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The absence of which of the following leads to constant shortages and shoddy goods under communism? A. Free markets |
A. Free markets The reliance on communist planning agencies, rather than free markets, stifle managers’ incentives and created constant shortages and shoddy goods. |
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The cost of a higher living standard in the future is giving up: A. future consumption. |
C. current consumption. If society saves today it can expand its capital stock and increase living standards in the future. However, this expansion of capital stock means giving up resources that could be used for current consumption. |
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Real GDP per person equals average labor productivity: A. times the labor force participation rate. B. times one minus the unemployment rate. C. minus the share of population employed. D. times the share of population employed. |
D. times the share of population employed. To find real GDP per person, multiply the average output each worker produces times the percentage of population employed. |
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Gamma has $30,000 of capital per worker, while Omega has $7,500 of capital per worker. In all other respects, the two countries are the same. According to the principle of diminishing returns to capital, an additional unit of capital will increase output ________ in Gamma compared to Omega, holding other factors constant. A. less |
A. Less Since Gamma starts out with more capital per worker, the marginal increase in worker output in Gamma is less than the marginal increase in Omega (where workers have much less capital to begin with). |
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________ start new economic enterprises, while ________ run the enterprises on a day-to-day basis. A. Mangers; entrepreneurs |
B. Entrepreneurs; managers Entrepreneurs take risks when they start new business enterprises whereas managers run the business but often do not bear the business risks. |
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An example of a government policy to increase physical capital formation is: A. government support for basic research. B. maintaining a well-functioning legal system. C. the provision of publicly-funded education. D. the construction of an interstate highway system. |
D. the construction of an interstate highway system. Governments can provide public physical capital, which is called "infrastructure." The interstate highway system is one example. Note that all the others options are examples of ways that governments can improve productivity through the increased use of other important resources. |
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Mike and Tom debone chicken breasts for Ted’s Chicken Co. Mike is new and can only debone 60 chicken breasts per hour by hand, while Tom’s experience allows him to debone 120 chicken breasts per hour by hand. Ted buys one new machine that can debone 100 chicken breasts per hour. Both Mike and Tom work the same 40 hours per week, but one of them is assigned to operate the machine instead of deboning the chicken breasts by hand. To obtain maximum average hourly productivity, ________ is assigned to use the machine and their combined average hourly productivity as a team is ________ chicken breasts.
A. Tom; 110 |
B. Mike; 110 Mike is assigned to the machine because he is the least efficient producer. After getting the machine, the team debones 220 chicken breasts per hour (Mike deboned 100 and Tom deboned 120), for an average of 110 per worker. |
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Based on the table below and the principle of diminishing returns to capital, then total packages wrapped when a fourth machine is installed must be less than ________ packages. A. 12,000 |
D. 15,000 The marginal return to the first machine was 5,000 packages, the marginal return to the second machine was 4,000 packages (9,000 – 5,000) and the marginal return to the third machine was 3,000 packages (12,000 – 9,000). Thus, the marginal return to the third machine has to be less than 3,000 packages, which makes the total less than 15,000 packages. |
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Average labor productivity times the proportion of the population employed equals: A. real GDP. |
C. real GDP per person To find real GDP per person, multiply the average output each worker produces times the percentage of population employed. |
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The construction of the interstate highway system in the United States is an example of a government policy to promote economic growth by: A. increasing human capital. B. improving the social and legal environment. C. increasing physical capital. D. improving technology. |
C. increasing physical capital. Government policy of building infrastructure, like interstate highways, promotes physical capital that is essential to economic growth. |
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Economic growth may face environmental limits because: A. the market mechanism mobilizes resources to deal with shortages. B. global environmental problems are not handled by markets or national governments. C. economic growth may lead to less, not more, pollution. D. economic growth can take the form of new, different, and "cleaner" goods and services. |
B. global environmental problems are not handled by markets or national governments. Global environmental problems, like climate change, are not handled well by markets because externalities exist. There is no global body today that can efficiently control externalities such as pollution. |
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U.S. productivity growth has rebounded since 1995 largely as a result of: A. increases in human capital. B. advances in information and communication technology C. increased political stability. D. discoveries of new natural resources. |
