Deck 6: Growth and Ideas

Question 1

If there are large fixed costs due to research and development, perfect competition does not generate new ideas because:

A) firms need to recoup these costs through higher profits.
B) with monopolistic competition, prices are equal to the marginal cost.
C) with monopolistic competition, prices are equal to the marginal cost minus a markup.
D) perfectly competitive firms always set prices lower than the marginal cost.
E) the government does not adequately fund innovation.

Answer 1

firms need to recoup these costs through higher profits.

Question 2

To get increasing returns to scale using the production function , we need to replace total factor productivity with:

A) more capital.
B) the flow of ideas, A_t.
C) the stock of ideas, A_t.
D) the number 2.
E) twice the factor productivity, .

Answer 2

the stock of ideas, A_t.

Question 3

If Y is a good's output, X is spending to produce a good, is the fixed cost associated with production, and C is the average cost of production, which of the following production functions exhibits increasing returns?

A)
B)
C)
D)
E)

Answer 3

Question 4

The amount of raw material in the universe-the amount of sand, oil, and the number of atoms of carbon, oxygen, and so on-is ________. The number of ways of arranging and using these raw materials is ________.

A) finite; also finite
B) infinite; virtually infinite
C) finite; virtually infinite
D) virtually infinite; zero
E) zero; infinite

Question 5

In economics, a rival good is one that:

A) cannot be consumed by more than two people at a time.
B) can be consumed by more than one person at a time.
C) is congested if used by more than one person at a time.
D) cannot be consumed by more than one person at a time.
E) None of these answers is correct.

Question 6

Increasing returns to scale is characterized by:

A) constantly declining fixed costs.
B) diseconomies of scale; that is, the average cost falls as output rises.
C) economies of scale; that is, the average cost rises as output rises.
D) diseconomies of scale; that is, the average cost is constant as output rises.
E) economies of scale; that is, the average cost falls as output rises.

Question 7

The difference between total factor productivity (TFP) in the Solow model and the stock of ideas in the Romer model is that:

A) TFP grows and ideas are fixed.
B) TFP is fixed and ideas can grow.
C) TFP is nonrivalrous and ideas are not.
D) TFP is rivalrous and ideas are not.
E) There is no difference.

Question 8

Because in many industries the cost of generating new ideas is so high, firms must charge a price ________ cost.

A) equal to the marginal
B) higher than the marginal
C) lower than the marginal
D) equal to the average fixed
E) lower than the average fixed

Question 9

Which of the following is a nonrival good?

A) a peanut butter sandwich
B) orange juice
C) a jacket
D) All of these answers are correct.
E) None of these answers is correct.

Question 10

Which of the following is an example of an idea?

A) new irrigation techniques
B) turning sand into computer chips
C) the assembly line
D) the steam engine
E) All of these answers are correct.

Question 11

In Romer's influential paper he divided the economic world into:

A) resources and ideas.
B) objects and resources.
C) objects and ideas.
D) utilities and objects.
E) None of these answers is correct.

Question 12

Which of the following flowcharts best summarizes Romer's description of ideas and growth?

A) Ideas $\rightarrow$ Nonrivalry $\rightarrow$ Increasing returns $\rightarrow$ Imperfect competition
B) Ideas $\rightarrow$ Capital $\rightarrow$ Constant returns $\rightarrow$ Imperfect competition
C) Capital $\rightarrow$ Rivalry $\rightarrow$ Increasing returns $\rightarrow$ Perfect competition
D) Ideas $\rightarrow$ Rivalry $\rightarrow$ Increasing returns $\rightarrow$ Perfect competition
E) Capital $\rightarrow$ Nonrivalry $\rightarrow$ Decreasing returns $\rightarrow$ Imperfect competition

Question 13

In perfect competition, the price is ________; in a monopoly, the price is ________.

A) zero; positive
B) greater than the marginal cost; equal to the marginal cost
C) less than the marginal cost; greater than the marginal cost
D) equal to the marginal cost; greater than the marginal cost
E) positive; zero

Question 14

Which of the following is a nonrival good?

A) a TV signal
B) a blueprint
C) national defense
D) a dam
E) All of these answers are correct.

Question 15

The production function , where A_t is the stock of ideas, K_t is capital, and L_t is labor, assumes:

A) A_t is rivalrous.
B) A_t is nonrivalrous.
C) K_t is nonrivalrous.
D) L_t is rivalrous.
E) A_t is fixed.

