Deck 3: International Trade and Factor Accumulation

Question 1

The four growth models discussed in this chapter are:

A) the Smithian model, the classical model, the Marxist model, and the Keynesian model.
B) the Harrod model, the Domar model, the Scumpeter model, and the Keynesian model.
C) the Smithian model, the classical model, the Solow model, and the Harrod-Domar model.
D) the Lucas model, the Smithian model, the Keynesian model, and the Romer model.

Answer 1

C

Question 2

Adam Smith's division of labor refers to:

A) discrimination along job classifications.
B) the organization of workers into military-like brigades to build infrastructure.
C) specialization.
D) None of the above.

Answer 2

C

Question 3

The Sung dynasty of China is known for:

A) the integration of its vast national territory into a prosperous economy.
B) its economic decline.
C) the building of a system of windmills and dikes to increase its national territory.
D) its defeat by the communists in 1948.

Answer 3

A

Question 4

Adam Smith published:

A) The Communist Manifesto in 1917.
B) An Inquiry into the Nature and Causes of the Wealth of Nations in 1776.
C) A Random Walk Down Wall Street in 1984.
D) The General Theory in 1936.

Question 5

The key to economic growth, according to Adam Smith, is:

A) restricting foreign trade so that exports exceed imports.
B) specialization and exchange.
C) getting people to save more, by force if necessary.
D) creative destruction.

Question 6

According to Adam Smith, the following institutions are necessary for innovation and specialization to flourish:

A) protection of property.
B) maintenance of law and order.
C) limitations on government's power to arbitrarily interfere in peoples activities.
D) a fair and predictable legal system.
E) All of the above.

Question 7

According to Adam Smith, the best measure of the wealth of a nation is:

A) a nation's military might.
B) the health of the industrial sector of the economy.
C) the size of the population or national territory.
D) the per capita amount of goods and services produced.

Question 8

Adam Smith, the father of modern economics, wrote substantially on the issue of international trade. What famous book did he write?

A) The General Theory.
B) Monitoring the World Economy.
C) Development as Freedom.
D) Economic Principles.
E) The Wealth of Nations.

Question 9

According to early 19^th century classical economists like Thomas Malthus, population growth is:

A) exogenous.
B) endogenous and the result of economic growth.
C) the cause of economic growth.
D) the result of investment in human capital.

Question 10

Early 19^th century economists like Thomas Malthus and John Stuart Mill claimed that:

A) any increase in real per capita income will ultimately be canceled out by population growth and diminishing returns.
B) economic growth can last forever because there are no limits to human creativity.
C) economic growth would eventually cease because people get lazy and work less.
D) people tend to multiply like rabbits and they will, therefore, never progress.

Question 11

Harrod and Domar developed their model of economic growth:

A) in the 18th century.
B) in the early 20th century, before Keynes invented macroeconomics.
C) in the 19th century as a reaction to the dismal model of diminishing returns.
D) around the time of World War II.
E) while working at the World Bank in the early 1990s.

Question 12

The Harrod-Domar model starts with the following assumption(s):

A) the Keynesian assumption that there is an unlimited amount of unemployed labor available for production.
B) the marginal product of capital is constant.
C) saving is exactly equal to productive investment.
D) All of the above.
E) None of the above.

Question 13

The Harrod-Domar growth model has lost favor among economists because, fundamentally:

A) it is a short-run model and growth is a long-run process.
B) it is a short-run model and growth is a short-run process.
C) it is a long-run model and growth is a long-run process.
D) it is a long-run model and growth is a short-run process.

Question 14

The Harrod-Domar model tells us that:

A) the rate at which the economy can grow is a constant, determined by the economy's rate of savings and the technical capital-output ratio.
B) an increase in saving, by lowering spending, will slow economic growth.
C) a country can increase its rate of growth by providing incentives for entrepreneurs to invest.
D) it takes a high rate of investment to overcome the negative effects of population growth and raise per capita output.

Question 15

The term γ in the Harrod-Domar model equation, ΔY = (1/γ)ΔK, is often referred to as the:

A) capital coefficient.
B) growth multiplier.
C) capital-output ratio.
D) innovation coefficient.

Question 16

The Harrod-Domar model predicts that if the saving rate is 10% and the capital output ratio is a constant equal to 2, then the economy will grow at a rate of:

A) 2%
B) 5%
C) 10%
D) 20%
E) None of the above.

