# Economics Chapter 9 Saving Fundamental Determinant Economic

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Chapter 9 Global Economic Growth and Development 215
80) What is the real GDP after four years if Country X s average annual growth rate is 8.6 percent
and the initial real GDP was \$2,756.0 million?
A) \$2,993.0 million B) \$3,833.5 million
C) \$1,077.5 million D) \$3,250.4 million
81) The per capita GDP for Hungary in 2001 was \$12,000 and in 2002 was \$12,360. How much did
the economy grow in 2002?
A) 97 percent B) 3 percent C) 2 percent D) 1 percent
82) A constant rate of U.S. economic growth over a given period of years would involve
A) adding the same amount of nominal dollars to real GDP per capita each year.
B) adding the same amount of real dollars to real GDP per capita each year.
C) compounding the percentage increase in real GDP per capita over the years.
D) None of the above are correct.
83) When economic growth is compared between countries, the best measure to use is
A) nominal GDP. B) real GDP.
C) chain weighted GDP. D) real GDP per capita.
84) What is economic growth and why are growth rates so important?
85) There is a direct relationship between economic growth rates and the wealth of a nation. Do
you agree or disagree? Why?
86) What are the shortcomings of using changes in per capita real GDP to measure economic
growth?
9.2 Productivity Increases: The Heart of Economic Growth
1) If population growth is greater than the growth of real output,
A) real per capita Gross Domestic Product (GDP) growth will be less than the growth of real
Gross Domestic Product (GDP).
B) the production possibilities curve is shifting to the left.
C) real per capita Gross Domestic Product (GDP) growth will be greater than the growth of
real Gross Domestic Product (GDP).
D) real per capita Gross Domestic Product (GDP) and real Gross Domestic Product (GDP) will
be growing at the same rate.
2) Labor productivity can best be calculated as
A) real Gross Domestic Product (GDP) / Gross Domestic Product (GDP) price index.
B) real Gross Domestic Product (GDP) / number of workers.
C) number of workers / hours of work.
D) real wages / hours of work.
3) Which resource is the main contributor to economic growth in the United States, Latin America,
and South Asia?
A) growth in physical capital B) growth in human capital (education)
C) growth in labor D) growth in land
4) Which of the following variables can be used to measure labor productivity?
A) real GDP B) number of workers
C) number of labor hours D) all of the above
5) The majority of evidence points to the fact that, in the last decade in the United States, labor
productivity has
A) decreased.
B) increased.
C) stayed the same.
D) decreased in the manufacturing sector but increased in the service sector.
6) Labor productivity rises when
A) average worker output falls. B)
b
usiness investment falls.
C) average worker output rises. D) nominal wages fall.
7) Labor productivity increases when
A) the average number of hours people work goes up.
B) the unemployment rate decreases.
C) the average output produced per worker during a specified time period increases.
D) the average output produced per worker during a specified time period decreases.
8) Suppose a country experiences an increase in output per worker. Such a development
represents which of the following?
A) a decrease in economic growth B) an increase in labor productivity
C) a reduction in the saving rate D) an increase in population growth
9) Which of the following will cause an increase in economic growth?
A) an increase in human capital
B) a reduction in the stock of physical capital
C) a reduction in the unemployment rate
D) a reduction in labor force participation
10) Labor productivity is computed as
A) per capita real GDP divided by the number of workers.
B) real GDP divided by population.
C) per capita real GDP divided by population.
D) real GDP divided by the number of workers.
11) Labor productivity is
A) the average amount produced times the number of workers.
B) the average amount produced times the number of people in the labor force.
C) the average amount produced per worker.
D) the rate of change in the total amount produced per worker.
12) The most important thing about higher labor productivity is that it means
A) we are doing better than anyone else is.
B) we can compete well with other nations.
C) we can achieve a happier population.
D) we can have a higher standard of living.
13) Economic growth can be defined as
A) the rate of growth in the productivity of labor.
B) the rate of growth in the productivity of capital.
C) the rate of growth of labor plus the rate of depreciation of capital.
D) the rate of growth of labor plus the rate of growth of capital plus the rate of growth in the
productivity of labor and capital.
14) Productivity relates to
A) working harder over time.
B) working longer over time.
C) producing the same output with fewer labor hours.
