ECON 2010 Ch.28

What variable is used in the Solow model to represent ideas?

A

What do patents give to innovators?

A temporary monopoly on their invention

What is the "flying shuttle"?

An invention that made it easier to make fabric quickly and cheaply.

Which of the following summarizes the impact of ideas on output?

Better ideas lead to more output, which leads to more investment, which leads to greater capital accumulation.

Which type of growth will be the fastest, all else being equal?

Catching-up growth

The main reason that the population of idea creators is growing so rapidly is that:

China, India, and other parts of the world are becoming rich and contributing more and more to the production of new ideas.

Where does the money for capital accumulation come from?

From savings and investment

What role does globalization play in the creation of ideas?

Globalization creates larger markets, improving the incentives for creating ideas.

What would we expect to see if the basic prediction of the super simple Solow model that poor countries will grow faster than rich countries was true?

Growth miracles

Which of the following statements is true of physical and human capital?

Human capital and physical capital both eventually reach steady states.

Which of the following properly states the idea equation presented in the video?

Ideas = population × incentives × ideas per hour

What does the equation "Y = F(K)" mean?

Output (Y) is a function (F) of the quantity of capital (K).

What did economist Julian Simon say was the "ultimate resource"?

People

The model that can help us understand why Germany and Japan grew faster after WWII than the United States is the:

Solow growth model.

What is a way to increase the production of undersupplied goods with positive spillovers?

Subsidies

What would happen if an economy at its steady-state level of output decided to increase the rate at which it saved and invested output?

The capital stock and output would begin to grow again until it reached a new steady-state.

Why is L multiplied by e in the production function?

The more educated (e) people are, the more effective their labor (L).

When it comes to producing pharmaceuticals, the first pill costs _______, and the second pill costs _______.

a billion dollars; fifty cents

If the most intelligent portion of the labor force leaves the country to seek opportunity elsewhere, the decrease in human capital will lead to:

a decrease in economic growth.

The investment function has:

a shape similar to the production function, since investment is a constant fraction of output.

The idea equation is:

a tool to help when thinking about the factors of idea creation.

An argument in favor of patents is that they:

create incentives for research and development

Capital:

depreciates, which means that it breaks down or wears out.

Countries on the cutting edge grow by:

developing more and better ideas.

John Kay:

died a poor man because people were fearful that his invention would put them out of work.

How is human capital represented in the super simple Solow model presented in the video?

eL

The steady state in the super simple Solow model of growth and capital accumulation:

explains catch-up growth but not cutting-edge growth.

Around the world, institutions are:

getting better, helping to incentivize the production of good ideas.

Ideas often produce more ideas, so:

growth may be in part self-sustaining.

Growth on the cutting edge is determined by:

how fast new ideas are formed and how much those new ideas increase our productivity.

A production function is a simplified description of:

how inputs are used to produce output.

Professor Tabarrok uses the phrase "ideas per hour" to describe:

how productive idea creators are in producing new ideas.

John Kay and Steve Jobs are presented in the video as examples of:

important innovators from different times whose contemporaries reacted in very different ways.

Professor Tabarrok discusses the changing distribution of R&D expenditures around the world in order to demonstrate that:

improving institutions around the world are leading to increasing production of new ideas.

steady-state

in a model of economic growth, a situtation in which the capital stock is neither increasing nor decreasing

What is given in the textbook as a factor leading to new ideas that will be important for future economic growth?

incentives

Better ideas:

increase the productivity of capital and labor.

Larger markets for pharmaceuticals will lead to:

increased incentives to invest in research and development.

As the quantity of capital increases, the amount of output:

increases at a diminishing rate

The population of idea creators is:

increasing, even more rapidly than the world population.

Over the past 10,000 years, growth in per capita world GDP has been:

increasing.

The benefit of patents is that _______; the downside of patents is that _______.

innovators have more incentive to innovate; good ideas won't spread as quickly as possible

The idea of conditional convergence introduces the importance of _______ into the simple Solow model.

institutions

At a macro level, the generation of new ideas:

is not random and is the result of key ingredients.

Human capital:

is subject to diminishing returns, just like physical capital.

In the Solow model, when the economy reaches the steady-state level of capital:

it also reaches the steady-state level of output.

An example of an American institution that promotes new ideas is:

its culture that idolizes innovators.

