Question 1

Assuming diminishing returns,

Accepted Answer

Diminishing returns suggest that as a factor of production, in this case, the saving rate, is increased, the increase in output growth will eventually start to decline. Therefore, option B and D are the only plausible choices. Additionally, given that poor countries have less capital and technology to begin with, they are likely to experience larger returns on investment, i.e., higher growth rates at lower saving rates. Therefore, option D is the most accurate as it suggests that poor countries may grow faster than rich ones, all other things being constant.

Question 2

The short-run effects of an increase in the saving rate include

Accepted Answer

An increase in the saving rate means that more resources are available for investment, which can lead to higher productivity and a higher growth rate of income.

Question 3

Two countries are the same,except one is poorer.Assuming the traditional assumption about the production function is made there are

Accepted Answer

According to the traditional assumption of diminishing returns to capital, poorer countries tend to grow faster because they can achieve higher returns on investment compared to richer countries, which have already accumulated more capital.

Question 4

Which of the following best describes the response of output as time passes to an increase in the saving rate?

Accepted Answer

An increase in the saving rate initially boosts the growth rate of output, but over time, the growth rate returns to its original level as the economy reaches a new steady state.

Question 5

Suppose Turkey increases its saving rate.In the long run

Accepted Answer

In the long run, an increase in the saving rate leads to higher levels of capital accumulation, which raises productivity and real GDP per person. However, it does not permanently increase the growth rates of these variables.

Question 6

Suppose that the U.S.undertakes a policy to increase its saving rate.This policy will likely

Accepted Answer

Increasing the saving rate can lead to more investment in capital, which can boost productivity and growth in real GDP per person for several decades, but not permanently.

Question 7

The logic behind the catch-up effect is that

Accepted Answer

The catch-up effect refers to the idea that countries with low income can grow faster than countries with high income, because new capital adds more to production in a country that doesn't have much capital. This is because the marginal productivity of capital is higher in countries with low levels of capital, compared to countries with already high levels of capital. Therefore, the catch-up effect is based on the idea that the productivity gains from adding additional capital are higher in countries with low levels of capital to begin with.

Question 8

Other things the same,if a country increased its saving rate,in 40 years or so it would likely have

Accepted Answer

Increasing the saving rate leads to more investment in capital, which raises productivity. However, the growth rate of real GDP may not increase in the long run due to diminishing returns to capital.

Question 9

Suppose that the U.S.undertakes a policy to increase its saving rate.This policy will likely

Accepted Answer

Increasing the saving rate would result in increased investment, which in turn would increase the capital stock. This would lead to higher productivity and eventual increase in the level of real GDP per person. However, this process would not be immediate and would occur gradually over time. Therefore the best choice is D.

Question 10

Suppose that there are diminishing returns to capital.Suppose also that two countries are the same except one has more capital per worker and so it has more real GDP per worker than the other.Finally,suppose that the saving rate in both countries increases from 4 percent to 7 percent.Over the next ten years we would expect that

Accepted Answer

Since there are diminishing returns to capital, the country with less capital per worker will experience a greater increase in real GDP per worker when the saving rate increases. This is because the extra capital will have a larger impact on productivity when there is less capital to begin with. Therefore, the country that started with less capital per worker will grow faster than the country that started with more capital per worker. Both countries will experience some growth due to the increase in saving rate, but the country with less initial capital per worker will experience a higher growth rate.

Question 11

The traditional view of the production process is that capital is subject to

Accepted Answer

The traditional view of the production process posits that capital is subject to diminishing returns. This implies that as an economy accumulates more capital, each additional unit of capital adds less to output than the previous unit. Consequently, poorer countries, which have less capital to begin with, should experience faster growth when they add more capital, compared to richer countries with already substantial amounts of capital. This is because the initial units of capital in a poor country are far from the point of diminishing returns that richer countries face.

Question 12

Country A has real GDP per person of 100,000 while country B has real GDP per person of 200,000.All else constant,country A will eventually have a higher standard of living than country B if

Accepted Answer

Country A will have a higher standard of living than country B if the level of saving per person is higher in country A than in country B. This is because saving is necessary for investment, which leads to economic growth.

Question 13

The long-run effects of an increase in the saving rate include

Accepted Answer

The answer of The long-run effects of an increase in...

