Topik Economic Growth

1 The Basics of Economic Growth

1) The best definition for economic growth is

A) a sustained expansion of production possibilities measured as the increase in real GDP over a
given period.
B) a sustained expansion of production possibilities measured as the increase in nominal GDP
over a given period.
C) a sustained expansion of consumption goods over a given period.
D) a sustained expansion of production goods over a given period.

answer is A) a sustained expansion of production possibilities measured as the increase in real

GDP over a given period.

2) Economic growth is measured by

A) changes in real GDP.
B) changes in nominal GDP.
C) changes in the employment rate.
D) All of the above are used to measure economic growth.

Answer is A) changes in real GDP.

3) We are interested in long-term growth primarily because it brings

A) higher price levels.
B) lower price levels.
C) higher standards of living.
D) trade wars with our trading partners.

Answer is C) higher standards of living.

4) If a nation's population grows, then,

A) growth in real GDP per person will be less than the growth of real GDP.
B) there can be no economic growth.
C) growth in real GDP per person will be greater than the growth of real GDP.
D) there must be an increase in real GDP per person.

Answer is A) growth in real GDP per person will be less than the growth of real GDP.

5) In 2011, Armenia had a real GDP of $4.21 billion and a population of 2.98 million. In 2012,
real GDP was $4.59 billion and population was 2.97 million. What was Armenia's economic
growth rate from 2011 to 2012?
A) 0.38 percent
B) 9.0 percent
C) 3.8 percent
D) 8.3 percent

B) 9.0 percent

6) In 2011, Armenia had a real GDP of approximately $4.21 billion and a population of 2.98
million. In 2012, real GDP was $4.59 billion and population was 2.97 million. From 2011 to
2012, Armenia's standard of living ________.
A) increased
B) decreased
C) did not change
D) might have increased, decreased, or remained unchanged but more information is needed to
determine which.

A) increased

7) In 2011, Armenia had a real GDP of approximately $4.21 billion and a population of 2.98
million. In 2012, real GDP was $4.59 billion and population was 2.97 million. Armenia's real
GDP per person in 2012 was
A) $1,545
B) $380
C) $1,413
D) $132

Answer: A) $1,545

8) During 2014, the country of Economia had a real GDP of $115 billion and the population was
0.9 billion. In 2013, real GDP was 105 billion and the population was 0.85 billion. In 2014, real
GDP per person was
A) $128
B) $124
C) $135
D) $117

Answer: A) $128

9) During 2014, the country of Economia had a real GDP of $115 billion and the population was
0.9 billion. In 2013, real GDP was 105 billion and the population was 0.85 billion. In 2013, real
GDP per person was
A) $128
B) $124
C) $135
D) $117

Answer: B) $124

10) Suppose real GDP for a country is $13 trillion in 2010, $14 trillion in 2011, $15 trillion in
2012, and $16 trillion in 2013. Over this time period, the real GDP growth rate is
A) increasing.
B) decreasing.
C) constant.
D) negative.

Answer: B) decreasing

13) Suppose a nation's population grows by 2 percent and, at the same time, its GDP grows by 5
percent. Approximately how fast will real GDP per person increase?
A) 3 percent per year
B) 2 percent per year
C) 5 percent per year
D) 10 percent per year

Answer: A) 3 percent per year

14) Which of the following is used to calculate the standard of living?

A) real GDP/population
B) ((real GDP in the current year - real GDP in previous year)/real GDP in previous year) × 100
C) the one-third rule
D) real GDP/aggregate hours

Answer A) real GDP/population

17) The Rule of 70 is used to

A) estimate how much of an economy's growth rate is due to increases in capital per hour of
labor
B) calculate the standard of living
C) calculate the economy's growth rate
D) estimate how long it will take the level of any variable to double

Answer D) estimate how long it will take the level of any variable to double

18) Using the Rule of 70, if China's current growth rate of real GDP per person was 7 percent a
year, how long would it take the country's real GDP per person to double?
A) 35 years
B) 14 years
C) 10 years
D) 49 years

Answer C) 10 years

13) In 2012, of the following ________ had the highest real GDP per person.
A) Japan
B) Canada
C) the Europe Big 4 countries
D) the United States

Answer: D) the United States

20) The gap between real GDP per person in Africa and real GDP per person in the United States
has been
A) increasing.
B) decreasing.
C) remaining fairly constant.
D) there is no gap in real GDP per person between Africa and the United States.

Answer: A) increasing.

