Deck 26: Gdp and the Measurement of Progress

Question 1

Consider the following production function: . When capital stock is 144, output is

A) 12.
B) 24.
C) 144.
D) 6.

Answer 1

A

Question 2

The story of China and the United States illustrates which of the following concepts?

A) Catch-up Growth for China depended on its own development of new technology.
B) China grew rapidly by creating the technology that later transferred to the United States.
C) The United States' growth rate is lower than China's because the United States is engaged in heavy capital accumulation.
D) U.S. creation of new technology did not allow for as much short-run economic growth as did China's accumulation of existing technology.

Answer 2

D

Question 3

If a country's saving preference increased from 10 percent to 12 percent of disposable income and it was operating at its steady state before the change, we would expect to see which of the following? I. a decrease in capital stock II. a decrease in real GDP III. an increase in real GDP IV. an increase in capital stock

A) I and II only
B) II and III only
C) III and IV only
D) I and III only

Answer 3

C

Question 4

In the Solow model production function, an increase in capital stock with all other variables held constant will ________ the country's real Gross Domestic Product but at a(n) ________ rate.

A) increase; decreasing
B) decrease; decreasing
C) increase; increasing
D) decrease; increasing

Question 5

As more units of capital are added, the marginal product of capital

A) increases.
B) decreases at first, then increases.
C) decreases.
D) remains constant.

Question 6

The production function expresses a relationship between

A) capital stock and risk.
B) output and growth.
C) inflation and growth.
D) output and the factors of production.

Question 7

As more units of capital are added, output

A) increases at an increasing rate.
B) increases at a constant rate.
C) increases at a decreasing rate.
D) remains constant.

Question 8

The marginal product of capital I. refers to the cost of purchasing one extra unit of capital. II. is expected to be higher for very poor countries relative to wealthy countries. III. increases as capital accumulation occurs.

A) I only
B) II only
C) II and III only
D) III only

Question 9

Which of the following choices represents the sources of growth identified by the Solow growth model Y = F(A, K, eL)?

A) capital stock, knowledge and ideas, and labor (skilled and unskilled)
B) capital stock, technology, and skilled labor only
C) capital stock, depreciation, and human capital
D) All of the answers are correct.

Question 10

What are the factors of production in the Solow model of economic growth?

A) institutions, incentives, and ideas
B) physical capital, human capital, and ideas
C) working capital, technological advances, and ideas
D) motivated workers, honest government, and ideas

Question 11

The economy's production function relates __________ to output.

A) real GDP
B) the inflation rate
C) the unemployment rate
D) the factors of production

Question 12

All other things equal, increases in capital will cause output to

A) increase at an increasing rate.
B) increase at a constant rate.
C) increase at a decreasing rate.
D) remain constant.

Question 13

What has led to the high growth rate in China's economy over the last twenty-five years?

A) an increasing population
B) improved worker productivity
C) better government planning
D) a decrease in interest rates

Question 14

The marginal product of capital is the increase in

A) employment when one more unit of capital is added.
B) unemployment when one more unit of capital is added.
C) output when one more unit of capital is added.
D) the number of machines when one more unit of capital is added.

Question 15

Consider the following production function: . Which of the following is true about this production function?

A) More capital induces growth but at a decreasing rate.
B) As capital accumulation occurs, the marginal product of capital falls.
C) The iron logic of diminishing returns holds true with this production function.
D) Each of these statements describes an aspect of the given production function.

Question 16

If government legislation requires businesses to switch to a different method of production that generates 50 percent fewer greenhouse gas emissions, compliance to this policy (assuming no other changes) can be illustrated in the Solow model by ______ the aggregate production function that leads to a ______ level of real GDP per person.

A) a shift up of; higher
B) a shift down of; lower
C) a movement to the right on; higher
D) a movement to the left on; higher

Question 17

In recent years, real GDP in China has grown
B) at the same rate as real GDP in the United States.
C) faster than real GDP in the United States.
D) slower than real GDP in the United States.
E) faster than real GDP in the United States in some years, slower than real GDP in the United States in other years.

Question 18

According to the Solow model, output is a function of the quantity of

A) labor.
B) capital.
C) ideas.
D) Labor, capital, and ideas all contribute to the production of output.

Question 19

Which of the following would decrease national output?

A) a new idea to improve the production process
B) a natural disaster that destroys some capital
C) an increase in human capital
D) an increase in labor

Question 20

In the Solow model, if the first unit of capital increases output by one unit, then the second unit of capital will cause total output to

A) increase, but by less than one unit.
B) double.
C) remain the same as with one unit of capital.
D) increase exponentially.

Question 21

If output in an economy is 20, and the investment function is 0.25Y,

A) 16 units of output are being consumed.
B) 25 units of output are being invested.
C) 15 units of output are being consumed.
D) 20 units of output are being invested.

