Deck 6: The Sources of Growth and the Solow Model

Question 1

The growth accounting equation suggests that the growth rate of output is equal to the growth rate of ________.

A) total factor productivity plus the contributions of both capital and labor
B) total factor productivity minus the rate of depreciation
C) capital and labor
D) the overall population

Answer 1

total factor productivity plus the contributions of both capital and labor

Question 2

Figure 6.1
According to Figure 6.1, fluctuations in the rate of output growth are due mostly to changes in the growth of ________.

A) productivity
B) labor input
C) output
D) capital input

Answer 2

productivity

Question 3

National output is a function of ________.

A) capital and saving
B) technology, employment and demand
C) labor and depreciation
D) labor, technology and capital

Answer 3

labor, technology and capital

Question 4

The economic growth of the United States over the last century ________.

A) is best understood as the result of high levels of saving and investment
B) is quite unlike the experience of most other economies.
C) was driven by rising import purchases.
D) was the result of reducing government intervention in the economy.

Question 5

Productivity growth can be measured ________.

A) by dividing output by Kt0.3 Lt0.7
B) by adding the contributions from capital growth and labor growth
C) by subtracting the contributions from capital growth and labor growth from the growth of output
D) by dividing the growth of output by the contributions from capital growth and labor growth

Question 6

Figure 6.1
According to Figure 6.1, the average annual rate of growth of the U.S. economy in the period 1948-73 equalled ________.

A) 1.8 percent.
B) 4.0 percent.
C) 39 percent.
D) 697 percent.

Question 7

Figure 6.1
According to Figure 6.1, the average annual rate of growth of the U.S. economy in the period 1996-2008 equalled ________.

A) 0.3 percent.
B) 3.0 percent.
C) 30 percent.
D) 300 percent.

Question 8

The highest rate of U.S. growth was recorded in which of the following periods?

A) 1948-73.
B) 1967-83.
C) 1974-95.
D) 1996-2008.

Question 9

Capital and labor are distinct from productivity in that ________.

A) productivity is independent of technology changes
B) productivity can only increase over time
C) productivity is subject to diminishing returns
D) capital and labor are subject to diminishing marginal returns

Question 10

If productivity growth equals 3.0 percent, the contribution from capital growth 1.2 percent and the contribution from labor growth 2.0 percent, then output growth must equal ________.

A) 2.2 percent.
B) 4.2 percent.
C) 6.2 percent.
D) 7.2 percent.

Question 11

Which of the following is the most difficult to measure? Changes in ________.

A) the size of the labor force
B) population
C) the quantity of labor
D) productivity

Question 12

Figure 6.1
According to Figure 6.1, the period from 1974 to 1995 is particularly remarkable for the slow growth of ________.

A) output per worker
B) labor input
C) output
D) capital input

Question 13

Across national economies which of the following is the most important source of variation in growth rates?

A) labor growth.
B) capital growth.
C) productivity growth.
D) government regulation.

Question 14

The slowdown in U.S. economic growth in the period 1974-95 was primarily caused by ________.

A) falling labor growth.
B) falling capital growth.
C) falling productivity growth.
D) none of the above

Question 15

Productivity is ________.

A) determined by central bank policy
B) the combined effect of monetary and fiscal policy
C) the residual component of the production function
D) driven by changes in the rate of growth of output

Question 16

Figure 6.1
In Figure 6.1, the post-World War II "baby boom" is reflected in the growth of ________.

A) labor input from 1974 - 1995
B) labor input from 1948 - 1973
C) output from 1948 - 1973
D) capital input from 1996 - 2008

Question 17

If the contribution from capital and labor growth in a given economy equals 4.0 percent and output growth equals 6.4 percent over that same period of time, then productivity growth must equal ________.

A) 25.6 percent.
B) 10.4 percent.
C) 2.4 percent.
D) 1.6 percent.

Question 18

Economic growth ________.

A) is driven by different elements in different economies.
B) is driven primarily by digital technology.
C) is driven primarily by labor growth.
D) cannot be explained using economic models.

Question 19

Figure 6.1
According to Figure 6.1, in postwar U.S history ________.

A) productivity growth was always exceeded by labor growth.
B) labor growth has always exceeded capital growth.
C) productivity growth has always exceeded capital growth.
D) output growth has always exceeded productivity growth.

Question 20

Figure 6.1
According to Figure 6.1, the period from 1996 to 2008 is particularly remarkable for the rapid growth of ________.