D) producing the same output with more labor hours.
15) Which of the following is an example of a measure of labor productivity?
A) Farm workers produce 30 bushels of wheat per worker per day.
B) Autos get 30 gallons to the mile.
C) The growth rate of per capita real GDP is 3.5 percent per year.
D) Wages increase by 3.5 percent per year for 5 years.
16) Labor productivity increases when
A) the population increases.
B) output increases even if the labor force has decreased.
C) output increases at the same rate as the labor force increases.
D) output increases faster than population increases.
17) In the United States, the main contributor to economic growth is due to the growth in
A) physical capital. B) education (human capital).
C) labor resources. D) capital and labor productivity.
18) Improvements in labor productivity
A) affect the level of wages, but do not affect the rate of economic growth.
B) affect the level of profit, but do not affect the rate of economic growth.
C) hinder economic growth, because they cause unemployment.
D) contribute to economic growth.
19) Labor productivity is commonly measured as
A) the number of workers divided by real GDP.
B) the change in real GDP divided by change in number of workers.
C) nominal GDP divided by number of workers.
D) real GDP divided by number of workers.
20) An increase in human capital will tend to cause which of the following?
A) increase economic growth B) increase the standard of living
C) increase labor productivity D) all of the above
21) Which one of the following does NOT contribute to economic growth?
A) the growth of capital and labor productivity
B) the growth of the capital stock
C) the growth of the labor force
D) increases in the price level
22) The formula for the computation of labor productivity is
A) real GDP/population. B) real GDP/number of workers.
C) nominal GDP/population. D) nominal GDP/number of workers.
23) Labor productivity is defined as
A) the amount of output per worker.
B) the amount of input per worker.
C) the amount of workers per unit of input.
D) the increase in output per unit of machinery.
24) Labor productivity can be increased if
A) people spend less time developing skills before entering the workforce.
B) the government mandates it.
C) there is an increase in capital goods.
D) the standard of living declines.
25) Labor productivity measures
A) the growth of per capita real GDP. B) the growth of real output.
C) real output per labor hour. D) the growth in the quantity of labor.
26) Labor productivity can be increased with
A) education and training of the workforce.
B) an increase in capital goods used.
C) improvements in management.
D) all of the above
27) By dividing the value of total domestic output (real Gross Domestic Product (GDP)) by the
number of workers, economists derive
A) the net domestic product. B) labor productivity.
C) the size of the labor force. D) the rate of capital accumulation.
28) Whenever average output produced per worker during a specific time period increases, then
A) leisure time increases. B) nominal GDP decreases.
C) labor productivity increases. D) the standard of living goes down.
29) Improvements in information technology over the past decade have enhanced labor
productivity. What has been a likely result of this change?
A) Capital productivity has declined.
B) Unemployment has increased.
C) The rate of economic growth has increased.
D) Entrepreneurs no longer have an incentive to invest in information technology.
30) Which of the following contributes to economic growth?
A) increase in labor productivity
B) increase in consumer spending
C) increase in labor regulations restricting the hours of overtime allowed
D) increase in environmental protection policies
31) Explain the relationship between economic growth and labor productivity.
9.3 Saving: A Fundamental Determinant of Economic Growth
1) Giving up consumption today for consumption tomorrow accelerates economic growth by
A) having the economy produce no consumer goods.
B) increasing saving out of disposable income.
C) increasing the expected rate of inflation.
D) rapid expansion of the money supply.
2) One important factor that affects economic growth is
A) gold reserves.
B) the rate of saving.
C) which political party is in power.
D) the number of workers in heavy industry.
3) According to the text, Ethiopia probably has a low per capita real Gross Domestic Product
(GDP) because
A) it has too many resources.
B) it has a corrupt government.
C) it has a low rate of saving.
D) there are too many skilled workers in the country.
4) Economic growth occurs as a result of all of the following EXCEPT
A) more labor hours. B) growth of capital.
C) technological progress. D) less saving.
5) A higher rate of saving should lead to
A) higher current consumption.
B) less growth.
C) more investment, higher capital growth, and more future consumption.
D) a higher price level and reduced future consumption.
6) The rate of economic growth will be faster if
A) the rate of growth of the money supply is higher.
B) the rate of saving is higher.
C) the rate of growth of the population is higher.
D) consumption spending is greater.
7) Other things being equal, a higher saving rate
A) leads to higher interest rates.
B) means higher standards of living in the future.
C) means higher standards of living today.
D) is associated with a decline in the rate of growth of the population.
8) Other things being equal, an increase in consumption spending implies
A) a decline in saving.
B) a decline in government spending.
C) a higher standard of living in the future.
D) that economic growth will soon increase.
9) Economic growth tends to be higher in a country that
A) has a low saving rate.
B) has an open economy that encourages the rapid spread of technology.
C) has an undeveloped system of property rights.
D) does not grant patents to investors.
10) When comparing across countries, the higher the rate of saving,
A) the lower the level of per capita real Gross Domestic Product (GDP).
B) the higher the level of per capita real Gross Domestic Product (GDP).
C) the less industrialized the country.
D) the lower the productivity rates.
11) An important factor in determining a country s rate of economic growth is
A) the diversity of its population.
B) its rate of saving.
C) the size of its labor force.
D) the proportion of the adult population that is working.
12) Other things held constant, higher saving rates lead to
A) a lower standard of living.
B) increases in the number of hours workers work.
C) decreases in real per capita GDP.
D) higher living standards.
13) Saving is important for economic growth because
A) a higher saving rate reduces investment spending.
B) a higher saving rate increases investment spending.
C) more saving increases consumption immediately.
D) a higher saving rate will decrease the standard of living in the future.
14) A reduction in a country s saving rate will tend to cause which of the following in the long run?
A) an increase in the standard of living B) a reduction in economic growth
C) an increase in labor productivity D) an increase in per capita real GDP
15) The relationship between the rate of saving and per capita real GDP is
A) positive. B) negative. C) constant. D) not stable.
16) There has been some concern in the United States that people are not saving enough. This is a
concern because
A) decreases in saving lead to decreases in labor productivity.
B) decreases in saving lead to decreases in investment.
C) decreases in saving lead to increases in the capital stock.
D) decreases in saving lead to increases in consumption in the future.
17) If all income is consumed in a year, then
A) investment spending will increase.
B) income next year will increase.
C) investment spending will be zero.
D) any investment spending will be done by the government.
18) Many countries find it difficult to achieve economic growth. This is because economic growth
A) is not understood well by economists, so it is difficult to advise policy makers on the best
policies to pursue.
B) requires saving, and saving means less consumption today. A poor country may find it
difficult to consume less today.
C) appears to be predetermined and not subject to factors that policy makers can have any
affect on.
D) depends on technological change and technological change depends on noneconomic
factors such as the growth rate of scientific knowledge.
19) It is likely that a small increase in a country s saving rate will have
A) a large effect on per capita real GDP many years later because the increase in saving leads
to a slightly higher rate of economic growth which has large effects over time.
B) a large effect on per capita real GDP immediately because the increase in saving leads to a
much larger rate of economic growth.
C) a small effect on per capita real GDP many years later because the increase in saving will
have very little effect on the growth rate.
D) a small effect on per capita real GDP many years later because the increase in saving will
be offset in later years by a decrease in the saving rate.
20) 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.
21) 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.
22) 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.
23) Of the following nations, the country with the highest saving rate is
A) the United States. B)
J
apan.
C) Mexico. D) Ethiopia.
24) 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.
25) 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
26) 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
27) 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.
28) 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.
29) 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.
30) Why are economic growth and saving related?
9.4 New Growth Theory and the Determinants of Growth
1) 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 educational system
C) The proportion of income that goes into research and development
D) all of the above.
2) Which of the following are mentioned as forces of the new growth theory that influence economic
growth?
I. Technology
II. Research
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
3) 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
D) the rewards associated with technological advances have little to do with the actual rate of
invention or innovation.
4) 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
5) According to the new growth theory, economic growth will continue with
A) the development of new ideas.
B) increases in population growth.
C) increases in interest rates.
D) an increased focus on labor intensive jobs.
6) 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.
7) 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.
8) 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.
9) 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.
10) 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.
11) The transformation of an invention into something that benefits the economy is known as
A) an innovation. B) a patent. C) an externality. D) a compounder.
12) 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.
13) 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.
14) 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.
15) 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.
16) 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
17) 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.

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