Deck 4: The Theory of Economic Growth

Question 1

The two broad groups in which we classify the factors that generate differences in economies' productive potential are

A) the efficiency of technology and capital intensity.
B) the efficiency of technology and labor intensity.
C) the efficiency of labor and capital intensity.
D) the efficiency of capital and labor intensity.

Answer 1

the efficiency of labor and capital intensity.

Question 2

The biggest reason that Americans today are more productive and better off than their predecessors of a century or is that they have enjoyed an extraordinary increase in the

A) amount of land available.
B) efficiency of labor.
C) efficiency of technology.
D) efficiency of capital.

Answer 2

efficiency of labor.

Question 3

Advances in technology leads to a higher level of

A) the efficiency of labor.
B) the efficacy of labor.
C) the utilization of labor.
D) the hiring of labor.

Answer 3

the efficiency of labor.

Question 4

Capital intensity refers to

A) the brightness of capital goods.
B) the amount of capital per unit of output.
C) the ability of capital goods to concentrate on the job at hand.
D) the ability of labor to concentrate on the capital goods available.

Question 5

Improvements in technology and in social and business organization increase the economy's

A) efficiency of technology.
B) capital intensity.
C) land intensity.
D) efficiency of labor.

Question 6

Investment in capital increases the economy's

A) capital intensity.
B) efficiency of labor.
C) efficiency of technology.
D) land intensity.

Question 7

The best estimates by economic historians indicate that economic product per person in the United States measured in 2000 prices has increased from ______ at the time of the writing of the Constitution to over_______ in 2004.

A) $5,000; $36,000.
B) $1,200; $45,000.
C) $1,200; $36,000.
D) $2,200; $45,000.

Question 8

The Solow growth model is

A) a dynamic model of the economy; it describes how the economy reaches an equilibrium at a point in time.
B) a statice model of the economy; it describes how the economy reaches an equilibrium at a point in time.
C) a dynamic model of the economy; it describes how the economy moves from one equilibrium point to another equilibrium point.
D) a dynamic model of the economy; it describes how the economy changes and grows over time.

Question 9

The two driving forces leading to increases in capital intensity are the

A) savings and labor efforts being made in the economy.
B) savings and labor requirements of the economy.
C) savings and investment efforts being made in the economy.
D) investment and labor effort being made in the economy.

Question 10

In economic growth economists look for a

A) balanced-growth equilibrium.
B) balanced-static equilibrium
C) balanced-growth disequilibrium.
D) unbalanced-growth equilibrium.

Question 11

In a steady-state balanced-growth equilibrium, each of the following is true except

A) the capital intensity of the economy is stable.
B) the economy's capital stock and its level of real GDP are growing at the same proportional rate.
C) the capital-output ratio is constant.
D) the capital-output ratio is increasing.

Question 12

In a steady-state balanced-growth equilibrium, each of the following is true except

A) the capital intensity of the economy is increasing.
B) the economy's capital stock and its level of real GDP are growing at the same proportional rate.
C) the capital-output ratio is constant.
D) the capital intensity of the economy is stable.

Question 13

In a steady-state balanced-growth equilibrium, each of the following is true except

A) the capital intensity of the economy is stable.
B) the economy's capital stock is growing faster than its level of real GDP is growing.
C) the capital-output ratio is constant.
D) the economy's capital stock and its level of real GDP are growing at the same proportional rate.

Question 14

Each of the following is a component of the production function except

A) the labor force.
B) the capital stock.
C) the amount of money in circulation.
D) the level of technology.

Question 15

The production function tells us that there is a systematic relationship between _________ and the economy's _________.

A) available money; output per worker
B) available resources; output per worker
C) output per worker; available resources
D) output per worker; available money

Question 16

The production function is usually written in the following notational form:

A) (Y/K) = F((K/L), E)
B) (L/Y) = F((K/L), E)
C) (Y/L) = E((K/L), F)
D) (Y/L) = F((K/L), E)

Question 17

Which of the following is the correct form of the Cobb-Douglas production function?

A)
B)
C)
D)

Question 18

The parameter of the Cobb-Douglas production function is always a number

A) between -1 and 0.
B) between 0 and 2.
C) between 0 and 1.
D) greater than 1.

Question 19

The parameter of the Cobb-Douglas production function

A) governs how fast diminishing returns to savings sets in.
B) governs how fast diminishing returns to investment sets in.
C) governs how fast diminishing returns to labor sets in.
D) governs how fast diminishing returns to technology sets in.

Question 20

A level of the parameter of the Cobb-Douglas production near zero means

A) that the extra amount of output made possible by each additional unit of capital declines very slowly as the capital stock increases.
B) that the extra amount of output made possible by each additional unit of savings declines very quickly as the capital stock increases.
C) that the extra amount of output made possible by each additional unit of labor declines very quickly as the capital stock increases.
D) that the extra amount of output made possible by each additional unit of capital declines very quickly as the capital stock increases.

Question 21

A level of the parameter of the Cobb-Douglas production near one means

A) that the extra amount of output made possible by each additional unit of capital declines very slowly as the capital stock increases.
B) that the extra amount of output made possible by each additional unit of savings declines very quickly as the capital stock increases.
C) that the extra amount of output made possible by each additional unit of labor declines very quickly as the capital stock increases.
D) that the extra amount of output made possible by each additional unit of capital declines very quickly as the capital stock increases.

Question 22

A level of the parameter of the Cobb-Douglas production equal to one means

A) that the extra amount of output made possible by each additional unit of capital declines very slowly as the capital stock increases.
B) that the extra amount of output made possible by each additional unit of savings declines very quickly as the capital stock increases.
C) that the extra amount of output made possible by each additional unit of labor declines very quickly as the capital stock increases.
D) that the extra amount of output made possible by each additional unit of capital does not decline as the capital stock increases.

Question 23

When the parameter of the Cobb-Douglas production function equals one

A) output is more than proportional to capital: double the stock of capital per worker and the output per worker will more than double.
B) output is proportional to capital: double the stock of capital per worker and the output per worker will also double.
C) output is less than proportional to capital: double the stock of capital per worker and the output per worker will not quite double.
D) output is proportional to technology: double the stock of technology per worker and the output per worker will also double.

Question 24

The parameter E in the Cobb-Douglas production function

A) tells us the current level of the efficiency of labor.
B) tells us the current level of the efficacy of labor.
C) tells us the current level of capital stock per worker.
D) tells us the current level of the efficiency of capital.

Question 25

If the parameter E of the Cobb-Douglas production function increases

A) less output per worker can be produced for each possible value of the capital stock per worker.
B) more output per worker can be produced for each possible value of the capital stock per worker.
C) that the economy becomes less productive.
D) the value of capital per worker increases.

Question 26

If the parameter E of the Cobb-Douglas production function decreases

A) less output per worker can be produced for each possible value of the capital stock per worker.
B) more output per worker can be produced for each possible value of the capital stock per worker.
C) that the economy becomes more productive.
D) the value of capital per worker decreases.

Question 27

If the parameter E of the Cobb-Douglas production function has a low value

A) the economy is very productive.
B) more output per worker can be produced for each possible value of the capital stock per worker.
C) less output per worker can be produced for each possible value of the capital stock per worker.
D) the value of capital per worker is low.

Question 28

If the parameter E of the Cobb-Douglas production function has a high value

A) less output per worker can be produced for each possible value of the capital stock per worker.
B) more output per worker can be produced for each possible value of the capital stock per worker.
C) the economy is very unproductive.
D) the value of capital per worker is high.

Question 29

If an economy is very unproductive

A) a low value of capital per worker would result in a high level of output per worker.
B) the value of E in the Cobb-Douglas production function has a large value.
C) the value of capital per worker is small.
D) not even large amounts of capital per worker will boost output per worker to achieve what we would think of as prosperity.

Question 30

If an economy is very productive

A) the value of capital per worker is high.
B) the value of E in the Cobb-Douglas production function has a small value.
C) more output per worker can be produced for each possible value of the capital stock per worker.
D) not even large amounts of capital per worker will boost output per worker to achieve what we would
Think of as prosperity.