B. advances in information and communication technology The invention and diffusion of the Internet and related technologies has caused a burst of productivity growth since 1995. |
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Suppose that the share of population employed in Country B is 50 percent, and that Countries B and C have the same real GDP per capita. Based on the information in the table, what share of Country C’s population must be employed? A. 5.0 percent |
C. 20.0 percent To find real GDP per person, multiply the average output each worker produces times the percentage of population employed. In this case, average labor productivity in Country B is $10,000 and share of population employed is 0.50, so real GDP per person is $5,000. For Country C to also have real GDP per person of $5,000, then the share of population working * the average labor productivity of $25,000 must be $5,000. Solving for the share of population working, by dividing each side by the real GDP, we get $5,000 / $25,000 = .20 or 20 percent. |
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Economists refer to the talents, training, and education of workers as: A. human capital. |
A. human capital. Human capital is the talents, training, and education of workers |
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Which of the following is an example of an investment in physical capital? A. A firm trains workers to operate new machinery. B. A firm pays for workers to take college classes. C. A chemical firm employs chemists to develop new chemicals. D. A firm purchases new equipment for a manufacturing process |
D. A firm purchases new equipment for a manufacturing process When businesses invest in a new plant, equipment, and/or factories it is physical capital investment. These investments usually increase productivity. |
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Because of diminishing returns to capital, there is a limit to the increases in average labor productivity that can be gained from additional or improved ________. A. availability of land and natural resources |
C. physical capital While all inputs are subject to the law of diminishing returns, Only physical capitalis subject to diminishing returnsto capital. |
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Each of the following statements describes how the political and legal environment encourages productivity except: A. Price changes in markets give suppliers incentives to supply goods to markets. B. Pay rates determined by a governmental planning agency provide workers with incentives to work hard. C. Well-defined property rights encourage production and saving. D. Political stability promotes economic growth. |
B. Pay rates determined by a governmental planning agency provide workers with incentives to work hard. Centralized governmental planning agencies, because of the complexity of economies, have done a poor job of setting proper pay rates. Most economists agree that par rates based on performance provides much better incentives to work hard. |
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Each of the following increases average labor productivity except: A. more central planning. |
A. more central planning. Centralized governmental planning agencies stifle incentives and have done a poor job increasing average labor productivity. |
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Suppose when you are 21 years old, you deposit $1,000 into a bank account that pays annual compound interest, and you do not withdraw from the account until your retirement at the age of 65, 44 years later. How much more will be in your account if the interest rate is 6 percent rather than 4 percent? A. $880 |
C. $7,369 Use the formula FV = PV (1 + i)^n, where i is the interest rate and n the number of years. At 6 percent interest, your deposit after 44 years = $1,000(1.06)^44 = $12,985.48. At 4 percent interest,your deposit after 44 years = $1,000(1.04)^44 = $5,616,52. The difference is $7,369 |
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Organizing production, obtaining financing, assigning workers to jobs, and dealing with suppliers are among the ways that ________ increases average labor productivity. A. physical capital |
B. a manager Managers run the business but often do not bear business risks. |
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Countries with small amounts of capital per worker tend to have ________ levels of real GDP per person and ________ levels of average labor productivity. A. high; low |
B. low; low Countries with small amounts of capital per worker suffer from low productivity; this results in low real GDP per person. |
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Mike and Tom debone chicken breasts for Ted’s Chicken Co. Mike is new and can only debone 30 chicken breasts per hour, while Tom’s experience allows him to debone 60 chicken breasts per hour. Both Mike and Tom work 40 hours per week. Their average hourly productivity as a team is ________ chicken breasts. A. 45 |
A. 45 In this case, team average hourly productivity is 45 chicken breasts, which is the sum of each worker’s hourly output divided by the number of team members or (30 + 60) / 2 = 45. |
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Growth in real GDP per capita has: A. slowed since the mid-nineteenth century compared to before. B. increased over the last 150 years only in the United States and Canada. C. been more rapid since the mid-nineteenth century than ever before. D. been steady over the course of human history. |
C. been more rapid since the mid-nineteenth century than ever before. Since the Industrial Revolution, growth in real GDP per capita has expanded at rates faster than at any other time in history |
