Question 1

Assume that the growth rate of the capital stock in each period is determined by the level of output in the previous period.
-According to the Romer model, an increase in population will cause________.

Accepted Answer

According to the Romer model, an increase in population leads to a decrease in output per capita in the short run due to diminishing marginal returns to capital. However, in the long run, the increase in population leads to a permanent increase in output per capita through the increased size of the market, leading to more innovation and technological advances. Therefore, option B is the correct answer.

Question 2

According to the Romer model, tax incentives to support research and development will lead to________.

Accepted Answer

According to the Romer model, tax incentives to support research and development will lead to increased innovation, which in turn leads to increased productivity and economic growth. This will lead to higher per capita income.

Question 3

Spending on education is likely to raise output per person by ________.

Accepted Answer

The answer of Spending on education is likely to raise...

Question 4

Assume that the growth rate of the capital stock in each period is determined by the level of output in the previous period.
-An economy of 80 million people has ten percent of them engaged in research and development, where their productivity is 0.0035. The economy is on a balanced growth path, when suddenly 2.88 million people move from goods production into R&D, raising the fraction there to 13.6 percent. In the one period that begins with this labor reallocation, the growth rate of output is ________. [Refer to the instruction above.]

Accepted Answer

The growth rate of output is determined by the productivity of those engaged in research and development (R&D). Initially, 10% of 80 million, which is 8 million people, are in R&D. When 2.88 million more join them, the total in R&D becomes 10.88 million, or 13.6% of the population. The productivity of the R&D sector is given as 0.0035. The increase in the fraction of the population engaged in R&D from 10% to 13.6% leads to a proportional increase in the growth rate of output due to the higher productivity of the additional R&D workers. The specific growth rate calculation would depend on the model used, but given the options, a 2.2% growth rate is consistent with the effects of reallocating labor to a more productive sector on a balanced growth path.

Question 5

Assume that the growth rate of the capital stock in each period is determined by the level of output in the previous period.
-Technological spillover________.

Accepted Answer

Technological spillover occurs when the ideas and knowledge generated by one firm or individual can be used by others without any additional cost, due to the nonrivalry of ideas. It leads to an increase in the level of output, which in turn determines the growth rate of the capital stock. Therefore, option A is the correct answer. Options B, C, and D are not relevant to the given context.

Question 6

The growth accounting equation is gY = gA + (0.3)gK + (0.7) gL. An economy with an initial workforce of 50 million allocates 20 percent of them to research and development, where their productivity is 0.003. If the labor input in this economy is growing at one percent, and the growth rates of capital and output are equal, what is that common growth rate? Is this a realistic scenario?

Accepted Answer

The answer of The growth accounting equation is gY =...

Question 7

Assume that the growth rate of the capital stock in each period is determined by the level of output in the previous period.
-The Solow model is distinct from the Romer model in that an increase in population tends to cause________.

Accepted Answer

In the Romer model, an increase in population can lead to a permanent increase in the standard of living due to enhanced innovation and knowledge spillovers, unlike in the Solow model where the effect of population growth is more ambiguous and can potentially lead to a decrease in per capita income due to diminishing returns to capital.

Question 8

When technology improves in a country with a fast-growing population ________.

Accepted Answer

The answer of When technology improves in a country with...

Question 9

The Romer and Solow models reach the same conclusion with respect to________.

Accepted Answer

The answer of The Romer and Solow models reach the...

Question 10

-The graph above might represent the ________.

Accepted Answer

The answer of 
-The graph above might represent the ________.
...

Question 11

Assume that the growth rate of the capital stock in each period is determined by the level of output in the previous period.
-An economy of 82 million people has twenty percent of them engaged in research and development, where their productivity is 0.003. The economy is on a balanced growth path, when suddenly the productiveness of R&D rises to 0.004. For the one period that begins with this productivity increase, the growth rate of output is ________. [Refer to the instruction above.]

Accepted Answer

On a balanced growth path, the level of output (Y) is determined by the level of capital stock (K) and the level of labor (L) through the production function:
Y = F(K, L)
Assuming constant returns to scale, we can write:
Y/L = f(K/L)
where f(.) is the per-worker production function. Given that 20% of the population is engaged in R&D and their productivity is 0.003, we can write:
f(K/L) = 0.8*F(K, L/0.2)/L + 0.2*0.003
where the first term is the output per worker of the non-R&D sector (which uses 80% of the labor and all the capital), and the second term is the output per worker of the R&D sector.