Question 31

If, in the Cobb-Douglas production, the value of E is $10000, is .4 and capital per worker is $250,000, then output per worker would be approximately

A) $36239
B) $106000
C) $68986
D) $154000

Question 32

If, in the Cobb-Douglas production, the value of E is $10000, is .4 and capital per worker is $125,000, then output per worker would be approximately

A) $45514
B) $79000
C) $27464
D) $56000

Question 33

If, in the Cobb-Douglas production, the value of E is $15000, is .3 and capital per worker is $250,000, then output per worker would be approximately

A) $179500
B) $34886
C) $107494
D) $85500

Question 34

If, in the Cobb-Douglas production, the value of E is $15000, is .3 and capital per worker is $200,000, then output per worker would be approximately

A) $70500
B) $144500
C) $91949
D) $32627

Question 35

The net flow of saving is equal to the amount of

A) consumption expenditures.
B) net exports.
C) investment expenditures.
D) imports.

Question 36

Total savings in the economy is equal to

A) consumption expenditures.
B) investment expenditures.
C) government expenditures.
D) none of the above.

Question 37

Household saving is equal to

A) Y-C-T.
B) C-Y-T
C) T-C-Y
D) I

Question 38

Net foreign savings is equal to

A) C+I+G.
B) IM - GX.
C) GX - IM.
D) G-T.

Question 39

Total investment is equal to

A) household saving.
B) household saving plus net foreign saving.
C) household saving plus government deficit.
D) household saving plus net foreign saving plus government deficit

Question 40

Total investment is equal to

A) the saving rate multiplied total saving.
B) the saving rate multiplied by real GDP.
C) the investment rate multiplied by total saving.
D) the consumption rate multiplied by real GDP.

Question 41

Total investment I is equal to

A) s x Y
B) s x I
C) s x C
D) s x G

Question 42

If s is the proportion of capital stock saved and invested per year and * is the capital stock depreciation rate, then capital stock (K) will change according to which of the following formulas?

A) K_t+1 = K_t + (s x K_t ) - ( x K_t )
B) K_t+1 = K_t + (s x Y_t ) + ( x K_t )
C) K_t+1 = K_t + (s x K_t ) + ( x K_t )
D) K_t+1 = K_t + (s x Y_t ) - ( x K_t )

Question 43

The capital-output ratio will ________ if the saving rate decreases and the rate of depreciation of the capital stock remains the same.

A) increase
B) decrease
C) stay the same
D) first increase and then decrease

Question 44

The capital-output ratio will ________ if the saving rate increases and the rate of depreciation of the capital stock remains the same.

A) increase
B) decrease
C) stay the same
D) first increase and then decrease

Question 45

The capital-output ratio will ________ if the saving rate increases and the rate of depreciation of the capital stock increases by the same percentage.

A) increase
B) decrease
C) stay the same
D) first increase and then decrease

Question 46

The capital-output ratio will ________ if the saving rate increases and the rate of depreciation of the capital stock decreases.

A) increase
B) decrease
C) stay the same
D) first increase and then decrease

Question 47

The capital-output ratio is equal to

A) the saving rate multiplied by the depreciation rate of capital.
B) the saving rate plus the depreciation rate of capital.
C) the saving rate minus the depreciation rate of capital.
D) the saving rate divided by the depreciation rate of capital.

Question 48

When there is no growth in the labor force nor in the efficiency of labor, the equilibrium condition in the Solow growth model is

A) K/Y = s/ .
B) Y/K = s/ .
C) K/Y = s+ .
D) K/Y = s- .

Question 49

If the saving rate is 16%, the capital stock depreciation rate is 4%, is equal to .5, and E is equal to 20,000, output per worker will be

A) $40,000 per year.
B) $20,000 per year.
C) $100,000 per year.
D) $80,000 per year.

Question 50

If the saving rate is 15%, the capital stock depreciation rate is 5%, is equal to .5, and E is equal to 15,000, output per worker will be

A) $30,000 per year.
B) $45,000 per year.
C) $60,000 per year.
D) $5,000 per year.

Question 51

If the current level of output in the economy is $10 trillion a year, the current year's capital stock in the economy is $25 trillion, the savings rate is 20 percent and the rate of depreciation of capital stock is 3 percent, next year's capital stock will be _______.

A) $26.25 trillion
B) $27 trillion
C) $27.25 trillion
D) $27.75 trillion

Question 52

Each of the following is a factor in the economy's balanced growth equilibrium except

A) the labor force growth rate.
B) the growth rate of the efficiency of capital.
C) the growth rate of the efficiency of labor.
D) the saving-investment rate.

