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1
Q

In the Neoclassical growth model, the law of diminishing marginal returns implies that capital accumulation leads to ever

A) larger levels of unemployment but small increases in the standard of living.
B) larger levels of unemployment but larger increases in the standard of living.
C) larger increases in GDP but smaller decreases in living standards.
D) smaller increases in GDP and living standards.
E) larger decreases in GDP and large decreases in living standards.

A

D) smaller increases in GDP and living standards.

2
Q

Neoclassical growth theory is based on the assumption of ________ marginal returns to a single factor and ________ returns to scale exhibited by the aggregate production function.

A) increasing; constant
B) decreasing; decreasing
C) decreasing; constant
D) increasing; increasing
E) constant; decreasing
A

C) decreasing; constant

3
Q

The Neoclassical growth model assumes that with a given state of technology,

A) increases in GDP are possible only if all factors are increased at an equal rate.
B) increases in the use of a single factor result in constant returns.
C) increases in the use of a single factor bring increasing returns.
D) growth in GDP happens only if the labour force grows more quickly than the amount of physical capital.
E) the standard of living will decrease if the labour force grows more quickly than the amount of physical capital.

A

E) the standard of living will decrease if the labour force grows more quickly than the amount of physical capital.

4
Q

Modern growth theories are more optimistic than Neoclassical growth theories because the former emphasize the unlimited potential of

A) knowledge-driven technological change.
B) economic theory.
C) modern capital.
D) modern labour.
E) more educated government policy making.

A

A) knowledge-driven technological change.

5
Q

According to some modern theories of long-run economic growth, successive increments of investment have ________ returns since some fixed costs are ________ for subsequent firms.

A) increasing; higher
B) constant; identical
C) decreasing; lower
D) increasing; lower
E) decreasing; higher
A

D) increasing; lower

6
Q

Balanced growth of labour and capital in the Neoclassical growth model

A) explains current rising per capita incomes in many countries.
B) leads to rising material living standards.
C) will not increase the level of per capita GDP.
D) is a natural outcome of long-run equilibrium.
E) will result in a constant level of GDP.

A

C) will not increase the level of per capita GDP.

7
Q

In the Neoclassical growth model, increases in the stock of physical capital, other things being equal, will lead to

A) increasing GDP and decreased national wealth.
B) increasing GDP and falling living standards.
C) increasing GDP and increasing living standards.
D) decreasing GDP and falling living standards.
E) decreasing GDP and increasing living standards.

A

C) increasing GDP and increasing living standards.

8
Q

Economic growth is often associated with structural change in the economy, and this change can present difficult policy challenges to governments. Which of the following government policies would be most useful at addressing the social costs of economic growth?

A) worker re-training and education programs
B) reducing income taxes
C) the imposition of trade restrictions to protect Canadian jobs
D) expansionary monetary policy
E) subsidies directed at Canadian manufacturing firms

A

A) worker re-training and education programs

9
Q

New theories of economic growth based on the idea that growth is endogenous

A) assume that the rate of growth of the economy is equal to the rate of population growth.
B) incorporate factors such as central-bank behaviour.
C) stress the role of knowledge and learning in the economy’s rate of growth.
D) assume that the growth rate of technology is exogenous.
E) ignore the role of technology.

A

C) stress the role of knowledge and learning in the economy’s rate of growth.

10
Q

Consider the aggregate production function Y = F(K, L). If the inputs K and L are increased by 5% each and total output (Y) increases by 5% as a result, then this production function is displaying

A) increasing returns to scale.
B) a change in technology.
C) constant returns to scale.
D) diminishing marginal returns.
E) decreasing returns to scale.
A

C) constant returns to scale.

11
Q

Consider the Neoclassical growth model. The effect of an increase in population (or the labour force) in an economy, with everything else held constant, is

A) a decrease in per capita output.
B) an inward shift of the production possibilities boundary.
C) an increase in per capita national income.
D) a decrease in the capital-output ratio.
E) an increasingly aging population.

