Question 1

Fretonia and Libstien are the same except Fretonia has a larger capital stock. Both countries undertake policies that raise their saving rates to the same higher level. We would expect that
A)both countries would have permanent increases in their growth rates, but the increase would initially be larger in Fretonia.
B)both countries would have permanent increases in their growth rates, but the increase would initially be smaller in Fretonia.
C)both countries would have temporary increases in their growth rates, but the increase would be larger in Fretonia.
D)both countries would have temporary increases in their growth rates, but the increase would be smaller in Fretonia.

Accepted Answer

The answer of Fretonia and Libstien are the same except...

Question 2

The logic behind the catch-up effect is that
A)workers in countries with low incomes will work more hours than workers in countries with high incomes.
B)the capital stock in rich countries deteriorates at a higher rate because it already has a lot of capital.
C)new capital adds more to production in a country that doesn't have much capital than in a country that already has much capital.
D)None of the above is correct.

Accepted Answer

The catch-up effect suggests that new capital has a greater impact on production in countries with low amounts of capital, as opposed to countries with high amounts of capital. This is because low-capital countries have more room for growth and development, and any new investment can have a significant impact on overall production.

Question 3

In recent decades Americans have increased their purchase of stocks of foreign-based companies. The Americans who have bought these stocks were engaged in
A)foreign portfolio investment.
B)indirect domestic investment.
C)foreign direct investment.
D)foreign indirect investment.

Accepted Answer

When Americans purchase stocks of foreign-based companies, they are engaging in foreign portfolio investment. This type of investment involves buying securities, such as stocks or bonds, in companies located in foreign countries. It is different from foreign direct investment, which involves owning and operating a business in a foreign country, and indirect investment, which typically involves investing in a fund that holds securities of foreign companies.

Question 4

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.

Accepted Answer

An increase in the saving rate would have a greater impact on growth in a poor country than in a rich country because poor countries typically have less access to capital markets and foreign investment. However, the increase in growth would only be temporary because eventually the economy would reach a new equilibrium with a higher level of capital and output, leading to diminishing marginal returns. Additionally, the increase in saving would not necessarily lead to permanent growth as it depends on how effectively the savings are invested in productive activities to increase output in the long run.

Question 5

Country A has real GDP per person of 100,000 while country B has real GDP per person of 200,000. All else constant, country A will eventually have a higher standard of living than country B if
A)the level of saving per person is 10,000 in country A and 10,000 in country B.
B)the level of saving per person is 12,000 in country A and 15,000 in country B.
C)Both of the above are correct.
D)None of the above are correct.

Accepted Answer

The answer of Country A has real GDP per person...

Question 6

Country A has real GDP per person of 250,000 while Country B has real GDP per person of 500,000. All else constant, Country A will eventually have a higher standard of living than Country B if
A)the level of saving per person is 5.000 in Country A and 7,500 in Country B.
B)the level of saving per person is 3,000 in Country A and 6,000 in Country B.
C)Both of the above are correct.
D)None of the above are correct.

Accepted Answer

The answer of Country A has real GDP per person...

Question 7

Which of the following countries benefited significantly from the catch-up effect in the last half of the twentieth century?
A)Ethiopia
B)the United States
C)Canada
D)South Korea

Accepted Answer

South Korea is the only option that benefited significantly from the catch-up effect, as it experienced rapid economic growth and development in the second half of the twentieth century, often referred to as the "Miracle on the Han River." Ethiopia is one of the poorest countries in the world and has not experienced significant catch-up growth, while the United States and Canada are advanced economies that did not rely on catch-up growth during this period.

Question 8

Assuming diminishing returns,
A)the increase in output growth from an increase in the saving rate rises over time, and that, other things the same, rich countries should grow faster than poor ones.
B)the increase in output growth from an increase in the saving rate falls over time, and that, other things the same, rich countries should grow faster than poor ones.
C)the increase in output growth from an increase in the saving rate rises over time, and that, other things the same, poor countries should grow faster than rich ones.
D)the increase in output growth from an increase in the saving rate falls over time, and that, other things the same, poor countries should grow faster than rich ones.

