Chapter 5 & 6

In the Solow model, if capital is in the steady state, output:

is also in the steady state.

An implication of the Solow model is that once an economy reaches the steady state:

long-term growth does not continue.

Because there are no diminishing returns in the stock of ideas in the Romer model:

old ideas continue to contribute to current economic growth.

The production function, Yt = A Kt^1/3 Lt^1/3 where At is the stock of ideas, Kt is capital, and Lt is labor, assumes:

At is nonrivalrous.

For which of the following does the Solow model provide adequate explanations?

why saving rates differ across countries the cause of productivity differences across countries why population growth rates differ across countries what causes long-term economic growth

In the Romer model, if Canada and Taiwan have the same fraction of researchers and the same knowledge efficiency parameter but Canada's population is larger, then:

Canada has a higher per capita output growth rate.

In the Solow model, defining (s) as the saving rate, Yt as output, and (It) as investment, consumption is given by:

Ct = (1 - s)Yt

Which of the following flowcharts best summarizes Romer's description of ideas and growth?

Ideas → Nonrivalry → Increasing returns → Imperfect competition

Suppose you are given the data for Brazil and Portugal. In Brazil, the saving rate is 0.1 and the depreciation rate is 0.1, while in Portugal the saving rate is 0.2 and the depreciation rate is 0.1. Using the Solow model, you conclude that in the steady state:

Portugal has a higher capital-output ratio than Brazil.

The difference between total factor productivity (TFP) in the Solow model and the stock of ideas in the Romer model is that:

TFP is fixed and ideas can grow

In the Romer model, if an economy's share of researchers decreases, there will be:

an immediate increase in output and output growth will slow.

In economics, a rival good is one that:

cannot be consumed by more than one person at a time.

A central lesson of the Solow model is that:

capital accumulation cannot serve as the engine of long-run per capita economic growth.

The key insight in the Solow model is that:

capital accumulation contributes to economic growth.

With the production function, Yt = A Kt^1/3 Lt^1/3 if we double ________, we have a constant returns production

capital and labor

With the production function, Yt = A Kt^1/3 Lt^1/3 if we double ________, we have an increasing returns production.

capital, labor, and the stock of ideas

In the Romer model, the production function Yt = At Lyt where At is knowledge and Lyt is the amount of labor in the output sector, exhibits:

constant returns to labor and increasing returns to labor and knowledge.

The endogenous variables in the Solow model are:

consumption, investment, the capital stock, labor, and output.

If the depreciation and saving rates are constant, the economy eventually will reach the steady state in the Solow model because of:

diminishing returns to capital in production.

In the Romer model, the more labor you dedicate to generating ideas, the ________ but ________.

faster you accumulate knowledge; at a loss to current output in the consumption sector

If there are large fixed costs due to research and development, perfect competition does not generate new ideas because:

firms need to recoup these costs through higher profits.

Capital accumulation is a(n):

flow

In the Solow model, if (It>DKt) , the capital stock:

grows

In the Romer model, output is increasing in the ________ and decreasing in the ________.

growth rate of knowledge; fraction of population in the ideas sector

A balanced growth path is defined as a situation in which the:

growth rates of all endogenous variables are constant.

The parameter(s) in the Romer model is/are the:

initial stock of ideas, the population, the fraction of population in the ideas sector, and the ideas efficiency parameter.

In the Solow model, the steady-state capital stock is a function of:

productivity, the depreciation rate, the labor stock, and the saving rate.

Which of the following is an exogenous variable in the Solow model?

productivity, the depreciation rate, the saving rate, the initial capital stock

The amount of capital in an economy is a(n) ________, while the amount of investment is a(n) ________.

stock; flow

The steady state is defined as the point where capital accumulation, ΔKt, is equal to:

zero

If South Korea's steady-state GDP per worker is higher than that of the Philippines, you might conclude that ________, ceteris paribus.

the investment rate in South Korea is higher than in the Philippines

If a natural disaster destroys a large portion of a country's capital stock but the saving and depreciation rates are unchanged, the Solow model predicts that the economy will grow and eventually reach:

the same steady-state level of output as it would have before the disaster

An increase in ________ leads to a higher steady-state capital stock, and a decline in ________ leads to a lower steady-state capital stock.

the saving rate; productivity

To get increasing returns to scale using the production function, Yt = A Kt^1/3 Lt^1/3 we need to replace total factor productivity with:

the stock of ideas, At