Question 1

Suppose that a country increased its saving rate.In the long run it would have

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The answer of Suppose that a country increased its saving...

Question 2

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

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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 3

If a country's saving rate declined,then other things the same,in the long run the country would have

Accepted Answer

A lower saving rate means less investment, which leads to lower productivity and lower real GDP per person in the long run. This is because the country will have fewer resources to invest in capital goods and technology, which are critical for increasing productivity and economic growth.

Question 4

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

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The answer of Other things the same,if a country increased...

Question 5

Suppose Turkey increases its saving rate.In the long run

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When Turkey increases its saving rate, this means more funds are available for investment in capital goods and technology, leading to an increase in productivity. This increase in productivity will then lead to an increase in real GDP per person. Therefore, option B is the best choice. Option A implies that the growth rates of productivity and real GDP per person increase at the same rate, which may not necessarily be the case. Option C implies that the growth rate of productivity increases more than real GDP per person, which may not be accurate. Option D implies that the growth rate of real GDP per person increases more than productivity, which may also not be accurate.

Question 6

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

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The answer of Which of the following best describes the...

Question 7

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 that started with less capital per worker will experience a higher growth rate when the saving rate increases. This is because the additional capital will have a greater impact on their productivity than it would in the country that already had more capital per worker. Therefore, the country with initially lower capital per worker will catch up and grow faster than the other country.

Question 8

Country A and country B are the same except country A has a capital stock of 5,000 a population of 12,000 and employment of 10,000.Country B has a capital stock of 8,000 and a population of 24,000 and employment of 20,000.

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The answer of Country A and country B are the...

Question 9

Suppose that Slovenia undertakes a policy to increase its saving rate.This policy will likely

Accepted Answer

Increasing the saving rate will lead to greater investment in capital goods, which can increase productivity and increase the economy’s potential output. This can lead to higher GDP growth over a sustained period, potentially lasting several decades. However, the impact may not be permanent as other factors can affect long-term growth.

Question 10

Assuming diminishing returns,

Accepted Answer

Diminishing returns means that as more investment is made, the marginal increase in output decreases over time. Therefore, the increase in output growth from an increase in the saving rate falls over time. Additionally, poor countries tend to have lower levels of capital and technology, so they are closer to their production frontier and may benefit more from an increase in investment, leading to faster growth compared to rich countries.

Question 11

Real GDP per person is $30,000 in Country A,$20,000 in Country B,and $11,000 in Country C.Saving per person is $1,000 in all three countries.Other things equal,we would expect that

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The answer of Real GDP per person is $30,000 in...

Question 12

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.

Question 13

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

Accepted Answer

An increase in saving rate would lead to higher investment, which would increase the capital stock and productivity of a country. However, in the long run, diminishing returns to capital would set in and the impact of further increases in the saving rate on growth would diminish. Therefore, an increase in the saving rate would have a temporary effect on growth. Additionally, poorer countries have a lower initial capital stock and, therefore, have a higher marginal productivity of capital. This would mean that the impact of an increase in saving rate on growth would be higher for poorer countries than richer ones.

Question 14

Country A has real GDP per person of 10,000 while country B has real GDP per person of 20,000.All else constant,country A will eventually have a higher standard of living than country B if

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The answer of Country A has real GDP per person...

Question 15

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

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The answer of Two countries are the same,except one is...

Question 16

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 is because a poor country has more room for improvement in terms of economic development and can adopt and adapt new technologies quickly.

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

Evidence shows that other things the same,poor countries grow

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The answer of Evidence shows that other things the same,poor...

Question 19

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

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The answer of Suppose that there are diminishing returns to...

Question 20

The logic behind the catch-up effect is that

Accepted Answer

The catch-up effect refers to the phenomenon that countries with lower incomes will experience higher rates of economic growth compared to countries with higher incomes. This is because new capital (i.e. investment in physical and human capital) will have a greater impact on production in countries with less capital as compared to countries that already have a lot of capital. Therefore choice C is correct. The other options are not accurate descriptions of the catch-up effect.

Quiz 25: Production and Growth