On the balanced growth path, the capital stock grows at the same rate as output, which implies:
K[t+1] = K[t]*(Y[t]/K[t]) = Y[t] = f(K[t]/L[t])*L[t]
Using the expression for f(.) above, we get:
K[t+1]/K[t] = f(K[t]/L[t])+0.2*0.003/(K[t]/L[t])
Taking logs and differentiating with respect to time, we obtain:
g = f'(K[t]/L[t])*(K[t]/L[t])/(1-K[t+1]/K[t]) + 0.2*0.003/(K[t]/L[t])
where g is the growth rate of output.

When the productiveness of R&D rises to 0.004, the per-worker production function changes to:
f(K/L) = 0.8*F(K, L/0.2)/L + 0.2*0.004
Using the expression for K[t+1]/K[t] derived above, we get:
g' = f'(K[t]/L[t])*(K[t]/L[t])/(1-K[t+1]/K[t]) + 0.2*0.004/(K[t]/L[t])
Dividing the second expression by the first one, we get:
g'/g = (0.2*0.004)/(0.2*0.003) = 4/3
Therefore, the growth rate of output increases by (4/3-1)*100% = 33.3%, or about 9.4%. Answer: B.

Question 12

In the Romer model, as more labor is devoted to research and development there is________.

Accepted Answer

In the Romer model, shifting labor to research and development (R&D) initially reduces output per capita because fewer workers are producing goods. However, over time, the innovations and improvements from R&D lead to a permanent increase in output per capita as the economy becomes more productive.

Question 13

The observation that countries with high rates of population growth don't have higher per capita income ________.

Accepted Answer

The answer of The observation that countries with high rates...

Question 14

In the Romer model. as more labor is devoted to research and development________.

Accepted Answer

In the Romer model, when more labor is devoted to research and development, there is an immediate decrease in output per capita because labor is being redirected from producing goods and services to R&D activities, which may not immediately result in increased production.

Question 15

-On the graph above, for a while after t = 0, the growth rate of output per worker is ________ the growth rate prior to time zero, and ________.

Accepted Answer

The answer of 
-On the graph above, for a while...

Question 16

Assume that the growth rate of the capital stock in each period is determined by the level of output in the previous period.
-An economy of 25 million people has twenty percent of them engaged in research and development, where their productivity is 0.0056. The economy is on a balanced growth path, when suddenly a wave of immigration raises the population to 27 million. Assume that the new workers are immediately "on the job," and that the fraction engaged in R&D remains twenty percent. For the one period that begins with this population increase, the growth rate of output per person is ________. [Refer to the instruction above.]

Accepted Answer

Before the immigration wave, the economy had 25 million people and 20% of them (5 million people) were engaged in R&D, with a productivity level of 0.0056. This means that the total productivity of the R&D sector was 5 million * 0.0056 = 28,000. 
After the immigration wave, the economy has 27 million people and 20% of them (5.4 million people) are engaged in R&D. The total productivity of the R&D sector is now 5.4 million * 0.0056 = 30,240. 
Therefore, the growth rate of output per person is (30,240/28,000)^(1/27) - 1 = 0.018 or 1.8%.

Question 17

The current world population is________.

Accepted Answer

According to the United Nations, the current estimated world population as of 2020 is around 7.8 billion. None of the other options (A, C, or D) are accurate representations of the current world population.

Question 18

The Romer model suggests that there is a trade-off between ________.

Accepted Answer

The answer of The Romer model suggests that there is...

Question 19

One difference between a policy of direct spending by the government on research and development and an alternative policy of tax incentives to encourage private spending on R&D is ________.

Accepted Answer

Direct spending by the government on R&D will raise the level of R&D spending, while tax incentives to encourage private spending on R&D may also improve its productivity by providing an incentive for firms to engage in R&D activities. Option A is incorrect because tax incentives may also raise the level of R&D spending. Option B and D are incorrect because there is no relationship between government spending on R&D versus tax incentives and national saving.

Question 20

Endogenous growth theory supports the conclusion that________.

Accepted Answer

Endogenous growth theory suggests that it is possible to increase the rate of economic growth through policies that promote technological innovation and research and development. Therefore, increased government spending on research and development is considered useful for promoting economic growth.

Quiz 7: Drivers of Growth: Technology, Policy, and Institutions

Assume that the growth rate of the capital stock in each period is determined by the level of output in the previous period. -According to the Romer model, an increase in population will cause________.