Deck 11: The Theory of Economic Growth

Question 1

The general form of the per-person production function used in Chapter 10 is

A)(Y/N)= A - f(N/K).
B)(Y/N)= A + f(N/K).
C)(Y/N)= A/f(K/N).
D)(Y/N)= Af(K/N).

Answer 1

(Y/N)= Af(K/N).

Question 2

Which of the following countries has had the fastest rate of economic growth since 1955?

A)United States
B)United Kingdom
C)Germany
D)Japan

Answer 2

Japan

Question 3

A growing government budget deficit and national debt reduces economic growth because

A)it insures that future generations will have to pay the debt.
B)it reduces public investment.
C)it reduces household saving.
D)it diverts private savings from the financing of private investment.

Answer 3

it diverts private savings from the financing of private investment.

Question 4

Net investment is

A)savings less replacement savings.
B)replacement investment.
C)investment net of savings.
D)total investment less replacement investment.

Question 5

The level of capital per person would increase if

A)the average saving rate were higher.
B)the output-to-capital ratio increased.
C)the depreciation rate increased.
D)Both A and B.

Question 6

The output-capital ratio (Y/K)depends on the following four determinants.Which determinant of these four is most likely to be affected by government growth policy?

A)the nature of the production function
B)the depreciation rate
C)the growth rate of labor input
D)the growth of capital per person

Question 7

The growth rate in the autonomous factor (a)in the production function can be directly influenced by all of the following EXCEPT

A)environmental legislation.
B)support for research and development.
C)subsidies for education.
D)initiation of tax indexation.

Question 8

The general form of the production function used in Chapter 10 is

A) Y=A+F(K, N).
B) Y=A-F(K,N)
C) Y=A F(K, N).
D) Y=A/F(K,N)

Question 9

The per-person production function in Chapter 10 assumes that a one percent rise in (K/N)causes a ________ rise in (Y/N),and so it is diagrammed as a ________ line.

A)less-than-one-percent,downward-curling
B)less-than-one-percent,upward-curling
C)one percent,upward-curling
D)one percent,downward-curling
E)more-than-one-percent,straight

Question 10

When we study economic growth,we are most concerned about changes in

A)the output ratio.
B)the level of natural real output.
C)the absolute difference between natural and actual real output.
D)None of these.

Question 11

In equilibrium,rate of growth of capital in a simple closed economy (i.e. ,x = 0)is determined primarily by

A)the growth rate of savings.
B)the level of saving less expenditures for replacement capital.
C)per capita well-being.
D)the growth rate of replacement capital.

Question 12

The one determinant of the growth of capital per person that can be affected by policy is the

A)depreciation rate.
B)saving rate.
C)money supply growth.
D)rate of technological change.

Question 13

The theory of economic growth divides the causes of growth into

A)elements affecting the output ratio and factors affecting population growth.
B)elements affecting the output ratio and factors affecting inflation.
C)elements affecting the amount of factor inputs available and the productivity of those inputs.
D)None of the above.

Question 14

Probably the best measure of a country's economic growth is the growth of

A)real domestic investment.
B)real GDP.
C)real GDP per person.
D)real consumption expenditures.

Question 15

Economic growth is the result of two major or general "determinants":

A)capital and autonomous planned spending.
B)capital per capita and autonomous planned spending.
C)capital per capita and autonomous growth factors.
D)saving and autonomous growth factors.

Question 16

Using the textbook's production function,if two percent more labor working with two percent more capital produces two percent more real GDP,then "multifactor productivity" has

A)risen by four percent.
B)risen by two percent.
C)remained unchanged.
D)fallen by one percent.
E)fallen by two percent.

Question 17

When an equal percentage increase in the factors of production raises real GDP by the same percentage,the production function has the characteristic known as

A)constant returns to scale.
B)constant marginal productivity.
C)diminishing marginal productivity.
D)increasing returns to scale.

Question 18

One of the main determinants of real GDP per person is the growth of capital per person.Which of the following variables does NOT determine the growth of capital per person in the long run?

A)average saving rate
B)output-to-capital ratio
C)marginal tax rate on investment
D)depreciation rate

Question 19

The principle of compound interest insures that

A)a small difference in the per capita GDP between countries in one year will grow to a large difference in the long run.
B)a small difference in the per capita GDP growth rate between countries in one year will grow to a large difference in the long run.
C)U.S.interests are compounded by the interests of Great Britain and Germany.
D)U.S.interests are compounded by the interests of all other countries.

