1. Economic growth I. is represented by an outward shift of the production possi
ID: 1104985 • Letter: 1
Question
1. Economic growth
I. is represented by an outward shift of the production possibilities curve.
II. is defined in terms of a series of events that increase the economy’s ability to produce goods and services.
III. refers to a process that increases potential output.
IV. occurs when the economy operates on its production possibilities frontier.
a. I, III, and IV
b. I, II, and III
c. I and IV only
d. I, II, III, and IV
2. Which of the following applies to economic growth?
I. Economic growth allows people to buy more goods and services.
II. Economic growth is the expansion of the economy’s production possibilities.
III. Economic growth is represented by a movement from a point inside the production possibilities curve to a point on the curve.
a. I and II only
b. I, II, and III
c. I only
d. I and III only
3. Suppose labor is the only variable that changes. If production displays diminishing marginal returns, each additional unit of labor
a. adds a fixed amount to total output.
b. adds more and more to total output.
c. actually decreases output.
d. adds less and less to total output.
4. Which of the following statements is true?
a. Technological gains tend to reduce the demand for labor because producers substitute technology and capital for labor.
b. Technological change and capital investment tend to reduce the demand for labor and increase the supply of labor leading to an indeterminate effect on real wages.
c. Technological change and capital investment tend to increase real wages because labor productivity increases.
d. Technological change and capital investment tend to reduce the quantity of labor employed, and reduce real wages.
Explanation / Answer
Ans)
1.
b. I, II, and III
IV is not included in the answer since if an economy is on its prduction possibility frontier it is utilizing its resources in the most efficient form, this does not imply economic growth.
2.
a. I and II only
III is not included because this means only that the economy starts producing from an inefficient point to an efficient point.
3.
d. adds less and less to total output.
With the other inputs as fixed adding more and more units of variable input to a fixed input will add less and less level of output.
4.
c. Technological change and capital investment tend to increase real wages because labor productivity increases.
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