chapter 9 final review

When the private returns to research and development activities within a firm are 5 percent and the societal returns are 10 percent, private profit-maximizing firms:

engage in less research and development than they would if they earned the social return.

In the Solow model with labor-augmenting technological progress and population growth, an increase in the saving rate will

lead to a higher steady-state capital per effective worker.

In the Solow model with labor-augmenting technological progress and population growth, an increase in the saving rate will:

lead to a higher steady-state capital per effective worker.

In the Solow model with labor-augmenting technological progress and population growth, an increase in the saving rate will: Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices

lead to a higher steady-state capital per effective worker.

efficiency of labor

A variable in the Solow growth model that measures the health, education, skills, and knowledge of the labor force.

Introducing labor-augmenting technological progress into the production function requires that the production function Y = F(K, L) be rewritten as:

Y = F(K, E × L)

Tthe production function Y = AK exhibits _____ MPK.

a constant

The ratio k = K / (E × L) is called:

capital per effective worker.

Balanced growth in the Solow model with technological progress means that K / Y is _____ and that K grows at rate _____.

constant; n + g

When two countries begin with different levels of capital stock per effective worker, their economies will always converge over time.

false

An economy in the steady state has a marginal product of capital of 9 percent, a rate of depreciation of 4 percent, a population growth rate of 1 percent, and rate of technological progress of 2 percent. This economy must _____ in order to reach the Golden Rule point.

increase its capital stock

An economy has a depreciation rate of δ = 0.05, a population growth rate of n = 0.01, and a rate of labor-augmenting technological progress of g = 0.02. If the marginal product of capital is 0.1 in the steady state, then the saving rate would need to _____ in order to reach the Golden Rule steady state

increase

Suppose that an economy with a population growth rate of 1.5 percent and a rate of technological growth of 2.5 percent is in the steady state. If the capital-output ratio is 2, depreciation amounts to 10 percent of GDP, and capital income is 20 percent of GDP, then this economy would need to _____ the Golden Rule steady state.

increase its saving rate to reach

One economic reason for governments to decide on the allocation of saving to specific investment projects is that the private marginal returns of a project are: Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices

substantially lower than its social marginal returns.

If the per-worker production function is given by y = k1/2, the saving rate is s = 0.16, the population growth rate is n = 0.03, the depreciation rate is δ = 0.03, and the rate of labor-augmenting technological progress is g = 0.02, then the steady-state level of capital per effective worker is: Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices

0.16 × (k*)1/2 = (0.03 + 0.03 + 0.02) × k*.

If MPK = 0.2 and capital input increases by 5 units, then, other things equal, output will increase by approximately _____units.

1

If capital per effective worker is k = 5, K = 500, and L = 80, then E equals:

1.25.

According to the text, there are several possible sources of income inequality among countries. These include all of the following EXCEPT: Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices

Correct: imperialistic meddling by richer countries into the politics and culture of poorer countries. imperialistic meddling by richer countries into the politics and culture of poorer countries. the quality of the nation's institutions. differences in the production function. differences in capital accumulation.

Two countries have the same production function, y = k1/2, and both countries are characterized by δ = 0.04, n = 0.01, and g = 0.03. The only differences are that country A has a higher saving rate than country B. Country A has capital per effective worker of kA = 4 country, and country B has capital per effective worker of kB = 6. According to the Solow model:

Country A will converge to a steady state with a higher output per effective worker than Country B.

creative distruction

Explained by Joseph Schumpeter; The process by which new products and technologies developed by entrepreneurs over time make current products an technologies obsolete; stimulus of economic activity.

If capital per effective worker is k = 5, K = 500, and L = 80, then E equals:

Given k = K / (E × L), then E = K / (k × L) = 500 / (5 × 80) = 1.25.

Entrepreneurs rely on venture capital to bring innovations to market. Successful start-ups often generate large capital gains for their investors. If a government wants to encourage growth through investment and technological growth, should it increase taxes on capital gains or lower taxes on capital gains?

Lower the capital gains tax.

Labor-augmenting technological progress

Technological progress that raises the productivity of an existing quantity of labor by general education, on-the-job training programs, etc.

Endogenous Growth Theory

a set of models in which the growth rate of productivity and living standards is endogenous

The Solow growth model predicts that returns to capital measured by the real rental price of capital will _____ over time; Karl Marx predicted that returns to capital will _____ over time. Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices

be constant; decrease

According to the text, when the steady-state capital stock is above the Golden Rule capital stock, the saving rate should:

be decreased

In the two-sector model, output per effective worker is a function of capital per:

effective worker and the fraction of the labor force in manufacturing.

