Deck 8: Income Disparity Among Countries and Endogenous Growth

Question 1

The Solow growth model tells us that the standard living in country A can be higher than in country B for all the following reasons,except

A) country A has lower population growth than country B.
B) country A has a higher savings rate than country B.
C) country A has a higher depreciation rate than country B.
D) country A has higher total factor productivity than country B.

Answer 1

country A has a higher depreciation rate than country B.

Question 2

Endogenous growth theory is about

A) the welfare of indigenous people.
B) explaining growth.
C) studying fertility choices.
D) giving more importance to capital accumulation.

Answer 2

explaining growth.

Question 3

Barriers to Riches,by S. Parente and E. Prescott,emphasizes the importance of

A) barriers to technological adoption.
B) barriers to the development of natural resources.
C) public education.
D) endogenous growth.

Answer 3

barriers to technological adoption.

Question 4

In the endogenous growth model,an increase in a worker's level of human capital

A) increases the amount of additional human capital she can produce, but does not increase the amount of output she can produce.
B) increases the amount of additional output she can produce, but does not increase the amount of human capital she can produce.
C) increases both the amount of additional human capital she can produce and the amount of output she can produce.
D) increases neither the amount of additional human capital she can produce nor the amount of output she can produce.

Question 5

Human capital is knowledge in

A) books.
B) people.
C) firms.
D) government.

Question 6

In the endogenous growth model,human capital accumulation is best described as a form of

A) consumption.
B) investment.
C) government spending.
D) none of the above

Question 7

According to Solow's exogenous growth theory,what happens to a country at steady state that suffered extensive capital destruction due to a war or climate event?

A) It will stay poor forever.
B) It will grow back to be richer than before.
C) It will get back to its original status.
D) Anything can happen.

Question 8

Suppose a poor economy inches towards the steady state in Solow's exogenous growth model. What happens?

A) Consumption per capita decreases.
B) Saving per capita decreases.
C) The depreciation rate increases.
D) The growth rate of output decreases.

Question 9

When countries converge,

A) they all grow at the same rate.
B) poorer ones grow faster.
C) richer ones grow faster.
D) richer ones do not grow.

Question 10

In the endogenous growth model,workers divide their time between market work and

A) accumulating physical capital.
B) accumulating human capital.
C) trying to invent new production processes.
D) work at home.

Question 11

Which of the following is not a reason for differences in total factor productivity across countries?

A) Differences in the size of population.
B) learning by doing.
C) barriers to the adoption of new technology.
D) inefficient allocation of factors of production across firms in some countries.

Question 12

Human capital is

A) knowledge found in books.
B) knowledge found in people.
C) wealth.
D) machines owned by people.

Question 13

Income per worker has been

A) converging in both the rich countries and the poor countries.
B) converging in the rich countries, but not converging in the poor countries.
C) converging in the poor countries, but not converging in the rich countries.
D) converging in neither the poor nor the rich countries.

Question 14

Suppose a country is much richer than the others in the Solow growth model. What happens in the long run?

A) The other countries catch up to the rich one.
B) The rich country grows the fastest.
C) The rich country becomes poorer than the others.
D) Nothing.

Question 15

In the Solow growth model,countries with identical total factor productivities,identical labor force growth rates,and identical savings rates

A) always have identical levels of capital per worker and output per worker.
B) in equilibrium, have identical levels of capital per worker and output per worker.
C) in equilibrium, have identical levels of capital per worker but not necessarily identical levels of output per worker.
D) in equilibrium, have identical levels of output per worker but not necessarily identical levels of capital per worker.

Question 16

Convergence means that

A) if poor countries grow fast, then fast growing countries are poor.
B) all countries grow at the same rate.
C) all countries tend towards the same per capita income.
D) the savings rate is positively related to per capita income.

Question 17

Suppose a poor economy inches towards the steady state in Solow's exogenous growth model. What happens?

A) Capital grows faster than population.
B) Capital grows slower than population.
C) Capital grows as fast as population.
D) It depends.

Question 18

What characteristic do both human and physical capital share?

A) Both are controlled by the government.
B) Current costs are incurred for future benefits.
C) The use of both exhibits rivalry.
D) They can easily be transferred to new ownership.

Question 19

The importance of barriers to the adoption of technologies is supported by research by

A) P. Romer.
B) R. Lucas.
C) S. Parente and E. Prescott.
D) G. Glomm and B. Ravikumar.

Question 20

Suppose that two countries share identical levels of total factor productivity,identical labor force growth rates and identical savings rates. According to the Solow model

A) the country with the greater initial level of output per worker will grow more rapidly than the country with the smaller initial level of output per worker.
B) the country with the smaller initial level of output per worker will grow more rapidly than the country with the greater initial level of output per worker.
C) both countries will have the same growth rates of output per worker, even if they start out with different levels of output per worker.
D) if both countries start out with different levels of income per worker, both countries may have different growth rates of output per worker, but we cannot be certain which country will have the higher growth rate of output per worker.

Question 21

If there are human capital externalities,then

A) human capital should be taxed.
B) convergence in per capita incomes occurs.
C) differences in human capital across countries can persist.
D) pollution is a problem.

