Macroeconomics 4th Edition Hubbard Test Bank

Macroeconomics 4th Edition Hubbard
Test Bank
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Macroeconomics, 4e (Hubbard/O'Brien)
Chapter 11 Long-Run Economic Growth: Sources and Policies
11.1 Economic Growth over Time and around the World
1) China's economy has grown tremendously from 1979 to the present. The reason the article
gives for this growth is
A) the introduction of the centrally planned economy in 1978.
B) the introduction of market-oriented reforms in 1978.
C) the introduction of the social networking site, MySpace.
D) the total lack of governmental intervention in the economy.
Answer: B
Diff: 1 Page Ref: 711/337
Topic: Economic Growth Over Time
Learning Outcome: Macro 4: Explain the sources of productivity growth
AACSB: Reflective Thinking
Special Feature: Chapter Opener: Google's Dilemma in China
2) Some factors currently exist that inhibit the growth rate of the Chinese economy. The main
reason given is
A) the introduction of free-market reforms.
B) the introduction of the relatively new resource of entrepreneurship.
C) the lack of laws that predictably enforce property rights.
D) the total lack of governmental intervention in the market place.
Answer: C
Special Feature: Chapter Opener: Google's Dilemma in China
3) The rapid growth of the Chinese economy should

A) benefit U.S. consumers as they have access to less expensive consumer goods.
B) make it more difficult for citizens of the United States to find a job.
C) not affect the mix of jobs available to citizens of the United States.
D) A and B
Answer: A
Special Feature: Economics in Your Life: Would You Be Better Off without China?
1
Copyright © 2013 Pearson Education, Inc.
4) The Industrial Revolution began in
A) England around 1750.
B) the United States around 1820.
C) France around 1680.
D) Germany around 1780.
Answer: A
Topic: Economic Growth from 1,000,000 B.C. to the Present
*: Recurring
Special Feature: None
5) Suppose that in 2011 real GDP grew in Estonia by 3% and that the population increased by
5%. Therefore in 2011, Estonia experienced
A) economic growth, but not an increase in living standards.
B) economic growth and an increase in living standards.
C) no economic growth, but an increase in living standards.
D) no economic growth and no increase in living standards.
Answer: A
Topic: Why Growth Rates Matter
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6) The period of time from 1,000,000 B.C. to 1300 A.D. was a period of
A) no sustained economic growth.
B) slow and steady economic growth.
C) moderate economic growth.
D) rapid and sustained economic growth.
Answer: A
Diff: 1 Page Ref: 712-713/338-339
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2
7) Significant economic growth did not begin in the world until
A) 1000 A.D.
B) 1750 A.D.
C) 1820 A.D.
D) the 20th century A.D.
Answer: B
Diff: 2 Page Ref: 712-713/338-339
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8) According to Douglass North, the Industrial Revolution occurred in England because

A) the British Parliament took control of the government and could credibly commit to
upholding property rights.
B) the British monarchy took control of the government and pledged not to raise taxes arbitrarily.
C) the British courts became tied to the king and began to refuse to enforce property rights.
D) the British Parliament instituted a command economy structure and implemented a planned
economy.
Answer: A
Special Feature: Making the Connection: Why Did the Industrial Revolution Begin in England?
9) Growth in real GDP per capita for the world economy was greatest during
A) the seventeenth century.
B) the eighteenth century.
C) the nineteenth century.
D) the twentieth century.
Answer: D
Diff: 2 Page Ref: 713-714/339-340
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10) If real GDP in the United States is growing at an annual rate of 3.2% per capita and Bolivia's
real GDP per capita is growing at a rate of 1.3%, which of the following would we expect in the
long run? Assume real GDP per capita in the United States begins at a level above that of real
GDP per capita in Bolivia.
A) Real GDP per capita in the United States will always be 1.9% higher than real GDP per
capital in Bolivia.
B) The difference between the level of real GDP per capita in the United States and real GDP per
capita in Bolivia will shrink over time.
C) The difference between the level of real GDP per capita in the United States and real GDP per
capita in Bolivia will increase over time.
D) The difference between the level of real GDP per capita in the United States and real GDP per
capita in Bolivia will always be $1.9 trillion.
Answer: C
Diff: 1 Page Ref: 715-716/341-342
Topic: The Rich Get Richer
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11) If real GDP per capita in the United States is $8,000, what will real GDP per capita in the
United States be after 5 years if real GDP per capita grows at an annual rate of 3.2%?
A) $8,520
B) $9,280
C) $9,365
D) $10,560
Answer: C
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AACSB: Analytic Skills
12) If real GDP per capita in Ireland is estimated to be $7,400 in 2012, what will real GDP per
capita be in 2017 if real GDP per capita grows at an annual rate of 2.8%?
A) $7,607
B) $8,496
C) $9,472
D) $20,720
Answer: B
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4
13) If real GDP per capita in the United States is $8,000 in 2011, and if real GDP per capita is
$12,000 in 2021, what is the average annual percent change in the growth rate of GDP per capita
between 2011 and 2021?
A) 3.33%
B) 5%
C) 33%
D) 50%
Answer: B
Special Feature: Don't Let This Happen to YOU!: Don't Confuse the Average Annual
Percentage Change with the Total Percentage Change
14) If real GDP per capita in the United States is $8,000 in 2011, and if real GDP per capita is
$12,000 in 2021, what is the total percent change in the growth rate of GDP per capita between
2011 and 2021?
A) 3.33%
B) 5%
C) 33%
D) 50%
Answer: D
Special Feature: Don't Let This Happen to YOU!: Don't Confuse the Average Annual
Percentage Change with the Total Percentage Change
15) Increasing the growth rate of GDP per capita and sustaining this growth rate in an economy
can
A) increase infant mortality.
B) increase standards of living.
C) increase the level of poverty.
D) lower life expectancy.
Answer: B
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5
16) Between 1960 and 2010, deaths among children have
A) declined in most high-income countries and have risen in most low-income countries.
B) declined in nearly all countries, including most low-income countries.
C) remained relatively unchanged in most high-income countries and have declined in most low-
income countries.
D) declined in most high-income countries and have remained relatively unchanged in most low-
income countries.
Answer: B
Special Feature: Making the Connection: Is Income All That Matters?
17) Small differences in economic growth rates result in small differences in living standards.
Answer: FALSE
Topic: Small Differences in Growth Rates Are Important
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18) An economy that grows too slowly fails to raise living standards.
Answer: TRUE
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19) Most of the countries of Africa are considered newly industrializing countries.
Answer: FALSE
Topic: The Rich Get Richer
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6
20) What features made England in the eighteenth century the place where the Industrial
Revolution occurred?
Answer: The British Parliament had just gained control over the government from the king;
British courts became independent of the king, upheld property rights and protected wealth, and
markets in England at the time were "efficient" in that prices for the same products were the
same across regions after accounting for transportation costs.
Special Feature: Making the Connection: Why Did the Industrial Revolution Begin in England?
21) What are some of the reasons used to explain improvements in health, education, democracy,
and political stability in many low-income countries?
Answer: Reasons include increases in technology and knowledge, such as the development in
inexpensive vaccines or the use of mosquito nets, and changes in attitudes, such as placing
greater value on education or increasing support for political freedoms.
Special Feature: Making the Connection: Is Income All That Matters?
11.2 What Determines How Fast Economies Grow?
1) An economic growth model explains

