Deck 8: Economic Growth II: Technology, Empirics, and Policy

Question 1

In the Solow model with technological progress, the steady-state growth rate of output per (actual) worker is:

A)0.
B) g.
C)n.
D) n + g.

Answer 1

g.

Question 2

The number of effective workers takes into account the number of workers and the:

A)amount of capital available to each worker.
B)rate of growth of the number of workers.
C)efficiency of each worker.
D)saving rate of each worker.

Answer 2

efficiency of each worker.

Question 3

In a Solow model with technological change, if population grows at a 2 percent rate and the efficiency of labor grows at a 3 percent rate, then in the steady state output per actual worker grows at a percent rate.

A)0
B)2
C)3
D)5

Answer 3

3

Question 4

In the Solow model with technological progress, the steady-state growth rate of total output is:

A) 0.
B) g.
C) n.
D)n + g.

Question 5

If the labor force is growing at a 3 percent rate and the efficiency of a unit of labor is growing at a 2 percent rate, then the number of effective workers is growing at a rate of:

A)2 percent.
B)3 percent.
C)5 percent.
D)6 percent.

Question 6

The Solow model predicts that two economies will converge if the economies start with the same:

A)capital stocks.
B)populations.
C)steady states.
D)production functions.

Question 7

In the Solow model with technological progress, by increasing the efficiency of labor at rate g:

A)the real wage and the real rental price of capital both grow at rate g.
B)the real wage grows at rate g but the real rental price of capital is constant.
C)the real wage is constant but the real rental price of capital grows at rate g.
D)both the real wage and the real rental price of capital are constant.

Question 8

In the Solow growth model with population growth and technological change, the break-even level of investment must cover:

A)depreciating capital.
B)depreciating capital and capital for new workers.
C)depreciating capital and capital for new effective workers.
D)depreciating capital, capital for new workers, and capital for new effective workers.

Question 9

Assuming that technological progress increases the efficiency of labor at a constant rate is called:

A)endogenous technological progress.
B)the efficiency-wage model of economic growth.
C)labor-augmenting technological progress.
D)the Golden Rule model of economic growth.

Question 10

In a steady-state economy with population growth n and labor-augmenting technological progress g, persistent increases in standard of living are possible because the:

A)capital stock grows faster than does the labor force.
B)capital stock grows faster than does the number of effective workers.
C)capital stock grows faster than does depreciation.
D)saving rate constantly increases.

Question 11

The efficiency of labor:

A)is the marginal product of labor.
B)is the rate of growth of the labor force.
C)includes the knowledge, health, and skills of labor.
D)equals output per worker.

Question 12

In the Solow growth model with population growth and technological change, the steady-state growth rate of income per person depends on:

A)the rate of population growth.
B)the saving rate.
C)the rate of technological progress.
D)the rate of population growth plus the rate of technological progress.

Question 13

In the Solow growth model, the steady-state growth rate of output per effective worker is , and the steady-state growth rate of output per actual worker is .

A)the sum of the rate of technological progress plus the rate of population growth; zero
B)zero; the rate of technological progress
C)zero; zero
D)the rate of technological progress; the rate of population growth

Question 14

The balanced growth property of the Solow growth model with population growth and technological progress predicts which of the following sets of variables will grow at the same rate in the steady state?

A)output per effective worker, capital per effective worker, real wage
B)output per worker, capital per worker, real wage
C)real rental price of capital, real wage, output per worker
D)capital-output ratio, output per worker, capital per worker

Question 15

Over the past 50 years in the United States:

A)output per worker hour, capital stock per worker hour, the real wage, and the real rental price of capital have all increased about 2 percent per year.
B)output per worker hour and the real wage have both increased about 2 percent per year, whereas capital stock per worker hour has increased faster and the real rental price of capital has remained about the same.
C)output per worker hour, the real wage, and the real rental price of capital have all increased about 2 percent per year, whereas capital stock per worker hour has increased faster.
D)output per worker hour, the real wage, and capital stock per worker hour have all increased about 2 percent per year, whereas the real rental price of capital has remained about the same.

Question 16

In the Solow model with technological change, the Golden Rule level of capital is the steady state that maximizes:

A)output per worker.
B)output per effective worker.
C)consumption per worker.
D)consumption per effective worker.