Question 16

With the production function , if we double ________, we have an increasing returns production.

A) capital
B) capital and the stock of ideas
C) capital and labor
D) capital, labor, and the stock of ideas
E) labor and the stock of ideas

Question 17

With the production function , if we double ________, we have a constant returns production.

A) capital
B) capital, labor, and the stock of ideas
C) capital and the stock of ideas
D) capital and labor
E) labor and the stock of ideas

Question 18

If there are large fixed or research and development costs, such as in the pharmaceutical industry, production can be characterized by:

A) negative costs.
B) constant returns to scale.
C) decreasing returns to scale.
D) large variable costs.
E) increasing returns to scale.

Question 19

According to the text, there are approximately ________ different coherent paragraphs written with 100 words or less in the English language.

A) 10^20,000
B) 20,000
C) 10³³⁰
D) 10⁴³⁰
E) 4 *10⁷⁷

Question 20

In economics, a nonrival good is one that:

A) cannot be consumed by more than one person at a time.
B) can be consumed by more than one person at a time.
C) can be consumed by more than one person at a time but is congested.
D) cannot be consumed by more than two people at a time.
E) None of these answers is correct.

Question 21

Because of fixed R&D costs, ________ are needed to generate ________.

A) profits; capital
B) costs; capital
C) profits; new ideas
D) variable costs; total factor productivity
E) profits; total factor productivity

Question 22

The production of new ideas in the Romer model is:

A) increasing in the efficiency of creating knowledge and the fraction of labor in research and development.
B) decreasing in the efficiency of creating knowledge and increasing the fraction of labor in research and development.
C) increasing in the efficiency of creating knowledge and decreasing in the fraction of labor in research and development.
D) increasing in the population growth rate and capital accumulation.
E) decreasing in the efficiency of creating knowledge and in the fraction of labor in research and development.

Question 23

Which of the following can be used to give firms incentive to innovate?

A) patents
B) copyrights
C) trade secrets
D) lower taxes
E) All of these answers are correct.

Question 24

What might be an explanation for the production of open source, free software?

A) marginal cost at zero
B) increasing returns
C) diminishing marginal utility
D) moral hazard
E) altruism

Question 25

In the Romer model, the growth rate of ideas, , is increasing in the:

A) share of the population doing research and the total population.
B) knowledge efficiency parameter and the population growth rate.
C) knowledge efficiency parameter, the research share, and the total population.
D) knowledge efficiency parameter and the saving rate.
E) share of population engaged in research and development and the saving rate.

Question 26

In 1994, the ________ passed the ________ to ________.

A) World Trade Organization; Trade-Related Aspects of Intellectual Property Rights; protect intellectual property rights
B) Bretton Woods System; General Agreement on Tariffs and Trade; promote free trade
C) United Nations; United Nations Conference on Trade and Development; reduce trade barriers
D) United States; Toxic Asset Relief Program; improve banking procedures
E) Generalized Agreement on Tariffs and Trade; U.S. Agency for International Development; improve research potential in developing countries

Question 27

In the Romer model, ________ is the resource constraint.

A) and
B)
C)
D)
E) There is no resource constraint.

Question 28

The production function in the Romer model is given by ________, where is the growth rate of ________.

A) ; capital
B) ; knowledge
C) ; population
D) ; knowledge
E) ; population

Question 29

In the Romer model, the inputs to production are:

A) capital and labor.
B) capital and ideas.
C) labor and ideas.
D) natural resources, labor, and ideas.
E) labor and total factor productivity.

Question 30

In the Romer model, the production function , where A_t is knowledge and L_yt is the amount of labor in the output sector, exhibits:

A) constant returns to labor and increasing returns to labor and knowledge.
B) constant returns to labor and increasing returns to knowledge.
C) increasing returns to labor and constant returns to labor and knowledge.
D) decreasing returns to labor and constant returns to labor and knowledge.
E) increasing returns to labor and increasing returns to labor and knowledge.

Question 31

In the Romer model, output is increasing in the ________ and decreasing in the ________.

A) saving rate; depreciation rate
B) research share; growth rate of knowledge
C) growth rate of knowledge; fraction of population in the ideas sector
D) growth rate of knowledge; depreciation rate
E) saving rate; growth rate of knowledge

Question 32

The reason perfect competition cannot generate new ideas is that:

A) profits are positive.
B) perfectly competitive firms have no ideas.
C) profits are zero.
D) firms are too small to generate ideas.
E) revenues are positive.

