Deck 6: Long-Run Economic Growth

Question 1

If capital and labor each grow 5% in a year,the elasticities of output with respect to capital and labor sum to one,and productivity grows 2% in the year,by how much does output grow during the year?

A)2%
B)3%
C)5%
D)7%

Answer 1

7%

Question 2

Over the past year,productivity grew 1%,capital grew 2%,and labor grew 2%.If the elasticities of output with respect to capital and labor are 0.3 and 0.7,respectively,how much did output grow?

A)1%
B)2%
C)3%
D)4%

Answer 2

3%

Question 3

The growth accounting equation is

A)Y = Aa_KK a_NN
B)Y = AF(K, N)
C)ΔY/Y = ΔA/A + a_KΔK/K + a_NΔN/N
D)ΔY/Y = ΔA/A - a_KΔK/K - a_NΔN/N

Answer 3

ΔY/Y = ΔA/A + a_KΔK/K + a_NΔN/N

Question 4

Over the past year,productivity grew 1.8%,capital grew 2%,and labor grew 1%.If the elasticities of output with respect to capital and labor are 0.2 and 0.8,respectively,how much did output grow?

A)1%
B)2%
C)3%
D)4%

Question 5

Over the past year,output grew 6%,capital grew 2%,and labor grew 4%.If the elasticities of output with respect to capital and labor are 0.3 and 0.7,respectively,how much did productivity grow?

A)2)0%
B)2)6%
C)3)0%
D)3)3%

Question 6

Over the past year,productivity grew 1%,capital grew 0%,and labor grew 5%.If the elasticities of output with respect to capital and labor are 0.4 and 0.6,respectively,how much did output grow?

A)1%
B)2%
C)3%
D)4%

Question 7

The elasticity of output with respect to capital

A)is the increase in output resulting from an increase in the capital stock.
B)is the percentage increase in output resulting from a 1 % increase in the capital stock.
C)is always greater than one.
D)is the inverse of the elasticity of output with respect to labor.

Question 8

Over the past year,output grew 5%,capital grew 5%,and labor grew 1%.If the elasticities of output with respect to capital and labor are 0.5 and 0.5,respectively,how much did productivity grow?

A)0)5%
B)1)0%
C)1)5%
D)2)0%

Question 9

Over the past year,output grew 4%,capital grew 2%,and labor grew 1%.If the elasticities of output with respect to capital and labor are 0.3 and 0.7,respectively,how much did productivity grow?

A)2)0%
B)2)7%
C)3)0%
D)3)3%

Question 10

Over the past year,output grew 5%,capital grew 5%,and labor grew 1%.If the elasticities of output with respect to capital and labor are 0.3 and 0.7,respectively,how much did productivity grow?

A)0)5%
B)1)0%
C)2)2%
D)2)8%

Question 11

Suppose the current level of output is 5000.If the elasticities of output with respect to capital and labor are 0.3 and 0.7,respectively,a 10% increase in capital combined with a 5% increase in labor and a 5% increase in productivity would increase the current level of output to

A)5015.
B)5325.
C)5575.
D)6000.

Question 12

Over the past year,output grew 4%,capital grew 2%,and labor grew 1%.If the elasticities of output with respect to capital and labor are 0.3 and 0.7,respectively,how much did productivity grow?

A)2)0%
B)2)7%
C)3)0%
D)3)3%

Question 13

The equation,ΔY/Y = ΔA/A + a_KΔK/K + a_NΔN/N,is known as

A)the production function.
B)the Solow model.
C)the productivity formula.
D)the growth accounting equation.

Question 14

Between 1870 and 2010,among the United States,Germany,Japan,and Australia,________ grew at the fastest rate and ________ grew at the slowest rate.

A)United States; Germany
B)Germany; United States
C)Australia; Japan
D)Japan; Australia

Question 15

Total factor productivity growth is that part of economic growth due to

A)capital growth plus labor growth.
B)capital growth less labor growth.
C)capital growth times labor growth.
D)neither capital growth nor labor growth.

Question 16

Over the past year,productivity grew 2%,capital grew 1%,and labor grew 1%.If the elasticities of output with respect to capital and labor are 0.2 and 0.8,respectively,how much did output grow?

A)1%
B)2%
C)3%
D)4%

Question 17

Suppose the current level of output is 5000.A 10% increase in productivity would increase the current level of output to

A)5050.
B)5100.
C)5500.
D)6000.

