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

Question 1

The number of effective workers takes into account the number of workers and the:

A) amount of capital available to each worker.
B) rate of growth of the number of workers.
C) efficiency of each worker.
D) saving rate of each worker.

Answer 1

efficiency of each worker.

Question 2

Over the past 50 years in the United States:

A) output per worker hour, capital stock per worker hour, the real wage, and the real rental price of capital have all increased about 2 percent per year.
B) output per worker hour, the real wage, and the real rental price of capital have all increased about 2 percent per year, whereas capital stock per worker hour has increased faster.
C) output per worker hour and the real wage have both increased about 2 percent per year, whereas capital stock per worker hour has increased faster and the real rental price of capital has remained about the same.
D) output per worker hour, the real wage, and capital stock per worker hour have all increased about 2 percent per year, whereas the real rental price of capital has remained about the same.

Answer 2

output per worker hour, the real wage, and capital stock per worker hour have all increased about 2 percent per year, whereas the real rental price of capital has remained about the same.

Question 3

In the Solow model with technological progress, by increasing the efficiency of labor at rate g:

A) the real wage and the real rental price of capital both grow at rate g.
B) the real wage grows at rate g but the real rental price of capital is constant.
C) the real wage is constant but the real rental price of capital grows at rate g.
D) both the real wage and the real rental price of capital are constant.

Answer 3

the real wage grows at rate g but the real rental price of capital is constant.

Question 4

According to the Solow model, persistently rising living standards can only be explained by:

A) population growth.
B) capital accumulation.
C) saving rates.
D) technological progress.

Question 5

In the Solow growth model with population growth and technological change, the break-even level of investment must cover:

A) depreciating capital.
B) depreciating capital and capital for new workers.
C) depreciating capital and capital for new effective workers.
D) depreciating capital, capital for new workers, and capital for new effective workers.

Question 6

In the Solow growth model with population growth and technological change, the steady-state growth rate of income per person depends on:

A) the rate of population growth.
B) the saving rate.
C) the rate of technological progress.
D) the rate of population growth plus the rate of technological progress.

Question 7

The efficiency of labor:

A) is the marginal product of labor.
B) is the rate of growth of the labor force.
C) includes the knowledge, health, and skills of labor.
D) equals output per worker.

Question 8

In the Solow growth model, the steady-state growth rate of output per effective worker is ______, and the steady-state growth rate of output per actual worker is ______.

A) the sum of the rate of technological progress plus the rate of population growth; zero
B) zero; the rate of technological progress
C) zero; zero
D) the rate of technological progress; the rate of population growth

Question 9

The balanced growth property of the Solow growth 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?

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 worker

Question 10

The Solow model predicts that two economies will converge if the economies start with the same:

A) capital stocks.
B) populations.
C) steady states.
D) production functions.

Question 11

International data suggest that economies of countries with different steady states will converge to:

A) the same steady state.
B) their own steady state.
C) the Golden Rule steady state.
D) steady states below the Golden Rule level.

Question 12

In a steady-state economy with a saving rate s, population growth n, and labor-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 (denoting the depreciation rate by $\delta$ ):

A) sf(k)/( $\delta$ + n + g).
B) s/((f(k))( $\delta$ + n + g)).
C) f(k)/((s)( $\delta$ + n + g)).
D) (s - f(k))/( $\delta$ + n + g).

Question 13

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

A) output per worker.
B) output per effective worker.
C) consumption per worker.
D) consumption per effective worker.

Question 14

The efficiency of labor is a term that does not reflect the:

A) high output that comes from labor cooperating with a large amount of capital.
B) health of the labor force.
C) education of the labor force.
D) skills of the labor force acquired through on-the-job training.

Question 15

Assuming that technological progress increases the efficiency of labor at a constant rate is called:

A) endogenous technological progress.
B) the efficiency-wage model of economic growth.
C) labor-augmenting technological progress.
D) the Golden Rule model of economic growth.

Question 16

If the labor force is growing at a 3 percent rate and the efficiency of a unit of labor is growing at a 2 percent rate, then the number of effective workers is growing at a rate of:

A) 2 percent.
B) 3 percent.
C) 5 percent.
D) 6 percent.

