Question 1

Three countries have different levels of gross domestic product (GDP)per capita and different growth rates of GDP per capita,as identified in the table.  If these countries continue to grow at the rates indicated in the table,then,over the next few years,________ will have the highest level of GDP per capita and,in the long run,________ will have the highest level of GDP per capita.

Accepted Answer

From the table, we can see that Bohemia has the highest initial GDP per capita of $35,000, followed by Andover with $30,000, and then Catalonia with $25,000.

Over the next few years, we need to calculate the expected GDP per capita of each country by multiplying the current GDP per capita by the growth rate (in decimal form) for each year, and adding the result to the current GDP per capita.

For example, for Andover, the expected GDP per capita for year 1 would be:
$30,000 x 1.03 = $30,900

And for year 2:
$30,900 x 1.04 = $32,136

And for year 3:
$32,136 x 1.05 = $33,743

Doing these calculations for each country yields the following expected GDP per capita values:

Andover: 
Year 1 = $30,900 
Year 2 = $32,136 
Year 3 = $33,743

Bohemia: 
Year 1 = $35,700 
Year 2 = $37,416 
Year 3 = $39,287

Catalonia: 
Year 1 = $26,250 
Year 2 = $27,563 
Year 3 = $28,941

Therefore, in the next few years, Bohemia will have the highest level of GDP per capita.

In the long run, we need to find the limit of each country's expected GDP per capita as the number of years approaches infinity. This can be done by using the formula for the sum of an infinite geometric series:

limit = a / (1 - r)

Where a is the initial value and r is the growth rate.

For Andover, the limit would be:
$30,000 / (1 - 0.03) = $30,927

For Bohemia, the limit would be:
$35,000 / (1 - 0.02) = $35,714

For Catalonia, the limit would be:
$25,000 / (1 - 0.06) = $26,596

Therefore, in the long run, Bohemia will still have the highest level of GDP per capita.

Thus, the best choice is D.

Question 2

When private property rights are established,the expected payoffs from investment will ________ and the amount of production will ________.

Accepted Answer

When private property rights are established, individuals are able to reap the full benefits of their investments and thus have a greater incentive to invest. This leads to an increase in expected payoffs from investment. As a result, individuals are more likely to invest in production, leading to an increase in the amount of production.

Question 3

According to modern growth theory,convergence in the level of wealth across countries depends mainly on

Accepted Answer

Modern growth theory emphasizes the role of institutions in determining economic growth and convergence, as they shape incentives, property rights, and the overall environment for economic activity.

Question 4

Which of the following describes the correct direction of causality?

Accepted Answer

Growth-friendly institutions create an environment conducive to growth, which then increases the demand for growth-friendly incentives. As a result, economic growth follows.

Question 5

In the steady state,investment is ________ and net investment is ________.

Accepted Answer

In the steady state, investment is positive to replace depreciating capital, but net investment is zero because the capital stock does not change.

Question 6

A major hurricane passes over an island nation and destroys 25 percent of the buildings and roads.One would expect the country's gross domestic product (GDP)to ________ and the country's marginal product of capital to ________.

Accepted Answer

The destruction of buildings and roads would likely decrease the country's GDP due to the loss of infrastructure and economic activity. However, the marginal product of capital would increase because the remaining capital becomes more valuable and productive as it is scarcer relative to labor and other inputs.

Question 7

A country lowers trade barriers and institutes monetary and price stability.As a result,the annual growth rate of gross domestic product (GDP)increases from 2 percent to 4 percent per year.All else the same,in 35 years,GDP will be ________ as high as if there were no reform.

Accepted Answer

The answer of A country lowers trade barriers and institutes...

Question 8

Consider a country that suffered through five years of civil war but now has a stable government that has the support of the majority of the people.In this country,we are likely to observe

Accepted Answer

The end of civil war and establishment of stable government leads to an increase in physical capital as investment and economic activity increase. This, in turn, results in an upward shift of the production function, leading to higher output and economic growth.

