Deck 8: Income Disparity among Countries and Endogenous Growth

Question 1

For the Solow model to accurately explain the observed divergence of growth experience around the world would require

A) differences in savings rates across countries.
B) differences in population growth rates across countries.
C) barriers to the introduction of new technologies.
D) inadequate educational opportunities in poor countries.
E) differences in consumption per worker.

Answer 1

C

Question 2

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.
E) free trade.

Answer 2

A

Question 3

Parente and Prescott provide evidence that total factor productivity across countries can be explained by

A) differences in political ideologies.
B) differences in economic systems.
C) differences in savings rates.
D) barriers to technology adoption.
E) differences in levels of human capital.

Answer 3

D

Question 4

In the Solow growth model, countries with identical total factor productivities, identical labour 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.
E) there is no convergence to the same level of capital per worker or output per worker.

Question 5

The Solow growth model predicts that aggregate output

A) will grow at the rate of the labour force growth in the long run.
B) will grow at the rate of the population growth in the long run.
C) will grow at the rate of the growth in capital per worker in the long run.
D) will grow at the rate of the growth in income per worker in the long run.
E) will be maximized in the long run.

Question 6

What can governments do to promote economic development in light of technology adoption barriers?

A) allow population growth rates to increase
B) improve the environment
C) increase government spending
D) promote free trade
E) promote labour unions

Question 7

What causes barriers to technology adoption?

A) weather
B) population
C) political barriers to international trade
D) tax policies
E) the size of government

Question 8

According to the Solow model, differences in standards of living across countries is explained by

A) differences in labour supply.
B) differences in population growth.
C) differences in total factor productivity.
D) different barriers to technology adoption.
E) different steady states.

Question 9

What explains the differences in standards of living across countries?

A) different employment levels
B) different climates
C) free trade agreements
D) different barriers to technology adoption
E) barriers to foreign capital flows

Question 10

In contrast to the Solow growth model, the endogenous growth model

A) does not take standards of living into account.
B) does not take savings into account.
C) predicts persistent differences in per capita income.
D) predicts convergence in per capita incomes over time.
E) does not explain reality.

Question 11

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.
E) fluctuating significantly for both the rich and poor countries.

Question 12

If monopoly power is not protected by government,

A) firms must develop and implement new technologies to increase productivity.
B) firms must lobby for protection.
C) other barriers to technology adoption will emerge.
D) a country's standard of living will decline.
E) firms have no incentive to innovate and increase productivity.

Question 13

Government ownership of production

A) encourages competition.
B) should never happen.
C) increases total factor productivity.
D) leads to protection of employment at the expense of efficiency.
E) is negatively correlated with economic growth.

Question 14

Barriers to the adoption of new technology causes

A) total factor productivity to differ.
B) the size of government to diminish.
C) new government policies to be implemented.
D) trade restrictions to be imposed.
E) output per worker to rise.

Question 15

Suppose that two countries share identical levels of total factor productivity, identical labour 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.
E) the country with the smaller initial income per worker will grow more rapidly than the country with the greater initial level of income per worker.

Question 16

Countries do not have access to the same technology when

A) government introduces laws to make it easy for labour unions to organize.
B) population growth rates increase.
C) governments enter into free trade agreements.
D) total factor productivity does not converge.
E) labour supply declines.

Question 17

Suppose a country is significantly richer than the others. According to the Solow growth model, what happens in the long run?

A) The other countries catch up to the rich one.
B) Nothing.
C) The rich country becomes poorer than the other ones.
D) The rich country grows the fastest.
E) Both grow at the same rate and the income differences persist.

Question 18

A major differences between the Solow growth model and the endogenous growth model is

A) the level of consumption in the long run.
B) the different levels of steady states.
C) the Solow growth model assumes favourable changes in government regulations.
D) the endogenous growth model assumes continuous declines in the prices of inputs.
E) the endogenous growth model does not predict convergence in levels of per capita incomes across countries.

Question 19

In the Solow growth model, a country can grow at a higher rate than the population growth rate if

A) capital per worker is below its steady state level.
B) capital per worker is above its steady state level.
C) the economy is in a steady state.
D) there is free trade.
E) convergence has occurred.

Question 20

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.
E) Friedman and Lucas.

Question 21

As a measure of aggregate economic welfare, real GDP per capita misses which of the following?

A) how the income is distributed across the population
B) market activity
C) incomes
D) total output
E) the distribution of output across sectors of the economy

Question 22

In the equation describing the accumulation of human capital, H' = b(1 - u)H, the parameter b determines

A) the efficiency of the educational sector.
B) the efficiency of human capital.
C) physical capital accumulation.
D) the level of human capital in equilibrium.
E) the growth rate of the labour force in equilibrium.

