Deck 4: Long-Run Economic Growth

Question 1

According to the Malthusian growth model, improvements in technology

A) allow an improvement in living standards.
B) cause fertility rates to increase.
C) provide no escape from Malthusian stagnation.
D) all of the above.
E) only a and b.

Answer 1

all of the above.

Question 2

During the nineteenth and twentieth centuries, real GDP in the United States grew from being _ _ _ _ _ _ _ _ _ _ _times as large as real GDP in India to being
_ _ _ _ _ _ _ _ _ _ _ _ times larger than that of India.

A) 2.5, 5
B) 4, 10
C) 4, 16
D) 2.5, 10
E) 2.5, 16

Answer 2

2.5, 16

Question 3

All of the following were components of the Malthusian growth model except

A) land.
B) diminishing marginal product of labor.
C) capital.
D) technology.
E) constant returns to scale.

Answer 3

constant returns to scale.

Question 4

Empirical evidence about the labor supply curve suggests

A) a small, positive elasticity with respect to the real wage.
B) a small, negative elasticity with respect to the real wage.
C) a large, positive elasticity with respect to the real wage.
D) a large, negative elasticity with respect to the real wage.
E) none of the above, because the supply of labor depends on the nominal wage and not the real wage.

Question 5

Long-run economic growth is

A) no longer possible once an economy is fully mature.
B) greatly affected by small differences in short-run growth.
C) a zero-sum game; countries grow at the expense of each other.
D) all of the above.
E) none of the above.

Question 6

Positioning the subsistence line in the Malthusian growth model as a positively sloped 45-degree line through the origin reflects _ _ _ _ _ _ _ _ _ _ _ _

A) increasing
B) constant
C) decreasing
D) no relationship between
E) none of the above.

Question 7

The substitution effect on the quantity of labor supplied given a change in the real wage is

A) generally positive and therefore pushes supply in the same direction as the income effect.
B) always positive and therefore pushes supply in the same direction as the income effect.
C) generally negative and therefore pushes supply in the same direction as the income effect.
D) always negative and therefore pushes supply in the same direction as the income effect.
E) none of the above.

Question 8

In making employment decisions, profits are maximized

A) wherever the marginal product of labor is an increasing function of employment.
B) at the level of employment where the marginal product of labor equals the nominal wage rate.
C) at the level of employment where the marginal product of labor equals the real wage rate.
D) at the level of employment where the marginal product of labor equals the average product of labor.
E) none of the above.

Question 9

When determining potential GDP, economists define the workforce as fully employed when

A) each worker who wants to work has a job.
B) each worker who has a job is working up to his or her full potential.
C) the real wage is such that the demand and supply of labor are equal.
D) all of the above.
E) none of the above.

Question 10

Suppose that a labor market were initially in equilibrium and wages and prices were perfectly flexible. If nominal wages and prices were to increase by 10 percent in response to a change in the money supply, then

A) equilibrium employment would immediately fall in response to the new, lower real wage rate.
B) equilibrium employment would immediately increase in response to the new, higher nominal wage.
C) equilibrium employment would remain at the original level despite uncertain short-term variability in the real wage.
D) equilibrium employment would immediately fall in response to the price effect despite a constant real wage.
E) equilibrium would remain at the original level because no change in the real wage would occur.

Question 11

The long-run growth model attempts to explain

A) the variation of output around a country's level of potential output.
B) the movement of wages and prices over time.
C) the efficiency of capital and labor usage.
D) differences in growth rates across countries over time.
E) important events like the 2001 recession.

Question 12

The demand for labor is

A) a downward-sloping relationship between the quantity demanded and the nominal wage, because of the diminishing marginal product of labor.
B) a downward-sloping relationship between the quantity demanded and the real wage, because of the diminishing marginal product of labor.
C) an upward-sloping relationship between the quantity demanded and the nominal wage, because the substitution effect of a change in the nominal wage dominates the corresponding income effect.
D) an upward-sloping relationship between the quantity demanded and the real wage, because the substitution effect of a change in the real wage dominates the substitution effect.
E) none of the above.

Question 13

Empirical evidence seems to suggest that the wage elasticity of the supply of labor is small and positive. It must be true, therefore, that

A) the substitution effect of a change in the wage rate should be expected to exceed the associated income effect by a small amount.
B) the substitution effect of a change in the wage rate should be expected to fall short of the associated income effect by a small amount.
C) both the income and substitution effects of a change in the wage rate should be expected to be small and of opposite signs.
D) both the income and substitution effects of a change in the wage rate should be expected to be of the same signs.
E) none of the above.

Question 14

Malthusian growth theory

A) has been disproven for all time periods.
B) is supported by the data for the Middle Ages up through 1750.
C) continues to find applicability in today's industrial countries.
D) all of the above.
E) only b and c.

Question 15

Each of the following statements is true except

A) above the subsistence line, output per worker is greater than needed for subsistence.
B) below the subsistence line, output per worker is greater than needed for subsistence.
C) below the subsistence line, output per worker is less than needed for subsistence.
D) a and b
E) b and c

Question 16

The Malthusian model of economic growth did well at explaining the experience of all of the following time periods except

A) 500-800 AD.
B) 800-1100 AD.
C) 1100-1400 AD.
D) 1400-1700 AD.
E) 1700-1900 AD.

Question 17

The primary building blocks of the Malthusian growth model include all of the following except

A) diminishing marginal product.
B) fertility.
C) mortality.
D) subsistence.
E) population.

Question 18

The tendency to move to the subsistence line derives from

A) the combination of fertility and mortality.
B) population increases when output is above the subsistence line.
C) decreasing employment when output is below the subsistence line.
D) all of the above.
E) only b and c.

Question 19

Between the years 500 AD and 1500 AD economic growth in Europe took place at the rate of__________percent per year.

A) 0
B) 0.5
C) 1.0
D) 1.5
E) 2.0

Question 20

Malthusian stagnation occurs

A) whenever output falls below the subsistence level.
B) whenever output is above the subsistence level.
C) regardless of deviations of output.
D) all of the above.
E) none of the above.

Question 21

The condition for balanced growth in Solow's neoclassical growth model states

A) net saving must equal net investment.
B) the capital-output ratio equals the ratio of the saving rate to the growth rate of the labor force.
C) the capital stock exceeds the saving rate by the same factor as output exceeds the growth rate of the labor force.
D) all of the above.
E) none of the above.

Question 22

The rate of growth of labor productivity traces

A) the rate of change of the nominal wage paid to labor over time.
B) the rate of change of labor's share of GDP over time.
C) the rate of change of a weighted index of wages and producer prices over time.
D) the rate of change of the ratio of output per unit of labor over time.
E) none of the above.

Question 23

A production function in macroeconomic theory provides information about

A) how much capital is required to maintain the natural rate of unemployment over the short term.
B) how much capital is required to maintain the natural rate of unemployment over the long term.
C) how much output can be produced from various combinations of capital and labor regardless of the feasibility of those combinations.
D) how much output can be produced from various feasible combinations of capital and labor near full capacity and potential employment.
E) none of the above.

Question 24

The modern growth regime, beginning in the 1920s, is distinguished by its

A) technological progress.
B) increased technological progress.
C) fertility reductions.
D) increased accumulation of capital stock.
E) all of the above.

Question 25

Potential employment in any economy is equal to

A) the total working-age population.
B) the total number of people willing to work for the existing real wage.
C) the total number of people willing to work for the existing nominal wage.
D) the total number of people required to run the existing capital stock at full capacity.
E) none of the above.

Question 26

Given a fixed labor supply schedule that slopes upward, an increase in the capital stock of the economy is expected to

A) decrease employment and increase the real wage.
B) increase employment and the real wage.
C) decrease employment and the real wage.
D) increase employment and decrease the real wage.
E) have no effect on the labor market.

Question 27

Which of the following is a source of growth in potential GDP?

A) Growth in the labor force
B) Growth in the capital stock
C) Growth in labor productivity
D) Reduced inflationary pressure from energy costs
E) All but d

Question 28

When the economy operates at potential GDP,

A) unemployment is equal to the natural rate.
B) the equilibrium real wage and employment level have been reached in the labor market.
C) the labor market is overheated.
D) all of the above.
E) a and b.

Question 29

Variability in potential GDP

A) is greater than variability in actual GDP.
B) is necessarily equal to variability in actual GDP.
C) is less than variability in actual GDP.
D) was affected more by the energy shocks of the 1970s than was variability in actual GDP.
E) none of the above.

Question 30

The level of potential employment in any economy depends on

A) the level of consumption supported by that economy.
B) the level of GDP produced by that economy.
C) the prevailing price level in that economy.
D) the prevailing interest rate and corresponding level of investment in that economy.
E) none of the above.

Question 31

In a diagram of the economy's production function that plots labor input on the horizontal axis and output on the vertical axis, an increase in the capital stock is represented by

A) a movement along the production function to higher levels of labor input and output.
B) an upward shift in the production function reflecting the corresponding increase in labor productivity due to the increase in capital.
C) a downward shift in the production function due to the decline in labor's share in producing output.
D) a movement along the production function to lower levels of labor input.
E) none of the above.

Question 32

An increase in the saving rate, in Solow's neoclassical growth model,

A) increases the rate of growth of output over the long run.
B) decreases the rate of growth of output over the long run.
C) increases the rate of growth of output temporarily.
D) decreases the rate of growth of output temporarily.
E) none of the above.

