Test 2

The GDP per capita in Japan increased more than 5.3% annually 1960 and 1990, while the growth rate of GDP per capita in the US was only 2.2%. This growth difference could be due to which of the following?

-Japan was quick at adopting advanced technology used in the U.S. -Japan initially had less capital per worker than the U.S. -The investment rate in Japan was higher than that in the U.S.

Country A is richer and grows faster than country B over time. Over time, the income difference between two countries will decrease.

False

In a world of Solow, country A has a higher investment rate and a higher population growth rate than country B. Everything else is the same, in the long run, country A is definitely richer than country B

False

In the world of Solow, land is an essential factor of production

False

Solow model predicts that a country with a higher investment rate will be richer in the short run and grow faster in the long run

False

Solow model predicts that a poor country always grows faster than a rich one

False

The existence of the steady state in the Solow model is guaranteed by the assumption that production function is constant returns to scale

False

The golden rule refers to the optimal investment strategy that maximizes capital intensity in the long run.

False

If country Fast grows faster than country Slow, then country Fast must be poorer than country Slow at this moment

False Reasoning:

In a world of Solow, a reduction of population growth rate can raise a country's growth rate in the long run but its living standard in the short run

False Reasoning: Increases growth rate in the short run and living standard in the long run

An influx of foreign capital in country A, which resides in a world of Solow, increases its GDP per capita both in the short run and in the long run

False Reasoning: Only short run

According to the Solow growth model which of the following affect the long run (steady state) growth rate of GDP per capita?

Growth rate of total factor productivity

A country that is faster at adopting existing technology can have a higher growth rate temporarily.

True

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

the direct contribution of labor and capital

If two countries only differ in their ability to learn or adopt better technology, then we should observe that

the income difference between them widens in the long run

An economy is said to be in a recession if its growth rate turn negative for two consecutive quarters

False

Assume that capital share is 30% GDP in country A great at the rate of 3% per year. Capital grew at the rate of 5% and labor 1% per year. What is the grow rate of TFP

0.8%

Even though capital per worker in India was less than 1/20 of that in the U.S. at the end of World War II, India's growth rate stayed low. This could be due to which of the following fact(s)

1.) India had a higher population growth rate and a lower investment rate than the U.S. 2.) India was much closer to its steady state than the U.S. was 3.) The total factor productivity in India was much lower than that in the U.S.

It is estimated that 11% of adult population (age 15-49) is infected by HIV in Sub-Saharan Africa. Based on the Solow growth model, which of the following argument explains the predicted low growth rate in the region by the United Nations?

1.) The incentive for individuals to invest in human capital is reduced as life expectancy drops 2.) The quality of labor force drops due to poor health 3.) The incentive for individual to save is reduced as the likelihood of dying young increased

Which of the following statement about investment rate is correct?

A country should never invest beyond the point where the marginal product of capital net of depreciation is negative

After World War II, many western European countries grew faster than the U.S. We explain this phenomena by which of the following results from Solow growth model?

Absolute convergence as this group of countries are heading towards the same steady state

Which of the following is a correct analysis on how international trade affects growth?

Access to the international market provides the opportunity for a country with lagging technology to catch up; hence the import that is accompanied by flow of knowledge (machineries and equipment) is positively correlated with growth

Both UK and Venezuela invested about 18% of their FDP per year during the period 1960-1990. The capital per worker in the UK more than doubled, while that in Venezuela increased less than 50%. This could be due to the fact (a) the population growth rate in Venezuela is much higher; (b) the total factor productivity (TFP) in the U.K is higher.

Both

USSR was investing larger percentage of their GDP than the US after World War II. As a result (a) USSR could not keep its higher growth rate forever; (b) people in the USSR don't necessarily enjoy higher consumption even in the long run. Which of the above two statement(s) is/are correct?

Both

The Solow growth model emphasizes the role of which of the following factors of production? A) Labor B) Capital C) Land D) Natural Resources

Capital

The Solow growth model tells us that the standard of living in country A can be higher than in country B for all reasons, EXCEPT which one?

Country A has a higher depreciation rate in country B.

In Solow growth model without technology progress, country A grows faster than country B if the only difference between them is described by which of the following?

Country A is further from its steady state

Adopting artificial intelligence (AI) in various production processes over time increases the standard of living through accumulation of capital

False

To increase the growth rate of living standard, Chinese government plans to implement the following policies (1) encourage investment, both domestic and foreign. (2) Control population growth. (3) invest in public education and basic research. Which of the above increases the living standard in the long run and which increases the growth of living standard in the long run.

Investment and population control increase the long run living standard Investment in education increases growth of living standard in the long run

Which of the following is NOT a correct characterization of the U.S. business cycle?

