91. Suppose Mexico increases its saving rate. In the long run

B.productivity and real GDP per person increase.

A.the growth rates of productivity and real GDP per person increase.

C. the growth rate of productivity increases, and real GDP per person increases.

D.productivity increases, and the growth rate of real GDP per person increases.

92. Suppose that Poland undertakes policy to increase its saving rate. This policy will likely

C. lead to substantially higher GDP growth for a period of several decades.

A.have no impact on GDP growth.

B.lead to somewhat higher GDP growth for a few years.

D.lead to a permanently higher growth rate.

93. Other things equal, relatively poor countries tend to grow

C. faster than relatively rich countries; this is called the catch-up effect.

A.slower than relatively rich countries; this is called the poverty trap.

B.slower than relatively rich countries; this is called the Malthus effect.

D.faster than relatively rich countries; this is called the constant-returns-to-scale effect.

94. Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has less capital and so less real GDP per person than the other. Finally, suppose that the saving rate in both countries increases from 5 percent to 6 percent. Over the next ten years we would expect that

B.the country with less capital will grow faster.

A.the growth rate will not change in either country.

C. the country with more capital will grow faster.

D.both countries will grow at the same rate.

95. Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has less capital and so less real GDP per person. Suppose that both increase their saving rate from 3 percent to 4 percent. In the long run

D.Both countries will have higher levels of real GDP per person, and the temporary increase in growth in the level of real GDP per person will have been greater in the country with less capital.

A.Both countries will have permanently higher growth rates of real GDP per person, and the growth rate will be higher in the country with more capital.

B.Both countries will have permanently higher growth rates of real GDP per person, and the growth rate will be higher in the country with less capital.

C. Both countries will have higher levels of real GDP per person, and the temporary increase in growth in the level of real GDP per person will have been greater in the country with more capital.

96. Real GDP per person is $21,000 in Aquilonia, $15,000 in Nemedia and $6,000 in Shem. Saving per person is $2,000 in all three countries. Other things equal, we would expect that

A.all three countries will grow at the same rate.

B.Aquilonia will grow the fastest.

C. Nemedia will grow the fastest.

97. Other things the same, if a country increased its saving rate, in 40 years they would likely have

B.higher productivity, but not a higher growth rate of real GDP.

A.higher productivity, and a higher growth rate of real GDP.

C. the same productivity and growth of real GDP they began with.

98. The catch-up effect refers to the idea that

B.it is easier for a country to grow fast if it starts out relatively poor.

A.saving will always "catch-up" with investment spending.

C. rich countries aid relatively poor countries so as to help them “catch up.”

D.if investment spending is low, increased saving will help investment to "catch-up."

99. The logic behind the catch-up effect is that

B.the capital stock in rich countries deteriorates at a higher rate because it already has a lot of capital.

A.workers in countries with low incomes will work more hours than workers in countries with high incomes.

C. new capital adds more to production in a country that doesn’t have much capital than in a country that already has much capital.

101. Which of the following is consistent with the catch-up effect?

A.The United States had a higher growth rate before 1900 than after.

B.After World War II the United States had lower growth rates than war-ravaged European countries.

C. Although the United States has a relatively high level of output per person, its growth rate is rather modest compared to some countries.

103. if your American-based firm opens and operates a new watch factory in Panama, your firm is engaging in

A.foreign portfolio investment.

B.foreign financial investment.

104. In the 1800s, Europeans purchased stock in American companies who used the funds to build railroads and factories. The Europeans made

A.foreign portfolio investments.

B.indirect domestic investments.

D.foreign indirect investments.

105. Foreign saving is used for domestic investment when foreigners engage in

B.foreign portfolio investment.

106. Suppose U.S.-based Intel builds and operates a new chip factory in Mexico. Future production from such an investment would

A.increase Mexico's GDP more than it would increase Mexico's GNP.

B.increase Mexico's GNP more than it would increase Mexico's GDP.

C. not affect Mexico's GNP, but would increase Mexico's GDP.

D.have no affect on either Mexico’s GDP or GNP.

107. Suppose Japanese-based Sony Corporation builds and operates a new chip factory in the United States. Future production from such an investment would

B.increase U.S. GDP more than it would increase U.S. GNP.

A.increase U.S. GNP more than it would increase U.S. GDP.

C. not affect U.S. GNP, but would increase U.S. GDP.

D.have no affect on U.S. GNP or GDP.

108. The opening of a new American-owned factory in Egypt would tend to increase Egypt’s GDP more than it increases Egypt’s GNP because

A.some of the income from the factory accrues to people who do not live in Egypt.

B.gross domestic product is income earned within a country by both residents and nonresidents, whereas gross national product is the income earned by residents of a country while producing both at home and abroaD.

109. Investment from abroad

A.is a way for poor countries to learn the state-of-the-art technologies developed and used in richer countries.

B.is viewed by economists as a way to increase growth.

C. often requires removing restrictions that governments have imposed on foreign ownership of domestic capital.

110. An organization that tries to encourage the flflow of investment to poor countries is the

B.Organization of Less Developed Countries.

C. Alliance of Developing Countries.

D.International Development Alliance.

113. Educated people may generate ideas that increase production. These ideas

A.produce a return to society from education that is greater than the return to the individual.

B.could justify government subsides for education.

C. are external benefits of education.

114. Which of the following is an example of the “brain drain”?

A.A country’s most highly educated workers emigrate to rich countries.

B.A country has such a poor educational system that knowledge is lost over time.

C. The population of a country grows so fast that the educational system can’t keep up.

D.A country steals patented technology from another country.

117. Property rights refer to

B.the ability of people to exercise authority over the resources they own.

A.a document stating the rights of ownership that accompany owning property.

C. the right of the government to exercise authority over property owners.

D.the fact that some countries have greater natural resources.

Chapter 25 (B)

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Education

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C. productivity and real GDP per person are both higher.

D.neither productivity nor real GDP per person are higher.

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