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Jim and Fred are the only two cashiers employed at a retail store. Each of them works the same 40 hours per week and each can check out 30 customers per hour by manually entering the price of each product purchased into the cash register. The store owner replaces the old cash registers with new ones that automatically scan product prices into the register. With the new cash registers, Jim and Fred can each check out 60 customers per hour. Their average labor productivity as a team before the new cash registers were introduced was ________ customers per hour and ________ customers per hour after the new machines were installed. A. 60; 120 |
C. 30; 60 The team’s beginning average hourly output was 30 customers per hour. After buying the new cash registers, the team’s average hourly output increased to 60 customers per hour. |
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If real GDP per person in a country equals $20,000 and 40 percent of the population is employed, then average labor productivity equals: A. $8,000. |
C. $50,000. If real GDP per person is obtained by multiplying the average output each worker produces times the percentage of population employed. Then average output per worker or average labor productivity is = real GDP divided by the percentage of population employed =: $20,000/0.40 = $50,000. |
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When new technologies are applied to the production and distribution of goods and services: A. scarcity is eliminated. B. diminishing returns to capital still hold C. diminishing returns to capital no longer hold. D. average labor productivity decreases. |
B. diminishing returns to capital still hold Although new technologies generally improve average labor productivity, technological additions are still subject to diminishing returns to capital. |
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The biggest barrier to growth for many of the poorest countries in the world is the need for: A. improved legal and political frameworks. |
A. improved legal and political frameworks. Foreign and domestic saving is nearly absent in the poorest countries of the world because savers worry their money cannot be protected by contract law. With low saving there is little investment into new capital or technology. |
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A government policy to build bridges and dams is an example of a policy to promote economic growth by: A. increasing human capital. |
D. increasing physical capital. Government policy of building infrastructure, like bridges and dams, promotes physical capital that is essential to economic growth. |
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In order to promote growth, the poorest countries-in contrast to the middle-level and rich countries-need most to: A. invest in human capital. |
C. improve their legal and political environments. Foreign and domestic saving is nearly absent in the poorest countries of the world because savers worry their money cannot be protected by contract law. |
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Over the period from 1870 to 2010, the growth of real GDP per capita tended to be more rapid between ________, particularly for ________, A. 1870-1950; Japan |
B. 1950-2010; Japan U.S. real GDP per person went up enormously from 1870 to 2010, and especially fast in the years 1950 to 2010. In Japan, real GDP per person started out much lower than the U.S. in 1870 and grew 30 times over the same interval. |
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Assume that the share of population employed in all countries is 50 percent. Based on the information in the table, which country has the smallest real GDP per capita? A. Country B |
C. country A To find real GDP per person, multiply the average output each worker produces times the percentage of population employed. Note that all countries have the same share of population working, 50 percent, so the real GDP in each country is half of the average labor productivity. So real GDP per person in Country A is: ($2,000*0.50) = $1,000. |
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An example of a government policy to provide a framework within which the private sector can operate productively is: A. maintaining a well-functioning legal system. B. government ownership of capital. C. the taxation of savings. D. the suppression of political dissent. |
A. maintaining a well-functioning legal system. Government rules and policies can provide social stability,and this often occurs because of a well-functioning legal system. |
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Bank C promises to pay a compound annual interest rate of 6 percent, while Bank S pays an 8 percent simple annual interest rate on deposits. If you deposit $1,000 in each bank, after 10 years, your deposit in Bank C equals ________, while your deposit in Bank S equals ________. A. $1,060; $1,800 |
D. $1,791; $1,800 Bank C uses the formula: FV = PV (1 + i)^n, where i is the interest rate and n the number of years, so that your deposit after 10 years = $1,000*(1.06)^10 = $1,791. Bank S uses the formula: FV = P + I, where I is the sum of all the interest payments (here 10 times $100), so that our deposit after 10 years = $1,000 + $800 = $1,800. |
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Real GDP per person in both Alpha and Omega is equal to $2,000. Over the next 100 years, real GDP per person grows at a 1.5 percent annual rate in Alpha and at a 2.5 percent annual rate in Omega. After 100 years, real GDP per person in Alpha is ________ smaller than real GDP per person in Omega. A. $8,864 |
D. $14,763 For Alpha, the future value equation is: Future GDP = $2,000(1.015)^100 = $8,864. For Omega, the future value equation is: Future GDP = $2,000(1.025)^100 = $23,627. The difference is $14,763. |
