Question 1

The concept of diminishing returns explains why China is growing so much faster than the United States.

Accepted Answer

The answer of The concept of diminishing returns explains why...

Question 2

China is growing faster than the United States despite having inferior economic institutions.

Accepted Answer

China's economic growth rate has been consistently higher than that of the United States in recent decades, despite having inferior economic institutions such as weak property rights and limited financial freedom. This is partly due to China's large and rapidly growing population, as well as government policies that prioritize economic growth and investment in infrastructure. However, it is important to note that these institutional weaknesses could hinder China's long-term growth potential and sustainability.

Question 3

If a country is currently to the left of its steady-state capital stock in the Solow model, growth in output will follow as a result of capital accumulation.

Accepted Answer

According to the Solow model, countries that are to the left of their steady-state capital stock can increase their output by accumulating more capital. This is because the marginal product of capital (MPK) is higher when capital is scarce. As a result, investment in physical capital can lead to economic growth until the economy reaches its steady-state level of capital.

Question 4

If a country is currently to the left of its steady-state capital stock in the Solow model, growth in output will follow only if new technology can be developed to shift the production function.

Accepted Answer

In the Solow model, if a country is to the left of its steady-state capital stock, growth in output can occur through capital accumulation (investment exceeding depreciation) even without new technology, as the economy moves towards its steady-state.

Question 5

Capital accumulation alone can explain sustained economic growth over long periods of time in many countries.

Accepted Answer

Capital accumulation is important for economic growth, but it is not the only factor. Other factors such as technological progress, human capital development, and institutional quality also play a crucial role in sustaining economic growth over long periods of time.

Question 6

Diminishing returns to capital means that twice the amount of capital will lead to twice the amount of output.

Accepted Answer

Diminishing returns to capital means that as the amount of capital increases, the additional output generated by each additional unit of capital decreases. Therefore, adding twice the amount of capital may not necessarily lead to twice the amount of output.

Question 7

Growth on the cutting edge is primarily about developing new ideas.

Accepted Answer

Developing new ideas is crucial for growth on the cutting edge as it allows companies to create innovative products and services that meet the evolving needs of their customers while staying ahead of their competition.

Question 8

Catching-up growth occurs primarily through capital accumulation and the adoption of simple ideas that already exist.

Accepted Answer

Catching-up growth refers to the phenomenon where low-income countries can grow at a faster pace than high-income countries, by adopting new technologies and ideas that already exist. This includes capital accumulation, which involves investing in physical capital such as machinery and equipment, and human capital such as education and training. The adoption of simple ideas, such as improved organizational practices or more efficient production methods, can also contribute to catching-up growth.

Question 9

Diminishing returns to capital prevent capital accumulation alone from explaining sustained economic growth over time.

Accepted Answer

Diminishing returns to capital means that as more capital is accumulated, the increase in output each additional unit of capital generates becomes smaller. Therefore, sustained economic growth over time cannot be explained solely by capital accumulation. Other factors such as technological advancements and human capital are also crucial for long-term economic growth.

Question 10

The Solow model can be used to gain insight about the difference between catching-up growth and cutting-edge growth.

Accepted Answer

The Solow model is often used to analyze growth differences between countries that are catching up to the technology levels of more advanced economies and those that are already at the technological forefront. This distinction is often referred to as "catching-up growth" versus "cutting-edge growth." Therefore, the statement is true.

Question 11

China's growth will eventually slow as the marginal product of capital falls.

Accepted Answer

The principle of diminishing marginal returns suggests that as a country invests more and more in capital, the marginal product of capital (additional output gained per unit of capital investment) will eventually begin to fall. This means that China's growth will eventually slow down as it reaches the point of diminishing returns.

Question 12

The Solow model implies that countries farther away from their steady states will grow slower than countries closer to their steady states.

Accepted Answer

The Solow model implies that countries farther away from their steady states will grow faster as they have more room for capital accumulation and efficiency gains, allowing for rapid growth until they approach their steady state.

Question 13

Following World War II, the United States grew faster than Germany.

Accepted Answer

The answer of Following World War II, the United States...

Question 14

The Solow model implies that countries farther away from their steady states will grow faster than countries closer to their steady states.

Accepted Answer

According to the Solow model, countries with lower levels of capital per worker will grow faster than countries with higher levels of capital per worker, as they have more opportunities for technological catch-up and capital accumulation. Therefore, countries farther away from their steady states (with lower levels of capital per worker) will experience faster growth rates.

Question 15

In the Solow model, output increases when investment is greater than depreciation.

Accepted Answer

In the Solow model, output is a function of capital accumulation. Investment increases the stock of capital, leading to an increase in output as long as investment exceeds depreciation. Therefore, output increases when investment is greater than depreciation.

Question 16

Cutting-edge growth occurs primarily through capital accumulation and the adoption of simple ideas that already exist.

Accepted Answer

Cutting-edge growth occurs primarily through the adoption of complex and new ideas, not just simple ideas that already exist. Capital accumulation plays a role in funding the implementation of these new ideas, but it is not the only driver of growth.

Question 17

The marginal product of capital diminishes with the addition of more and more capital.

Accepted Answer

The law of diminishing marginal returns shows that the marginal product of any factor of production, including capital, will eventually decrease as more units are added while holding all other factors constant.

Question 18

Based on the Solow model, an earthquake that destroys half the capital stock in a country will increase growth in the years following the disaster.

Accepted Answer

According to the Solow model, when capital is decreased, there is a temporary increase in growth until the economy returns to its previous steady state. So, after an earthquake that destroys half the capital stock in a country, there will be a period of growth as the economy rebuilds its capital stock, leading to an increase in growth in the years following the disaster.

Question 19

Based on the Solow model, an earthquake that destroys half the capital stock in a country will decrease growth in the years following the disaster.

Accepted Answer

According to the Solow model, an earthquake that destroys half the capital stock would initially decrease output, but it would increase the growth rate temporarily as the economy rebuilds its capital stock towards the steady state.

Question 20

Growth consists of two types: catching-up growth and cutting-edge growth.

Accepted Answer

Catching-up growth refers to the growth that occurs when a country or region is trying to reach the level of economic development of other countries or regions that are more advanced. Cutting-edge growth refers to the growth that occurs when a country or region is leading in innovation and technological advancement.

Quiz 8: Growth, Capital Accumulation and the Economics of Ideas: Catching up Vs the Cutting Edge