Question 53

Each of the following is a factor in the economy's balanced growth equilibrium except

A) the rate of depreciation of labor.
B) the labor force growth rate.
C) the growth rate of the efficiency of labor.
D) the saving-investment rate.

Question 54

Each of the following is a factor in the economy's balanced growth equilibrium except

A) the labor force growth rate.
B) the growth rate of the efficiency of labor.
C) the capital stock depreciation rate.
D) the rate of growth of the money supply.

Question 55

In a steady-state balanced growth equilibrium,

A) the levels of the key variables are equal.
B) the levels of the key variables are equal to the rate of the growth of the key variables.
C) the capital-output ratio is constant over time.
D) the capital-output ratio is growing over time.

Question 56

If the labor force growth rate was 1 percent per year, the capital stock depreciation rate was 3 percent per year, the saving rate was 15 percent per year, and growth rate of the efficiency of labor was 1 percent per year,

A) the capital-output ratio would be 5.
B) the capital-output ratio would be 3.
C) the capital-output ratio would be 4.
D) the capital-output ratio would be 2.

Question 57

If the labor force growth rate was 2 percent per year, the capital stock depreciation rate was 4 percent per year, the growth rate of the efficiency of labor was 1 percent, and the capital-output ratio was 2,

A) the saving rate would be 3.5 percent per year.
B) the saving rate would be 35 percent per year.
C) the saving rate would be 14 percent per year.
D) the saving rate would be .14 percent per year.

Question 58

If growth rate of the efficiency of labor increases, with the labor force growth rate, capital stock depreciation rate, and saving rate held constant,

A) the capital-output ratio will decrease.
B) the capital-output ratio will increase.
C) the output-capital ratio will decrease.
D) the level of investment will decrease.

Question 59

If saving rate increases, with the labor force growth rate, capital stock depreciation rate, and growth rate of the efficiency of labor held constant,

A) the capital-output ratio will decrease.
B) the capital-output ratio will increase.
C) the output-capital ratio will increase.
D) the level of investment will decrease.

Question 60

The capital-output ratio is said to be in equilibrium

A) when its rate of change is zero.
B) when its rate of change is increasing.
C) when its rate of change is decreasing.
D) when the capital-labor ratio is decreasing.

Question 61

The capital-output ratio is said to be in equilibrium

A) when it is equal to the saving rate multiplied by the sum of the growth rates of the labor force, the efficiency of labor and the depreciation of capital.
B) when it is equal to the saving rate divided by the sum of the growth rates of the labor force, the efficiency of labor and the depreciation of capital.
C) when it is equal to the saving rate minus the sum of the growth rates of the labor force, the efficiency of labor and the depreciation of capital.
D) when it is equal to the saving rate plus the sum of the growth rates of the labor force, the efficiency of labor and the depreciation of capital.

Question 62

The capital-output ratio is said to be in equilibrium when it is equal to

A) s x (n + g + )
B) s / (n + g + )
C) s - (n + g + )
D) s + (n + g + )

Question 63

The equilibrium capital-output ratio is considered to be stable because

A) it will always be at its equilibrium value.
B) it will converge to its equilibrium value and stay there.
C) it fluctuates around its equilibrium value in a known manner.
D) it never changes.

Question 64

The equilibrium condition for balanced growth is

A) the value of the savings rate multiplied by the sum of the labor force growth rate, the growth rate of the efficiency of labor, and the depreciation of capital.
B) the value of the savings rate divided by the sum of the labor force growth rate, the growth rate of the efficiency of labor, and the depreciation of capital.
C) the value of the savings rate minus the sum of the labor force growth rate, the growth rate of the efficiency of labor, and the depreciation of capital.
D) the value of the savings rate plus the sum of the labor force growth rate, the growth rate of the efficiency of labor, and the depreciation of capital.

Question 65

The equilibrium condition for balanced growth is

A) K/Y = s x (n + g + )
B) K/Y = s - (n + g + )
C) K/Y = s / (n + g + )
D) K/Y = s + (n + g + )

Question 66

The capital-output ratio will ________ if the savings rate ________.

