Deck 6: Long-Run Economic Growth

Question 1

Suppose the current level of output is 5000 and the elasticity of output with respect to labor is 0.7.A 10% increase in labor would increase the current level of output to

A)5035.
B)5070.
C)5350.
D)5700.

Answer 1

C

Question 2

Over the past year,output grew 5%,capital grew 5%,and labor grew 1%.If the elasticities of output with respect to capital and labor are 0.5 and 0.5,respectively,how much did productivity grow?

A)0)5%
B)1)0%
C)1)5%
D)2)0%

Answer 2

D

Question 3

Suppose the current level of output is 5000.A 10% increase in productivity would increase the current level of output to

A)5050.
B)5100.
C)5500.
D)6000.

Answer 3

C

Question 4

The elasticity of output with respect to capital

A)is the increase in output resulting from an increase in the capital stock.
B)is the percentage increase in output resulting from a 1 % increase in the capital stock.
C)is always greater than one.
D)is the inverse of the elasticity of output with respect to labor.

Question 5

Edward Denison found that labor's contribution to output growth in the United States since 1929 was attributable to all the factors below EXCEPT

A)rising population.
B)an increase in the percentage of the population in the labor force.
C)an increase in the number of hours worked per person.
D)higher educational levels.

Question 6

Over the past year,output grew 6%,capital grew 2%,and labor grew 4%.If the elasticities of output with respect to capital and labor are 0.3 and 0.7,respectively,how much did productivity grow?

A)2)0%
B)2)6%
C)3)0%
D)3)3%

Question 7

Over the past year,output grew 5%,capital grew 5%,and labor grew 1%.If the elasticities of output with respect to capital and labor are 0.3 and 0.7,respectively,how much did productivity grow?

A)0)5%
B)1)0%
C)2)2%
D)2)8%

Question 8

If capital and labor each grow 5% in a year,the elasticities of output with respect to capital and labor sum to one,and productivity grows 2% in the year,by how much does output grow during the year?

A)2%
B)3%
C)5%
D)7%

Question 9

The growth accounting equation is

A)
B)
C)
D)

Question 10

Labor productivity increased so much in the second half of the 1990s because of

A)improved information and communications technologies.
B)higher levels of educational attainment by workers.
C)cheaper foreign imports used in production.
D)increased foreign competition.

Question 11

Suppose the current level of output is 5000.If the elasticities of output with respect to capital and labor are 0.3 and 0.7,respectively,a 10% increase in capital combined with a 5% increase in labor and a 5% increase in productivity would increase the current level of output to

A)5015.
B)5325.
C)5575.
D)6000.

Question 12

Between 1870 and 2008,among the United States,Germany,Japan,and Australia,________ grew at the fastest rate and ________ grew at the slowest rate.

A)United States; Germany
B)Germany; United States
C)Australia; Japan
D)Japan; Australia

Question 13

Total factor productivity growth is that part of economic growth due to

A)capital growth plus labor growth.
B)capital growth less labor growth.
C)capital growth times labor growth.
D)neither capital growth nor labor growth.

Question 14

Over the past year,output grew 4%,capital grew 2%,and labor grew 1%.If the elasticities of output with respect to capital and labor are 0.3 and 0.7,respectively,how much did productivity grow?

A)2)0%
B)2)7%
C)3)0%
D)3)3%

Question 15

Over the past year,productivity grew 2%,capital grew 1%,and labor grew 1%.If the elasticities of output with respect to capital and labor are 0.2 and 0.8,respectively,how much did output grow?

A)1%
B)2%
C)3%
D)4%

Question 16

Suppose the current level of output is 5000 and the elasticity of output with respect to capital is 0.4.A 10% increase in capital would increase the current level of output to

A)5020.
B)5050.
C)5200.
D)5500.

Question 17

Over the past year,output grew 4%,capital grew 2%,and labor grew 1%.If the elasticities of output with respect to capital and labor are 0.3 and 0.7,respectively,how much did productivity grow?

A)2)0%
B)2)7%
C)3)0%
D)3)3%

Question 18

Over the past year,productivity grew 1%,capital grew 0%,and labor grew 5%.If the elasticities of output with respect to capital and labor are 0.4 and 0.6,respectively,how much did output grow?

