Chapter 7 Growth and Tradea

9. Growth in a country’s scarce factor of production will lead to:

a. An increased willingness to trade.

b. Balanced growth.

c. A decreased willingness to trade.

d. A deterioration in the country’s terms of trade.

10. Assume a country that produces wine and guns. Both wine and gun production require inputs of both land and labor. Assume that wine production is a relatively land-intensive production process while gun production is a relatively labor-intensive production process. A significant rise in immigration will likely lead to:

a. An increase in the production of both wine and guns.

b. Wine production increasing by a greater proportion than the proportion by which labor increased as a result of the immigration.

c. Gun production increasing by a greater proportion than the proportion by which labor increased as a result of the immigration.

d. Wine production increasing by a greater proportion than gun production will increase.

11. The development of newly discovered oil reserves in a country:

a. Results in balanced growth.

b. Will cause GDP to fall.

c. Will increase output in all sectors of the economy.

d. May cause output in the country’s manufacturing sector to fall.

12. The rapid accumulation of capital and worker skills in the United States in the 1800’s:

a. Led to one of the first examples of the “Dutch Disease.”

b. Made the United States more dependent on imported minerals.

c. Made the United States more self-sufficient and led to a reduction in foreign trade.

d. Caused deindustrialization.

13. Assume a country that produces cloth and coal. Assume that cloth production requires significant amounts of labor and capital, but relatively little land. Assume that coal production requires relatively little labor and capital, but relatively large amounts of coal-rich land. Given increases in the country's endowments of capital and labor, we can expect that:

a. Both cloth and coal production will increase.

b. Cloth production will increase, but coal production will remain constant.

c. Cloth production will increase, but coal production will decline.

d. Coal production will increase, but cloth production will remain constant.

14. Country X produces two goods, food and clothing. Presently, 40 units of food are produced and 20 units of clothing are produced. 10 units of food are exported and 10 units of clothing are imported. Now suppose new technology in Country X leads to balanced growth while leaving the prices of food and clothing unchanged. Production of food rises to 50 units and production of clothing rises to 25 units. If consumption of food rises to 42 units, we can conclude:

a. Consumption of clothing has risen to 32 units.

b. Country X’s trade triangle has increased in size.

c. Country X’s willingness to trade has fallen.

d. Consumers of clothing are worse-off.

15. Country X produces two goods, food and clothing. Presently, 40 units of food are produced and 20 units of clothing are produced. 10 units of food are exported and 10 units of clothing are imported. Now suppose new technology in Country X leads to balanced growth while leaving the prices of food and clothing unchanged. Production of food rises to 50 units and production of clothing rises to 25 units. If consumption of food rises to 42 units, we can conclude:

a. Consumption of clothing has risen to 33 units.

b. 10 units of food are exported.

c. 17 units of clothing are imported.

d. Consumption of food has fallen.

16. Suppose a large country experiences economic growth which leads to a reduced willingness to trade. The country’s terms of trade will __________ because the fall in demand for imports will cause the price of its exports to __________ relative to the price that it has to pay for its imports.

a. Worsen; fall

b. Improve; rise

c. Improve; fall

d. Worsen; rise