Question 1

An increase in physical capital per worker will:

Accepted Answer

Increased physical capital, such as machinery and equipment, allows for workers to be more productive and efficient in their work. This leads to increased output per worker, thus improving economic growth and standards of living.

Question 2

Whispering Valley Furniture employs five workers working eight hours each to produce 80 rocking chairs.Rocky Gap Furniture employs 10 workers working eight hours each to produce 160 rocking chairs.Which company's workers are more productive?

Accepted Answer

Both companies have the same productivity rate, as each worker produces 2 rocking chairs per hour.

Question 3

Joseph's Schumpeter's idea that waves of innovations lead to business cycles is called:

Accepted Answer

Schumpeter's concept of "creative destruction" describes how waves of innovation disrupt existing industries and economic structures, leading to business cycles.

Question 4

According to Joseph Schumpeter,what is the driving force behind business cycles?

Accepted Answer

Joseph Schumpeter believed that the driving force behind business cycles was waves of innovations. He argued that innovation and technological progress were the main drivers of economic growth and that these waves of innovation led to periods of rapid expansion followed by downturns and recessions.

Question 5

Which of the following changes will NOT result in economic growth according to the production function?

Accepted Answer

Increases in consumption spending may lead to short-term increases in economic activity, but they will not result in sustained economic growth as defined by the production function. Economic growth is defined as an increase in output over a long period of time and is determined by factors such as improvements in labor productivity, capital accumulation, and technological progress. Increases in consumption spending do not directly contribute to any of these factors.

Question 6

Investment in human capital is important because:

Accepted Answer

Investment in human capital, such as education and training, can increase labor productivity, leading to improved performance and efficiency, which can be reflected in higher wages and better job opportunities.

Question 7

Which of the following is a source of increases in productivity?

Accepted Answer

All three choices listed (research and development, improvements in labor quality, and capital investment) are sources of increases in productivity. Research and development can lead to the creation of more efficient or effective production methods, while improvements in labor quality (such as through training or hiring more skilled workers) can result in higher output per worker. Finally, capital investment (such as in new equipment or machinery) can enable workers to produce more in less time or with greater ease.

Question 8

Which of the following increases productivity?

Accepted Answer

Increased skill in the labor force leads to more efficient and effective work, ultimately increasing productivity. A young labor force or a large labor force may not necessarily increase productivity, while a poorly educated labor force may actually decrease productivity due to a lack of knowledge and skills.

Question 9

According to the classical model,which of the following developments does NOT contribute to economic growth?

Accepted Answer

According to the classical model, higher interest rates discourage investment and therefore decrease capital accumulation, which leads to lower economic growth. Therefore, higher interest rates do not contribute to economic growth.

Question 10

Whispering Valley Furniture employs five workers working eight hours each to produce 80 rocking chairs.Rocky Gap Furniture employs 10 workers working eight hours each to produce 100 rocking chairs.Which company's workers are more productive?

Accepted Answer

Whispering Valley Furniture's workers produce 80 rocking chairs with 5 workers, which means each worker produces 16 chairs in 8 hours. Rocky Gap Furniture's workers produce 100 rocking chairs with 10 workers, which means each worker produces 10 chairs in 8 hours. Therefore, Whispering Valley Furniture's workers are more productive.

Question 11

Which of the following does NOT increase productivity?

Accepted Answer

An increased money supply may lead to inflation and decrease the purchasing power of a currency. It does not directly lead to an increase in productivity. Research and development, improvements in labor quality, and capital investment have all been linked to boosts in productivity.

Question 12

The capital-to-labor ratio measures:

Accepted Answer

The capital-to-labor ratio measures the amount of economic capital per worker, so the best choice is D.

Question 13

Improvements in technology:

Accepted Answer

Technological advancements have greatly improved productivity and efficiency, leading to economic growth in recent decades.

Question 14

According to Schumpeter,the most important activity that drives business cycles is:

Accepted Answer

Schumpeter believed that innovation, specifically the creation of new industries and the introduction of new products or production methods, was the driving force behind economic growth and business cycles. Consumption and savings are important factors as well, but they are seen as consequences rather than causes of economic activity. Schumpeter also did not believe in government direction of the economy, instead advocating for a laissez-faire approach to allow for competition and innovation to flourish.

Question 15

Creative destruction occurs when:

Accepted Answer

Creative destruction refers to the concept that innovation and technological progress inevitably lead to the downfall of older industries and businesses, which in turn paves the way for the emergence of newer and more efficient ones. This cycle of destruction and creation contributes to the growth and development of an economy.

Question 16

Which is NOT a source of productivity growth?

Accepted Answer

Moving resources from production to pension benefits is a redistribution of income, which does not directly contribute to productivity growth. The other options all contribute to productivity growth by improving the efficiency and effectiveness of labor and capital.

Question 17

A production function of the sort that says output per worker equals A * f(L / L,K / L,H / L,N / L)tells us all of the following EXCEPT that ____________ will lead to a better standard of living.

Accepted Answer

More people (an increase in L) does not necessarily lead to a better standard of living, as it could dilute the amount of capital, human capital, and natural resources available per worker, potentially reducing output per worker.

Question 18

To have long-term economic growth,the production function suggests:

Accepted Answer

The production function suggests that long-term economic growth is achieved by increasing the availability of technology, capital, and labor. This leads to an increase in productivity and output, which in turn leads to economic growth. Keeping interest rates high to encourage saving may be beneficial in some cases, but it can also lead to decreased consumer spending and slower economic growth. Increased government oversight of business decisions may lead to more regulation and bureaucracy, which can stifle entrepreneurship and innovation. Redistributing income from the wealthy to the poor may address issues of inequality, but it is not necessarily conducive to long-term economic growth.

Question 19

Rocky Gap Furniture employs 10 workers working eight hours each to produce 100 rocking chairs.What is the productivity of these workers?

Accepted Answer

To find the productivity of the workers, we divide the total number of chairs produced by the total number of hours worked.

Total number of hours worked = 10 workers x 8 hours = 80 hours

Productivity = Total number of chairs produced / Total number of hours worked 
Productivity = 100 / 80

Productivity = 1.25 chairs per hour

Therefore, the best answer choice is B.

Question 20

Schumpeter's term creative destruction describes the:

Accepted Answer

Schumpeter's term creative destruction refers to the innovative process of capitalism. It describes how old and outdated practices, technologies, and industries are replaced by new innovations and new industries, leading to economic growth and progress. This process often involves the destruction of existing structures and systems, but it ultimately leads to greater efficiency, productivity, and prosperity.

Quiz 7: Economic Growth