A)1%
B)2%
C)3%
D)4%

Question 19

Over the past year,productivity grew 1%,capital grew 2%,and labor grew 2%.If the elasticities of output with respect to capital and labor are 0.3 and 0.7,respectively,how much did output grow?

A)1%
B)2%
C)3%
D)4%

Question 20

The computerization of police departments throughout the country has greatly reduced the crime rate.What macroeconomic variable is likely to be directly affected by this change?

A)Productivity
B)Inflation
C)The real interest rate
D)The trade deficit

Question 21

In the absence of productivity growth,in a steady-state economy

A)output per worker and consumption per worker remain constant over time.
B)output per worker remains constant over time,but consumption per worker grows over time.
C)output per worker grows over time,but consumption per worker remains constant over time.
D)output per worker and consumption per worker both grow over time.

Question 22

In a steady state

A)both consumption per worker and the capital-labor ratio are constant.
B)consumption per worker is constant,but the capital-labor ratio can change.
C)capital and labor,by definition,are inversely related to one another.
D)consumption per worker can change,but the capital-labor ratio is constant.

Question 23

According to the Solow model,an increase in the capital-labor ratio will

A)always reduce steady state consumption per worker.
B)always increase steady state consumption per worker.
C)reduce steady state consumption per worker if the capital-labor ratio is below the Golden rule capital stock.
D)increase steady state consumption per worker if the capital-labor ratio is below the Golden rule capital stock.

Question 24

The idea that measurement problems could explain the productivity slowdown since 1973 is based on the fact that

A)official output measures make no adjustment for quality.
B)output can't be measured.
C)capital can't be measured.
D)quality improvements aren't fully accounted for in the data.

Question 25

All of the following are explanations of the post-1973 productivity slowdown EXCEPT

A)problems in measuring productivity.
B)changes in the legal and human environment.
C)higher oil prices.
D)greater competition from foreign imports.

Question 26

Over the past year,an economy's labor supply increased from 100 to 102,its capital stock increased from 1000 to 1030,and its output increased from 500 to 525.All measurements are in real terms.Calculate the contributions to economic growth of growth in capital,labor,and productivity if aK = 0.2 and aN = 0.8.

Question 27

The Golden Rule capital-labor ratio is the level of the capital-labor ratio that,in the steady state,

A)maximizes output per worker.
B)maximizes investment per worker.
C)maximizes consumption per worker.
D)maximizes capital per worker.

Question 28

Why do some people think that the productivity slowdown since 1973 is just a return to normalcy after fast productivity growth during the previous 25 years?

A)Productivity growth of the previous 25 years was abnormally low.
B)The Great Depression and World War II had prevented technological opportunities from being exploited.
C)The United States is the only country to face the slowdown,due to poor regulatory decisions.
D)The United States has allowed countries like Japan to steal its technological breakthroughs.

Question 29

In the Solow model,if productivity doesn't change,

A)the economy must eventually reach a steady state.
B)the capital-labor ratio must decline.
C)the capital-labor ratio must rise.
D)there can be no saving.

Question 30

If the capital-labor ratio is above the Golden Rule capital-labor ratio,then in the steady state,

A)capital per worker is above its maximum.
B)output per worker is less than it would be at the Golden Rule capital-labor ratio.
C)investment per worker exceeds output per worker.
D)consumption per worker is not at its maximum.

Question 31

Steady-state investment per worker is positively related to the capital-labor ratio because the higher the capital-labor ratio

A)the lower the capital depreciation rate.
B)the greater the amount of resources available for capital investment.
C)the more investment per worker is required to replace depreciating capital.
D)the less the economy needs to equip new workers with the same high level of capital.

Question 32

The idea that saving equals investment in the Solow model means that a steady state can be reached only when

A)s = k.
B)s = n + d.
C)sf(k)= (s + d)k.
D)sf(k)= (n + d)k.

Question 33

The bowed shape of the per-worker production function is caused by

A)wealth effects that reduce labor supply.
B)diminishing marginal productivity of capital.
C)increasing marginal productivity of labor.
D)increasing marginal productivity of capital.

