Sample Multiple Choice Questions
Chapter 8
1. The rationale for developing a model in which real GDP depends only on labor is
[A] to prove that labor is a key source of productivity growth.
[B] to prove that productivity growth can occur without capital.
[C] to prove that productivity growth was higher before the Industrial Revolution.
[D] to prove that capital and technology play a key role in productivity growth.
[E] to prove that productivity growth can occur without technology.
2. The flattening out of the production function is due to
[A] the increasing scarcity of labor.
[B] all other factors being held constant.
[C] increasing returns to labor.
[D] the declining opportunity cost of labor.
[E] the increasing specialization of labor.
3. Diminishing returns to labor means that
[A] as more labor is employed, total output declines.
[B] the greater the amount of output, the less labor that is needed.
[C] as more labor is employed, total output will increase.
[D] as more labor is employed, each additional worker produces less additional output.
[E] the greater the amount of output, the less additional labor that is needed.
4. Diminishing returns to labor exists
[A] only in an economy with no capital and technology.
[B] only in an economy where most of the output comes from the agricultural sector.
[C] only in a pre-Industrial Revolution economy.
[D] only in an economy with no technological growth.
[E] in any economy.
5. Malthus’s predictions about economic growth were pessimistic because
[A] he thought labor was the only input to production that could be increased.
[B] he believed society was incapable of developing scientific knowledge.
[C] he was worried about growth’s ecological consequences.
[D] he was an opponent of the capitalist system.
[E] he was an academic who did not understand the real world.
6. By including capital in the production function,
[A] less output is produced with the same amount of labor.
[B] the production function exhibits increasing returns to labor.
[C] the production function exhibits constant returns to labor.
[D] more output is produced with the same amount of labor.
[E] diminishing returns to labor are eliminated.
7. Consider the production function shown in the figure above. An increase in capital will result in
[A] a leftward movement along the production function.
[B] the slope of the production function becoming flatter.
[C] a rightward movement along the production function.
[D] an upward shift in the production function.
[E] a downward shift in the production function.
8. As more capital is added per worker, the production function
[A] shifts down in smaller increments.
[B] gets flatter.
[C] shifts up in smaller increments.
[D] gets steeper.
[E] shifts up in larger increments.
9. The flattening out of the production function is likely to occur
[A] only in a model without technology.
[B] only in a model with labor, capital, and technology.
[C] only in a model without labor.
[D] in any model where there are fixed factors.
[E] only in a model without capital or technology.
10. Technology is
[A] another name for productivity.
[B] another name for capital.
[C] the application of science to production.
[D] any type of invention.
[E] anything that will enable a given amount of capital and labor to produce more output.
11. Technology can best be thought of as
[A] any type of capital equipment.
[B] what inventors produce.
[C] recipes that show how to combine inputs.
[D] scientific process.
[E] physical equipment.
12. Innovation can best be thought of as
[A] what occurs when new capital equipment is used.
[B] what happens when a new business is started.
[C] what occurs when new knowledge is applied in production.
[D] the discovery of a new principle.
[E] another word for invention.
13. The term that best describes what happens when fewer workers are needed to produce the same amount of output with the same amount of capital is
[A] diffusion.
[B] creative destruction.
[C] invention.
[D] capital-saving technological change.
[E] labor-saving technological change.
14. Which of the following best describes what occurs when time and resources are allocated to educate and train the labor force?
[A] Human capital is produced.
[B] There is learning by doing.
[C] Increased specialization is enabled.
[D] Firms will be reorganized.
[E] There will be more inventions.
15. Productivity, defined as real GDP per hour worked, increases if
[A] all of these.
[B] saving and investment cause an increase in the quantity of capital per worker.
[C] new knowledge is applied in production.
[D] the average educational level of the workforce increases.
[E] new technologies are continuously discovered.
16. Nonrivalry means that
[A] the use of a good by one individual does not preclude its use by others at the same time.
[B] the owner of a good cannot prevent others from using the good.
[C] a good can be exchanged in a market transaction.
[D] a produced good will not be profitable.
[E] a good cannot be exchanged in a market transaction.
17. A sporting event is an example of a good that is
[A] neither rival nor nonrival.
[B] rival and excludable.
[C] nonrival and excludable.
[D] nonrival and nonexcludable.
[E] rival and nonexcludable.
18. Public radio is an example of a good that is
[A] nonrival and nonexcludable.
[B] rival and nonexcludable.
[C] rival and excludable.
[D] nonrival and excludable.
[E] neither rival nor nonrival.
19. Which of the following is not a characteristic of technology?
[A] It is possible for more than one person to use the good at the same time.
[B] Its supply depends on the cost of producing it.
[C] It is difficult to preclude others from using the good.
[D] It requires trademarks and copyrights in order for those developing it to be compensated.
[E] It is easy to preclude others from using it.
20. Which of the following could the government do to increase the incentive for individuals and firms to engage in R&D?
[A] The government needs to ensure that there will be social gains from the activity.