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Fred and Barney fill egg cartons with eggs. Fred just started the job and can fill only 25 cartons an hour. Barney has significant on-the-job experience and can fill 50 cartons an hour. Both Fred and Barney work 50 hours a week. Fred’s average weekly productivity is ________ cartons; Barney’s average weekly productivity is ________ cartons; and as a team their average weekly productivity is ________ cartons. A. 1,250; 2,500; 1,875 |
A. 1,250; 2,500; 1,875 Fred’s average weekly productivity is 1,250 cartons, which is the hourly rate of 25 times 50 hours worked. The same equation applies for Barney whose weekly productivity is 2,500 (50 * 50). Team average hourly productivity is 37.5 cartons, which is the sum of each worker’s hourly output divided by the number of team members or (25 + 50) / 2. The team’s average weekly productivity is1,875 cartons per week. |
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The principle of diminishing returns to capital states that if the amount of labor and other inputs employed is held constant, then the greater the amount of capital in use the: A. the more an additional unit of capital adds to production. B. less production is wasted. C. less is produced. D. the less an additional unit of capital adds to production. |
D. the less an additional unit of capital adds to production. This is the definition of the "principle of diminishing returns" as applied to addition of capital stock. |
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Defenders of limits on economic growth are concerned that continued economic growth will eventually: B. make plant and equipment obsolete. C. raise interest rates. D. exhaust natural resources. |
D. exhaust natural resources. Those who believe there are limits to economic growth tend to worry that the world is running out of natural resources. |
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Advances in information and communication technology are the principal factors cited for the: A. speedup in productivity growth since 1995 B. slowdown in productivity growth since 1995. C. speedup in productivity growth between 1973 and 1995. D. slowdown in productivity growth between 1973 and 1995. |
A. speedup in productivity growth since 1995 The invention and diffusion of the Internet and related technologies has caused a burst of productivity growth since 1995. |
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Suppose that average labor productivity in Country C is $5,000, and that Countries C and E have the same real GDP per capita. Based on the information in the table, what must be the average labor productivity in Country E? A. $6,250 |
A. $6,250 Country C has real per capita GDP of ($5,000* 0.5) = $2,500. If Country E has the same real GDP per capita, then $2,500 = labor productivity (x) times the percentage of population working of .5. Solving for x, we get = $2,500/0.4 = $6,250. |
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Compound interest is: A. the payment of interest on the original deposit. B. the payment of interest on both the original deposit and all accumulated interest. C. the interest rate adjusted for the rate of inflation D. the real rate of interest compounded by the rate of inflation. |
B. the payment of interest on both the original deposit and all accumulated interest. Compound interest is the payment of interest on both the original deposit and all accumulated interest. |
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Suppose that the share of population employed in Country C is 50 percent, and that Countries C and D have the same real GDP per capita. Based on the information in the table, what share of Country D’s population must be employed? A. 100.0 percent |
D. 25.0 percent To find real GDP per person, multiply the average output each worker produces times the percentage of population employed. In this case, average labor productivity in Country C is $25,000 and share of population employed is 0.50, so real GDP per person is $12,500. For Country D to also have real GDP per person of $12,500, then the share of population working * the average labor productivity of $50,000 must be $12,500. Solving for the share of population working, by dividing each side by the real GDP, we get $12,500 / $50,000 = .25 or 25 percent. |
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Compared to the level of real GDP per person in 1870, by 2010, real GDP in the U.S was ________ times larger, while real GDP per person in Japan was ________. A. 12; 30 times larger |
A. 12; 30 times larger U.S. real GDP per person went up enormously from 1870 to 2010, and especially fast in the years 1950 to 2010. In Japan, real GDP per person started out much lower than the U.S. in 1870 and grew 30 times over the same interval. |
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Providing a fixed number of workers with additional capital will ________ average labor productivity at a ________ rate. A. increase; constant |
C. increase; decreasing More capital per worker increases average labor productivity, but this increase comes at a decreasing rate. |
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Human capital is: A. the factories and machinery made by workers. B. the talents, training, and education of workers. C. the factories and machinery used by humans in the production process. D. the financial resources available to humans for investment. |
B. the talents, training, and education of workers. Human capital is the talents, training, and education of workers. |
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Which of the following is consistent with a political and legal framework that discourages economic growth? A. Taxation and regulation that are not very burdensome B. Agricultural prices that are allowed to vary according to market conditions C. A speedy approval process for new businesses D. The allocation of bank credit by the government rather than by markets |
