Deck 6: Endogenous Growth and Convergence

Question 1

One difference between exogenous growth models and endogenous growth models is

A) there is no steady state in an exogenous growth model
B) endogenous growth models have no role for total factor productivity
C) exogenous growth models seek to explain only short run business cycles
D) endogenous growth models seek to explain technological progress
E) exogenous growth models do not rely on production functions

Answer 1

endogenous growth models seek to explain technological progress

Question 2

If the marginal product of capital is constant,

A) output does not increase when more capital is used in production
B) technological progress cannot shift the production function
C) investment is always equal to depreciation
D) the economy does not reach a steady state
E) the stock of capital never changes

Answer 2

the economy does not reach a steady state

Question 3

Which of the following is most frequently found to be a determinant of the steady state?

A) civil liberties
B) financial sophistication
C) life expectancy
D) price inflation
E) government purchases

Answer 3

life expectancy

Question 4

Under the conditions of endogenous growth,

A) there is no role for government intervention in taxing or subsidizing investment
B) constant MPK prevents spillover effects between physical and human capital
C) subsidies for capital investment can boost long run growth
D) firms are likely to over-invest in physical capital
E) investment continues only until a steady state is reached

Question 5

Which of the following is not an important determinant of the steady state?

A) initial income
B) health
C) education
D) money supply
E) openness to foreign trade

Question 6

The next questions refer to the following.
Suppose the economy has the production function Y = .8K, gross investment is 10% of national income, and the rate of depreciation is 5% of the capital stock.
Output in this economy

A) is constant
B) grows by 2%
C) grows by 3%
D) grows by 5%
E) grows by 6%

Question 7

The next questions refer to the following.
Suppose the economy has the production function Y = .8K, gross investment is 10% of national income, and the rate of depreciation is 5% of the capital stock.
If the capital stock suddenly doubles,output will rise by

A) 80%
B) a factor of 1.6
C) 100%
D) 10%
E) 5%

Question 8

Empirically,in recent decades

A) convergence has taken place between the richest and poorest nations
B) divergence has occurred between the richest and poorest nations
C) the richest and poorest nations have, on average, grown at roughly equal rates, neither converging nor diverging
D) divergence has occurred among the 50 US States
E) divergence has occurred among developed countries

Question 9

The next questions refer to the following.
Suppose the economy has the production function Y = .8K, gross investment is 10% of national income, and the rate of depreciation is 5% of the capital stock.
The capital stock of this economy

A) is constant
B) will grow by 2% per year
C) will grow by 3% per year
D) will grow by 5% per year
E) will grow by 6% per year

Question 10

In the endogenous growth model with constant marginal product of capital,

A) output in poor nations may not grow faster than output in rich nations
B) labor grows more rapidly than output
C) increasing investment has no effect on the economy's growth rate
D) a steady state occurs at less than full employment
E) the capacity utilization rate equals the rate of depreciation

Question 11

One reason to believe that the marginal product of capital may be constant is that

A) capital and labor are substitutes in production
B) physical capital and human capital may be complementary inputs
C) firms treat unsold output as inventory investments
D) beyond the optimal level, the extra output produced by another machine is always zero
E) technology rarely changes

Question 12

The observation that poorer nations grow more rapidly than richer ones if they share the same steady state,and more slowly if they don't,is known as

A) conditional convergence
B) spillover
C) learning by doing
D) the poverty trap
E) the iron law of convergence

Question 13

Generally speaking GDP per capita

A) Is higher the closer you get to the equator
B) Is lower the closer you get to the equator South America
C) Is lower in the northern hemisphere that in the southern hemisphere
D) Is highest above the Arctic circle
E) Is unrelated to latitude

Question 14

Which of the following is the poorest region of the world?