A) changes in real GDP per capita in the long run.
B) how changes in the money supply affect real interest rates.
C) changes in government tax policies over time.
D) the growth rate of the price level over time.
Answer: A
Topic: What Makes Economies Grow?
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7
2) If the Commerce Department adjusts the growth rate of GDP downward for the first quarter of
2011, and the Bureau of Labor Statistics adjusts the number of hours worked upward for the first
quarter of 2011, what will the Bureau of Labor Statistics do in terms of revising the figures on
the growth rate of labor productivity for the first quarter of 2011?
A) The BLS will adjust the growth rate downwards.
B) The BLS will adjust the growth rate upwards.
C) The BLS will not change the growth rate of productivity.
D) The BLS will adjust the level of labor productivity upward and the growth rate downward.
Answer: A
Topic: Economic Growth in the United States
*: Recurring
3) Which of the following is not one of the three sources of technological change?
A) additional amounts of existing capital
B) better machinery and equipment
C) increases in human capital
D) better means of organizing and managing production
Answer: A
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4) Which of the following would you expect to result in faster economic growth?
A) the invention of new computers that increase labor productivity
B) a decrease in the average level of education in the economy
C) a decrease in the stock of capital per worker
D) a decrease in research and development spending
Answer: A
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8
5) An economy can improve its standard of living by
A) organizing production so that the quantity of goods produced per hour will decrease.
B) reducing the amount of human capital workers have.
C) increasing the amount of capital available per hour worked.
D) all of the above
Answer: C
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6) When an economy faces diminishing returns,

A) the slope of the per-worker production function becomes steeper as capital per hour worked
increases.
B) the slope of the per-worker production function becomes flatter as capital per hour worked
increases.
C) the per-worker production function shifts to the left.
D) the per-worker production function shifts to the right.
Answer: B
Topic: Per-Worker Production Function
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7) When additions of input to a fixed quantity of another input lead to progressively smaller
increases in output, we say we are facing
A) diminishing returns.
B) negative returns.
C) accelerating returns.
D) decreasing production.
Answer: A
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9
8) Suppose that an increase in capital per hour worked from $15,000 to $20,000 increases real
GDP per hour worked by $500. If capital per hour worked increases further to $25,000, by how
much would you expect real GDP per hour worked to increase if there are diminishing returns?
A) by less than $500
B) by exactly $500
C) by more than $500 but less than $5,000
D) by more than $5,000 but less than $20,000
Answer: A
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10
Figure 11-1
9) Refer to Figure 11-1. Diminishing marginal returns is illustrated in the per-worker

production function in the figure above by a movement from
A) A to C.
B) B to C.
C) C to D.
D) D to C.
Answer: A
Diff: 1 Page Ref: 718-720/344-346
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10) Refer to Figure 11-1. Technological change is illustrated in the per-worker production
function in the figure above by a movement from
A) A to B.
B) B to C.
C) B to A.
D) D to C.
Answer: B
Diff: 1 Page Ref: 718-720/344-346
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11
11) Refer to Figure 11-1. Using the per-worker production function in the figure above, the
largest changes in an economy's standard of living would be achieved by a movement from
A) A to B to C.
B) B to C to D.
C) C to B to A.
D) D to C to B.
Answer: B
Diff: 2 Page Ref: 718-720/344-346
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12) Refer to Figure 11-1. Suppose the per-worker production function in the figure above
represents the production function for the U.S. economy. If the United States decided to double
its support of university research, this would cause a movement from
A) A to B.
B) B to C.
C) B to A.
D) D to C.
Answer: B
Diff: 2 Page Ref: 718-720/344-346
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13) Refer to Figure 11-1. Within a country, the impact of wars and revolutions and their
subsequent destruction of capital is reflected in the per-worker production function in the figure
above by a movement from
A) A to B.
B) B to C.
C) B to A.
D) C to A.
Answer: D
Diff: 3 Page Ref: 718-720/344-346
Topic: Growth Policies
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12
14) Refer to Figure 11-1. Many countries in Africa strongly discouraged and prohibited foreign
direct investment in the 1950s and 1960s. By doing so, these countries were essentially
preventing a moment from
A) A to B.
B) B to C.
C) B to A.
D) D to C.
Answer: B
Diff: 3 Page Ref: 718-720/344-346
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15) In the early 1900s, Henry Ford revolutionized the automotive manufacturing industry by
instituting the assembly line. What impact did the assembly line method for producing
automobiles have on the per-worker production function for Ford?
A) It became flatter.
B) It shifted up.
C) It shifted down.
D) It became linear.
Answer: B
Diff: 2 Page Ref: 719-720/345-346
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16) If the per-worker production function shifts down,

A) it now takes more capital per hour worked to get the same amount of real GDP per hour
worked.
B) an economy can increase its real GDP per hour worked without changing the level of capital
per hour worked.
C) the per-worker production function becomes steeper.
D) positive technological change has occurred in the economy.
Answer: A
Diff: 2 Page Ref: 719-720/345-346
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17) Because of diminishing returns, an economy can continue to increase real GDP per hour
worked only if
A) there are decreases in human capital.
B) the per-worker production function shifts downward.
C) there continue to be decreases in capital per hour worked.
D) there is technological change.
Answer: D
Diff: 2 Page Ref: 719-720/345-346
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18) In a small European country, it is estimated that a $10,000 increase in capital per hour
worked will increase real GDP per hour worked by $300. Based on this information, what is the
slope of the per-worker production function in this range?
A) 0.03
B) 3.3
C) 33.3
D) 333
Answer: A
Diff: 2 Page Ref: 718-720/344-346
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19) In a small European country, it is estimated that changing the level of capital from $8 million
to $10 million will increase real GDP from $2 million to $3 million. If the number of hours
worked in the labor force does not change, what does this information tell you about the slope of
the per-worker production function in this range?
A) The slope is -2.
B) The slope is 1/2.
C) The slope is 2.
D) The slope is 4.
Answer: B
Diff: 2 Page Ref: 718-720/344-346
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20) In a small European country, it is estimated that changing the level of capital from $8 million
to $10 million will increase real GDP from $2 million to $3 million. What level of GDP would
you expect the economy to be able to reach if spending on capital continued to rise to $12
million, assuming no technological change and no change in the hours of work?
A) GDP would increase further, but by less than $1 million.
B) GDP would increase further by exactly $1 million.
C) GDP would increase further by more than $1 million
D) GDP would increase further by exactly $4 million.
Answer: A
Diff: 2 Page Ref: 718-720/344-346
*: Recurring
21) If the slope of the per-worker production function is 1/2 in a given range, how will a $10,000
increase in capital per hour worked affect real GDP per hour worked in the same given range?
A) Real GDP per hour worked will increase by $5,000.
B) Real GDP per hour worked will increase by $20,000.
C) Real GDP per hour worked will increase by $10,000.
D) Real GDP per hour worked will decrease by $20,000.
Answer: A
Diff: 2 Page Ref: 718-720/344-346
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22) The Soviet Union's economy grew rapidly in terms of GDP per hour worked in the 1950s,
but eventually this growth slowed. Why did this occur?
A) Capital per hour worked grew rapidly from 1950 to 1980, but technological change occurred
very slowly.
B) Capital per hour worked grew slowly, but technological change grew very rapidly.
C) Increasing implementation of new technologies eventually suffered diminishing marginal
returns.
D) The centrally planned economy invested too heavily in technological change.
Answer: A
Special Feature: Making the Connection: What Explains the Economic Failure of the Soviet
Union?
15
23) Under the Soviet system of communism,
A) managerial pay was determined by the extent to which managers could lower the per-unit
costs of production.
B) technological progress was slow because managers had little incentive to develop new
technologies.
C) competitive pressures in the Soviet Union allowed the country's technological progress to
keep pace with the rest of the world.
D) the per-worker production function in the Soviet Union shifted up more rapidly than
production functions in other countries.
Answer: B
Special Feature: Making the Connection: What Explains the Economic Failure of the Soviet
Union?
24) Technological improvements are more likely to occur if

A) the economy is centrally planned.
B) entrepreneurs are compensated with higher profits for taking risks.
C) economic decisions are made by politicians rather than entrepreneurs.
D) companies face little competition in their markets.
Answer: B
Diff: 2 Page Ref: 719-720/345-346
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16
Figure 11-2
25) Refer to Figure 11-2. Based on the per-worker production function above, if the economy
raises capital per hour worked from $35,000 to $40,000, by how much will real GDP per hour
worked increase?
A) $150
B) $1,850
C) $2,000
D) $5,000
Answer: A
Special Feature: Solved Problem: Using the Economic Growth Model to Analyze the Failure of
the Soviet Economy
26) Refer to Figure 11-2. Assuming no technological change, if the United States increases
capital per hour worked by $40,000 every year between 2010 and 2014, we would expect to see
A) real GDP per hour worked will increase by the same increment each year between 2010 and
2014.
B) real GDP per hour worked will be lower in 2014 than it was in 2010.
C) the per-worker production function will get flatter over time.
D) the per-worker production function will shift up every year there is increase in capital per
hour worked.
Answer: C
Special Feature: Solved Problem: Using the Economic Growth Model to Analyze the Failure of
the Soviet Economy
17
27) According to new growth theory,
A) technological change is influenced by economic incentives.
B) centrally-planned economies are the most efficient.
C) growth in real GDP per capita occurs only if there are increasing returns.
D) economic growth is determined by forces outside the control of the market system.
Answer: A
Topic: New Growth Theory
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Learning Outcome: Macro 17: Discuss the fundamentals of key macroeconomics theories
28) Paul Romer, an economist at Stanford University, is most closely associated with what
economic theory?
A) new growth theory
B) labor productivity theory
C) the process of creative destruction
D) the Communist Manifesto
Answer: A
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29) According to new growth theory,

A) physical capital is nonexcludable.
B) knowledge capital is excludable.
C) knowledge capital is subject to increasing returns.
D) knowledge capital is rival and excludable.
Answer: C
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18
30) Knowledge capital is
A) rival.
B) nonrival.
C) nonexcludable.
D) both B and C
Answer: D
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31) Knowledge capital is nonrival in the sense that

A) two people can use the same knowledge to develop and produce a product.
B) firms do not compete to be the first to develop new technologies.
C) no single company can be excluded from the benefits of new technologies.
D) firms can benefit from the research and development of rival firms without paying for that
benefit.
Answer: A
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32) Firms free ride on the research and development of other firms when they
A) buy a firm's newly developed product, and then give it away to consumers.
B) use knowledge other firms have developed without paying for that knowledge.
C) license a new technology from a firm that developed the new technology.
D) choose a level of research and development that is inefficiently high.
Answer: B
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33) Which of the following government provisions would help increase the accumulation of
knowledge capital?
A) patents
B) copyrights
C) education subsidies
D) All of the above are correct.
Answer: D
Diff: 1 Page Ref: 722-723/348-349
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34) Because firms can free ride on the research and development of other firms,
A) firms choose a level of research and development where the marginal cost of research is equal
to the economy's marginal return of research.
B) firms choose a level of research and development where the marginal cost of research is
above the economy's marginal return of research.
C) firms choose a level of research and development where the marginal cost of research is
below the economy's marginal return of research.
D) firms choose a level of research and development where the marginal cost of research is
below the individual firm's marginal return of research.
Answer: C
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35) A patent grants an inventor exclusive rights to a product for how long?
A) 14 years
B) 17 years
C) 20 years
D) the lifetime of the product
Answer: C
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20
36) Why do some firms choose not to file for a patent and instead try to keep the results of their
research a trade secret?
A) because firms must disclose information about the product or process being patented in a
patent application
B) because trade secrets are never divulged
C) because a patent only gives the inventor exclusive rights to a product or process for 5 years
D) because trade secrets provide the same exclusive legal rights to a product as a patent does
Answer: A
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37) Which of the following government policies would most likely result in an increase in
economic growth?
A) a decrease in the life of a patent from 20 years to 15 years
B) a decrease in the interest rate at which the government provides student loans
C) a decrease in government spending on grants issued through the National Institutes of Health
D) decreased copyright protection on music and movies
Answer: B
Diff: 2 Page Ref: 722-723/348-349
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38) According to Joseph Schumpeter, economic growth is achieved through

