Chapter 25 /Production and Growth ? 1723
13. In countries that experience political instability, standards of living tend to be low because of
a. violations of diminishing returns. b. excessive levels of caloric intake. c. lack of respect for property rights.
d. attempts by government officials to thwart the catch-up effect.
ANS: C DIF: 2 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Property rights | Standard of living MSC: Interpretive
14. Countries that pursued outward-oriented policies in the 20th century
a. experienced lower rates of economic growth than did countries that pursued inward-oriented
policies.
b. experienced higher levels of political instability than did countries that pursued inward-oriented
policies.
c. include Singapore, South Korea, and Taiwan. d. All of the above are correct.
ANS: C
NAT: Analytic MSC: Interpretive
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Free trade
15. Rapid population growth
a. was hailed by Thomas Robert Malthus as the key to future economic growth. b. tends to lead to higher levels of educational attainment. c. is the main reason that less developed nations are poor.
d. may depress economic prosperity by reducing the amount of capital which each worker has to work
with.
ANS: D
NAT: Analytic MSC: Interpretive
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Population growth
16. It has been suggested that a possible benefit of rapid population growth is the likelihood that when there are
more people, then there are more
a. teachers, and so students acquire more knowledge and skills. b. people to discover things, and so technological progress is rapid. c. savers, and so capital per worker tends to increase over time. d. consumers, and so economic growth is more rapid.
ANS: B
NAT: Analytic MSC: Interpretive
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Population growth
17. One of the Ten Principles of Economics in Chapter 1 is that people face tradeoffs. The growth that arises from
capital accumulation is not a free lunch. It requires that society a. conserve resources for future generations.
b. sacrifice consumption goods and services now in order to enjoy more consumption in the future. c. recycle resources so that future generations can produce goods and services with the accumulated
capital.
d. None of the above is correct.
ANS: B
NAT: Analytic MSC: Interpretive
DIF: 1 REF: 25-3 LOC: Productivity and growth TOP:
Investment
18. 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 tradeoffs.
ANS: A
NAT: Analytic MSC: Interpretive
DIF: 1 REF: 25-3 LOC: Productivity and growth TOP:
Capital | Saving
1724 ? Chapter 25 /Production and Growth
19. The traditional view of the production process is that capital is subject to
a. constant returns. b. increasing returns. c. diminishing returns.
d. diminishing returns for low levels of capital, and increasing returns for high levels of capital.
ANS: C
NAT: Analytic MSC: Definitional
DIF: 1 REF: 25-3 LOC: Productivity and growth TOP:
Diminishing returns
20. If there are diminishing returns to capital, then
a. capital produces fewer goods as it ages. b. old ideas are not as useful as new ones.
c. increases in the capital stock eventually decrease output.
d. increases in the capital stock increase output by ever smaller amounts.
ANS: D
NAT: Analytic MSC: Interpretive
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Diminishing returns
21. In the long run, a higher saving rate
a. cannot increase the capital stock.
b. means that people must consume less in the future. c. increases the level of productivity. d. None of the above is correct.
ANS: C
NAT: Analytic MSC: Interpretive
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Saving
22. In the long run, a higher saving rate
a. cannot increase the capital stock. b. increases the growth rate of income. c. increases the growth rate of productivity. d. None of the above is correct.
ANS: D
NAT: Analytic MSC: Interpretive
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Saving
23. In the long run, an increase in the saving rate
a. doesn’t change the level of productivity or income. b. raises the levels of both productivity and income.
c. raises the level of productivity but not the level of income. d. raises the level of income but not the level of productivity.
ANS: B
NAT: Analytic MSC: Interpretive
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Saving | Productivity
24. If a country were to increase its saving rate, then in the long run it would also increase its
a. level of income.
b. growth rate of income. c. growth rate of productivity. d. All of the above are correct.
ANS: A
NAT: Analytic MSC: Interpretive
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Saving
Chapter 25 /Production and Growth ? 1725
25. If a country’s saving rate declined, then other things the same, in the long run the country would have
a. lower productivity, but not lower real GDP per person. b. lower productivity and lower real GDP per person. c. lower real GDP per person, but not lower productivity d. neither lower productivity nor lower real GDP per person.
ANS: B
NAT: Analytic MSC: Interpretive
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Saving | Productivity
26. If a country's saving rate increases, then in the long run
a. both productivity growth and income growth increase. b. only productivity growth increases. c. only income growth increases.
d. neither productivity growth nor income growth increase.
ANS: D
NAT: Analytic MSC: Interpretive
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Saving | Productivity
27. If a country's saving rate increases, then in the long run
a. productivity is higher but real GDP per person is not higher. b. real GDP per person is higher but productivity is not higher. c. productivity and real GDP per person are both higher. d. neither productivity nor real GDP per person is higher.
ANS: C
NAT: Analytic MSC: Interpretive
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Saving | Productivity
28. Other things the same, a country that increases its saving rate increases
a. its future productivity and future real GDP.
b. neither its future productivity nor future real GDP. c. its future productivity, but not its future real GDP. d. its future real GDP, but not its future productivity.
