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136. An increase in the saving rate would, other things the same,

a. increase growth more for a poor country than a rich country, and raise growth permanently. b. increase growth more for a poor country than a rich country, but raise growth temporarily. c. increase growth more for a rich country than a poor country, and raise growth permanently. d. increase growth more for a rich country than a poor country, but raise growth temporarily. ANS: B PTS: 1 DIF: 3 REF: 25-3 TOP: Catch-up effect MSC: Analytical

137. The traditional view of the production process is that capital is subject to

a. diminishing returns, so that other things the same real GDP in poor countries should grow at a faster rate than in

rich countries.

b. diminishing returns, so that other things the same real GDP in poor countries should grow at a slower rate than in

rich countries.

c. increasing returns, so that other things the same real GDP in poor countries should grow at a faster rate than in

rich countries.

d. increasing returns, so that other things the same real GDP in poor countries should grow at a slower rate than in

rich countries.

ANS: A PTS: 1 DIF: 2 REF: 25-3 TOP: Catch-up effect | Diminishing returns MSC: Analytical 138. The traditional view that the production process has diminishing returns implies that

a. the increase in output growth from an increase in the saving rate rises over time, and that, other things the same,

rich countries should grow faster than poor ones.

b. the increase in output growth from an increase in the saving rate falls over time, and that, other things the same,

rich countries should grow faster than poor ones.

c. the increase in output growth from an increase in the saving rate rises over time, and that, other things the same,

poor countries should grow faster than rich ones.

d. the increase in output growth from an increase in the saving rate falls over time, and that, other things the same,

poor countries should grow faster than rich ones.

ANS: D PTS: 1 DIF: 2 REF: 25-3 TOP: Diminishing returns | Catch-up effect MSC: Analytical 139. On a production function, as capital per worker increases, output per worker

a. increases. This increase is larger at larger values of capital per worker. b. increases. This increase is smaller at larger values of capital per worker. c. decreases. This decrease is larger at larger value of capital per worker. d. decreases. This decrease is smaller at larger value of capital per worker. ANS: B PTS: 1 DIF: 2 REF: 25-3 TOP: Production function | Diminishing returns MSC: Analytical

140. The slope of the production function with capital per worker on the horizontal axis and output per worker on the

vertical axis

a. is positive and gets steeper as capital per worker rises. b. is positive and gets flatter as capital per worker rises. c. is negative and gets steeper as capital per worker rises. d. is negative and gets flatter as capital per worker rises. ANS: B PTS: 1 DIF: 2 REF: 25-3 TOP: Production function | Diminishing returns MSC: Analytical 141. The catch-up effect refers to the idea that

a. saving will always catch-up with investment spending.

b. it is easier for a country to grow fast and so catch-up if it starts out relatively poor. c. population eventually catches-up with increased output.

d. if investment spending is low, increased saving will help investment to \ANS: B PTS: 1 DIF: 1 REF: 25-3 TOP: Catch-up effect MSC: Definitional

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

a. workers in countries with low incomes will work more hours than workers in countries with high incomes. b. the capital stock in rich countries deteriorates at a higher rate because it already has a lot of capital.

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.

d. None of the above is correct. ANS: C PTS: 1 DIF: 2 REF: 25-3 TOP: Catch-up effect MSC: Interpretive 143. Which of the following countries benefited a lot from the catch-up effect in the last half of the twentieth century?

a. Ethiopia

b. the United States c. Canada

d. South Korea ANS: D PTS: 1 DIF: 1 REF: 25-3 TOP: Catch-up effect MSC: Definitional 144. 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. d. All of the above are correct. ANS: D PTS: 1 DIF: 2 REF: 25-3 TOP: Catch-up effect MSC: Analytical 145. Over the period 1960-1991,

a. South Korea had a higher growth rate than the United States because it had a higher ratio of investment to GDP. b. The United States had a higher growth rate than South Korea because it had a higher ratio of investment to GDP. c. South Korea had a higher growth rate than the United States even though it had a similar ratio of investment to

GDP.

d. The United States had a higher growth rate than South Korea even though it had a similar ratio of investment to

real GDP.

ANS: C PTS: 1 DIF: 2 REF: 25-3 TOP: Catch-up effect MSC: Definitional 146. Lower Equitoral and Upper Equitorial are the same except Lower Equitorial has a smaller capital stock. Both

countries undertake policies that raise their saving rates to the same higher level. We’d expect that

a. both countries would have permanent increases in their growth rates, but the increase would initially be larger in

Lower Equitorial.

b. both countries would have permanent increases in their growth rates, but the increase would initially be smaller in

Upper Equitorial.

c. both countries would have temporary increases in their growth rates, but the increase would be larger in Lower

Equitorial.

d. both countries would have temporary increases in their growth rates, but the increase would be smaller in Lower

Equitorial.