Question 14

Suppose an economy experiences an increase in its saving rate.The higher saving rate leads to a higher growth rate of productivity

Accepted Answer

An increase in the saving rate can lead to higher investment and capital accumulation, boosting productivity growth in the short run. However, in the long run, the economy reaches a new steady state where the growth rate of productivity is determined by factors like technological progress, not the saving rate.

Question 15

An increase in the saving rate would,other things the same,

Accepted Answer

An increase in the saving rate would increase growth more for a poor country than for a rich country, but it may raise growth only temporarily. The reason is that a poor country has less access to capital and may need to rely more heavily on foreign investment. Therefore, an increase in the saving rate would allow for more domestic investment and productivity gains. However, the economy may still face structural issues that hinder long-term growth, making it more challenging to sustain growth over time. In contrast, a rich country may already have access to substantial capital and may face diminishing returns to additional savings. Hence, the impact of an increase in the saving rate on growth may be more modest.

Question 16

Real GDP per person is $10,000 in Country A,$20,000 in Country B,and $30,000 in Country C.The saving rate increases by the same rate in all three countries.Other things equal,we would expect that

Accepted Answer

According to the Solow growth model, countries with lower initial levels of GDP per person tend to grow faster when they increase their saving rate, due to the potential for higher returns on investment. Thus, Country A, with the lowest GDP per person, is expected to grow the fastest.

Question 17

Other things equal,relatively poor countries tend to grow

Accepted Answer

This is because poor countries have more room for improvement and can adopt technologies and practices from richer countries to catch up faster. This is known as the catch-up effect.

Question 18

Suppose that there are diminishing returns to capital.Suppose also that two countries are the same except one has less capital and so less real GDP per person.Suppose that both increase their saving rate from 3 percent to 4 percent.In the long run

Accepted Answer

In the long run, both countries will achieve higher levels of real GDP per person due to increased savings rates. However, the country with less capital will experience a greater temporary increase in growth because it benefits more from additional capital due to diminishing returns.

Question 19

The catch-up effect refers to the idea that

Accepted Answer

The catch-up effect refers to the idea that it is easier for a country to grow fast and catch up if it starts out relatively poor. This idea is based on the assumption that poorer countries have more opportunities for growth and development, and can therefore experience faster rates of economic growth than richer countries. This catch-up effect has been observed in countries such as Japan, South Korea, and China, which have experienced rapid growth and development in recent decades.

Question 20

According to studies using international data,an increase in the saving rate

Accepted Answer

According to international data, an increase in the saving rate results in an increase in the growth rate of output for several decades. This is likely due to the fact that increased saving leads to increased investment, which boosts productivity and eventually increases economic growth.

Quiz 12: Production and Growth: Economic Growth and Public Policy

Assuming diminishing returns,

The short-run effects of an increase in the saving rate include

Two countries are the same,except one is poorer.Assuming the traditional assumption about the production function is made there are

Which of the following best describes the response of output as time passes to an increase in the saving rate?

Suppose Turkey increases its saving rate.In the long run

Suppose that the U.S.undertakes a policy to increase its saving rate.This policy will likely

The logic behind the catch-up effect is that

Other things the same,if a country increased its saving rate,in 40 years or so it would likely have

Suppose that the U.S.undertakes a policy to increase its saving rate.This policy will likely

The traditional view of the production process is that capital is subject to

Country A has real GDP per person of 100,000 while country B has real GDP per person of 200,000.All else constant,country A will eventually have a higher standard of living than country B if

The long-run effects of an increase in the saving rate include

Suppose an economy experiences an increase in its saving rate.The higher saving rate leads to a higher growth rate of productivity

An increase in the saving rate would,other things the same,

Real GDP per person is $10,000 in Country A,$20,000 in Country B,and $30,000 in Country C.The saving rate increases by the same rate in all three countries.Other things equal,we would expect that

Other things equal,relatively poor countries tend to grow

Suppose that there are diminishing returns to capital.Suppose also that two countries are the same except one has less capital and so less real GDP per person.Suppose that both increase their saving rate from 3 percent to 4 percent.In the long run

The catch-up effect refers to the idea that

According to studies using international data,an increase in the saving rate