Question 18

Suppose the current level of output is 5000 and the elasticity of output with respect to capital is 0.4.A 10% increase in capital would increase the current level of output to

A)5020.
B)5050.
C)5200.
D)5500.

Question 19

Labor productivity increased so much in the second half of the 1990s because of

A)improved information and communications technologies.
B)higher levels of educational attainment by workers.
C)cheaper foreign imports used in production.
D)increased foreign competition.

Question 20

Suppose the current level of output is 5000 and the elasticity of output with respect to labor is 0.7.A 10% increase in labor would increase the current level of output to

A)5035.
B)5070.
C)5350.
D)5700.

Question 21

Edward Denison's analysis of the American economy found that

A)total factor productivity was the largest source of economic growth since 1948.
B)the contribution of labor growth has been more variable than the contribution of capital growth.
C)productivity growth has been positive over every period of more than five years since WorldWar II.
D)the contribution of labor growth has been greater than the contribution of capital growth.

Question 22

The computerization of police departments throughout the country has greatly reduced the crime rate.What macroeconomic variable is likely to be directly affected by this change?

A)Productivity
B)Inflation
C)The real interest rate
D)The trade deficit

Question 23

In the Solow model,if productivity doesn't change,

A)the economy must eventually reach a steady state.
B)the capital-labor ratio must decline.
C)the capital-labor ratio must rise.
D)there can be no saving.

Question 24

Use the growth accounting equation to calculate productivity growth,given output growth of 3.5%,capital stock growth of 5%,labor employment growth of 2%,the output elasticity of capital of 0.3,and the output elasticity of labor of 0.7.

Question 25

The idea that measurement problems could explain the productivity slowdown since 1973 is based on the fact that

A)official output measures make no adjustment for quality.
B)output can't be measured.
C)capital can't be measured.
D)quality improvements aren't fully accounted for in the data.

Question 26

Steady-state investment per worker is positively related to the capital-labor ratio because the higher the capital-labor ratio

A)the lower the capital depreciation rate.
B)the greater the amount of resources available for capital investment.
C)the more investment per worker is required to replace depreciating capital.
D)the less the economy needs to equip new workers with the same high level of capital.

Question 27

A new pollution law requires businesses to pay for inspections of their plants by independent pollution-monitoring firms.What effect is this likely to have?

A)Increase productivity
B)Increase the capital stock
C)Reduce productivity
D)Increase the demand for labor in those firms

Question 28

Steady-state consumption per worker is

A)larger in the short run than in the long run.
B)less than steady-state investment per worker.
C)less than steady-state saving per worker.
D)steady-state production per worker minus steady state investment per worker.

Question 29

All of the following are explanations of the post-1973 productivity slowdown except

A)problems in measuring productivity.
B)changes in the legal and human environment.
C)higher oil prices.
D)greater competition from foreign imports.

Question 30

From one year to the next,a country's output rose from 4000 to 4500,its capital stock rose from 10,000 to 12,000,and its labor force declined from 2000 to 1750.Suppose a_K = 0.3 and a_N= 0.7.
(a)How much did capital contribute to economic growth over the year?
(b)How much did labor contribute to economic growth over the year?
(c)How much did productivity contribute to economic growth over the year?

Question 31

Why do some people think that the productivity slowdown since 1973 is just a return to normalcy after fast productivity growth during the previous 25 years?

A)Productivity growth of the previous 25 years was abnormally low.
B)The Great Depression and World War II had prevented technological opportunities from being exploited.
C)The United States is the only country to face the slowdown, due to poor regulatory decisions.
D)The United States has allowed countries like Japan to steal its technological breakthroughs.

Question 32

In a steady state

A)both consumption per worker and the capital-labor ratio are constant.
B)consumption per worker is constant, but the capital-labor ratio can change.
C)capital and labor, by definition, are inversely related to one another.
D)consumption per worker can change, but the capital-labor ratio is constant.

Question 33

In the absence of productivity growth,in a steady-state economy

A)output per worker and consumption per worker remain constant over time.
B)output per worker remains constant over time, but consumption per worker grows over time.
C)output per worker grows over time, but consumption per worker remains constant over time.
D)output per worker and consumption per worker both grow over time.