Question 20

Using the textbook's production function,an increase in A requires that one percent more labor working with ________ capital produces more ________.

A)an unchanged amount of,real GDP
B)an unchanged amount of,real GDP per labor input
C)one percent more,real GDP
D)one percent more,real GDP per labor input

Question 21

Figure 10-4

Initially,the economy is at point G in Figure 10-4 above.An increase in per capita savings from s(0)to s(1)will in the short run result in ________ and in the long run result in ________.

A)excess per capita saving;more rapid growth in per capita output
B)excess per capita saving;less rapid growth in per capita output
C)more rapid growth in per capita output;more rapid growth in per capita output
D)more rapid growth in per capita output;no change in the long run rate of growth in per capita output

Question 22

Suppose that the government passes a law requiring households to increase savings 10% above previous levels.According to Solow's growth theory,in the long run

A)output per capita grows more rapidly.
B)output per capita grows at the constant steady state rate,n.
C)output per capita stays constant.
D)None of the above.

Question 23

Use b as the exponent for physical capital, and c as the exponent for human capital. Assume that b = 0.25 and c = 0.60. Further assume that per person income of a rich country is 10 times that of a poor country.
Refer to the information above.What is the value of the exponent for uneducated labor (L)?

A)0.75
B)0.35
C)0.20
D)0.10

Question 24

Solow's theory of economic growth concludes,"the possibility of steady growth would be a miraculous stroke of luck" because

A)the three "determinants," s,(Y/K)and n are caused by different unrelated behavior.
B)s reflects temporal consumption preferences.
C)d reflects unrelated depreciation.
D)n reflects birth control decisions.

Question 25

Steady state growth will occur according to Robert Solow when

A)y = k.
B)y = n.
C)kn = y.
D)k = n.

Question 26

"Given the long run implication of Solow's growth model with respect to the rate of savings,the low savings rate in the United States is not a problem." This statement overlooks that over time it appears that

A)total factor productivity and the growth rate of capital per person are positively related.
B)total factor productivity and the growth rate of capital per person are inversely related.
C)total factor productivity and the difference between the growth rates of capital per capita and population are not related a and k - n are not related.
D)savings rates and per capita growth rates are inversely related.

Question 27

Which of the following is NOT a real world factual conflict with the neoclassical growth model?

A)Income per capita varies greatly across countries.
B)Poor countries do not have a higher rate of return on capital.
C)Immigrant labor from poor countries experiences very small increases in income when it moves to rich countries.
D)Poor countries' income levels have not converged to the income levels of rich countries.

Question 28

Figure 10-4

Initially,the economy is at point G in Figure 10-4 above.A change in per capita savings ________ will after complete adjustment ________.

A)point X to point E;lower the growth rate of output per capita
B)point X to point E;raise the growth rate of output per capita
C)point E to point X;raise output and saving but not the growth rate of output per capita
D)point E to point X;raise output and saving and the growth rate of output per capita

Question 29

Use b as the exponent for physical capital, and c as the exponent for human capital. Assume that b = 0.25 and c = 0.60. Further assume that per person income of a rich country is 10 times that of a poor country.
Refer to the information above.What is the value of the exponent for uneducated labor (L)?

A)0.75
B)0.40
C)0.35
D)0.15

Question 30

Steady state growth will occur according to Robert Solow when

A)the growth rate of output equals the growth rate of capital.
B)the growth rate of output equals the growth rate of population.
C)the growth rate of output times the population growth rate equals the growth rate of capital.
D)the growth rate of capital equals the growth rate of the population.

Question 31

An increase in government expenditures ________ "national saving" and thus tends to ________ private investment.

A)increases,increase
B)increases,decrease
C)decreases,increase
D)decreases,decrease

Question 32

Suppose that the government passes a law requiring households to increase savings 10% above previous levels.According to Solow's growth theory,in the short run

A)output per capita grows more rapidly.
B)output per capita grows at the constant steady state rate,n.
C)output per capita stays constant.
D)None of the above.

Question 33

If the economy is characterized by constant returns to scale,then a

A)doubling of inputs will lead to a more than two-fold increase in output.
B)doubling of inputs will lead to a constant output.
C)doubling of inputs will lead to a two-fold increase in output.
D)doubling of inputs will lead to a less than two-fold increase in output.

Question 34

The introduction of human capital to the Solow neoclassical growth model reduces the significance of the contribution of ________ to increases in per capita income.