A) focusing only on making old products better rather than inventing new ones.
B) centralizing economic production.
C) a process termed "creative destruction."
D) removing the entrepreneur from the production function.
Answer: C
Topic: Creative Destruction
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21
39) Creative destruction means that
A) firms develop new products that replace old products in the economy, thereby encouraging
economic growth.
B) economic growth can only be sustained if capital depreciates rapidly.
C) knowledge capital can be created through a system of government subsidies for education and
research and development.
D) research and development should only be financed if research and development is
incremental (a result of making small changes to existing products).
Answer: A
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40) Human capital refers to the percentage of the working-age population in the labor force.
Answer: FALSE
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41) Technological change is the key to sustaining economic growth.

Answer: TRUE
*: Recurring
42) One drawback of the patent system is that firms must disclose to the public information
about the product or process.
Answer: TRUE
*: Recurring
22
43) Explain how advances in technology are critical to sustaining economic growth, even if
capital per hour worked is consistently increasing. Provide a graph of a per-worker production
function to support your answer.
Answer: As the level of capital per hour worked increases, an economy moves along the per-
worker production function toward higher levels of real GDP per hour worked. However,
diminishing returns imply that successive increases in capital per hour work increase real GDP
per hour worked at a decreasing rate. As shown in the graph below, moving from point A to
point B implies an increase in capital per hour worked. As a result, real GDP per hour worked
increases from $780 to $800 (an increase of $20). Moving from point B to point C implies a
similar increase in capital per hour worked, but real GDP per hour worked increases from $800
to $810 (an increase of only $10). Without technological change that shifts the per-worker
production function upward, continual growth in real GDP per hour worked cannot be sustained
even if capital per hour worked continues to increase.
Diff: 2 Page Ref: 719-720/345-346

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44) Starting at point B in the diagram below, identify which combinations of points illustrate
technological change. Give a brief explanation to support your answer.
Answer: The movement from B to D in the diagram illustrates technological change.

Technological change is constant along a given production function. Technological change will
shift the production function up as more output is produced ($17,000 GDP per hour vs. $16,000
GDP per hour) with the same amount of capital per hour worked ($60,000).
Diff: 2 Page Ref: 718-720/344-346
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45) Explain how market economies are generally better able to achieve technological progress
than are centrally planned economies.
Answer: In a centrally planned economy, decisions regarding the allocation of resources are
made by government employees paid a salary, not by independent entrepreneurs whose own
finances are at stake. Independent entrepreneurs make choices for the use of resources based on
the expected profitability of various projects. This drive for profit provides an incentive for
technological change that centrally planned economies are unable to duplicate. The result is that
technological progress is more likely in market economies than in centrally planned economies.
Diff: 2 Page Ref: 719-720/345-346
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46) Provide examples of three kinds of government policies that can help increase the
accumulation of knowledge capital and explain why government policies are often necessary to
encourage the accumulation of knowledge capital.
Answer: Knowledge capital is a result of research and development that culminates in new
technology. Because research and development is costly, and the resulting knowledge capital is
both nonrival and nonexcludable, firms have an incentive not to disclose new technologies. If
other firms can receive some of the benefits without incurring the costs of research and
development, firms have less incentive to invest in research and development (they act as "free
riders"), so government policies are sometimes necessary to encourage research and
development. For example, government policies that protect intellectual property rights with
patents and copyrights guarantee firms exclusive rights to profits from new technologies for a
period of time. This will encourage the accumulation of knowledge capital. In addition,
subsidies for research and development through grants to researchers or tax benefits to firms that
invest in research and development can also encourage the accumulation of knowledge capital.
Finally, government subsidies for education will increase the number of workers who receive
education, thereby reducing firms' costs of training and increasing the level of research and
development firms will be willing to undertake.
Diff: 2 Page Ref: 722-723/348-349
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47) Is knowledge capital subject to the law of diminishing returns? Explain.

Answer: The law of diminishing returns states that successive increases in capital result in
successively smaller and smaller increases in output. Knowledge capital may not be subject to
the same law of diminishing returns that physical capital is. In fact, knowledge capital may
experience increasing returns because knowledge, once discovered, is available to everyone and
is therefore more likely to generate new technologies and economic growth.
Diff: 2 Page Ref: 722-723/348-349
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48) Describe the process of "creative destruction" using a specific example.
Answer: Creative destruction, based on the ideas of Joseph Schumpeter, describes the process
whereby older products are driven out of the market by newer products. New products that meet
consumer wants in qualitatively better ways will increase the overall standard of living for an
economy. Here are some current and historical examples of creative destruction: DVD players
replaced video tapes and VHS recorders, calculators replaced slide rules, clocks replaced
sundials, cars replaced horses and buggies, disposable diapers replaced cloth diapers, GameBoys
and Xboxes replaced Ataris, Internet Explorer replaced NCSA Mosaic, CD players replaced tape
players, indoor plumbing replaced outhouses, iPods replaced Walkmans, phones replaced the
telegraph, planes replaced trains for travel, digital cameras replaced film cameras, and electricity
replaced candlelight and gas lights.
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11.3 Economic Growth in the United States
1) Growth in the United States from 1800 to 1900 can be characterized as

A) positive and increasing.
B) positive and flat.
C) positive and decreasing.
D) negative.
Answer: A
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2) Which of the following explains the ability of the U.S. economy to avoid diminishing
marginal returns and experience accelerating growth in the early to mid-20th century?
A) continuing technological change
B) immigration
C) additions of a greater amount of capital of the same quality
D) a decrease in the quality of labor
Answer: A
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3) In the United States, the annual growth rate of real GDP per hour worked between 1995 and
2010 averaged
A) -0.3%.
B) 2.1%.
C) 6.9%.
D) 10.2%.
Answer: B
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4) Growth in real GDP per hour worked in the United States was slowest during what period of
time?
A) 1900-1949
B) 1950-1972
C) 1973-1994
D) 1995-2008
Answer: C
Topic: The Productivity Slowdown of 1973-1994
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5) The productivity slowdown of the mid-1970s can be explained by which of the following?
A) excessive use of fiscal policy
B) large increases in research and development
C) a decline in labor quality
D) diminishing marginal returns
Answer: C
Diff: 2 Page Ref: 724-725/350-351
*: Recurring
27
6) Which of the following is true regarding the productivity slowdown in the United States
during the mid-1970s?
A) The productivity slowdown occurred despite a rising quality of labor.
B) The productivity slowdown was unique to the United States as foreign countries experienced
unprecedented rates of growth during that time.
C) High oil prices raised the costs of doing business for markets worldwide, and reduced output
worldwide as well.
D) The move toward a "New Economy" ended in the early 1970s, resulting in less technological
progress in the United States during the mid-1970s.
Answer: C
Diff: 2 Page Ref: 724-725/350-351
*: Recurring
7) Some economists argue that the apparent slowdown in economic growth in the United States
during the mid-1970s may not really have reduced the standard of living because
A) spending on new government regulations such as the Clean Air Act increased output
dramatically without increasing the standard of living of Americans.
B) significant improvements in the quality of services occurred, although the quantity of these
services did not increase much during this time.
C) changes in well-being are accurately reflected in statistics measuring economic growth.
D) higher production costs from higher oil prices raised production and transportation costs and
reduced output.
Answer: B
Diff: 2 Page Ref: 724-725/350-351
*: Recurring
28
8) Why do some economists point to a decline in the quality of labor as an explanation for the
productivity slowdown in the mid-1970s?
A) The average level of education of citizens of the United States rose dramatically during this
period of time.
B) The skill level required to perform many jobs increased during this period of time, although
the skills of the labor force did not increase as quickly.
C) Scores on standardized tests during that period of time began to rise.
D) Increases in the amount of capital available reduced labor quality.
Answer: B
Diff: 2 Page Ref: 724-725/350-351
*: Recurring
9) The "new economy" that emerged in the mid-1990s is based on

A) manufacturing.
B) financial services.
C) information technology.
D) retail sales.
Answer: C
Topic: The New Economy
*: Recurring
10) Which of the following advances contributed to the "new economy" of the mid-1990s?
A) the increased use of the Internet in selling products and services
B) expanded cell phone use
C) the lower cost and increased availability of laptop computers
D) all of the above
Answer: D
Topic: The New Economy
*: Recurring
29
11) The rate of growth of productivity in the United States was positive during the 20th century.
Answer: TRUE
*: Recurring
12) The labor productivity slowdown in the United States in the 1970s was due to declining
quality of education in the United States, because no other industrialized country experienced the
same labor productivity slowdown at the same time.
Answer: FALSE
Diff: 1 Page Ref: 724-725/350-351
*: Recurring
13) Compared to the previous 20 years, productivity growth in the United States increased
between 1995 and 2010.
Answer: TRUE
*: Recurring
14) Describe the pattern of growth rates in real GDP per hour worked in the United States since
the early nineteenth century. Has output per hour worked consistently increased at the same
rate? Explain.
Answer: Growth in real GDP per hour worked averaged 1.3% throughout the nineteenth century
and then increased to over 2% until the mid-1970s (when it fell to 1.3% again). Productivity
slowed dramatically during the mid-1970s, but the emergence of the "new economy" saw
average annual growth rates in GDP per hour worked rebound to 2.1% through 2010.
*: Recurring
30
15) Explain three reasons why the productivity slowdown of 1973-1994 occurred?
Answer: Three explanations have been suggested for the productivity slowdown of 1973-1994:
measurement problems, high oil prices, and a decline in labor quality. Measurement problems in
accounting for improvements to environmental and health safety laws as well as in measuring
growth in the output of services may have resulted in additional output that was not reflected in
estimates of real GDP. High oil prices increased costs for many industries, reducing output as a
result. A less-educated labor force and the inability of the labor force to keep pace with the
increase in skills required may also have contributed to the slowdown.
Diff: 2 Page Ref: 724-725/350-351
*: Recurring
11.4 Why Isn't the Whole World Rich?
1) The economic growth model predicts that

A) the level of real GDP per capita in poor countries will grow faster than in rich countries.
B) the per-worker production function of poor countries will be flatter than the per-worker
production function of rich countries.
C) lower-income industrial countries will forever be unable to catch up to higher-income
industrial countries.
D) economic growth in rich countries can only be accomplished at the expense of slow or even
negative growth in poor countries.
Answer: A
Topic: Catch-up
*: Recurring
31
2) Which of the following is a true statement regarding the economic growth model's predictions
and how it actually affects the real world?
A) The growth model predicts that poor countries should catch up with rich countries, but
developing countries are not catching up to lower-income industrialized countries as a group.
B) The growth model predicts that poor countries will never catch up with rich countries, but
lower-income industrialized countries are catching up to higher-income industrialized countries
as a group.
C) The growth model predicts that poor countries will catch up with rich countries, but lower-
income industrialized countries are not catching up to higher-income industrialized countries as a
group.
D) The growth model predicts that poor countries will catch up with rich countries, and this is
what we observe across all developmental categories of countries.
Answer: A
Topic: Catch-up
*: Recurring
32
Figure 11-3
3) Refer to Figure 11-3. Based on the "catch-up line" drawn above, poorer countries are more
likely to be at a point like ________, where growth in GDP is relatively ________, while richer
countries are more likely to be at a point like ________, where growth in GDP is relatively
________.
A) A; low; B; high
B) A; high; B; low
C) B; low; A; high
D) B; high; A; low
Answer: B
Diff: 2 Page Ref: 726-727/352-353
Topic: Catch-up
*: Recurring
4) Consider two countries, Alpha and Beta. In Alpha, real GDP per capita is $6,000. In Beta,
real GDP per capita is $9,000. Based on the economic growth model, what would you predict
about the growth rates in real GDP per capita across these two countries?
A) The growth rate of real GDP per capita will be lower in Alpha than it is in Beta.
B) The growth rate of real GDP per capita will be higher in Alpha than it is in Beta.
C) The growth rate of real GDP per capita in Alpha and Beta will be the same.
D) The economic growth model makes no predictions regarding differences in growth rates of
real GDP per capita across the two countries.
Answer: B
Diff: 2 Page Ref: 726-727/352-353
Topic: Catch-up
*: Recurring
33
5) The industrialized group of countries has growth rates that are consistent with the findings of
the economic growth model. That is, Taiwan, Korea, and Singapore had ________ incomes in
1960 than the United States and Switzerland, and Taiwan, Korea, and Singapore grew ________
than the United States and Switzerland between 1960 and 2009.
A) lower; more rapidly
B) greater; less rapidly
C) lower; less rapidly
D) greater; more rapidly
Answer: A
Topic: Catch-up
*: Recurring
Table 11-1
Real GDP per Capita Growth in Real GDP per