The Solow growth model implies that the capital-output ratio K / Y and the marginal product of capital are constant in the steady state. If MPK equals the real rental price of capital, and there are constant returns to scale, then the capital share of income over time is _____, and the labor share of income over time is _____.

constant; constant

According to the Solow model, international differences in income per person primarily can be attributed to either differences in _____ or differences in _____

efficiency; factors of production

Suppose that an economy has reached the Golden Rule steady state and then, because of favorable economic policies, the rate of technological progress increases. In order the return to the Golden Rule steady state, the saving rate would need to:

decrease

When u increases, the immediate impact is that more of the labor force is employed in research activities, and, initially, output in the manufacturing sector tends to:

decrease

An increase in u initially will _____ output and consumption; in the long run, output will grow more quickly because of the faster growth in _____.

decrease; E

According to the text, convergence of economies as measured by a shrinking gap in income per person, Y / L, is observed among:

economies that are similar in economic culture and policies but not among all economies.

When the private returns to research and development activities within a firm are 5 percent and the societal returns are 10 percent, private profit-maximizing firms: Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices

engage in less research and development than they would if they earned the social return.

In the Solow model, with labor-augmenting technological progress and population growth, the steady-state growth rate of output per worker, Y / L, is:

g

growth

g(u)

solow model under astimates

growth when there is techlinogical externalities

An economy with a population growth rate of 1.5 percent and a rate of technological growth of 2.5 percent is in the steady state. If the capital-output ratio is 2, depreciation amounts to 10 percent of GDP, and capital income is 25 percent of GDP, then this economy would need to _____ the Golden Rule steady state

increase its saving rate to reach

According to the text, if the workforce increases the time spent in research activities at universities u, then the growth rate g(u) will:

increase.

When u increases, the growth rate of the stock of knowledge E _____, and break-even investment ____.

increases; increases

Assume that an economy has labor-augmenting technological progress but that capital does not depreciate (δ = 0), and the population growth rate is n = 0. In order to maintain steady-state capital per effective worker of k*:

investment is necessary to provide additional capital in the amount of gk*.

In the Solow model, with labor-augmenting technological progress and population growth, if the production function is y = k1/2, s = 0.4, δ = 0.03, n = 0.05, and g = 0.02, then the steady-state level of capital per worker _____ the Golden Rule level.

is less than

In the Solow model, with labor-augmenting technological progress and population growth, the steady-state growth rate of output, Y, is: Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices

n+g

A study by Jeffrey Frankel and David Romer concluded that trade and income levels of a country are _____ correlated.

positivly

An economy has a depreciation rate of δ = 0.03, a population growth rate of n = 0.05, and a rate of rate of labor-augmenting technological progress of g = 0.02. The marginal product of capital is 0.1 in the steady state, so the saving rate would need to _____ in order to reach the Golden Rule steady state.

remain the same (Because the MPK of 0.1 equals δ + n + g, the economy is already in the Golden Rule steady state)

The basic model of endogenous growth implies that the growth rate of output is positive as long as:

s × (Y / K) exceeds the rate of depreciation.

MPK- δ<n+g

saving rate is too high

MPK- δ> n+g

saving rate is too low

To find the steady-state capital per effective worker, k*, in the Solow model with labor-augmenting technological progress, it is necessary to solve:

sf(k*) = (δ + n + g)k*.

Suppose that an economy has reached the Golden Rule steady state and then, because of favorable economic policies, the rate of technological progress increases. The new Golden Rule level of capital per effective worker will be _____ the original level.

smaller than

Investment in the two-sector model is determined by the saving rate and total output. Break-even investment is determined by [δ + n + g(u)]k. The intersection of the investment curve and the break-even investment curve determines the:

steady-state level of capital per effective worker.

One economic reason for governments to decide on the allocation of saving to specific investment projects is that the private marginal returns of a project are:

substantially lower than its social marginal returns.

modifide solow module predects that

technological change leads to balanced growth

In the Solow model, with labor-augmenting technological progress and population growth, a decline in the rate of depreciation of capital because of favorable climate changes that slow the corrosion of materials _____ the steady-state capital per effective worker.

will increase

Over time, E increases for all of the following reasons EXCEPT when:

workers better understand the needs of customers they deal with. literacy rates of workers increase. better nutrition improves the health of workers. Correct: employers strive to generate maximum profit from their workers.