Accepted Answer

Diminishing returns means that as more capital (saved resources) is added to the production process, the increase in output becomes smaller and smaller. Therefore, the increase in output growth from an increase in the saving rate falls over time. Additionally, poor countries have less capital to begin with, so the initial increase in output from saving will be greater. Therefore, other things being equal, poor countries should grow faster than rich ones as they have more room for growth due to their lower initial capital levels.

Question 9

The catch-up effect refers to the idea that
A)saving will always catch-up with investment spending.
B)it is easier for a country to grow fast and so catch-up if it starts out relatively poor.
C)population eventually catches-up with increased output.
D)if investment spending is low, increased saving will help investment to "catch-up."

Accepted Answer

The catch-up effect suggests that countries that start out relatively poor can experience faster economic growth rates and eventually catch up with wealthier countries. This is because they have more room for growth and can adopt and adapt existing technologies from wealthier countries.

Question 10

Foreign saving is used for domestic investment when foreigners engage in
A)foreign direct investment.
B)foreign portfolio investment.
C)either foreign direct investment or foreign portfolio investment.
D)None of the above is correct.

Accepted Answer

The answer of Foreign saving is used for domestic investment...

Question 11

In the 1800s, Europeans purchased stock in American companies that used the funds to build railroads and factories. The Europeans who did this engaged in
A)foreign portfolio investment.
B)indirect domestic investment.
C)foreign direct investment.
D)foreign indirect investment.

Accepted Answer

The answer of In the 1800s, Europeans purchased stock in...

Question 12

Fretonia and Libstien are the same except Fretonia has a larger capital stock. Both countries undertake policies that raise their saving rates to the same higher level. We would expect that
A)both countries would have permanent increases in their growth rates, but the increase would initially be larger in Fretonia.
B)both countries would have permanent increases in their growth rates, but the increase would initially be smaller in Fretonia.
C)both countries would have temporary increases in their growth rates, but the increase would be larger in Fretonia.
D)both countries would have temporary increases in their growth rates, but the increase would be smaller in Fretonia.

Accepted Answer

The answer of Fretonia and Libstien are the same except...

Question 13

Which of the following is consistent with the catch-up effect?
A)The United States had a higher growth rate before 1900 than after.
B)After World War II the United States had lower growth rates than war-ravaged European countries.
C)Although the United States has a relatively high level of output per person, its growth rate is rather modest compared to some countries.
D)All of the above are correct.

Accepted Answer

The answer of Which of the following is consistent with...

Question 14

The traditional view of the production process is that capital is subject to
A)diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries.
B)diminishing returns, so that other things the same, real GDP in poor countries should grow at a slower rate than in rich countries.
C)increasing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries.
D)increasing returns, so that other things the same, real GDP in poor countries should grow at a slower rate than in rich countries.

Accepted Answer

The traditional view of the production process posits that capital is subject to diminishing returns. This implies that as an economy accumulates more capital, each additional unit of capital adds less to output than the previous unit. Consequently, poorer countries, which have less capital to begin with, should experience faster growth when they add more capital, compared to richer countries with already substantial amounts of capital. This is because the initial units of capital in a poor country are far from the point of diminishing returns that richer countries face.

Question 15

If an American-based firm opens and operates a new clothing factory in Honduras, then it is engaging in
A)foreign portfolio investment.
B)foreign financial investment.
C)foreign direct investment.
D)indirect foreign investment.

Accepted Answer

The American-based firm is engaging in foreign direct investment by opening and operating a new clothing factory in Honduras. This involves a long-term investment in a foreign country that allows the firm to have control over the operations of the factory. Foreign portfolio investment involves investing in stocks and securities of foreign companies, while foreign financial investment involves providing financial support to a foreign entity. Indirect foreign investment refers to investing through intermediaries such as mutual funds.

Question 16

Real GDP per person is $10,000 in Country A, $20,000 in Country B, and $30,000 in Country C. The saving rate increases by the same rate 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.

Accepted Answer

The answer of Real GDP per person is $10,000 in...

Question 17

If an American-based firm opens and operates a factory in China, then it is engaging in
A)foreign portfolio investment.
B)foreign financial investment.
C)foreign direct investment.
D)indirect foreign investment.

Accepted Answer

When an American-based firm opens and operates a factory in China, it is engaging in foreign direct investment. Foreign direct investment means that a company invests in and manages operations in a foreign country. In this case, the American-based firm is directly investing in a physical plant and managing its operations in China. Foreign portfolio investment, on the other hand, involves investing in foreign stocks, bonds, or other financial instruments. Foreign financial investment could refer to either foreign portfolio investment or foreign direct investment in financial institutions. Indirect foreign investment involves investing in a company that operates globally, but not directly investing in a particular foreign country.

Question 18

Over the period 1960-1990,
A)South Korea had a higher growth rate than the United States because it had a higher ratio of investment to GDP.
B)the United States had a higher growth rate than South Korea because it had a higher ratio of investment to GDP.
C)South Korea had a higher growth rate than the United States even though it had a similar ratio of investment to GDP.
D)the United States had a higher growth rate than South Korea even though it had a similar ratio of investment to real GDP.

Accepted Answer

The answer of Over the period 1960-1990,
A)South Korea had a...

Question 19

Suppose that an American company opens and operates a restaurant in Ireland. This is an example of
A)foreign direct investment. American saving is used to finance Irish investment.
B)foreign direct investment. American saving is used to finance American investment.
C)foreign portfolio investment. American saving is used to finance Irish investment.
D)foreign portfolio investment. American saving is used to finance American investment.

Accepted Answer

This is an example of foreign direct investment because an American company is investing in and operating a business in Ireland. Furthermore, American saving is being used to finance the investment directly. Foreign portfolio investment involves purchasing stocks, bonds, or other securities in a foreign company but not having any management control over the business.

Question 20

Suppose that an American opens and operates a candy factory in Finland. This is an example of
A)foreign direct investment. American saving is used to finance Finish investment.
B)foreign direct investment. American saving is used to finance American investment.
C)foreign portfolio investment. American saving is used to finance Finish investment.
D)foreign portfolio investment. American saving is used to finance American investment.

Accepted Answer

This is an example of foreign direct investment because the American is directly investing in and operating a candy factory in Finland. Additionally, American savings are being used to finance the investment in Finland.

Quiz 25: Production and Growth

Fretonia and Libstien are the same except Fretonia has a larger capital stock. Both countries undertake policies that raise their saving rates to the same higher level. We would expect that

The logic behind the catch-up effect is that

In recent decades Americans have increased their purchase of stocks of foreign-based companies. The Americans who have bought these stocks were engaged in

An increase in the saving rate would, other things the same,

Country A has real GDP per person of 100,000 while country B has real GDP per person of 200,000. All else constant, country A will eventually have a higher standard of living than country B if

Country A has real GDP per person of 250,000 while Country B has real GDP per person of 500,000. All else constant, Country A will eventually have a higher standard of living than Country B if

Which of the following countries benefited significantly from the catch-up effect in the last half of the twentieth century?

Assuming diminishing returns,

The catch-up effect refers to the idea that

Foreign saving is used for domestic investment when foreigners engage in

In the 1800s, Europeans purchased stock in American companies that used the funds to build railroads and factories. The Europeans who did this engaged in

Fretonia and Libstien are the same except Fretonia has a larger capital stock. Both countries undertake policies that raise their saving rates to the same higher level. We would expect that

Which of the following is consistent with the catch-up effect?

The traditional view of the production process is that capital is subject to

If an American-based firm opens and operates a new clothing factory in Honduras, then it is engaging in

Real GDP per person is $10,000 in Country A, $20,000 in Country B, and $30,000 in Country C. The saving rate increases by the same rate in all three countries. Other things equal, we would expect that

If an American-based firm opens and operates a factory in China, then it is engaging in

Over the period 1960-1990,

Suppose that an American company opens and operates a restaurant in Ireland. This is an example of

Suppose that an American opens and operates a candy factory in Finland. This is an example of