26) By measuring ________ we can see that the economies of Hong Kong and Singapore are
catching up to the economies of North America but that the economies of Central and South
America are not.
A) inflation per person
B) real GDP per person
C) the population
D) real GDP

Answer B) real GDP per person

3 How Potential GDP Grows

1) Moving along the aggregate production function shows the relationship between ________,
holding all else constant.
A) capital input and real GDP
B) labor input and real GDP
C) labor input, capital input and real GDP
D) technology and real GDP

Answer B) labor input and real GDP

2) The aggregate production function shows how ________ varies with ________.
A) leisure time; labor
B) labor; leisure time
C) real GDP; labor
D) labor; capital

Answer C) real GDP; labor

3) An aggregate production function shows the relationship between

A) real GDP and leisure.
B) real GDP and the quantity of labor employed.
C) leisure and unemployment.
D) real GDP and unemployment.

Answer B) real GDP and the quantity of labor employed.

4) The aggregate production function describes the relationship between

A) real GDP and the quantity of labor employed.
B) real GDP and the price level.
C) the rate of growth of real GDP and inflation.
D) real GDP and the unemployment rate.

Answer A) real GDP and the quantity of labor employed.

5) A movement along the aggregate production function is the result of a change in

A) the quantity of labor
B) technology
C) capital
D) interest rates

Answer A) the quantity of labor

6) Along the aggregate production function, as the quantity of labor rises, real GDP
A) rises
B) falls
C) stays the same
D) may fall, rise, or stay the same

Answer A) Rises

7) The aggregate production function shows that an economy increases its real GDP in the short
run by
A) developing new technologies.
B) increasing its physical capital stock.

C) using more labor.

D) exploring for new deposits of natural resources.

Answer C) using more labor.

8) Moving along the aggregate production function, all of the following are held constant
EXCEPT
A) labor
B) capital
C) human capital
D) technology

Answer A) Labor

9) An increase in labor hours will lead to

A) a shift of the aggregate production function but no movement along it.
B) a movement along the aggregate production function but no shift in it.
C) both a movement along and a shift in the aggregate production function.
D) neither a movement along nor a shift in the aggregate production function.

Answer B) a movement along the aggregate production function but no shift in it.

10) The aggregate production function is graphed as

A) a downward sloping curve.
B) an upward sloping straight line.
C) an upward sloping line that becomes flatter as the quantity of labor increases.
D) an upward sloping line that becomes steeper as the quantity of labor increases.

Answer C) an upward sloping line that becomes flatter as the quantity of labor increases.

11) The aggregate production function

A) measures the productivity of labor as leisure decreases.
B) increases only with increases in productivity.
C) shows that real GDP can increase because of increased productivity as well as increased labor
hours.
D) cannot show the impacts of productivity improvements.

Answer C) shows that real GDP can increase because of increased productivity as well as
increased labor hours.

12) The aggregate production function relating real GDP to labor hours
A) has a constant slope.
B) has a negative slope.
C) has a positive slope and becomes steeper as employment increases.
D) has a positive slope and becomes less steep as employment increases.

Answer C) has a positive slope and becomes steeper as employment increases.

15) As labor increases, there is a

A) shift of the aggregate production function, but no movement along it.
B) movement along the aggregate production function, but no shift in it.
C) movement along the aggregate production function and real GDP will increase less with each
additional increase in labor.
D) movement along the aggregate production function and real GDP will decrease less with each
additional increase in labor.

Answer A) shift of the aggregate production function, but no movement along it.

16) According to the law of diminishing returns, an additional unit of

A) capital produces more output than an additional unit of labor.
B) labor decreases output.
C) labor produces more output than the previous unit.
D) labor produces less output than the previous unit.

Answer D) labor produces less output than the previous unit.

17) In the illustration above, which figure shows an aggregate production function?
A) Figure A
B) Figure B

C) Figure C
D) Figure D

Answer: A) Figure A
18) The country of Kemper is on its aggregate production function at point W in the above
figure. The government of Kemper passes a law that makes 4 years of college mandatory for all
citizens. After all citizens have their education, the economy will
A) move to point such as Y.
B) remain at point W.
C) move to point such as X.
D) move to point such as Z.

Answer: D) move to point such as Z.

19) The country of Kemper is on its aggregate production function at point W in the above
figure. If the population increases with no change in capital or technology, the economy will
A) move to point such as Y.
B) remain at point W.
C) move to point such as X.
D) move to point such as Z.

Answer C) move to point such as X.