D. The allocation of bank credit by the government rather than by markets Bank credit is allocated well by private markets, based on the risk-reward trade-off, whereas credit allocated by governments tends to be faulty because of corruption and strong political influence. |
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Most economists agree that ________ are the single most important source of productivity improvements. A. technological advances |
A. technological advances Technological advances, like the invention and diffusion of cheap computing, have a large and sudden contribution to productivity. |
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If average labor productivity increases, real GDP per person: A. increases. C. may increase or decrease depending on the change in the share of population employed. D. decreases. |
D. decreases. It is possible that increased average labor productivity is offset by a decline in the share of population employed. |
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Growth of real GDP per person is totally determined by the growth of average: A. labor productivity and the proportion of the population employed. B. labor productivity and the proportion of the population in the labor force. C. labor force participation and the share of income going to capital. D. labor force participation and the share of the population employed. |
A. labor productivity and the proportion of the population employed. To find real GDP per person, multiply the average output each worker produces times the percentage of population employed. |
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If real GDP per person in a country equals $40,000 and 60 percent of the population is employed, then average labor productivity equals: A. $40,000. |
C. $66,667. If real GDP per person is obtained by multiplying the average output each worker produces times the percentage of population employed. Then average output per worker or average labor productivity is = real GDP divided by the percentage of population employed =: $40,000 / 0.60 = $66.667. |
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Developing new products and services as well as introducing new production methods are among the ways that ________ increases average labor productivity. A. human capital |
B. an entrepreneur Entrepreneurs take risks when they start new businesses. The intent of these new activities is to increase factor productivity. |
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Average labor productivity is determined by: A. the real interest rate, the nominal interest rate, and the rate of inflation. B. consumption, investment, government spending, and net exports. C. the number employed, unemployed, and the labor force participation rate. D. the quantity and quality of human capital, physical capital, technology, natural resources, entrepreneurship, and the legal and political environment |
D. the quantity and quality of human capital, physical capital, technology, natural resources, entrepreneurship, and the legal and political environment Average labor productivity depends on many things. These can be summarized by saying it depends on those conditions which help workers do their jobs better. |
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In the long run, increases in output per person arise primarily from: A. increases in female labor force participation. B. increases in male labor force participation. C. an increasing proportion of the population retiring D. increases in average labor productivity. |
D. increases in average labor productivity. Increased average labor productivity is the foremost reason why nations become rich. |
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More economic growth is not necessarily better unless the benefits of growth: A. increase human capital. B. increase average labor productivity. C. increase real GDP per capita. D. exceed the costs of growth |
D. exceed the costs of growth Economic growth, like other economic decisions, should be decided by the marginal benefits versus marginal costs rule. |
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Arguments that economic growth must be constrained by environmental problems and limits of natural resources ignore the fact that economic growth can: A. increase both average labor productivity and the share of population employed. B. take the form of improved quality as well as increased quantity. C. be measured in both nominal and real terms. D. occur with only benefits and no economic costs |
B. take the form of improved quality as well as increased quantity. Making more fuel-efficient cars that cause less pollution counts as economic growth even if the number of goods is the same. Economic growth can be reflected in quality improvements as well as quantity increases. |
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If real GDP per person were equal to $2,000 in 1900 and grew at a one percent annual rate, what would be the value of real GDP per person 100 years later? A. $20,000 |
D. $5,410 At one percent growth, the future value equation is: Future GDP = $2,000*(1.01)^100 = $5,410. |
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In the Soviet Union, firm managers had ________ incentive to reduce costs and produce better products because of ________. A. great; the complexity of coordinating economic activity B. little; the absence of import restrictions C. great; government threats D. little; the absence of private property rights |
D. little; the absence of private property rights Soviet Union planning agencies and the absence of private property rights stifled managers’ incentives to reduce cost and create new products. |
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The introduction of an overnight delivery service that guarantees the delivery of packages anywhere in the world overnight would increase: A. average labor productivity. B. the unemployment rate. C. the labor force participation rate. D. the share of population employed. |
