Exercise for Macroeconomics Chapter 3
TRUE/FALSE
1. The standard of living of people in a country is their per capita income.
ANS: T PTS: 1 DIF: 1 NAT: Analytic
2. Diminishing returns to labor implies that eventually the marginal product of labor will become
negative.
ANS: F PTS: 1 DIF: 2 NAT: Analytic
3. The marginal product of capital is how much output changes when capital increases by one unit.
ANS: T PTS: 1 DIF: 2 NAT: Analytic
4. Saving is income that is not consumed.
ANS: T PTS: 1 DIF: 2 NAT: Analytic
5. Real saving equals gross investment.
ANS: F PTS: 1 DIF: 2 NAT: Analytic
MULTIPLE CHOICE
1. World growth data shows that from 1960 to 2000:
a. the US and other OECD countries grew at c. some countries particularly East Asian
moderate rates. countries grew rapidly. b. sub-Saharan African countries grew at d. all of the above.
low rates or declined.
ANS: D PTS: 1 DIF: 1 NAT: Analytic
2. World growth data reveals that from 1960 to 2000:
a. the US and other OECD countries grew at c. some countries particularly East Asian
moderate rates. countries grew a low rates or declined. b. sub-Saharan African countries grew d. all of the above.
rapidly.
ANS: A PTS: 1 DIF: 1 NAT: Analytic
3. World growth data reveals that from 1960 to 2000:
a. the US and other OECD countries c. some countries particularly East Asian
stagnated. countries grew at low or negative rates. b. sub-Saharan African countries grew at low d. all of the above.
or negative rates.
ANS: B PTS: 1 DIF: 1
4. World growth data reveals that from 1960 to 2000:
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NAT: Analytic
a. all countries grew at similar rates. b. sub-Saharan African countries grew
moderately.
c. some countries particularly East Asian
countries grew rapidly.
d. the US and other OECD countries
stagnated.
ANS: C PTS: 1 DIF: 1 NAT: Analytic
5. The US and other OECD countries had high levels of GDP per person in 2000 despite growing at a
moderate rate from 1960 to 2000 because: a. of exploitation of foreign countries. c. they stole the wealth of less developed
countries.
b. their economies had grown at a moderate d. all of the above.
rate for a century or more.
ANS: B PTS: 1 DIF: 1 NAT: Analytic
6. If A in the production function Y = A ? F(K,L) rises, then:
a. output rises for any level of K and L. c. the marginal product of capital rises. b. the marginal product of labor rises. d. all of the above.
ANS: A PTS: 1 DIF: 2 NAT: Analytic
7. A in the production function Y = A ? F(K,L) is:
a. the marginal product of labor. c. the marginal product of capital. b. the capital to labor ratio (K/L). d. the level of technology.
ANS: D PTS: 1 DIF: 2 NAT: Analytic
8. The marginal product of labor is:
a. how much output rises for when labor c. labor divided by capital (L/K)
increases one unit.
b. capital divided by labor (K/L). d. the level of technology.
ANS: A PTS: 1
9. The marginal product of capital is:
a. .
DIF: 2 NAT: Analytic
b. the change in output for a unit change in
capital.
c. the slope of the production when
technology and labor are held constant. d. all of the above.
ANS: D PTS: 1 DIF: 2 NAT: Analytic
10. Diminishing marginal product of capital (MPK) means:
a. output rises as capital rises. c. output rises as the MPK rises.
b. the MPK eventually falls as capital rises. d. the marginal product of capital eventually
becomes negative as capital rises.
ANS: B PTS: 1 DIF: 2 NAT: Analytic
11. In the production function Y = A ? F(K,L), L is:
a. leisure. c. the marginal product of labor. b. labor. d. the marginal product of leisure.
ANS: B
PTS: 1 DIF: 1 NAT: Analytic
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12. In the production function Y = A ? F(K,L), Y is:
a. good Y. c. the marginal product of good Y. b. production. d. constant returns to scale.