Question 33

In the Romer model, if an economy allocates all of its labor to production, it will:

A) reduce output.
B) reduce the number of ideas it generates.
C) increase the number of ideas it generates.
D) not generate any ideas.
E) None of these answers is correct.

Question 34

In the knowledge production function represents:

A) natural resources.
B) the cost of producing new ideas.
C) the marginal cost of labor.
D) how good an economy is at generating knowledge.
E) labor's wage.

Question 35

In the Romer model, what are the two key outputs produced?

A) a government good and new ideas
B) a consumption good and new ideas
C) a consumption good and total factor productivity
D) a consumption good and capital
E) None of these answers is correct.

Question 36

Which of the following can be used to give firms incentive to innovate?

A) patents
B) copyrights
C) prizes
D) subsidies
E) All of these answers are correct.

Question 37

In the Romer model, the more labor you dedicate to generating ideas, the ________ but ________.

A) faster you accumulate knowledge; at a loss to current output in the consumption sector
B) faster you accumulate knowledge; at a gain to current output in the consumption sector
C) slower you accumulate knowledge; at a loss to current output in the consumption sector
D) less you accumulate knowledge; at a gain to current output in the consumption sector
E) more knowledge you lose; at a gain to current output in the consumption sector

Question 38

An example of open source software is:

A) Linux.
B) Mountain Lion.
C) Win32.
D) Red Hat.
E) Hummingbird.

Question 39

The president of Tunisia asks you to suggest an idea to improve the economy's growth without worrying about decreasing returns. You suggest:

A) paying a competitive wage.
B) offering firms an incentive to produce new ideas.
C) placing a higher tax on firms.
D) removing legal protection for firms.
E) None of these answers is correct.

Question 40

An allocation that is ________ exists if there is no way to change a resource allocation that makes someone worse off when allocating more to another.

A) Hotelling competitive
B) Fama efficient
C) Pareto optimal
D) Kuhn-Tucker conditional
E) Arrow impossible

Question 41

The parameter(s) in the Romer model is/are the:

A) initial stock of ideas, the population, the fraction of population in the ideas sector, and the ideas efficiency parameter.
B) ideas efficiency parameter.
C) fraction of population in the ideas sector and the ideas efficiency parameter.
D) initial capital stock and the fraction of population in the ideas sector.
E) initial capital stock and the ideas efficiency parameter.

Question 42

The reason that economic growth in Luxembourg is greater than the growth rate in the United States is:

A) that Luxembourg has more researchers.
B) the globalization of ideas.
C) that it has a higher level of capital stock.
D) that there are more resources in the United States and diminishing returns to natural resources.
E) that the capital depreciation rate is higher in the United States.

Question 43

If the economies of East and West Timor are identical in every way except that East Timor has fewer researchers:

A) West and East Timor will grow at the same rate.
B) East Timor should grow faster, according to the Romer model.
C) West Timor should grow faster, according to the Solow model.
D) West Timor should grow faster, according to the Romer model.
E) East Timor is smaller than West Timor.

Question 44

In the Romer model, if Canada and Taiwan have the same fraction of researchers and the same knowledge efficiency parameter but Canada's population is larger, then:

A) Taiwan has a higher per capita output growth rate.
B) Canada has a higher per capita output growth rate.
C) each country's per capita output grows at the same rate.
D) Canada has higher per capita income than Taiwan.
E) Canada's level of income is greater than Taiwan's.

Question 45

Idea accumulation in the Romer model exhibits:

A) increasing returns to capital.
B) diminishing returns in the stock of ideas.
C) negative returns in the stock of ideas.
D) no diminishing returns in the stock of ideas.
E) diminishing returns to labor.

Question 46

Suppose the parameters of the Romer model take the following values:
And
What is the per capita income of this country in the initial period, y₀?

A) about 12.1
B) about 11.9
C) about 12.0
D) about 1.19
E) about 9.9

Question 47

In the Romer model, the growth rate of knowledge is given by:

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

Question 48

Suppose the parameters of the Romer model take the following values: ,
And
What is the growth rate of this country's economy?

A) 10 percent
B) 40 percent
C) 0.02 percent
D) 50 percent
E) 0.10 percent

Question 49

Suppose the parameters of the Romer model take the following values:
And
What is the per capita income of this country in the 10th period, y₁₀?

