Macro Econ
Suppose output per worker in a country has grown at the same rate as technology over for many years. This country's growth would be described as:
"balanced" growth.
In the absence of technological progress, we know that the level of output per worker in the steady state will:
. remain constant.
(list above) Refer to the information above. Which of the following represents the level of investment needed to maintain a constant capital stock (K) in this economy?
.10K.
(list above) Refer to the information above. Which of the following represents the level of investment needed to maintain constant capital per effective worker (K/NA) in this economy?
.15K.
(list above) Refer to the information above. Which of the following represents the amount of investment per effective worker needed to maintain a constant level of capital per effective worker (K/NA)?
.16(K/NA)
(list above) Refer to the information above. Given this information, the steady-state rate of growth of Y/NA is:
0
Assume that an economy experiences both positive population growth and technological progress. Once the economy has achieved balanced growth, we know that growth rate of K/NA is:
0
The Social Security system in the United States was introduced in which year?
1935
When was the last year that GDP per capita in North Korea was approximately equal to GDP per capita in South Korea?
1970.
(list above) Refer to the information above. Given this information, the steady state rate of growth of output per worker is:
3%
Use the information provided below to answer the following questions. δ= .11 gA = .03 gN = .02 Refer to the information above. Given this information, we know that effective labor (NA) grows at which rate?
5%
(list above) Refer to the information above. Which of the following represents the steady−state growth rate of output in this economy?
5%.
The amount of education in a country affects output per worker __________.
A and B are both correct.
Which of the following examples best describes ways to increase human capital directly? (Check all that apply.)
A university professer decides to attend a conference on best teaching practices Sam decides to put off working and attends a 4-year university
Why is the amount of R&D spending important for growth?
All of the above.
Consider an economic model with three types of firms, wherein each firm type follows a different strategy towards research. Type X firms undertake basic research, type Y firms undertake applied research, and type Z firms imitate research. Any type X firm can sell its research to a type Y firm, whereas type Z firms can only imitate the research done by type Y firms. In this economic model, if the governing agency decides to implement laws promoting perfect competition market scenarios, which of the following implications materialize for firms in each of the categories?
Appropriability of research would go down permanently, fertility of research would improve only in the short run and diffusion of new technology would eventually go down.
Education increases human capital and thus output. Give a possible reason why the government should subsidize education.
Because education, at least higher levels, incurs an opportunity cost of lost wages, people may not be willing to invest in additional amounts of human capital.
Where does technological progress come from for the economic leaders of the world?
By generating new ideas through research and development.
Developing countries A and B have many similarities, such as a high level of corruption, export-oriented economic activities, high savings rates, and frequent outbreaks of violence and political instability. To boost the growth of their economies, both of the countries decided to introduce a series structural changes. Country A decided to transform into a free market economy under the belief that the markets will decide the most beneficial outcomes. The role of Country A's government was restricted to maintenance of basic law and order in the society and defense forces, leaving the corporate sector to self-regulate itself (a laissez-faire economy). Country B went for slow privatization with a large amount of government intervention in the economy. Simultaneously, Country B's government built a strong set of property rights. If the two countries started from the same point under the technology frontier,__________ will have lower technological progress and growth, due to_________
Country A lack of protection against monopolies
Developing countries do not generally create new ideas through research and development. Which of the following is not a source of technological progress for developing countries?
Discovering new sources of natural resources can lead to progress in developing countries.
In order to write the production function in the form below, according to the textbook, what two key assumptions must we make?
Employment is constant and there is no technological progress in the economy.
A higher investment rate can sustain higher growth of output forever.
False
A higher saving rate implies a higher level of capital per effective worker in the steady state and thus a higher rate of growth of output per effective worker.
False
Capital accumulation does not affect the level of output in the long run, only technological progress does.
False
Education increases human capital and thus output. It follows that governments should subsidize education.
False
Evidence suggests that happiness in rich countries increases with output per person
False
In steady state, output per effective worker grows at the rate of population growth.