A)K
B)L
C)K and L
D)None of the above.

Question 35

Use b as the exponent for physical capital, and c as the exponent for human capital. Assume that b = 0.25 and c = 0.60. Further assume that per person income of a rich country is 10 times that of a poor country.
Refer to the information above.What is the approximate value of the multiple of combined physical and human capital that the rich country must have in order to produce 10 times the output per person of the poor country?

A)1000
B)100
C)25
D)15

Question 36

The application of Solow's growth theory to the explanation of the slowdown in productivity growth in the United States suggests that the slowdown is primarily caused by

A)reduced growth in the capital stock per hour of work.
B)reduced growth in the technical change or total factor productivity.
C)slow residual growth of the capital stock.
D)ignorance since people save and invest less.

Question 37

The investment required to maintain steady state growth

A)is impossible to achieve since capital for new workers requires continuous increases in s,the per capita savings ratio.
B)must equip new workers with capital equal to that employed by existing workers.
C)must replace "worn out" capital.
D)B and C.

Question 38

According to the Solow model of economic growth,if per capita savings,s (Y/N)0,exceeds required steady state investment,(n + d)K/N,then

A)per capita output declines.
B)capital per capita increases.
C)capital per capita decreases.
D)steady state growth characterizes the economy.

Question 39

Private investment is equal to the net addition to the capital stock ________ the depreciation of that capital stock.

A)plus
B)minus
C)times
D)divided by

Question 40

Use b as the exponent for physical capital, and c as the exponent for human capital. Assume that b = 0.25 and c = 0.60. Further assume that per person income of a rich country is 10 times that of a poor country.
Refer to the information above.What is the approximate value of the multiple of combined physical and human capital that the rich country must have in order to produce 10 times the output per person of the poor country?

A)12
B)25
C)100
D)1000

Question 41

If the economy is characterized by diminishing or decreasing returns to scale,then a

A)doubling of inputs will lead to a constant output.
B)doubling of inputs will lead to a two-fold increase in output.
C)doubling of inputs will lead to a less than two-fold increase in output.

Question 42

If the economy is characterized by increasing returns to scale,then a

A)doubling of inputs will lead to a more than two-fold increase in output.
B)doubling of inputs will lead to a constant output.
C)doubling of inputs will lead to a two-fold increase in output.
D)doubling of inputs will lead to a less than two-fold increase in output.

Question 43

From an initial steady state,suppose a government policy increases the national saving rate,causing the capital stock to start growing faster than the population.With (K/N)now rising,the Solow growth model goes on to say that (Y/N)

A)will rise only so far,to where the increased requirement for new capital matches the increased saving.
B)will rise only temporarily,so long as the population growth rate remains constant.
C)will rise and keep on rising,so long as the national saving rate exceeds the population growth rate.
D)never does rise,since the government's policy does not affect either the population growth rate or the depreciation rate.

Question 44

Figure 10-3

Initially,the economy is at point B in Figure 10-3 above.We may conclude that over time,

A)per person saving and steady state investment will remain stable at points C and D respectively.
B)per person capital will grow,point D to E since per capita savings exceed steady state investment,point C is greater than point D.
C)per person capital will grow,point D to E since per capita savings is less than steady state investment,point C is greater than point D.
D)per person saving and steady state investment will remain stable at points D and C respectively.

Question 45

In the Solow growth model,an increase in the marginal propensity to consume shifts the ________,with the implied change in the capital stock resulting in a ________ standard of living in the long run.

A)steady-state investment line upward,higher
B)steady-state investment line downward,higher
C)national saving line upward,lower
D)national saving line upward,higher
E)national saving line downward,lower

Question 46

Less-developed countries that nonetheless have access to the latest technologies must be suffering from a relative shortage of ________ according to the Solow growth model,implying a very ________ rate of return available on additions to capital in those countries.

A)capital,low
B)capital,high
C)labor,low
D)labor,high

Question 47

The introduction of human capital to the Solow neoclassical growth model ________ the predicted rate of return on investment in rich countries relative to poor countries.

A)increases
B)reduces
C)may either increase or reduce
D)has no effect on

Question 48

If technological change is "labor augmenting," then

A)output per worker declines,output per unit of capital increases.
B)"effective labor input" increases,output per unit of capital declines.
C)output per worker increases,output per unit of capital is constant.
D)Both output per worker and output per unit of capital change.

