Exam 2 Macro Economic Theory

Growth in the Solow residual was fastest in the

1960s

Human capital is knowledge in

people.

The Solow growth model can account for

why richer countries have higher investment rates.

When countries converge,

poorer ones grow faster.

Growth accounting, popularized by Robert Solow, attempts to attribute a change in aggregate output

separately between changes in total factor productivity and changes in the supplies of factors of production

Which statement is correct?

To attain a permanently higher rate of growth in GDP per capita, a nation has to sacrifice something in the present

True or False: In the Solow growth model, the production function exhibits constant returns to scale.

True

True or False: Malthus failed to predict the drop in population growth rates in the world that occurred after the Industrial Revolution.

True

True or False: Rates of economic growth are more dispersed across poor countries than across rich countries.

True

A steady state is

a long-run equilibrium.

Convergence means that

all countries tend towards the same per capita income.

In a Malthusian world, what event would improve temporarily the standard of living, as measured by output per capita?

an increase in violent crime

Barriers to Riches, by S. Parente and E. Prescott, emphasizes the importance of

barriers to technological adoption.

The Solow model emphasizes the role of which of the following factors of production?

capital

The Golden Rule of capital accumulation maximizes the steady-state level of

consumption per worker.

Income per worker has been

converging in the rich countries, but not converging in the poor countries.

The Solow growth model tells us that the standard of living in country A can be higher than in country B for all the following reasons, except

country A has a higher depreciation rate than country B.

In more modern times as opposed to the times of Malthus, higher standards of living appear to

decrease death rates and also decrease birth rates.

In the Malthusian model, state-mandated population control policies are likely to

decrease the equilibrium size of the population and increase the equilibrium level of consumption per worker.

Which of the following is not a reason for differences in total factor productivity across countries?

differences in the size of population

In an exogenous growth model, growth is caused by

forces that are not explained by the model itself.

In the Malthusian model of economic growth, an increase in the quantity of land

has no effect on steady state per capita consumption, and increases the steady state population.

In the Malthusian model, improvements in health care lead to

higher population and lower per-capita production.

In the steady state of Solow's exogenous growth model, an increase in the savings rate

increases output per worker and increases capital per worker.

The saving rate has the following characteristic in Solow's exogenous growth model

it is constant.

It is useful to study the Solow growth model because

it is useful in understanding the sources of economic growth after 1800.

Which of the following is best characterized as being nonrivalrous?

knowledge

All of the following increase total factor productivity except

more capital.

All of the following increase total factor productivity exceptmore capital.

more capital.

Which of the following increases total factor productivity?

new production procedures

Paul Romer argues that a key feature of knowledge is

nonrivalry.

If the savings rate falls in the Solow growth model

per worker output falls in the steady state.

In the Golden Rule steady state, the marginal product of capital is equal to the

population growth rate plus the depreciation rate.

In the Malthusian model, the population growth rate is

positively related to consumption per worker.

True or False: There can be differences in per capita incomes across countries because of government corruption.

True

True or False: Differences in per capita incomes across countries can persist because of inefficient allocation of factors of production within a country.

True

True or False: Differences in total factor productivity across countries can explain cross country differences in standards of living.

True

True or False: Growth in the labor input was higher in the United States in the 1970s than from 2000 to 2009.

True

True or False: If country A has a higher depreciation rate for physical capital than country B, and these two countries are otherwise the same, the Solow growth model predicts that country A has the lower level of per capita income in the long run.

True

True or False: In the Malthusian model, population growth depends positively on consumption per capita.

True

True or False: In the Solow growth model, growth in output per person can only be sustained if there is growth in total factor productivity that is also sustained.

True

True or False: The Malthusian model does a good job of predicting growth in per capita incomes in the world prior to the Industrial Revolution.

True

True or False: The Solow residual is the quantity of output produced that is not accounted for by labor and capital inputs.

True

In a Malthusian world, what would improve the standard of living permanently?

birth control

The biggest contribution to real U.S. GDP growth in the 1970s was due to growth in

both the capital stock and the labor force.

In the Solow growth model, long run growth in the standard of living is propelled by

echnological change.

Endogenous growth theory is about

explaining growth.

Human capital is

knowledge found in people.

The slope of the output per worker function is equal to the

marginal product of capital.

Recent evidence suggests that output per worker is

positively related to the rate of investment and negatively related to the rate of population growth.

Since 1900, real GDP per capita in the United States has increased by

2% per year.

