Deck 10: The Facts of Growth

Question 1

Which of the following represents the best indicator of improving living standards?

A) The growth rate of nominal GDP per capita.
B) The growth rate of nominal GDP.
C) The growth rate of real GDP per capita.
D) The growth rate of real GDP.
E) The rate of inflation.

Answer 1

The growth rate of real GDP per capita.

Question 2

The assumption that the aggregate production function exhibits decreasing returns to capital (K) implies that a 5% increase in K will cause:

A) no change in Y/N.
B) a decrease in Y/N.
C) a decrease in K/N.
D) Y to increase by less than 5%.
E) Y to increase by exactly 5%.

Answer 2

Y to increase by less than 5%.

Question 3

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:

A) the growth rate of output per capita will be the same in both countries.
B) output per capita will be the same in both countries.
C) the capital- labour ratio will be the same in both countries.
D) the growth rate of output per capita will be greater in A than in B.
E) the growth rate of output per capita will be greater in B than in A.

Answer 3

the growth rate of output per capita will be the same in both countries.

Question 4

Research by Richard Layard indicates that happiness:

A) does not change as output per capita changes.
B) decreases as output per capita decreases.
C) appears to depend on people's relative incomes.
D) decreases as output per capita increases.
E) increases as output per capita increases.

Question 5

In Australia, output per capita in 2009 was almost four times that in:

A) 1950.
B) 1900.
C) 1850.
D) 1990.
E) 1970.

Question 6

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

A) The political environment.
B) The list of blueprints defining the types of products and the techniques available to produce them.
C) The organisation and sophistication of markets.
D) How well firms are run.
E) None of the above.

Question 7

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

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

Question 8

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:

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 9

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

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

Question 10

Which of the following periods experienced the smallest growth of output per capita?

A) 1500 to 1700.
B) Roman empire to roughly the year 1500.
C) 1950 to 2000.
D) 1700 to 1820.
E) 1820 to 1950.

Question 11

Which of the following must occur to sustain economic growth in the long run?

A) Faster population growth.
B) A higher saving rate.
C) Technological progress.
D) Capital accumulation.
E) Constant increases in the capital- labour ratio.

Question 12

Over the long sweep of human history, output per capita in the currently rich economies:

A) grew dramatically during the 20th century.
B) always grew at a positive rate.
C) has not grown much at all.
D) grew in the 1950s and 1960s at about the same rate as the previous thousand years.
E) grew dramatically during the 19th century.

Question 13

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

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 14

Which of the following characterises the economic growth for OECD countries since 1950?

A) There has been a large increase in standard of living.
B) There has been a large increase in output per person.
C) There has been convergence of output per person across countries.
D) All of the above.
E) None of the above.

Question 15

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:

A) output per capita will be the same in both countries.
B) the capital- labour ratio (K/N) will be greater in A than in B.
C) the capital- labour ratio (K/N) will be the same in the two countries.
D) the capital- labour ratio (K/N) will be greater in B than in A.
E) more information is needed to answer this question.

Question 16

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

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.

Question 17

Which of the following periods experienced the highest growth of output per capita?

A) 1500 to 1700.
B) 1950 to 2000.
C) 1700 to 1820.
D) 1820 to 1950.
E) Roman empire to roughly the year 1500.

Question 18

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:

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 19

"Leapfrogging" refers to:

A) the interchangeability of capital and labour in the aggregate production function.
B) "one- upsmanship" by politicians who use growth statistics to help win elections.
C) the increased likelihood that a country with very high growth will have a recession, during which some other country will have the highest growth rate.
D) the tendency for a country's output per capita to catch up to, and then exceed, that of another country.
E) the typical irregular pattern of growth: rapid in some decades, and almost non- existent in others.

Question 20

Over the last hundred years:

A) output has decreased in as many years as it has increased.
B) movements in output due to contractions and expansions are dominated by the movement caused by long- run growth.
C) Australia's output has approximately doubled.
D) All of the above.
E) None of the above.

Question 21

Which of the following countries had the lowest level of output per capita in 1950?

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

Question 22

Research looking at the relationship between income per person and happiness indicates that an increase in a country's level of output per capita will:

A) generally have some effect on happiness in that country.
B) always decrease happiness in that country.
C) always increase happiness in that country.
D) increase happiness in that country if output per capita is relatively low.
E) no discernible change was found.

Question 23

Assume that the aggregate production function exhibits constant returns to scale. Given this assumption, successive and equal increases in capital per worker will cause which of the following to occur?