Country (in 1996 dollars) Capita, 1960-2000
Botswana $958 5.29%
Thailand 1,091 4.70%
Japan 4,544 4.32%
Guatemala 2,344 1.29%
6) Refer to Table 11-1. In the table above, which countries are consistent with the predictions of
the economic growth model?
A) Botswana and Thailand
B) Japan and Guatemala
C) only Japan
D) all four countries
Answer: A
Diff: 3 Page Ref: 728-729/354-355
Topic: Catch-up
Special Feature: Solved Problem: The Economic Growth Model's Prediction of Catch-up
34
7) Which of the following can explain why some countries have not experienced relatively high
growth rates in real GDP per capita despite relatively low initial levels of real GDP per capita?
A) Many of these developing countries do not have a functioning court system that can enforce
laws.
B) Countries that are relatively poor are more likely to experience wars and revolutions.
C) Countries that are relatively poor are likely to have a lower quality of health care.
D) all of the above
Answer: D
Topic: Catch-up
*: Recurring
Learning Outcome: Macro 16: Discuss the obstacles to development in developing countries and
ways to address those obstacles
8) According to the World Bank, Albania does one of the worst jobs as a country enforcing the
rule of law. The consequence of a weak rule of law is
A) difficulty in attracting investment and low economic growth.
B) a decrease in cash transactions and increased efficiency.
C) more risk taking on the part of entrepreneurs and greater economic investment.
D) strong property rights enforcement leading to greater investment.
Answer: A
Diff: 2 Page Ref: 731-732/357-358
Topic: Why Isn't the Whole World Rich?
*: Recurring
9) The purchase or building by a corporation of a facility in a foreign country is called

A) foreign direct investment.
B) foreign portfolio investment.
C) foreign capital depreciation.
D) globally-directed investment.
Answer: A
Topic: The Benefits of Globalization
*: Recurring
35
10) The purchase by an individual or firm of stock or bonds issued in another country is called
A) foreign exchange arbitrage.
B) foreign direct investment.
C) foreign portfolio investment.
D) global stock exchange.
Answer: C
*: Recurring
11) Developing countries with low saving rates and poor levels of health and education are likely
to experience
A) high levels of foreign direct investment.
B) easy access to financial backing from banks.
C) rapid growth in household incomes.
D) low rates of growth in real GDP per capita.
Answer: D
Diff: 2 Page Ref: 733-734/359-360
*: Recurring
12) High-income countries have ________ and ________ as compared to developing countries.
A) low rates of savings; high rates of growth
B) low rates of savings; low rates of growth
C) high rates of savings; high rates of growth
D) high rates of savings; low rates of growth
Answer: C
*: Recurring
36
13) Globalization refers to
A) the process of establishing a common world currency.
B) the willingness of individuals within a given country to share knowledge with one another.
C) the process of countries becoming more open to foreign trade and investment.
D) the reduction in growth rates of real GDP per capita as a result of trade with foreign countries.
Answer: C
*: Recurring
14) Countries that are more globalized tend to have

