Chapter 9 Practice Problems 1. Which of the following is an important measure of economic growth over time? A) inflation B) increases in real per capita GDP C) decline in real interest rates D) increases in the available labor supply 2. A key measure used to track economic growth is: A) real GDP per capita. B) nominal GDP. C) real GDP. D) nominal GDP per capita. 3. Output per capita in the United States in 2010 was about how many times as great as in 1900? A) twice as high B) three times as high C) eight times as high D) ten times as high 4. Economists use real GDP per capita to measure economic growth: A) because it is measured by almost all the countries in the world, thus this can be readily used. B) because poor nations have larger populations and richer nations are experiencing a decline in their population. C) because it represents the inflation-adjusted value of a country's production of goods and services corrected for the effects of changes in a country's population. D) even though the real GNP per capita is a far superior measure of economic growth. Page 1
Use the following to answer questions 5-6: Table: South Korea's Real GDP per Capita 5. (Table: South Korea's Real GDP per Capita) As a percentage of real GDP per capita in 1960, approximately how much did South Korea produce in 2000? A) 10% B) 15% C) 151% D) 1,011% 6. (Table: South Korea's Real GDP per Capita) As a percentage of real GDP per capita in 2000, approximately how much did South Korea produce in 1960? A) 10% B) 15% C) 151% D) 1,011% 7. Suppose a panel of economists predicts that a nation's real GDP per capita will double in approximately 20 years. Based upon the rule of 70, what must be the predicted annual growth rate of real GDP per capita? A) 140% B) 3.5% C) 2.85% D) 14% 8. The formula for the rule of 70, where n is number of years and r is growth rate, is expressed as: A) n 70 = r. B) n r = 70. C) r n = 70. D) n r = 70. Page 2
9. If real GDP grows at an annual rate of 1%, it will double in approximately years. A) 11 B) 23 C) 35 D) 70 Use the following to answer questions 10-11: Scenario: Growth Rates in Two Countries India is growing at a rate of 9% per year, and its real GDP per capita is about $3,500, while the United States is growing at a rate of 3% per year, and its real GDP per capita is about $47,000. 10. (Scenario: Growth Rates in Two Countries) Given the information provided, how long will it take India to double its real GDP per capita? A) 7.8 years B) 10.2 years C) 14.6 years D) 90 years 11. (Scenario: Growth Rates in Two Countries) How long will it take the United States to double its real GDP per capita? A) 10.5 years B) 23.3 years C) 30 years D) 50 years 12. Real GDP per capita, growing at a constant rate over a 35-year period, doubles in size at the end of that period. What must the annual growth rate of real GDP per capita be for this economy? A) 1% B) 2% C) 4% D) 15% 13. Economists say that long-run economic growth is almost entirely due to: A) rising productivity. B) population growth. C) a democratically elected government. D) a balanced budget. Page 3
14. Productivity is equal to: A) real GDP divided by the number of workers. B) real GDP divided by the population. C) the number of workers per machine. D) the total output produced. 15. Labor productivity growth can be attributed to: A) improvement in technological process. B) a decline in university attendance. C) an increase in population growth. D) a decline in the physical capital per worker. 16. Human capital is: A) the improvement in labor created by education and knowledge that is embodied in the workforce. B) the machinery and tools that each individual worker owns. C) robots that can perform tasks that only humans could do in the past. D) not as important as physical capital. 17. Human capital refers to: A) output per worker. B) the education and knowledge embodied in the workforce. C) society's investment in capital goods. D) people working with capital goods. 18. Rising high school graduation rates are an example of an increase in: A) technological progress. B) human capital. C) population stock. D) fertility rates. 19. An example of human capital is: A) the money a person has. B) the job skills a person has. C) the capital goods or machines a person owns. D) the stocks and bonds in an individual's portfolio. Page 4
20. Diminishing returns to physical capital implies that when the human capital per worker and the state of technology remain fixed, each successive increase in physical capital leads to: A) a smaller increase in productivity. B) a larger increase in productivity. C) a decrease in productivity. D) negative productivity. 21. Economic growth will likely involve: A) a reduction in investment. B) a decrease in the capital stock. C) higher saving. D) lower saving. 22. Who created the first research and development (R&D) laboratory? A) Galileo B) Thomas Edison C) Thomas Malthus D) Franklin Roosevelt 23. Which of the following CANNOT properly be called a part of infrastructure? A) power lines B) roads and bridges C) human capital D) seaports 24. Among the public goods important for economic growth is (are): A) publicly held companies like Ford. B) political stability. C) public regulation of businesses. D) low taxes. 25. It took India more than 40 years to exhibit high economic growth after it gained independence from British rule in 1947. This faster rate of growth resulted from: A) a more stable government. B) better infrastructure. C) higher investment in human capital. D) a reduction in the burden of corruption. Page 5
26. The main reason South Korea has grown so rapidly is that because it was so poor: A) it could take advantage of international financial aid for poor countries. B) people left to go to more prosperous countries. C) it could skip forward, or leapfrog, to use new-generation technology as it developed. D) it could import highly trained engineers from other countries. 27. The East Asian countries have exhibited tremendous economic growth during the last 40 years because of all of the following EXCEPT: A) a significant increase in physical capital per worker made possible by very high rate of saving. B) a significant increase in human capital made possible by very good basic education. C) a substantial achievement in technological progress. D) intervening governments with lots of regulations. 28. Long-run growth is sustainable if: A) it can continue in the face of limited natural resources and the impact of growth on the environment. B) people continue to buy enough goods and services. C) energy prices are low. D) environmental concerns are ignored during global recessions. 29. As a limit to economic growth, environmental problems are more difficult to solve than resource problems because: A) environmental problems don't automatically provide incentives for changed behavior. B) resource problems don't automatically provide incentives for changed behavior. C) the opportunity cost of solving environmental problems in terms of GDP sacrificed is larger. D) most scientists haven't determined the relationship between greenhouse gas emissions and climate change. 30. Economists generally agree that are the best way for governments to reduce greenhouse gases to address climate change. A) military actions B) market-based incentives C) direct pollution controls D) subsidies for offshore oil exploration Page 6