Chapter 25 (B)

84. Across countries, investment and growth rates are

• A.negatively relateD.
• B.positively relateD.
• C. negatively related for rich countries, but positively related for poor countries.
• D.positively related for rich countries, but negatively related for poor countries.

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

• A.constant returns.
• B.increasing returns.
• C. diminishing returns.
• D.diminishing returns for low levels of capital, and increasing returns for high levels of capital.

86. If there are diminishing returns to capital,

• A.capital produces fewer goods as it ages.
• B.new ideas are not as useful as old ideas.
• C. increases in the capital stock eventually decrease output.
• D.increases in the capital stock increase output by ever smaller amounts.

87. In the long run, a higher saving rate

• A.cannot increase the capital stock.
• B.means that people must consume less in the future.
• C. increases productivity.
• D.None of the above are correct.

88. If a country were to increase its saving rate, in the long run it would also increase its

• A.level of income.
• B.growth rate of income.
• C. growth rate of productivity.
• D.All of the above are correct.

89. If a country’s saving rate increases, in the long run

• A.both productivity growth and income growth increase.
• B.only productivity growth increases.
• C. only income growth increases.
• D.neither productivity growth nor income growth increase.

90. If a country’s saving rate increases, in the long run

• A.productivity is higher, real GDP per person is not higher.
• B.real GDP per person is higher, productivity is not higher.
• C. productivity and real GDP per person are both higher.
• D.neither productivity nor real GDP per person are higher.

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

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

• A.have no impact on GDP growth.
• B.lead to somewhat higher GDP growth for a few years.
• C. lead to substantially higher GDP growth for a period of several decades.
• D.lead to a permanently higher growth rate.

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

• A.slower than relatively rich countries; this is called the poverty trap.
• B.slower than relatively rich countries; this is called the Malthus effect.
• C. faster than relatively rich countries; this is called the catch-up effect.
• D.faster than relatively rich countries; this is called the constant-returns-to-scale effect.