False
In virtually all the countries of the world, output per person is converging to the level of output per person in the United States.
False
Technology has not played an important part in Chinese economic growth.
False
The fact that one cannot patent a theorem implies that private firms will not engage in basic research.
False
The price of food is higher in poor countries than it is in rich countries.
False
A firm in Country A, launched a new product P which became a success in national as well as international markets. Following the success of P, many firms in Country B started producing and marketing product P in bulk. Country B firms have noticed lower productivity, as compared to the Country A firm, and huge inventory stocks. Within a year, Country C firms introduced an improved, cheaper and more efficient, version of product P. This improved product became a success in domestic and international markets. Which of the following statements is true?
Firms in Country A and B both incur losses, but the losses incurred by Country B firms are greater due to poor managerial practices of these firms.
Which of the following is not a reason developing countries may choose to have poor patent protection?
Firms in developing countries are more willing to engage in research and development with poor patent protection.
The government of a centrally planned economy wants to boost the rates of technological progress, investments, and output growth in the economy. Which of the following strategies will be most effective for the country?
Following a policy of slow paced privatization of state enterprises and developing a good set of property rights.
Which of the following is not a true statement?
In a competitive market, If firms have made large profits from new products, they tend to have fewer incentives to create new discoveries.
Suppose that an international treaty ensuring that each country's patents are legally protected all over the world is signed. How does this affect the appropriability and fertility of research, R&D spending in the long run, and output in the long run?
It will raise the appropriability for firms, increase R&D spending, and raise growth for developed economies.
In the production function Y = f(K, NA), for a given state of technology, constant returns to scale implies that output (Y) will increase by 7% when
K and N increase by 7%.
Which of the following is not a necessity for this country to attain a rapid output growth rate?
Make large investments in R&D so that the country will sustain a rapid growth rate over a long period of time.
For about 1,000 years after the fall of the Roman Empire, there was essentially no growth in output per person in Europe—any increase in output led to a proportional increase in population. This type of phenomenon is referred to as the
Malthusian trap.
Which of the following is NOT constant when balanced growth is obtained?
NA
Is the United States likely to fall into a Malthusian trap the same way that England did during the 18th century?
No, the U.S economy is more diversified and can internalize technological advances better than England could.
Assume that an economy experiences both positive population growth and technological progress. Once the economy has achieved balanced growth, we know that:
S/NA = (δ+ gA + gN) K/NA
Assume there is a permanent reduction in the rate of technological progress. What is the likely impact on the growth rate and the level of output per worker in the short run and in the long run?
The growth rate of output per worker falls in the short run. In the long run, the growth rate approaches a new steady state with a permanently lower growth rate. Output per worker continues to rise over time, just at a slower rate.
The governments of Countries A, B, and C enter into an agreement for the implementation of strong patent laws in all three of the countries. Which of the following statements depict the result of this agreement in the short run?
The output and the rate of technological progress will fall for firms in Country B, they will rise for firms in Country A, and will be indeterminate for firms in Country C.
Assume there is a permanent reduction in the saving rate. What is the likely impact on the growth rate and the level of output per worker in the short run and in the long run?
There is no effect on the steady-state growth rate of output per worker. The growth rate of output per worker falls in the short run, but in the long run it approaches its original steady-state rate.
Even if the potential returns from R&D spending are identical to the potential returns from investing in a new machine, R&D spending is much riskier for firms than investing in new machines.
True
For about 1,000 years after the fall of the Roman Empire, there was essentially no growth in output per person in Europe because any increase in output led to a proportional increase in population.
True
If capital never depreciated, growth could go on forever.
True
If the rate of technological progress increases, the investment rate (the ratio of investment to output) must increase to keep capital per effective worker constant.
True
Writing the production function in terms of capital and effective labor implies that as the level of technology increases by 10%, the number of workers required to achieve the same level of output decreases by 10%.
True
n steady state, output per worker grows at the rate of technological progress.
True
Because eventually we will know everything, growth will have to come to an end.