Topic: Aggregate Production Function Skill: Conceptual

Status: Old
AACSB: Analytical Skills

20) The real wage rate measures the

A) quantity of goods and services that an hour of work will buy.
B) average weekly earnings in dollars of a worker.
C) dollar value of an hour of work.
D) dollar value of what a worker could earn in another job.
Answer: A) quantity of goods and services that an hour of work will buy.

25) Because the productivity of labor decreases as the quantity of labor employed increases,
A) the quantity of labor a firm demands increases as the real wage rate decreases.
B) the quantity of labor a firm demands increases as the money wage rate decreases.
C) the labor demand curve shifts right as the real wage rate decreases.
D) the aggregate production function shifts upward as the real wage rate decreases.

Answer: A) the quantity of labor a firm demands increases as the real wage rate decreases.

31) Suppose there is a rise in the real wage rate. As a result, the quantity of labor demanded
A) increases.
B) decreases.
C) does not change because there is no change in the money wage rate.
D) increases only if the price level also decreases.

Answer

32) Suppose the money wage rate and the price level both fall by 5 percent. As a result,
A) the quantity of labor demanded increases.
B) the quantity of labor demanded decreases.
C) the quantity of labor demanded does not change because there is no change in the real
wage.D) people are worse off and there is more unemployment.

Answer C) the quantity of labor demanded does not change because there is no change in the
real

33) If the price level rises by 3 percent and workers' money wage rates increase by 2 percent,
then the
A) quantity of labor demanded will decrease.
B) quantity of labor demanded will increase.
C) quantity of labor demanded does not change because there is no change in the real wage rate.
D) real wage rate increases.

Answer A) quantity of labor demanded will decrease.

34) If the price level rises by 3 percent and workers' money wages increase by 3 percent, then the
A) quantity of labor demand will decrease.
B) quantity of labor demand will increase.

C) quantity of labor demanded does not change because there is no change in the real wage rate.
D) Any of the above could occur depending on the magnitude on the dollar increase in the price
level versus the dollar increase in the wage rate.

Answer C) quantity of labor demanded does not change because there is no change in the real
wage rate.
35) The demand for labor curve is
A) upward sloping at potential GDP and downward sloping elsewhere.
B) vertical at potential GDP.
C) downward sloping.
D) upward sloping because firms demand labor.

Answer B) vertical at potential GDP.

36) The labor demand curve slopes downward because

A) the firm maximizes profits by hiring more labor when the real wage rate rises.
B) workers supply more hours of work when the real wage rate rises.
C) the firm maximizes profits by hiring more labor when the real wage rate falls.
D) workers supply fewer hours of work when the real wage rate rises.

Answer A) the firm maximizes profits by hiring more labor when the real wage rate rises.

38) The quantity of labor supplied depends on the

A) money wage rate not the real wage rate.
B) real wage rate not the money wage rate.
C) price of output not the money wage rate nor the real wage rate.
D) level of profits.

Answer

39) People base their labor supply on the ________ because they care about ________.
A) real wage; what their earnings will buy
B) real wage; the equality of money wages and the price level
C) money wage; a surplus of labor
D) money wage; the amount of labor firms demand

Answer

40) If workers' money wage rates increase by 5 percent and the price level remains constant,
workers'
A) quantity of labor supplied will decrease.
B) quantity of labor supplied will increase.
C) quantity of labor supplied will not change.
D) demand for jobs will decrease.

Answer

41) If the price level rises by 4 percent and workers' money wage rates increase by 2 percent,
then the
A) quantity of labor supplied decreases.
B) quantity of labor supplied increases.
C) quantity of labor supplied does not change because there is no change in the real wage rate.
D) the supply curve of labor shifts rightward.
Answer: A

42) If the price level rises by 2 percent and workers' money wages increase by 2 percent, then the
A) quantity of labor supply decreases.
B) quantity of labor supply increases.
C) quantity of labor supplied does not change because there is no change in the real wage rate.
D) More information about the dollar change in the price level and money wage rate are needed
to answer the question.

Answer: C

43) If the price level rises by 3 percent and workers' money wage rate increase by 1 percent, then
the
A) quantity of labor supplied decreases.
B) quantity of labor supplied increases.
C) quantity of labor supplied does not change because there is no change in the real wage rate.
D) real wage rate increases.

Answer: A

44) The labor force participation rate

A) does not change when the real wage rate changes.
B) decreases as the real wage rate rises.
C) increases as the real wage rate increases.
D) has an inverse effect of the supply of labor.

Answer: C

45) The supply of labor curve

A) has a negative slope.
B) is independent of the wage rate.
C) shows how much labor workers are willing to supply at various real wage rates.
D) is usually vertical.

Answer: C