Macroeconomics - Chapter 3

Front 1

1. If an economy is growing at 5% per annum. How long will it take, approximately, for its
GDP to double?
a) 52 years
b) 37 years
c) 20 years
d) 14 years
e) 9 years

Back 1

d) 14 years

Front 2

2. The “business cycle” refers to which of the following?
a) the long run trend in GDP
b) seasonal changes in output from spring to summer to autumn to winter
c) alternating periods of recession and expansion
d) random fluctuations in GDP from one week to the next
e) the 12 month reporting period on which business profits are taxed

Back 2

c) alternating periods of recession and expansion

Front 3

3. Economic growth differs from business cycles in that
a) economic growth is a long run phenomenon; business cycles are short term
b) economic growth is largely a demand phenomenon; business cycles are strictly a
supply phenomenon
c) economic growth is more responsive than business cycles to monetary policy
d) economic growth is ultimately a monetary phenomenon; business cycles are not
e) economic growth is determined largely by foreign trade; business cycles are a strictly
domestic phenomenon

Back 3

a) economic growth is a long run phenomenon; business cycles are short term

Front 4

4. GDP in country A is currently twice that of country B, and A also has 1.5 times the
population of B. However, A’s GDP grows by 2% per year, and its population grows by
1% per year. B’s GDP grows by 5% per year, and its population grows by 6% per year.
Which of the following is true?
a) A has less GDP per capita than B
b) At some time in the future, A and B will have the same GDP per capita
c) A will always have more GDP than B
d) A will always have more population than B
e) GDP per capita is declining in B

Back 4

e) GDP per capita is declining in B

Front 5

5. In his Essay on the Principle of Population, T.R. Malthus predicted
a) that populations would migrate to countries with the most productive land
b) that by the year 2000, world population would be 6 billion people
c) most of the demographic trends currently taking place in Europe
d) that output per capita would decline until the population was left in poverty
e) that better technology would provide the population with more leisure time

Back 5

d) that output per capita would decline until the population was left in poverty

Front 6

6. In most countries, the Malthusian predictions have not been realized because
a) the marginal product of labor is increasing
b) population is declining
c) technology is improving
d) aggregate demand is declining
e) of governmental regulations unforeseen in Malthus’ time

Back 6

c) technology is improving

Front 7

7. Over the last 200 years
a) global inequality has risen mainly because of rising between country inequality
b) global inequality has risen mainly because of rising within country inequality
c) global inequality has fallen mainly because of falling between country inequality
d) global inequality has fallen mainly because of falling within country inequality
e) global inequality has not changed

Back 7

a) global inequality has risen mainly because of rising between country inequality

Front 8

8. Pro-Poor growth is defined as
a) growth that raises the incomes of the poor
b) a combination of economic growth and falling inequality
c) a combination of economic growth and rising inequality
d) growth that results in a decline in the number of people living on less than $1 a day
e) immiserizing growth

Back 8

b) a combination of economic growth and falling inequality

Front 9

9. Generally speaking, the consensus of evidence suggests that economic growth is
a) Pro-poor
b) associated with falling income inequality
c) associated with rising inequality
d) immiserizing
e) not systematically associated with changes in inequality

Back 9

e) not systematically associated with changes in inequality

Front 10

10. Consider a hypothetical economy with a population of 500 people, each of whom is
employed for 2000 hours per year. The nation’s GDP is $25 million. In this economy,
a) GDP per capita is $12,500 and labor productivity per hour is $4
b) GDP per capita is $25,000 and labor productivity per hour is $50
c) GDP per capita is $50,000 and labor productivity per hour is $40
d) GDP per capita is $25,000 and labor productivity per hour is $80
e) GDP per capita is $50,000 and labor productivity per hour is $25

Back 10

e) GDP per capita is $50,000 and labor productivity per hour is $25

Front 11

11. If everyone in the population were employed for a fixed number of hours per year, then
a) GDP per capita would equal labor productivity multiplied by hours worked per
person
b) GDP would equal labor productivity multiplied by hours worked per person
c) Labor productivity would equal GDP per capita multiplied by hours worked per
person
d) GDP per capita would equal GDP divided by hours worked per person
e) Labor productivity times population would equal GDP

Back 11

a) GDP per capita would equal labor productivity multiplied by hours worked per
person

Front 12

12. An economy is producing GDP of $32,000 per week with 100 workers each working
40 hours per week. Labor productivity per hour is
a) 800
b) 8
c) 320
d) 4,000
e) 800,000

Back 12

b) 8

Front 13

13. If labor productivity increases, which of the following could happen?
a) employment falls
b) GDP rises c) the hours of employment per worker falls
d) leisure time increases
e) any of the above

Back 13

e) any of the above

Front 14

14. GDP per capita in France in 2001 was equivalent to $24,230. The labor force
participation rate was 44%, the employment rate was 91.5%, and hourly productivity was
$39.27. The average number of hours worked yearly by an employed person was
a) 1283
b) 1402
c) 1532
d) 1876
e) 2019

Back 14

c) 1532

Front 15

15. On average, Japanese workers have lower hourly productivity and work fewer hours
than their Italian counterparts, yet Japan has a higher GDP per capita than Italy. This is
because
a) Japan has a larger population than Italy
b) Japan has a higher labor force participation rate and employment rate
c) Japan exports more goods than Italy
d) Japan has a smaller underground economy than Italy
e) There are statistical discrepancies in the two nations’ data collection systems

Back 15

b) Japan has a higher labor force participation rate and employment rate

Front 16

16. The relationship between an economy’s productive inputs and its outputs is called
a) the division of labor
b) the economic dialectic
c) the production function
d) the transformation correlation
e) the principle of economic creation