A) productivity
B) labor input
C) output
D) capital input

Question 21

If depreciation is equal to investment ________.

A) capital per-worker rises over time.
B) capital per-worker is stable.
C) captial per-worker falls over time.
D) capital per worker equals saving

Question 22

The label 'Asian Tigers' describes the following economies ________.

A) China, South Korea, Singapore and Taiwan.
B) Hong Kong, Taiwan, South Korea and Singapore.
C) Singapore, Taiwan, Hong Kong, and China.
D) South Korea, Singapore, China and Hong Kong.

Question 23

If investment per-worker equals some value X, and depreciation per-worker equals some value Z, then the change in the capital stock per-worker is equal to ________.

A) X+Z.
B) X-Z.
C) X times Z.
D) X divided by Z.

Question 24

In a closed economy ________.

A) investment equals consumption.
B) investment equals savings.
C) saving equals consumption.
D) exports are greater than imports.

Question 25

The growth rate of which of the following is not a component of the growth accounting equation?

A) the capital stock.
B) labor.
C) depreciation.
D) available technology.

Question 26

The Solow model is ________.

A) the basic model of how technology changes over time
B) the foundation for the classical economic thought of Adam Smith.
C) one of the dominant explanations of the business cycle.
D) based on the notion of diminishing marginal product of capital and labor

Question 27

In the bathtub analogy, which of the following is a stock variable?

A) the amount of investment.
B) the rate of depreciation.
C) the amount of capital-per worker.
D) the Cobb-Douglass value.

Question 28

The per-worker production function flattens out due to ________.

A) the negative relationship between price and quantity demanded.
B) the positive relationship between price and quantity demanded.
C) the diminishing marginal product of capital
D) an increase in the general level of prices.

Question 29

With a closed economy and no government spending, the total demand for output is equal to ________.

A) consumption per-worker plus investment per-worker.
B) consumption per-worker minus investment per-worker.
C) consumption per-worker times investment per-worker.
D) consumption per worker divided by investment per-worker.

Question 30

If capital per-worker is rising, then ________.

A) depreciation is equal to investment.
B) depreciation is greater than investment.
C) depreciation is less than investment.
D) depreciation is less than consumption.

Question 31

The per-worker production function is ________.

A) upward-sloping.
B) downward-sloping
C) vertical.
D) horizontal.

Question 32

Output growth in the United States in the period 1996 to 2008 averaged three percent per year. Though this was an improvement on the 2.9% average annual growth of output over the preceding 20 years, an increase of one-tenth of a percentage point seems hardly to justify the popularity of the label "new economy." Comment.

Question 33

If depreciation is less than investment ________.

A) capital per-worker is falling.
B) capital per-worker is rising.
C) capital per-worker is constant.
D) capital per worker is greater than saving

Question 34

If the contribution from capital growth equals 3 percent and the contribution from productivity growth equals 1.6 percent, GDP will grow by ________.

A) 1.6 percent.
B) 4.6 percent.
C) 4.8 percent.
D) an unknown value.

Question 35

In the Solow model, which of the following is an endogenous variable?

A) output per worker
B) government spending
C) the saving rate
D) the depreciation rate

Question 36

Changes in the capital stock are caused by changes in ________.

A) the quantity of labor.
B) depreciaton and investment.
C) depreciation and entrepreneurship.
D) depreciation and the quantity of labor.

Question 37

Given the production function Y = A K0.3L0.7 if output grows by five percent, the capital input grows by five percent, and the labor input grows by two percent, calculate the Solow residual. Calculate the growth rates of output per worker and capital per worker.

Question 38

The positive slope of the per-worker production function illustrates the relationship between per-worker output and ________.

A) diminishing marginal returns.
B) the capital-labor ratio.
C) the rate of inflation.
D) the rate of unemployment.

Question 39

If the contribution from capital growth equals 2 percent and the contribution from labor growth equals 4 percent, then GDP ________.

A) will grow by 6 percent.
B) will grow by 8 percent.
C) will grow by 2 percent.
D) will change by an unknown percentage.

Question 40

In the Solow model, which of the following is an exogenous variable?

A) productivity
B) the capital-labor ratio
C) consumption per worker
D) investment per worker

Question 41

Strong evidence of convergence exists for ________.

A) wealthy nations that belong to the Organization for Economic Cooperation and Development.
B) both rich and poor nations.
C) sub-Saharan African economies and the economies of North America.
D) European and Caribbean economies.

Question 42

An increase in the saving rate results in a higher steady state ________.

A) growth rate of capital
B) growth rate of output per worker
C) level of consumption per worker
D) level of capital per worker

Question 43

In a steady-state economy with no population growth, capital per worker is 86, the saving rate is 25 percent, and the depreciation rate is 11 percent. The level of output per worker is ________.

A) 195
B) 38
C) 35
D) 47

Question 44

Solow Diagram

On the Solow Diagram, an increase in the saving rate is shown by ________.

A) an upward shift of the depreciation line
B) an upward shift of the investment function
C) an upward shift of the per-worker production function
D) a downward shift of the investment function

Question 45

If an economy initially starts away from the steady state ________.

A) output will gradually fall over time.
B) the economy will converge to the steady state in the long-run.
C) consumption spending must be greater than investment spending.
D) consumption spending must rise.

Question 46

A higher rate of saving at the national level will, in the long-run ________.

A) cause a decrease in levels of capital and output.
B) have no effect on levels of capital and output.
C) lead to an increase in population growth.
D) cause an increase in levels of capital and output.

Question 47

Solow Diagram

On the diagram above, show the quantity of consumption per worker in equilibrium. If the actual capital per worker were greater than k*, would consumption be higher or lower than it is in equilibrium? Describe what would happen in an economy with such a high level of capital per worker.

Question 48

If an economy invests more than it loses through depreciation ________.

A) the saving rate will fall.
B) the saving rate will rise
C) the quantity of labor will fall.
D) the capital stock will expand.

Question 49

Suppose an economy is in a steady state, then its saving rate falls, once and permanently. As the economy approaches its new long-run steady state, consumption per worker is ________.

A) falling
B) rising
C) unaffected
D) either rising or falling

Question 50

In the Solow model, the faster growth of output that results from an increase in the saving rate is temporary, because ________.

A) of diminishing marginal product of capital
B) with a larger stock of capital, consumption is encouraged more than investment
C) the rising capital stock depreciates at a faster rate
D) the economy settles into a steady state in which saving no longer rises

Question 51

In the typical bathtub, the flow of water into the tub is controlled by a faucet independently of the quantity of water in the tub. How is the bathtub analogy of the steady state in the Solow model different? How does this difference relate to the phenomenon of convergence?

Question 52

In a steady-state economy with no population growth, output per worker is 35, the saving rate is 20 percent, and the depreciation rate is 11 percent. The level of capital per worker is ________.

A) 64
B) 19
C) 39
D) 28

Question 53

The Solow model suggests that economies with the same aggregate production function, ratio of workers to the total population and saving rates will ________.

A) trade with one another.
B) start with different initial levels of per capita income.
C) possess the same rate of depreciation.
D) experience convergence.

Question 54

Following an increase in the saving rate, consumption per worker ________.

A) increases
B) decreases
C) is unaffected
D) may either rise or fall

Question 55

Output per worker yt = 4kt1/3, the saving rate is 30 percent, and the depreciation rate is 0.133. Calculate the steady-state values of capital per worker and consumption per worker.

Question 56

Within rich economies, there is strong evidence of convergence ________.

A) for regions within a country.
B) with developing economies.
C) leading to military conflict.
D) of capital stocks, rather than output

Question 57

Which of the following had the highest rate of growth during the period 1948-72?

A) West Germany.
B) Vietnam
C) Japan.
D) The United States of America.

Question 58

Evidence that convergence occurs within economies is drawn in part from the example of ________.

A) Hiroshima and Nagasaki Japan.
B) North and South Korea.
C) West and East Germany during the Cold War.
D) Hong Kong and Singapore.

Question 59

International evidence on the relationship of per capita income and the saving rate suggests that ________.

A) a high level of income per person requires a high saving rate
B) a high saving rate guarantees a high level of income per person
C) a high saving rate might result in a high level of income per person
D) a high saving rate requires a high level of income per person

Question 60

The loss of capital due to the wearing out of machines is known as ________.

A) saving.
B) investment.
C) consumption.
D) depreciation.

Question 61

Consumption per worker is 72, depreciation is 12.5%, and capital per worker is 64. Given the production function y = 20k1/3, show that this economy is in a steady state. If the saving rate should double, what is the new steady-state level of consumption per worker?