ANS: A
NAT: Analytic MSC: Interpretive
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Saving | Productivity
29. Other things the same, a country that increases its savings rate will have
a. higher future capital and higher future real GDP per person. b. higher future capital but not higher future real GDP per person. c. higher future real GDP per person but not higher future capital. d. neither higher future capital nor higher future real GDP per person.
ANS: A
NAT: Analytic MSC: Interpretive
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Saving | Capital
30. Suppose Turkey increases its saving rate. In the long run
a. the growth rates of productivity and real GDP per person increase. b. productivity and real GDP per person increase.
c. the growth rate of productivity increases, and real GDP per person increases. d. productivity increases, and the growth rate of real GDP per person increases.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Saving
1726 ? Chapter 25 /Production and Growth
31. Suppose that Slovenia undertakes a policy to increase its saving rate. This policy will likely
a. have no impact on GDP growth.
b. lead to higher GDP growth for a few years.
c. lead to higher GDP growth for a period of several decades. d. lead to a permanently higher growth rate.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Saving
32. Suppose that a country increased its saving rate. In the long run it would have
a. higher productivity, and another unit of capital would increase output by more than before. b. higher productivity, but another unit of capital would increase output by less than before. c. lower productivity, and another unit of capital would increase output by more than before. d. lower productivity, but another unit of capital would increase output by less than before.
ANS: B
NAT: Analytic MSC: Analytical
DIF: 3 REF: 25-3 LOC: Productivity and growth TOP:
Saving | Diminishing returns
33. Other things equal, relatively poor countries tend to grow
a. slower than relatively rich countries; this is called the poverty trap. b. slower than relatively rich countries; this is called the fall-behind effect. c. faster than relatively rich countries; this is called the catch-up effect.
d. faster than relatively rich countries; this is called the constant-returns-to-scale effect.
ANS: C
NAT: Analytic MSC: Definitional
DIF: 1 REF: 25-3 LOC: Productivity and growth TOP:
Catch-up effect
34. Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one
has more capital per worker and so it has more real GDP per worker than the other. Finally, suppose that the saving rate in both countries increases from 4 percent to 7 percent. Over the next ten years we would expect that
a. the growth rate will not change in either country.
b. the country that started with less capital per worker will grow faster. c. the country that started with more capital per worker will grow faster. d. both countries will grow and at the same rate.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Catch-up effect
35. Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one
has less capital and so less real GDP per person. Suppose that both increase their saving rate from 3 percent to 4 percent. In the long run
a. both countries will have permanently higher growth rates of real GDP per person, and the growth
rate will be higher in the country with more capital.
b. both countries will have permanently higher growth rates of real GDP per person, and the growth
rate will be higher in the country with less capital.
c. both countries will have higher levels of real GDP per person, and the temporary increase in growth
in the level of real GDP per person will have been greater in the country with more capital.
d. both countries will have higher levels of real GDP per person, and the temporary increase in growth
in the level of real GDP per person will have been greater in the country with less capital.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 3 REF: 25-3 LOC: Productivity and growth TOP:
Catch-up effect
Chapter 25 /Production and Growth ? 1727
36. Real GDP per person is $30,000 in Country A, $20,000 in Country B, and $11,000 in Country C. Saving per
person is $1,000 in all three countries. Other things equal, we would expect that a. all three countries will grow at the same rate. b. Country A will grow the fastest. c. Country B will grow the fastest. d. Country C will grow the fastest.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Catch-up effect
37. Other things the same, if a country increased its saving rate, in 40 years or so it would likely have
a. higher productivity, and a higher growth rate of real GDP. b. higher productivity, but not a higher growth rate of real GDP. c. the same productivity and growth of real GDP it began with. d. None of the above is correct.
ANS: B
NAT: Analytic MSC: Interpretive
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Saving
38. Which of the following best describes the response of output as time passes to an increase in the saving rate?
a. The growth rate of output does not change.
b. The growth rate of output increases and gets even larger as time passes. c. The growth rate of output increases and does not change as time passes.
d. The growth rate of output increases, but diminishes to its former level as time passes.
ANS: D
NAT: Analytic MSC: Interpretive
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Saving | Diminishing returns
39. An increase in the saving rate would, other things the same,
a. increase growth more for a poor country than for a rich country, and raise growth permanently. b. increase growth more for a poor country than for a rich country, but raise growth temporarily. c. increase growth more for a rich country than for a poor country, and raise growth permanently. d. increase growth more for a rich country than for a poor country, but raise growth temporarily.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 3 REF: 25-3 LOC: Productivity and growth TOP:
Catch-up effect
40. Consider three imaginary countries. In Old York, saving amounts to $3,000 and consumption amounts to
$7,000; in New Frank, saving amounts to $2,000 and consumption amounts to $8,000; and in Ganzee, saving amounts to $4,500 and consumption amounts to $10,500. The saving rate is
a. higher in Old York than in Ganzee, and it is higher in Ganzee than in New Frank. b. higher in New Frank than in Ganzee, and it is higher in Ganzee than in Old York. c. higher in Ganzee than in New Frank, and it is the same in New Frank and Old York. d. higher in Old York than in New Frank, and it is the same in Old York and Ganzee.
ANS: D
NAT: Analytic MSC: Applicative
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Saving