Question 1

Economists differ in their views of the role of the government in promoting economic growth. A controversial idea is that government should
A)lend support to the invisible hand by maintaining property rights and political stability.
B)lower barriers and impediments to free trade.
C)encourage capital formation.
D)target and subsidize specific industries important for technological progress.

Accepted Answer

The answer of Economists differ in their views of the...

Question 2

Consider three imaginary countries. In Aire, saving amounts to $4,000 and consumption amounts to $12,000; in Bovina, saving amounts to $3,000 and consumption amounts to $24,000; and in Cartar, saving amounts to $10,000 and consumption amounts to $50,000. The saving rate is
A)higher in Aire than in Cartar, and it is higher in Cartar than in Bovina.
B)higher in Cartar than in Aire, and it is higher in Aire than in Bovina.
C)higher in Cartar than in Bovina, and it is the same in Bovina and Aire.
D)higher in Aire than in Bovina, and it is the same in Aire and Cartar.

Accepted Answer

The answer of Consider three imaginary countries. In Aire, saving...

Question 3

Economists differ in their views of the role of the government in promoting economic growth. At the very least, the government should
A)lend support to the invisible hand by maintaining property rights and political stability.
B)limit foreign investment to industries that don't already exist in the country.
C)impose trade restrictions to protect the interests of domestic producers and consumers.
D)subsidize key industries.

Accepted Answer

Maintaining property rights and political stability is a fundamental role of the government in promoting economic growth. By doing this, the government can create an environment that is conducive to entrepreneurship and investment, which can help to stimulate economic activity and promote growth. The other options listed may have some potential benefits, but are generally more controversial and subject to debate among economists.

Question 4

All else equal, if there are diminishing returns, then which of the following is true if a country increases its capital by one unit?
A)Output will rise by more than it did when the previous unit was added.
B)Output will rise but by less than it did when the previous unit was added.
C)Output will fall by more than it did when the previous unit was added.
D)Output will fall but by less then it did when the previous unit was added.

Accepted Answer

Diminishing returns means that as more units of a variable input (in this case, capital) are added, the marginal product of that input will eventually decrease. Therefore, if a country increases its capital by one unit, the increase in output will be less than when the previous unit was added. Option B is the only choice that reflects this.

Question 5

"When workers already have a large quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity only slightly." This statement
A)represents an unconventional view of the production process.
B)is an assertion that capital is subject to increasing returns.
C)is made under the assumption that the quantities of human capital, natural resources, and technology are being held constant.
D)All of the above are correct.

Accepted Answer

The statement assumes that the quantities of human capital, natural resources, and technology are being held constant, indicating that the marginal productivity of capital is subject to decreasing returns. This is because as more and more capital is accumulated, the incremental gain in productivity from adding more capital decreases. The statement does not necessarily represent an unconventional view of the production process, nor does it assert that capital is subject to increasing returns.

Question 6

How do outward-oriented policies affect a nation's productivity?

Accepted Answer

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Question 7

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.

Accepted Answer

The answer of If there are diminishing returns to capital,...

Question 8

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.

Accepted Answer

The traditional view of the production process is that as additional units of capital are added to the production process, the marginal product will eventually decline, leading to diminishing returns. This means that beyond a certain point, adding more capital will not result in proportional increases in output, making choice C the correct answer.

Question 9

​In order to promote growth in living standards, policymakers must
A)protect property rights.
B)maintain political stability.
C)​encourage the accumulation of factors of production.
D)​All of the above

Accepted Answer

All three options are necessary to promote growth in living standards. Protecting property rights encourages individuals to invest in their resources, maintaining political stability creates a favorable environment for economic growth, and encouraging the accumulation of factors of production (such as capital, labor, and technology) increases a country's ability to produce goods and services. Therefore, policymakers must prioritize all three options in order to promote growth in living standards.

Question 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.

Accepted Answer

When a society decides to increase its quantity of physical capital, it is in effect deciding to invest in building more infrastructure, factories, machines, etc. This means that the society is consuming fewer goods and services in the present, as resources are being diverted towards investment. This is an example of a trade-off, where the society is sacrificing present consumption for future growth.

Question 11

Compare and contrast the population theories of Malthus and Kremer.

Accepted Answer

The answer of Compare and contrast the population theories of...

Question 12

Some economists argue that it is possible to raise the standard of living by reducing population growth. As an economist interested in incentives rather than coercion, what kind of policy would you recommend to slow population growth?

Accepted Answer

The answer of Some economists argue that it is possible...

Question 13

Other things the same, when an economy increases its saving rate
A)consumption and production rise now.
B)consumption rises now and production rises later
C)consumption falls now and production rises later.
D)consumption falls now and production falls later.

Accepted Answer

When an economy increases its saving rate, consumption falls now as people are saving more and spending less. However, production rises later as the increase in saving leads to an increase in investment which leads to more production capacity and higher economic growth in the future.

Question 14

Consider three imaginary countries. In Aziria, saving amounts to $3,000 and consumption amounts to $7,000; in Graniva, saving amounts to $2,000 and consumption amounts to $8,000; and in Tanistan, saving amounts to $4,500 and consumption amounts to $10,500. The saving rate is
A)higher in Aziria than in Tanistan, and it is higher in Tanistan than in Graniva.
B)higher in Graniva than in Tanistan, and it is higher in Tanistan than in Aziria.
C)higher in Tanistan than in Graniva, and it is the same in Graniva and Aziria.
D)higher in Aziria than in Graniva, and it is the same in Aziria and Tanistan.

Accepted Answer

The saving rate is calculated by dividing the saving amount by the total income (which is the sum of saving and consumption). Therefore, the saving rates for the three countries are:

- Aziria: Saving rate = 3,000 / (3,000 + 7,000) = 0.3 or 30%
- Graniva: Saving rate = 2,000 / (2,000 + 8,000) = 0.2 or 20%
- Tanistan: Saving rate = 4,500 / (4,500 + 10,500) = 0.3 or 30%

Comparing the saving rates, we can see that:

- The saving rate in Aziria is higher than in Graniva.
- The saving rate in Tanistan is the same as in Aziria.
- The saving rate in Tanistan is higher than in Graniva.

Therefore, the correct answer is D: "higher in Aziria than in Graniva, and it is the same in Aziria and Tanistan."

Question 15

"When workers already have a large quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity only slightly." This statement
A)represents the traditional view of the production process.
B)is an assertion that capital is subject to diminishing returns.
C)is made under the assumption that the quantities of human capital, natural resources, and technology are being held constant.
D)All of the above are correct.

Accepted Answer

The answer of "When workers already have a large quantity...

Question 16

In an economy where net exports are zero, if saving rises in some period, then in that period
A)consumption and investment fall.
B)consumption falls and investment rises.
C)consumption rises and investment falls.
D)consumption rises and investment rises.

Accepted Answer

In an economy where net exports are zero, if saving rises, it implies that less of the income is being used for consumption, hence consumption falls. The increased saving leads to more funds being available for investment, causing investment to rise.

Question 17

At first patents might seem like a deterrent to growth because in effect they restrict the use of new technology. Yet many economists believe that patents generate growth. Explain why.

Accepted Answer

The answer of At first patents might seem like a...

Question 18

"When workers have a relatively small quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity by a relatively large amount." This statement
A)is an assertion that production functions have the property of constant returns to scale.
B)is consistent with the view that capital is subject to diminishing returns.
C)is inconsistent with the view that it is easier for a country to grow fast if it starts out relatively poor.
D)All of the above are correct.

Accepted Answer

The statement suggests that there is an initial stage where the addition of capital increases productivity by a relatively large amount. This is consistent with the idea of diminishing returns to capital, where as more capital is added, the incremental increase in productivity decreases. Option A is incorrect as it would suggest that adding more capital would result in a proportional increase in productivity, which is not what the statement is suggesting. Option C is also incorrect as there is nothing in the statement that suggests anything about the starting point of a country's growth.

Question 19

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.

Accepted Answer

The growth that arises from capital accumulation requires society to sacrifice consumption goods and services now in order to enjoy more consumption in the future. This is because resources used for capital accumulation are not immediately available for consumption. Therefore, society must make a tradeoff between current consumption and future consumption.

Question 20

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.

Accepted Answer

In order to accumulate capital, society must sacrifice present consumption goods in order to invest in future production. This involves a tradeoff between present and future consumption.

Quiz 25: Production and Growth

Economists differ in their views of the role of the government in promoting economic growth. A controversial idea is that government should

Consider three imaginary countries. In Aire, saving amounts to $4,000 and consumption amounts to $12,000; in Bovina, saving amounts to $3,000 and consumption amounts to $24,000; and in Cartar, saving amounts to $10,000 and consumption amounts to $50,000. The saving rate is

Economists differ in their views of the role of the government in promoting economic growth. At the very least, the government should

All else equal, if there are diminishing returns, then which of the following is true if a country increases its capital by one unit?

"When workers already have a large quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity only slightly." This statement

How do outward-oriented policies affect a nation's productivity?

If there are diminishing returns to capital, then

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

​In order to promote growth in living standards, policymakers must

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

Compare and contrast the population theories of Malthus and Kremer.

Some economists argue that it is possible to raise the standard of living by reducing population growth. As an economist interested in incentives rather than coercion, what kind of policy would you recommend to slow population growth?

Other things the same, when an economy increases its saving rate

Consider three imaginary countries. In Aziria, saving amounts to $3,000 and consumption amounts to $7,000; in Graniva, saving amounts to $2,000 and consumption amounts to $8,000; and in Tanistan, saving amounts to $4,500 and consumption amounts to $10,500. The saving rate is

"When workers already have a large quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity only slightly." This statement

In an economy where net exports are zero, if saving rises in some period, then in that period

At first patents might seem like a deterrent to growth because in effect they restrict the use of new technology. Yet many economists believe that patents generate growth. Explain why.

"When workers have a relatively small quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity by a relatively large amount." This statement

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

Accumulating capital

In order to promote growth in living standards, policymakers must