Deck 9: Economic Growth II: Technology, Empirics, and Policy

Question 1

If the labour force is growing at a 3 percent rate and the efficiency of a unit of labour is growing at a 2 percent rate, then the number of effective workers is growing approximately at a rate of:

A)2 percent.
B)3 percent.
C)5 percent.
D)6 percent.

Answer 1

5 percent.

Question 2

If two economies are identical (with the same population growth rates and rates of technological progress), but one economy has a lower saving rate, then the steady-state level of income per worker in the economy with the lower saving rate:

A)will be at a lower level than in the steady state of the high-saving economy.
B)will be at a higher level than in the steady state of the high-saving economy.
C)will be at the same level as in the steady state of the high-saving economy.
D)will grow at a slower rate than in the high-saving economy.

Answer 2

will be at a lower level than in the steady state of the high-saving economy.

Question 3

In a steady-state economy with a saving rate s, population growth n, depreciation rate δ, and labour-augmenting technological progress g, the formula for the steady-state ratio of capital per effective worker (k*), in terms of output per effective worker (f (k*)), is

A)sf (k) / (δ + n + g).
B)s / ((f (k))(δ + n + g)).
C)f (k) / ((s)(δ + n + g)).
D)(s - f (k)) / (δ + n + g).

Answer 3

sf (k) / (δ + n + g).

Question 4

Differences in factor accumulation and/or differences in production efficiency must account for all international differences in:

A)human capital and physical capital.
B)saving rates and population growth rate.
C)income per person.
D)labour efficiency.

Question 5

Hypotheses to explain the positive correlation between factor accumulation and production efficiency include each of the following except:

A)the quality of a nation's institutions influences both factor accumulation and production efficiency.
B)capital accumulation causes greater production efficiency.
C)efficient economies make capital accumulation unnecessary.
D)an efficient economy encourages capital (including human capital) accumulation.

Question 6

If two economies are identical (including having the same saving rates, population growth rates, and efficiency of labour), but one economy has a smaller capital stock, then the steady-state level of income per worker in the economy with the smaller capital stock:

A)will be at a lower level than in the steady state of the high capital economy.
B)will be at a higher level than in the steady state of the high capital economy.
C)will be at the same level as in the steady state of the high capital economy.
D)will be proportional to the ratio of the capital stocks in the two economies.

Question 7

The rate of labour-augmenting technological progress (g) is the growth rate of:

A)labour.
B)the efficiency of labour.
C)capital.
D)output.

Question 8

Conditional convergence occurs when economies converge to:

A)the same steady state as other economies.
B)the Golden Rule steady state.
C)the balanced-growth steady state.
D)their own individual steady states.

Question 9

The efficiency of labour:

A)is the marginal product of labour.
B)is the rate of growth of the labour force.
C)depends on the knowledge, health, and skills of labour.
D)equals output per worker.

Question 10

The assumption that technological progress increases the efficiency of labour is called:

A)endogenous technological progress.
B)the efficiency-wage model of economic growth.
C)labour-augmenting technological progress.
D)the Golden Rule model of economic growth.

Question 11

In the Solow model with technological change, the Golden Rule level of capital is the steady state that maximizes:

A)output per worker.
B)output per effective worker.
C)consumption per worker.
D)consumption per effective worker.

Question 12

According to the Solow model, persistently rising living standards can only be explained by:

A)population growth.
B)capital accumulation.
C)saving rates.
D)technological progress.

Question 13

In the Solow growth model, the steady-state growth rate of output per effective worker is _____, and the steady-state growth rate of output per actual worker is _____.

A)the sum of the rate of technological progress plus the rate of population growth; zero
B)zero; the rate of technological progress
C)zero; zero
D)the rate of technological progress; the rate of population growth

Question 14

In the Solow growth model with population growth and labour-augmenting technological change, the break-even level of investment must cover:

A)depreciating capital.
B)depreciating capital and capital for new workers.
C)depreciating capital and capital for new effective workers.
D)depreciating capital, capital for new workers, and capital for new effective workers.

Question 15

The balanced growth property of the Solow model with population growth and technological progress predicts which of the following sets of variables will grow at the same rate in the steady state?

