AP Macroeconomics chapter practice15 questions

19 Long-Run Growth, Productivity, and Living Standards

These questions come directly from the chapter practice in the book. Choose the best answer, check your reasoning, and use the explanation to correct any gap.

Question 1

Question 1 of 15

A factory wants a productivity measure that separates output growth from simply adding more labor time. It should calculate

The measure divides real output by labor input, counted either as workers or as hours. A divides by capital instead, D divides by a population that includes children and retirees, B puts a nominal figure in the denominator, and C describes how output is valued rather than what it is divided by.
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E. output per worker or per hour worked

The measure divides real output by labor input, counted either as workers or as hours. A divides by capital instead, D divides by a population that includes children and retirees, B puts a nominal figure in the denominator, and C describes how output is valued rather than what it is divided by.

Question 2

Question 2 of 15

A technician completes an advanced engineering program. What productive asset has that education created?

Human capital is the knowledge, skill, and health carried by workers, and a training program adds to exactly that. A is physical capital and C is a natural resource. B and E are financial claims, which move purchasing power from one holder to another without adding to what anyone can produce.
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D. The technician's engineering knowledge and skill

Human capital is the knowledge, skill, and health carried by workers, and a training program adds to exactly that. A is physical capital and C is a natural resource. B and E are financial claims, which move purchasing power from one holder to another without adding to what anyone can produce.

Question 3

Question 3 of 15

Real output in Country X grows 5 percent a year. Under the rule of 70, output doubles in roughly

The rule divides 70 by the growth rate: 70/5=14 years. E skips the division and reports 70 itself, D divides 100 by 5 instead of 70, B doubles the growth rate rather than dividing into it, and A repeats the growth rate as a number of years.
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C. 14 years

The rule divides 70 by the growth rate: 70/5=14 years. E skips the division and reports 70 itself, D divides 100 by 5 instead of 70, B doubles the growth rate rather than dividing into it, and A repeats the growth rate as a number of years.

Question 4

Question 4 of 15

Diminishing marginal returns to capital concerns adding capital while other inputs are held fixed. Which of the following states the claim correctly?

The statement is about the marginal product of capital with complementary inputs held constant, and it says those increments shrink past some point. B confuses smaller additions with a falling total, C makes a claim about averages and starts it at the first unit, D substitutes physical wear for a statement about marginal product, and E swaps the fixed input for the variable one and reverses the sign besides.
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A. Each added unit eventually yields a smaller gain.

The statement is about the marginal product of capital with complementary inputs held constant, and it says those increments shrink past some point. B confuses smaller additions with a falling total, C makes a claim about averages and starts it at the first unit, D substitutes physical wear for a statement about marginal product, and E swaps the fixed input for the variable one and reverses the sign besides.

Question 5

Question 5 of 15

Investors commit funds only when they expect to keep the returns. Which of the following most directly protects that expectation?

Nobody builds a factory they may not be allowed to keep, so enforceable ownership and enforceable agreements come first. A hands over money without securing any claim on future returns, and C lowers the cost of finance, which is a different obstacle. D takes the returns away outright, and E leaves them to an official's judgment, the very uncertainty investors are trying to avoid.
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B. Enforceable property rights and contract law

Nobody builds a factory they may not be allowed to keep, so enforceable ownership and enforceable agreements come first. A hands over money without securing any claim on future returns, and C lowers the cost of finance, which is a different obstacle. D takes the returns away outright, and E leaves them to an official's judgment, the very uncertainty investors are trying to avoid.

Question 6

Question 6 of 15

Real GDP in Country X grows 3 percent while its population grows 1 percent. Real GDP per person grows by about

Output per person grows at roughly the difference between the two rates: 3-1=2 percent. D reports total output growth and ignores the denominator, B reports population growth, E adds the rates instead of subtracting, and A subtracts in the wrong order.
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C. 2 percent

Output per person grows at roughly the difference between the two rates: 3-1=2 percent. D reports total output growth and ignores the denominator, B reports population growth, E adds the rates instead of subtracting, and A subtracts in the wrong order.

Question 7

Question 7 of 15

The capital stock rises once and then stops growing, while technology and the labor force stay put. That change mainly raises

More capital lets the economy produce more, but a one-time addition lifts capacity to a higher level without changing the rate at which capacity grows afterward. D makes exactly that level-for-growth substitution. A treats a capacity gain as a permanent labor-market change, and B and C convert a real capacity gain into a purely nominal one.
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E. the level of potential output

More capital lets the economy produce more, but a one-time addition lifts capacity to a higher level without changing the rate at which capacity grows afterward. D makes exactly that level-for-growth substitution. A treats a capacity gain as a permanent labor-market change, and B and C convert a real capacity gain into a purely nominal one.

Question 8

Question 8 of 15

Which of the following is most likely to be raised by sustained technological progress rather than by a one-time change?