A) increase; decreases
B) stay the same; increases
C) increase; increases
D) stay the same; decreases

Question 67

The capital-output ratio will ________ if n + g + _________.

A) increase; decreases
B) stay the same; increases
C) increase; increases
D) stay the same; decreases

Question 68

When the capital-output ratio is at its steady state value

A) the growth rates of capital per worker and output per worker are increasing.
B) the growth rates of capital per worker and output per worker are also stable.
C) the growth rates of capital per worker and output per worker are decreasing.
D) the growth rate of capital per worker is increasing and that of output per worker is decreasing.

Question 69

When the capital-output ratio is at its steady state value, the total economy-wide capital stock is growing at the rate

A) n + g.
B) n - g.
C) n x g.
D) n / g.

Question 70

When the capital-output ratio is at its steady state value, the total economy-wide capital stock is growing at the

A) sum of the growth rates of the labor force.
B) difference between the growth rates of the labor force and the efficiency of labor.
C) growth rate of the labor force multiplied by the growth of the efficiency of labor.
D) growth rate of the labor force divided by the growth rate of the efficiency of labor.

Question 71

When the capital-output ratio is at its steady state value, output per worker is growing

A) at the same rate as the growth of the capital stock..
B) at the capital stock depreciation rate.
C) at the growth rate in the efficiency of labor.
D) at the savings rate.

Question 72

If n is %, g is 2%, is 3%, s is 37.5%, is 1/3, and E is $10000, then Y/L will equal approximately

A) $2.165
B) $2165
C) $21650
D) $46875

Question 73

If the savings rate increases and the capital stock depreciation rate increases, output per worker will _________

A) increase if the effect of the savings rate increase is less than the effect of the capital stock depreciation rate increase.
B) decrease.
C) increase.
D) increase if the effect of the savings rate increase is greater than the effect of the capital stock depreciation rate increase.

Question 74

If the savings rate increases and the capital stock depreciation rate decreases, output per worker will_________

A) increase if the effect of the savings rate increase is less than the effect of the capita; stock depreciation rate increase.
B) decrease.
C) increase.
D) increase if the effect of the savings rate increase is greater than the effect of the capital stock depreciation rate increase.

Question 75

If the savings rate increases and the diminishing-returns-to-investment parameter " decreases, output per worker will _________

A) decrease if the effect of the savings rate increase is less than the effect of the diminishing-returns-to- investment parameter decrease.
B) decrease.
C) increase.
D) decrease if the effect of the savings rate increase is greater than the effect of the diminishing-returns-to- investment parameter decrease.

Question 76

If the savings rate increases and the diminishing-returns-to-investment parameter increases, output per worker will _________

A) decrease if the effect of the savings rate increase is less than the effect of the diminishing-returns-to- investment parameter increase.
B) decrease.
C) increase.
D) decrease if the effect of the savings rate increase is greater than the effect of the diminishing-returns-to- investment parameter increase.

Question 77

If the labor force growth rate increases and the diminishing-returns-to-investment parameter decreases, output per worker will _________

A) increase if the effect of the labor force growth rate increase is less than the effect of the diminishing-. returns-to-investment parameter decrease.
B) decrease.
C) increase.
D) increase if the effect of the labor force growth rate increase is greater than the effect of the diminishing- returns-to-investment parameter decrease.

Question 78

If the labor force growth rate increases and the diminishing-returns-to-investment parameter increases, output per worker will _________

A) increase if the effect of the labor force growth rate increase is less than the effect of the growth multiplier increase.
B) decrease.
C) increase.
D) increase if the effect of the labor force growth rate increase is greater than the effect of the growth multiplier increase.

Question 79

An economy that is not on its steady-state growth path will close a fraction ____________ of the gap between its current state and its steady-state growth path in a year.

A) (1- ) x (n + g - )
B) (1- ) x (n + g + )
C) (1+ ) x (n + g + )
D) x (n + g + )

Question 80

An economy with parameter values of population growth n=0.02, efficiency of labor growth g=0.02, depreciation rate =0.03, and a diminishing-returns-to-investment parameter =0.4 would, if off of its steady-state growth path, close a fraction equal to _______ of the gap between its current state and its steady-state each year.

A) 2.8 percent
B) 1.8 percent
C) 4.2 percent
D) 1.2 percent