A) Africa
B) South America
C) Southern Europe
D) Eastern Europe
E) Southeast Asia

Question 15

If the economy's production function is given by Output = A(physical capital)^.3(human capital)^.7(hours worked)^.7
Then the marginal product of physical capital is constant if

A) hours worked are a declining function of human capital
B) hours worked are a linear function of A
C) the ratio of human capital to physical capital is constant
D) total factor productivity (A) is independent of human capital
E) physical capital is equal to total factor productivity

Question 16

If convergence is occurring between rich and poor countries one would expect

A) Economic growth rates to equalize
B) Rich countries to grow more quickly than poor countries
C) Poor countries to grow more slowly than poor countries
D) Population growth to be faster in poor countries that rich countries
E) Population growth to be slower in poor countries that rich countries

Question 17

Within which of the following groupings has convergence occurred in recent years?

A) the provinces of Canada
B) the 50 US states
C) Japanese prefectures
D) Northern and Southern Italy
E) all of the above

Question 18

If the marginal product of capital were increasing in all nations

A) nations would experience a rapid convergence to a steady state in which GDP per capita would be the same across countries
B) poverty traps would be avoided
C) nations with large capital stocks would in vest more than nations with small capital stocks
D) technology would spill over rapidly from rich nations into poor nations
E) the marginal product of labor would also be increasing in all nations

Question 19

Endogenous growth theory explains poverty traps as the result of

A) discrimination
B) wide variations in basic human attitudes, motivation, and risk-taking
C) more rapid depreciation of human capital among some groups than others
D) interdependencies which make investments more valuable in wealthy regions
E) mismanaged government policy

Question 20

If the economy's production function is given by Output = A(physical capital)^.3(human capital)^.7(hours worked)^.7
And human capital investments are such that human capital = ½ physical capital,then

A) the marginal product of capital is constant
B) the marginal product of hours worked is increasing
C) the marginal product of human capital is increasing
D) the marginal product of labor (human capital multiplied by hours) is constant
E) the marginal product of output is falling

Question 21

Most evidence suggests that aid

A) Has a significant impact on growth in most circumstances
B) Only has a significant impact on growth when the amounts are moderate
C) Only has a significant impact on growth when the amounts are large
D) Does not have a significant impact if, and only if, local policy is good
E) Does not have a significant impact on growth in most circumstances

Question 22

The Dutch Disease refers to

A) The impact on non-tropical diseases on economic growth in Europe
B) High levels of unemployment
C) The impact of natural resource extraction on other export industries and economic growth
D) Weak institutions and their impact on growth
E) all of the above

Question 23

Which of the following is not a geographical disadvantage of Sub-Saharan Africa

A) High percentage of land in the tropics
B) High percentage of population in landlocked nations
C) Long average distance to core market
D) High exposure to tropical diseases
E) Excessive population density at or near coast

Question 24

Colonialism affected African growth by

A) fractionalizing the continent ethnically and linguistically
B) extracting rents for repatriation to Europe
C) neglecting development in regions of high mortality
D) establishing exploitative political institutions that persist to the present day
E) all of the above

Question 25

Ethno-linguistic diversity in Africa is largely the result of

A) immigration from China and India
B) government policies to promote bilingual education
C) heavy reliance on imported technology
D) arbitrary boundaries created by European colonialism
E) study-abroad programs which educate African students in European schools

Question 26

Which of the following is not associated with ethno-linguistic diversity?

A) rent-seeking behavior
B) black market transactions
C) weak financial development
D) weak infrastructure
E) the Dutch disease

Question 27

Most rich economies have committed to donate what percentage of their GDP in aid?

A) 5%
B) 0.5%
C) 0.7%
D) 0.1%
E) none

Question 28

Which of the following is not reason why resource-based economies often experience slow economic growth

A) An over-valued exchange rate
B) Macroeconomic volatility due to volatile commodity prices
C) Higher propensity for civil conflict
D) Weak institutions and their impact on growth
E) Resource extraction is not very profitable

Question 29

Those who argue that geography is not the main determinant of sub-Saharan Africa's poor economic performance note that

A) African countries have always been poor
B) there were many flourishing African cities in 1500
C) heavily populated sub-Saharan African countries have outperformed the more sparsely populated nations
D) African countries were poor even before the onset of the AIDS epidemic development in regions of high mortality
E) None of the above

Question 30

Compared with North and South Africa,Sub-Saharan Africa has

A) higher GDP per capita
B) more fertile soil for agriculture
C) greater access to ports
D) greater susceptibility to malaria
E) none of the above