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102. If your firm has constant returns to scale, then if you doubled all your inputs your firm's output would
a. not change.
b. increase, but by less than double. c. double.
d. more than double. ANS: C PTS: 1 DIF: 1 REF: 25-2 TOP: Constant returns to scale MSC: Definitional
103. You bake cookies. One day you double the time you spend, double the number of chocolate chips, flour, eggs, and all
your other inputs, and bake twice as many cookies. Your cookie production function has a. decreasing returns to scale. b. zero returns to scale. c. constant returns to scale. d. increasing returns to scale. ANS: C PTS: 1 DIF: 1 REF: 25-2 TOP: Production function MSC: Interpretive 104. If there are constant returns to scale, the production function can be written as
a. xY = 2xAF(L, K, H, N). b. Y/L = A F(xL, xK, xH, xN). c. Y/L = A F( 1, K/L, H/L, N/L). d. L = AF(Y, K, H, N). ANS: C PTS: 1 DIF: 2 REF: 25-2 TOP: Constant returns to scale MSC: Definitional 105. If a production function has constant returns to scale, output can be doubled if
a. labor alone doubles.
b. all inputs but labor double. c. all of the inputs double.
d. None of the above is correct. ANS: C PTS: 1 DIF: 1 REF: 25-2 TOP: Constant returns to scale MSC: Interpretive
106. Suppose there are constant returns to scale. Now suppose that over time a country doubles its workers, its natural
resources, and its human capital, but its technology is unchanged. Which of the following would double? a. both output and productivity b. output, but not productivity c. productivity, but not output d. neither productivity nor output ANS: B PTS: 1 DIF: 3 REF: 25-2
TOP: Production function | Constant returns to scale MSC: Analytical
107. If the production function for an economy had constant returns to scale, the labor force doubled, and all other inputs
stayed the same, then real GDP would a. stay the same.
b. increase by 50 percent.
c. increase, but by something less than double. d. double. ANS: C PTS: 1 DIF: 2 REF: 25-2 TOP: Production function MSC: Applicative 108. If the number of workers in an economy doubled, all other inputs stayed the same, and there were constant returns to
scale, productivity would
a. fall to less than half its former value. b. fall but by less than half. c. stay the same.
d. rise but less than double. ANS: B PTS: 1 DIF: 3 REF: 25-2 TOP: Production function | Productivity MSC: Analytical
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109. If an economy with constant returns to scale were to double its physical capital stock, its available natural resources,
and its human capital, but leave the size of the labor force the same, a. its output would stay the same and so would its productivity. b. its output and productivity would increase, but less than double. c. its output and productivity would increase by more than double. d. None of the above is correct. ANS: B PTS: 1 DIF: 3 REF: 25-2 TOP: Production function | Productivity MSC: Analytical 110. Using the production function and notation in the text, K/L measures
a. natural resources per worker. b. human capital per worker. c. output per worker.
d. physical capital per worker. ANS: D PTS: 1 DIF: 2 REF: 25-2 TOP: Production function MSC: Definitional 111. Using the notation and production function in the text, Y/L is
a. productivity. b. output.
c. the availability of natural resources. d. the amount of human capital. ANS: A PTS: 1 DIF: 1 REF: 25-2 TOP: Productivity MSC: Definitional
112. Suppose that over the last ten years productivity grew faster in Oceania than in Freedonia and the population of both
countries was unchanged.
a. It follows that real GDP per person must be higher in Oceania than in Freedonia. b. It follows that real GDP per person grew faster in Oceania than in Freedonia. c. It follows that the standard of living must be higher in Oceania than in Freedonia. d. All of the above are correct. ANS: B PTS: 1 DIF: 2 REF: 25-2 TOP: Productivity | Standard of living MSC: Analytical 113. Suppose that real GDP grew more in Country A than in Country B last year.
a. Country A must have a higher standard of living than country B. b. Country A's productivity must have grown faster than country B's. c. Both of the above are correct. d. None of the above is correct. ANS: D PTS: 1 DIF: 3 REF: 25-2 TOP: Productivity | Standard of living MSC: Analytical 114. Which of the following would increase productivity?
a. an increase in the physical capital stock per worker b. an increase in human capital per worker c. an increase in natural resources per worker d. All of the above are correct. ANS: D PTS: 1 DIF: 1 REF: 25-2 TOP: Productivity MSC: Interpretive
115. 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 PTS: 1 DIF: 1 REF: 25-3 TOP: Investment MSC: Interpretive
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116. 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. has no tradeoffs. ANS: A PTS: 1 DIF: 1 REF: 25-3 TOP: Capital | Saving MSC: Interpretive
117. 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 PTS: 1 DIF: 1 REF: 25-3 TOP: Diminishing returns MSC: Definitional 118. 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 PTS: 1 DIF: 2 REF: 25-3 TOP: Diminishing returns MSC: Definitional 119. 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 productivity.
d. None of the above is correct. ANS: C PTS: 1 DIF: 2 REF: 25-3 TOP: Saving MSC: Analytical 120. 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 no the level of productivity. ANS: B PTS: 1 DIF: 2 REF: 25-3 TOP: Saving | Productivity MSC: Analytical
121. 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 PTS: 1 DIF: 2 REF: 25-3 TOP: Saving MSC: Analytical 122. If a country’s saving rate declined, then other things the same, in the long run it 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 PTS: 1 DIF: 2 REF: 25-3 TOP: Saving | Productivity MSC: Analytical
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123. 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 PTS: 1 DIF: 2 REF: 25-3 TOP: Saving | Productivity MSC: Analytical 124. 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 are higher. ANS: C PTS: 1 DIF: 2 REF: 25-3 TOP: Saving | Productivity MSC: Analytical 125. 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 PTS: 1 DIF: 2 REF: 25-2 | 25-3 TOP: Saving | Productivity MSC: Analytical 126. 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 PTS: 1 DIF: 2 REF: 25-3 TOP: Saving | Capital MSC: Interpretive 127. Suppose Albania 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 PTS: 1 DIF: 2 REF: 25-3 TOP: Saving MSC: Applicative 128. Suppose that Turkey 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 PTS: 1 DIF: 2 REF: 25-3 TOP: Saving MSC: Applicative 129. 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 PTS: 1 DIF: 3 REF: 25-3 TOP: Saving | Diminishing returns MSC: Analytical
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130. 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 PTS: 1 DIF: 1 REF: 25-3 TOP: Catch-up effect MSC: Definitional
131. Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has
more capital and so more real GDP per person than the other. Finally, suppose that the saving rate in both countries increases from 5 percent to 6 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 will grow faster. c. the country with started with more capital will grow faster. d. both countries will grow at the same rate. ANS: B PTS: 1 DIF: 2 REF: 25-3 TOP: Catch-up effect MSC: Applicative 132. 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 PTS: 1 DIF: 3 REF: 25-3 TOP: Catch-up effect MSC: Applicative 133. Real GDP per person is $20,000 in Meridian, $15,000 in Articland, and $5,000 in Equitorial. 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. Meridian will grow the fastest. c. Articland will grow the fastest. d. Equitorial will grow the fastest. ANS: D PTS: 1 DIF: 3 REF: 25-3 TOP: Catch-up effect MSC: Applicative 134. 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 PTS: 1 DIF: 2 REF: 25-3 TOP: Saving MSC: Interpretive
135. 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 PTS: 1 DIF: 2 REF: 25-3 TOP: Saving | Diminishing returns MSC: Analytical