A) lower levels of real GDP per capita.
B) a higher likelihood of war or revolution.
C) higher growth rates in real GDP per capita.
D) lower levels of foreign direct investment.
Answer: C
*: Recurring
15) According to the World Bank, GDP per capita ________ in the least corrupt countries than
in the most corrupt countries.
A) is more than 50 percent less
B) is roughly the same
C) is twice as high
D) is more than 10 times higher
Answer: D
Diff: 1 Page Ref: 732-733/358-359
AACSB: Reflective Thinking, Multicultural and Diversity
Special Feature: Making the Connection: What Do Parking Tickets in New York City Have to
Do With Poverty in the Developing World?
37
16) According to a study by economists Raymond Fisman and Edward Miguel, as the level of
corruption in a country increases,
A) so does the number of parking violations by the country's United Nations delegates.
B) so does the size of the country's population.
C) the levels of foreign direct investment and foreign portfolio investment decrease.
D) the levels of real GDP per capita and real income per capita increase.
Answer: A
Diff: 2 Page Ref: 732-733/358-359
Special Feature: Making the Connection: What Do Parking Tickets in New York City Have to
Do With Poverty in the Developing World?
17) Foreign direct investment declined worldwide during the recession of 2007-2009. The
decline in foreign direct investment in developing countries can make it more difficult for these
countries to break out of the vicious cycle of low economic growth and
A) overpopulation.
B) low saving and investment.
C) a low import/export ratio.
D) low government spending.
Answer: B
*: Recurring
38
18) Foreign direct investment in the United States declined 42 percent in the first quarter of
2009. This means that
A) people or firms in other countries reduced their purchases of stocks and bonds in the United
States by 42 percent in the first quarter of 2009.
B) people or firms in the United States reduced their purchases of stocks and bonds in foreign
countries by 42 percent in the first quarter of 2009.
C) people or firms in other countries reduced their building of facilities of purchases of facilities
in the United States by 42 percent in the first quarter of 2009.
D) people or firms in the United States reduced their building of facilities or purchases of
facilities in foreign countries by 42 percent in the first quarter of 2009.
Answer: C
*: Recurring
19) Relative to productivity growth in the United States, which of the following countries
experienced the largest decline in productivity growth from 1990 to 2010?
A) Canada
B) Japan
C) Germany
D) the United Kingdom
Answer: B
*: Recurring
20) From 1990-2010, productivity growth in the United States was ________ the growth rates of
other high-income countries.
A) greater than
B) less than
C) equal to
D) greater than for the first 15 years, then less than
Answer: A
*: Recurring
39
21) The opportunity cost of being unemployed tends to be the highest in which of the following
countries?
A) Canada
B) the United States
C) France
D) the United Kingdom
Answer: B
*: Recurring
Learning Outcome: Macro 3: Identify and interpret key macroeconomic measures
22) Which of the following best explains why productivity growth in the United States has been
faster than in other leading industrialized nations?
A) There are fewer government regulations in the United States regarding the way firms can hire
and fire workers.
B) The financial systems of foreign countries are generally more efficient than those in the
United States.
C) European countries have more flexible policies regarding the number of hours employees are
permitted to work.
D) Job mobility in the United States is more restricted than it is in many foreign countries.
Answer: A
*: Recurring
23) Productivity gains in the United States since 1990 have been ________ productivity gains in
other leading industrial nations.
A) the same as
B) lower than
C) higher than
D) more variable than
Answer: C
*: Recurring
40
24) Between 1990 and 2010, which of these leading industrial countries of the world had the
highest average annual growth rate in GDP per capita?
A) the United States
B) Germany
C) Japan
D) Canada
Answer: A
*: Recurring
25) By offering more generous unemployment insurance programs, European countries can
expect
A) to pay less in taxes than in the United States.
B) workers to gain new skills quickly in response to fluctuations in the labor market.
C) shorter periods of unemployment for their workers.
D) longer periods of unemployment for their workers.
Answer: D
*: Recurring
Learning Outcome: Macro 14: Identify different types and measures of unemployment and
discuss its causes
26) Which of the following is an example of the way the financial markets in the United States
can encourage technological progress more efficiently than other countries?
A) Even when entrepreneurs cannot secure sufficient funding for projects from banks, venture
capital firms may be willing to lend money.
B) The level of legal protection for investors in the United States is relatively low.
C) Because the financial market in the United States is so large, the quantity of trading in
corporate stocks and bonds makes those investments less liquid.
D) Banks in the United States are more willing to take on risk because the government
guarantees each bank cannot lose more than $100,000 on any given loan that defaults.
Answer: A
Diff: 1 Page Ref: 730-731/356-357
*: Recurring
41
27) The lower-income industrial countries are catching up to the higher-income industrial
countries in terms of economic growth.
Answer: TRUE
Topic: Catch-up
*: Recurring
28) The developing countries have been catching up to the lower-income industrial countries in
terms of economic growth.
Answer: FALSE
Topic: Catch-up
*: Recurring
29) One reason why many low-income countries experience low rates of growth is because of
low rates of saving and investment in those countries.
Answer: TRUE
*: Recurring
42
30) Would you expect to see higher or lower growth rates for countries that start out with a
relatively low level of real GDP per capita? Explain using the concept of "catch-up" and support
your answer with a graph.
Answer: The economic growth model predicts that countries that start out with a relatively low
level of real GDP per capita would experience higher growth rates in real GDP per capita.
Countries with a low initial level of real GDP per capita will eventually "catch up" to the level of
real GDP per capita in richer countries. This is shown in the graph below. Point A corresponds
to a country where the initial level of real GDP per capita is relatively low, but the growth rate of
real GDP per capita in that country is relatively high. As that economy continues to grow, the
country will move down the line toward point B. Point B corresponds to a country where the
initial level of real GDP per capita is relatively high, but the growth rate of real GDP per capita is
relatively low. If countries with a low initial level of real GDP per capita also have low saving
rates, low levels of education and health, weak court systems or governments that do not enforce
the laws or property rights, then growth rates might remain low.
Diff: 3 Page Ref: 728-729/354-355

Topic: Catch-up
43
31) Draw a graph of "catch-up" that shows where you would expect to see a country with low
saving rates and low levels of health and education. How would you expect real GDP per capita
to grow in a country like this? Explain.
Answer: Countries with low saving rates and low levels of health and education are likely to
have low levels of real GDP. Normally, countries with a low initial level of GDP will
experience relatively high levels of growth in real GDP per capita (as shown at point A in the
graph below). However, with low saving rates, firms do not have access to funds to invest in
new factories, machinery, and equipment needed for economic growth. Also, with low levels of
health and education, the labor force is less productive (when they are able to work), so real GDP
per capita does not rise and the country remains at a point like B in the graph below.
Diff: 2 Page Ref: 728-729/354-355

Topic: Catch-up
44
Table 11-2
Real GDP per

Capita Growth in Real
in 1960 GDP per Capita
Country (1996 dollars) (1996 dollars)
Belgium $7,778 5.02%
France 7,824 4.53%
Canada 10,383 3.88%
Denmark 10,988 3.47%
32) Refer to Table 11-2. Consider the statistics in the table above in describing the industrialized
countries. Are these consistent with the economic growth model? Briefly explain.
Answer: These statistics for selected industrial economies are consistent with the economic
growth model. The countries with the lowest levels of real GDP per capita in 1960 had the fastest
growth rates between 1960 and 2000. The countries with the highest levels of real GDP per
capita had the slowest growth rates.
Diff: 3 Page Ref: 728-729/354-355
Topic: Catch-up
11.5 Growth Policies
1) The term "brain drain" refers to

A) highly educated individuals who leave developing countries for high-income countries.
B) the diminishing returns to studying for an exam.
C) the negative impact on brain function of an individual's overinvestment in human capital.
D) the decreased quality of the college-educated workforce.
Answer: A
*: Recurring
45
2) Disease, poor nutrition, and substandard health care in developing nations can reduce growth
in an economy by
A) reducing physical capital.
B) reducing human capital.
C) increasing labor productivity.
D) increasing technological change.
Answer: B
*: Recurring
3) Enforcing property rights in an economy will