Question 34

Use the growth accounting equation to calculate productivity growth,given output growth of 3.5%,capital stock growth of 5%,labor employment growth of 2%,the output elasticity of capital of 0.3,and the output elasticity of labor of 0.7.

Question 35

Steady state consumption per worker is

A)larger in the short run than in the long run.
B)less than steady state investment per worker.
C)less than steady state saving per worker.
D)steady state production per worker minus steady state investment per worker.

Question 36

The level of the capital-labor ratio that maximizes consumption per worker in the steady state is known as the

A)Solow residual capital-labor ratio.
B)Golden Rule capital-labor ratio.
C)q theory capital-labor ratio.
D)dynamically efficient capital-labor ratio.

Question 37

Greenwood and Yorukoglu view the post-1973 productivity slowdown as resulting from

A)the information technology revolution.
B)high oil prices.
C)measurement errors.
D)technological depletion.

Question 38

The per-worker production function in the Solow model assumes

A)constant returns to scale and increasing marginal productivity of capital.
B)constant returns to scale and diminishing marginal productivity of capital.
C)increasing returns to scale and diminishing marginal productivity of capital.
D)decreasing returns to scale and diminishing marginal productivity of capital.

Question 39

From one year to the next,a country's output rose from 4000 to 4500,its capital stock rose from 10,000 to 12,000,and its labor force declined from 2000 to 1750.Suppose aK = 0.3 and aN= 0.7.
(a)How much did capital contribute to economic growth over the year?
(b)How much did labor contribute to economic growth over the year?
(c)How much did productivity contribute to economic growth over the year?

Question 40

A new pollution law requires businesses to pay for inspections of their plants by independent pollution-monitoring firms.What effect is this likely to have?

A)Increase productivity
B)Increase the capital stock
C)Reduce productivity
D)Increase the demand for labor in those firms

Question 41

In the Solow model,if saving per worker initially exceeds investment per worker,

A)the economy will experience inflation.
B)the capital-labor ratio will increase.
C)investment per worker will decline.
D)saving per worker will decline.

Question 42

In the Solow model,if f(k)= 2k0.5,s = 0.25,n = 0.1,and d = 0.4,what is the value of k at equilibrium?

A)1
B)2
C)3
D)4

Question 43

An earthquake destroys a good portion of the capital stock.How would you expect this to affect the capital-labor ratio in the long run? There would be

A)a rightward movement along the saving-per-worker curve and an increase in the capital-labor ratio.
B)no change in the long-run capital-labor ratio.
C)a downward shift in the saving-per-worker curve and a decrease in the capital-labor ratio.
D)a leftward movement along the saving-per-worker curve and a decrease in the capital-labor ratio.

Question 44

All else being equal,a permanent decrease in the saving rate in a steady-state economy would cause

A)an increase in the capital-labor ratio and an increase in consumption per worker.
B)an increase in the capital-labor ratio and a decrease in consumption per worker.
C)a decrease in the capital-labor ratio and a decrease in consumption per worker.
D)a decrease in the capital-labor ratio and an increase in consumption per worker.

Question 45

An increase in the growth rate of population in a steady-state economy would cause

A)a parallel shift upward in the investment line.
B)a pivot up and to the left in the investment line.
C)a pivot down and to the right in the investment line.
D)a parallel shift downward in the investment line.

Question 46

In the Solow model,if f(k)= 2k0.5,s = 0.1,n = 0.1,and d = 0.05,what is the value of f(k)at equilibrium?

A)2/3
B)4/3
C)2
D)8/3

Question 47

A productivity improvement will cause

A)a rightward movement along the saving-per-worker curve and an increase in the capital-labor ratio.
B)an upward shift in the saving-per-worker curve and an increase in the capital-labor ratio.
C)a downward shift in the saving-per-worker curve and a decrease in the capital-labor ratio.
D)a leftward movement along the saving-per-worker curve and a decrease in the capital-labor ratio.

Question 48

In the Solow model,if f(k)= 6k0.5,s = 0.1,n = 0.1,and d = 0.2,what is the value of c at equilibrium?

A)10
B)10.4
C)10.8
D)11.2

Question 49

In the Solow model,if k = 8,y = 24,and s = 0.25,what is c?

