EXERCISE - CHAP 3
I. Statements - True or False? Explain.
1. Holding other factors constant, increasing investment capital per unit will lead to a
greater increase in output in a poor country compared to a rich country. T
2. The catch-up effect suggests that poor countries cannot achieve growth rates as
those of wealthier countries no matter how hard they try. F
3. Increasing the saving rate does not always lead to higher growth rates of real per
capita GDP. T
4. If country A uses 600 labor units to produce 6000 units of goods and services,
while country B uses 450 labor units and produces 5000 units of goods and
services, country B has higher productivity than country A. T
II. Multiple Choice:
1. In 2013, country A's real GDP per capita was $4,500. In 2012, it was $4,250. What
is the real GDP per capita growth rate?
a. 5.6%
b. 5.9%
c. 6.5%
d. None of the above
2. In 2013, the real GDP in country B was 561 billion, and the population was 2.2
million. In 2012, the GDP was 500 billion, and the population was 2 million. The
growth rate of real GDP per capita is approximately:
a. 12%
b. 10%
c. 4%
d. 2%
3. In 2013, the real GDP in country C was 700 billion, and the population was 3
million. In 2014, the GDP was 907.5 billion, and the population was 3.3 million.
The growth rate of real GDP per capita is approximately:
a. 10%
b. 14%
c. 17%
d. 21%
4. Which of the following factors affects productivity?
a. Human capital
b. Physical capital
c. Natural resources
d. All of the above
5. If the production function exhibits constant returns to scale, the output can double
if:
a. Labor doubles
b. Any production factor doubles
c. All production factors double
d. None of the above
6. If the production function exhibits constant returns to scale, when labor doubles
and other factors remain constant, the real GDP will:
a. Remain unchanged
b. Increase by 50%
c. Increase but not more than double the initial real GDP
d. Double
7. To understand how the average material standard of living of a country changes
over time, one should look at:
a. Real GDP figures
b. Nominal GDP growth rate
c. Real GDP growth rate
d. Real GDP per capita growth rate
8. The amount of goods and services produced per unit of input labor is called:
a. Quality of life
b. Productivity
c. GDP per capita
d. Capital output
9. By saving more, a country:
a. Has more resources for capital goods. The increase in capital will increase
productivity.
b. Has more resources for capital goods. The increase in capital will decrease
productivity.
c. Has fewer resources for capital goods. The increase in capital will increase
productivity.
d. Has fewer resources for capital goods. The increase in capital will decrease
productivity.
10. Capital accumulation:
a. Requires society to sacrifice current consumption goods.
b. Allows society to consume more in the present.
c. Decreases the savings rate.
d. Is unrelated to 'trade-offs'.
11. In the long run, a higher savings rate:
a. Cannot increase the capital stock.
b. Implies lower consumption by people in the future.
c. Increases productivity.
d. None of the above
12. If the production function exhibits constant returns to scale, the production
function can be written as:
a. xY = 2xAF(L,K,H,N)
b. Y/L = AF(xL,xK,xH,xN)
c. Y/L = AF(1, K/L, H/L, N/L)
d. L = AF(Y,K,H,N)
13. Which of the following statements is correct?
a. While real GDP per capita differs between countries, the growth rate of real
GDP per capita is similar across nations.
b. Productivity has no direct relationship with government policies.
c. Real GDP per capita is a good measure of economic prosperity and the
growth rate of real GDP per capita is a good measure of economic progress.
d. Productivity can be measured by the growth rate of real GDP per capita.
III. Essay:
1. Why is productivity related to the quality of life? (Hint: Explain what productivity
and quality of life mean. List factors affecting labor productivity.)
2. Explain why a higher savings rate leads to a higher standard of living. What might
hinder policymakers from increasing the savings rate?
3. Does a higher savings rate always lead to a higher growth rate, especially over a
certain period?
