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Chapter 25 Study Guide

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Multiple ChoiceEdit

1. If one wants to know how the material well-being of the average person has changed over time in a given country, one should look at the

  • a. level of real GDP.
  • b. growth rate of nominal GDP.
  • c. growth rate of real GDP.
  • d. growth rate of real GDP per person.
  • e. growth rate of nominal GDP per person.

2. The quantity of goods and services produced from each unit of labor input is called

  • a. standard of living.
  • b. productivity.
  • c. capitalized quantity.
  • d. the knowledge base.
  • e. GDP per capita.

3. Perry accumulated a lot of mathematical skills while in high school, college, and graduate school. Economists include these skills as part of Perry’s

  • a. standard of learning.
  • b. technological knowledge.
  • c. physical capital.
  • d. human capital.
  • e. natural resources.

4. The notion that our ability to conserve natural resources is growing more rapidly than their supplies are dwindling is supported by the fact that

  • a. most economists do not regard the availability of natural resources as a determinant of productivity.
  • b. the quantity of natural resources does not enter into any production function.
  • c. the quality of natural resources does not enter into any production function.
  • d. inflation-adjusted prices of natural resources are stable or falling over time.
  • e. inflation-adjusted prices of natural resources are rising over time.

5. Which of the following is a correct way to measure productivity?

  • a. Divide the number of hours worked by the quantity of output.
  • b. Divide the quantity of output by the number of hours worked.
  • c. Divide the quantity of output by the quantity of physical capital.
  • d. Divide the change in the quantity of output by the change in the number of hours worked.
  • e. Divide real GDP by the change in the population.

6. Which of the following correctly defines productivity?

  • a. Output per unit of input.
  • b. Input per unit of output.
  • c. GDP per capita.
  • d. Unemployment rate divided by the inflation rate.
  • e. Inflation rate divided by the unemployment rate.

7. Which of the following best states economists’ understanding of the facts concerning the relationship between natural resources and economic growth?

  • a. A country with no or few domestic natural resources is destined to be poor.
  • b. Differences in natural resources have virtually no role in explaining differences in standards of living.
  • c. Some countries can be rich mostly because of their natural resources and countries without natural resources need not be poor, but they can never have very high standards of living.
  • d. Abundant domestic natural resources may help make a country rich, but even countries with few natural resources can have high standards of living.
  • e. No country can be rich unless its natural resources are relatively abundant.

8. If your firm’s production function has constant returns to scale, and if you doubled all your inputs, then your firm’s output would

  • a. not change.
  • b. increase, but by less than double.
  • c. double.
  • d. more than double.
  • e. be cut in half.

9. By saving more, a country

  • a. has more resources for capital goods. The increase in capital raises productivity.
  • b. has more resources for capital goods. The increase in capital reduces productivity.
  • c. has fewer resources for capital goods. The decrease in capital raises productivity.
  • d. has fewer resources for capital goods. The decrease in capital reduces productivity.
  • e. has more resources for capital goods. However, the increase in capital has no effect on productivity.

10. When a society decides to increase its quantity of physical capital, the society

  • a. can avoid the usual need to face trade-offs.
  • b. is apparently not very concerned about its rate of economic growth in the future.
  • c. is in effect deciding to consume fewer goods and services in the present.
  • d. is in effect deciding to save less of its current income in the present.
  • e. is in effect deciding to consume more goods and services in the present.

11. Investment in

  • a. physical capital, unlike investment in human capital, has an opportunity cost.
  • b. physical capital, like investment in human capital, has an opportunity cost.
  • c. human capital is particularly attractive because it involves no externalities.
  • d. human capital has been shown to be relatively unimportant, relative to investment in physical capital, for a country’s long-run economic success.
  • e. physical capital, like investment in human capital, has no opportunity cost.

12. Accumulating capital

  • a. requires that society sacrifice consumption goods in the present.
  • b. allows society to consume more in the present.
  • c. decreases saving rates.
  • d. involves no trade-offs.
  • e. diminishes a countries ability to experience economic growth.

AnswersEdit

  1. D
  2. B
  3. D
  4. D
  5. B
  6. A
  7. D
  8. C
  9. A
  10. C
  11. B
  12. A

Free ResponseEdit

1. Use the following data on U.S. real GDP to compute real GDP per person for each year. Then use these numbers to compute the percentage increase in real GDP per person from 1987 to 2005.

Year Real GDP (2000 Prices) Population
1987 $6,435,000 million 243 million
2005 $11,092,000 million 296.6 million

2. Why is productivity related to the standard of living? In your answer, be sure to explain what productivity and standard of living mean. Make a list of things that determine labor productivity.

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