Chapter 7 Growth and Tradea

1. One fundamental source of long-run economic growth would be:
a. External scale economies.
b. Lower wages.
c. Improvements in production technologies.
d. Exploiting comparative advantage.

Figure 7.1

Wheat

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2. Referring to Figure 7.1, this outward shift of the production
possibilities frontier is an example of:
a. Biased growth.
b. Balanced growth.
c. The move from autarky to free trade.
d. A fall in production costs.

3. Referring to Figure 7.1, the outward shift of the production
possibilities frontier is likely the result of:
a. A fall in production costs.
b. The move from autarky to free trade.
c. An increase in the labor force.
d. An increase in arable land.

4. Which of the following statements is true?
I. Increases in
a country’s endowments of land, labor, and capital will lead to long-run
economic growth.
II. Improvements
in the technology used in production can lead to increases in output, but
cannot lead to long-run economic growth.
III. Improvements
in technology and increases in the endowments of productive inputs can both
cause the production-possibility curve to shift outward.
a. I and II
b. I and III
c. I, II and III
d. None of the above

5. Given a country that produces wine and guns, which of the following is
least likely to lead to biased growth?
a. A new type of grape is discovered that yields twice as much wine as the
old grapes.
b. Significant immigration results in great influx of unskilled workers who
can be as easily trained to work in the wine industry as in the gun industry.
c. The technology used to produce guns improves while the technology used
to produce wine does not change.
d. Due to significant immigration, the number of workers skilled at
producing wine increases while the number of workers skilled at producing guns
does not change.

6. The Rybczynski theorem asserts that in a two-good world, and assuming
that product prices stay constant, growth in the endowment of one factor of
production, with the other factor unchanged, will lead to:
a. An equal percentage increase in the output of both goods.
b. An increase in the output of the good that uses the growing factor
intensively and a decrease in the output of the other good.
c. An increase in the output of both goods but a greater percentage
increase in the output of the good that uses the growing factor intensively.
d. An increase in the output of the good that uses the growing factor
intensively and no change in the output of the other good.

7. A capital-abundant country trades two goods with the rest of the world,
medical equipment and corn. Medical equipment is relatively capital-intensive.
An increase in the country’s endowment of capital, with no change in the price
of either medical equipment or corn, will cause the output of medical equipment
to __________ and the output of corn to __________.
a. Rise; fall
b. Fall; rise
c. Rise; rise
d. Fall; fall

8. A large capital-abundant country trades two goods with the rest of the
world, medical equipment and corn. Medical equipment is relatively
capital-intensive. An increase in the country’s endowment of capital will cause
the price of medical equipment relative to the price of corn to:
a. Rise.
b. Fall.
c. Stay the same.
d. Rise at first and then fall.