Continuing improvement in how inputs are combined keeps output per worker climbing year after year, which is a growth-rate effect rather than a one-time gain. D names what a single change delivers. A confines the effect to prices, C substitutes a nominal variable for a real one, and E repeats the old worry that machines destroy jobs on net.
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B. The long-run growth rate of output

Continuing improvement in how inputs are combined keeps output per worker climbing year after year, which is a growth-rate effect rather than a one-time gain. D names what a single change delivers. A confines the effect to prices, C substitutes a nominal variable for a real one, and E repeats the old worry that machines destroy jobs on net.

Question 9

Question 9 of 15

Poorer economies do not automatically catch up. Which of the following does conditional convergence require?

Catching up is conditional on having what makes catching up possible: access to the same technology, enough saving to build capital, and institutions that protect the investment. B reverses the premise, since it is scarce capital that makes the return on new capital high. A and E work against accumulation, and C shuts off the technology transfer convergence depends on.
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D. They share similar technology, saving, and institutions.

Catching up is conditional on having what makes catching up possible: access to the same technology, enough saving to build capital, and institutions that protect the investment. B reverses the premise, since it is scarce capital that makes the return on new capital high. A and E work against accumulation, and C shuts off the technology transfer convergence depends on.

Question 10

Question 10 of 15

Households in Country X begin saving a larger share of income. In the standard growth model that choice means

Income not consumed is what finances new capital, so the cost is consumption today and the payoff is a larger capital stock later. B forgets that saving funds investment, C denies the sacrifice altogether, D treats saving as inert, and E confuses saving with foreign borrowing, which raises consumption instead of paying for capital out of income.
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A. less consumption now and more capital later

Income not consumed is what finances new capital, so the cost is consumption today and the payoff is a larger capital stock later. B forgets that saving funds investment, C denies the sacrifice altogether, D treats saving as inert, and E confuses saving with foreign borrowing, which raises consumption instead of paying for capital out of income.

Question 11

Question 11 of 15

The policy that adds most directly to the stock of physical capital is

A credit tied to equipment purchases lowers the cost of the machines and structures that make up physical capital. B builds human capital, D strengthens the incentive to innovate, C is a nominal change that leaves real capacity alone, and E is a transfer that supports income rather than an addition to the capital stock.
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A. an investment tax credit for equipment

A credit tied to equipment purchases lowers the cost of the machines and structures that make up physical capital. B builds human capital, D strengthens the incentive to innovate, C is a nominal change that leaves real capacity alone, and E is a transfer that supports income rather than an addition to the capital stock.

Question 12

Question 12 of 15

New capital cannot be built without financing. A well-functioning financial system supports growth mainly by

Saving and investing are done by different people, and the financial system is what carries funds from one to the other and sorts sound projects from weak ones. A confuses creating money with creating real resources. B has it backwards, since finance directs saving rather than replacing it. C reverses the flow, and D describes credit priced below inflation, which drives lenders away and shrinks the funds available.
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E. channeling household saving into productive investment

Saving and investing are done by different people, and the financial system is what carries funds from one to the other and sorts sound projects from weak ones. A confuses creating money with creating real resources. B has it backwards, since finance directs saving rather than replacing it. C reverses the flow, and D describes credit priced below inflation, which drives lenders away and shrinks the funds available.

Question 13

Question 13 of 15

Real GDP in Country X grows more slowly than its population over a decade. Real GDP per person

A ratio falls when its numerator grows more slowly than its denominator, and here the denominator is population. A stops at total output and never divides, B gets the size of the gap right and its sign wrong, C treats the two growth rates as equal when the stem says they are not, and E makes a real per-person measure hinge on the price level.
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D. falls over the decade

A ratio falls when its numerator grows more slowly than its denominator, and here the denominator is population. A stops at total output and never divides, B gets the size of the gap right and its sign wrong, C treats the two growth rates as equal when the stem says they are not, and E makes a real per-person measure hinge on the price level.

Question 14

Question 14 of 15

Capital deepening raises the physical capital available per worker. Which of the following curves shifts as a result?

More capital per worker raises what the economy can turn out at full employment, and that capacity is what the long-run supply curve records. E has the right idea and the wrong direction, since added capital pushes the possibilities curve outward. A moves the demand side, and C and D move schedules in the money market and the Phillips diagram.
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B. Long-run aggregate supply shifts right.

More capital per worker raises what the economy can turn out at full employment, and that capacity is what the long-run supply curve records. E has the right idea and the wrong direction, since added capital pushes the possibilities curve outward. A moves the demand side, and C and D move schedules in the money market and the Phillips diagram.

Question 15

Question 15 of 15

Which of the following distinguishes long-run growth from a cyclical recovery?

A recovery moves output back toward a ceiling that has not moved; growth raises the ceiling. D and E describe that recovery instead, one in gap language and one by naming demand as the source. A confuses real growth with a nominal increase, and B attaches to growth a labor-market claim that rising productivity does not support.
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C. Growth pushes potential output itself higher.

A recovery moves output back toward a ceiling that has not moved; growth raises the ceiling. D and E describe that recovery instead, one in gap language and one by naming demand as the source. A confuses real growth with a nominal increase, and B attaches to growth a labor-market claim that rising productivity does not support.

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