Uncertain
Given the production function above, an increase in human capital per worker will lead to
a higher steady-state level of output per worker.
Based on recent research, which of the following is the most likely cause of the reduction in the rate of technological progress?
a reduction in the fertility of research
Which of the following can help explain the technology gap that exists between some countries?
all of the above
Which of the following is hypothesized to explain the reduction in the rate of technological progress?
all of the above
Which of the following represents a dimension of technological progress?
all of the above
Even if the potential returns from R&D spending are identical to the potential returns from investing in a new machine, R&D spending is much riskier for firms than investing in new machines because __________.
all of the above.
Low tax rates and good public infrastructure would be expected to raise output per worker because __________.
all of the above.
Which of the following best describes a situation where research is considered appropriable?
all of the above.
Which of the following will cause an increase in the steady−state growth rate of capital?
an increase in the population growth rate.
Which of the following will cause an increase in output per effective worker?
an increase in the saving rate.
How do each of the following policy proposals affect the appropriability and fertility of research, R&D spending in the long run, and output in the long run? Suppose that tax credits are given for each dollar of R&D spending. This proposal would lead to __________ in R&D spending. There would be __________ in the rates of technological progress and __________ in output growth.
an increase; an increase; an increase
Suppose there is a decrease in funding of government-sponsored conferences between universities and corporations. This proposal would lead to __________ in the fertility of applied research and to a __________ in growth.
a decrease; a decrease
If all of the type X firms started undertaking research which was not substitutable by research of other firms in the same category and simultaneously extremely strong patent laws were implemented, the fertility of research in the economy would ________
decrease
This is because the ease of undertaking research would_________ for type Y firms.
decrease
Writing the production function in terms of capital and effective labor implies that as the level of technology increases by 10%, the number of workers required to achieve the same level of output __________.
decreases by 10%.
The method of constructing a measure of technological progress relies on which of the following assumptions?
each factor of production is paid its marginal product
Which of the following is not a reason for firms to engage in basic research:
firms cannot patent a theorem.
Assume that an economy experiences both positive population growth and technological progress. Once the economy has achieved balanced growth, we know that the output per worker ratio (K/N) is:
growing at a rate of gA
Assume that an economy experiences both positive population growth and technological progress. Once the economy has achieved balanced growth, we know that output (Y) is:
growing at a rate of gA + gN
Assume that an economy experiences both positive population growth and technological progress. Once the economy has achieved balanced growth, we know that the capital stock is:
growing at a rate of gA + gN
Assume that an economy experiences both positive population growth and technological progress. Once the economy has achieved balanced growth, we know that the capital per effective worker ratio (K/NA) is:
growing at a rate of δ + gA + gN
Assume that an economy experiences both positive population growth and technological progress. Once the economy has achieved balanced growth, we know that the output per effective worker ratio (Y/NA) is:
growing at a rate of 0
Assume that an economy experiences both positive population growth and technological progress. Once the economy has achieved balanced growth, we know that the capital per worker ratio (K/N) is:
growing at the same rate as Y/N
Which of the following best characterizes the economic growth for OECD countries since the mid−1970s
growth has slowed down.
In the OECD countries, there is a negative relationship between output per capita in 1950 and
growth since 1950.
A higher rate of female participation in the labor market (but constant population). This would ________ the level of output per worker, leading to a ________ level of output per person.
have no effect on; higher
Convergence of output per capita across countries has come from:
higher technological progress from the countries that started behind
Which of the following represents the fertility of research?
how R&D spending translates into new ideas
The amount of protection of property rights in a country affects output per worker by _________.
impacting the amount of productivity because strong property rights encourage more R&D.
Between 1950 and 1973, France, Germany, and Japan all experienced growth rates that were at least two percentage points higher than those in the United States. Yet the most important technological advances of that period were made in the United States. This can best be explained because the other countries
imported the technology advancements from the United States
Research by Richard Layard indicates that an increase in a country's level of output per capita will
increase happiness in that country if output per capita is relatively low
In the absence of technological progress, we know with certainty that an increase in the saving rate will cause which of the following?
increase steady state consumption only if the increase in saving is less than the increase in depreciation.