A. average labor productivity. This new service would create the opportunity for fewer business interruptionsand therefore increase average labor productivity. |
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Real GDP per person in Northland is $30,000, while real GDP in Southland is $10,000, However, Northland’s real GDP per person is growing at 1 percent per year, and Southland’s real GDP per person is growing at 3 percent per year. If these growth rates persist indefinitely, then: A. Northland’s real GDP per person will decline until it equals Southland’s. B. Southland’s real GDP per person will always be exactly 2 percent less than Northland’s. C. Northland’s real GDP per person will always be between 1 and 2 percent greater than Southland’s. D. Southland’s real GDP per person will eventually be greater than Northland’s. |
D. Southland’s real GDP per person will eventually be greater than Northland’s. Southland, due to the power of compound growth, will eventually overtake Northland. |
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Arguing that economic growth will eventually stop because we will run out of natural resources: A. must be correct because scarcity exists. B. is supported today by the fact that richer countries have fewer natural resources. C. ignores the power of markets to recognize shortages and induce changes in behavior. D. will only be correct if growth takes the form of newer, more efficient goods and services. |
C. ignores the power of markets to recognize shortages and induce changes in behavior. Those who believe there are limits to economic growth tend to worry that the world is running out of natural resources. However, past experiences seem to suggest that markets will adjust to shortages as the recent shale oil boom in the United States show. |
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Physical capital is: A. the physical labor of workers. B. the talents, training, and education of workers. C. the financial resources available for investment. D. the factories and machinery used to produce other goods and services. |
D. the factories and machinery used to produce other goods and services. Physical capital is the factories and machinery used to produce other goods and services. |
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Mike and Tom debone chicken breasts for Ted’s Chicken Co. Mike is new and can only debone 30 chicken breasts per hour by hand, while Tom’s experience allows him to debone 60 chicken breasts per hour by hand. Ted buys one new machine that can debone 100 chicken breasts per hour. Both Mike and Tom work the same 40 hours per week, but one of them is assigned to operate the machine instead of deboning the chicken breasts by hand. To obtain maximum average hourly productivity, ________ is assigned to use the machine and their combined average hourly productivity as a team is ________ chicken breasts A. Tom; 80 |
D. Mike; 80 Mike is assigned to the machine because he is the least efficient producer. After getting the machine, the team debones 160 chicken breasts per hour (Mike deboned 100 and Tom deboned 60), for an average of 80 per worker. |
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Assume that the share of population employed in all countries is 50 percent. Based on the information in the table, which country has the highest real GDP per capita? A. Country E |
A. Country E To find real GDP per person, multiply the average output each worker produces times the percentage of population employed. Note that all countries have the same share of population working, 50 percent, so the real GDP in each country is half of the average labor productivity. So real GDP per person in Country E is: ($60,000*0.50) = $30,000. |
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Business managers are people who: A. own the physical capital used in production. B. run businesses on a day-to-day basis. Correct C. engage exclusively in business travel. D. entertain the workers. |
B. run businesses on a day-to-day basis. Correct This is the definition of "business managers." Note: they are different from entrepreneurs because entrepreneurs take risks whereas business managers often do not. |
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The biggest problem thwarting economic growth in the poorest countries, compared to the richest countries, is: A. no access to technology. B. insufficient human capital. C. outdated physical capital. D. a legal and/or political environment unfavorable to economic growth |
D. a legal and/or political environment unfavorable to economic growth Foreign and domestic saving is nearly absent in the poorest countries of the world because savers worry their money cannot be protected by contract law. With low saving there is little investment into new capital or technology. |
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The principle that if the amount of labor and other inputs is held constant, then the greater the amount of capital in use, the less an additional unit of capital adds to production is called the principle of: A. diminishing returns to capital. B. increasing returns to capital. C. decreasing output per unit of capital. D. increasing average capital productivity. |
A. diminishing returns to capital. This is the definition of the "principle of diminishing returns" as applied to addition of capital stock. |
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Research confirms that government provision of infrastructure: A. leads to reduced spending on research and development. B. increases human capital. C. hinders economic growth. D. promotes economic growth. |
D. promotes economic growth. Government policy of building infrastructure, like interstate highways, promotes physical capital, which is essential to economic growth. |