Question 17

Conditional convergence occurs when economies converge to:

A) the same steady state as other economies.
B) the Golden Rule steady state.
C) the balanced-growth steady state.
D) their own, individual steady states.

Question 18

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

A) labor.
B) the efficiency of labor.
C) capital.
D) output.

Question 19

With population growth at rate n and labor-augmenting technological progress at rate g, the Golden Rule steady state requires that the marginal product of capital (MPK):

A) net of depreciation be equal to n + g.
B) net of depreciation be equal to the depreciation rate plus n + g.
C) plus n be equal to the depreciation rate plus g.
D) plus g be equal to the depreciation rate plus n.

Question 20

In a steady-state economy with population growth n and labor-augmenting technological progress g, persistent increases in standards of living are possible because the:

A) capital stock grows faster than does the labor force.
B) capital stock grows faster than does the number of effective workers.
C) rate of depreciation constantly decreases.
D) saving rate constantly increases.

Question 21

The recent worldwide slowdown in economic growth began in the early:

A) 1960s.
B) 1970s.
C) 1980s.
D) 1990s.

Question 22

One explanation for greater economic development in moderate versus tropical climates is that institutions established by colonial settlers in moderate climates ______, while institutions established by colonists in tropical climates ______.

A) were based on English common law; were based on the Napoleonic Code
B) were based on the Napoleonic Code; were based on English common law
C) protected property rights; were extractive and authoritarian
D) were extractive and authoritarian; protected property rights

Question 23

English-style legal systems give ______ protections to shareholders and creditors than French Napoleonic Codes, typically resulting in ______ capital markets and faster rates of economic growth.

A) greater; more developed
B) greater; more corrupt
C) less; more developed
D) less; less corrupt

Question 24

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

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.

Question 25

If two economies are identical (including having the same saving rates, population growth rates, and efficiency of labor), but one economy has a smaller capital stock, then the steady-state level of income per worker in the economy with the smaller capital stock:

A) will be at a lower level than in the steady state of the high capital economy.
B) will be at a higher level than in the steady state of the high capital economy.
C) will be at the same level as in the steady state of the high capital economy.
D) will be proportional to the ratio of the capital stocks in the two economies.

Question 26

The type of legal system and the level of corruption in a country have been found to be:

A) unrelated to the rate of economic growth in a country.
B) significant determinants of the rate of economic growth in a country.
C) important topics for political discussion, but not economic explanations of growth.
D) important variables explaining the Golden Rule level of capital.

Question 27

If two economies are identical (with the same population growth rates and rates of technological progress), but one economy has a lower saving rate, then the steady-state level of income per worker in the economy with the lower saving rate:

A) will be at a lower level than in the steady state of the high-saving economy.
B) will be at a higher level than in the steady state of the high-saving economy.
C) will be at the same level as in the steady state of the high-saving economy.
D) will grow at a slower rate than in the high-saving economy.

Question 28

Empirical investigations into whether differences in income per person are the result of differences in the quantities of the factors of production available or differences in the efficiency with which the factors are employed typically find:

A) a negative correlation between the quantity of factors and the efficiency of use.
B) a positive correlation between the quantity of factors and the efficiency of use.
C) no correlation between the quantity of factors and the efficiency of use.
D) large gaps between the quantity of factors accumulated and the efficiency of use.

Question 29

Public policies in the United States designed to stimulate technological progress do not include:

A) tax breaks to encourage homeownership.
B) the temporary monopoly granted by the patent system.
C) tax breaks for research and development.
D) subsidies given by the National Science Foundation.

Question 30

Economic research shows that ______ in explaining international differences in living standards.

A) physical capital is more important than human capital
B) human capital is at least as important as physical capital
C) human capital is much more important than physical capital
D) infrastructure is the most important factor

Question 31

Which of the following changes would bring the U.S. capital stock, currently below the Golden Rule level, closer to the steady-state, consumption-maximizing level?

A) increasing the population growth rate
B) increasing the rate of capital depreciation
C) increasing the rate of technological progress
D) increasing the saving rate

Question 32

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.

