Question 1

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

Accepted Answer

a.The reduction in the budget deficit in...

Question 2

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:

Accepted Answer

A)  2 percent.
B)  3 percent.
C)  5 percent.
D)  6 percent.E) A) and D)
F) C) and D)

Question 3

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

Accepted Answer

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.E) All of the above
F) C) and D)

Question 4

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

Accepted Answer

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) .E) A) and C)
F) None of the above

Question 5

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

Accepted Answer

Convergence applies to economies with th...

Question 6

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

Accepted Answer

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.E) A) and C)
F) C) and D)

Question 7

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.

Accepted Answer

Possible explanations include: richer co...

Question 8

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

Accepted Answer

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.E) A) and D)
F) None of the above

Question 9

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

Accepted Answer

With technological progress, the Golden ...

Question 10

Prescott interpreted fluctuations in the Solow residual as evidence that:

Accepted Answer

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.E) None of the above
F) A) and B)

Question 11

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

Accepted Answer

A)  population growth.
B)  endogenous growth.
C)  labour hoarding.
D)  balanced growth.E) All of the above
F) A) and B)

Question 12

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

Accepted Answer

A)  labour.
B)  the efficiency of labour.
C)  capital.
D)  output.E) A) and B)
F) None of the above

Question 13

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

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 14

Assume that a country's production function is Y = AK0.3L0.7. 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.

Accepted Answer

a. MPK = 0.10
b. s =...

Question 15

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:

Accepted Answer

A)  12.5 percent.
B)  14 percent.
C)  17.5 percent.
D)  20 percent.E) A) and B)
F) A) and C)

Question 16

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

Accepted Answer

A)  ΔK + ΔL units.
B)  MPL + MPK units.
C)  (MPK × ΔK)  + (MPL × ΔL)  units.
D)  (MPL × ΔK)  + (MPK × ΔK)  units.E) C) and D)
F) All of the above

Question 17

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:

Accepted Answer

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

Question 18

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?

Accepted Answer

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 workerE) B) and D)
F) A) and B)

Question 19

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.

Accepted Answer

A)  0
B)  2
C)  8
D)  10E) None of the above
F) All of the above

Question 20

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

Accepted Answer

A)  output per worker.
B)  output per effective worker.
C)  consumption per worker.
D)  consumption per effective worker.E) A) and B)
F) A) and D)

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

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.

Correct Answer
verified
a. MPK = 0.10
b. s =...
View Answer

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.

Correct Answer
verified

Correct Answer
verified
a.The reduction in the budget deficit in...
View Answer

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?

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified
With technological progress, the Golden ...
View Answer

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:

Correct Answer
verified

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

Correct Answer
verified

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.

Correct Answer
verified
Possible explanations include: richer co...
View Answer

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

Correct Answer
verified

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

Correct Answer
verified
Convergence applies to economies with th...
View Answer

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

Correct Answer
verified

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:

Correct Answer
verified

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

Correct Answer
verified

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:

Correct Answer
verified

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

Correct Answer
verified

Prescott interpreted fluctuations in the Solow residual as evidence that:

Correct Answer
verified

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

Correct Answer
verified

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

Assume that a country's production function is Y = AK0.3L0.7. 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.

Correct Answerverifieda. MPK = 0.10b. s =...View AnswerShow Answer

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.

Correct AnswerverifiedShow Answer

Correct Answerverifieda.The reduction in the budget deficit in...View AnswerShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedWith technological progress, the Golden ...View AnswerShow Answer

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:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedPossible explanations include: richer co...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedConvergence applies to economies with th...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Prescott interpreted fluctuations in the Solow residual as evidence that:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct Answer
verified
a. MPK = 0.10
b. s =...
View Answer

Correct Answer
verified

Correct Answer
verified
a.The reduction in the budget deficit in...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
With technological progress, the Golden ...
View Answer

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
Possible explanations include: richer co...
View Answer

Correct Answer
verified

Correct Answer
verified
Convergence applies to economies with th...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified