1.
Use the following production function to answer the questions that follow.
This production function exhibits diminishing returns to capital for:
A. all units of capital after the first.
B. no units of capital.
C. all units of capital after the second.
D. all units of capital after the third.
E. all units of capital except the sixth.
2. According to the Solow growth model, rich nations are rich because:
A. they have more skilled labor.
B. they have more natural resources.
C. they have more capital.
D. they are more politically stable.
E. their workers are paid higher real wages.
3. In the Solow growth model, human capital measures:
A. the number of workers.
B. the educational level of the workers.
C. the level of technology available to workers.
D. the labor input in terms of the physical number of workers and the knowledge and skills
embodied in those workers.
E. how much firms spend to train workers.
4. Data show that:
A. all countries around the world are converging to the same level of wealth as predicted by the
Solow growth theory.
B. no countries in the world are converging at the same level of wealth.
C. many countries in the world have reached a steady state as predicted by the Solow growth
theory.
D. only developing countries have reached a steady state as predicted by the Solow growth theory.
E. there is no evidence of a steady state or convergence for the countries of the world.
5. The growth theory we study today was formulated:
A. during the Great Depression.
B. during the 1970s.
C. during the 1950s.
D. in 1776 by the work of Adam Smith.
E. over 100 years ago.
6.
Consider the following table that shows the number of trucks owned by a
delivery firm and the corresponding number of deliveries made. Use the table to
answer the questions that follow.
Diminishing returns set in after the truck is purchased.
A. first
B. second
C. third
D. fourth
E. fifth
7. A company has three delivery trucks. Each month the trucks require repairs to keep them in good
working order. Which of the following is true?
A. Investment is equal to zero.
B. Net investment is equal to zero.
C. The company is not in a steady state.
D. Capital is increasing.
E. Capital is decreasing.
8.
Use the following graph to answer the questions that follow.
If more natural resources are discovered, then:
A. the production function will shif t upward.
B. the production function will shift downward.
C. there will be an upward movement along the production function.
D. there will be a downward movement along the production function.
E. there will be no effect on the production function.
9. According to modern growth theory, the key to economic growth is:
A. paved roads.
B. modern buildings.
C. skilled labor.
D. a large pool of unskilled labor.
E. institutions.
10. The production function describes the relationship between:
A. inflation and unemployment in the economy.
B. the firm’s inputs and outputs.
C. the levels of output and spending in the economy.
D. the aggregate supply and demand for goods in the economy.
E. the firm’s output and the price level.
11. New technology makes capital and income will .
A. more productive; remain unchanged
B. less productive; decrease
C. unnecessary; increase
D. more productive; increase
E. less productive; increase
12. When a country adopts a more efficient tax system, it is likely to:
A. have no effect on the production function.
B. shif t the production function upward.
C. shift the production function downward.
D. have no impact on technological innovation.
E. have no impact on physical capital.
13. Consider the Solow model reflecting technical change. This model assumes that technical change
occurs:
A. predictably.
B. exogenously.
C. endogenously.
D. at a steady rate.
E. at a decreasing rate.
14. According to Solow growth theory, the developing nations:
A. will never be as wealthy as the already developed nations.
B. should eventually be as wealthy as the already developed nations.
C. will eventually be more wealthy than the already developed nations.
D. will always grow more slowly than the already developed nations.
E. will never converge to a steady state.
15. A firm has 50 computers. Every year, they buy 3 new ones and get rid of 3 old ones. In this case,
investment is equal to and net investment is equal to .
A. 3; 3
B. 3; 0
C. 3; -3
D. 6; 3
E. 3; 6