A) 0
B) 2
C) 8
D) 10

Question 33

Other things being equal, all of the following government policies are likely to increase national saving except:

A) decreasing taxes on savings accounts.
B) running a budget deficit.
C) running a budget surplus.
D) retiring part of the national debt.

Question 34

Differences in factor accumulation and/or differences in production efficiency must account for all international differences in:

A) human capital and physical capital.
B) saving rates and population growth rate.
C) income per person.
D) labor efficiency.

Question 35

The preponderance of empirical evidence supports the hypothesis that economies that are open to trade _____ than comparable closed economies.

A) grow more rapidly
B) have lower steady-state levels of income per worker due to foreign competition
C) have faster rates of population growth and technological progress
D) converge more slowly to a steady-state equilibrium

Question 36

The analysis in Chapter 9 of the current capital stock in the United States versus the Golden Rule level of capital stock shows that the capital stock in the United States is:

A) well above the Golden Rule level.
B) about equal to the Golden Rule level.
C) well below the Golden Rule level.
D) slightly above the Golden Rule level.

Question 37

If the marginal product of capital net depreciation equals 8 percent, the rate of growth of population equals 2 percent, and the rate of labor-augmenting technical progress equals 2 percent, to reach the Golden Rule level of the capital stock, the ____ rate in this economy must be _____.

A) saving; increased.
B) population growth; decreased
C) depreciation; decreased
D) total output growth; decreased

Question 38

A possible externality associated with the process of accumulating new capital is that:

A) a reduction in labor productivity may occur.
B) new production processes may be devised.
C) old capital may be made more productive.
D) the government may need to adopt an industrial policy.

Question 39

Empirical evidence supports the theory that free trade:

A) increases economic growth.
B) decreases economic growth.
C) increases imports, but decreases exports because of greater global competition.
D) increases both imports and exports, but does not contribute to overall economic growth.

Question 40

International differences in income per person in accounting terms must be attributed to differences in either ______ and/or ______.

A) factor accumulation; production efficiency
B) constant returns to scale; the marginal product of capital
C) unemployment rates; depreciation rates
D) consumption; interest rates

Question 41

In the two-sector endogenous growth model, the fraction of labor in universities (u) affects the steady-state:

A) level of income.
B) growth rate of income.
C) level of income and growth rate of income.
D) level of income, growth rate of income, and growth rate of the stock of knowledge.

Question 42

Empirical studies indicate that the rate of social return from positive "standing on others' shoulders" externalities of research ______ the negative "stepping on toes" externalities of research.

A) greatly exceed
B) approximately equal
C) are substantially less than
D) are only slightly less than

Question 43

Increases in the rate of growth of income per person in the United States in the mid-1990s is mostly likely the result of:

A) increases in human capital.
B) increases in physical capital.
C) advances in information technology.
D) an increase in the saving rate.

Question 44

If productivity growth in the United States had remained at its level before the recent productivity slowdown, real income today would be more than ______ percent higher.

A) 10
B) 20
C) 30
D) 40

Question 45

Total factor productivity may be measured by:

A) subtracting the rate of growth of capital input and the rate of growth of labor input from the rate of growth of output.
B) subtracting the rate of growth of capital input, multiplied by capital's share of output, plus the rate of growth of labor input, multiplied by labor's share of output, from the rate of growth of output.
C) adding the rate of growth of capital input to the rate of growth of labor input.
D) adding the rate of growth of capital input, multiplied by capital's share of output, to the rate of growth of labor input, multiplied by labor's share of output.

Question 46

If Y is output, K is capital, u is the fraction of the labor force in universities, L is labor, 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:

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

Question 47

When capital increases by $\Delta$ K units, output increases by:

A) $\Delta$ L units.
B) MPL × $\Delta$ L units.
C) $\Delta$ K units.
D) MPK × $\Delta$ K units.

Question 48

Endogenous growth theory rejects the assumption of exogenous:

A) production functions.
B) rates of depreciation.
C) population growth rates.
D) technological change.

Question 49

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

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.

Question 50

The productivity slowdown that began in the 1970s has been attributed, at least partly, to each of the following except:

A) running out of new ideas about how to produce.
B) a deterioration in the quality of education.
C) a decline in the number of workers in the labor force.
D) a lower average level of experience among workers.