Question 22

In the endogenous growth model presented in the text,suppose that u represents the fraction of time spent working (as opposed to accumulating human capital),b represents the efficiency of human capital accumulation,H represents the amount of human capital,and z represents the marginal product of efficiency units of labor. Consumption equals

A) buH.
B) zuH.
C) buz.
D) buzH.

Question 23

An example of an increase in b,the efficiency of human capital accumulation,is

A) more mandatory school years.
B) better teachers.
C) better school material.
D) better total factor productivity.

Question 24

In the endogenous growth model presented in the text,an increase in the fraction of time accumulating human capital

A) increases the growth rate of human capital and increases the growth rate of output.
B) increases the growth rate of human capital and decreases the growth rate of output.
C) decreases the growth rate of human capital and increases the growth rate of output.
D) decreases the growth rate of human capital and decreases the growth rate of output.

Question 25

Paul Romer argues that a key feature of knowledge is

A) divisibility.
B) private ownership.
C) nonrivalry.
D) durability.

Question 26

Which of the following policies would increase the growth rate of an economy in the endogenous growth model with human capital?

A) mandatory schooling.
B) minimum wages.
C) redistributive taxation.
D) lump-sum taxation.

Question 27

In the endogenous growth model with human capital,spending more time on education

A) decreases the growth rate and increases output in the short term.
B) decreases the growth rate and decreases output in the short term.
C) increases the growth rate and increases output in the short term.
D) increases the growth rate and decreases output in the short term.

Question 28

What characteristic of the endogenous growth model is crucial in giving the possibility of sustained growth?

A) It is embodied in people.
B) It has constant returns to scale in production.
C) It takes time to accumulate it.
D) It grows at the same rate as consumption.

Question 29

What characteristic do human and physical capital share?

A) Both are controlled by the government.
B) Current costs are incurred for future benefits.
C) Their growth depends crucially on the growth of total factor productivity.
D) The use of both exhibits rivalry.

Question 30

A key characteristic of the production function in the endogenous growth model presented in the text is that

A) there are increasing returns to scale in human capital.
B) there are decreasing returns to scale in human capital.
C) there are constant returns to scale in human capital.
D) at low levels of human capital, there are increasing returns to scale in human capital, while at high levels of human capital, there are decreasing returns to scale in human capital.

Question 31

The idea that contact with others with high levels of human capital increases ones own human capital is called human capital

A) contagion.
B) externality.
C) transference.
D) convergence.

Question 32

In the endogenous growth model presented in the text,suppose that u represents the fraction of time spent working (as opposed to accumulating human capital)and b represents the efficiency of human capital accumulation. The growth rate of consumption equals

A) u(1 - b) - 1.
B) 1 + b(1 - u).
C) (1 - b)(1 - u).
D) b(1 - u) - 1.

Question 33

In the endogenous growth model presented in the text,an increase in the efficiency of human capital accumulation

A) increases the growth rate of human capital and increases the growth rate of output.
B) increases the growth rate of human capital and decreases the growth rate of output.
C) decreases the growth rate of human capital and increases the growth rate of output.
D) decreases the growth rate of human capital and decreases the growth rate of output.

Question 34

Which statement is correct?

A) To attain a permanently higher rate of growth in GDP per capita, a nation has to sacrifice something in the present.
B) A higher growth rate in GDP per capita is always preferable.
C) It is easy for poor countries to become rich.
D) If the human capital accumulation technology is more efficient, then the growth rate of per capita output falls.

Question 35

Which of the following is best characterized as being nonrivalrous?

A) consumption goods
B) services
C) physical capital
D) knowledge

Question 36

In the endogenous growth model presented in the text,suppose that u represents the fraction of time spent working (as opposed to accumulating human capital)and b represents the efficiency of human capital accumulation. The growth rate of human capital equals

A) u(1 - b) - 1.
B) 1 + b(1 - u).
C) (1 + b)(1 - u).
D) b(1 - u) - 1.

Question 37

What is a characteristic of human capital?

A) rivalry
B) rapid accumulation
C) private ownership
D) concavity

Question 38

In the endogenous growth model presented in the text,

A) consumption grows faster than human capital.
B) human capital grows faster than consumption.
C) both consumption and human capital grow at the same rate.
D) neither consumption nor human capital grows in the steady state.

Question 39

The endogenous growth model predicts that

A) there is convergence in incomes per capita across countries.
B) output per capita is constant.
C) rich countries will always become poor.
D) differences in per capital incomes across countries persist forever.

Question 40

According to the endogenous growth model with human capital,what can we say about countries with more efficient schools?

A) They are richer.
B) They are richer and grow faster.
C) They are richer and grow more slowly.
D) They grow faster.

Question 41

Endogenous growth theory is about

A) welfare of indigenous people.
B) explaining growth.
C) studying education.
D) studying fertility choices.

Question 42

What immediate consequence does an increase in education time have in the endogenous growth model with human capital?

A) lower output
B) lower output in the future
C) lower wages
D) lower human capital

Question 43

An improvement in school quality translates into an increase in which model parameter?

A) H
B) z
C) b
D) 1-u

Question 44

Which of the following is a way to obtain endogenous growth:

A) inflation.
B) human capital accumulation.
C) physical capital accumulation.
D) population growth.

Question 45

Schooling is subsidized in the United States in part

A) so that the golden rule capital level can be reached.
B) because otherwise people would not get educated.
C) because there is a constitutional right to education.
D) because there is a positive externality from schooling.