Question 22

Reference: Ref 8-1 (Table: GDP Growth) The table shows growth rates for Germany, Japan, and the United States in both the post-WWII period from 1950-1960 and then again from 1980-1990. Which of the following explains why Germany and Japan experienced such high growth rates just after the Second World War?

A) Trade agreements between Germany and Japan greatly enhanced economic growth.
B) High MPK levels contributed to significant per capita output growth.
C) Their technological advances at this time were higher than those of the United States.
D) All of the answers are correct.

Question 23

The figure shows the depreciation function for an economy. The depreciation rate is

A) 0.10.
B) 0.010.
C) 0.0010.
D) 1.

Question 24

What is meant by the steady-state level of capital?

A) All of a nation's capital is reinvested back into that country.
B) Positive net capital investment continues to drive growth at a steady rate.
C) There is no new net investment, or any growth.
D) Investment eventually exceeds depreciation.

Question 25

Human capital is similar to physical capital in that it

A) is dependent on government investment.
B) decreases the growth rate.
C) does not depreciate.
D) has diminishing returns.

Question 26

In a small country each labor hour has capital stock equal to 900 units. This year it produced 20 units of new capital goods, with a depreciation rate of 10 percent, and a production function of . If there is no technological advancement, what will the growth rate in this country be over the next year?

A) -3.96 percent
B) 10 percent
C) 2.4 percent
D) -4.13 percent

Question 27

When investment is equal to depreciation, the capital stock

A) increases.
B) decreases.
C) remains constant.
D) becomes unimportant.

Question 28

Capital is output that is

A) invested in the stock market.
B) used to produce other goods.
C) invested in the bond market.
D) consumed.

Question 29

Which of the following is NOT a reason for high growth rates in Germany and Japan following World War II?

A) Good institutions were in place soon after the war.
B) Both countries had higher growth rates than the United States before World War II.
C) New capital was highly productive during the rebuilding process.
D) The incentive to invest capital domestically was very high.

Question 30

(Figure: Capital Depreciation) Figure: Capital Depreciation The figure shows the depreciation function for an economy. The depreciation rate is

A) 0.25.
B) 0.025.
C) 0.0025.
D) 2.5.

Question 31

If output in an economy is 500, and the investment function is 0.25Y,

A) 125 units of output are being consumed.
B) 375 units of output are being consumed.
C) 100 units of output are being consumed.
D) 400 units of output are being invested.

Question 32

In a small country each labor hour has capital stock equal to 900 units. This year it produced 20 units of new capital goods, with a depreciation rate of 20 percent, and a production function of . What will its level of capital stock per labor hour be next year?

A) 920 units
B) 720 units
C) 900 units
D) 740 units

Question 33

Over time, capital wears out. The official term for this is

A) wear and tear.
B) depreciation.
C) capital dissolution.
D) a stock market crash.

Question 34

Reference: Ref 8-1 (Table: GDP Growth) The table shows growth rates for Germany, Japan, and the United States in both the post-WWII periods of 1950-1960 and 1980-1990. Which reason best explains why growth rates in Germany and Japan began to approach U.S. growth rates during the 1980-1990 period?

A) MPK began to slow down.
B) Depreciation began to slow down.
C) The institutions for economic growth began to diminish.
D) All of the answers are correct.

Question 35

If the depreciation rate is .03 and the capital stock is 200, how many units will depreciate?

A) 2
B) 3
C) 6
D) 12

Question 36

All else equal, an increase in savings will cause capital stock to

A) increase.
B) decrease.
C) remain unchanged.
D) increase and then decrease.

Question 37

The 2003 Iraqi war destroyed large amounts of capital. Later, insurgent activity continued to destroy capital and created instability in the government. Today, hostilities have waned and the government has become more stable. According to the Solow growth model, over the next few years we would expect to see growth rates in Iraq to be _____ those of high-income countries with similar institutions followed by growth rates that are _______ the growth rates in those countries.

A) higher than; much higher than
B) lower than; about the same as
C) higher than; about the same as
D) about the same as; lower than

Question 38

Why will growth in China slow down? I. The productivity of its capital will decline. II. There are problems within its systems of government, banking, and education. III. It has too many people to sustain this level of production.

A) I and II only
B) I and III only
C) II and III only
D) I, II, and III

Question 39

All else equal, an increase in savings will cause investment to

A) increase.
B) decrease.
C) remain unchanged.
D) first increase and then decrease.

Question 40

Why might a country experience a higher growth rate after a war? I. With a depleted, or destroyed, capital stock, any new capital would contribute greatly to growth. II. Capital accumulation always causes higher growth rates. III. A winning country may see its exports surge as it helps others rebuild leading to a higher growth rate.

A) I only
B) II and III only
C) I and III only
D) I, II, and III

Question 41

According to the Solow model, an increase in the fraction of output that is saved will increase ________ in the long run.

A) investment.
B) output.
C) per capita GDP.
D) All of the answers are correct.

Question 42

In the Solow model, an increase in the investment rate will _____ the amount of capital needed to achieve a steady state of output.

A) increase
B) decrease
C) not affect
D) equal

Question 43

When a country is at its steady state, I. capital is neither increasing nor decreasing. II. net investment is 0. III. economic growth is 0.

A) I only
B) II only
C) I and II only
D) I, II, and III

Question 44

Assume that a country's production function changes from to . Which of the following could explain the change in this production function?

A) the disappearance of diminishing returns from the production function
B) the arrival of robotic technology in production
C) greater capital accumulation
D) less depreciation due to better capital stock maintenance.

Question 45

According to Robert Solow, better ideas are responsible for about _____ of our standard of living.

A) 15 percent
B) 25 percent
C) 50 percent
D) 75 percent

Question 46

In the long run, economic growth is driven by

A) physical capital.
B) human capital.
C) technological change.
D) All of the answers are correct.

Question 47

Which of the following are TRUE? I. Even with a low domestic savings rate, a country can still have high investment with foreign savings. II. Good savings rates require well-functioning financial intermediaries. III. If savings do not flow into an economy from other countries, it will have a low level of capital stock.

A) I and II only
B) I and III only
C) II and III only
D) I, II, and III

Question 48

A small country has an aggregate production function per hour of labor given by Y = K1/2. Its depreciation rate is 1 percent and its investment rate is 10 percent. What is its steady-state level of capital?

A) 10
B) 100
C) 1
D) You need to know the steady-state level of RGDP to answer this question.

Question 49

A small country has 400 units of capital for each labor hour. This year it will produce 20 units of new capital goods, and depreciate 5 percent of its capital stock. Based on this information it should expect to have ______ growth over the next year if technological advancement occurs; otherwise it should expect to have _______.

A) positive; no growth
B) positive; positive growth but less than the amount it would have with technological advancement
C) no; negative growth
D) negative; positive growth

Question 50

(Figure: Increased Production) Figure: Increased Production Refer to the figure above. Which of the following factors could cause the upward shift of the production function from Y to Y'?

A) foreign direct investment
B) technological advancement
C) increase in the capital stock
D) an aging labor force

Question 51

If a country is at its steady-state level of capital stock, which of the following will NOT result in economic growth in future years, ceteris paribus?

A) a technological advancement
B) an increase in the savings rate
C) producing capital at its current rate
D) a decrease in the depreciation rate

Question 52

In a steady state, the capital stock

A) increases.
B) decreases.
C) remains constant.
D) becomes unimportant.

Question 53

Countries with more human capital have a

A) higher GDP per capita.
B) lower GDP per capitB.
C) higher population.
D) lower population.

Question 54

Other things held constant, an increase in depreciation will cause the capital stock to

A) decrease.
B) grow at a slower pace.
C) remain unchanged.
D) become unprofitable.

Question 55

Consider the following production function . The level of technology in this economy is represented by a value of

A) 1.
B) 4.
C) 2.
D) 0.5.

Question 56

Which of the following is correct?

A) If investment > depreciation, the nation's capital stock will grow.
B) If investment < depreciation, the nation's capital stock will grow.
C) If investment = depreciation, the nation's capital stock will grow.
D) If investment > depreciation, the nation's capital stock will stay constant.

Question 57

With additional education, the marginal product of human capital

A) increases at an increasing rate.
B) increases at a decreasing rate.
C) is relatively constant.
D) decreases and then increases.

Question 58

South Korea's high investment rate of 35 percent in the 1990s helped ensure that _______ would be higher, even though its ________ slowed.

A) population; education rate
B) GDP; growth rate
C) growth rate; GDP
D) growth rate; savings rate

Question 59

A small country's aggregate production function per hour of labor is given by Y = K1/2. Its depreciation rate is 5 percent and its investment rate is 25 percent. What is its steady-state level of real GDP?

A) 25
B) 5
C) 1.25
D) You need to know the steady-state level of capital stock to answer this question.

Question 60

According to the Solow model, countries with higher savings rates have higher levels of

A) investment.
B) output.
C) per capita GDP.
D) All of the answers are correct.

Question 61

Which of the following is an example of an increase in technological knowledge?

A) an increase in the training of bone cancer researchers
B) an increase in the use of bone cancer research centers
C) bone cancer researchers discover a cure for bone cancer
D) an increase in the number of scientists working on curing bone cancer

Question 62

The reason that the United States has experienced sustained economic growth for over 200 years is mostly due to which of the following?

