CHAPTER 7 PRACTICE PROBLEMS

#2What are the 4 determinants of productivity?

A = Technology
K/L = physical capital per worker
H/L = human capital per worker
N/L = natural resources per worker

#3 Which of the following policy proposals would lead to increased growth in a poor country?

1. Reduce corruption in the legal system;

2. Reduce reliance on market forces because
they allocate goods and services in an unfair manner;

3. Restrict investment in domestic industries by foreigners
because they take some of the profits out of the country;

4. Encourage trade with neighboring countries

5. Increase the fraction of GDP devoted to consumption

ANS: #1, #4

#4 In a market economy, we know that a resource has become scarcer when :

ANS: The price of that resource has increased

#5 True or False: Historically, the market prices of most natural resources (adjusted for inflation) have
increased.

False-they have remained stable or decreased.