Question 17

With population growth at rate n and labor-augmenting technological progress at rate g, the Golden Rule steady state requires that the marginal product of capital (MPK):

A)net of depreciation be equal to n + g.
B)net of depreciation be equal to the depreciation rate plus n + g.
C)plus n be equal to the depreciation rate plus g.
D)plus g be equal to the depreciation rate plus n.

Question 18

The efficiency of labor is a term that does not reflect the:

A)high output that comes from labor cooperating with a large amount of capital.
B)health of the labor force.
C)education of the labor force.
D)skills of the labor force acquired through on-the-job training.

Question 19

According to the Solow model, persistently rising living standards can only be explained by:

A)population growth.
B)capital accumulation.
C)saving rates.
D)technological progress.

Question 20

The rate of labor-augmenting technological progress (g) is the growth rate of: Financial System ...

A)labor.
B)the efficiency of labor.
C)capital.
D)output.

Question 21

English-style legal systems give protections to shareholders and creditors than French Napoleonic Codes, typically resulting in capital markets and faster rates of economic growth.

A)greater; more developed
B)greater; more corrupt
C)less; more developed
D)less; less corrupt

Question 22

Economic research shows that in explaining international differences in living standards.

A)physical capital is more important than is human capital
B)human capital is at least as important as is physical capital
C)human capital is much more important than is physical capital
D)infrastructure is the most important factor

Question 23

The preponderance of empirical evidence supports the hypothesis that economies that are open to trade than comparable closed economies.

A)grow more rapidly.
B)have lower steady-state levels of income per worker due to foreign competition.
C)have faster rates of population growth and technological progress.
D)converge more slowly to a steady-state equilibrium.

Question 24

Whether workers must "opt in to" or "opt out of" a retirement savings plan make a difference if workers are rational optimizers and make a difference if workers' behavior exhibits inertia.

A)would; would
B)would not; would not
C)would; would not
D)would not; would

Question 25

Empirical evidence supports the theory that free trade:

A)increases economic growth.
B)decreases economic growth.
C)increases imports, but decreases exports because of greater global competition.
D)increases both imports and exports, but does not contribute to overall economic growth.

Question 26

Differences in factor accumulation and/or differences in production efficiency must account for all international differences in:

A)human capital and physical capital.
B)saving rates and population growth rate.
C)income per person.
D)labor efficiency.

Question 27

If two economies are identical (with the same population growth rates and rates of technological progress), but one economy has a lower saving rate, then the steady-state level of income per worker in the economy with the lower saving rate:

A)will be at a lower level than the steady state of the high-saving economy.
B)will be at a higher level than the steady state of the high-saving economy.
C)will be at the same level as the steady state of the high-saving economy.
D)will grow at a slower rate than the high-saving economy.

Question 28

If the marginal product of capital net of depreciation equals 10 percent and the rate of population growth equals 2 percent, then this economy will be at the Golden Rule steady state if the rate of technological progress equals percent.

A)0
B)2
C)8
D)10

Question 29

International differences in income per person in accounting terms must be attributed to differences in either and/or .

A)factor accumulation; production efficiency
B)constant returns to scale; the marginal product of capital
C)unemployment rates; depreciation rates
D)consumption; interest rates

Question 30

The analysis in Chapter 8 of the current capital stock in the United States versus the Golden Rule level of capital stock shows that the capital stock in the United States is:

A)well above the Golden Rule level.
B)about equal to the Golden Rule level.
C)well below the Golden Rule level.
D)slightly above the Golden Rule level.

Question 31

Which of the following changes would bring the U.S. capital stock, currently below the Golden Rule level, closer to the steady-state, consumption-maximizing level?

A)increasing the population growth rate
B)increasing the rate of capital depreciation
C)increasing the rate of technological progress
D)increasing the saving rate

Question 32

If two economies are identical (including having the same saving rates, population growth rates, and efficiency of labor), but one economy has a smaller capital stock, then the steady-state level of income per worker in the economy with the smaller capital stock:

A)will be at a lower level than the steady state of the high capital economy.
B)will be at a higher level than the steady state of the high capital economy.
C)will be at the same level as the steady state of the high capital economy.
D)will be proportional to the ratio of the capital stocks in the two economies.