Question 34

The bowed shape of the per-worker production function is caused by

A)wealth effects that reduce labor supply.
B)diminishing marginal productivity of capital.
C)increasing marginal productivity of labor.
D)increasing marginal productivity of capital.

Question 35

The per-worker production function in the Solow model assumes

A)constant returns to scale and increasing marginal productivity of capital.
B)constant returns to scale and diminishing marginal productivity of capital.
C)increasing returns to scale and diminishing marginal productivity of capital.
D)decreasing returns to scale and diminishing marginal productivity of capital.

Question 36

According to the Solow model,an increase in the capital-labor ratio will

A)always reduce steady-state consumption per worker.
B)always increase steady-state consumption per worker.
C)reduce steady-state consumption per worker if the capital-labor ratio is below the Golden rule capital stock.
D)increase steady-state consumption per worker if the capital-labor ratio is below the Golden rule capital stock.

Question 37

Over the past year,an economy's labor supply increased from 100 to 102,its capital stock increased from 1000 to 1030,and its output increased from 500 to 525.All measurements are in real terms.Calculate the contributions to economic growth of growth in capital,labor,and productivity if a_K = 0.2 and a_N = 0.8.

Question 38

Greenwood and Yorukoglu view the post-1973 productivity slowdown as resulting from

A)the information technology revolution.
B)high oil prices.
C)measurement errors.
D)technological depletion.

Question 39

Which of the following best describes a steady state?

A)Political stability is maintained by the state.
B)The standard of living is increasing at a stable rate.
C)Each firm in the economy receives a steady stream of income.
D)Output per worker, consumption per worker, and capital per worker are constant.

Question 40

Edward Denison found that labor's contribution to output growth in the United States since 1929 was attributable to all the factors below except

A)rising population.
B)an increase in the percentage of the population in the labor force.
C)an increase in the number of hours worked per person.
D)higher educational levels.

Question 41

The level of the capital-labor ratio that maximizes consumption per worker in the steady state is known as the

A)Solow residual capital-labor ratio.
B)Golden Rule capital-labor ratio.
C)q theory capital-labor ratio.
D)dynamically efficient capital-labor ratio.

Question 42

If the steady-state capital-labor ratio is equal to the Golden Rule capital-labor ratio,then in the steady state

A)output per worker equals investment per worker.
B)output per worker equals depreciation per worker.
C)investment per worker is as large as possible.
D)consumption per worker is as large as possible.

Question 43

In the Solow model,if f(k)= 8k^0.5,s = 0.2,n = 0.3,and d = 0.1,what is the value of k at equilibrium?

A)1
B)4
C)9
D)16

Question 44

The Solow model demonstrates that

A)in the absence of productivity growth, economic growth will turn negative in the long run.
B)in the absence of productivity growth, economic growth will reach a steady state of zero per-capita growth in the long run.
C)productivity growth must exceed the rate of growth in the population to avoid a steady state in the long run.
D)productivity growth will inevitably decline due to diminishing marginal productivity.

Question 45

An increase in the saving rate in a steady-state economy would cause

A)a rightward movement along the saving-per-worker curve and an increase in the capital-labor ratio.
B)an upward shift in the saving-per-worker curve and an increase in the capital-labor ratio.
C)a downward shift in the saving-per-worker curve and a decrease in the capital-labor ratio.
D)a leftward movement along the saving-per-worker curve and a decrease in the capital-labor ratio.

Question 46

Which of the following changes would lead,according to the Solow model,to a higher level of long-run output per worker?

A)A lower level of capital per worker
B)An increase in the saving rate
C)A rise in the rate of population growth
D)A decrease in productivity

Question 47

In the Solow model,if f(k)= 2k^0.5,s = 0.25,n = 0.05,and d = 0.2,what is the value of k at equilibrium?

A)1
B)2
C)3
D)4

Question 48

In the Solow model,if f(k)= 6k^0.5,s = 0.1,n = 0.1,and d = 0.2,what is the value of c at equilibrium?

A)10
B)10.4
C)10.8
D)11.2

Question 49

In the Solow model,if f(k)= 2k^0.5,s = 0.3,n = 0.05,and d = 0.15,what is the value of k at equilibrium?

A)1
B)3
C)6
D)9

Question 50

In the Solow model,if f(k)= 2k^0.5,s = 0.1,n = 0.1,and d = 0.05,what is the value of f(k)at equilibrium?

