Deck 3: Introduction to Economic Growth

Question 1

Saving is income that is not consumed.

Answer 1

True

Question 2

The standard of living of people in a country is their per capita income.

Answer 2

True

Question 3

World growth data reveals that from 1960 to 2011:

A)all countries grew at similar rates.
B)sub-Saharan African countries grew moderately.
C)some countries particularly East Asian countries grew rapidly.
D)the US and other OECD countries stagnated.

Answer 3

some countries particularly East Asian countries grew rapidly.

Question 4

A in the production function Y = A • F(K,L) is:

A)the marginal product of labour.
B)the capital to labour ratio (K/L).
C)the marginal product of capital.
D)the level of technology.

Question 5

If the production function Y = A • (K,L) is divided by L, then

A)(Y/L) = A•f(K/L).
B)output per capita equals technology times a function of the capital labour ratio.
C)y = A•f(k).
D)all of the above.

Question 6

Real saving equals gross investment.

Question 7

If A in the production function Y = A • F(K,L) rises, then:

A)output rises for any level of K and L.
B)the marginal product of labour rises.
C)the marginal product of capital rises.
D)all of the above.

Question 8

In the production function Y = A • F(K,L), L is:

A)leisure.
B)labour.
C)the marginal product of labour.
D)the marginal product of leisure.

Question 9

Diminishing returns to labour implies that eventually the marginal product of labour will become negative.

Question 10

World growth data reveals that from 1960 to 2011:

A)the US and other OECD countries stagnated.
B)sub-Saharan African countries grew at low or negative rates.
C)some countries particularly East Asian countries grew at low or negative rates.
D)all of the above.

Question 11

The marginal product of labour is:

A)how much output rises for when labour increases one unit.
B)capital divided by labuor (K/L).
C)labour divided by capital (L/K)
D)the level of technology.

Question 12

World growth data shows that from 1960 to 2011:

A)the US and other OECD countries grew at moderate rates.
B)sub-Saharan African countries grew at low rates or declined.
C)some countries particularly East Asian countries grew rapidly.
D)all of the above.

Question 13

World growth data reveals that from 1960 to 2011:

A)the US and other OECD countries grew at moderate rates.
B)sub-Saharan African countries grew rapidly.
C)some countries particularly East Asian countries grew a low rates or declined.
D)all of the above.

Question 14

For the production function Y = A • F(K,L) constant returns to scale means:

A)if capital and labour double output doubles.
B)capital and labour increase at a constant rate.
C)the marginal products of capital and labour are constant.
D)technology is constant.

Question 15

The US and other OECD countries had high levels of GDP per person in 2011 despite growing at a moderate rate from 1960 to 2011 because:

A)of exploitation of foreign countries.
B)their economies had grown at a moderate rate for a century or more.
C)they stole the wealth of less developed countries.
D)all of the above.

Question 16

Diminishing marginal product of capital (MPK) means:

A)output rises as capital rises.
B)the MPK eventually falls as capital rises.
C)output rises as the MPK rises.
D)the marginal product of capital eventually becomes negative as capital rises.

Question 17

In the production function Y = A • F(K,L), Y is:

A)good Y.
B)production.
C)the marginal product of good Y.
D)constant returns to scale.

Question 18

The marginal product of capital is:

A) .
B)the change in output for a unit change in capital.
C)the slope of the production when technology and labour are held constant.
D)all of the above.

Question 19

Among the assumptions made about the production function Y = A • (K,L) is:

A)diminishing marginal product of labour.
B)constant returns to scale.
C)diminishing marginal product of capital.
D)all of the above.

Question 20

The marginal product of capital is how much output changes when capital increases by one unit.

Question 21

Figure 3.1
In Figure 3.1 the average product of capital is:

A)rising.
B)constant.
C)falling.
D)unknown.

Question 22

Depreciation of the capital stock occurs due to:

A)machines deteriorating.
B)vehicles needing parts.
C)buildings needing repair.
D)all of the above.

Question 23

The average product of capital is:

A)
B)Y/K.
C) .
D) .

Question 24

Depreciation of the capital stock occurs due to:

A)inflation.
B)buildings needing repair.
C)bonds falling in value.
D)all of the above.

Question 25

In a closed economy with no government sector, the change in the capital stock is equal to:

A)net investment less depreciation.
B)nominal saving.
C)gross investment.
D)real saving.

Question 26

The growth accounting formula is:

A)
B)
C)
D)Y= A • F(K,L)

Question 27

In a closed economy with no government sector, the change in the capital stock is:

A)net investment less depreciation.
B)gross investment less depreciation.
C)gross investment.
D)nominal saving.

Question 28

If there are 120 machines in an economy and the depreciation rate is 5% per year, then:

A)depreciation is 5 machines a year.
B)depreciation is 6 machines a year.
C)depreciation is 115 machines per year.
D)depreciation is 114 machines per year.

Question 29

If a country has a population of 300 million and a labour force of 200 million, then its labour force participation rate is:

A)0.67
B)1.5
C)100 million.
D)200 million.

Question 30

The labour force participation rate is:

A)the labour force divided into population.
B)the labour force divide by population.
C)the labour force times population.
D)the labour population minus the labour force.

