Deck 4: Theories of Economic Growth

Question 1

If the investment rate in Indonesia is 29 percent of GDP,which of the following combinations is consistent with the Harrod-Domar growth model?

A) ICOR = 15.4; GDP growth rate = 7.6 percent per annum
B) ICOR = 2.86; GDP growth rate = 5.1 percent per annum
C) ICOR = 50.6; GDP growth rate = 2.2 percent per annum
D) ICOR = 1 percent; GDP growth rate = 22 percent per annum

Answer 1

B

Question 2

In the Solow model,an increase in the population growth rate leads to:

A) capital deepening.
B) dynamic economic growth and development.
C) the fulfillment of the Malthusian hypothesis.
D) lower average income per worker.

Answer 2

D

Question 3

Growth depends on which two processes?

A) accumulation of assets and making those assets more productive
B) harnessing natural resources and marketing them to developed nations at a "fair trade" rate
C) exploitation of the agricultural sector in order to advance industrialization
D) engaging in free trade while subsidizing domestic agricultural and industrial production

Answer 3

A

Question 4

Suppose the saving rate for a low-income country is given.If production becomes less capital intensive,the ICOR will ________ and the growth rate will _________.

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

Question 5

One of the problems of the Harrod-Domar framework is that its fixed-proportion production function does not allow for any:

A) population growth.
B) substitution between labor and capital.
C) endogenous technical change.
D) depreciation.

Question 6

Unlike isoquants for a fixed-coefficient production function,the isoquants for a neoclassical production function:

A) take labor as well as capital into account.
B) are L-shaped.
C) are capital-intensive rather than labor-intensive.
D) are curved.

Question 7

Consider the Harrod-Domar relationship for an economy: g = (s/v)- d
Assume that the depreciation rate is 0.If the saving rate is 24 percent,the ICOR is 3,and the depreciation rate is 5 percent,the economy can be expected to grow:

A) 8 percent.
B) 19 percent.
C) 3 percent.
D) 2 percent.

Question 8

The capital-output ratio provides an indication of the:

A) limits of growth.
B) capital intensity of the production process.
C) a country's production function.
D) the health and educational level of the population.

Question 9

According to the Solow model,the relationship between saving and growth is not linear because of:

A) coordination failures between the banking sector and industry.
B) business cycles that naturally occur in all economies.
C) diminishing returns to capital in the production function.
D) fluctuations in macroeconomic policy.

Question 10

The most unsettling conclusion of the Solow model is the conclusion that once the economy reaches its long-run potential level of income,economic growth simply:

A) declines, leading to what is referred to as a "failed state."
B) matches population growth, with no chance for sustained increases in average income.
C) causes a rapid inflation, leading to an erosion of gains made during the growth period.
D) subsides, as socialism becomes an acceptable form of political economy for the people.

Question 11

Because of population growth,Ghana's GNP must grow by 1.5 percent per year just to avoid a decline in average standards of living.With an ICOR of 6.0,achieving this minimum-growth target requires a saving rate of:

A) 18 percent.
B) 3 percent.
C) 50 percent.
D) 9 percent.

Question 12

The father of modern growth theory is:

A) David Ricardo.
B) Thomas Malthus.
C) Robert Solow.
D) Jeffrey Sachs.

Question 13

While there is no evidence of absolute convergence,there is strong evidence today of conditional convergence in which:

A) countries sharing certain characteristics are able to achieve rapid growth and begin to catch up with the richer countries.
B) by entering into the World Trade Organization, a nation implicitly and explicitly agrees to integrate into the global economy.
C) countries all agree to play by "the rules of the game."
D) countries considered at the most advanced stage of capitalism begin to decline, while developing nations accelerate past them.

Question 14

Which of the following statements is true about new growth theories and the Solow and Harrod-Domar models?

A) Both underline the importance of factor accumulation and productivity in the growth process.
B) Both treat technology as endogenous.
C) Both take externalities into account.
D) Both assume increasing returns to scale.

Question 15

From 1999-2007,Thailand's economy experienced an annual growth rate of:

A) 2.1 percent.
B) 3.9 percent.
C) 4.7 percent.
D) 7.5 percent.

Question 16

Every model of economic growth embodies:

A) risk theory.
B) aggregate production functions.
C) an isoquant map.
D) the basic theories of growth espoused by Adam Smith.

Question 17

According to the Harrod-Domar model,what effect does an increase in the saving rate have on long-term growth?

A) leads to an increase
B) leads to a decrease
C) the advent of hyperinflation
D) difficult to determine because of the unknown level of corruption in government

Question 18

When an economy increases the amount of capital per worker,it is called:

A) capital widening.
B) capital deepening.
C) labor widening.
D) labor deepening.

Question 19

Consider the Harrod-Domar relationship for an economy: g = (s/v)- d
Assume that the depreciation rate is 0.A country can only save 15 percent but wants to grow 15 percent.Assuming the ICOR is 3,the gap of ________ should be provided by foreign aid.

A) 10 percent
B) 0 percent
C) 5 percent
D) We cannot say without more information.

Question 20

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Level of output,rate of change

Question 21

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Capital deepening,capital widening

Question 22

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Solow model,isoquants

Question 23

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Level effect,growth effect

Question 24

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Diminishing marginal product of capital,returns to scale

Question 25

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Harrod-Domar equation,L-shaped isoquants

Question 26

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Incremental capital-output ratio (ICOR),neoclassical production function

Question 27

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Savings,investment

Question 28

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Endogenous technology,exogenous technology

Question 29

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Unconditional convergence,conditional convergence

Question 30

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Human capital,effective units of labor

Question 31

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Labor force growth,depreciation