Question 1

Explain what is meant by "convergence".

Accepted Answer

Convergence refers to the phenomenon where the levels of output per person for countries tend to move closer to one another over time. This implies that countries that start with relatively lower levels of output per worker catch up to other countries and, in some cases, actually pass other countries.

Question 2

"Convergence" has been occurring among the OECD countries because:

Accepted Answer

A)  the richer countries have had higher growth rates than the poorer ones. 
B)  the richer countries give away more of their output than the poorer ones. 
C)  the poorer countries have had higher growth rates than the richer ones. 
D)  the poorer countries have had positive growth rates, while the richer ones have had negative growth rates. 
E)  the procedures for measuring output per capita have been changing. 
A)  the richer countries have had higher growth rates than the poorer ones. 
B)  the richer countries give away more of their output than the poorer ones. 
C)  the poorer countries have had higher growth rates than the richer ones. 
D)  the poorer countries have had positive growth rates, while the richer ones have had negative growth rates. 
E)  the procedures for measuring output per capita have been changing. C

Question 3

Explain why economists do not use exchange rates to compare standards of living across countries. Also, discuss what economists do to avoid these problems.

Accepted Answer

Answers should include discussions about the effects of variations in exchange rates and of systematic differences in prices across countries. The use of purchasing power parity (PPP) numbers reduces the problems associated with these two issues. The focus box "The Construction of PPP Numbers" on pp. 228- 229 provides a simple example of the issue.

Question 4

The ratio of 2009 real output per capita to 1950 real output per capita was lowest in which of the following countries?

Accepted Answer

A)  Japan. 
B)  United Kingdom. 
C)  United States. 
D)  Australia. 
E)  Germany. 
A)  Japan. 
B)  United Kingdom. 
C)  United States. 
D)  Australia. 
E)  Germany.

Question 5

Assume that a country experiences a permanent increase in its saving rate. Which of the following will occur as a result of this increase in the saving rate?

Accepted Answer

A)  A permanently faster growth rate of output. 
B)  A permanently higher level of output per capita. 
C)  A permanently higher level of capital per worker. 
D)  Both A and B. 
E)  Both B and C. 
A)  A permanently faster growth rate of output. 
B)  A permanently higher level of output per capita. 
C)  A permanently higher level of capital per worker. 
D)  Both A and B. 
E)  Both B and C.

Question 6

The assumption of constant returns to scale suggests that if N and K both decrease by 7%:

Accepted Answer

A)  Y will decrease by exactly 7%. 
B)  The capital- labour ratio (K/N) will decrease. 
C)  Y will decrease by less than 7%. 
D)  Y will decrease by more than 7%. 
E)  The capital- labour ratio (K/N) will increase. 
A)  Y will decrease by exactly 7%. 
B)  The capital- labour ratio (K/N) will decrease. 
C)  Y will decrease by less than 7%. 
D)  Y will decrease by more than 7%. 
E)  The capital- labour ratio (K/N) will increase.

Question 7

What are the three main conclusions that can be drawn from an analysis of the growth rates for developed countries?

Accepted Answer

An analysis over the period of 1950 to 2

Question 8

When using a logarithmic scale to plot output per capita over time, an upward- sloping curve that becomes increasingly steep indicates:

Accepted Answer

A)  output per capita is growing by a constant percentage each year. 
B)  output per capita is not defined. 
C)  output per capita is growing by an increasing percentage each year. 
D)  output per capita is not changing. 
E)  output per capita is growing by a constant amount each year. 
A)  output per capita is growing by a constant percentage each year. 
B)  output per capita is not defined. 
C)  output per capita is growing by an increasing percentage each year. 
D)  output per capita is not changing. 
E)  output per capita is growing by a constant amount each year.

Question 9

Suppose the capital stock increases by 10% and the number of employed workers increases by 5%. Given this information, explain what will happen to output and to output per worker.