Question 9

A major hurricane passes over an island nation and destroys 25 percent of the buildings and roads.One would expect this to ________ the country's gross domestic product (GDP)due to a(n)________ the production function.

Accepted Answer

The answer of A major hurricane passes over an island...

Question 10

Consider a country in which most of the productive resources are collectively owned by the state.As this country moves toward a system of private property rights,we can expect economic growth to ________ due to a(n)________ the production function.

Accepted Answer

The answer of Consider a country in which most of...

Question 11

Sustained economic growth is primarily caused by

Accepted Answer

Sustained economic growth is primarily caused by advances in technology, as they lead to increased productivity, efficiency, and innovation. Employing more people and building new roads and factories can also contribute to growth, but without technological advancements, the benefits will likely be short-lived. Increases in government spending can stimulate short-term economic growth, but in the long run, they can negatively impact the economy by creating inflation and increasing national debt. Discovering more natural resources can potentially contribute to growth, but it also depends on how efficiently they can be extracted and utilized.

Question 12

In the economy with efficient institutions,technological advancement

Accepted Answer

In an economy with efficient institutions, technological advancement is a result of individuals responding to incentives. This is because efficient institutions provide an environment that incentivizes innovation and competition, which in turn drives technological advancement.

Question 13

An example of an institution that will increase the expected payoff of investment is

Accepted Answer

A more efficient tax structure can increase the expected payoff of an investment by reducing the amount of taxes that need to be paid, thereby increasing the net return on the investment. Political instability, trade restrictions, high rates of inflation, and corruption can all lower the expected payoff of an investment by increasing uncertainty and reducing the stability of the economy.

Question 14

An example of an institution that will decrease the expected payoff of investment is

Accepted Answer

High and variable inflation reduces the real value of returns on investment, making it less attractive to invest.

Question 15

Voluntary investment occurs only if the

Accepted Answer

The answer of Voluntary investment occurs only if the
...

Question 16

In the aggregate production function,labor is measured by the

Accepted Answer

The answer of In the aggregate production function,labor is measured...

Question 17

A company experiences diminishing marginal product if each time it hires an additional unit of an input,the extra output produced ________ by a ________ amount.

Accepted Answer

In diminishing marginal product, each additional unit of input results in an increase in output, but the increase is smaller than the previous one.

Question 18

A type of policy that would be advocated by modern growth theory would be to

Accepted Answer

Modern growth theory emphasizes the importance of international trade and reducing trade restrictions to promote economic growth. Therefore, reducing trade restrictions would be the type of policy advocated by modern growth theory.

Question 19

According to the Solow growth model,when wealthy countries donate funds to poorer countries,this will ________ investment,________ the capital stock,and ________ economic growth.

Accepted Answer

According to the Solow growth model, when wealthy countries donate funds to poorer countries, it increases investment, which in turn increases the capital stock and promotes economic growth.

Question 20

An island nation is in a steady state.A major hurricane passes over the nation and destroys 25 percent of the physical capital.In the years that follow the storm,one would expect investment to ________ and net investment to ________.

Accepted Answer

After the destruction of physical capital, the nation will likely increase investment to replace and rebuild the lost capital. As a result, net investment, which is the difference between gross investment and depreciation, will also increase as the nation works to restore its capital stock.

Quiz 25: Growth Theory

When private property rights are established,the expected payoffs from investment will and the amount of production will .

According to modern growth theory,convergence in the level of wealth across countries depends mainly on

Which of the following describes the correct direction of causality?

In the steady state,investment is and net investment is .

A major hurricane passes over an island nation and destroys 25 percent of the buildings and roads.One would expect the country's gross domestic product (GDP) to and the country's marginal product of capital to .

A country lowers trade barriers and institutes monetary and price stability.As a result,the annual growth rate of gross domestic product (GDP) increases from 2 percent to 4 percent per year.All else the same,in 35 years,GDP will be ________ as high as if there were no reform.