Question 23

Nonrivalry means

A) it is impossible or extremely costly to prevent someone from benefitting from a good.
B) it is possible to prevent a person from enjoying the benefits of a good.
C) consumption of a good does not decrease the consumption of the good by another person.
D) the consumption of a good by one person decreases consumption of the good by another person.
E) the quantity of a good that a person is able to consume is not influenced by the amount the person pays for the good.

Question 24

Human capital accumulation is different from physical capital accumulation in that

A) human capital costs more to acquire.
B) human capital is less productive.
C) there is no limit to human knowledge or how productive individuals can become.
D) human capital suffers from diminishing marginal returns.
E) physical capital has higher returns.

Question 25

In the endogenous growth models of Lucas and Romer, an increase in a worker's level of human capital

A) increases the amount of additional human capital he or she can produce, but does not increase the amount of output she can produce.
B) increases the amount of additional output he or she can produce, but does not increase the amount of human capital she can produce.
C) increases both the amount of additional human capital he or she can produce and the amount of output she can produce.
D) increases neither the amount of additional human capital he or she can produce nor the amount of output she can produce.
E) increases both the amount of additional human capital he or she can produce and the amount of total factor productivity produced.

Question 26

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 labour. Consumption equals

A) buH.
B) zuH.
C) buz.
D) buzH.
E) ebuH².

Question 27

The Solow growth model

A) does a better job of explaining income inequality within a country than income inequality in the world.
B) is not consistent with post-industrial revolution development, in contrast to the Malthusian model.
C) explains research and development.
D) shows why China will exceed the United States in terms of per-capita income.
E) predicts convergence in incomes per capita across countries.

Question 28

A primary deficiency of the Solow growth model is that

A) it does not explain the savings and investment relationship.
B) it does not explain per capita output itself.
C) it does not explain changes in total factor productivity.
D) it does not explain economic development.
E) it does not explain how to control population.

Question 29

The endogenous growth models were characterized by

A) Friedman and Lucas.
B) Parente and Prescott.
C) Lucas and Romer.
D) Solow.
E) Malthus.

Question 30

Paul Romer argues that a key feature of knowledge is

A) divisibility.
B) private ownership.
C) nonrivalry.
D) durability.
E) physical capital.

Question 31

The Solow growth model

A) cannot explain differences in standards of living across countries.
B) predicts differences in standards of living if total factor productivity is different in different countries.
C) can explain why output grows at a relatively high rate when capital per worker is high.
D) can explain why output grows at a low rate when population growth is low.
E) predicts that income per capita will diverge across countries.

Question 32

Human capital is

A) the accumulated stock of skills and education a worker has.
B) the accumulated stock of skills and capital a worker has.
C) a measure of aggregate economic welfare.
D) a measure of physical capital per worker used in endogenous growth models.
E) the accumulated stock of physical capital per worker.

Question 33

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.
E) there are substantial diminishing marginal returns to human capital.

Question 34

In the Solow growth model,

A) higher total factor productivity results in no long-run change in consumption per capita.
B) higher consumption per capita causes the population to increase.
C) a country with higher total factor productivity has higher per capita income.
D) business cycles explain differences in income per capita across countries.
E) the model predicts that growth ultimately stops and all countries look the same.

Question 35

In the endogenous growth models of Lucas and Romer, human capital accumulation is best described as a form of

A) consumption.
B) investment.
C) government spending.
D) natural resource.
E) total factor productivity.

Question 36

Which of the following is best characterized as being nonrivalrous?

A) consumption goods
B) services
C) physical capital
D) knowledge
E) natural resources

Question 37

In the endogenous growth model, for the consumer more time spent working implies

A) less human capital accumulation.
B) more human capital accumulation.
C) learning by doing human capital accumulation.
D) more leisure.
E) no effects on human capital accumulation.

Question 38

Which of the following statements best describes the characteristics of accumulating physical capital and human capital?

A) Both physical capital accumulation and human capital accumulation are characterized by decreasing marginal returns.
B) Physical capital accumulation is subject to decreasing marginal returns, but human capital accumulation is not.
C) Human capital accumulation is subject to decreasing marginal returns, but physical capital accumulation is not.
D) Neither physical capital accumulation nor human capital accumulation is characterized by decreasing marginal returns.
E) Both physical capital accumulation and human capital accumulation are characterized by increasing marginal returns.

Question 39

In the endogenous growth models of Lucas and Romer, 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.
E) leisure.

Question 40

Total factor productivity growth involves

A) spending on national defence and the environment.
B) research and development by firms, education, and training on the job.
C) increasing the size of government.
D) increasing consumption per worker and income per worker.
E) favourable government policies.

