MACRO Practice Problems 8 1. A possible downside of industrial policy is that: A.

the government cannot be trusted to identify emerging technologies B. markets allocate scarce resources better than governments do C. it could evolve into a government giveaway program D. money and competitive advantages could go to the politically connected E. All of the answers are correct 8. The country of MiddleTerra has 200 people, 100 of them are working, and the real GDP is $5,000. What is the labor productivity in MiddleTerra? A. $10 per worker B. $25 per worker C. $50 per worker D. $100 per worker E. $5,000 per worker 9. The country of MiddleTerra has 200 people, 100 of them are working, and the real GDP is $5,000. If 50 refugees from LowTerra are arriving and they are not allowed to work, what happens with the standard of living in MiddleTerra? A. It doesnt change B. It increases by $20 per capita C. It decreases by $20 per capita D. It decreases to $20 per capita E. It increases to $20 per capita 10. The country of MiddleTerra has 200 people, 100 of them are working, and the real GDP is $5,000. 50 refugees from LowTerra are arriving; all of them are hard workers, so they are allowed to work. As a result, the real GDP is increasing by $1,000. The new standard of living in MiddleTerra is: A. $5 per capita B. $10 per capita C. $24 per capita D. $48 per capita E. $250 per capita 11. The country of MiddleTerra has 200 people, 100 of them are working, and the real GDP is $5,000. 50 refugees from LowTerra are arriving; all of them are hard workers, so they are allowed to work. As a result, the real GDP is increasing by $1,000. What happens with the labor productivity in MiddleTerra? A. It doesnt change B. It increases by $40 per worker C. It decreases by $40 per worker D. It increases to $40 per worker E. It decreases to $40 per worker 12. Per capita GDP in the United States has declined since 1950. A. True B. False 13. Productivity growth is important because: A. it is the only way an economy can increase GDP B. a small decrease in productivity growth causes a large decline in GDP C. a large increase in productivity growth causes a small decrease in GDP D. it causes an increase in the quantity of all resources available to an economy E. it ultimately increases a nation's standard of living

2. An increase in the amount of capital per worker is called: A. capital deepening B. marginal capital C. per-worker production function D. human capital E. diminishing marginal returns from capital 3. The economic theory that states that as time passes, economic systems become much more similar, with common rates of growth, common employment levels and common rates of inflation is known as: A. divergence theory B. parallel path theory C. convergence theory D. non-competing economic systems theory E. static state theory 4. One impediment to the convergence of world economies is the vast differences in human capital. A. True B. False 5. The difference between basic and applied research is that: A. basic research does not promote resource productivity while applied research does B. applied research does not promote resource productivity while basic research does C. basic research has less immediate payoff to society than applied research typically does D. basic research occurs in science while applied research occurs in industry E. only the government promotes basic research 6. In the long run, changing technology on average has led to: A. lower employment and lower wage rates B. higher employment and lower wage rates C. lower employment with wage rates unchanged D. higher employment with wage rates unchanged E. higher incomes and more leisure time 7. The country of MiddleTerra has 200 people, 100 of them are working, and the real GDP is $5,000. What is the standard of living in MiddleTerra? A. $10 per capita B. $25 per capita C. $50 per capita D. $100 per capita E. $5,000 per capita

MACRO Practice Problems 8 14. Two neighboring countries, Richia and Pooria, have the same number of workers, the same natural resources, and the same amount of capital per worker, yet Richians are richer than Poorians. Which of the following could not explain the difference? A. The Richians have better technology B. The Poorians have a higher labor productivity than Richians C. The Richians are better educated than Poorians D. The Poorians have older and less productive technology than Richians E. The Richians have a stable government whereas Pooria is in the middle of a civil war 15. The rules of the game include all of the following except one. Which is the exception? A. the laws, customs, conventions and other institutional elements associated with trade B. property rights C. ensuring that the market process generates a fair price to all D. a stable political environment E. a stable legal system 16. Which of the following is not be considered a developed country? A. Pakistan B. the United States C. Japan D. Australia E. Belgium 17. Which of the following is most likely to increase productivity growth, as measured using GDP statistics? A. reduced capital formation B. decreased human capital C. increased research and development D. increased government regulation E. higher prices for raw materials 18. According to Nobel prize winner Simon Kuznets, the greatest increase in output and economic growth comes from changes in the: A. quantities of resources B. quantities of natural resources (land) C. quantities of labor D. qualities of resources E. quantities of capital 19. The diminishing slope of the per-worker production function reflects the law of diminishing marginal returns. A. True B. False 20. Improvements in technology shift the per-worker production function downward. A. True B. False 21. The resource whose productivity is most commonly measured is: A. labor B. capital C. land D. energy E. money 22. Human capital represents: A. the equipment that labor uses on-the-job to improve labor productivity B. a direct method of measuring output-per-worker C. the education, skills and training embodied in workers D. the technology, developed by humans, that is embodied in equipment E. the social institutions created by people which promote the accumulation of equipment for production 23. If Q is total real output, K is capital in use, L is labor employed, and the productivity of labor grows, other things constant, then: A. K/L rises B. L/K rises C. Q/L rises D. Q/K falls E. (Q + K)/L falls 24. Labor productivity is measured by: A. total employment/total output B. total output/total employment C. labor force/total output D. total output/labor force E. total output/potential employment 25. The TransformNow moving company has 10 workers and 5 trucks and they can move 20 tons of furniture per day. The labor productivity is: A. 1 ton of furniture per worker per day B. 2 tons of furniture per worker per day C. 4 tons of furniture per worker per day D. 10 tons of furniture per worker per day E. 20 tons of furniture per worker per day