A)output per effective worker, capital per effective worker, real wage
B)output per worker, capital per worker, real wage
C)real rental price of capital, real wage, output per worker
D)capital-output ratio, output per worker, capital per worker

Question 16

Over the past 50 years in Canada:

A)output per worker hour, capital stock per worker hour, the real wage, and the real rental price of capital have all increased about 2 percent per year.
B)output per worker hour, the real wage, and the real rental price of capital have all increased about 2 percent per year, whereas capital stock per worker hour has increased faster.
C)output per worker hour and the real wage have both increased about 2 percent per year, whereas capital stock per worker hour has increased faster and the real rental price of capital has remained about the same.
D)output per worker hour, the real wage, and capital stock per worker hour have all increased about 2 percent per year, whereas the real rental price of capital has remained about the same.

Question 17

The Solow model predicts that two economies will converge if their economies have the same:

A)capital stocks.
B)populations.
C)steady states.
D)production functions.

Question 18

International differences in income per person in accounting terms must be attributed to differences in _____ and/or _____.

A)factor accumulation; production efficiency
B)constant returns to scale; the marginal product of capital
C)unemployment rates; depreciation rates
D)consumption; interest rates

Question 19

Empirical investigations into whether differences in income per person are the result of differences in the quantities of the factors of production available or differences in the efficiency with which the factors are employed typically find:

A)a negative correlation between the quantity of factors and the efficiency of use.
B)a positive correlation between the quantity of factors and the efficiency of use.
C)no correlation between the quantity of factors and the efficiency of use.
D)large gaps between the quantity of factors accumulated and the efficiency of use.

Question 20

The number of effective workers takes into account the number of workers and the:

A)amount of capital available to each worker.
B)rate of growth of the number of workers.
C)efficiency of each worker.
D)saving rate of each worker.

Question 21

The majority of empirical evidence supports the hypothesis that economies that are open to trade _____ than comparable closed economies.

A)grow more rapidly
B)have lower steady-state levels of income per worker due to foreign competition
C)have faster rates of population growth and technological progress
D)converge more slowly to a steady-state equilibrium

Question 22

The endogenous growth model's assumption of constant returns to capital is more plausible if capital is defined to include:

A)plant and equipment.
B)knowledge.
C)depreciation.
D)technology.

Question 23

If the marginal product of capital net of depreciation equals 10 percent and the rate of population growth equals 2 percent, then this economy will be at the Golden Rule steady state if the rate of technological progress equals _____ percent.

A)0
B)2
C)8
D)10

Question 24

The type of legal system and the level of corruption in a country have been found to be:

A)unrelated to the rate of economic growth in a country.
B)significant determinants of the rate of economic growth in a country.
C)important topics for political discussion, but not economic explanations of growth.
D)important variables explaining the Golden Rule level of capital.

Question 25

Economic research shows that _____ in explaining international differences in living standards.

A)physical capital is more important than human capital
B)human capital is at least as important as physical capital
C)human capital is much more important than physical capital
D)infrastructure is the most important factor

Question 26

The growing gap in labour productivity between the United States and Canada in the 1990s and early 2000s was mostly likely the result of:

A)better farm technology in the United States.
B)a more rapid increase in physical capital in the United States.
C)more rapid adoption of information technology in the United States.
D)a higher saving rate in the United States.

Question 27

One explanation for greater economic development in moderate versus tropical climates is that institutions established by colonial settlers in moderate climates _____, while institutions established by colonists in tropical climates _____.

A)were based on English common law; were based on the Napoleonic Code
B)were based on the Napoleonic Code; were based on English common law
C)protected property rights; were extractive and authoritarian
D)were extractive and authoritarian; protected property rights

Question 28

In the basic endogenous growth model, income can grow forever-even without exogenous technological progress-because:

A)the saving rate equals the rate of depreciation.
B)the saving rate exceeds the rate of depreciation.
C)capital does not exhibit diminishing returns.
D)capital exhibits diminishing returns.

Question 29

If Y is output, K is capital, u is the fraction of the labour force in universities, L is labour, and E is the stock of knowledge, and the production Y = F (K,(1 - u) EL) exhibits constant returns to scale, then output (Y) will double if:

A)K is doubled.
B)K and u are doubled.
C)K and E are doubled.
D)L is doubled.

Question 30

Much of the difference in labour productivity rates between the United States and Canada in the 1990s and early 2000s can be attributed to:

A)higher farm productivity in the United States compared to Canada.
B)more rapid adoption and greater investment in Information Computer and Technology (ICT) in the United States.
C)more labour mobility in the United States.
D)less corruption in the United States.

Question 31

Which of the following changes would bring the capital stock in Canada, currently below the Golden Rule level, closer to the steady-state, consumption-maximizing level?

A)increasing the population growth rate
B)increasing the rate of capital depreciation
C)increasing the rate of technological progress
D)increasing the saving rate

Question 32

In the Solow growth model, capital exhibits _____ returns. In the basic endogenous growth model, capital exhibits _____ returns.

A)constant; diminishing
B)constant; constant
C)diminishing; constant
D)diminishing; diminishing

Question 33

Other things being equal, all of the following government policies are likely to increase national saving except:

A)decreasing taxes on savings accounts.
B)running a budget deficit.
C)running a budget surplus.
D)retiring part of the national debt.

Question 34

A possible externality associated with the process of accumulating new capital is that:

A)a reduction in labour productivity may occur.
B)new production processes may be devised.
C)old capital may be made more productive.
D)the government may need to adopt an industrial policy.

Question 35

Endogenous growth theory rejects the assumption of exogenous:

A)production functions.
B)rates of depreciation.
C)population growth rates.
D)technological change.

Question 36

The productivity slowdown in Canada that began in the 1970s has been attributed, at least partly, to each of the following except:

A)running out of new ideas about how to produce.
B)a deterioration in the quality of education.
C)a decline in the number of workers in the labour force.
D)a lower average level of experience among workers.

Question 37

In the two-sector endogenous growth model, the fraction of labour in universities (u) affects the steady-state:

A)level of income.
B)growth rate of income.
C)level of income and growth rate of income.
D)level of income, growth rate of income, and growth rate of the stock of knowledge.

Question 38

If the marginal product of capital net depreciation equals 8 percent, the rate of growth of population equals 2 percent, and the rate of labour-augmenting technical progress equals 2 percent, to reach the Golden Rule level of the capital stock, the _____ rate in this economy must be _____.

A)saving; increased
B)population growth; decreased
C)saving; decreased
D)population growth; increased

Question 39

The recent worldwide slowdown in economic growth began in the early:

A)1960s.
B)1970s.
C)1980s.
D)1990s.

Question 40

In the two-sector endogenous growth model, the saving rate (s) affects the steady-state:

A)level of income.
B)growth rate of income.
C)level of income and growth rate of income.
D)growth rate of the stock of knowledge.

Question 41

Empirical results justify substantial government subsidies to research based on the finding that the:

A)private return to research is greater than the social return to research.
B)private return to research is approximately equal to the social return to research.
C)private return to research is less than the social return to research.
D)private return to research is positive, but the social return to research is negative.

Question 42

In the two-sector endogenous growth model, the steady-state stock of physical capital is determined by _____, and the growth in the stock of knowledge is determined by _____.

A)the fraction of labour in universities; the saving rate
B)the efficiency of labour; the saving rate
C)the production function; the efficiency of labour
D)the saving rate; the fraction of labour in universities

Question 43

In a steady state with population growth and technological progress:

A)the real rental price of capital is constant and the real wage grows at the rate of technological progress.
B)the real rental price of capital grows at the rate of technological progress and the real wage is constant.
C)both the real rental price of capital and the real wage grow at the rate of technological progress.
D)both the real rental price of capital and the real wage are constant.

Question 44

When capital increases by ΔK units and labour increases by ΔL units, output (ΔY) increases by:

A)ΔK + ΔL units.
B)MPL + MPK units.
C)(MPK × ΔK) + (MPL × ΔL) units.
D)(MPL × ΔK) + (MPK × ΔK) units.

Question 45

If the per-worker production function is y = Ak, where A is a positive constant, then the marginal product of capital:

A)increases as k increases.
B)is constant as k increases.
C)decreases as k increases.
D)cannot be measured in this case.

Question 46

The Solow residual will fall even if technology has not changed if there is:

A)population growth.
B)endogenous growth.
C)labour hoarding.
D)balanced growth.

Question 47

Prescott interpreted fluctuations in the Solow residual as evidence that:

A)technology shocks are an important source of short-run economic fluctuations.
B)the Solow growth model does not converge to a steady-state equilibrium.
C)endogenous growth models are better explanations of growth than the Solow model.
D)the marginal product of labour fluctuates more than the marginal product of capital.