Discuss how the level of output per person in the long run would likely be affected by each of the following changes: The right to exclude saving from income when paying income taxes. This would ________ the saving rate, leading to ________ output per worker and output per person in the long run
increase; higher
Which of the following represents the change in the capital stock?
investment minus depreciation
When the economy is in the steady state, we know with certainty that:
investment per worker is equal to depreciation per worker
If the rate of technological progress increases, in order to keep capital per effective worker constant, the __________.
investment rate must increase.
Patent protection is important in affecting technological progress because it makes research and development
more appropriable
Assume that an economy experiences both positive population growth and technological progress. A reduction in the saving rate will cause
none of the above
Assume that an economy experiences both positive population growth and technological progress. In this economy, which of the following is constant when balanced growth is achieved?
none of the above
Suppose the stock of capital increases by 2% and employment increases by 2%. Given this information, we know that:
none of the above
Suppose there is a reduction in the saving rate. This decrease in the saving rate will cause a reduction in which of the following once the economy reaches its new steady state equilibrium?
none of the above
Suppose two countries are identical in every way with the following exception. Economy A has a higher saving rate than economy B. Given this information, we know with certainty that:
none of the above
Which of the following will cause an increase in the steady−state growth rate of output per worker?
none of the above
As an economy adjusts to an increase in the saving rate, we would expect output per worker:
none of the above.
For this question assume that technological progress does not occur. The rate of saving in Canada has generally been greater than the saving rate in the U.S. Given this information, we know that in the long run:
none of the above.
Our model of long−run economic growth suggests that
none of the above.
Suppose there is an increase in the saving rate. This increase in the saving rate will cause an increase in which of the following once the economy reaches its new steady state equilibrium?
none of the above.
Which of the following will cause a reduction in the steady−state growth rate of output per worker?
none of the above.
A country's openness to trade can affect output per worker through __________ because it can impact the diffusion of technology.
productivity
Suppose individuals wish to obtain the most accurate comparison of living standards between the Canada and Saudi Arabia. To do so, one would convert Saudi Arabian output into dollars using
purchasing power parity methods
Low population growth would be expected to __________.
raise output per worker, because it will raise all of the levels of inputs and productivity per worker.
Suppose there is an elimination of patents on new pharmaceutical drugs, so the drugs can be copied and sold at a low cost as soon as they become available. This proposal would __________ the appropriability of drug research. There would be __________ in the development of new drugs, __________ in the rate of technological progress, and __________ in the growth rate.
reduce; a reduction; a reduction; a reduction
Which of the following best describes a situation where research is considered relatively fertile?
research that translates into many new products.
Suppose the following situation exists for an economy: Kt+1/N > Kt/N. Given this information, we know that:
saving per worker is greater than depreciation per worker in period t
Economic growth theory shows that the two main factors for an economy to grow are
technological advancement and capital accumulation.
Which of the following must occur to sustain economic growth in the long run?
technological progress.
Suppose there are two countries that are identical with the following exception. The saving rate in country A is greater than the saving rate in country B. Given this information, we know that in the long run:
the capital−labor ratio (K/N) will be greater in A than in B
Which of the following represents the appropriability of research?
the extent to which firms benefit from the results of their own R&D spending
Which of the following is always true after an economy reaches a balanced growth equilibrium?
the growth rate of capital is equal to the growth rate of the effective work force.
The aggregate production function shows the relationship between output and
the inputs in production.
"Convergence" has been occurring among the OECD countries because
the poorer countries have had higher growth rates than the richer ones.
the protection given to new products by the law
the protection given to new products by the law
A higher saving rate implies a higher level of capital per effective worker in the steady state and _________.
the rate of growth of output per effective worker remains unchanged.
Between 1950 and 2017, standards of living in the OECD countries
were converging
Economists do not only look at current growth trends, they also look at past growth patterns and what may have caused them. For example, growth rates from the end of the Roman Empire until 1500_________, while the growth rates from 1500 to 1700 were ________
were flat with no growth small but positive
In steady state, the rate of population growth __________.
will have no effect on output per worker.