If changes in economic policy could cause the growth rate of real GDP to increase by 1% per year for 100 years, then GDP would be ________ % higher after 100 years than it would have been otherwise.

2.7

Which of the following, if implemented in the Solow growth model, would not lead to a steady state?

A constant marginal product of capital.

Suppose a poor economy inches towards the steady state in Solow's exogenous growth model. What happens?

Capital grows faster than population.

True or False: Across countries, the population growth rate is positively correlated with real income per capita

False

True or False: Across countries, the population growth rate is positively correlated with real income per capita.

False

True or False: Differences in total factor productivity across countries can persist because of differences in capital per worker.

False

True or False: If country A has a higher population growth rate than country B, and these two countries are otherwise the same, the Solow growth model predicts that country A has the higher level of per capita income in the long run.

False

he idea that an improvement in technology causes an increase in population but causes no increase in the average standard of living is attributed to

Thomas Malthu

True or False: If there are two identical countries, A and B, currently in a steady state, the Solow growth model predicts that, if country A experiences destruction of some of its capital stock, country A will have output per capita that is permanently lower than for country B, by a fixed amount.

False

True or False: If two countries are identical, except that they have different initial capital/labor ratios, the Solow growth model predicts that income differences will persist between these countries.

False

True or False: In the Malthusian model, population control reduces consumption per person in the steady state.

False

True or False: In the Solow growth model, aggregate output is constant in the steady state.

False

True or False: In the Solow growth model, an increase in the population growth rate increases capital per worker in the steady state.

False

True or False: In the Solow growth model, population always adjusts so that per capita consumption is constant in the steady state.

False

True or False: In the Solow growth model, savings increases with the real interest rate.

False

In Solow's exogenous growth model, the steady-state growth rate of capital can be increased by

higher population growth.

Which of the following is a way to obtain endogenous growth?

human capital accumulation

In the Solow growth model, countries with identical total factor productivities, identical labor force growth rates, and identical savings rates

in equilibrium, have identical levels of capital per worker and output per worker.

In the Solow growth model, if all countries had the same technology, population growth, savings behavior, and depreciation rates, then

in the long run, all countries will have the same standard of living.

In the Malthusian model, an improvement in the technology of growing food is likely to

increase the equilibrium size of the population and have no effect on the equilibrium level of consumption per worker.

In the steady state of Solow's exogenous growth model, an increase in total factor productivity

increases output per worker and increases capital per worker

In Solow's model of economic growth, suppose that s represents the savings rate, z represents total factor productivity, k represents the level of capital per worker, and f(k) represents the per-worker production function. Also suppose that n represents the population growth rate and d represents the depreciation rate of capital. The equilibrium level of capital per worker, k*, will satisfy the equation

szf(k*) = (n + d)k*

We can express the per-worker production function as a function of only per-worker capital thanks to

the constant returns to scale.

In Solow's exogenous growth model, the principal obstacle to continuous growth in output per capita is due to

the declining marginal product of capital.

The Solow residual attempts to measure the amount of output not explained by

the direct contribution of labor and capital.

In Solow's exogenous growth model, the economy reaches a stable steady state because

the marginal return of capital is decreasing.

We can use a per-worker production function in the Malthusian model because

the production function has constant returns to scale.

There is evidence that income per worker is converging in

the richest countries, but not the poorest countries

Which of the following is not a feature of the steady state in Solow's exogenous growth model?

Total saving is steady.

True or False: A useful production function to use for growth accounting is the Cobb-Douglas production function.

True

Suppose a country is much richer than the others in the Solow growth model. What happens in the long run?

The other countries catch up to the rich one.

The idea that an improvement in technology causes an increase in population but causes no increase in the average standard of living is attributed to

Thomas Malthus.

True or False: In the steady state of the Malthusian model, population is growing at a constant rate.

False

True or False: Productivity growth was lower in the United States in the 1960s than in the 1970s.

False

True or False: The Malthusian model does a good job of explaining growth in the United States after the Industrial Revolution.

False

True or False: Total factor productivity can be measured by dividing output by the quantity of the labor input.

False

Malthus was wrong in what sense?

He did not predict the high rates of future growth in standards of living.

The Malthusian model performs poorly in explaining economic growth after the

Industrial Revolution.

According to Solow's exogenous growth theory, what happens to a country at steady state that suffered extensive capital destruction due to a war or climate event?

It will get back to its original status.

In a Malthusian world, why is misery recurrent?

Mortality depends on the standard of living.