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1.

Providing a constant number of workers with additional capital with which to


work will ______ average labor productivity at a _____ rate.
NO increase; increasing
increase; constant
YES increase; decreasing
decrease; decreasing
decrease; constant
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For more information, see p. 191 of your textbook.


2. Each of the following statements describes how the political and legal
environment encourages productivity EXCEPT:
Well-defined property rights encourage production and saving.
Political stability promotes economic growth.
The free and open exchange of ideas spreads the development of new
technologies.
NO Price changes in markets provide suppliers incentives to supply goods
to markets.
YES Pay rates determined by a governmental planning agency provide workers
with the incentive to work hard.
Feedback

For more information, see p. 196 of your textbook.


3. The average annual growth rates of labor productivity from 1960 to 1973 were
_____ the average rates over the period from 1973 to 1995.
OK more rapid than
slower than
about the same as
more rapid in the U.S., but slower in other industrialized countries
slower in the U.S., but more rapid in other industrialized countries
4. Compared to the level of real GDP person in 1870, by 2003 real GDP in the
U.S was ____ times larger, while real GDP per person in Japan was _______.
12; smaller
12; 12 times larger
OK 12; 28 times larger
28; 12 times larger
28; 28 times larger
5. If when you are 21 you put $1,000 in a bank deposit promising to pay 6
percent annual compound interest, how much will be in the account 45 years later
when you retire at age 66?
$3,752
OK $13,765
$24,871
$46,794
$66,455
6. Entrepreneurs are people who:
engage exclusively in business travel.
entertain the workers.
run businesses on a day-to-day basis.
own the physical capital used in production.
OK create new economic enterprises.
7. The general thesis of the book, The Limits to Growth, is that continued
pursuit of economic growth will soon:
cease when all the workers are employed.
OK consume all available natural resources, drinkable water and breathable
air.
cause the principle of scarcity to no longer be an issue.
increase the living standard of the poorest nations to that of the
richest nations.
limit our desire to increase the production of goods and services.
8. Mike and Tom debone chicken breasts for Ted's Chicken Co. Mike is new and
can only debone 60 chicken breasts per hour, while Tom's experience allows him to
debone 120 chicken breasts per hour. Both Mike and Tom work 40 hours per week.
Their average hourly productivity as a team is ____ chicken breasts.
60
75
OK 90
100
180
9. Empirical studies suggest that as real GDP per person increases the level of
pollution:
increases.
NO decreases.
remains constant.
YES first increases then decreases.
first decreases then increases.
Feedback

For more information, see p. 204 of your textbook.


10. Arguments that economic growth must be constrained by environmental problems
and limits of natural resources ignore the fact that economic growth can:
be measured in both nominal and real terms.
involve both average labor productivity and the share of population
employed.
OK take the form of increases in quality as well as increases in quantity.
occur with only benefits and no economic costs.
slow automatically because of diminishing returns to capital.

1. A government policy to build bridges and dams is an example of a policy to


promote economic growth by:
NO increasing human capital.
YES increasing physical capital.
improving technology.
improving the social and legal environment.
increasing the availability of natural resources.
Feedback

For more information, see p. 200 of your textbook.