A)24
B)20
C)18
D)12

Question 50

An increase in population growth will lead to a ________ in the steady-state capital-labor ratio and a ________ in output per worker.

A)fall; fall
B)fall; rise
C)rise; rise
D)rise; fall

Question 51

In the Solow model,if f(k)= 2k0.5,s = 0.25,n = 0.05,and d = 0.2,what is the value of k at equilibrium?

A)1
B)2
C)3
D)4

Question 52

In the Solow model,if f(k)= 2k0.5,s = 0.3,n = 0.05,and d = 0.15,what is the value of k at equilibrium?

A)1
B)3
C)6
D)9

Question 53

In the Solow model,if k = 8,y = 20,and s = 0.2,what is c?

A)24
B)20
C)16
D)12

Question 54

The Solow model demonstrates that

A)in the absence of productivity growth,economic growth will turn negative in the long run.
B)in the absence of productivity growth,economic growth will reach a steady state of zero per-capita growth in the long run.
C)productivity growth must exceed the rate of growth in the population to avoid a steady state in the long run.
D)productivity growth will inevitably decline due to diminishing marginal productivity.

Question 55

An increase in the saving rate in a steady-state economy would cause

A)a rightward movement along the saving-per-worker curve and an increase in the capital-labor ratio.
B)an upward shift in the saving-per-worker curve and an increase in the capital-labor ratio.
C)a downward shift in the saving-per-worker curve and a decrease in the capital-labor ratio.
D)a leftward movement along the saving-per-worker curve and a decrease in the capital-labor ratio.

Question 56

A decrease in population growth will lead to a ________ in the steady-state capital-labor ratio and a ________ in output per worker.

A)fall; fall
B)fall; rise
C)rise; rise
D)rise; fall

Question 57

Which of the following changes would lead,according to the Solow model,to a higher level of long-run output per worker?

A)A lower level of capital per worker
B)An increase in the saving rate
C)A rise in the rate of population growth
D)A decrease in productivity

Question 58

An increase in pollution has caused a permanent increase in the rate of capital depreciation.This would cause

A)an increase in the capital-labor ratio.
B)output per worker to fall.
C)a decline in consumption per worker.
D)the capital-labor ratio to be unaffected.

Question 59

In the Solow model,if f(k)= 8k0.5,s = 0.2,n = 0.3,and d = 0.1,what is the value of k at equilibrium?

A)1
B)4
C)9
D)16

Question 60

In the long run,an increase in the saving rate in a steady-state economy will cause

A)an increase in the capital-labor ratio and an increase in consumption per worker.
B)an increase in the capital-labor ratio and a decrease in consumption per worker.
C)a decrease in the capital-labor ratio and a decrease in consumption per worker.
D)a decrease in the capital-labor ratio and an increase in consumption per worker.

Question 61

A government policy that would raise the rate of productivity growth is

A)shifting infrastructure expenditures to the private sector.
B)taxing expenditures on research and development.
C)reducing the government budget surplus.
D)improving human capital development.

Question 62

A country has the per-worker production function
yt = 6,
where yt is output per worker and kt is the capital-labor ratio.The depreciation rate is 0.1 and the population growth rate is 0.1.The saving function is
St = 0.1Yt,
where St is total national saving and Yt is total output.
(a)What is the steady-state value of capital-labor ratio?
(b)What is the steady-state value of output per worker?
(c)What is the steady-state value of consumption per worker?

Question 63

Country A has a capital-labor ratio that is initially twice as big as that of country B,but neither is yet in a steady state.Both countries have the same production function,f(k)= 6k1/2.Country A has a 10% saving rate,10% population growth rate,and 5% depreciation rate,while country B has a 20% saving rate,10% population growth rate,and 20% depreciation rate.
(a)Calculate the steady-state capital-labor ratio for each country.Does the initial capital-labor ratio affect your results?
(b)Calculate output per worker and consumption per worker for each country.Which country has the highest output per worker? The highest consumption per worker?

Question 64

(a)In the model of endogenous growth,if s = 0.1,A = 2,and d = 0.15,calculate the economy's growth rate.Show your work.
(b)If the depreciation rate declines to d = 0.10,calculate the economy's growth rate.Show your work.
(c)Is the impact on the growth rate arising from a change in the depreciation rate in the endogenous growth model the same as in the Solow model?

