Deck 4: Growth and policy

Question 1

Which of the following statements is FALSE?

A)endogenous growth theory relies on constant returns to scale of capital alone to generate ongoing growth
B)endogenous growth theory predicts that an increase in population growth will always lead to an increase in the overall growth rate
C)the microeconomics underlying endogenous growth theory emphasizes the existence of substantial external returns to capital
D)endogenous growth theory predicts that a high savings rate can generate a high growth rate
E)empirical evidence suggests that endogenous growth theory is not very important for explaining differences in growth among countries

Answer 1

endogenous growth theory predicts that an increase in population growth will always lead to an increase in the overall growth rate

Question 2

Assume an endogenous growth model with labor augmenting technology.The production function is Y = F(K,AN), where A = a(K/N) such that y = ak.If the savings rate is s = 0.1, the rate of population growth is n = 0.04, and the depreciation rate is d = 0.02, how much would "a" have to be to achieve a 12% growth rate of output?

A)0)6
B)1)2
C)1)8
D)2)0
E)2)4

Answer 2

1)8

Question 3

The assumption of constant returns to capital alone implies that larger firms should be more efficient than smaller firms.The reason this doesn't necessarily imply a tendency toward monopolization is that

A)most industries are perfectly competitive in nature
B)firms have more inputs than just capital
C)constant returns to capital alone still implies decreasing returns to all factors of production taken together
D)if one firms increases its use of capital, other firms can also capture some of the production benefits of the new capital through spillover effects
E)none of the above

Answer 3

if one firms increases its use of capital, other firms can also capture some of the production benefits of the new capital through spillover effects

Question 4

Which of the following economists did NOT significantly contribute to the debate on exogenous versus endogenous growth?

A)Robert Barro
B)Gregory Mankiw
C)Robert Lucas
D)David Ricardo
E)Paul Romer

Question 5

A production function that assumes a diminishing marginal product of capital

A)generates a straight savings line
B)ensures that the savings line is always above the investment requirement line
C)ensures that the savings line and the investment requirement line cross
D)is essential to the endogenous growth model
E)violates important microeconomic principles

Question 6

Which of the following countries annual growth rate of GDP per capita between 1988 and 2010 was closest to that of the United States?

A)China
B)Egypt
C)Indonesia
D)Tanzania
E)Thailand

Question 7

The concept of diminishing marginal returns implies that

A)output cannot decrease as long as labor is substituted for capital
B)output decreases if either labor or capital is decreased
C)output increases but at a decreasing rate as the amount of labor is increased and the amount of capital remains fixed
D)if the capital stock is kept constant, output cannot increase even if more labor is available
E)output increases but only if the amounts of both labor and capital increase

Question 8

Assume an endogenous growth model with labor augmenting technology.The production function is Y = F(K,AN) with A = 2(K/N), so y = 2k.If the savings rate is s = 0.05 and there is neither population growth nor depreciation of capital, what is the growth rate of output?

A)0%
B)2)5%
C)5%
D)10%
E)it cannot be determined

Question 9

Assume an endogenous growth model with labor augmenting technology and a production function of the form Y = F(K,AN), where A = 1.2(K/N) such that y = (1.2)k.If the savings rate is s = 0.15 and the rate of depreciation is d = 0.05, how high does population growth (n) have to be to achieve a growth rate of 10 percent?

A)15%
B)12%
C)10%
D)5%
E)3%

Question 10

A production function with constant returns to scale for capital alone implies that

A)there are increasing returns to scale for all factors of production taken together
B)if all inputs are doubled then output will more than double
C)smaller firms are more efficient than larger firms
D)technological advances cannot take place
E)both A and B

Question 11

Assume an endogenous growth model with labor augmenting technology.The production function is Y = F(K,AN), with A = 2(K/N) such that y = 2k.If the savings rate is s = 0.08, the rate of population growth is n = 0.03, and the rate of depreciation is d = 0.04, what is the growth rate of output per capita?

A)1%
B)3%
C)4%
D)7%
E)9%

Question 12

Which of the following countries had the LOWEST average annual growth rate of GDP per capita between 1988 and 2010?

A)Egypt
B) Ghana
C)Tanzania
D)Thailand
E)United States

Question 13

Which of the following countries had the HIGHEST average annual growth rate of GDP per capita between 1988 and 2010?

A)China
B)India
C)Mexico
D)South Korea
E)United States

Question 14

Countries with higher saving rates may have higher equilibrium growth rates since

A)people who save more also are more industrious
B)higher income allows for more savings
C)a higher saving rate allows for more investment in human capital which ultimately enhances economic growth
D)having more capital equipment is more important than having better capital equipment
E)none of the above

Question 15

Assume an endogenous growth model with labor augmenting technology.The production function is Y = F(K,AN), where A = 2(K/N) such that y = 2k.If the savings rate is s = 0.06, the rate of population growth is n = 0.05, and the rate of depreciation is d = 0.04, then the growth rate of real output per capita is

A)1%
B)3%
C)5%
D)6%
E)9%

Question 16

If we have an aggregate production function of the form Y = aK, at what capital-labor ratio can a steady-state equilibrium be reached?

A)k = sa - (n + d)
B)k = sa + (n - d)
C)k = sa/(n + d)
D)k = ay/(n + d)
E)never

Question 17

Assume we have a simple endogenous growth model where technology is labor augmenting, that is, Y = F(K,AN), and also proportional to the capital-labor ratio, such that y = ak.In this case, the growth rate of GDP per capita can be expressed by

A)sa + (n + d)
B)sa - (n + d)
C)sa - (n + d)k
D)sa + (n - d)k
E)sk - (n + d)a

Question 18

Assume a production function with only two inputs, capital and labor.In this case, the concept of a diminishing marginal product of capital implies that

A)as less capital is being used, more and more labor has to be employed to increase output
B)as both labor and capital inputs are increased, output increases but at a decreasing rate
C)as the amount of capital is increased and the amount of labor remains fixed, output increases but at a decreasing rate
D)as the amount of capital increases and the amount of labor remains fixed, output cannot increase
E)labor inputs have a bigger impact on increasing output than capital inputs

Question 19

According to the endogenous growth theory

A)countries with the same technology and population growth eventually converge to the same steady-state growth rate independent of the savings rate
B)the steady-state growth rate decreases as the rate of accumulation of factors of production increases
C)the long-term growth rate of capital is not affected by the savings rate
D)the steady-state growth rate is affected by the rate at which the factors of production are accumulated
E)none of the above

Question 20

Assume an endogenous growth model with labor augmenting technology and a production function of the form Y = F(K,AN), where A = 1.2(K/N) such that y = (1.2)k.If the rate of population growth is n = 0.06 and the rate of depreciation is d = 0.04, how large does the savings rate (s) have to be to achieve a per-capita growth rate of 8 percent?

A)6%
B)10%
C)15%
D)24%
E)30%

Question 21

Assume India's income level is now roughly 5% of that of the United States.Assuming there is no change in the savings rates and the levels of technology of these two countries, how many years will it take for India to reach 10% of the U.S.'s income level?

A)10
B)20
C)25
D)35
E)50

Question 22

Countries can achieve continued economic growth as long as

A)technological advances continue
B)educational progress continues
C)intelligent resource management is practiced
D)all of the above
E)only A and B

Question 23

For a developing country that wants to increase its stock of real capital fairly quickly, which of the following is NOT a valid option?