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In order to increase the capital stock, society must divert ________ that could be otherwise used to increase the currentsupply of ________. A. resources; consumer goods |
A. resources; consumer goods Capital stock growth requires investments into capital goods, which means giving up resources that could be used for current consumption. |
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Betty and Wilma are the only two cashiers employed at a retail store. Each of them works the same 40 hours per week. By manually entering the price of each product purchased into the cash register, Betty can check out 20 customers and Wilma can check out 30 customers per hour. The store owner replaces the old cash registers with new ones that automatically scan product prices into the register. With the new cash registers, Betty and Wilma can each check out 60 customers per hour. Their average labor productivity as a team before the new cash registers were introduced was ________ customers per hour and ________ customers per hour after the new machines were installed. A. 1,000; 2,400 |
C. 25; 60 The team’s beginning average hourly output was 25 customers per hour (50 / 2). After buying the new cash registers, the team’s average hourly output was 60 customers per hour. |
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Empirical studies suggest that as real GDP per person increases the level of pollution: A. decreases. |
C. first increases then decreases When countries first industrialize there is often considerable pollution. However when countries get richer, they value quality of life more than before and tend to reduce pollution. |
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An example of a government policy to increase human capital formation is: A. the provision of publicly-funded education. B. maintaining a well-functioning legal system. C. government support for basic D. the construction of an interstate highway system. |
A. the provision of publicly-funded education. Publicly funded education expands education opportunities greatly, which results in much higher levels of human capital formation. Note that all the others options are examples of ways that governments can improve productivity through the increased use of other important resources |
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The population of Alpha totals one million people, 40 percent of whom are employed. Average output per worker in Alpha is $20,000. Real GDP per person in Alpha totals: A. $12,000. |
C. $8,000. To find real GDP per person for Alpha, multiply the average output each worker produces times the percentage of population employed. In this case, real GDP per person is: ($20,000*0.40) = $8,000. |
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Assume that average labor productivity is the same in each country. Based on the information in the table, which country has the smallest real GDP per capita? A. Country A |
C. Country E To find real GDP per capita, multiply the average output per worker times the percentage of population employed. Since output per worker is the same in each country, the lowest percentage of the population employed indicates the lowest standard of living. |
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Suppose when you are 21 years old, you deposit $1,000 into a bank account that pays annual compound interest, and you do not withdraw from the account until your retirement at the age of 65, 44 years later. How much more will be in your account if the interest rate is 6 percent rather than 5 percent? A. $440 |
D. $4,428 Use the formula FV = PV (1 + i)^n, where i is the interest rate and n the number of years. At the interest rate of 6 percent, your deposit after 44 years = $1,000(1.06)^44 = $12,985. At the interest rate of 5 percent, your deposit after 44 years = $1,000(1.05)^44 = $8,557. The difference is $4,428. |
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A government policy that allows retirement savings to accumulate tax-free is an example of a policy to promote economic growth by: A. increasing the availability of natural resources. B. increasing physical capital. C. increasing human capital. D. improving technology. |
B. increasing physical capital. Government tax policy that promotes savings gives savers incentives to accumulate wealth. Savings, in turn, increases investment in physical capital. |
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Small differences in annual growth rates of real GDP generate large differences in real GDP over time because of the: A. limits of economic growth. B. diminishing returns to capital. C. power of compound interest. D. importance of average labor productivity. |
C. power of compound interest. Compound interest pays interest on previously earned interest, so small differences in growth rates expand into big differences over time. |
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Workers should invest in additional human capital as long as the: A. marginal cost exceeds the marginal benefit. B. opportunity cost exceeds the marginal benefit. C. marginal benefit exceeds the marginal cost. D. opportunity cost is zero. |
C. marginal benefit exceeds the marginal cost. Investments in human capital follow the cost-benefit principle, i.e., marginal benefits should exceed marginal costs. |
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In Macroland, 500,000 of the 1 million people in the country are employed. Average labor productivity in Macroland is $20,000 per worker. Real GDP per person in Macroland totals: A. $40,000. |
D. $10,000. To find real GDP per person for Macroland, multiply the average output each worker produces times the percentage of population employed. In this case, real GDP per person is: ($20,000)*(500,000/1,000,000) = $10,000. |
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The key variable in determining changes in a country’s standard of living is the: A. interest rate. B. unemployment rate. C. long-run rate of economic growth. D. inflation rate. |
