Question 1

The reason that an increase in α in the production function y = Ak^α makes growth more responsive to investment is: A) the higher the coefficient α, the more curved the production function becomes. B) the higher the coefficient α, the lower the production function becomes. C) the higher the coefficient α, the straighter is the related saving function. D) the more curved is the related saving function, the more the steady state is affected by changes in the saving rate σ, population growth n, and depreciation δ.

Accepted Answer

C

Question 2

An implication of the AK model is that:
A) investment can generate long-run growth.
B) the economy will never reach a steady state.
C) investment is subject to diminishing returns.
D) savings will diminish but never cease entirely.

Accepted Answer

The AK model suggests that investment can generate long-run growth, which is supported by the idea of endogenous growth theory that technological progress can lead to sustained growth in the long run. The other options are incorrect as the AK model suggests that the economy will eventually reach a steady state, investment is subject to increasing returns to scale, and savings can increase indefinitely.

Question 3

The fundamental logic behind the AK model is:
A) there are no diminishing returns when there is technological progress.
B) there is permanent economic growth when there is technological progress.
C) there are no diminishing returns when all factors are reproducible.
D) there is no economic growth unless all factors are reproducible.

Accepted Answer

The AK model posits that there are no diminishing returns to capital when all factors of production are reproducible, leading to sustained economic growth. This contrasts with traditional models that assume diminishing returns to capital.

Question 4

In Rebelo's AK model, the parameter α in the production function y = Ak^α is: A) α = 1. B) α < 1. C) α > 1. D) 0 < α < 1.

Accepted Answer

The answer of In Rebelo's AK model, the parameter α...

Question 5

In Rebelo's AK model, the production function is:
A) a sharply rounded curve.
B) an upward-sloping straight line.
C) an increasingly steep downward-sloping curve to reflect falling costs.
D) a horizontal straight line.

Accepted Answer

Rebelo's AK model assumes an upward-sloping straight line production function, where increases in capital stock lead to proportional increases in output. This is different from traditional models which assume diminishing marginal returns to capital.

Question 6

In the AK model, the capital stock grows according to: A) g_k = σA - δ. B) g_k = σAk - δ. C) g_k = Ak^α - δ. D) g_k = 0.

Accepted Answer

In the AK model, the growth rate of capital stock is given by g_k = σA - δ, where σ is the savings rate, A is a constant representing technology, and δ is the depreciation rate.

Question 7

The AK model is important because:
A) investment is indeed the primary source of all economic growth.
B) technological progress can make the economy behave as if it had an AK production function.
C) in the long run, there are no diminishing returns.
D) all factors are essentially reproducible in some form.

Accepted Answer

The AK model argues that technological progress can lead to an economy behaving as if it had an AK production function, meaning that there are no diminishing returns in the long run. However, it does not necessarily hold that investment is the primary source of economic growth or that all factors are reproducible.

Question 8

In the Cobb-Douglas production function, the closer capital's share of income is to 1:
A) the closer to a straight line is the production function.
B) the more concave the production function.
C) the more convex the production function.
D) the more labor is used in the production process.

Accepted Answer

The Cobb-Douglas production function becomes linear as capital's share of income approaches 1, making the production function appear closer to a straight line. This is because the function is defined as Y = A * L^(1-α) * K^α, where L is labor, K is capital, A is total factor productivity, and α represents capital's share of output. As α approaches 1, the function relies almost entirely on capital, reducing the impact of labor and making the function linear in terms of capital.

Question 9

All things equal, an economy with a higher capital share of income, α,relative to an economy with a smaller capital share will:
A) experience a shorter transitional period to a new steady state whenever saving rates change.
B) experience a longer transitional period to a new steady state whenever saving rates change.
C) experience the same transitional period to a new steady state whenever saving rates change.
D) experience no transitional period.

Accepted Answer

An economy with a higher capital share of income, α, will have a higher marginal product of capital, which means that the return on savings will be higher. Therefore, a change in saving rates will have a greater impact on investment and capital accumulation, leading to a longer transitional period to a new steady state.

Question 10

The AK model generates permanent economic growth despite the absence of technological progress. Per worker output, y, grows at the economy's rate according to the AK model.
A) population growth.
B) capital growth.
C) depreciation.
D) saving.

Accepted Answer

According to the AK model, economic growth is generated by capital accumulation, with an emphasis on increasing the level of physical capital per worker. Therefore, capital growth is the best choice among the given options.

Question 11

The S-curve graphically illustrates:
A) the relationship between the rate at which capital gets worn out and time.
B) the relationship between educational attainment levels and technological progress.
C) the relationship between the diffusion of technology and time.
D) the relationship between saving rates and technological progress.

Accepted Answer

The S-curve graphically illustrates the relationship between the diffusion of technology and time. It shows how a new technology starts slowly and then experiences rapid adoption as it becomes more widely known and accepted, eventually reaching saturation as most potential adopters have already adopted it.