A

A) a decrease in per capita output.

12
Q

Over a long period of time, perhaps many years, changes in real GDP come primarily from

A) continuous increases in potential GDP.
B) upward shifts of the AS curve.
C) rightward shifts of the AD curve.
D) upward shifts of the AE curve.
E) leftward shifts of the AD curve.
A

A) continuous increases in potential GDP.

13
Q

A central assumption of the Neoclassical growth model is that

A) long-run growth arises from correcting market failures.
B) long-run growth arises only from technological innovation.
C) there are constant marginal returns to investment.
D) there are increasing marginal returns to capital investment.
E) there are diminishing marginal returns to a single factor.

A

E) there are diminishing marginal returns to a single factor.

14
Q

The theory of economic growth concentrates on the ________ over the long run, not on ________.

A) growth of potential output; fluctuations of output around potential
B) growth of investment in capital goods; short-run fluctuations of investment
C) growth of real GDP; growth of potential GDP
D) factor utilization rates; growth of the supplies of factors
E) factor utilization rates; growth of real GDP

A

A) growth of potential output; fluctuations of output around potential

15
Q

If a country transfers resources from the production of consumption goods to the production of capital goods, the result will be to

A) raise current consumption.
B) raise current living standards.
C) raise future consumption.
D) lower future living standards.
E) decrease the long-run growth rate.
A

C) raise future consumption.

16
Q

Suppose that most of the world’s population would like to achieve a standard of living equal to that of the average Canadian family. Such a rise in global living standards is

A) possible given the world’s current resources and current state of technology.
B) possible with no adverse effects on pollution and environmental degradation.
C) not possible under any circumstances.
D) not possible given the world’s current resources and the current state of technology.
E) possible with better political and economic cooperation around the world.

A

D) not possible given the world’s current resources and the current state of technology.

17
Q

The “new” theories of economic growth emphasize that the pace of technological change is ________ to economic signals, and that it is ________ to the economic system.

A) responsive; exogenous
B) unresponsive; exogenous
C) unresponsive; endogenous
D) responsive; endogenous
E) unresponsive; unrelated
A

D) responsive; endogenous

18
Q

If government policies are to be successful in enhancing a country’s long-run growth rate, they likely work through generating

A) an increase in current consumption and a reduction in saving.
B) higher levels of current consumption.
C) greater private investment in physical and human capital.
D) a leftward shift in the AS curve.
E) fiscal policies that shift the AD curve to the right.

A

C) greater private investment in physical and human capital.

19
Q

Refer to Figure 25-1. Which of the following statements best describes what we know about the difference between the two economies at Year 0?

A) Economy A has a higher level of real GDP at Year 0 than Economy B.
B) Economy B’s households are consuming a larger percentage of GDP than Economy A’s households.
C) Economy A’s households are consuming a larger percentage of GDP than Economy B’s households.
D) There is no opportunity cost for economic growth for Economy B at Year 0.
E) There is no opportunity cost of economic growth for Economy A at Year 0.

A

C) Economy A’s households are consuming a larger percentage of GDP than Economy B’s households.

20
Q

Economic growth allows increasing numbers of people around the world to enjoy higher incomes and to escape (material) poverty. Which of the following statements best describes the current limits to this growth?

A) Increasing prices of natural resources will limit further economic growth.
B) Innovation and technological change with respect to resource development have been exhausted.
C) The supply of financial capital is insufficient to maintain this level of economic growth.
D) The inability of developing countries to increase their human capital will prevent further economic growth.
E) Rising consumption due to higher incomes puts increasing pressure on the world’s natural ecosystems and its ability to cope with further pollution and environmental degradation.

A

E) Rising consumption due to higher incomes puts increasing pressure on the world’s natural ecosystems and its ability to cope with further pollution and environmental degradation.