A) about 6.13
B) about 61.3
C) about 12.0
D) about 11.9
E) about 10.9

Question 50

Suppose the parameters of the Romer model take the following values:
And
What is the per capita income of this country in the first period, y₁?

A) about 1.19
B) about 11.9
C) about 12.0
D) about 14.3
E) about 9.9

Question 51

In the Romer model, ________ is the driving force behind sustained ________ economic growth.

A) labor; long-term
B) knowledge; short-term
C) knowledge; long-term
D) capital; short-term
E) capital; long-term

Question 52

Nonrivalry in the knowledge sector means that:

A) per capita income depends on the total population.
B) per capita income depends on some of the stock of ideas.
C) per capita income depends on the total stock of ideas.
D) labor in the ideas sector also can be used in the output sector.
E) all labor is used in the ideas sector.

Question 53

Suppose the parameters of the Romer model take the following values:
And
What is the number of researchers in this country?

A) 20
B) 1 million
C) 100
D) 0.10
E) 200

Question 54

Suppose the parameters of the Romer model take the following values:
And
What is the growth rate of this country's economy?

A) 2 percent
B) 20 percent
C) 0.2 percent
D) 10 percent
E) 0.01 percent

Question 55

Because there are no diminishing returns in the stock of ideas in the Romer model:

A) old ideas continue to contribute to current economic growth.
B) economic growth cannot be sustained forever.
C) the economy eventually reaches a steady state.
D) economic growth eventually slows.
E) new ideas must be continually created.

Question 56

The Romer model might be made more realistic by considering:

A) that there is a fixed labor productivity measure for all countries.
B) the global population instead of a single country's population.
C) that researchers are heterogeneous.
D) the global stock of ideas.
E) productivity as being infinite.

Question 57

Nonrivalry in the Romer model means that ideas created can:

A) benefit only similar economies.
B) benefit only a few economies across the world.
C) be used only in the economy that devised them.
D) benefit virtually all economies across the world.
E) None of these answers is correct.

Question 58

A balanced growth path is defined as a situation in which the:

A) output growth rate is zero.
B) growth rates of all endogenous variables are variable.
C) growth rates of some of the endogenous variables are constant.
D) growth rates of all endogenous variables are constant.
E) All of these answers are correct.

Question 59

Suppose the Romer model parameters in East Timor are
And
While in North Timor they are

And
Then:

A) neither country grows.
B) East Timor's per capita income growth rate is 20 percent and North Timor's is 2 percent.
C) East Timor's per capita income growth rate is 5 percent and North Timor's is 0.05 percent.
D) East Timor's per capita income growth rate is 100 percent and North Timor's is 1 percent.
E) each country's per capita income growth rate is 20 percent.

Question 60

In the Romer model, the Mexican economy:

A) never generates new ideas.
B) can use ideas devised in the United States.
C) cannot use ideas devised in the United States.
D) eventually will reach a steady state.
E) does not have an ideas sector.

Question 61

Even if there are decreasing returns to the ideas stock in the knowledge sector, the Romer model:

A) cannot explain sustained growth.
B) can explain an economy that reaches its steady state.
C) can explain sustained growth.
D) cannot explain why economies' saving rates differ.
E) cannot explain why the output sector exhibits decreasing returns.

Question 62

Figure 6.1: Romer Model: Per Capita Output
In the Romer model in Figure 6.1, at time t₀, a change in the growth rate of per capita output can be explained by a(n):

A) decrease in the ideas efficiency parameter.
B) increase in the population.
C) increase in the share of labor engaged in research.
D) increase in the saving rate.
E) decrease in the population.

Question 63

According to the Case Study on Globalization and Ideas in the text, in ________ there are about ________ for every phone landline in the region.

A) sub-Saharan Africa; 10 cell phones
B) Southeast Asia; 0.5 computers
C) the Indian subcontinent; five pagers
D) Latin America; two cars
E) eastern Europe; three modems

Question 64

In the combined Solow-Romer model, the growth rate of total output, using the production function , is given as:

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

Question 65

"Growth accounting" endeavors to:

A) measure GDP.
B) measure economic growth rates.
C) determine how capital accumulates.
D) measure what factors-and in what proportions-affect overall economic growth.
E) measure global output and the proportion of global output attributed to each country.

