Question 1

What are the shortcomings of using the production model   
? What might we include in our model to improve the fit of this simple model?

Accepted Answer

As is demonstrated in the text, the model tends to overestimate per capita real GDP. This is in part due to the fact that we assume a = 1/3 in the model   a = 1 is the same across all countries; however, there is no reason that   for different countries. What is also missing is total factor productivity (   ), which is an "unknown" or unobservable or "residual" factor, or   .
We can measure it if we have both y and k and assume a =1/3 and substitute into the above equation,   . But, if we could measure it directly, given the production function,   if   .

Question 2

In the equation   , 1/3 represents:

Accepted Answer

A)  total factor productivity. 
B)  physical capital. 
C)  natural resources. 
D)  the output share of capital. 
E)  the real interest rate. 
A)  total factor productivity. 
B)  physical capital. 
C)  natural resources. 
D)  the output share of capital. 
E)  the real interest rate. D

Question 3

If the marginal product of labor equals the wages, firms should hire more workers.

Accepted Answer

A) True 
 B)False  False

Question 4

The production function of the form   
exhibits constant returns to scale.

Accepted Answer

A) True 
 B)False

Question 5

To decompose what explains the difference in per capita GDP between any two countries, say, 1 and 2, we would use:

Accepted Answer

A)    . 
B)    . 
C)    . 
D)    . 
E)    . 
A)    . 
B)    . 
C)    . 
D)    . 
E)    .

Question 6

If the production function is   
, then in per worker terms, it can be written as   
.

Accepted Answer

A) True 
 B)False

Question 7

Refer to the following figure when answering the following questions.
Figure 4.1: Production Function  
-Consider Figure 4.1. The shape of this production function suggests:

Accepted Answer

A)  not enough information is given. 
B)  a diminishing marginal product of labor. 
C)  a constant marginal product of capital. 
D)  an increasing marginal product of capital. 
E)  a diminishing marginal product of capital. 
A)  not enough information is given. 
B)  a diminishing marginal product of labor. 
C)  a constant marginal product of capital. 
D)  an increasing marginal product of capital. 
E)  a diminishing marginal product of capital.

Question 8

Refer to the following table when answering the following questions.
Table 4.1: Production Model's Prediction for Per Capita GDP (US = 1)   (Source: Penn World Tables 9.0)
-Considering the data in Table 4.1, the explanation for the difference between the predicted and actual level of output is called ________. If you compare India's observed and predicted output, this difference is equal to ________.

Accepted Answer

A)  labor's share of GDP; two-thirds 
B)  the Solow residual; 4.5 
C)  liquidity; 0.05 
D)  capital's share of GDP; one-third 
E)  total factor productivity; 0.22 
A)  labor's share of GDP; two-thirds 
B)  the Solow residual; 4.5 
C)  liquidity; 0.05 
D)  capital's share of GDP; one-third 
E)  total factor productivity; 0.22

Question 9

Consider an economy where the only consumption good is ice cream. Firms in this economy must:

Accepted Answer

A)  hire all workers and rent all machines available. 
B)  choose how many workers to hire and how many ice cream machines to rent. 
C)  choose how many workers to hire and rent all machines available. 
D)  hire all workers and choose how many machines to rent. 
E)  None of these answers is correct. 
A)  hire all workers and rent all machines available. 
B)  choose how many workers to hire and how many ice cream machines to rent. 
C)  choose how many workers to hire and rent all machines available. 
D)  hire all workers and choose how many machines to rent. 
E)  None of these answers is correct.

Question 10

Both the United States and France, among the richest countries in the world, have similar levels of education and capital per worker, but U.S. citizens enjoy higher incomes than the French. One explanation might be differences in:

Accepted Answer

A)  war. 
B)  institutions. 
C)  infrastructure. 
D)  population size. 
E)  labor income shares. 
A)  war. 
B)  institutions. 
C)  infrastructure. 
D)  population size. 
E)  labor income shares.

Question 11

A production function of the form   
is called the Cobb-Douglas production function.

Accepted Answer

A) True 
 B)False

Question 12

If the production function is given by   and K =81 and L =2.5, total output equals about:

Accepted Answer

A)  Y =1. 
B)  Y = 0.3. 
C)  Y =22.1. 
D)  Y = 6.0. 
E)  Y = 82.4. 
A)  Y =1. 
B)  Y = 0.3. 
C)  Y =22.1. 
D)  Y = 6.0. 
E)  Y = 82.4.

Question 13

In the equation   ,  
Represents:

Accepted Answer

A)  total factor productivity. 
B)  physical capital. 
C)  natural resources. 
D)  the capital = labor ratio. 
E)  the real interest rate. 
A)  total factor productivity. 
B)  physical capital. 
C)  natural resources. 
D)  the capital = labor ratio. 
E)  the real interest rate.

Question 14

Which of the following inputs do we generally consider in a simple production function?

Accepted Answer

A)  capital 
B)  consumption 
C)  natural resources 
D)  utilities 
E)  distance 
A)  capital 
B)  consumption 
C)  natural resources 
D)  utilities 
E)  distance

Question 15

In the equation   , the lack of a "bar" over the L means that it is:

Accepted Answer

A)  an exogenous variable. 
B)  an endogenous variable. 
C)  a parameter. 
D)  constant. 
E)  equal to one. 
A)  an exogenous variable. 
B)  an endogenous variable. 
C)  a parameter. 
D)  constant. 
E)  equal to one.

Question 16

You are an economist working for the International Monetary Fund. Your boss wants to know what the total factor productivity of China is, but all you have is data on per capita GDP, y, and the per capita capital stock, k. If you assume that capital's share of GDP is one-third, what would you use to find total factor productivity?

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of these answers is correct. 
A)    
B)    
C)    
D)    
E)  None of these answers is correct.

Question 17

If you have data on per capita GDP and capital per worker, to find total factor productivity you can use the equation   
, if capital's share of GDP is two-thirds.

Accepted Answer

A) True 
 B)False

Question 18

In the production function   ,  
Represents:

Accepted Answer

A)  an unknown. 
B)  the amount of capital in an economy. 
C)  the amount of labor in an economy. 
D)  a productivity parameter. 
E)  an error term. 
A)  an unknown. 
B)  the amount of capital in an economy. 
C)  the amount of labor in an economy. 
D)  a productivity parameter. 
E)  an error term.

Question 19

In the aftermath of the Black Death in the fourteenth century, wages in Europe were higher than before the Black Death because millions of people died.

Accepted Answer

A) True 
 B)False

Question 20

The firm's profit maximization problem is:

Accepted Answer

A)  max  $\pi$ = F(r, w)- rK -wL
{r, w}. 
B)  max  $\pi$ = rK + wL - F(K, L)
{K, L}. 
C)  max  $\pi$ = F(K, L) - rK - wL
{r, w}. 
D)  max  $\pi$ = F(K, L) - rK - wL
{K, L}. 
E)  All of these answers are correct. 
A)  max  $\pi$ = F(r, w)- rK -wL
{r, w}. 
B)  max  $\pi$ = rK + wL - F(K, L)
{K, L}. 
C)  max  $\pi$ = F(K, L) - rK - wL
{r, w}. 
D)  max  $\pi$ = F(K, L) - rK - wL
{K, L}. 
E)  All of these answers are correct.

What are the shortcomings of using the production model ? What might we include in our model to improve the fit of this simple model?

In the equation , 1/3 represents:

If the marginal product of labor equals the wages, firms should hire more workers.

The production function of the form exhibits constant returns to scale.

To decompose what explains the difference in per capita GDP between any two countries, say, 1 and 2, we would use:

If the production function is , then in per worker terms, it can be written as .

Refer to the following figure when answering the following questions. Figure 4.1: Production Function -Consider Figure 4.1. The shape of this production function suggests:

Consider an economy where the only consumption good is ice cream. Firms in this economy must:

Both the United States and France, among the richest countries in the world, have similar levels of education and capital per worker, but U.S. citizens enjoy higher incomes than the French. One explanation might be differences in:

A production function of the form is called the Cobb-Douglas production function.

If the production function is given by and K =81 and L =2.5, total output equals about:

In the equation , Represents:

Which of the following inputs do we generally consider in a simple production function?

In the equation , the lack of a "bar" over the L means that it is:

If you have data on per capita GDP and capital per worker, to find total factor productivity you can use the equation , if capital's share of GDP is two-thirds.

In the production function , Represents:

In the aftermath of the Black Death in the fourteenth century, wages in Europe were higher than before the Black Death because millions of people died.

The firm's profit maximization problem is:

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long-Run Economic Growth

The Solow Growth Model

Growth and Ideas

The Labor Market, Wages, and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Monetary Policy and the Phillips Curve

Stabilization Policy and the Asad Framework

The Great Recession and the Short-Run Model

Dsge Models: the Frontier of Business Cycle Research

Consumption

Investment

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

Exam 4: A Model of Production

What are the shortcomings of using the production model ? What might we include in our model to improve the fit of this simple model?

In the equation , 1/3 represents:

If the marginal product of labor equals the wages, firms should hire more workers.

The production function of the form exhibits constant returns to scale.

To decompose what explains the difference in per capita GDP between any two countries, say, 1 and 2, we would use:

If the production function is , then in per worker terms, it can be written as .

Refer to the following figure when answering the following questions. Figure 4.1: Production Function -Consider Figure 4.1. The shape of this production function suggests:

Consider an economy where the only consumption good is ice cream. Firms in this economy must:

Both the United States and France, among the richest countries in the world, have similar levels of education and capital per worker, but U.S. citizens enjoy higher incomes than the French. One explanation might be differences in:

A production function of the form is called the Cobb-Douglas production function.

If the production function is given by and K =81 and L =2.5, total output equals about:

In the equation , Represents:

Which of the following inputs do we generally consider in a simple production function?

In the equation , the lack of a "bar" over the L means that it is:

If you have data on per capita GDP and capital per worker, to find total factor productivity you can use the equation , if capital's share of GDP is two-thirds.

In the production function , Represents:

In the aftermath of the Black Death in the fourteenth century, wages in Europe were higher than before the Black Death because millions of people died.

The firm's profit maximization problem is:

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long-Run Economic Growth

The Solow Growth Model

Growth and Ideas

The Labor Market, Wages, and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Monetary Policy and the Phillips Curve

Stabilization Policy and the Asad Framework

The Great Recession and the Short-Run Model

Dsge Models: the Frontier of Business Cycle Research

Consumption

Investment

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters