Question 1

The average person lived a short life barely above subsistence for nearly all of human history:

Accepted Answer

Over the past 200 years, the Industrial Revolution and subsequent technological, medical, and social advancements have significantly improved standards of living globally, marking a departure from the historical norm of subsistence living.

Question 2

Which of the following statements about international trade is correct?

Accepted Answer

Each statement accurately reflects historical estimates of international trade as a percentage of world output for the given years, illustrating the growth of global trade over time.

Question 3

As a percentage of total world GDP, exports:

Accepted Answer

Exports as a percentage of total world GDP declined during the 1930s due to the Great Depression and the implementation of protectionist trade policies.

Question 4

After the sharp increase in protectionist trade policies during the Great Depression of the 1930s and the devastation of World War II, in 1950:

Accepted Answer

In 1950, world exports were about 5.5 percent of world GDP, reflecting the gradual recovery and liberalization of international trade post-World War II.

Question 5

Statistical studies that have looked at the sources of economic growth have found:

Accepted Answer

Statistical studies generally support the idea that international trade contributes positively to economic growth by allowing countries to specialize, access larger markets, and benefit from technology transfer and increased competition.

Question 6

While the empirical studies clearly tell us that economic growth tends to be higher when a country opens its economy to international trade and international investment, these same studies:

Accepted Answer

Empirical studies have shown a positive correlation between open economies and higher economic growth, but they have not been able to definitively explain why this relationship is so persistent.

Question 7

In the case of countries that have a comparative advantage in exporting raw materials, statistical studies show that:

Accepted Answer

Countries that have a comparative advantage in exporting raw materials often experience what is known as the "resource curse," where reliance on raw material exports does not significantly contribute to long-term economic growth compared to countries that export manufactured goods. This is due to factors like volatility in commodity prices, lack of diversification, and potential neglect of other sectors.

Question 8

In the case of raw material exporters, statistical results consistently show that expanding trade reduces economic growth. This finding is referred to as:

Accepted Answer

The natural resource curse, also known as the resource curse, refers to the paradox that countries with an abundance of natural resources, such as fossil fuels and certain minerals, tend to have less economic growth, less democracy, and worse development outcomes than countries with fewer natural resources. This is because reliance on natural resource exports can lead to a range of economic and social problems, including a lack of diversification, corruption, and conflict.

Question 9

The so-called natural resource curse is attributed to:

Accepted Answer

The natural resource curse is a complex phenomenon attributed to various factors, including the dominance of transnational firms in trade that can suppress resource prices (A), the low elasticity of demand for natural resources (B), and the concentration of resource ownership among local elites who may use their wealth to influence political institutions and hinder broader economic and social development (C).

Question 10

Technological progress is defined as:

Accepted Answer

Technological progress refers to advancements that allow an economy to produce more output or improve the quality of its output using the same amount of resources. It's not limited to factory machinery improvements (B), nor is it solely about increasing output (C) or synonymous with economic growth (D), which can occur for reasons other than technological improvements.

Question 11

The term "factor accumulation" refers to:

Accepted Answer

Factor accumulation refers to the increase in productive resources such as labor, capital, and land, which can contribute to economic growth by expanding the economy's capacity to produce goods and services.

Question 12

Diminishing returns refers to:

Accepted Answer

Diminishing returns occur when adding more of a variable input to a fixed input results in smaller increases in output, which is accurately described in option B as a decrease in marginal output under these conditions.

Question 13

Robert Solow used his growth model to show that:

Accepted Answer

Robert Solow's growth model demonstrates that without technological progress, an economy cannot sustain long-term growth. Factor accumulation (such as capital or labor) alone leads to diminishing returns, meaning that without continuous improvements in technology, economic growth will eventually slow down and stop.

Question 14

Included in Robert Solow's growth model is:

Accepted Answer

Robert Solow's growth model includes capital depreciation, investment in capital, and an aggregate production function, making all of the listed options correct components of the model.

Question 15

Letting Y stand for total output, K for capital, I for investment, and ? for the rate of depreciation, the change "?" in the stock of capital in the economy is represented in the Solow growth model by:

Accepted Answer

The correct representation of the change in the stock of capital in the Solow growth model is ?K = I - ?K, where ?K is the change in capital stock, I is investment, and ?K is the depreciation of the capital. This equation reflects that the change in capital stock is the difference between what is invested and what is depreciated.

Question 16

According to the definitions in the textbook, the steady state in the simple Solow growth model occurs where:

Accepted Answer

The steady state in the simple Solow growth model occurs where ?f(K) = ?K. This is because in the steady state, capital is not growing, so the change in capital is zero. The change in capital is equal to investment minus depreciation, so in the steady state, investment must be equal to depreciation. The depreciation rate is equal to ?K, and the investment rate is equal to ?f(K), so in the steady state, ?f(K) must be equal to ?K.

Question 17

The Solow model shows that:

Accepted Answer

The Solow model, a foundational model in economic growth theory, posits that in the absence of technological progress, economies experience diminishing returns to capital, which eventually leads to a steady state where no further growth in output per capita can occur. Technological progress is necessary for sustained economic growth in this model.

Question 18

Joseph Schumpeter's model was characterized by:

Accepted Answer

Joseph Schumpeter's model is characterized by the concept of "creative destruction," which refers to the process by which new innovations lead to the demise of older technologies or ways of doing things, thereby driving economic growth and development.

Question 19

Schumpeterian models of technological progress incorporate the following principle(s):

Accepted Answer

Schumpeterian models emphasize that innovations stem from deliberate investment in R&D (A) and that competition involves creative destruction, where new innovations disrupt or replace old industries and economic structures (B), but they do not suggest that technological progress halts due to monopoly domination (C).

Question 20

In the Schumpeterian R&D model of technological progress, the rate of technological progress depends on:

Accepted Answer

In the Schumpeterian R&D model, technological progress is influenced by various factors including the costs of acquiring resources for R&D, the benefits entrepreneurs gain from their innovations, and the amount of resources needed to create new technology. All these factors collectively determine the rate of technological progress.

Quiz 6: International Trade and Economic Development