Question 66

For the years 2011-2015, if output per person in the private sector grew 1.9 percent, capital intensity grew 1.1 percent, and total factor productivity grew 0.2 percent, what was the growth rate of labor composition?

A) 0.6 percent
B) 2.6 percent
C) 3.4 percent
D) 1.2 percent
E) 1.3 percent

Question 67

Figure 6.2: Romer Model: Per Capita Output
In the ideas sector production function, , there are:

A) increasing returns to the ideas stock but decreasing returns overall.
B) decreasing returns to the ideas stock but increasing returns overall.
C) decreasing returns to the ideas stock and labor.
D) increasing returns to the ideas stock and labor.
E) None of these answers is correct.

Question 68

In the combined Solow-Romer model, the growth rate of total output, using the standard production function, is given as:

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

Question 69

In the Romer model, with decreasing returns to the knowledge sector:

A) the transition dynamics appear very similar to those in the Solow model.
B) an increase in the research share decreases the growth rate in the short run.
C) an increase in the research share increases the growth rate in the short and long runs.
D) a decrease in the research share increases the growth rate in the short run.
E) There are no level effects.

Question 70

For the years 1995-2007, if output per person in the private sector grew 2.7 percent, capital intensity grew 1.1 percent, and labor composition grew 0.2 percent, what was the growth rate of total factor productivity?

A) 3.6 percent
B) 1.8 percent
C) 1.4 percent
D) 4.0 percent
E) 2.3 percent

Question 71

In the growth accounting equation, , A represents ________, while B is called ________.

A) labor composition; capital accumulation
B) the contribution from capital; the (Solow) residual
C) the contribution from capital; labor composition
D) educational attainment; labor composition
E) per capita capital contribution; labor composition

Question 72

Figure 6.2: Romer Model: Per Capita Output
In the Romer model, if an economy's population increases:

A) output growth decelerates.
B) output immediately increases and output growth slows.
C) output immediately decreases and output growth slows.
D) output immediately decreases and output growth accelerates.
E) output growth accelerates.

Question 73

In the growth accounting equation,
, B represents ________, while C is called ________.

A) labor composition; capital accumulation
B) the contribution from capital; the (Solow) residual
C) labor composition; the (Solow) residual
D) educational attainment; labor composition
E) None of these answers is correct.

Question 74

Labor composition is used in "growth accounting" because it:

A) includes total number of hours worked.
B) can include changes in the age distribution of the labor force.
C) can include the educational attainment in the labor force.
D) includes the total number of workers.
E) All of these answers are correct.

Question 75

Figure 6.2: Romer Model: Per Capita Output
In the Romer model in Figure 6.2, at time t₀, a change in the shape of the production function can be explained by an increase in the:

A) population.
B) share of labor engaged in research.
C) ideas efficiency parameter.
D) saving rate.
E) growth rate.

Question 76

In the Romer model, with decreasing returns to the knowledge sector:

A) the number of researchers is irrelevant to long-term per capita income.
B) more researchers produce more ideas, raising the long-run growth rate of per capita income.
C) more researchers produce fewer ideas, raising the long-run growth rate of per capita income.
D) more researchers produce more ideas, raising the long-run level of per capita income.
E) more researchers cause the knowledge stock to contract.

Question 77

In the combined Solow-Romer model, long-run growth is sustained because of:

A) population growth.
B) capital accumulation.
C) the nonrivalry of ideas.
D) total factor productivity.
E) no capital depreciation.

Question 78

Figure 6.2: Romer Model: Per Capita Output
In the Romer model, if an economy's share of researchers decreases, there will be:

A) an immediate decrease in output and output growth will slow.
B) an immediate increase in output and output growth will slow.
C) an immediate increase in output and output growth will accelerate.
D) an immediate decrease in output and output growth will accelerate.
E) no change in output but output growth will slow.

Question 79

In growth accounting, the residual, g_A, is so named because:

A) the economy is complicated.
B) economists know exactly what contributes to growth.
C) it is a way to measure observed TFP growth.
D) it is a way to measure unobserved TFP growth.
E) it measures labor composition.

Question 80

According to the combined Solow-Romer model, all countries grow at:

A) the same rate in the long run, but actual growth rates can differ across countries for long periods of time.
B) the same rate in the medium and long runs.
C) different rates forever.
D) the same rate as the United States in each period.
E) different rates in the long run, but actual growth rates are the same across countries for long periods of time.