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Consider a firm that produces output using labor and capital. The firm's stock of capital is fixed and in order to increase output, it must employ more workers. Which of the following occurs as the number of workers increases?


A) Output per worker rises.
B) Capital per worker falls.
C) Wage per worker falls.
D) Total output increases exponentially.

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During the industrial revolution (the period between the Civil War and World War I) , the United States had a massive influx of working age immigrants. What happens in the labor market?


A) The supply of labor curve shifts to the right.
B) The demand for labor curve shifts to the right.
C) The supply of labor and the demand for labor curves shift to the right.
D) There will be an upward movement along the labor supply curve.

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Which of the following occurred during the industrial revolution in the United States? I. More and more firms shifted toward mass production and automation. II. More and more firms substituted capital investment and technology for labor, leading to a decrease in the demand for labor. III. Technological change and capital investment displaced workers in some industries, although for the economy as a whole, the demand for labor increased.


A) I only
B) I and II only
C) I and III only
D) II only
E) III only

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All other things unchanged, which of the following events leads to a shift further outward in the country's production possibility curve?


A) Its labor force participation rate decreases by 5% per year compared to 3% per year.
B) Its saving rate falls from 8% to 1% per year.
C) Government expenditures on basic research increases by 10% per year.
D) The number of students completing college education falls.

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Economic growth is an exponential process. What does this mean?


A) It means that the returns to huge capital investments made today will diminish at an increasing rate over time.
B) It means that small differences in sustained growth rates have significant effects on a nation's real income over long periods of time.
C) It means that countries must allocate increasing amounts of resources to capital goods to see constant increases in the growth rate of potential output.
D) It means that if a country allocates a fixed amount of resources to capital goods, its potential output will increase at an increasing rate over long periods of time.

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Identify four factors that contribute to economic growth and explain how each factor affects economic growth.

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Using actual values of real GDP to measure economic growth


A) yields misleading results because changes in real GDP are affected by cyclical changes that do not represent economic growth.
B) is the most widely accepted method of measuring economic growth.
C) introduces problems because of inaccuracies in the measurement of real GDP.
D) is superior to using actual values of nominal GDP because it allows us to isolate the effects of price changes.

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If output per capita doubles in 30 years and the population doubles in 60 years, what is the growth rate of output?


A) 3.6% per year
B) 2.4% per year
C) 2% per year
D) 1.2% per year

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If population increases at an average rate of 2% per year and output increases at an average rate of 5% per year, then output per capita will double in


A) 14.4 years.
B) 18 years.
C) 24 years.
D) 36 years.

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Holding all else constant, a country's standard of living will rise if its


A) nominal GDP grows at a faster rate than real GDP.
B) nominal GDP grows at a slower rate than real GDP.
C) rate of population growth exceeds the rate of growth of real GDP.
D) rate of population growth is less than the rate of growth of real GDP.

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Which of the following will not increase labor's productivity?


A) education
B) technology
C) new capital
D) growth in output

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Figure 8-2 Figure 8-2 -Refer to Figure 8-2. Assume that a nation is operating on production possibilities curve CD. Economic growth is best illustrated by a A) shift from curve CD to curve AB. B) shift from curve CD to curve EF. C) movement from point Q to point O on the frontier CD. D) movement from point R inside the frontier CD to point P on the frontier CD. -Refer to Figure 8-2. Assume that a nation is operating on production possibilities curve CD. Economic growth is best illustrated by a


A) shift from curve CD to curve AB.
B) shift from curve CD to curve EF.
C) movement from point Q to point O on the frontier CD.
D) movement from point R inside the frontier CD to point P on the frontier CD.

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Figure 8-6 Figure 8-6 -Refer to Figure 8-6. Assume that the economy is initially in long-run equilibrium. What happens in the long-run if the capital stock in this economy increases over time? A) The nation's capacity to produce will increase as represented by a rightward shift of the long-run aggregate supply curve. B) The nation's capacity to produce will increase as represented by a rightward shift of the short-run aggregate supply curve. The long-run aggregate supply curve and the aggregate demand curves remain unchanged. C) The nation's capacity to produce will increase as represented by a rightward shift of the long-run aggregate demand curve. D) The nation's capacity to produce will increase as represented by a rightward shift of the short-run aggregate supply curve and the aggregate demand curve. The long-run aggregate supply curve remains unchanged. -Refer to Figure 8-6. Assume that the economy is initially in long-run equilibrium. What happens in the long-run if the capital stock in this economy increases over time?


A) The nation's capacity to produce will increase as represented by a rightward shift of the long-run aggregate supply curve.
B) The nation's capacity to produce will increase as represented by a rightward shift of the short-run aggregate supply curve. The long-run aggregate supply curve and the aggregate demand curves remain unchanged.
C) The nation's capacity to produce will increase as represented by a rightward shift of the long-run aggregate demand curve.
D) The nation's capacity to produce will increase as represented by a rightward shift of the short-run aggregate supply curve and the aggregate demand curve. The long-run aggregate supply curve remains unchanged.

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If the rate of growth of output per capita is 8% and the rate of growth of population is 2%, what is the rate of growth of output?


A) 4%
B) 6%
C) 8%
D) 10%

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Figure 8-4 Figure 8-4 -Refer to Figure 8-4. In drawing the aggregate production function, which of the following variables is not held constant? A) capital B) labor C) technology D) quantity of land -Refer to Figure 8-4. In drawing the aggregate production function, which of the following variables is not held constant?


A) capital
B) labor
C) technology
D) quantity of land

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The determinants of economic growth include all of the following except


A) technological improvement.
B) growth in physical capital.
C) growth in human capital.
D) growth in money supply.

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The rule of 72 states that grows at some exponential rate of z percent


A) will double in value in approximately 72 years.
B) will double in value in approximately 72 ÷ z years.
C) will double in value in approximately 72 * z years.
D) will double in value in approximately 72z years.

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Suppose labor is the only variable that changes. If production displays diminishing marginal returns, each additional unit of labor


A) adds more and more to total output.
B) adds less and less to total output.
C) adds a fixed amount to total output.
D) actually decreases output.

Correct Answer

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All of the following are sources of economic growth except


A) increases in human capital.
B) an increase in the savings rate.
C) an increase in consumption spending to stimulate production.
D) increases in physical capital.

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Figure 8-5 Figure 8-5 Panel (a) shows an economy's aggregate production function, Panel (b) shows the labor market and Panel (c) shows the economy's long-run aggregate supply curve. -Refer to Figure 8-5. The economy could achieve its potential output at a price level- nominal wage combination of A) 1.5 and $60,000. B) 1.0 and $50,000. C) 1.0 and $45,000 D) 0.5 and $30,000. Panel (a) shows an economy's aggregate production function, Panel (b) shows the labor market and Panel (c) shows the economy's long-run aggregate supply curve. -Refer to Figure 8-5. The economy could achieve its potential output at a price level- nominal wage combination of


A) 1.5 and $60,000.
B) 1.0 and $50,000.
C) 1.0 and $45,000
D) 0.5 and $30,000.

Correct Answer

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