Investment fluctuates less than GDP

According to the Solow growth model, what happens to a country that was at steady rate then suffered extensive capital destruction due to a war or climate event while nothing else changed, in the long run?

It will get back to its original steady state

According to the Solow growth model, what happens right after a country suffered extensive capital destruction due to a war or climate event while nothing else changed?

Its growth rate goes up

A developing country sends smart kids to the U.S to be educated and purchases blueprints to make micro chi[s. Which of the following statements is true?

ONLY sending smart kids to the U.S. to be educated refers to the accumulation of human capital

Real investments tend to be

Procyclical and more volatile than real GDP

Which of the following correctly states the prediction of the Solow growth model?

The Solow growth model predicts that a higher investment rate is associated with a higher growth rate of living standard in the short run and higher living standard in the long run.

Suppose that two countries share identical level of total factor productivity (TFP), identical population growth rate, and identical investment rate. According to the Solow growth model

The country with the smaller initial level of output per worker will grow mode rapidly than the country with the larger initial level of output per worker.

As a poor country inches towards the steady state in the Solow growth model what happens?

The growth rate of output decreases

According to the Bureau of Labor Statistics, the total factor of productivity in the manufacture sector in year 2002 increased by 4.6%, while output decreased by 1%. Which of the following is the most likely explanation?

The manufacturing sector cut employment heavily

Data shows that political instability is negatively correlated with economic growth. This is because

The risk of investing in physical capital, human capital, and better technology are all increased

Country A and B have the same population, investment rate and depreciation rate. In country A population growth rate is 1%, while in country B it is 3%. If both countries started with the same amount of capital, subsequently

The total amount of capital increases by the same amount, while capital intensity in country A increases more than country B.

According to the endogenous growth model with human capital what can we say that is definitely true about countries with mode efficient schools

They grow faster

A major earthquake destroyed a significant portion of buildings and structures in country H. A just in time warning of the earthquake, on the other hand, left most of the residents unharmed. According to the Solow growth model, we should observe a higher growth rate in the near future.

True

An increase of efficiency in the education sector can increase the growth rate of living standard both in the long run and in the short run

True

Anti-trust regulation promote economic growth as competition is more conducive to innovation and adoption of new technology.

True

Both country A and B reside in a Solow world. Country A is more efficient at producing things than country B. Everything else is the same. Residents in country A produce more and enjoy more goods and services than those in country B in the long run.

True

Country X lives in the world of Solow. It is at its steady state. An economist calculated its marginal product of capital and found that it is more than the rate of depreciation plus the population growth rate. Country X can increase its consumption per capita in the long run if it raises its investment rate.

True

Family planning in a poor country promotes economic growth because it helps to increase capital intensity

True

Haiti was hit by hurricane Matthew in 2016. This is an example of supply shock.

True

In a Solow world, only the continuous improvement of production efficiency generates long term growth of living standard

True

In the U.S., unemployment rate is countercyclical and less volatile than GDP

True

In the short run, increasing on-the-job training of a country's labor force can increase its growth rate

True

Two countries reside in the world of Solow. The only difference between them is the population growth rate. The country with a higher population growth rate will grow slower in the short run and be poorer in the long run

True

In the world of Solow, if everything else is the same, a country with a higher investment rate has a higher capital intensity for sure but may not have a higher consumption per capita at the steady rate.

True Reasoning: According to the Solow model of long-run economic growth, higher rates of saving lead to higher capital intensity per person but not necessarily higher consumption per per person. An increase in saving rate/investment rate leads to a higher K/L and hence higher level of per capita output, with this there may be an increase in per capita consumption but an increase in saving rate also lowers the consumption share of income.

Out of the following, which is the LEAST likely example of an increase in total factor productivity

an increase in immigration

Everything else is the same, a country that is more efficient at producing goods and services is expected to

be richer in the long run and grow faster in the short run

The property that macroeconomic variables fluctuate together in business cycles is called

co-movement

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

consumption per capita

GDP per capita has been

converging among some countries, bit not some others

If the correlation between GDP and y is -0.75, we say y is

countercyclical

At the steady state of the Solow model a fall of total factor productivity (TFP)

decreases both capital and output per capita

At the steady state of the Solow model, an increase in population growth rate

decreases both capital and output per capita

In the Solow growth model output per capita eventually stops growing because

diminishing marginal product of capital

At the steady state of a Solow model, an increase of productivity

increases capital, output and consumption per capita

If the correlation between GDP and y is 0.55, we say y is

procyclical

Real consumption tends to be

procyclical and less variable than real GDP

We say than an economy is in a recession if

real GDP growth rate is slower than a trend

A business cycle peak is

relatively large positive deviation from trend in real GDP

The real business cycle (RBC) theory argues that the primary cause of economic fluctuation is a change of

total factor productivity