A)2/3
B)4/3
C)2
D)8/3

Question 51

In the long run,an increase in the saving rate in a steady-state economy will cause

A)an increase in the capital-labor ratio and an increase in consumption per worker.
B)an increase in the capital-labor ratio and a decrease in consumption per worker.
C)a decrease in the capital-labor ratio and a decrease in consumption per worker.
D)a decrease in the capital-labor ratio and an increase in consumption per worker.

Question 52

In the Solow model,if f(k)= 2k^0.5,s = 0.25,n = 0.1,and d = 0.4,what is the value of k at equilibrium?

A)1
B)2
C)3
D)4

Question 53

In the Solow model,if saving per worker initially exceeds investment per worker,

A)the economy will experience inflation.
B)the capital-labor ratio will increase.
C)investment per worker will decline.
D)saving per worker will decline.

Question 54

In the Solow model,if k = 8,y = 24,and s = 0.25,what is c?

A)24
B)20
C)18
D)12

Question 55

An earthquake destroys a good portion of the capital stock.How would you expect this to affect the capital-labor ratio in the long run? There would be

A)a rightward movement along the saving-per-worker curve and an increase in the capital-labor ratio.
B)no change in the long-run capital-labor ratio.
C)a downward shift in the saving-per-worker curve and a decrease in the capital-labor ratio.
D)a leftward movement along the saving-per-worker curve and a decrease in the capital-labor ratio.

Question 56

The Golden Rule capital-labor ratio is the level of the capital-labor ratio that,in the steady state,

A)maximizes output per worker.
B)maximizes investment per worker.
C)maximizes consumption per worker.
D)maximizes capital per worker.

Question 57

A striking conclusion of the Solow model is that in the absence of productivity growth,in the long run

A)the economy reaches a steady state.
B)consumption per worker equals the capital stock per worker.
C)consumption per worker equals output per worker.
D)consumption per worker equals investment per worker.

Question 58

In the Solow model,if k = 8,y = 20,and s = 0.2,what is c?

A)24
B)20
C)16
D)12

Question 59

The idea that saving equals investment in the Solow model means that a steady state can be reached only when

A)s = k.
B)s = n + d.
C)sf(k)= (s + d)k.
D)sf(k)= (n + d)k.

Question 60

If the capital-labor ratio is above the Golden Rule capital-labor ratio,then in the steady state,

A)capital per worker is above its maximum.
B)output per worker is less than it would be at the Golden Rule capital-labor ratio.
C)investment per worker exceeds output per worker.
D)consumption per worker is not at its maximum.

Question 61

In the textbook model of endogenous growth,in equilibrium,output grows at the rate of

A)sA - d.
B)n + d.
C)K)
D)A)

Question 62

An increase in population growth will lead to a ________ in the steady-state capital-labor ratio and a ________ in output per worker.

A)fall; fall
B)fall; rise
C)rise; rise
D)rise; fall

Question 63

All else being equal,a permanent decrease in the saving rate in a steady-state economy would cause

A)an increase in the capital-labor ratio and an increase in consumption per worker.
B)an increase in the capital-labor ratio and a decrease in consumption per worker.
C)a decrease in the capital-labor ratio and a decrease in consumption per worker.
D)a decrease in the capital-labor ratio and an increase in consumption per worker.

Question 64

Endogenous growth theory attempts to

A)replace the Solow model with a model in which money growth plays a key role.
B)explain how societies can more easily reach the "Golden Rule."
C)show how population growth reduces capital and output.
D)explain why productivity changes.

Question 65

In the Solow model,the steady-state capital-labor ratio will decline if

A)the saving rate per worker increases.
B)the consumption rate per worker declines.
C)population growth increases.
D)productivity increases.

Question 66

A country has the per-worker production function
y_t = 5,
where y_t is output per worker and k_t is the capital-labor ratio.The depreciation rate is 0.2 and the population growth rate is 0.05.The saving function is
S_t = 0.2Y_t,
where S_t is total national saving and Y_t is total output.
(a)What is the steady-state value of the capital-labor ratio?
(b)What is the steady-state value of output per worker?
(c)What is the steady-state value of consumption per worker?