A) Output per worker will increase by a constant amount.
B) Output per worker will not change.
C) Output per worker will increase by a larger amount.
D) Output per worker will decrease by a smaller amount.
E) Output per worker will increase by a smaller amount.

Question 24

Aggregate output will fall when which of the following occurs?

A) A decrease in technology.
B) A decrease in N.
C) A decrease in K.
D) A decrease in the saving rate.
E) All of the above.

Question 25

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?

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 26

Assume that the saving rate decreases. We know that this decrease in the saving rate will cause which of the following?

A) A permanently lower rate of growth of output per capita.
B) A temporary decrease in the level of output per capita.
C) No permanent change in the level of output per capita.
D) A decrease in the capital- labour ratio.
E) A temporary increase in the rate of growth of output per capita.

Question 27

Which of the following will cause a decrease in output per worker in the long run?

A) Contractionary fiscal policy.
B) Capital accumulation.
C) Population growth.
D) Technological progress.
E) Contractionary monetary policy.

Question 28

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

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 29

Between 1950 and 2009, standards of living in the OECD countries:

A) decreased at the same rate.
B) did not change at all.
C) decreased, but at different rates.
D) were converging.
E) all increased at the same rate.

Question 30

Which of the following countries had the highest level of output per capita in 1950?

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

Question 31

Assume that N and K both increase by 4%. The assumption of constant returns to scale implies which of the following?

A) Output (Y) will increase by 4%.
B) The capital- labour ratio will increase by 4%.
C) Y/N will increase by less than 4%.
D) Y/N will increase by exactly 4%.
E) Output per capita (Y/N) will not change.

Question 32

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

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 33

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

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

Question 34

We know that output per worker (Y/N) will increase when which of the following occurs?

A) A decrease in K/N.
B) An increase in N.
C) A decrease in K.
D) An increase in K.
E) A decrease in the saving rate.

Question 35

The assumption of constant returns to scale suggests that if N and K both increase by 5%:

A) Y will increase by exactly 5%.
B) Y will increase by less than 5%.
C) Y will increase by more than 5%.
D) The capital- labour ratio (K/N) will decrease.
E) The capital- labour ratio (K/N) will increase.

Question 36

The Malthusian trap refers to:

A) the economy's inability to increase production per person.
B) the economy's inability to increase capital per person.
C) the economy's inability to increase investment per person.
D) the economy's inability to increase output per person.
E) the economy's inability to increase consumption per person.

Question 37

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

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 38

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

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%.

Question 39

Assume that there are decreasing returns to capital, decreasing returns to labour, and constant returns to scale. An increase in the capital stock will cause which of the following?

A) Decrease the capital- labour ratio.
B) An increase in output per capita.
C) No change in output.
D) Output to increase, but by more and more as the capital stock increases.
E) A decrease in output.

Question 40

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

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 41

Briefly explain what effect an increase in the saving rate will have on growth.

Question 42

Explain each of the following: (1) constant returns to scale; (2) decreasing returns to capital; and (3) decreasing returns to labour.

Question 43

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

Question 44

First, what are the primary determinants of output per worker? And second, to what extent can each cause a permanent change in economic growth?

Question 45

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

Question 46

When switching from the "current exchange rate" method to the "purchasing power parity" method, Russia's standard of living in dollars:

A) leapfrogs over that of Australia.
B) rises, but still remains far below that of Australia.
C) decreases.
D) rises almost to the level of Australia.
E) remains essentially the same.

Question 47

Suppose individuals wish to obtain the most accurate comparison of living standards between Australia and China. To do so, one would convert Chinese output into Australian dollars using:

A) the current real exchange rate.
B) an average of the last five years' exchange rates.
C) the prior year's real exchange rate.
D) the current nominal exchange rate.
E) purchasing power parity methods.

Question 48

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

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

Question 49

Explain what is meant by "convergence".

Question 50

Discuss and explain what is meant by the "state of technology".

Question 51

Over the last 60 years, which of the following countries has had the highest growth rate of output per capita?

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

Question 52

To what extent have the two main facts of growth not held for certain countries? For which countries have they not generally held?

Question 53

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.

Question 54

Research by Stevenson and Wolfers indicates that happiness:

A) increases as output per capita increases.
B) appears to depend on people's relative incomes.
C) decreases as output per capita increases.
D) decreases as output per capita decreases.
E) does not change as output per capita changes.

Question 55

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?

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 56

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?

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 57

Is it possible for a country to experience a permanent increase in output per worker over time? If so, how can this occur?

Question 58

Briefly explain the relationship between output per person and happiness. Specifically, to what extent are these two variables related? What are the major implications of these results?