2. If when you are 21 you put $1,000 in a bank deposit promising to pay 6
percent annual compound interest, how much will be in the account 45 years later
when you retire at age 66?
$3,752
OK $13,765
$24,871
$46,794
$66,455
3. The investment in human capital that contributed to the rapid economic
recovery in Germany and Japan after World War II was mainly achieved through:
a superior system of higher education.
public education.
OK an apprentice system and on-the-job training.
subsidies provided by the U.S. funded Marshall Plan.
large wage differential paid to skilled versus unskilled workers.
4. Real GDP per person in both Alpha and Omega equals $2,000. Over the next 100
years real GDP per person grows at 1.5 percent annual rate in Alpha and at a 2.5
percent annual rate in Omega. After 100 years real GDP person in Alpha is _____
smaller than real GDP per person in Omega.
$2,000
$7,382
OK $14,763
$24,954
$57,837
5. Increasing the capital available to the workforce, holding other factors
constant, tends to ______ total output at a(n) ______ rate.
increase; increasing
OK increase; decreasing
increase; constant
decrease; increasing
decrease; decreasing
6. A government policy of providing free public education is an example of a
policy to promote economic growth by:
OK increasing human capital.
increasing physical capital.
improving technology.
improving the social and legal environment.
increasing the availability of natural resources.
7. Arguments that economic growth must be constrained by environmental problems
and limits of natural resources ignore the fact that economic growth can:
be measured in both nominal and real terms.
involve both average labor productivity and the share of population
employed.
OK take the form of increases in quality as well as increases in quantity.
occur with only benefits and no economic costs.
slow automatically because of diminishing returns to capital.
8.

Based on the table below, if the production process described below is subject to
diminishing returns to capital, then total packages wrapped when a fourth machine
is installed must be less than _____ packages.

Number of (Identical) Machines Total Packages Wrapped


1 5,000
2 9,000
3 12,000
3,000
4,000
12,000
13,000
OK 15,000
9. In the long run, increases in average labor productivity are primarily
responsible for increases in:
YES living standards.
NO female labor force participation.
male labor force participation.
the proportion of the population retiring.
the proportion of the population employed.
Feedback

For more information, see p. 187 of your textbook.


10. The quantity and quality of human capital, physical capital, technology,
natural resources, entrepreneurship, and the legal and political environment
determine the:
unemployment rate.
labor force participation rate.
real interest rate.
share of the population employed.
OK average labor productivity.

1. The biggest barrier to growth for many of the poorest countries in the
world is the need for:
larger populations.
more human capital.
more physical capital.
more natural resources.
OK improved legal and political frameworks.
2. Most countries provide their citizens free public education through high
school because:
the supply curve for education does not include all the social benefits
of education.
a market in equilibrium exploits all the gains achievable from
collective action.
YES the demand curve for education does not include all the social benefits
of education.
educational vouchers that help citizens purchase educational services
in the private sector have not proven to increase human capital.
NO direct government control over the standards and quality of education
is necessary to increase human capital.
Feedback

For more information, see p. 199 of your textbook.


3. An example of a government policy to increase human capital formation is:
the construction of interstate highway system.
government support for basic research.
maintaining a well-functioning legal system.
OK the provision of publicly-funded education.
tax incentives to encourage saving.
4. Workers should invest in additional human capital as long as the:
YES marginal benefit exceeds the marginal cost.
marginal cost exceeds the marginal benefit.
opportunity cost exceeds the marginal benefit.
NO marginal benefit exceeds the opportunity cost.
opportunity cost is zero.
Feedback

For more information, see p. 189 of your textbook.


5. Compound interest is:
the payment of interest on the original deposit.
the interest rate adjusted for the rate of inflation.
the same as the real interest rate.
the real rate of interest compounded by the rate of inflation.
OK the payment of interest on the original deposit and all accumulated
interest.
6. The establishment of well-defined property rights increases:
OK average labor productivity.
the amount of pollution.
the unemployment rate.
the quantity of human capital.
the labor force participation rate.
7. Government polices that increase the long-term economic growth rate by a
small amount result in ______ in average living standards.
OK large increases
small increases
small decreases
no change
either larger or small increases
8. The productivity slowdown of the 1970's occurred:
only in the U.S.
only in the U.S. and the United Kingdom.
only in the U.S, the United Kingdom, and Japan.
only in North America.
OK around the world.
9. If real GDP per person in a country equals $20,000 and 40 percent of the
population is employed, then average labor productivity equals:
NO $8,000
$20,000
$20,040
$40,000
YES $50,000
Feedback

For more information, see p. 185 of your textbook.


10. People who run businesses on a day-to-day basis are called:
NO entrepreneurs.
YES managers.
laborers.
workers.
participants.
Feedback

For more information, see p. 195 of your textbook.