Question 49

Figure 10-3

Initially,the economy is at point B on Figure 10-3 above.We conclude that before adjustment,

A)per person savings is at point D and the level of steady state investment is at point C.
B)per person savings is at point E and the level of steady state investment is at point E.
C)per person savings is at point G and the level of steady state investment is at point E.
D)per person savings is at point C and steady state investment is at point D.

Question 50

The new growth theory that arose in the late 1980s has been described as ________ because it treats technological change as ________.

A)exogenous,random unpredictable shocks
B)exogenous,generated by market incentives
C)endogenous,random unpredictable shocks
D)endogenous,generated by market incentives

Question 51

If technological change is "neutral," then

A)output per worker declines,output per unit of capital increases.
B)"effective labor input" increases,output per unit of capital declines.
C)output per worker increases,output per unit of capital is constant.
D)Both output per worker and output per unit of capital change.

Question 52

Figure 10-1

Initially,the economy is at point B on Figure 10-1 above.According to the Solow growth model,an increase in the output per capita without an increase in capital per worker is represented by ________ and could be the result of ________.

A)the movement B to E;new technology discoveries
B)the movement B to H;improved health and education per worker
C)the movement B to C;an increase in the savings rate
D)the movement B to F;a decrease in the savings rate

Question 53

The "nonconvergence" problem with the Solow growth model is that

A)a higher return to capital in poor countries should essentially cause all nations to have roughly the same standard of living,yet they clearly do not.
B)if a disturbance dislodges an economy from the steady-state point,it continues moving further from that point indefinitely.
C)technological change is assumed to just "drop from the sky."
D)a rise in the rate of national saving does not raise the growth rate of real GDP per person.

Question 54

Extensive growth is driven by

A)very high savings rates.
B)rapid capital accumulation.
C)improved multifactor productivity.
D)A and B.
E)all of the above.

Question 55

One of the shortcomings of the Solow growth model is that in it the rate of technological change is

A)assumed to be zero.
B)assumed to be equal to the population growth rate.
C)left unexplained.
D)zero unless the saving rate exceeds the depreciation rate.

Question 56

Figure 10-2

Initially,the economy is at point B on Figure 10-2 above.According to the Solow growth model,a dramatic decrease in the rate of saving after complete adjustment shifts the economy from ________.

A)B to H,increasing output per capita
B)B to C,increasing output and capital per capita
C)B to D,decreasing the output and capital per capita in the long run
D)B to E,decreasing output per capita but holding per capita capital constant

Question 57

In the graph of the Solow growth model,at any point to the right of the steady-state intersection we have national saving per person ________ than steady-state investment per person,causing (K/N)to ________.

A)greater,increase
B)greater,decrease
C)less,increase
D)less,decrease

Question 58

In the Solow growth model,from an initial steady state with fixed values of A,d,and n,an increase in the national saving rate causes the standard of living to

A)rise temporarily,and then fall back to its initial level.
B)rise and then hold constant at a new higher level.
C)grow at a slower rate temporarily,and then return to the initial growth rate.
D)grow at a permanently faster rate.
E)not change at all in the short run or the long run.

Question 59

Figure 10-1

Initially,the economy is at point B on Figure 10-1 above.According to the Solow model of growth,in the short run,the discovery of a cold fusion process which reduces the cost of energy by 50%,ceteris paribus,will shift the economy from ________.

A)B to H,increasing per capita output without increasing capital per capita
B)B to C,increasing per capita output with increasing capital per capita
C)B to C,increasing per capita output without increasing savings
D)B to I,increasing output,saving and capital per capita

Question 60

Change in "total factor productivity" may be explained by

A)the relative rates of growth of crime and pollution control measures.
B)changes in the quality and composition of the labor force.
C)changes in the scale of production.
D)All of the above.

Question 61

Figure 10-5

In Figure 10-5 above,suppose that new tougher environmental regulations require certain industries to accelerate their phase-out of some of their existing equipment and install new types that produce less pollution.Translating this into an effect on d causes a movement of the steady-state point such as from points

A)A to B.
B)D to B.
C)D to C.
D)A to C.
E)D to A.

Question 62

Figure 10-3

The economy will grow from points B to G in Figure 10-3 above over time because

A)per person saving and steady state investment will remain stable at points C and D respectively.
B)per person capital will grow,point D to E since per capita savings exceed steady state investment,point C is greater than point D.
C)per person capital will grow,point D to E since per capita savings is less than steady state investment,point C is greater than point D.
D)per person saving and steady state investment will remain stable at points D and C respectively.