Question 41

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.
E) decreases the growth rate of human capital and reduces total factor productivity.

Question 42

The government can cause growth to increase in the endogenous growth model by

A) cutting back on government spending.
B) promoting more efficient human capital accumulation and the devotion of more time to human capital accumulation.
C) closing schools so that people can consume more.
D) increasing physical capital investment.
E) reducing physical capital investment.

Question 43

Romer's model of endogenous growth is

A) consistent with evidence of convergence in the richer countries and consistent with evidence of convergence in the poorer countries.
B) consistent with evidence of convergence in the richer countries and inconsistent with evidence of convergence in the poorer countries.
C) inconsistent with evidence of convergence in the richer countries and consistent with evidence of convergence in the poorer countries.
D) inconsistent with evidence of convergence in the richer countries and inconsistent with evidence of convergence in the poorer countries.
E) only consistent with evidence of convergence in the richer countries.

Question 44

In the endogenous growth model

A) growth ceases in the steady state.
B) growth depends on the efficiency of human capital accumulation and the time devoted to it.
C) countries with different initial human capital will converge in the steady state.
D) growth depends on the government sector.
E) growth depends on international trade.

Question 45

In the endogenous growth model, government policy can affect

A) the budgetary deficit.
B) the growth rate of aggregate output and consumption.
C) exports.
D) interest rates.
E) leisure.

Question 46

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

A) inflation
B) physical capital accumulation
C) population growth
D) human capital accumulation
E) reduce barriers to technology adoption

Question 47

In the endogenous growth model, more time spent accumulating human capital implies

A) less consumption in the near term, but a higher growth rate of consumption in the future.
B) more consumption in the near term and a higher growth rate of consumption.
C) less consumption in the near term and no change in the growth rate of consumption.
D) more consumption in both the short and long run.
E) more consumption in the near term, but a lower growth rate of consumption in the future.

Question 48

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.
E) decreases the growth rate of human capital and reduces total factor productivity.

Question 49

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.
E) b(1 - u)².

Question 50

In the endogenous growth model,

A) the growth rate of human capital is greater than the growth rate of output.
B) the growth rate of human capital is equal to the growth rate of output.
C) the growth rate of capital is less than the growth rate of output.
D) the growth rate of output is greater than to the growth rate of human capital.
E) the growth rate of output is equal to the growth rate of human capital.

Question 51

Government policy can change the rate of economic growth by changing

A) the legal system.
B) the size of government.
C) free trade arrangements.
D) the fraction of time devoted to working.
E) labour supply.

Question 52

Decreasing the fraction of time devoted to working leads to

A) higher incomes per worker.
B) higher consumption per worker.
C) increases in the fraction of time spent accumulating human capital.
D) lower labour supply.
E) a cleaner environment.

Question 53

The production function exhibits

A) increasing returns to scale in human capital.
B) decreasing returns to scale in human capital.
C) constant returns to scale in human capital.
D) increasing marginal product of physical capital.
E) decreasing marginal product of human capital.

Question 54

Government policies that increase the efficiency of the education sector

A) increase the growth rate of output and consumption, unambiguously increasing welfare.
B) increase the growth rate of output but have an ambiguous impact on consumption growth and welfare.
C) increase the growth rate of consumption, has no effect on output.
D) increase welfare but have ambiguous effects on growth rates of consumption and output.
E) imply a trade-off between accumulating human capital and physical capital.

Question 55

The endogenous growth model appears consistent with the fact that there are

A) persistent differences in income per worker between the poorer countries and the richer countries.
B) persistent differences in consumption per worker between the poorer countries and the richer countries.
C) persistent differences in government spending between the poorer countries and the richer countries.
D) persistent differences in infrastructure between the poorer countries and the richer countries.
E) persistent differences in education per worker between the poorer countries and the richer countries.

Question 56

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.
E) consumption and human capital grow at varying rates.

Question 57

If the time allocated to human capital accumulation increases

A) output is higher forever.
B) output is lower forever.
C) output grows at a higher rate, but is lower initially.
D) the government sector grows.
E) international trade declines.

Question 58

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.
E) b(1 - u)².

Question 59

The marginal product of human capital

A) rises as human capital rises.
B) falls as human capital falls.
C) does not fall as human capital falls.
D) does not fall as human capital rises.
E) is constant.

Question 60

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.
E) equilibrium.

Question 61

What are the major factors affecting standards of living and economic development across nations?

Question 62

A human capital externality is

A) when there is a human capital congestion effect.
B) when human capital causes pollution.
C) when someone purchases a book, for example.
D) when an individual has an unique skill.
E) when higher human capital for one person increases the human capital of others, or makes them more productive.