As a farmer acquires more tractors, each subsequent tractor adds:

less and less to total output.

Economic growth is negative when investment is:

less than depreciation.

As the capital stock grows, the _______ is less and less.

marginal product of capital

The production of new ideas:

may be subject to increasing returns, thanks to new technologies like the internet and artificial intelligence.

Ideas enter the Solow model as a:

multiplier.

Nigeria and Argentina are presented as examples of countries with economies that are:

not catching up, despite the prediction that poor countries should grow faster than rich countries.

Because ideas are nonrivalrous:

people may not be willing to pay for new ideas, which will reduce the incentive to create them.

Germany and Japan grew _______ after WWII because _______.

quickly; they did not have a lot of capital

Two countries with similar institutions should:

reach similar steady state levels of output.

The Solow model is _______ and can provide us with key insights into the _______.

simple; causes of growth

It is _______ that China is growing faster than the United States since _______.

surprising; the United States has more capital and better institutions

The factors that influence economic growth are:

technological change, improvements in the skill adjusted quantity of labor, and increases in the amount of capital.

A patent is a government grant of:

temporary monopoly rights.

Professor Tabarrok says that ideas are nonrivalrous, which means:

that ideas are made to be shared.

As the quantity of capital rises:

the amount of depreciation rises at a constant rate.

The capital stock grows when:

the amount of investment exceeds the amount of depreciation.

The more people who use a good idea:

the greater the gains.

A reliable way to achieve faster growth in real GDP per capita is to increase:

the growth rate of human capital.

marginal product of capital

the increase in output caused by the addition of one more unit of capital; the marginal product of capital diminishes as more and more capital is added

If new drugs were copied and produced until the price was equal to the production cost:

the innovator would have no way to recoup the research and development costs.

Professor Tabarrok uses the example of the farmer and the tractors in order to demonstrate:

the iron logic of diminishing returns.

When the quantity of capital is low, such as in Germany just following WWII, growth rates are high because:

the marginal product of capital is high, and the capital stock grows quickly because there is little depreciation.

When A increases in the Solow model:

the output curve and the investment curve both shift upwards.

Professor Tabarrok compares the growth rates of 20 OECD countries to their 1960 levels of real GDP per capita in order to provide support for the notion of conditional convergence since:

the poorer countries have grown faster and these countries arguably have similar institutions.

In the United States, 70% of research expenditures are funded by:

the private sector.

When economists use the variable K, they are referring to:

the tools, instruments, and other produced goods used to produce additional goods and services.

Henry Ford is used as an example of someone:

whose new ideas radically increased the productivity of capital and labor.

Suppose the production function for an economy is Y = √K. Which equation is equivalent to the amount of output that is invested in new capital?

ΓY

What are the two ways that better ideas lead to growth?

Increased productivity of a given capital stock and increased investment, which increases capital accumulation.

Which of the following describes the relationship between capital (K) and output (Y) shown by the production function?

Increases in capital (K) lead to increases in output (Y).

Which of the following conditions is consistent with the steady-state level of capital?

Investment equals depreciation

Physical capital, such as factories and tools, is represented by which letter in the production function?

K

Where do new and better ideas come from?

They grow in the soil of good institutions.

Which of the following is true about American institutions?

They provide incentives to pursue great ideas.

What does Professor Tabarrok mean when he says that more ideas give us more "bang for our buck"?

We get more output from the same inputs of capital and labor.

Does human capital depreciate?

Yes, because people eventually retire from the labor force and die.

Are ideas important in a production function?

Yes. Better ideas mean that we can get more bang for our buck out of capital and labor.

At the steady-state level of capital:

all investment is being used to repair and replace existing capital, and no new capital is being created.

In economics, a simplified framework that helps us understand a more complex reality is known as:

an economic model.

In terms of the graphical representation of the Solow model, the two impacts of better ideas on growth are shown by _______ and _______.

an upward shift of the production function; movement up along the production function to a new steady state

One advantage of the use of patents over the use of subsidies and prizes is that patents:

are only profitable when consumers value the new idea.

When other countries grow rich, people in the United States:

benefit because this means the market for goods such as pharmaceuticals is larger and more innovations take place.

The two types of growth that can be better understood with the model introduced in the video are:

catching-up growth and cutting-edge growth.