Question 12

Nearly a century ago, Alfred Marshall (1920) devoted an entire chapter of his popular economics textbook to the Concentration of Specialized Industries in Particular Localities. Marshall attributed concentration to three factors. Which of the following is not one of the factors that Marshall mentioned?
A) industries are prone to concentration because of the availability of specialized labor.
B) industries are prone to concentration because of the development of specialized suppliers of intermediate goods and services.
C) industries are prone to concentration because of the flows of technology between the industries.
D) industries are prone to concentration because of geographic proximity to institutions of higher learning.

Accepted Answer

While Marshall did discuss the importance of specialized labor and intermediate suppliers, and flows of technology between industries, he did not mention geographic proximity to higher education institutions as a factor in the concentration of specialized industries in particular localities.

Question 13

According to Weitzman (1996), An abstract case could be made that all innovations, being expressions of human imagination, are in a sense __.
A) arithmetic.
B) multiplicative.
C) combinatoric.
D) path dependent.

Accepted Answer

Weitzman argues that all innovations result from combining existing ideas or technologies in new ways, which is a combinatorial process. Therefore, the best choice is C. Arithmetic and multiplicative do not accurately describe the process of innovation, and path dependence refers to a specific concept related to the influence of past events on future outcomes.

Question 14

In addressing the issue of international trade and technological progress, the noted French mathematician/physicist Jules Henri Poincaré wrote: To create consists precisely in not making useless combinations and in making those which are useful.... Among chosen combinations the most fertile will often be those formed of elements drawn from domains which ___.
A) are in the same line of specialized research.
B) are feasible.
C) are profitable.
D) are far apart.

Accepted Answer

Poincaré's quote suggests that the most fruitful combinations come from elements drawn from domains that are far apart, as this allows for new and innovative combinations that can lead to technological progress.

Question 15

Which of the following is not one of the ways in which technological progress grows as a result of an externality?
A) technology grows through the process of investment.
B) technology grows through increasing returns to scale.
C) technology grows through the process of international trade.
D) technology grows through decreasing returns to scale.

Accepted Answer

Decreasing returns to scale can actually hinder technological progress as the cost per unit increases with increased production. Therefore, it is not a way in which technological progress grows as a result of an externality.

Question 16

Learning-by-doing example: During World War II, the Liberty ship program saw unit costs decline:
A) about 50% a year.
B) about 12-24% with each doubling of output.
C) about 25-50% with each doubling of output.
D) none of the above.

Accepted Answer

The learning-by-doing experience during the Liberty ship program followed the "learning curve" model, where unit costs decreased by about 12-24% with each doubling of output. This was due to the increased efficiency and experience gained by the workers involved in the production process.

Question 17

Endogenous growth models:
A) explicitly specify how technology is accumulated.
B) explicitly specify how capital is accumulated.
C) ignore technology and capital accumulation, but focus on labor instead.
D) take technological progress as an exogenous variable that influences all the remaining endogenous variables.

Accepted Answer

Endogenous growth models explicitly specify how technology is accumulated as an endogenous variable, which is different from exogenous growth models where technological progress is taken as an exogenous variable. These models emphasize that the accumulation of knowledge and technology can generate sustained economic growth through positive spillover effects on the productivity of workers and firms.

Question 18

Which of the following products was quickest to develop and spread in popularity?
A) Electric motors.
B) Computers.
C) Automobiles.
D) It is difficult to say which one developed quicker, given that each built on earlier ideas.

Accepted Answer

The development and spread of technologies like electric motors, computers, and automobiles are complex processes that often build on earlier ideas and innovations. Each of these technologies has a unique history of development and adoption, making it difficult to directly compare their timelines and declare one as the quickest to develop and spread in popularity.

Question 19

Technological progress has been characterized as:
A) path dependent.
B) incremental.
C) continuous.
D) All of the above.
E) None of the above.

Accepted Answer

Technological progress is path dependent as it is influenced by past innovations and knowledge. It is also incremental as advancements are made through small, continuous improvements rather than drastic changes. Therefore, technological progress is continuous, building on previous advancements, leading to the answer being D.

Question 20

Technology is often described as:
A) a rival good.
B) an excludable good.
C) a nonrival good.
D) a free good.

Accepted Answer

Technology is a nonrival good, meaning its use by one person does not diminish its availability to others.

Quiz 4: Overcoming Diminishing Returns: Technology As an Externality

The reason that an increase in α in the production function y = Ak^α makes growth more responsive to investment is:

An implication of the AK model is that:

The fundamental logic behind the AK model is:

In Rebelo's AK model, the parameter α in the production function y = Ak^α is:

In Rebelo's AK model, the production function is:

In the AK model, the capital stock grows according to:

The AK model is important because:

In the Cobb-Douglas production function, the closer capital's share of income is to 1:

All things equal, an economy with a higher capital share of income, α,relative to an economy with a smaller capital share will:

The AK model generates permanent economic growth despite the absence of technological progress. Per worker output, y, grows at the economy's rate according to the AK model.

The S-curve graphically illustrates:

According to Weitzman (1996) , An abstract case could be made that all innovations, being expressions of human imagination, are in a sense __.

Which of the following is not one of the ways in which technological progress grows as a result of an externality?

Learning-by-doing example: During World War II, the Liberty ship program saw unit costs decline:

Endogenous growth models:

Which of the following products was quickest to develop and spread in popularity?

Technological progress has been characterized as:

Technology is often described as: