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Economics 101 Practice Test: Production and Growth

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Avg score: 47% • Most missed: “Both Elmo and Anna work eight hours a day. Elmo can produce four baskets of good…”

In economics, economic growth is the increase in the production of goods and services over time. Economic growth is important because it means that the quality and quantity of goods and services increase. Economic growth can be measured in nominal or real terms. Real terms are adjusted to remove inflation. The most common measure of economic growth is real GDP, which is the total value of everything produced in an economy, adjusted for inflation. Economic growth can be generated by: Increasing physical capital goods and Improving technology. Economic growth can lead to higher stock... Show more

In economics, economic growth is the increase in the production of goods and services over time. Economic growth is important because it means that the quality and quantity of goods and services increase.

Economic growth can be measured in nominal or real terms. Real terms are adjusted to remove inflation. The most common measure of economic growth is real GDP, which is the total value of everything produced in an economy, adjusted for inflation.

Economic growth can be generated by: Increasing physical capital goods and Improving technology.
Economic growth can lead to higher stock prices, a rise in employment, and more capital for companies to invest in new ventures.

The four production factors are: land, labor, capital, and entrepreneurship.
Each of these factors determines a business's capacity to produce goods and services.

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Economics 101 Practice Test: Production and Growth

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1. Both Elmo and Anna work eight hours a day. Elmo can produce four baskets of goods per hour while Anna can produce three baskets of the same goods per hour. It follows that Elmo’s

standard of living is higher than Anna’s.productivity is greater than Anna’s.All of these are correct.output is greater than Anna’s.

2. In a market economy, scarcity of resources is reflected in

the quantity traded.demand only.supply only.prices.

3. Which of the following can increase real GDP per person?

All of these are correct.foreign investment from abroadpolicies to encourage international tradea decrease in population growth

4. Which of the following statements is correct?

Increased economic growth through increased investment does not have an opportunity cost.In general, a given level of investment in a poor country will lead to greater economic growth than the same level of investment in a rich country.A nation must have abundant natural resources if it is to experience rapid economic growth.If a nation invests more, its economic growth rate will be permanently higher.

5. The catch-up effect is the

tendency for the growth rate of the capital stock of a country to match its population growth rate.property whereby the benefits of an extra unit of an input declines as the quantity of the input increases.tendency for countries that start off poor to grow more rapidly than countries that start off rich.property whereby the benefits of different inputs move toward each other over time.

6. Typically, countries in Africa

have high tax rates.have laws and geography that make international trade easy.All of these are correct.had low but positive growth of real GDP per person between 1978 and 1994.

7. Which would increase the capital stock of El Salvador and provide returns to U.S. investors?

Neither of the above is correct.U.S. foreign portfolio investment in El Salvador.U.S. foreign direct investment in El Salvador.Both of the above are correct.

8. Consider the following two sentences. The wealth of some countries derives primarily from the natural resources they own. However, countries with few natural resources can be highly productive.

Only the first sentence is true.Neither sentence is true.Only the second sentence is true.Both sentences are true.

9. Per-capita real GDP in China is about equal to per-capita real GDP in the United States in

1870, and 1/8 that in the United States today.1920, and 1/2 that in the United States today.1870, and 1/2 that in the United States today.1920, and 1/8 that in the United States today.

10. Generally, the main cause of famine is

a shortage of food.an inadequate distribution of food.excessive population.None of the above is correct.

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

bilateral domestic investments.foreign portfolio investments.foreign indirect investments.indirect domestic investments.

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

None of the above is correct.the capital stock in rich countries deteriorates more rapidly than the capital stock in poor countries.new capital adds more to production in a country that doesn’t have much capital than in a country that already has much capital.workers in countries with low income will work harder than workers in countries with high incomes.

13. Once adjusted for inflation the price of most natural resources

None of the above is correct.were stable or falling because of government price controls.rose because their supply is declining.rose because of increasing demand from a growing population.

14. In comparison to other countries, Japan had a high growth rate over the last 100 years. Japan’s average annual growth rate of real GDP per person was a bit less than

0.5 percent.1.0 percent.3.0 percent.2.0 percent

15. If there are diminishing returns to capital,

the larger the capital stock, the less an increase in the capital stock increases output.the smaller the capital stock, the less an increase in the capital stock increases output.increases in the capital stock eventually decrease output.capital produces fewer goods as it ages.

16. When Ben Franklin died he left $5,000 to be invested for a period of 200 years to benefit medical students and scientific research. According to the “rule of 70,” how often would this money have doubled if it grew 7 percent per year every year?

about every 5 yearsabout every 3.5 yearsabout every 10 yearsabout every 7 years

17. From 1973 to 1998, U.S. productivity growth was slower than from 1959 to 1973. Which of the following is correct?

This slowdown is unique to the United States.This continues a downward trend as output growth was higher in periods before 1959.All of these are correct.It appears that this may be attributed to a slowdown in technological progress.

18. Which of the following would increase productivity?

All of these are correct.the discovery of new raw materialsan increase in the amount of equipment per-workeran increase in the knowledge and skills of workers

19. Which of the following is incorrect?

Students can be viewed as workers who have the important job of producing human capital that will be used in future production.A forest is a non-renewable resource.Technological progress may reduce our dependence on nonrenewable resources.Bulldozers are an example of physical capital.

20. In the last 100 years U.S. per-capita real GDP grew about

2% per year, so that it is about two times as high.4% per year, so that it is about two times as high.2% per year, so that it is about eight times as high.4% per year, so that it is about eight times as high.

21. Which of the following is human capital?

All of these are correct.a company’s cafeteriaemployees’ knowledge of the production processthe exercise equipment in a company’s gym

22. Engineering students learn long-established methods for constructing bridges, in and of itself this learning increases

technological knowledge.human capital.None of the above is correct.physical capital.

23. In the length of one generation, which of the following countries has gone from being among the poorest countries in the world to being among the richest?

SingaporeChadGhanaEthiopia

24. A large and sudden increase in the number of workers is likely to

raise real GDP per person, but decrease real GDP.raise both real GDP and real GDP per person.raise real GDP, but decrease real GDP per person.decrease both real GDP and real GDP per person.

25. The productivity of U.S. workers is higher than that of workers in many countries that have less capital. Which of the following arguments concerning these facts is logically consistent?

None of the above is logically consistent.The United States could have greater productivity because its workers have both more human capital and physical capital per worker.This contradicts the idea of diminishing marginal product. If U.S. workers have more capital, they should have lower productivity.Productivity in the United States is higher because the United States has more workers than those countries having low productivity.

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