Question 62

Solow Diagram

The diagram above shows a steady state with a constant quantity of labor. Show on the graph how the steady state is determined if the labor force is growing at some constant rate. On the graph, show how to measure the change in consumption per worker that results from growth of the labor force.

Question 63

According to the Solow model, a benefit of policies to limit population growth might be ________.

A) that smaller families are more likely to contribute to technological advances
B) that smaller families have better access to birth control methods and devices
C) that smaller families might provide each person a larger share of national income
D) that smaller families have less need to save, and so enjoy higher consumption

Question 64

A One-Child Policy was instituted in 1979 in ________.

A) Brazil.
B) South Africa.
C) India.
D) China

Question 65

Other things the same, in the Solow model in the steady state, a higher rate of population growth ________ growth rate of output.

A) leads to a higher
B) leads to a lower
C) has no long-run effect on the
D) has an ambiguous effect on the

Question 66

Other things the same, in the Solow model in the steady state, a higher rate of population growth ________ the level of output per worker.

A) leads to an increase in
B) has no long-run effect on
C) has an ambiguous effect on
D) leads to a decrease in

Question 67

Evidence of a negative correlation between income per capita and population growth rates ________.

A) implies that birth control is most effective in low-income countries
B) has not been found in the available data
C) is consistent with the Solow model
D) suggests that population growth stimulates technological progress

Question 68

If output per worker in a steady state is $30,000, depreciation is 13%, the population growth rate is two percent, and the saving rate is 20%, what is the steady state capital-labor ratio?

A) $10,500
B) $85,714
C) $22,500
D) $40,000

Question 69

Solow Diagram

On the Solow Diagram, an increase in population growth is shown by

A) an upward shift of the depreciation plus capital dilution line
B) an upward shift of the investment function
C) an upward shift of the per-worker production function
D) a downward shift of the investment function

Question 70

Population growth is similar to depreciation, in that ________.

A) each lowers the capital-labor ratio
B) each tends to encourage saving
C) capital wears out faster when used by more workers
D) each helps to explain how economies can sustain a positive growth rate of output

Question 71

Solow Diagram

On the Solow Diagram, an increase in productivity is shown by

A) an upward shift of the depreciation plus capital dilution line
B) an upward shift of the investment function
C) a downward shift of the depreciation plus capital dilution line
D) a downward shift of the investment function

Question 72

"Capital dilution" refers to ________.

A) the flow of investment in the "bathtub model"
B) the depreciation of capital associated with an increase in the percentage of younger workers
C) the decline in the marginal product of capital that results from reliance on new, inexperienced workers
D) the decrease in capital per worker that is a direct consequence of an increase in the number of workers

Question 73

When an economy experiences a one-time increase in productivity, there is an increase in the long-run, steady state value of ________.

A) the growth rate of output
B) the depreciation rate
C) consumption per worker
D) the saving rate

Question 74

Other things the same, in the Solow model in the steady state, a higher rate of population growth ________ growth rate of output per worker.

A) leads to a higher
B) leads to a lower
C) has no long-run effect on the
D) has an ambiguous effect on the

Question 75

Output per worker is 50, the saving rate is 15 percent, the population is growing at one percent, depreciation is 9 percent, and the capital-labor ratio is 80. Consumption per worker is ________.

A) 37.5
B) falling
C) 75
D) 68

Question 76

In a steady-state economy with no population growth, consumption per worker is 45, the saving rate is 25 percent, and the depreciation rate is 15 percent. The level of capital per worker is ________.

A) 75
B) 36
C) 100
D) 27

Question 77

Solow Diagram

On the diagram above, show the new steady-state capital-labor ratio that results from a decrease in the saving rate. Can you say what has happened to the equilibrium level of consumption per worker?

Question 78

The impact of immigration on an economy's steady state capital-labor ratio is reduced to the extent that the immigrants tend to ________ than the native population.

A) save more
B) have higher fertility
C) have lower income
D) be younger

Question 79

Comparing steady states, which of the following is a result of a permanent increase in the saving rate, but is not a consequence of a one-time increase in productivity?

A) an increase in consumption per worker
B) a decrease in the marginal product of capital
C) an increase in output per worker
D) an increase in the growth rate of output

Question 80

When an economy experiences a one-time increase in productivity, there is an immediate increase in ________.

A) the saving rate
B) the capital-labor ratio
C) the depreciation rate
D) consumption per worker