(list above) Refer to the information above. Which of the following represents the steady−state growth rate of output per worker in this economy?
3%.
(list above) Refer to the information above. Given this information, the steady state rate of growth of output is:
5%
Use the following information to answer the questions below: (1) the rate of depreciation is 10% per year, (2) the population growth rate is 2% per year, and (3) the growth rate of technology is 3% per year. Refer to the information above. Which of the following equals the annual growth rate of "effective labor" in the steady state in this economy?
5%.
Assume that an economy experiences both positive population growth and technological progress. In this economy, which of the following is constant when balanced growth is achieved?
Y/NA
As countries become richer in output per person, people are able to spend __________ resources on food consumption, so the real cost of food __________.
less; decreases
The geographic location of a country affects output per worker through __________.
productivity, because the climate of a country may make it easier or more difficult to produce goods and services.
When switching from the "current exchange rate" method to the "purchasing power parity" method, India's standard of living in dollars
rises, but still remains far below that of the U.S.
Suppose there is an increase in the saving rate. This increase in the saving rate must cause an increase in consumption per capita in the long run when:
capital per worker approaches the golden−rule level of capital per worker.
Evidence suggests that richer countries tend to have higher levels of happiness compared to poorer countries. When rich people are compared to richer people, the level of happiness__________.
does not significantly differ.
Which of the following will cause a reduction in output per worker in the long run run?
an increase in the number of workers.
Which of the following statements is always true?
any change in the capital stock is equal to investment minus depreciation.
Research by Richard Layard indicates that happiness:
appears to depend on people's relative incomes
The countries with the lowest output per capita
are poor in both human and physical capital.
Decreasing returns occur for the variables
capital and labor.
Which of the following is not among the four tigers?
China
How would you interpret the left-hand side of the equation above?
It is the change in the capital stock per worker from year t to year t + 1.
Over the last half−century, which of the following countries has had the highest growth rate of output per capita?
Japan
Which of the following countries had the highest rate of growth of output per capita between 1950 and 2017?
Japan
Which of the following countries had the lowest level of output per capita in 1950?
Japan
Which of the following is true regarding the interpretation of the equation above?
Saving has a positive impact on the change in the level of output per worker. Depreciation is a drag on capital accumulation. The level of output per worker is a key determinant of the change in the level of capital per worker.
On a logarithmic scale, a variable that increases at 5% per year will move along an upward-sloping line with a slope of 0.05.
True
The aggregate production function is a relation between output on one hand and labor and capital on the other.
True
The saving rate is always equal to the investment rate.
True
The U.S. capital stock is far below the golden-rule level. The government should give tax breaks for saving because the U.S. capital stock is far below the golden-rule level.
Uncertain
The higher the saving rate, the higher consumption in steady state.
Uncertain
We should transform Social Security from a pay-as-you-go system to a fully funded system. This would increase consumption both now and in the future.
Uncertain
Which of the following countries experienced the lowest level of output per capita in 2017?
United Kingdom
By 2017, which of the following countries had the highest level of real output per capita?
United States
Which of the following countries had the highest level of output per capita in 1950?
United States
In order to write the relationship between investment and output in the form below, what key assumptions must we make?
We assume that public saving, T − G, is equal to zero and that private saving, S, is proportional to income.
Which of the following will cause a reduction in output per worker (Y/N)?
all of the above
Decreasing returns to capital (K) implies that a 4% increase in K will cause:
Y to increase by less than 4%
Suppose an economy experience a 4% increase in each of the following variables: N, K, and H (human capital). Given this information, we know with certainty that:
Y will increase by less than 12% but by more than 4%
For this question, assume that a country experiences a permanent reduction in its saving rate. Which of the following will occur as a result of this reduction in the saving rate?
a permanently lower level of output per worker
For this question, assume that there are decreasing returns to capital, decreasing returns to labor, and constant returns to scale. A reduction in the capital stock will cause which of the following?
a reduction in output.