Question 48

If the production function is Y = AK^2/3L^1/3 in the land of Antegria, and the labour force increases by 5 percent while capital is constant, labour productivity, measured by Y / L, will:

A)increase by 3.33 percent.
B)increase by 1.67 percent.
C)decrease by 1.67 percent.
D)decrease by 3.33 percent.

Question 49

An alternative to Prescott's explanation of the cyclical behaviour of the Solow residual is that it is the result of:

A)labour hoarding in recession and cyclical mismeasurement of output.
B)bad weather, strict environmental regulations, and oil shocks.
C)declines in capital utilization and labour force participation.
D)technology shocks.

Question 50

Labour hoarding refers to:

A)keeping workers in low-wage jobs in order to reduce labour costs.
B)using less capital in production so that more workers will have jobs.
C)continuing to employ workers during a recession to ensure they will be available in the recovery.
D)contractually preventing workers from obtaining jobs with competing firms.

Question 51

In the two-sector endogenous growth model, income growth persists because:

A)the production function shifts exogenously.
B)the saving rate exceeds the rate of depreciation.
C)the creation of knowledge in universities never slows down.
D)the fraction of the labour force in universities is large.

Question 52

Total factor productivity may be measured by:

A)subtracting the rate of growth of capital input and the rate of growth of labour input from the rate of growth of output.
B)subtracting the rate of growth of capital input, multiplied by capital's share of output, plus the rate of growth of labour input, multiplied by labour's share of output, from the rate of growth of output.
C)adding the rate of growth of capital input to the rate of growth of labour input.
D)adding the rate of growth of capital input, multiplied by capital's share of output, to the rate of growth of labour input, multiplied by labour's share of output.

Question 53

In a steady state with population growth and technological progress:

A)the capital share of income increases.
B)the labour share of income increases.
C)the capital share of income, in some cases, increases, and sometimes the labour share increases.
D)the capital and labour shares of income are constant.

Question 54

In comparing two countries with different levels of education but the same saving rate, population growth, and rate of technological progress, one would expect the more highly educated country to have:

A)a higher growth rate of total income and a higher real wage.
B)a higher growth rate of total income and the same real wage.
C)the same growth rate of total income and a higher real wage.
D)the same growth rate of total income and the same real wage.

Question 55

If the Japanese production function is Cobb-Douglas with capital share 0.3, output growth is 3 percent per year, depreciation is 4 percent per year, and the capital-output ratio is 2.5, the saving rate that is consistent with steady-state growth is:

A)12.5 percent.
B)14 percent.
C)17.5 percent.
D)20 percent.

Question 56

The Solow residual equals the percentage change in output:

A)plus the percentage changes in factor inputs weighted by each factor's share of output.
B)minus the percentage changes in prices of factor inputs.
C)minus the percentage changes in factor inputs weighted by each factor's share of output.
D)plus the percentage changes in each factor's share of output.

Question 57

If the production function is y = k^1/2, the steady-state value of y is:

A)y = ((s + g) / (δ + n))^1/2.
B)y = (s + g) / (δ + n).
C)y = (2 / (δ + n + g))^1/2.
D)y = s / (δ + n + g).

Question 58

The Solow residual measures the portion of output growth that cannot be explained by growth in:

A)capital and labour.
B)technology.
C)the money supply.
D)the saving rate.

Question 59

Schumpeter's thesis of "creative destruction" is an explanation of economic progress resulting from:

A)using up scarce natural resources to create new products.
B)breaking down barriers to trade and development.
C)new product producers driving incumbent producers out of business.
D)creating new methods to destroy the environment.

Question 60

When capital increases by ΔK units, output increases by:

A)ΔL units.
B)MPL × ΔL units.
C)ΔK units.
D)MPK × ΔK units.

Question 61

Two countries, Highland and Lowland, are described by the Solow growth model. Both countries are identical, except that the rate of labour-augmenting technological progress is higher in Highland than in Lowland.
a.In which country is the steady-state growth rate of output per effective worker higher?
b.In which country is the steady-state growth rate of total output higher?
c.Does the Solow growth model predict that the two economies will converge to the same steady state?