Question 33

If the marginal product of capital net depreciation equals 8 percent, the rate of growth of population equals 2 percent, and the rate of labor-augmenting technical progress equals 2 percent, to reach the Golden Rule level of the capital stock the rate in this economy must be .

A)saving; increased.
B)population growth; decreased
C)depreciation; decreased
D)total output growth; decreased

Question 34

Hypotheses to explain the positive correlation between factor accumulation and production efficiency include each of the following except:

A)the quality of a nation's institutions influences both factor accumulation and production efficiency.
B)capital accumulation causes greater production efficiency.
C)efficient economies make capital accumulation unnecessary.
D)an efficient economy encourages capital (including human capital) accumulation.

Question 35

Empirical investigations into whether differences in income per person are the result of differences in the quantities of the factors of production available or differences in the efficiency with which the factors are employed typically find:

A)a negative correlation between the quantity of factors and the efficiency of use.
B)a positive correlation between the quantity of factors and the efficiency of use.
C)no correlation between the quantity of factors and the efficiency of use.
D)large gaps between the quantity of factors accumulated and the efficiency of use.

Question 36

A possible externality associated with the process of accumulating new capital is that:

A)a reduction in labor productivity may occur.
B)new production processes may be devised.
C)old capital may be made more productive.
D)the government may need to adopt an industrial policy.

Question 37

Other things being equal, all of the following government policies are likely to increase national saving except:

A)decreasing taxes on savings accounts.
B)running a budget deficit.
C)running a budget surplus.
D)retiring part of the national debt.

Question 38

The success of the "Save More Tomorrow" program is based on the assumption that consumers:

A)smooth consumption over their life cycles.
B)save a constant fraction of their permanent incomes.
C)require help controlling their desires for instant gratification.
D)save only their transitory incomes.

Question 39

Conditional convergence occurs when economies converge to:

A)the same steady state as other economies.
B)the Golden Rule steady state.
C)the balanced-growth steady state.
D)their own, individual steady states.

Question 40

International data suggest that economies of countries with different steady states will converge to:

A)the same steady state.
B)their own steady state.
C)the Golden Rule steady state.
D)steady states below the Golden Rule level.

Question 41

One explanation for greater economic development in moderate versus tropical climates is that institutions established by colonial settlers in moderate climates , while institutions established by colonists in tropical climates .

A)were based on English common law; were based on the Napoleonic Code
B)were based on the Napoleonic Code; were based on English common law
C)protected property rights; were extractive and authoritarian
D)were extractive and authoritarian; protected property rights

Question 42

The type of legal system in a country and the level of corruption in a country have been found to be:

A)unrelated to the rate of economic growth in a country.
B)significant determinants of the rate of economic growth in a country.
C)important topics for political discussion, but not economic explanations of growth.
D)important variables explaining the Golden Rule level of capital.

Question 43

Explain how the Solow growth model differs from models of endogenous growth with respect to:
a. the sources of technological progress. b. returns to capital.

Question 44

If the per-worker production function is y = Ak, where A is a positive constant, then the marginal product of capital:

A)increases as k increases.
B)is constant as k increases.
C)decreases as k increases.
D)cannot be measured in this case.

Question 45

Suppose a government is able to impose controls that limit the number of children people can have. Use the Solow growth model of Chapter 8 to graphically illustrate the impact of the slower rate of population growth on the steady-state capital-labor ratio and the steady-state level of output per worker.
Be sure to label the: a. axes; b. curves; c. initial steady-state levels; d. terminal steady-state levels; and e. the direction curves shift.

Question 46

Based on the Solow growth model with population growth and labor-augmenting technological progress, explain how each of the following policies would affect the steady-state level and steady-state growth rate of total output per person:
a. a reduction in the government's budget deficit b. grants to support research and development c. tax incentives to increase private saving
d. greater protection of private property rights

Question 47

The economy of Macroland can be described by the Solow growth model. In Macroland the labor force grows at 3 percent per year, labor-augmenting technology increases at 2 percent per year, the saving rate is 15 percent per year, and the rate of capital depreciation is 10 percent per year. Choosing from among the following variables: output per effective worker, output per worker, total output, labor force, capital per worker, and capital per effective worker, which variables will be growing at a:
a. 2 percent rate?
b. 3 percent rate?
c. 5 percent rate?
d. 0 percent rate?