Question 17

The Harrod-Domar model predicts that if the saving rate is 20% and the capital output ratio is a constant equal to 5, then the economy will grow at a rate of:

A) 2%
B) 5%
C) 10%
D) 20%
E) None of the above.

Question 18

In the Solow model, the transition from one steady state to another is referred to as:

A) long-run growth.
B) medium-run growth.
C) short-run growth.
D) permanent growth.

Question 19

In the steady state, the growth rates of all variables are:

A) identical.
B) constant.
C) identical and constant.
D) zero.

Question 20

The Solow model specifies that individual welfare is:

A) a rising (increasing) function of consumption.
B) is not systematically related to consumption.
C) a rising (increasing) function of saving.
D) a negative function of saving.

Question 21

The Solow model predicts that, ceteris paribus, countries with higher rates of population growth will have:

A) higher levels of per capita output.
B) the same levels of per capita output; population growth has no effect on the steady state.
C) lower levels of per capita output.
D) higher or lower levels of per capita output, depending on exactly how fast population growth is.

Question 22

Labor-augmenting technological progress, denoted as E in the textbook, enters the production function as follows:

A) Y = E[F(K, L)].
B) Y = F[K, (L·E)].
C) Y = F[(K·E),L].
D) Y = F(K,L)/E.

Question 23

In the Solow model with a positive rate of population growth n and technological progress z, the steady state level of total real output Y grows at the rate:

A) n.
B) zero.
C) z.
D) n + z.

Question 24

In the Solow model with a positive rate of population growth n and technological progress z, the steady state level of per worker real output y grows at the rate:

A) n.
B) zero.
C) z.
D) n + z.

Question 25

In the Solow model with a positive rate of population growth n and technological progress z, the steady state level of real output per effective worker y grows at the rate:

A) n.
B) zero.
C) z.
D) n + z.

Question 26

In the Solow model, the steady state includes a positive rate of per capita output growth only when the model includes a positive rate of:

A) population growth
B) depreciation.
C) technological progress.
D) saving.

Question 27

If we depict the economy, using Solow's model, in a diagram with per capita output y on one axis and the ratio of capital to labor, k, on the other, then technological progress will appear in this model as:

A) an upward shift in the production function.
B) a downward shift in the depreciation line.
C) an upward shift in the (n+z+δ) line.
D) a downward shift in the production function.

Question 28

Under the assumptions that (1) labor-augmenting technological progress is equal to z and (2) the labor force grows at the rate of n, the Solow model predicts that in the steady state:

A) output grows at the rate of n + z.
B) per worker output grows at the rate of z.
C) output per effective worker is constant.
D) All of the above.
E) None of the above.

Question 29

If a low-income country achieves the same rates of saving, depreciation, and population growth as a high-income country, and it raises its rate of technological progress to exactly that of the high-income country as well, then the Solow growth model predicts that the low-income country will:

A) converge completely to the high-income country.
B) grow at the same rate as the high income country in the long run.
C) still diverge from the high-income country.
D) end up on the identical growth path as the high-income country.

Question 30

The Solow model tells us that if countries have the access to the same technology and they accumulate new technology at identical rates, then any differences in per capita real output must be due to:

A) differences in the variables that determine the steady state, such as δ, σ, and n
B) differences in the levels of their production functions.
C) differences in their Golden Rule levels of saving.
D) None of the above; their per capita outputs must be the same.

Question 31

The Solow model tells us that if economies have identical levels and rates of growth of technology, but different values for the steady state variables δ, σ, and n, then:

A) complete convergence is impossible to achieve even if the steady state variables are equalized.
B) complete convergence still occurs since the rate of technological progress determines convergence.
C) complete convergence can be achieved by equalizing the steady state variables.
D) There will be divergence until all the steady state variables are equalized.

Question 32

Robert Solow designed his model as a response to:

A) the Harrod-Domar model and its constant capital-output ratio.
B) The Schumpeterian model and its lack of reference to technological progress.
C) The Smithian model and its diminishing returns to capital.
D) The Malthusian model and its emphasis on technology.

Question 33

A key feature of the Solow model is:

A) increasing returns to scale.
B) the Cobb-Douglas production function.
C) diminishing returns in production.
D) its unstable equilibrium.

Question 34

If the equation Y = F(K,L) represents a constant returns to scale production function, then for any positive constant c the following must also hold:

A) Y = F(cK,cL).
B) cY = cF(K,L).
C) cY = F(K,cL).
D) cY = F(cK,cL).