Question 62

Assume that an economy described by the Solow model is in a steady state with output and capital growing at 3 percent and labour growing at 1 percent. The capital share is 0.3. The growth-accounting equation indicates that the contributions to growth of capital, labour, and total factor productivity are:

A)0 percent, 1 percent, and 2 percent, respectively.
B)0.3 percent, 0.7 percent, and 2 percent, respectively.
C)0.9 percent, 0.7 percent, and 1.4 percent, respectively.
D)1.8 percent, 0.3 percent, and 0.9 percent, respectively.

Question 63

Use the data in the exhibit to complete the two tasks below.
​ ​
a.Compute and report the value of growth in total factor productivity ((A_t - A_{t - 1})/A_{t - 1}) in each period from periods 2 through 5. Assume that the value of A is 1.000 in period 1. Report the value of A in each period.
b.Does the value of A rise in each period? If it declines, do you think this decline is because technological progress works backward? If so, explain your answer. If not, provide another explanation.

Question 64

a. What is the Solow residual?
b.Compare Prescott's interpretation of the fluctuations of the Solow residual over the business cycle with more standard explanations of these fluctuations.

Question 65

The rate of growth of labour productivity (Y / L) may be expressed as the rate of growth of total factor productivity:

A)plus the capital share multiplied by the rate of growth of the capital-labour ratio.
B)minus the capital share multiplied by the rate of growth of the capital-labour ratio.
C)plus the rate of growth of capital productivity.
D)minus the rate of growth of capital productivity.

Question 66

Explain why a higher savings rate generates both positive and negative impacts on steady-state consumption per worker in the Solow growth model with population growth and technological change.

Question 67

Suppose a government is able to impose controls that limit the number of children people can have. Use the Solow growth model of Chapter 9 to graphically illustrate the impact of the slower rate of population growth on the steady-state capital-labour ratio and the steady-state level of output per worker.
Be sure to label the:
a. axes;
b. curves;
c. initial steady-state levels;
d. terminal steady-state levels; and
e. the direction curves shift.

Question 68

With technological progress, how is the Golden Rule of capital defined in the steady state?

Question 69

The economy of Glovania can be described by the Solow growth model. At the steady state, in Glovania the labour force grows at 3 percent per year, labour-augmenting technology increases at 2 percent per year, the saving rate is 15 percent per year, and the rate of capital depreciation is 10 percent per year. Choosing from among the following variables-output per effective worker, output per worker, total output, labour force, capital per worker, and capital per effective worker-which variables will be growing at a:
a.2 percent rate?
b.3 percent rate?
c.5 percent rate?
d.0 percent rate?

Question 70

Suppose a government is able to permanently reduce its budget deficit. Use the Solow growth model of Chapter 9 to graphically illustrate the impact of a permanent government deficit reduction on the steady-state capital-labour ratio and the steady-state level of output per worker.
Be sure to label the:
a. axes;
b. curves;
c. initial steady-state levels;
d. terminal steady-state levels; and
e. the direction curves shift.

Question 71

Suggest three explanations for the difference in labour productivity between Canada and the United States in the 1990s and early 2000s.

Question 72

Are persistent increases in standard of living possible in a steady-state economy?

Question 73

What does the Solow model predict about convergence? Why does conditional convergence occur?

Question 74

Income per person exceeds $25,000 in many countries but it is below $1,000 per person in many other countries. Based on the Solow growth model, suggest at least four possible explanations for this gap in living standards.

Question 75

Based on the Solow growth model with population growth and labour-augmenting technological progress, explain how each of the following policies would affect the steady-state level and steady-state growth rate of total output per person:
a.a reduction in the government's budget deficit
b.grants to support research and development
c.tax incentives to increase private saving
d.greater protection of private property rights

Question 76

What is balanced growth? Give an example.

Question 77

Explain how the Solow growth model differs from models of endogenous growth with respect to:
a.the sources of technological progress.
b.returns to capital.

Question 78

Assume that a country's production function is Y = AK^0.3L^0.7. The ratio of capital to output is 3, the growth rate of output is 3 percent, and the depreciation rate is 4 percent. Capital is paid its marginal product.

Question 79

What is the difference between convergence and conditional convergence with respect to predictions of the Solow growth model? Explain.

Question 80

What is the efficiency of labour? How does technological progress effect efficiency of labour?