Question 67

A country has the per-worker production function
y_t = 6,
where y_t is output per worker and k_t is the capital-labor ratio.The depreciation rate is 0.1 and the population growth rate is 0.1.The saving function is
S_t = 0.1Y_t,
where S_t is total national saving and Y_t is total output.
(a)What is the steady-state value of capital-labor ratio?
(b)What is the steady-state value of output per worker?
(c)What is the steady-state value of consumption per worker?

Question 68

A productivity improvement will cause

A)a rightward movement along the saving-per-worker curve and an increase in the capital-labor ratio.
B)an upward shift in the saving-per-worker curve and an increase in the capital-labor ratio.
C)a downward shift in the saving-per-worker curve and a decrease in the capital-labor ratio.
D)a leftward movement along the saving-per-worker curve and a decrease in the capital-labor ratio.

Question 69

In the steady-state diagram of the Solow model,an increase in saving per worker is shown by

A)shifting the saving-per-worker curve down, resulting in a lower steady-state capital-labor ratio.
B)shifting the saving-per-worker curve up, resulting in a higher steady-state-capital-labor ratio.
C)shifting the saving-per-worker curve up, resulting in a lower steady-state capital-labor ratio.
D)shifting the saving-per-worker curve down, resulting in a higher steady-state capital-labor ratio.

Question 70

Country A has a capital-labor ratio that is initially twice as big as that of country B,but neither is yet in a steady state.Both countries have the same production function,f(k)= 6k^1/2.Country A has a 10% saving rate,10% population growth rate,and 5% depreciation rate,while country B has a 20% saving rate,10% population growth rate,and 20% depreciation rate.
(a)Calculate the steady-state capital-labor ratio for each country.Does the initial capital-labor ratio affect your results?
(b)Calculate output per worker and consumption per worker for each country.Which country has the highest output per worker? The highest consumption per worker?

Question 71

Briefly explain the shape of the per-worker production curve in the Solow model.If investment per worker initially exceeds saving per worker,how is the steady-state capital-labor ratio achieved?

Question 72

An increase in the growth rate of population in a steady-state economy would cause

A)a parallel shift upward in the investment line.
B)a pivot up and to the left in the investment line.
C)a pivot down and to the right in the investment line.
D)a parallel shift downward in the investment line.

Question 73

What happens in the steady state to the capital-labor ratio,output per worker,and consumption per worker when each of the following events occur? You should assume that the steady-state capital-labor ratio is below the Golden Rule level.
(a)Productivity falls.
(b)Population growth falls.
(c)The saving rate falls.
(d)The depreciation rate falls.

Question 74

A decrease in population growth will lead to a ________ in the steady-state capital-labor ratio and a ________ in output per worker.

A)fall; fall
B)fall; rise
C)rise; rise
D)rise; fall

Question 75

How would each of the following changes affect the steady-state values of the capital-labor ratio,output per worker,and consumption per worker?
(a)A change in the composition of the capital stock raises the depreciation rate.
(b)A change in social mores lowers the population growth rate.
(c)Government tax policies change to encourage a higher saving rate.
(d)A supply shock reduces productivity sharply.

Question 76

An increase in pollution has caused a permanent increase in the rate of capital depreciation.This would cause

A)an increase in the capital-labor ratio.
B)output per worker to fall.
C)a decline in consumption per worker.
D)the capital-labor ratio to be unaffected.

Question 77

In the very long run,the level of consumption per worker can grow continually if

A)the saving rate continually falls.
B)the population growth rate continually rises.
C)productivity continually improves.
D)the depreciation rate continually rises.

Question 78

A country has the per-worker production function
y_t = 6,
where y_t is output per worker and k_t is the capital-labor ratio.The depreciation rate is 0.1 and the population growth rate is 0.1.The saving function is
S_t = 0.1Y_t,
where S_t is total national saving and Y_t is total output.
(a)What is the steady-state value of capital-labor ratio?
(b)What is the steady-state value of output per worker?
(c)What is the steady-state value of consumption per worker?

Question 79

In the long run,a reduction in productivity will cause

A)an increase in the capital-labor ratio and an increase in consumption per worker.
B)an increase in the capital-labor ratio and a decrease in consumption per worker.
C)a decrease in the capital-labor ratio and a decrease in consumption per worker.
D)a decrease in the capital-labor ratio and an increase in consumption per worker.

Question 80

In the textbook model of endogenous growth,the production function is modeled as

A)Y = AK.
B)Y = C + I + G + NX.
C)Y = X.
D)Y = S - I.