Question 33

An important conclusion from Solow's work on long-run growth is that

A) in the steady state, both capital stock and output grow at a slower rate than the labor force.
B) the economy's growth rate does not depend on the savings rate.
C) economies that save more experience a higher growth rate.
D) in the steady state, both capital stock and output grow at the same rate as the labor force.
E) b and d.

Question 34

The determinants of aggregate supply include

A) the number of people available to work.
B) the productivity of the available labor force.
C) the underlying technology of the existing economy.
D) the size of the existing capital stock including equipment, structures, and land.
E) all of the above.

Question 35

In the Solow growth model, the engine of economic growth is

A) population growth.
B) labor force increases.
C) capital stock increases.
D) new finds of natural resources.
E) technological progress.

Question 36

The equilibrium level of employment in the labor market

A) is consistent with an unemployment rate of zero.
B) is a positive function of the real wage.
C) increases with increases in the capital stock provided labor supply slopes upward.
D) is negatively related to the real wage.
E) b and c.

Question 37

A higher real wage rate

A) increases the opportunity cost of leisure.
B) increases the ability of workers to consume leisure.
C) increases the number of hours worked.
D) all of the above.
E) a and b.

Question 38

For any given year, the capital stock can be considered to be exogenously determined because

A) usually gross investment just matches depreciation, so that the capital stock is fixed.
B) investment projects, even in excess of depreciation, generally take more than 12 months to install.
C) accounting conventions subtract depreciation of the capital stock from gross investment in their computation of net investment for the year.
D) interest rates, the price of capital, hardly ever move significantly over the course of any 12-month period.
E) all of the above.

Question 39

If you were to draw a line on a graph with the price level on the vertical axis and real GDP on the horizontal axis that would represent aggregate supply, you would draw

A) a horizontal line at the current price level to reflect your taking price to be exogenous in the short run.
B) a vertical line at potential GDP to reflect your taking aggregate supply to be determined by an exogenous capital stock, a given technology, and employment equal to its potential.
C) a downward-sloping line to reflect the diminished profitability of producing output when prices are high.
D) an upward-sloping line to reflect the ability of higher prices to elicit expanded output.
E) none of the above.

Question 40

For a given stock of capital, output will

A) exceed potential GDP whenever employment exceeds potential employment.
B) fall short of potential GDP whenever the unemployment rate exceeds the natural rate.
C) reach potential GDP when the unemployment rate falls to the natural rate.
D) exceed potential GDP in the United States if the unemployment rate falls below a neighborhood of 6 percent.
E) all of the above.

Question 41

Each of the following statements is true except

A) balanced growth occurs when the labor force, capital stock, and real output all grow at the same rate.
B) along a balanced growth path, the ratio of capital to output is greater than the ratio of the saving rate to the labor force growth rate.
C) Solow showed that the balanced growth path is stable: If the economy is off a balanced growth path, it will naturally tend to return to that path.
D) a higher saving rate raises GDP, in Solow's analysis of the long-run growth model, but does not permanently raise the growth rate.
E) a higher population growth rate lowers GDP per capita, in the Solow growth model, but does not permanently lower the growth rate.

Question 42

Each of the following statements is true except

A) balanced growth occurs when the labor force, capital stock, and real output all grow at the same rate.
B) Solow showed that the balanced growth path is stable: If the economy is off a balanced growth path, it will naturally tend to return to that path.
C) a higher population growth rate lowers GDP per capita, in the Solow growth model, but does not permanently lower the growth rate.
D) all of the above.
E) none of the above.

Question 43

In the Solow growth model, when the growth rates of capital and labor are constant,

A) the capital labor ratio grows at a constant rate, too.
B) output per worker grows at the rate of growth of capital and labor combined.
C) output grows at the same rate as the capital-labor ratio.
D) the capital-labor ratio is constant.
E) none of the above is true.

Question 44

Suppose that real GDP in a country is 10 trillion in the year 2005. With a growth rate of 2.5 perc e n t , wh at will be the per- c apita GDP in the year 2010?

A) 10.3 trillion
B) 11.3 trillion
C) 11.5 trillion
D) 12.5 trillion
E) Not enough information to calculate

Question 45

According to the rule of 70, a country growing at 3 percent per year doubles its GDP per capita approximately every

A) 17 years.
B) 20 years.
C) 23 years.
D) 25 years.
E) 30 years.

Question 46

Each of the following statements is true except

A) balanced growth occurs when the labor force, capital stock, and real output all grow at the same rate.
B) along a balanced growth path, the ratio of capital to output equals the ratio of the saving rate to the labor force growth rate.
C) Solow showed that the balanced growth path is stable: If the economy is off a balanced growth path, it will naturally tend to return to that path.
D) A higher saving rate raises GDP, in Solow's analysis of the long-run growth model, and permanently raises the growth rate.
E) A higher population growth rate lowers GDP per capita, in the Solow growth model, but does not permanently lower the growth rate.