Question 31

Depreciation of the capital stock occurs due to:

A)deflation.
B)vehicles requiring new parts.
C)bonds falling in value.
D)all of the above.

Question 32

Growth accounting shows that economic growth depends on:

A)increases in technology.
B)the growth of the labour force.
C)growth in the capital stock.
D)all of the above.

Question 33

Growth accounting shows that GDP growth depends on:

A)growth of the capital stock.
B)holding environmental pollution in check.
C)government purchases.
D)having a reasonable distribution of income.

Question 34

The change in the capital stock in an economy depends on:

A)the economy's saving.
B)the change in bond prices.
C)the economy's investment.
D)all of the above.

Question 35

Depreciation of the capital stock occurs due to:

A)machines deteriorating.
B)real estate rising in value.
C)bonds falling in value.
D)all of the above.

Question 36

If a country has a population of 100 million and a labour force of 60 million, then its labour force participation rate is:

A)0.6.
B)1.67
C)40 million.
D)60 million.

Question 37

Growth accounting shows that economic growth depends on:

A)controlling environmental pollution.
B)international cooperation.
C)increases in technology.
D)all of the above.

Question 38

Among the categories the growth rate is broken down into by growth accounting is:

A)the growth rate of technology.
B)the marginal product of capital.
C)the capital labour ratio.
D)all of the above.

Question 39

If there are 120 machines in an economy and the depreciation rate is 10% per year, then next year there are:

A)10 of the original machines left.
B)12 of the original machines left.
C)108 of the original machines left.
D)110 of the original machines left.

Question 40

Growth accounting shows that economic growth depends on:

A)government tax receipts.
B)the growth of the labour force.
C)lowering environmental pollution.
D)all of the above.

Question 41

During the transition to the steady state in the Solow growth model:

A)the output per worker rises.
B)the capital to labour ratio rises.
C)the rate of growth of capital falls.
D)all of the above.

Question 42

The Solow residual is that part of output growth attributed to:

A)the growth rate of the labour force.
B)the growth rate of output.
C)the growth rate of the capital stock.
D)the grow rate of technology.

Question 43

Figure 3.1
Figure 3.1 shows:

A)a production function with labour and technology constant.
B)a production function with capital and labour constant.
C)a production function with capital and technology constant.
D)a production function with capital, labour and technology constant.

Question 44

The Solow residual is:

A)that part of output growth not attributed to labour force growth.
B)that part of output growth not attributed to capital stock growth.
C)that part of output growth not attributed to capital stock growth and labour force growth.
D)the growth in output.

Question 45

In the Solow growth model the optimal capital to labour ratio, K/L, is where:

A)s + n = s•(k/y).
B)s + n = s•(y/k).
C)n + s = s•(y/k).
D)s + s = n•(y/k).

Question 46

In the steady state of the Solow growth model:

A)
B)
C)
D)

Question 47

The Solow residual:

A)is not directly observable.
B)attributed to labour force growth.
C)is attributed to capital stock growth.
D)is attributed to labour force growth and capital stock growth.

Question 48

The Solow growth model shows that the growth rate of real GDP per worker depends on:

A)the saving rate, s
B)the growth rate of the labour force, n.
C)the depreciation rate, .
D)all of the above.

Question 49

What is a production function?

Question 50

The Solow growth model shows that the growth rate of real GDP per worker depends on:

A)the rate of growth of the money supply.
B)the growth rate of the labour force, n.
C)rate of growth of government debt.
D)all of the above.

Question 51

During the transition to the steady state in the Solow growth model:

A)the output per worker rises.
B)labour force participation rises.
C)the rate of growth of capital rises.
D)all of the above.

Question 52

During the transition to the steady state in the Solow growth model:

A)the output per worker falls.
B)labour force participation rises.
C)the rate of growth of capital falls.
D)all of the above.

Question 53

Figure 3.1
In Figure 3.1 the marginal product of capital is:

A)rising.
B)declining.
C)constant.
D)unknown.

Question 54

In the Solow growth model the economy reaches the optimal k*:

A)immediately.
B)over a period of time.
C)randomly.
D)cyclically.

Question 55

In the Solow growth model the steady state is when the economy has:

A)full employment.
B)the optimal capital labour ratio, k*.
C)zero inflation.
D)all of the above.

Question 56

The Solow growth model shows that the growth rate of real GDP per worker depends on:

A)the rate of growth of the money supply.
B)level of output in the economy.
C)the depreciation rate, .
D)all of the above.

Question 57

The Solow growth model shows that the growth rate of real GDP per worker depends on:

A)the saving rate, s
B)government spending, G.
C)the rate of inflation.
D)all of the above.

Question 58

What do constant returns to scale imply?

Question 59

The Solow growth model assumes unemployment is:

A)zero.
B)falling.
C)rising.
D)constant.

Question 60

The Solow growth model ignores:

A)the international sector.
B)the role of government.
C)changes in labour force participation.
D)all of the above.

Question 61

What is the growth account formula and what does it tell us?

Question 62

What is the key equation of the Solow growth model and what does it say to us?

Question 63

Show why real saving equals net investment.