A)implementing policies designed to increase educational levels
B)asking foreign firms for direct investments in the country
C)borrowing funds from the World Bank for real capital investments
D)asking other countries for foreign aid to buy new machines
E)increasing private domestic saving

Question 24

The neoclassical growth model predicts absolute convergence for countries with the

A)same technology, savings rate, and population growth
B)same technology and savings rate, but different rates of population growth
C)same technology and population growth, but different savings rates
D)same population growth and savings rate, but different levels of technology
E)same population growth, but different levels of technology or savings rates

Question 25

A comparison of per-capita GDP in China and India over the last five decades indicates that

A)neither country's per-capita GDP grew much until the mid-1990s
B)India has a higher per-capita GDP than China since it experienced its growth spurt earlier
C)both countries started poor in 1960, but by the year 2000 China's per-capita GDP was almost twice as high as India's
D)both country's per-capita GDP grew significantly and at about the same rate
E)India's per-capita GDP grew more than China's due to more investment in human capital

Question 26

Which of the following is NOT an important factor in establishing high growth in GDP per capita for a country?

A)a stable monetary growth rate
B)a high savings rate
C)low population growth
D)a predictable economic and political environment
E)policies to encourage industries to compete in world markets

Question 27

The notion of conditional convergence states that two countries that have the same population growth and access to the same level of technology will reach a steady-state equilibrium at

A)different levels of output but the same growth rate, if their savings rates are different
B)different levels of output and different economic growth rates if their savings rates are different
C)the same level of output and the same economic growth rate, even if their savings rates are different
D)the same level of output but different economic growth rates if their savings rates are different
E)the same level of output and the same economic growth rate if their savings rates are the same but their rates of depreciation differ

Question 28

Developed countries that direct their investment towards physical capital rather than research and development can expect to

A)have a higher level of output in the short run and a higher long-run growth rate
B)have a lower level of output in the short run and lower long-run growth rate
C)have a lower level of output in the short run but a higher long-run growth rate
D)have a higher level of output in the short run but a lower long-run growth rate
E)achieve A but only if the level of investment exceeds 1/3 of GDP

Question 29

Robert Barro's empirical findings that countries with higher levels of investment will achieve a steady state with a higher per-capita income but not with a higher growth rate supports

A)the notion of absolute convergence
B)the notion of conditional convergence
C)the predictions of the endogenous growth theory
D)the belief that a high savings rate is not beneficial for any nation
E)the belief that technology is not very important

Question 30

Which of the following policies does NOT affect the long-term growth rate of a nation?

A)investment tax credits or any other policy that reduces the cost of capital
B)an expansionary fiscal/expansionary monetary policy mix
C)increased funding for primary education
D)incentives to increase saving
E)more funding for research and development

Question 31

A comparison of per-capita GDP in China and India over the last five decades indicates that

A)increases in physical capital contributed more to growth in China than in India
B)increases in physical capital contributed more to growth in India than in China
C)India's per-capita GDP grew more than China's due to lower population growth
D)while per-capita GDP of the two countries increased at about the same rate, India's total factor productivity increased much more than China's
E)while China's total factor productivity increased much more than India's, the per-capita GDP in both countries increased at about the same rate

Question 32

In a growth model with endogenous population growth and an investment requirement that rises slowly at first then rises sharply and eventually flattens out, we can get

A)three steady-state equilibria, only one of which is stable
B)three steady-state equilibria, only two of which are stable
C)three steady-state equilibria, all of which are stable
D)one stable steady-state equilibrium, but only if the savings rate is high enough
E)both B and D are possible

Question 33

Separating private returns to capital from social returns to capital, that is, the idea that investment in capital may have positive spillover effects as new ideas and new ways of doing things can be easily copied by others, was first advocated by

A)Robert Barro
B)Robert Lucas
C)Robert Samuelson
D)Paul Solow
E)Paul Romer

Question 34

The neoclassical growth model predicts conditional convergence for countries with the same population growth, level of technology, and

A)a higher savings rate
B)a lower savings rate
C)the same savings rate
D)all of the above
E)none of the above

Question 35

An endogenous growth model predicts that if the rates of both population growth and saving increase, then the growth rate of GDP per capita will

A)increase
B)decrease
C)stay the same
D)temporarily increase, but then go back to its original level
E)either increase, decrease, or stay the same (we cannot say for sure)

Question 36

Roughly how many years will it take a country that grows at an average rate of 2% per year to double the size of its GDP?

