New growth theory is concerned with
A) finding a good way to measure economic growth.
B) increasing the savings rate in the U.S.
C) understanding the forces that increase productivity.
D) understanding how compounding works.
85) Recently economists have added what factor as a major explanation of economic growth?
A) the growth rate of labor
B) the growth rate of capital
C) the growth rate in labor and capital productivity
D) technology
86) New growth theory argues that
A) growth is due to the proper government policies concerning interest rates.
B) growth relies on maintaining lower growth rates of population, especially in less developed
countries.
C) technology cannot be looked at as an outside factor without an explanation of what drives it.
D) technology is the key factor that explains growth but technology is beyond economic
explanation itself.
87) An important foundation of the new growth theory is that
A) we will get more technological advances the more the government is involved.
B) we will get more technological advances when the rewards for producing them are greater.
C) the growth rate of the capital stock is more important than the growth rate of new knowledge
in generating economic growth.
D) improvements in labor productivity are poor measures of technological growth.
88) Which of the following will tend to cause an increase in technology?
A) an increase in research and development expenditures
B) the development of new ideas
C) increases in human capital
D) all of the above
89) The development of new products through research and development in new growth theory
is important because
A) there can be a positive impact on future growth.
B) society’s scarce resources are being used when they could be used for current consumption.
C) it will lead to a reduction in the savings rate.
D) new patents are created.
90) Firms are more likely to devote resources to research and development when
A) the country is in recession.
B) they expect to earn rewards from successful research and development.
C) it is easy to copy new techniques of other firms.
D) the country has been experiencing slow economic growth in order to spur economic growth.
91) A patent is
A) a government protection that gives an inventor the exclusive right to the invention for a
limited time period.
B) a government protection that gives an inventor the exclusive right to the invention for an
unlimited time period.
C) the right to make a product and sell it at a reasonable price.
D) a recognizable right to the profits associated with a new product or new way of making goods
granted by business associations.
92) The reason that patents are granted is
A) to encourage a high rate of consumption.
B) to protect new techniques developed through research and development.
C) to encourage free trade.
D) to increase the labor force.
93) In the United States, a patent lasts
A) 7 years.
B) 14 years.
C) 20 years.
D) forever.
94) Patents stimulate technological advance by
A) making capital more productive.
B) enabling the government to determine which potential technological advances firms should
pursue.
C) providing information about the status of technical knowledge in the economy.
D) allowing inventors to capture the economic rewards of their inventions.
95) The benefits from research and development activities
A) are limited to the firm winning a patent.
B) are limited to the firms investing in similar research and development projects.
C) are limited to the nation in which the research and development is taking place.
D) spill over to others, including foreign residents.
96) Foreign residents can benefit from U.S. research and development activity because
A) they ignore U.S. patent laws and steal the technology.
B) they can import the goods, obtaining inputs at lower cost than they would otherwise.
C) countries usually share patented ideas.
D) patents do a poor job of protecting the inventor.
97) Innovation is
A) another term for something new.
B) the transformation of an invention into something that is useful to humans.
C) the term for invention when a firm obtains a patent.
D) the term for inventions in the electronic and computer industries.
98) Which of the following statements is NOT consistent with new growth theorists’ beliefs?
A) Innovation can lead to lower productivity costs.
B) Inventions are much more important than innovation.
C) Technology must be understood in terms of what drives it.
D) Rewards lead to technological advances.
99) New growth theorists believe that
A) economic growth comes from innovation.
B) economic growth comes only from saving.
C) economic growth is due to capital spending and not research and development spending since
much research and development spending fails to produce an invention.
D) inventions spread very rapidly, thereby curtailing the need for more innovations.
100) Paul Romer’s theory of economic growth differs from traditional theories in that
A) Romer argues that investment in capital goods is not important in encouraging growth while
investment in human capital is, whereas traditional theorists emphasize both human and physical
capital.
B) Romer argues that investment in human capital always occurs before investment in physical
capital, while traditional theories emphasize the priority of physical capital.
C) Romer argues an investment-knowledge cycle can exist, but requires constant increases in
investment rates, while traditional theories argue that investment rates can be constant.
D) Romer argues an investment-knowledge cycle allows a one-time increase in investment to
permanently increase a country’s growth rate, while traditional theory argued such an investment
would have only a short-term effect.
101) According to Romer
A) capital drives economic growth.
B) invention drives economic growth.
C) ideas drive economic growth.
D) government drives economic growth.
102) According to new growth theorists, more technological improvements can be brought about
by
A) a government policy that encourages increased consumption.
B) government policies that lead to increases in human capital.
C) tougher immigration laws.
D) the government taking a more active role in regulating industries.
103) Which one of the following helps preserve incentives to develop new technologies?
A) patents
B) tariffs
C) quantity restrictions on imports
D) income taxes
104) According to the new growth theory
A) technology should be considered as a factor of production.
B) technology plays a minor role in economic development.
C) technology provides few rewards to the society.
D) technology is a natural by-product of invention.
105) New growth theory emphasizes all of the following EXCEPT
A) technology.
B) import restrictions.
C) research and development.
D) innovation.
106) A government protection for an inventor that provides the inventor with the right to make
use of her invention in any way she desires is
A) an innovation.
B) a copyright.
C) a patent.
D) a trademark.
107) One of the implications of new growth theory is that economic growth arises from
A) more government spending, such as military spending.
B) investments in knowledge.
C) financial safety nets for the poor, such as Medicaid.
D) reductions in the birth rate.
108) New growth theorists conclude that
A) invention is more important than innovation in spurring economic growth.
B) the amount of technological innovation in an economy is independent of the rewards offered
for innovation.
C) rates of global economic growth are limited by the amount of raw materials available.
D) economic growth can continue as long as we keep coming up with new ideas.
109) The development of human capital
A) is a form of investment.
B) does not appear to enhance economic growth.
C) enhances economic growth, but it does not improve the productivity of the labor force.
D) enhances economic growth, but the individuals acquiring the capital are not made better off
themselves.
110) Which of the following factors are considered under “new growth theory”?
A) technology
B) research
C) innovation
D) All of the above are correct.