Back 16

c) the production function

Front 17

17. The three principal inputs in the production process are
a) land, natural resources, and capital
b) money, labor, and technology
c) physical capital, human capital, and financial capital
d) capital, labor, and total factor productivity
e) technology, total factor productivity, and innovation

Back 17

d) capital, labor, and total factor productivity

Front 18

18. Which of the following is not part of the production function?
a) output
b) total factor productivity
c) labor
d) physical capital
e) prices

Back 18

e) prices

Front 19

19. The two basic forms of capital used in production are
a) buildings and real estate
b) stocks and bonds
c) buildings and machinery
d) machines and money
e) time and energy

Back 19

c) buildings and machinery

Front 20

20. What, if any, is the difference between a household buying a computer and a business
buying the same computer?
a) the business pays a higher price
b) the computer has greater durability in a business than in a household
c) the former is consumption, and the latter is investment
d) the computer depreciates faster in a household
e) there is no difference

Back 20

c) the former is consumption, and the latter is investment

Front 21

21. Which of the following is an addition to the capital stock?
a) a developer’s purchase of real estate
b) a stock broker’s purchase of preferred stock
c) a corporation’s purchase of an existing building
d) a household’s purchase of a new automobile
e) a college’s purchase of a new photocopy machine

Back 21

e) a college’s purchase of a new photocopy machine

Front 22

22. The capital-output ratio for most industrialized nations
a) is negative because the marginal product of capital is diminishing
b) is less than one because each machine produces more value than it cost
c) is roughly equal to one because output growth is linked to capital growth
d) is greater than one because capital is a durable stock and output is an annual
flow
e) cannot be measured without knowing how much labor there is in the economy

Back 22

d) is greater than one because capital is a durable stock and output is an annual
flow

Front 23

23. The amount of labor input used in the production process is best measured by
a) population
b) employment
c) the labor force
d) total hours worked
e) the wage

Back 23

d) total hours worked

Front 24

24. The difference between the size of the US population and the number of persons
employed in the US is primarily accounted for by
a) the number of persons who are unemployed
b) foreign citizens living in the US and US citizens living abroad
c) the number of persons in the armed forces
d) those who are not in the labor force and those in institutions
e) the number of sole proprietors and small business owners

Back 24

d) those who are not in the labor force and those in institutions

Front 25

25. The additional output produced by adding one extra unit of capital to the production
process while holding everything else constant is called
a) total factor productivity
b) average output
c) the marginal product of capital
d) returns to scale
e) economies of scale

Back 25

c) the marginal product of capital

Front 26

26. Holding all other things constant, a firm has the following production schedule:
units of labor: 0 1 2 3 4
units of output: 0 90 170 240 300
This firm exhibits
a) diminishing marginal product of labor
b) increasing labor productivity
c) technological innovation
d) depreciation of capital
e) a shortage of labor

Back 26

a) diminishing marginal product of labor

Front 27

Suppose the economy has TFP = 10, there are 400 hours worked, and 9 unit of capital and the
Cobb-Douglas production function is
1/2 1/2 Output  TFP Hours Capital .

27. Output is currently
a) 36,000
b) 600
c) 12,000
d) 1,800
e) 6,000

Back 27

b) 600

Front 28

Suppose the economy has TFP = 10, there are 400 hours worked, and 9 unit of capital and the
Cobb-Douglas production function is
1/2 1/2 Output  TFP Hours Capital .

28. The marginal product of labor is
a) 0.75
b) 1.25
c) 1.0
d) 10
e) 30

Back 28

a) 0.75

Front 29

Suppose the economy has TFP = 10, there are 400 hours worked, and 9 unit of capital and the
Cobb-Douglas production function is
1/2 1/2 Output  TFP Hours Capital .

29. If total factor productivity grows by 1% per year while capital and labor each grow by
2% per year, then output grows by
a) 1.5% per year
b) 3% per year
c) 5% per year
d) 1.67% per year
e) 4% per year

Back 29

b) 3% per year

Front 30

Suppose the economy has TFP = 10, there are 400 hours worked, and 9 unit of capital and the
Cobb-Douglas production function is
1/2 1/2 Output  TFP Hours Capital .

30. For this hypothetical economy, the share of output paid to labor is
a) 70%
b) 30%
c) 50%
d) 10%
e) 90%

Back 30

c) 50%

Front 31

31. In the growth accounting framework, growth in output that cannot be explained by
changes in capital or labor are generally attributed to
a) changes in the intensity of land use
b) changes in aggregate demand
c) statistical error
d) changes in total factor productivity
e) foreign trade

Back 31

d) changes in total factor productivity

Front 32

32. Consider an economy with a Cobb-Douglas production function in which capital and
labor receive equal shares of national income and labor input is constant. If the capital
stock grows by 2% and output grows by 4%, then the most likely explanation is
a) the marginal product of labor is increasing
b) the production function exhibits decreasing returns to scale
c) total factor productivity has increased by 3%
d) TFP has grown by 2%
e) There is a 2% change in the capital account balance

Back 32

c) total factor productivity has increased by 3%

Front 33

33. For an economy with a Cobb-Douglas production function in which labor receives
70% of national income and capital receives 30%, a 10% increase in total hours worked,
holding all else constant
a) increases the marginal product of labor by 3%
b) increases the marginal product of capital by 7%
c) increases total factor productivity by 5%
d) increases the share of national income paid to labor 10%
e) increases output by 10%

Back 33

b) increases the marginal product of capital by 7%