C. long-run rate of economic growth. The long-run rate of economic growth best explains changes in standards of living in countries around the world. |
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Providing workers with on-the-job training will increase: A. the unemployment rate. |
B. average labor productivity. On-the-job training is a form of human capital investment. This investment usually increases average labor productivity. |
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An example of a government policy to enhance technological progress is: A. the construction of an interstate highway system. B. government support for basic research. C. the provision of publicly-funded education. D. maintaining a well-functioning legal system. |
B. government support for basic research. Governmentscan provide support for basic research to introduce and develop new technologies and thereby improve productivity. Note that all the others options are examples of ways that governments can improve productivity through the increased use of other important resources |
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Higher future living standards require: A. increased rates of population growth. B. reduced rates of current investment. C. increased rates of current consumption. D. reduced rates of current consumption |
D. reduced rates of current consumption If society saves today it can expand its capital stock and increase living standards in the future. However, this expansion of capital stock means giving up resources that could be used for current consumption. |
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High rates of saving and investing in the private sector promote economic growth by: A. improving the social and legal environment. B. increasing physical capital. C. increasing human capital. D. improving technology. |
B. increasing physical capital. High rates of savings, which result from well-functioning financial markets, provide the funds needed for investment into physical capital. |
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If average labor productivity in two countries is the same, average living standards will be lower in the country with: A. the larger population. B. the lower share of population employed. C. the smaller population. D. the higher share of population employed |
B. the lower share of population employed. To find real GDP per person, which gives the standard of living, multiply the average output each worker produces times the percentage of population employed. |
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Three workers run a house painting business and always work the same number of hours together. The paint they use requires applying two coats. Each worker paints 200 square feet per hour using a roller or 80 square feet per hour using a brush. If a technological advance provides a paint that only requires one coat, their average labor productivity per hour as a team: A. remains the same. |
D. increases. This technological advance improves average labor productivity of individuals and the team whether they use a roller or a brush. |
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A political system that promotes the free and open exchange of ideas: A. is detrimental to economic growth. B. increases average labor productivity. C. will not have well-defined property rights. D. slows the development of new technologies and products. |
B. increases average labor productivity. Political stability and transparency creates a favorable business climate because firm owners can rely on government rules. |
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The benefits of economic growth are ________, while the costs of economic growth are ________. A. more current consumption; less future consumption B. increased output per person; the consumption sacrificed in exchange for capital formation C. increased output per person; too small for concern D. increased output per person; less future consumption |
B. increased output per person; the consumption sacrificed in exchange for capital formation If society saves today it can expand its capital stock for the future. However, this expansion of capital stock means giving up resources that could be used for current consumption. |
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If you left $2,500 on deposit with a bank promising to pay you a 6 percent compound annual rate of interest, then after 50 years your deposit would be worth approximately: A. $2,800 |
D. $46,050 Use the formula FV = PV (1 + i)^n, where i is the interest rate and n the number of years, so that your deposit after 50 years = and $2,500*(1.06)^50 = $46,050. |
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Usually an abundance of natural resources ________ average labor productivity. A. has no effect on |
B. increases Abundant natural resources, given freely from nature, usually increase average labor productivity. |
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The key indicator of a country’s living standard and economic well-being is: A. the interest rate. |
Real GDP per capita indicates how much the average person produces and thus, how much goods and services are available to the typical person. |
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Real GDP per person in the Canada was $7,377 in 1950. Over the next 48 years it grew at a compound annual rate of 2.0%. If instead real GDP per person had grown at an average compound annual rate 2.5%, then real GDP per capita in the Canada in 1998 would have been approximately ________ larger. A. $24,130 |
C. $5,049 1950 Canadian real GDP = $7,377(1.02)^48 = $19,085. If the growth rate would have been 2.5% per year, 1998 Canadian real GDP = $7,377(1.025)^48 = $24,134. The difference is $5,049. |
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