A)100
B)50
C)35
D)20
E)15

Question 37

If we consider the per-capita GDP of China and India over the last five decades, we realize that

A)despite vast differences in population growth, both countries' per-capita GDP grew at approximately the same rate
B)while investment in human capital is important for economic growth, so are institutional changes and openness to trade
C)India's growth in per-capita GDP was higher than China's due to more investment in human capital
D)neither country's per-capita GDP grew significantly until the 1990s
E)the difference in growth rates between these countries can largely be explained by the difference in years of schooling

Question 38

A key assumption in an endogenous growth model with both labor and capital inputs in the production function is that

A)the share of capital is larger than the share of labor
B)the share of capital and labor have to be equal
C)better technology is a byproduct of more capital investment
D)there are no external returns to capital
E)long-run growth comes solely from technological progress

Question 39

Which of the following policy options is likely to be most successful in getting a poor country out of the poverty trap?

A)expansionary fiscal policy
B)expansionary monetary policy
C)labor market policies
D)programs to limit population growth
E)investment subsidies

Question 40

In a simple version of the Solow growth model with endogenous population growth, a country can escape the poverty trap by

A)lowering the savings rate and devoting more resources to consumption
B)lowering population growth
C)raising the savings rate
D)both A and B
E)both B and C

Question 41

Between 1966 and 1990, all four "Asian Tigers" achieved economic growth mostly through

A)hard work and sacrifice
B)protecting domestic industries through tariffs
C)substantially increasing growth in total factor productivity
D)controlling population growth
E)a large degree of government intervention

Question 42

The "Asian Tigers" achieved high economic growth from 1966 to 1990 in part because they

A)had very high savings rates
B)successfully controlled their population growth
C)devoted many resources to education
D)both B and C
E)both A and C

Question 43

There is no simple relationship between the proportion of investment to output and the growth rate of per-capita output since

A)population growth rates differ among countries
B)income growth rates differ among countries
C)the efficiency of investment among countries can vary widely
D)the savings rates among countries can vary widely
E)none of the above

Question 44

Which of the following countries is NOT one of the "Asian Tigers"?

A)Hong Kong
B)Japan
C)Singapore
D)South Korea
E)Taiwan

Question 45

Which of the following was NOT a common element contributing to the growth of the four "Asian Tigers" between 1966 and 1990?

A)an increase in the labor force participation rate
B)high educational achievement
C)a high savings rate
D)emphasis on laissez-faire economics
E)an increase in total factor productivity achieved by higher levels of inputs

Question 46

Hong Kong and Singapore achieved high economic growth between 1966 and 1990.Which of the following characteristics did these two countries NOT have in common?

A)a fairly stable government
B)a very low degree of government intervention
C)industries were encouraged to export and compete in world markets
D)increases in labor force participation rates
E)great investments in human capital

Question 47

Between 1966 and 1990 Singapore's GDP per capita grew at an average annual rate of 6.8%.During the same time frame its growth rate in total factor productivity was

A)0)2%
B)1)2%
C)2)2%
D)3)2%
E)4)2%

Question 48

Between 1966 and 1990 Hong Kong experienced a much higher growth rate of output than Singapore.This was at least partially due to the fact that Singapore had a government that

A)emphasized a laissez-faire attitude towards market activities
B)maintained much tighter control over market activities
C)discouraged a rapid pace of foreign investment in new technology
D)imposed strict population control programs
E)none of the above

Question 49

The four "Asian Tigers" achieved high economic growth between 1960 and 1990 since they

A)initially protected domestic firms, but then exposed them to foreign competition
B)had very high savings rates
C)had large increases in the labor force participation rates of women
D)increased inputs substantially, although total factor productivity did not increase substantially
E)all of the above

Question 50

If two countries have the same share of investment to GDP, the one that experiences a faster growth rate is most likely the one that

A)emphasizes free market policies and encourages foreign trade
B)protects domestic industry from foreign competition with trade barriers
C)invests less in government infrastructure
D)has a higher share of government spending to GDP
E)has more government regulations and spends more funds to protect the environment