A) cause the market system to work less efficiently.
B) decrease the level of foreign portfolio investment.
C) encourage corruption and expand the underground economy.
D) raise the level of investment.
Answer: D
*: Recurring
4) All of the following policies are ways for a country to promote long-run economic growth
except
A) increasing vaccinations against infectious diseases.
B) undergoing political reform to decrease corruption.
C) enacting stronger laws to protect property rights.
D) imposing stricter regulations to limit foreign direct investment.
Answer: D
Diff: 2 Page Ref: 735-737/361-363
*: Recurring
46
5) Robert Lucas, a Nobel laureate in economics, argues that there are ________ returns to human
capital.
A) increasing
B) decreasing
C) constant
D) negative
Answer: A
*: Recurring
6) You are an economic advisor to the president. You are asked to recommend a policy to
promote long-term economic growth in the economy. Which of the following policies would you
choose?
A) a reduction in sales taxes
B) an investment tax credit
C) a reduction in taxes on luxury yachts
D) all of the above
Answer: B
*: Recurring
7) Which of the following policies would not help promote economic growth?
A) a law requiring that the funds in an individual retirement account be taxed
B) a law restricting elected officials from accepting expensive gifts and trips from private
individuals
C) a law that funds prenatal care for all expectant mothers
D) a law that subsidizes research in nanotechnology
Answer: A
Diff: 1 Page Ref: 735-737/361-363
*: Recurring
47
8) A policy that offers parents a tax reduction based on how much they are saving for their
children's college education should ________ the equilibrium level of loanable funds and
________ the rate of long-term growth.
A) decrease; increase
B) increase; decrease
C) decrease; decrease
D) increase; increase
Answer: D
*: Recurring
9) In 1973, the Club of Rome published a book titled The Limits to Growth, which predicted that
economic growth would likely end in high-income countries because of
A) declining populations.
B) rapid increases in government debt.
C) increases in outsourcing of the production of goods and services to low-income countries.
D) increasing pollution and the depletion of natural resources.
Answer: D
*: Recurring
10) China's economy is fueled primarily by

A) fixed asset investment, such as investing in buildings and roads.
B) foreign portfolio investment, such as the purchase of European stocks and bonds.
C) technological innovation, such as advances in medical care.
D) consumer spending on domestic goods and services.
Answer: A
Diff: 2 Page Ref: 740-741/366-367
Special Feature: An Inside LOOK at Policy: Despite a Plan for Change, Investment Still Spurs
China's Growth
48
11) One potential problem with the Chinese government's increases in spending on capital goods
is that these increases have been achieved through
A) high levels of borrowing in global financial markets.
B) decreases in private consumption.
C) debt refinancing and tariff revenues.
D) a rapid expansion of the money supply.
Answer: B
Diff: 2 Page Ref: 740-741/366-367
Special Feature: An Inside LOOK at Policy: Despite a Plan for Change, Investment Still Spurs
China's Growth
12) All of the following are reasons why China is unlikely to maintain high enough rates of
productivity growth to catch-up with the standard of living in the United States except
A) the United States invests more in research and development. than does China.
B) much of China's growth is likely due to the transition from a centrally-planned economy to a
market economy.
C) because of the low birth rate in China, the labor force will soon decline.
D) the Chinese migration of rural workers to more productive urban jobs.
Answer: D
Diff: 2 Page Ref: 735-736/361-362
Special Feature: Making the Connection: Will China's Standard of Living Ever Exceed That of
the United States?
13) Foreign portfolio investment occurs when an individual or firm buys stock or bonds issued in
another country.
Answer: TRUE
*: Recurring
49
14) Recent rapid economic growth in India and China has reduced the amount of "brain drain" in
those countries
Answer: TRUE
*: Recurring
15) The question of whether economic growth is desirable is a positive question, easily settled by
economic analysis.
Answer: FALSE
*: Recurring
16) Does globalization promote economic growth, and how does globalization affect the welfare
of a given country's citizens?
Answer: More globalized countries generally experience much higher annual growth rates in
real GDP per capita than countries that are less open to foreign trade and investment. As
countries become more globalized, advances in technology in those countries become more
likely, and advances in technology are a key to economic growth. However, foreign influences
in some countries are not always viewed as positive, as they can have a greater impact on culture
than some would like. In addition, multinational firms that operate in foreign countries may also
pay very low wages or fail to uphold the same safety and environmental regulations they are
required to follow in their own countries.
*: Recurring
50
17) How do government policies that enforce property rights affect economic growth?
Answer: Without enforceable property rights, entrepreneurs lose the incentive to take on risk
because they are not assured ownership of their resources. Economic growth suffers as a result.
Failure to protect intellectual property rights has a similar impact. If the benefits of
technological advances are shared with all firms, each individual firm has little incentive to
invest in the costly research and development necessary for technological progress to continue.
*: Recurring
18) How does government support of health and education programs foster economic growth?
Answer: As the health of the people in a nation improves, they become more productive. They
become stronger and less susceptible to disease. For example, if the government provides
vaccinations or access to clean water, people will be healthier and the economy is more likely to
grow. By helping to finance education, the government can also improve economic growth.
Since the benefits of an education do not accrue exclusively to the person receiving an education,
the market may produce an inefficiently low level of education and training. If the government
offers subsidies for education, more people will receive an education, and the increase in human
capital will increase economic growth (particularly if there are increasing returns to human
capital).
Diff: 2 Page Ref: 736-737/362-363
*: Recurring
51

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Macroeconomics 4th Edition Hubbard Test Bank

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Macroeconomics 4th Edition Hubbard

11.1 Economic Growth over Time and around the World

3) The rapid growth of the Chinese economy should

8) According to Douglass North, the Industrial Revolution occurred in England because

11.2 What Determines How Fast Economies Grow?

1) An economic growth model explains

6) When an economy faces diminishing returns,

9) Refer to Figure 11-1. Diminishing marginal returns is illustrated in the per-worker

16) If the per-worker production function shifts down,

24) Technological improvements are more likely to occur if

29) According to new growth theory,

31) Knowledge capital is nonrival in the sense that

38) According to Joseph Schumpeter, economic growth is achieved through

41) Technological change is the key to sustaining economic growth.

Diff: 2 Page Ref: 719-720/345-346

Answer: The movement from B to D in the diagram illustrates technological change.

47) Is knowledge capital subject to the law of diminishing returns? Explain.

11.3 Economic Growth in the United States

1) Growth in the United States from 1800 to 1900 can be characterized as

9) The "new economy" that emerged in the mid-1990s is based on

11.4 Why Isn't the Whole World Rich?

1) The economic growth model predicts that

Real GDP per Capita Growth in Real GDP per

9) The purchase or building by a corporation of a facility in a foreign country is called

14) Countries that are more globalized tend to have

Diff: 3 Page Ref: 728-729/354-355

Diff: 2 Page Ref: 728-729/354-355

Real GDP per

11.5 Growth Policies

1) The term "brain drain" refers to

3) Enforcing property rights in an economy will

10) China's economy is fueled primarily by

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