[B] The government needs to design incentives that will increase the private gain from an R&D endeavor.
[C] There is no role for government.
[D] The government needs to eliminate any private gain arising from the R&D endeavor.
[E] The government should make itself the sole beneficiary of the result’s proceeds.
21. Because technology exhibits nonrivalry and nonexcludability, there will likely be
[A] human capital development.
[B] learning by doing.
[C] an overproduction of technology.
[D] specialization.
[E] an underproduction of technology.
22. If the owner of a type of technology is able to successfully preclude others from using the good, this type of technology could be classified as a(n)
[A] nontradable good.
[B] excludable good.
[C] nonexcludable good.
[D] rival good.
[E] normal good.
23. The purpose of the growth-accounting formula is to
[A] explain why economies stop growing.
[B] identify the limits to growth.
[C] determine how much productivity growth is due to changes in the capital stock and how much is due to changes in technology.
[D] determine the role of government in affecting growth.
[E] measure the rate at which GDP grows.
24. According to Solow’s growth-accounting formula, the growth rate of capital per hour of work is multiplied by one-third. This means
[A] for every one percent increase in capital per hour of work, GDP per hour of work will increase by three percent.
[B] for every one percent increase in GDP per hour of work, capital per hour of work will increase by one-third of a percent.
[C] GDP is three times as large as the capital stock.
[D] the value of GDP is one-third the value of the capital stock.
[E] for every one percent increase in capital per hour of work, GDP per hour of work will increase by one-third of a percent.
25. Which of the following is a reason why the coefficient corresponding to the growth rate of capital per hour of work is one-third in Solow’s growth accounting formula?
[A] Capital income plus depreciation is approximately one-third of aggregate income.
[B] The amount of capital in use is approximately one-third of GDP.
[C] Capital income plus depreciation is approximately three times the amount of aggregate income.
[D] The amount of capital in use is approximately three times the level of GDP.
[E] Capital is one of the three factors of production.
26. Which of the following best explains the source of increases in productivity?
[A] Increases in capital per hour of work
[B] Both technological change and increases in capital per hour of work
[C] Increases in the number of hours worked
[D] Technological change
[E] It is not known what causes productivity to increase
27. If the growth rate of technology is 3 percent over a given period of time, and there has been no change in the amount of capital per hour worked, then, based on Solow’s growth accounting-formula, the growth rate of real GDP per hour of work is
[A] 1 percent.
[B] 3.33 percent.
[C] 3 percent.
[D] 2 percent.
[E] 2.67 percent.
28. If the growth rate of capital per hour of work is 3 percent over a given period of time and the growth rate of technology is 2 percent, then, based on Solow’s growth-accounting formula, the growth rate of real GDP per hour of work will be
[A] 3 percent.
[B] 3.67 percent.
[C] 2.33 percent.
[D] 1.33 percent.
[E] 1 percent.
29. If capital per hour of work is growing at a rate of 3 percent, and the government wants output per hour of work to grow at 3 percent, how high does the growth rate of technology have to be?
[A] 6 percent
[B] 1 percent
[C] 2 percent
[D] 0 percent
[E] 4 percent
30. The slowdown in U.S. economic growth that took place from the mid-1970s to the mid-1990s mainly resulted from
[A] the decline in the rate of growth of the capital stock.
[B] the decline in the growth rate of technology.
[C] the increased globalization of the economy.
[D] reasons that are unknown.
[E] the decline in the rate of growth of the labor force.
31. If the government determines that a slowdown in the growth of productivity is caused by a slowdown in technological growth it might elect to
[A] implement tax laws to encourage more investment.
[B] implement policies to improve the educational system.
[C] devote more resources to military spending.
[D] devote more resources to improving roads and highways.
[E] reduce the taxes paid by workers to encourage an increase in aggregate hours.
32. The increase in productivity that has occurred in the U.S. economy since the mid-1990s is mainly a result of
[A] less government spending.
[B] an increase in the rate of growth of the labor force.
[C] more government spending.
[D] an increase in the rate of growth of the capital stock.
[E] an increase in the rate of growth of technology.
33. Which of the following government policies would encourage R&D, regardless of industry?
[A] Increasing tax credits for research.
[B] Relaxing copyright protection and patent laws
[C] Tightening antitrust laws
[D] Removing tax credits for research
[E] Tightening interest rates
34. If copyright laws are made tougher and are more strictly enforced, companies would be encouraged to
[A] hire less labor.
[B] engage in more R&D activity.
[C] purchase more plants and equipment.
[D] hire more labor.
[E] None of these.
35. Forecasts of potential GDP require adding together which of the following two projections?
[A] The growth rate of total hours of work and the growth rate of technology.
[B] The rate of growth of new job creation and the growth rate of output per hour.
[C] The growth rate of total hours of work and the growth rate of capital stock.
[D] The growth rate of total hours of work and the growth rate of output per hour.
[E] The rate of growth of new job creation and the growth rate of technology.