Question 35

The reason that the textbook converted the basic production function as specified by Robert Solow, Y = F(K,L) to the form y = f(k), where y and k represent Y/L and K/L, respectively, is that:

A) this representation of the production function matches our definition of economic growth as the change in per capita output.
B) this form is easier to write because there is only one factor, rather than two, in the production funtion.
C) this form is closer to the production function suggested by Adam Smith.
D) this form uses lower case letters, which are less confusing.

Question 36

The Solow model assumes that

A) the proportion of income consumed declines as per capita income increases.
B) consumption is determined by a constant saving rate with a value between zero and one.
C) the rate of saving declines as an economy grows.
D) there is no depreciation.

Question 37

According to Mazumdar's theory (1992) and Lewer and Van den Berg's (2001, 2003) empirical results, who gains the most from trade?

A) countries who import mainly capital goods.
B) countries who import mainly consumption goods.
C) countries who are closed and do not trade.
D) none of the above.

Question 38

In the Solow model, the transition from one steady state to another is referred to as?

A) long-run growth.
B) medium-run growth.
C) short-run growth.
D) none of the above.

Question 39

In his famous article, The Myth of Asia's Miracle, Paul Krugman argued that East Asian economic growth would:

A) slow down in the future because many East Asian countries experienced large increases in factor accumulation and savings rates, but technological progress is slow.
B) accelerate because East Asian countries would increase their savings rate and expand factor accumulation.
C) slow down because of excessive corruption and economic inefficiencies.
D) accelerate because of their strong currencies under their fixed-exchange rate regimes.

Question 40

According to Paul Krugman, the rapid growth rates of the Asian Tigers are

A) a true miracle.
B) the result of a transition to a higher steady state equilibrium brought about by sharp increases in saving and their effective labor forces.
C) the result of a transition to a higher steady state equilibrium brought about by an increases in consumption and a decrease in saving.
D) the result of rapid technological progress, based largely on copying ideas from developed countries.

Question 41

An economic model can be presented using:

A) words.
B) graphs.
C) mathematics.
D) Any of the above.
E) None of the above.

Question 42

The idea that one should not increase, beyond what is necessary, the number of entities required to explain anything is known as:

A) the Peter principle.
B) scientific reductionism.
C) Occam's razor.
D) the simplicity principle.
E) None of the above.

Question 43

Holism and science are:

A) perfectly compatible.
B) diametrical opposites.
C) compatible only under some circumstances.
D) unlikely to reach the same conclusions about economic growth.
E) None of the above.

Question 44

The fact that we still do not know everything that scientists have investigated implies that:

A) the scientific method is not infallible.
B) science can only provide us with a partial picture of reality.
C) science must be supplemented by other methods of investigation.
D) we need to pursue much more scientific research.

Question 45

The holistic approach to seeking knowledge recognizes that:

A) the scientific method is not useful.
B) the component parts of the whole cannot be understood in isolation.
C) understanding the component parts is all that is necessary for understanding the whole.
D) reality is spiritual, not scientific.

Question 46

The scientist Richard Dawkins refers to the process of breaking down a complex phenomenon into components in order to provide a consistent explanation of phenomena that operate on many levels as:

A) hierarchical reductionism.
B) ecological separation.
C) holistic perception.
D) scientific inconsistency.

Question 47

Which of the following statements is not correct?

A) A theory is purely a conjecture, not a confirmed fact.
B) A hypothesis is an (as yet) unproven conceptual framework.
C) A theory is a proven hypothesis.
D) A hypothesis occupies the space between what we know and what we don't know.

Question 48

The scientific method consists of a series of well defined steps that must be followed. Included among these steps is (are):

A) Observe some world phenomenon or fact.
B) state a hypothesis (an untested idea) that clearly and logically explains the facts you observe.
C) Record everything you do and observe.
D) All the above.
E) None of the above.

Question 49

If you confront your hypothesis with evidence, but the evidence conflicts with your hypothesis, then the scientific method mandates that you:

A) go back and adjust your hypothesis or develop and new hypothesis.
B) seek more evidence to see if it will support your hypothesis.
C) give up altogether and investigate some completely different phenomenon.
D) All the above.
E) None of the above.

Question 50

A characteristic of a scientific theory is that it is:

A) confirmed by circumstantial evidence.
B) falsifiable.
C) accepted without further challenges so that scientists can move on to further knowledge.
D) All the above.
E) None of the above.

Question 51

An economic model can be presented using:

A) case studies.
B) graphs.
C) mathematics.
D) All of the above.
E) b and c only.