Question 63

Figure 10-5

In Figure 10-5 above,suppose that a "neutral" technological improvement occurs.This causes a movement of the steady-state point such as from points

A)A to B.
B)D to B.
C)D to C.
D)A to C.
E)A to D.

Question 64

The most plausible way to produce a continuous increase in the standard of living within the Solow growth model is to assume

A)continuous technological improvement.
B)a positive rate of population growth.
C)a zero rate of depreciation.
D)continuous increases in the national saving rate.
E)continuous growth in the capital stock.

Question 65

If K = 3000,n = 0.02,and d = 0.07,then investment of ________ will hold (K/N)constant.

A)105
B)150
C)270
D)420

Question 66

Figure 10-5

In Figure 10-5 above,suppose that the economy's initial steady-state point is A.An increase in the rate of national saving changes the steady-state point to

A)point B.
B)point C.
C)point D.
D)a point to the left of point A.

Question 67

Suppose that we interpret N as the "effective" labor supply.A "labor-augmenting" technological improvement,when graphed in the Solow growth model,causes (Y/N)to ________ and real GDP per person to ________.

A)rise,rise
B)rise,fall
C)fall,rise
D)fall,fall
E)fall,remain unchanged

Question 68

Figure 10-5

In Figure 10-5 above,suppose that the level of government expenditures increases.This causes a movement of the steady-state point such as from points

A)A to B.
B)D to B.
C)D to C.
D)A to C.
E)A to D.

Question 69

In graphing the Solow growth model,the per-person production function is used to derive the ________ per-person line,with the vertical distance between them being ________ per person.

A)national saving,investment
B)national saving,consumption
C)steady-state investment,capital
D)steady-state investment,depreciation
E)steady-state investment,national saving

Question 70

Suppose s = 0.18,Y = 4000,K = 6200,n = 0.02,and d = 0.08.This makes national saving ________ than steady-state investment,so that the amount of capital per worker is ________.

A)greater,rising
B)greater,falling
C)less,rising
D)less,falling

Question 71

Figure 10-5

In Figure 10-5 above,suppose that the economy's steady-state point is C.At points to the left of this,steady-state investment ________ national saving,moving the economy ________ point C.

A)exceeds,further away from
B)exceeds,closer to
C)falls short of,further away from
D)falls short of,closer to

Question 72

In the Solow growth model,given the values of A,s,n,and d,the economy has an equilibrium growth rate of real GDP per capita,(Y/N),equal to

A)n.
B)n - d.
C)s - n.
D)(s - D)/n.
E)zero.

Question 73

Suppose that the capital stock initially is 1000,the depreciation rate is 0.08,and investment is 220.This makes the net growth of the capital stock

A)300.
B)237.6.
C)202.4.
D)140.

Question 74

Suppose s = 0.14,Y = 4000,K = 6200,n = 0.02,and d = 0.08.In this case,national saving is ________ than steady-state investment,so that the amount of capital per worker is ________.

A)greater,rising
B)greater,falling
C)less,rising
D)less,falling

Question 75

A rise in the multifactor productivity index means that at each (K/N)we have (Y/N)________,which shifts the (S/N)curve ________,resulting in a movement of the steady-state intersection to the ________.

A)rising,downward,left
B)rising,upward,right
C)rising,downward,right
D)falling,upward,left
E)falling,downward,left

Question 76

Studying the growth of (Y/N)in the United States over the period 1909-1957,Robert Solow found that growth in multifactor productivity accounted for ________ of it.

A)ten percent
B)twenty-five percent
C)one-third
D)roughly half
E)seven-eighths

Question 77

If K = 3000,n = 0.015,and d = 0.082,then investment of ________ will hold (Y/N)constant.

A)291
B)201
C)164
D)549

Question 78

Suppose that the capital stock initially is 1000,the depreciation rate is 0.06,and net growth of the capital stock is 120.This makes investment equal to

A)180.
B)60.
C)127.2.
D)112.8

Question 79

Figure 10-5

In Figure 10-5 above,suppose that the population growth rate declines.This causes a movement of the steady-state point such as from points

A)A to B.
B)D to B.
C)D to C.
D)A to C.
E)A to D.

Question 80

In the graph of the Solow growth model,at any point to the left of the steady-state intersection we have national saving per person ________ than steady-state investment per person,causing (K/N)to ________.

A)greater,increase
B)greater,decrease
C)less,increase
D)less,decrease