Which of the following will NOT cause an increase in aggregate output (Y) in the long run?
a reduction in the saving rate
Suppose, due to the effects of a military conflict that has ended, that a country experiences a large reduction in its capital stock. Assume no other effects of this event on the economy. Which of the following will tend to occur as the economy adjusts to this situation?
a relative high growth rate for some time.
The United States has one of the largest incomes per capita in the world. As other world economies experience economic growth, they should begin to converge with the United States. Economists see this type of convergence occurring in __________.
a small percentage of the economies of the world.
In the following production function, Y = f(K, NA), suppose A increases by 20%. This 20% increase in A implies that
all of the above.
Given the broadest interpretation of technology, technology will include which of the following?
all of the above
If the saving rate is 1 (i.e., s = 1), we know that:
all of the above
In the absence of technological progress, which of the following remains constant in the steady state equilibrium?
all of the above
Suppose the saving rate is initially less than the golden rule saving rate. We know with certainty that a reduction in the saving rate will cause:
all of the above
For this question, assume that a country experiences a permanent increase in its saving rate. Which of the following will occur as a result of this increase in the saving rate?
both B and C.
If output doubles when inputs double, the production function will be characterized by _________
constant returns to scale.
This problem is based on the material in the chapter appendix. Suppose that the economy's production function is given by...... where Y is output, K is capital, and N is labor. Assume that α = 1/3. This production function is characterized by
constant returns to scale, because doubling inputs will double output
For this question, assume that there are decreasing returns to capital, decreasing returns to labor, and constant returns to scale. Now suppose that both capital and labor decrease by 5%. Given this information, we know that output (Y) will
decrease by 5%.
When steady state capital per worker is above the golden−rule level, we know with certainty that an increase in the saving rate will
decrease consumption in both the short run and the long run.
The relationship between output per worker and capital per work exhibits __________.
decreasing returns to scale.
In the following production function, Y = f(K, NA), a 20% increase in A will cause which of the following variables to increase by 20%?
effective labor
In the absence of technological progress, an increase in the saving rate will cause which of the following?
increase temporarily the growth of output per worker.
The capital−labor ratio will tend to decrease over time when
investment per worker is less than saving per worker.
Given the narrow interpretation of technology, technology will include which of the following?
none of the above
Over the last hundred years,
none of the above
When using a logarithmic scale to plot output per capita over time, an upward−sloping curve that becomes increasingly steep indicates
output per capita is growing by an increasing percentage each year.
Suppose there are two countries that are identical with the following exception. The saving rate in country A is greater than the saving rate in country B. Given this information, we know that in the long run:
output per capita will be greater in A than in B
During the Malthusian era
output per person stayed constant
Assume that employment increases by 3%. Holding all other factors constant, we know with certainty that which of the following will occur?
output will increase by less than 3%
Suppose two countries are identical in every way with the following exception. Economy A has a greater quantity of human capital than economy B. Given this information, we know with certainty that:
steady state consumption in A is higher than in B
Suppose two countries are identical in every way with the following exception. Economy A has a higher rate of depreciation (δ) than economy B. Given this information, we know with certainty that:
steady state consumption in A is lower than in B
When an economy is operating at the steady state, we know that
steady state saving is equal to depreciation per worker.
In the absence of technological progress, which of the following is true when the economy is operating at the steady state?
the growth of output per worker is zero.
Suppose there are two countries that are identical with the following exception. The saving rate in country A is greater than the saving rate in country B. Given this information, we know that in the long run:
the growth rate of output per capita will be the same in both countries
An increase in the saving rate will NOT affect which of the following variables in the long run?
the growth rate of output per worker
Of the following, the most often used measure of changing living standards is
the growth rate of real GDP per capita.
Suppose there are two countries that are identical in every way with the following exception: Country A has a higher stock of human capital than country B. Given this information, we know with certainty that
the growth rate will be the same in the two countries