Accepted Answer

The level of output will obviously incre

Question 10

In the OECD countries, there is a negative relationship between real output per capita in 1950 and:

Accepted Answer

A)  average population growth from 1950 to 2009. 
B)  average growth since 1950. 
C)  average growth of real output per capita from 1950 to 2009. 
D)  distance from the equator. 
E)  average growth of real output from 1950 to 2009. 
A)  average population growth from 1950 to 2009. 
B)  average growth since 1950. 
C)  average growth of real output per capita from 1950 to 2009. 
D)  distance from the equator. 
E)  average growth of real output from 1950 to 2009.

Question 11

An upward- sloping straight line on a linear scale will become a(n) on a logarithmic scale.

Accepted Answer

A)  upward sloping straight line 
B)  horizontal line 
C)  upward sloping curve that gets continually steeper 
D)  upward sloping curve that gets continually flatter 
E)  downward sloping straight line 
A)  upward sloping straight line 
B)  horizontal line 
C)  upward sloping curve that gets continually steeper 
D)  upward sloping curve that gets continually flatter 
E)  downward sloping straight line

Question 12

If output per capita grows by a constant 6% per year, then the standard of living would grow by about over 3 years.

Accepted Answer

A)  15% 
B)  20% 
C)  12% 
D)  23% 
E)  19% 
A)  15% 
B)  20% 
C)  12% 
D)  23% 
E)  19%

Question 13

Between 1950 and 2009, the rate of growth of output per capita was highest in which of the following countries?

Accepted Answer

A)  United States. 
B)  Australia. 
C)  Germany. 
D)  United Kingdom. 
E)  Japan. 
A)  United States. 
B)  Australia. 
C)  Germany. 
D)  United Kingdom. 
E)  Japan.

Question 14

Over the past fifty years, convergence has generally occurred for all of the following groups of countries with the exception of:

Accepted Answer

A)  OECD countries. 
B)  the "four tigers" in Asia. 
C)  the five richest countries. 
D)  European countries. 
E)  sub- Saharan Africa. 
A)  OECD countries. 
B)  the "four tigers" in Asia. 
C)  the five richest countries. 
D)  European countries. 
E)  sub- Saharan Africa.

Question 15

Assume that there are decreasing returns to capital, decreasing returns to labour, and constant returns to scale. Now suppose that both capital and labour increase by 10%. Given this information, we know that output (Y) will:

Accepted Answer

A)  not change. 
B)  increase by 10%. 
C)  increase by more than 10%. 
D)  increase by less than 20% but more than 10%. 
E)  increase by less than 10%. 
A)  not change. 
B)  increase by 10%. 
C)  increase by more than 10%. 
D)  increase by less than 20% but more than 10%. 
E)  increase by less than 10%.

Question 16

Suppose there are two countries that are identical with the following exception: the saving rate in country A is greater than the saving rate in country B. Given this information, we know that in the long run:

Accepted Answer

A)  economic growth will be higher in A than in B. 
B)  economic growth will be higher in B than in A. 
C)  output per capita will be the same in the two countries. 
D)  output per capita will be greater in B than in A. 
E)  output per capita will be greater in A than in B. 
A)  economic growth will be higher in A than in B. 
B)  economic growth will be higher in B than in A. 
C)  output per capita will be the same in the two countries. 
D)  output per capita will be greater in B than in A. 
E)  output per capita will be greater in A than in B.

Question 17

Assume that the stock of capital (K) increases by 6%. Holding all other factors constant, we know with certainty that which of the following will occur?

Accepted Answer

A)  Output per capita will increase by 6%. 
B)  Output will increase by less than 6%. 
C)  The capital- labour ratio will increase. 
D)  Output will increase by 6%. 
E)  The capital- labour ratio will decrease. 
A)  Output per capita will increase by 6%. 
B)  Output will increase by less than 6%. 
C)  The capital- labour ratio will increase. 
D)  Output will increase by 6%. 
E)  The capital- labour ratio will decrease.

Question 18

Assume that a country experiences a permanent decrease in its saving rate. Which of the following will occur as a result of this decrease in the saving rate?

Accepted Answer

A)  A permanently slower growth rate of output. 
B)  A permanently lower level of capital per worker. 
C)  No permanent effect on the level of output per capita. 
D)  Both A and B. 
E)  Both B and C. 
A)  A permanently slower growth rate of output. 
B)  A permanently lower level of capital per worker. 
C)  No permanent effect on the level of output per capita. 
D)  Both A and B. 
E)  Both B and C.