A) timely replacement of physical capital
B) continued advances in technological knowledge
C) steady increases in population
D) strategic government planning

Question 63

Which of the following correctly and fully defines conditional convergence? Conditional convergence refers to the tendency for

A) poorer countries to grow faster than richer countries, but only if they receive sufficient foreign direct investment so that their steady-state capital stocks converge.
B) richer countries to grow faster than poorer countries given similar steady-state capital stocks.
C) poorer countries to grow faster than richer countries given similar steady-state capital stocks.
D) countries with similar steady-state levels of output to grow faster when they're poor than when they're rich until their per capita GDP levels converge.

Question 64

If a developing country wanted to increase its level of investment, which of these actions would directly lead to this goal?

A) Strengthen and enforce private property laws.
B) Provide a minimum level of food to all people in the country.
C) Increase taxes to prevent corporations from keeping excess profits.
D) Nationalize all foreign manufacturing facilities in the country.

Question 65

If two countries have the same steady-state levels of output, the country that is ______ today will eventually ______ in per capita output.

A) poorer; lag behind
B) poorer; catch up
C) richer; fall behind
D) richer; be further ahead

Question 66

Catch-up growth can be differentiated from cutting-edge growth as follows:

A) Catch-up growth leads to convergence while cutting-edge growth does not.
B) Catch-up growth comes primarily from capital accumulation while cutting-edge growth comes from technological development.
C) Poorer countries with low levels of capital stock will always display catch-up growth.
D) None of these answers is correct.

Question 67

In the Solow model, better ideas will lead to

A) more capital.
B) less government regulation.
C) a constant stream of output.
D) less capital.

Question 68

Profit seeking tends to lead to ideas that

A) increase output for individual firms.
B) increase output for individual industries.
C) increase output for the U.S. economy.
D) Each of these answers is correct.

Question 69

American culture contributes to economic growth through the encouragement of new ideas by

A) supporting entrepreneurship.
B) encouraging a high level of personal savings.
C) supporting a retirement income for all citizens.
D) expecting a high level of government ownership of manufacturing firms.

Question 70

The economics of ideas

A) refers to cutting edge growth.
B) helps explain why countries like the United States have been growing for the past two centuries.
C) explains why the simple Solow growth model ly predicts no long-run economic growth.
D) All of these answers are correct.

Question 71

A small country has an aggregate production function given by Y = AK1/2. What would need to happen to its aggregate production function in order to represent an advancement in technology?

A) Capital would need to increase.
B) The variable A would need to increase.
C) The variable A would need to decrease.
D) Capital would need to decrease.

Question 72

Which of the following is an example of an increase in human capital?

A) an increase in the training of bone cancer researchers
B) an increase in the use of bone cancer research centers
C) the discovery of a cure for bone cancer
D) an increase in the number of scientists working on curing bone cancer

Question 73

What is the tendency called for poorer countries to grow faster than richer countries with the same steady-state levels of output?

A) the diminishing rate of return
B) the marginal law of supply
C) conditional convergence
D) growth capitalization

Question 74

Suppose that a country has a depreciation rate of 3 percent, a national savings rate of 6 percent, and growth in net exports of -4 percent. Assume that the savings are efficiently transformed into investment, what is the investment rate for this country?

A) 2 percent
B) 10 percent
C) -1 percent
D) 5 percent

Question 75

According to the Solow model, a country will grow faster when its capital stock is

A) at the steady-state value.
B) above the steady-state value.
C) just below the steady-state value.
D) far below the steady-state value.

Question 76

If all the countries of the world were underdeveloped with low levels of income except for the United States, we would expect that the growth rates of developing countries would be ______ than they are in the world today because ______ is important for long-term economic growth.

A) lower; world dominance by the United States
B) higher; market size
C) lower; market size
D) higher; world dominance by the United States

Question 77

In the United States, most scientists who research and develop new products work for

A) private firms.
B) the U.S. government.
C) public universities.
D) private universities.

Question 78

What is key to growth for countries on the cutting edge such as the United States and Japan?

A) more physical capital investments
B) investments in human capital
C) new ideas
D) larger institutions

Question 79

The Solow model suggests that initially poor countries with steady-state levels of output ______ richer countries will grow ______ richer countries.

A) similar to; faster than
B) similar to; slower than
C) lower than; at the same rate as
D) higher than; slower than

Question 80

Member nations of the Organization for Economic Co- Operation and Development (OECD) with a lower GDP per capita in 1960 experienced what sort of growth during the subsequent 40 years?

A) relatively lower growth than higher GDP per capita countries
B) relatively faster growth than higher GDP per capita countries
C) no growth at all
D) similar growth as countries with a high 1960 GDP per capita