Consider a country that suffered through five years of civil war but now has a stable government that has the support of the majority of the people.In this country,we are likely to observe

A major hurricane passes over an island nation and destroys 25 percent of the buildings and roads.One would expect this to the country's gross domestic product (GDP) due to a(n) the production function.

Consider a country in which most of the productive resources are collectively owned by the state.As this country moves toward a system of private property rights,we can expect economic growth to due to a(n) the production function.

Sustained economic growth is primarily caused by

In the economy with efficient institutions,technological advancement

An example of an institution that will increase the expected payoff of investment is

An example of an institution that will decrease the expected payoff of investment is

Voluntary investment occurs only if the

In the aggregate production function,labor is measured by the

A company experiences diminishing marginal product if each time it hires an additional unit of an input,the extra output produced by a amount.

A type of policy that would be advocated by modern growth theory would be to

According to the Solow growth model,when wealthy countries donate funds to poorer countries,this will investment, the capital stock,and economic growth.

An island nation is in a steady state.A major hurricane passes over the nation and destroys 25 percent of the physical capital.In the years that follow the storm,one would expect investment to and net investment to .

Quiz 25: Growth Theory

When private property rights are established,the expected payoffs from investment will ________ and the amount of production will ________.

According to modern growth theory,convergence in the level of wealth across countries depends mainly on

Which of the following describes the correct direction of causality?

In the steady state,investment is ________ and net investment is ________.

A major hurricane passes over an island nation and destroys 25 percent of the buildings and roads.One would expect the country's gross domestic product (GDP) to ________ and the country's marginal product of capital to ________.

A country lowers trade barriers and institutes monetary and price stability.As a result,the annual growth rate of gross domestic product (GDP) increases from 2 percent to 4 percent per year.All else the same,in 35 years,GDP will be ________ as high as if there were no reform.

Consider a country that suffered through five years of civil war but now has a stable government that has the support of the majority of the people.In this country,we are likely to observe

A major hurricane passes over an island nation and destroys 25 percent of the buildings and roads.One would expect this to ________ the country's gross domestic product (GDP) due to a(n) ________ the production function.

Consider a country in which most of the productive resources are collectively owned by the state.As this country moves toward a system of private property rights,we can expect economic growth to ________ due to a(n) ________ the production function.

Sustained economic growth is primarily caused by

In the economy with efficient institutions,technological advancement

An example of an institution that will increase the expected payoff of investment is

An example of an institution that will decrease the expected payoff of investment is

Voluntary investment occurs only if the

In the aggregate production function,labor is measured by the

A company experiences diminishing marginal product if each time it hires an additional unit of an input,the extra output produced ________ by a ________ amount.

A type of policy that would be advocated by modern growth theory would be to

According to the Solow growth model,when wealthy countries donate funds to poorer countries,this will ________ investment,________ the capital stock,and ________ economic growth.

An island nation is in a steady state.A major hurricane passes over the nation and destroys 25 percent of the physical capital.In the years that follow the storm,one would expect investment to ________ and net investment to ________.

When private property rights are established,the expected payoffs from investment will and the amount of production will .

In the steady state,investment is and net investment is .

A major hurricane passes over an island nation and destroys 25 percent of the buildings and roads.One would expect the country's gross domestic product (GDP) to and the country's marginal product of capital to .

A major hurricane passes over an island nation and destroys 25 percent of the buildings and roads.One would expect this to the country's gross domestic product (GDP) due to a(n) the production function.

Consider a country in which most of the productive resources are collectively owned by the state.As this country moves toward a system of private property rights,we can expect economic growth to due to a(n) the production function.

A company experiences diminishing marginal product if each time it hires an additional unit of an input,the extra output produced by a amount.

According to the Solow growth model,when wealthy countries donate funds to poorer countries,this will investment, the capital stock,and economic growth.

An island nation is in a steady state.A major hurricane passes over the nation and destroys 25 percent of the physical capital.In the years that follow the storm,one would expect investment to and net investment to .