Question 51

If capital grows at 3 percent per year and labor grows at 1 percent per year, and capital's share is 1/3 while labor's share is 2/3, if there is no technological progress and the neoclassical assumptions hold, the growth rate of output will be:

A) 1-1/3 percent per year.
B) 1-2/3 percent per year.
C) 3 percent per year.
D) 2-1/3 percent per year.

Question 52

In the two-sector endogenous growth model, the saving rate (s) affects the steady-state:

A) level of income.
B) growth rate of income.
C) level of income and growth rate of income.
D) growth rate of the stock of knowledge.

Question 53

In the two-sector endogenous growth model, income growth persists because:

A) the production function shifts exogenously.
B) the saving rate exceeds the rate of depreciation.
C) the creation of knowledge in universities never slows down.
D) the fraction of the labor force in universities is large.

Question 54

In the two-sector endogenous growth model, the steady-state stock of physical capital is determined by _____, and the growth in the stock of knowledge is determined by _____.

A) the fraction of labor in universities; the saving rate
B) the efficiency of labor; the saving rate
C) the production function; the efficiency of labor
D) the saving rate; the fraction of labor in universities

Question 55

In the Solow growth model, capital exhibits ______ returns. In the basic endogenous growth model, capital exhibits ______ returns.

A) constant; diminishing
B) constant; constant
C) diminishing; constant
D) diminishing; diminishing

Question 56

The endogenous growth model's assumption of constant returns to capital is more plausible if capital is defined to include:

A) plant and equipment.
B) knowledge.
C) depreciation.
D) technology.

Question 57

In the Solow growth model, technological change is ______, whereas in endogenous growth theories, technological change is ______.

A) assumed; explained
B) explained; assumed
C) persistent; constant
D) constant; persistent

Question 58

When capital increases by $\Delta$ K units and labor increases by $\Delta$ L units, output ( $\Delta$ Y) increases by:

A) $\Delta$ K + $\Delta$ L units.
B) MPL + MPK units.
C) (MPK × $\Delta$ K) + (MPL × $\Delta$ L) units.
D) (MPL × $\Delta$ K) + (MPK × $\Delta$ K) units.

Question 59

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

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.

Question 60

Empirical results justify substantial government subsidies to research based on the finding that the:

A) the private return to research is greater than the social return to research.
B) the private return to research is approximately equal to the social return to research.
C) the private return to research is less than the social return to research.
D) the private return to research is positive, but the social return to research is negative.

Question 61

In year 1, capital stock was 6, labor input was 3, and output was 12. In year 2, capital was 7, labor was 4, and output was 14. If shares of labor and capital were each 1/2, between the two years, total factor productivity:

A) increased by 1/12.
B) increased by 1/18.
C) decreased by 1/12.
D) decreased by 1/18.

Question 62

An alternative to Prescott's explanation of the cyclical behavior of the Solow residual is that it is the result of:

A) labor hoarding in recession and cyclical mismeasurement of output.
B) bad weather, strict environmental regulations, and oil shocks.
C) declines in capital utilization and labor force participation.
D) technology shocks.

Question 63

A recent study suggests that the spectacular growth rates experienced by Hong Kong, Singapore, South Korea, and Taiwan are largely due to:

A) rapid growth in total factor productivity.
B) increases in factor inputs.
C) high rates of saving.
D) low rates of capital depreciation.

Question 64

In comparing two countries with different levels of education but the same saving rate, same rate of population growth, and same rate of technological progress, one would expect the more highly educated country to have:

A) a higher growth rate of total income and a higher real wage.
B) a higher growth rate of total income and the same real wage.
C) the same growth rate of total income and a higher real wage.
D) the same growth rate of total income and the same real wage.

Question 65

The rate of growth of labor productivity (Y/L) may be expressed as the rate of growth of total factor productivity:

A) plus the capital share multiplied by the rate of growth of the capital-labor ratio.
B) minus the capital share multiplied by the rate of growth of the capital-labor ratio.
C) plus the rate of growth of capital productivity.
D) minus the rate of growth of capital productivity.

Question 66

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.

a. What is the marginal product of capital in this situati on? (Hint: The marginal product of capital may be computed using calculus by differentiating the production function and using the capital-output ratio or by using the fact that capital's share equals $M P K$ multiplied by $K$ divided by $Y$ .)
b. If the economy is in a steady state, what must be the saving rate? (Hint: The saving rate multiplied by $Y$ must provide for gross growth of $( \delta + n + g ) K$ , where $\delta$ is the depreciation rate.)
c. If the economy decides to achieve the Golden Rule level of capital and actually reaches it, what will be the marginal product of capital?
d. What must the saving rate be to achieve the Golden Rule level of capital?

Question 67

In a steady state with population growth and technological progress:

A) the real rental price of capital is constant and the real wage grows at the rate of technological progress.
B) the real rental price of capital grows at the rate of technological progress and the real wage is constant.
C) both the real rental price of capital and the real wage grow at the rate of technological progress.
D) both the real rental price of capital and the real wage are constant.

Question 68

The Solow residual equals the percentage change in output:

A) plus the percentage changes in factor inputs weighted by each factor's share of output.
B) minus the percentage changes in prices of factor inputs.
C) minus the percentage changes in factor inputs weighted by each factor's share of output.
D) plus the percentage changes in each factor's share of output.

Question 69

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

A) population growth.
B) endogenous growth.
C) labor hoarding.
D) balanced growth.

Question 70

Labor hoarding refers to:

A) keeping workers in low-wage jobs in order to reduce labor costs.
B) using less capital in production so that more workers will have jobs.
C) continuing to employ workers during a recession to ensure they will be available in the recovery.
D) contractually preventing workers from obtaining jobs with competing firms.

Question 71

Suppose a government is able to permanently reduce its budget deficit. Use the Solow growth model of Chapter 9 to graphically illustrate the impact of a permanent government deficit reduction on the steady-state capital-labor ratio and the steady-state level of output per worker.
Be sure to label the: a. axes; b. curves; c. initial steady-state levels; d. terminal steady-state levels; and e. the direction curves shift.

Question 72

Use the data in the exhibit to complete a and b.
Exhibit: Factors of Production Data a. Compute and report the value of growth in total factor productivity in each period from periods 2 through 5 . If the value of A is 1.000 in period 1 , also report the value of A in each period.
b. Does the value of A rise in each period? If it declines, do you think this decline is because technological progress works backward? If so, explain your answer. If not, provide another explanati on.

Question 73

The Solow residual measures the portion of output growth that cannot be explained by growth in:

A) capital and labor.
B) technology.
C) the money supply.
D) the saving rate.

Question 74

If the per-worker production function is y = Ak, where A is a positive constant, then the marginal product of capital:

A) increases as k increases.
B) is constant as k increases.
C) decreases as k increases.
D) cannot be measured in this case.

Question 75

In a steady state with population growth and technological progress:

A) the capital share of income increases.
B) the labor share of income increases.
C) the capital share of income, in some cases, increases, and sometimes the labor share increases.
D) the capital and labor shares of income are constant.

Question 76

Changes that can increase measured total factor productivity include:

A) increased expenditures on education.
B) regulations requiring reductions in pollution.
C) regulations requiring increases in worker safety.
D) increases in the capital-labor ratio.

Question 77

If the production function is Y = AK^2/3L^1/3 in the land of Solovia, and the labor force increases by 5 percent while capital is constant, labor productivity will:

A) increase by 3.33 percent.
B) increase by 1.67 percent.
C) decrease by 1.67 percent.
D) decrease by 3.33 percent.

Question 78

If the production function is y = k^1/2, the steady-state value of y is:

A) y = ((s + g)/( $\delta$ + n))^1/2.
B) y = (s + g)/( $\delta$ + n).
C) y = (2/( $\delta$ + n + g))^1/2.
D) y = s/( $\delta$ + n + g).

Question 79

Prescott interpreted fluctuations in the Solow residual as evidence that:

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 labor fluctuates more than the marginal product of capital.

Question 80

If the per-worker production function is y = Ak, where A is a positive constant, in the steady state, a:

A) lower saving rate does not affect the growth rate.
B) higher saving rate does not affect the growth rate.
C) lower saving rate leads to a higher growth rate.
D) higher saving rate leads to a higher growth rate.