Chapter 25 /Production and Growth ? 1719
115. Refer to Scenario 25-1. In the production function, which variable would increase in value as technology
improved? a. A b. K c. H d. N
ANS: A
NAT: Analytic MSC: Interpretive
DIF: 2 REF: 25-2 LOC: Productivity and growth TOP:
Production function
116. Refer to Scenario 25-1. If the production function has the constant-returns-to-scale property, then it could be
rewritten as
a. Y/L = AF(1, K/L, H/L, N/L) b. Y/L = AF(L, 1, H/L, N/L) c. Y/L = AF(L, K/L, 1, N/L) d. Y/L = AF(L, K/L, H/L, 1)
ANS: A DIF: 2 REF: 25-2 NAT: Analytic LOC: Productivity and growth
TOP: Production function | Constant returns to scale MSC:
Interpretive
117. Refer to Scenario 25-1. If the production function has the constant-returns-to-scale property, then if we know
the values of A, K/L, H/L, and N/L, we also know the value of a. output.
b. labor productivity. c. A.
d. All of the above are correct.
ANS: B DIF: 2 REF: 25-2 NAT: Analytic LOC: Productivity and growth
TOP: Production function | Constant returns to scale MSC:
Interpretive
118. Refer to Scenario 25-1. If the production function has the constant-returns-to-scale property, then it is
possible that the specific form of the production function is a. Y = 4L + 2K + 3H + N b. Y = (L + K + H + N)/4 c. Y =2
d.
Y = 4
ANS: C DIF: 3 REF: 25-2 NAT: Analytic LOC: Productivity and growth
TOP: Production function | Constant returns to scale MSC:
Analytical
Sec03 - Production and Growth - Economic Growth and Public Policy
MULTIPLE CHOICE1.
“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.
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
ANS: D
NAT: Analytic MSC: Interpretive
Diminishing returns
1720 ? Chapter 25 /Production and Growth
2.
“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.
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
ANS: B
NAT: Analytic MSC: Interpretive3.
Diminishing returns
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.
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
ANS: C
NAT: Analytic MSC: Interpretive4.
Investment
The catch-up effect can help explain
a. the spectacular economic growth experienced by South Korea over the years 1960 to 1990. b. the spectacular economic growth experienced by the United States over the years 1960 to 1990. c. why the diminishing-returns property is no longer taken seriously by economists.
d. why the World Bank is more inclined to encourage the flow of capital to advanced economies
rather than to developing economies.
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
ANS: A
NAT: Analytic MSC: Interpretive
Catch-up effect
Chapter 25 /Production and Growth ? 1721
Figure 25-1. On the horizontal axis, K/L represents capital (K) per worker (L). On the
vertical axis, Y/L represents output (Y) per worker (L).
Y/LK/L5.
Refer to Figure 25-1. The curve becomes flatter as the amount of capital per worker increases because of
a. increasing returns to capital. b. increasing returns to labor. c. diminishing returns to capital. d. diminishing returns to labor.
DIF: 1 REF: 25-3 LOC: Productivity and growth TOP:
ANS: C
NAT: Analytic MSC: Interpretive6.
Diminishing returns
Refer to Figure 25-1. The shape of the curve is consistent with which of the following statements about the economy to which the curve applies?
a. In the long run, a higher saving rate leads to a higher level of productivity. b. In the long run, a higher saving rate leads to a higher level of income.
c. In the long run, a higher saving rate leads to neither a higher growth rate of productivity nor a
higher growth rate of income. d. All of the above are correct.
ANS: D DIF: 2 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Diminishing returns | Economic growth MSC: 7.
Interpretive
Refer to Figure 25-1. The shape of the curve is consistent with which of the following statements about the
economy to which the curve applies?
a. In the long run, a higher saving rate leads to a higher growth rate of productivity. b. In the long run, a higher saving rate leads to a higher growth rate of income.
c. Returns to capital become increasingly smaller as the amount of capital per worker increases. d. All of the above are correct.
ANS: C DIF: 2 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Diminishing returns | Economic growth MSC:
Interpretive
1722 ? Chapter 25 /Production and Growth
8.
Refer to Figure 25-1. Choose a point anywhere on the curve and call it point A. If the economy is at point
A in 2007, then it will definitely remain at point A in 2008 if, between 2007 and 2008,
a. the quantity of physical capital remains constant; the number of workers doubles; and human
capital, natural resources, and technology all double as well.
b. the quantity of physical capital doubles; human capital, natural resources, and technology all double
as well; and the number of workers remains constant.
c. the quantity of physical capital doubles; the number of workers doubles; and human capital, natural
resources, and technology all double as well.
d. the quantity of physical capital doubles; the number of workers doubles; and human capital, natural
resources, and technology remain constant.
DIF: 3 REF: 25-3 LOC: Productivity and growth TOP:
ANS: D
NAT: Analytic MSC: Analytical9.
Diminishing returns
Investment in
a. physical capital, unlike investment in human capital, has an opportunity cost. b. physical capital, like investment in human capital, has an opportunity cost. c. human capital is particularly attractive because it involves no externalities.
d. human capital has been shown to be relatively unimportant, relative to investment in physical
capital, for a country’s long-run economic success.
ANS: B DIF: 2 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Physical capital | Human capital MSC: Interpretive
10. The return to schooling for society is higher than the return to schooling for the individual if
a. the concept of diminishing returns applies to education. b. the concept of constant returns to scale applies to education. c. human capital conveys positive externalities.
d. investment in human capital involves no opportunity costs.
ANS: C
NAT: Analytic MSC: Interpretive
DIF: 2 REF: 25-3 LOC: Productivity and growth TOP:
Human capital | Externalities
11. Studies on health, nutrition, and living standards suggest that
a. short height can be an indicator of malnutrition. b. workers’ height and their productivity are unrelated.
c. nations’ economic development and their workers’ eating habits are unrelated. d. there is no causal link between nutrition and economic growth.
ANS: A DIF: 2 REF: 25-3 NAT: Analytic LOC: Productivity and growth TOP: Productivity | Economic growth MSC: Interpretive
12. Which of the following terms is used to refer to the ability of people to exercise authority over the resources
they own?
a. natural rights b. property rights c. input control d. collective control
ANS: B
NAT: Analytic MSC: Definitional
DIF: 1 REF: 25-3 LOC: Productivity and growth TOP:
Property rights
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