Question 19

Given the broadest interpretation of technology, technology will include which of the following?

Accepted Answer

A)  The efficiency of the firms. 
B)  The political and legal environment. 
C)  The organisation and sophistication of markets. 
D)  The list of blueprints defining the types of products and the techniques available to produce them. 
E)  All of the above. 
A)  The efficiency of the firms. 
B)  The political and legal environment. 
C)  The organisation and sophistication of markets. 
D)  The list of blueprints defining the types of products and the techniques available to produce them. 
E)  All of the above.

Question 20

Assume that the stock of capital increases by 6% and employment increases by 4%. Given this information, we know that:

Accepted Answer

A)  output per capita will increase by more than 3%. 
B)  output per capita will increase by less than 2%. 
C)  output per capita will increase by less than 3% and more than 2%. 
D)  output per capita will increase by less than 2% and more than 1%. 
E)  output per capita will increase by 5%. 
A)  output per capita will increase by more than 3%. 
B)  output per capita will increase by less than 2%. 
C)  output per capita will increase by less than 3% and more than 2%. 
D)  output per capita will increase by less than 2% and more than 1%. 
E)  output per capita will increase by 5%.

Exam 10: The Facts of Growth

Explain what is meant by "convergence".

"Convergence" has been occurring among the OECD countries because:

Explain why economists do not use exchange rates to compare standards of living across countries. Also, discuss what economists do to avoid these problems.

The ratio of 2009 real output per capita to 1950 real output per capita was lowest in which of the following countries?

Assume that a country experiences a permanent increase in its saving rate. Which of the following will occur as a result of this increase in the saving rate?

The assumption of constant returns to scale suggests that if N and K both decrease by 7%:

What are the three main conclusions that can be drawn from an analysis of the growth rates for developed countries?

When using a logarithmic scale to plot output per capita over time, an upward- sloping curve that becomes increasingly steep indicates:

Suppose the capital stock increases by 10% and the number of employed workers increases by 5%. Given this information, explain what will happen to output and to output per worker.

In the OECD countries, there is a negative relationship between real output per capita in 1950 and:

An upward- sloping straight line on a linear scale will become a(n) on a logarithmic scale.

If output per capita grows by a constant 6% per year, then the standard of living would grow by about over 3 years.

Between 1950 and 2009, the rate of growth of output per capita was highest in which of the following countries?

Over the past fifty years, convergence has generally occurred for all of the following groups of countries with the exception of:

Assume that there are decreasing returns to capital, decreasing returns to labour, and constant returns to scale. Now suppose that both capital and labour increase by 10%. Given this information, we know that output (Y) will:

Suppose there are two countries that are identical with the following exception: the saving rate in country A is greater than the saving rate in country B. Given this information, we know that in the long run:

Assume that the stock of capital (K) increases by 6%. Holding all other factors constant, we know with certainty that which of the following will occur?

Assume that a country experiences a permanent decrease in its saving rate. Which of the following will occur as a result of this decrease in the saving rate?

Given the broadest interpretation of technology, technology will include which of the following?

Assume that the stock of capital increases by 6% and employment increases by 4%. Given this information, we know that:

A Tour of the World

A Tour of the Book

The Goods Market

Financial Markets

Goods and Financial Markets: the Islm Model

The Labour Market

Putting All Markets Together: the Asad Model

The Phillips Curve, the Natural Rate of Unemployment and Inflation

The Crisis

Saving, Capital Accumulation and Output

Technological Progress and Growth

Technological Progress: the Short, the Medium and the Long Run

Expectations: the Basic Tools

Financial Markets and Expectations

Expectations, Consumption and Investment

Expectations, Output and Policy

Openness in Goods and Financial Markets

The Goods Market

Output, the Interest Rate and the Exchange Rate

Exchange Rate Regimes

Should Policy-Makers Be Restrained

Fiscal Policy: a Summing up

Monetary Policy: a Summing up

Epilogue: the Story of Macroeconomics

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