Question 48

The productivity slowdown that began in the 1970s has been attributed, at least partly, to each of the following except:

A)running out of new ideas about how to produce.
B)a deterioration in the quality of education.
C)a decline in the number of workers in the labor force.
D)a lower average level of experience among workers.

Question 49

Suppose Congress passes significant tax cuts on household income but does not reduce spending, so that the government budget deficit is larger. Use the Solow growth model of Chapter 8 to graphically illustrate the impact of the tax cut on the steady-state capital-labor ratio and the steady-state level of output per worker.
Be sure to label the: a. axes; b. curves; c. initial steady-state levels; d. terminal steady-state
levels; and e. the direction curves shift.

Question 50

If the per-worker production function is y = Ak, where A is a positive constant, in the steady state, a:

A)lower saving rate does not affect the growth rate.
B)higher saving rate does not affect the growth rate.
C)lower saving rate leads to a higher growth rate.
D)higher saving rate leads to a higher growth rate.

Question 51

Suppose that technological change is not labor-augmenting, but affects only capital. Use the Solow growth model of Chapter 8 to graphically illustrate the impact of the slower rate of technological change that increases the rate at which capital wears out (the rate of depreciation increases) on the steady-state capital-labor ratio and the steady-state level of output per worker.
Be sure to label the: a. axes; b. curves; c. initial steady-state levels; d. terminal steady-state levels; and e. the direction curves shift.

Question 52

If productivity growth in the United States had remained at its level before the recent productivity slowdown, real income today would be more than percent higher.

A)10
B)20
C)30
D)40

Question 53

Public policies in the United States designed to stimulate technological progress do not include:

A)tax breaks to encourage homeownership.
B)the temporary monopoly granted by the patent system.
C)tax breaks for research and development.
D)subsidies given by the National Science Foundation.

Question 54

What is the difference between convergence and conditional convergence with respect to predictions of the Solow growth model? Explain.

Question 55

Two countries, Highland and Lowland, are described by the Solow growth model. Both countries are identical, except that the rate of labor-augmenting technological progress is higher in Highland than in Lowland.
a. In which country is the steady-state growth rate of output per effective worker higher?
b. In which country is the steady-state growth rate of total output higher?
c. Does the Solow growth model predict that the two economies will converge to the same steady state?

Question 56

In comparing two countries with different levels of education but the same saving rate, rate of population growth, and rate of technological progress, one would expect the more highly educated country to have:

A)a higher growth rate of total income and a higher real wage.
B)a higher growth rate of total income and the same real wage.
C)the same growth rate of total income and a higher real wage.
D)the same growth rate of total income and the same real wage.

Question 57

Suppose a government is able to permanently reduce its budget deficit. Use the Solow growth model of Chapter 8 to graphically illustrate the impact of a permanent government deficit reduction on the steady-state capital-labor ratio and the steady-state level of output per worker.
Be sure to label the: a. axes; b. curves; c. initial steady-state levels; d. terminal steady-state levels; and e. the direction curves shift.

Question 58

Income per person exceeds $25,000 in many countries, but is below $1,000 per person in many other countries. Based on the Solow growth model, suggest at least four possible explanations for this gap in living standards.

Question 59

Assume that a country's production function is Y = AK·3L·7. The ratio of capital to output is 3, the growth rate of output is 3 percent, and the depreciation rate is 4 percent. Capital is paid its marginal product.
a. What is the marginal product of capital in this situation? (Hint: The marginal product of
capital may be computed using calculus by differentiating the production function and using the capital-output ratio or by using the fact that capital's share equals MPK multiplied by K divided by Y.)
b. If the economy is in a steady state, what must be the saving rate? (Hint: The saving rate
multiplied by Y must provide for gross growth of (δ + n + g)K, where δ is the depreciation rate.)
c. If the economy decides to achieve the Golden Rule level of capital and actually reaches it,
what will be the marginal product of capital?
d. What must the saving rate be to achieve the Golden Rule level of capital?

Question 60

The recent worldwide slowdown in economic growth began in the early:

A)1960s.
B)1970s.
C)1980s.
D)1990s.

Question 61

Suggest 3 explanations for the productivity slowdown experienced between 1972 and 1995.