ANS: B PTS: 1 DIF: 1 NAT: Analytic
13. Among the assumptions made about the production function Y = A ? (K,L) is:
a. diminishing marginal product of labor. c. diminishing marginal product of capital. b. constant returns to scale. d. all of the above.
ANS: D PTS: 1 DIF: 2 NAT: Analytic
14. For the production function Y = A ? F(K,L) constant returns to scale means:
a. if capital and labor double output doubles. c. the marginal products of capital and labor
are constant.
b. capital and labor increase at a constant d. technology is constant.
rate.
ANS: A PTS: 1 DIF: 2 NAT: Analytic
15. If the production function Y = A ? (K,L) is divided by L, then
a. (Y/L) = A?f(K/L). c. y = A?f(k).
b. output per capita equals technology times d. all of the above.
a function of the capital labor ratio.
ANS: D PTS: 1 DIF: 2 NAT: Analytic
16. Among the categories the growth rate is broken down into by growth accounting is:
a. the growth rate of technology. c. the capital labor ratio. b. the marginal product of capital. d. all of the above.
ANS: A PTS: 1 DIF: 2 NAT: Analytic
17. Growth accounting shows that GDP growth depends on:
a. growth of the capital stock. c. government purchases.
b. holding environmental pollution in check. d. having a reasonable distribution of
income.
ANS: A PTS: 1 DIF: 2 NAT: Analytic
18. Growth accounting shows that economic growth depends on:
a. government tax receipts. c. lowering environmental pollution. b. the growth of the labor force. d. all of the above.
ANS: B PTS: 1 DIF: 2 NAT: Analytic
19. Growth accounting shows that economic growth depends on:
a. controlling environmental pollution. c. increases in technology. b. international cooperation. d. all of the above.
ANS: C PTS: 1 DIF: 2 NAT: Analytic
20. Growth accounting shows that economic growth depends on:
a. increases in technology. c. growth in the capital stock. b. the growth of the labor force. d. all of the above.
ANS: D PTS: 1 DIF: 2 NAT: Analytic
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21. The growth accounting formula is:
a.
b.
c.
d. Y= A ? F(K,L)
ANS: A PTS: 1 DIF: 3 NAT: Analytic
22. The labor force participation rate is:
a. the labor force divided into population. c. the labor force times population. b. the labor force divide by population. d. the labor population minus the labor force.
ANS: B PTS: 1 DIF: 2 NAT: Analytic
23. If a country has a population of 100 million and a labor force of 60 million, then its labor force
participation rate is: a. 0.6. c. 40 million. b. 1.67 d. 60 million.
ANS: A PTS: 1 DIF: 1 NAT: Analytic
24. If a country has a population of 300 million and a labor force of 200 million, then its labor force
participation rate is: a. 0.67 c. 100 million. b. 1.5 d. 200 million.
ANS: A PTS: 1 DIF: 1 NAT: Analytic
25. The change in the capital stock in an economy depends on:
a. the economy’s saving. c. the economy’s investment. b. the change in bond prices. d. all of the above.
ANS: A PTS: 1 DIF: 2 NAT: Analytic
26. In a closed economy with no government sector, the change in the capital stock is:
a. net investment less depreciation. c. gross investment. b. gross investment less depreciation. d. nominal saving.
ANS: B PTS: 1 DIF: 2 NAT: Analytic
27. In a closed economy with no government sector, the change in the capital stock is equal to:
a. net investment less depreciation. c. gross investment. b. nominal saving. d. real saving.
ANS: D PTS: 1 DIF: 2 NAT: Analytic
28. Depreciation of the capital stock occurs due to:
a. machines deteriorating. c. bonds falling in value. b. real estate rising in value. d. all of the above.
ANS: A PTS: 1 DIF: 2 NAT: Analytic
29. Depreciation of the capital stock occurs due to:
a. inflation. c. bonds falling in value. b. buildings needing repair. d. all of the above.
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