ANS: C PTS: 1 DIF: 2 REF: 25-3 TOP: Catch-up effect MSC: Definitional 147. If an American-based firm opens and operates a new watch factory in Panama, then it is engaging in

a. foreign portfolio investment. b. foreign financial investment. c. foreign direct investment. d. indirect foreign investment. ANS: C PTS: 1 DIF: 1 REF: 25-3 TOP: Foreign direct investment MSC: Applicative

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148. In the 1800s, Europeans purchased stock in American companies that used the funds to build railroads and factories.

The Europeans who did this made a. foreign portfolio investments. b. indirect domestic investments. c. foreign direct investments. d. foreign indirect investments. ANS: A PTS: 1 DIF: 1 REF: 25-3 TOP: Foreign portfolio investment MSC: Applicative

149. Suppose that an American opens and operates a candy factory in Finland. This is an example of

a. foreign direct investment. American saving is used to finance Finish investment. b. foreign direct investment. American saving is used to finance American investment. c. foreign portfolio investment. American saving is used to finance Finish investment. d. foreign portfolio investment. American saving is used to finance American investment. ANS: A PTS: 1 DIF: 1 REF: 25-3 TOP: Foreign direct investment MSC: Definitional

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

a. foreign direct investment. b. foreign portfolio investment.

c. either foreign direct investment or foreign portfolio investment. d. None of the above is correct. ANS: C PTS: 1 DIF: 1 REF: 25-3 TOP: Foreign direct investment | Foreign portfolio investment MSC: Interpretive

151. Suppose U.S.-based Intel Corporation builds and operates a new computer chip factory in Honduras. Future

production from such an investment would

a. increase Honduran GDP more than it would increase Honduran GNP. b. increase Honduran GNP more than it would increase Honduran GDP. c. not affect Honduran GNP, but would increase Honduran GDP. d. have no affect on either Honduran GDP or GNP. ANS: A PTS: 1 DIF: 2 REF: 25-3 TOP: Foreign direct investment MSC: Applicative

152. Suppose Japanese-based Sony Corporation builds and operates a new digital camera factory in the United States.

Future production from such an investment would

a. increase U.S. GNP more than it would increase U.S. GDP. b. increase U.S. GDP more than it would increase U.S. GNP. c. not affect U.S. GNP, but would increase U.S. GDP. d. have no affect on U.S. GNP or GDP. ANS: B PTS: 1 DIF: 2 REF: 25-3 TOP: Foreign direct investment MSC: Applicative

153. 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. c. all of the income from the factory is included in Egypt's GDP. d. All of the above are correct. ANS: D PTS: 1 DIF: 2 REF: 25-3 TOP: Foreign direct investment MSC: Interpretive

154. 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. d. All of the above are correct. ANS: D PTS: 1 DIF: 1 REF: 25-3 TOP: Foreign direct investment MSC: Interpretive

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155. An organization that tries to encourage the flow of investment to poor countries is the

a. World Bank.

b. Organization of Less Developed Countries. c. Alliance of Developing Countries. d. International Development Alliance. ANS: A PTS: 1 DIF: 1 REF: 25-3 TOP: Foreign direct investment MSC: Definitional

156. In the US each additional year of schooling has historically raised a person's wage on average by about

a. 2 percent. b. 5 percent. c. 10 percent. d. 15 percent. ANS: C PTS: 1 DIF: 1 REF: 25-3 TOP: Education MSC: Definitional

157. In the US each additional year of schooling has historically raised a person's wage on average by about

a. 5%. In less developed countries the gap between the wages of educated and uneducated workers is smaller. b. 10%. In less developed countries the gap between the wages of educated and uneducated workers is smaller. c. 5%. In less developed countries the gap between the wages of educated and uneducated workers is larger. d. 10%. In less developed countries the gap between the wages of educated and uneducated workers is larger. ANS: D PTS: 1 DIF: 2 REF: 25-3 TOP: Education MSC: Definitional

158. Which of the following is generally an opportunity cost of investment in human capital?

a. future job security b. forgone present wages c. increased earning potential d. All of the above are correct. ANS: B PTS: 1 DIF: 1 REF: 25-3 TOP: Education MSC: Definitional

159. 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. d. All of the above are correct. ANS: D PTS: 1 DIF: 1 REF: 25-3 TOP: Education MSC: Definitional

160. Which of the following is an example of the \

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

b. A country has such a poor educational system that human capital falls 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. ANS: A PTS: 1 DIF: 1 REF: 25-3 TOP: Brain drain MSC: Interpretive

161. Economist Robert Fogel focused on which of the following factors as one determinant of long-run economic growth?

a. education

b. research and development c. nutrition

d. trade restrictions ANS: C PTS: 1 DIF: 1 REF: 25-3 TOP: Health and nutirition MSC: Definitional