Question 65

Government policies to raise the rate of productivity growth include all of the following EXCEPT

A)improving infrastructure.
B)encouraging research and development.
C)reducing the government budget surplus.
D)improving human capital development.

Question 66

In the textbook model of endogenous growth,in equilibrium,output grows at the rate of

A)sA - d.
B)n + d.
C)K)
D)A)

Question 67

Describe the main ideas of endogenous growth theory.What does it have to say about the role of government in economic growth?

Question 68

In the very long run,the level of consumption per worker can grow continually if

A)the saving rate continually falls.
B)the population growth rate continually rises.
C)productivity continually improves.
D)the depreciation rate continually rises.

Question 69

In the long run,a reduction in productivity will cause

A)an increase in the capital-labor ratio and an increase in consumption per worker.
B)an increase in the capital-labor ratio and a decrease in consumption per worker.
C)a decrease in the capital-labor ratio and a decrease in consumption per worker.
D)a decrease in the capital-labor ratio and an increase in consumption per worker.

Question 70

Which of the following is not an example of human capital formation?

A)Increases in the educational achievements of the population
B)Increases in job skills of the labor force
C)Improvements in the nutrition and health of the labor force
D)Increases in the birth rate of the population

Question 71

A country has the per-worker production function
yt = 6,
where yt is output per worker and kt is the capital-labor ratio.The depreciation rate is 0.1 and the population growth rate is 0.1.The saving function is
St = 0.1Yt,
where St is total national saving and Yt is total output.
(a)What is the steady-state value of capital-labor ratio?
(b)What is the steady-state value of output per worker?
(c)What is the steady-state value of consumption per worker?

Question 72

A country has the per-worker production function
yt = 5,
where yt is output per worker and kt is the capital-labor ratio.The depreciation rate is 0.2 and the population growth rate is 0.05.The saving function is
St = 0.2Yt,
where St is total national saving and Yt is total output.
(a)What is the steady-state value of the capital-labor ratio?
(b)What is the steady-state value of output per worker?
(c)What is the steady-state value of consumption per worker?

Question 73

Briefly explain the shape of the per-worker production curve in the Solow model.If investment per worker initially exceeds saving per worker,how is the steady state capital-labor ratio achieved?

Question 74

In the textbook model of endogenous growth,long-run output growth would decline if there were either a ________ in the saving rate or a ________ in the depreciation rate.

A)rise; rise
B)rise; fall
C)fall; rise
D)fall; fall

Question 75

In the textbook model of endogenous growth,long-run output growth would increase if there were either a ________ in the saving rate or a ________ in the depreciation rate.

A)rise; rise
B)rise; fall
C)fall; rise
D)fall; fall

Question 76

How would each of the following changes affect the steady-state values of the capital-labor ratio,output per worker,and consumption per worker?
(a)A change in the composition of the capital stock raises the depreciation rate.
(b)A change in social mores lowers the population growth rate.
(c)Government tax policies change to encourage a higher saving rate.
(d)A supply shock reduces productivity sharply.

Question 77

Which of the following would be a useful way to increase the saving rate?

A)Tax breaks to increase the real return that savers receive
B)Increasing taxes if Ricardian equivalence holds
C)Increasing government spending
D)Increasing taxes on capital goods

Question 78

A government policy that would reduce the saving rate is

A)eliminating the social security system.
B)giving tax breaks to increase the real return that savers receive.
C)increasing the government budget surplus by cutting government spending.
D)switching the tax system to tax consumption instead of income.

Question 79

Endogenous growth theory attempts to

A)replace the Solow model with a model in which money growth plays a key role.
B)explain how societies can more easily reach the "Golden Rule."
C)show how population growth reduces capital and output.
D)explain why productivity changes.

Question 80

What happens in the steady state to the capital-labor ratio,output per worker,and consumption per worker when each of the following events occur? You should assume that the steady-state capital-labor ratio is below the Golden Rule level.
(a)Productivity falls.
(b)Population growth falls.
(c)The saving rate falls.
(d)The depreciation rate falls.