100b midterm
A decline in the saving rate will cause the steady state level of output and capital to rise.
False
New irrigation techniques are examples of ideas.
True
Assume a production function is given by Y = AKt^1/3L^2/3, If A bar = 2 and L bar = 1, and the steady-state capital stock is 8.0, the steady-state level of output is about:
4.0.
An increase in ________ leads to a higher steady-state level of output, and an increase in ________ leads to a lower steady-state level of output.
the saving rate; the depreciation rate
In the Solow model, if net investment is positive:
capital accumulation is positive.
Because there are no diminishing returns in the stock of ideas in the Romer model:
old ideas continue to contribute to current economic growth.
If MPK > r, the firm: -should hire more capital until MPK = 0. - should hire more labor. - should get rid of some capital until MPK = r. - has the optimal amount of capital. - should hire more capital until MPK = r.
should hire more capital until MPK = r.
In the corn farm example, saving some of the corn produced:
technological change.
For the years 1995-2007, if output per person in the private sector grew 2.7 percent, capital intensity grew 1.1 percent, and labor composition grew 0.2 percent, what was the growth rate of total factor productivity?
1.4 percent
(T/F) If the marginal product of capital equals the rental rate of capital, firms should not buy any more capital.
True
(T/F) In the aftermath of the Black Death in the fourteenth century, wages in Europe were higher than before the Black Death because millions of people died.
True
In the Solow model, we generally assume that the capital depreciation rate is the same across all countries.
True
The "idea" of the assembly line leads to increasing returns.
True
If the production function is given by Y = K^1/4L^3/4 and K = 81 and L = 2.5, total output equals about: a) Y = 22.1. b) Y = 0.3. c) Y = 82.4. d) Y = 6.0. e) Y = 1.
Y = 6.0
If the production function is given by Y=AK^1/3L^2/3 and A(bar) = 1 and K = L = 8, total output equals: a) None of these answers is correct. b) Y = 14. c) Y = 2. d)Y = 8. e)Y = 6.
Y = 8.
In the equation y= F(K,L) = AK^1/3L^2/3, the lack of a "bar" over the L means that it is: a) equal to one. b) a parameter. c) an exogenous variable. d) an endogenous variable. e) constant.
an endogenous variable.
Labor composition is used in "growth accounting" because it:
can include the educational attainment in the labor force.
In the Solow model, it is assumed that a(n) ________ fraction of capital depreciates regardless of the capital stock.
constant
In 1960, the Philippines had a per capita income ________ South Korea's. In 2014, ________.
equal to; South Korea had higher per capita income
(T/F) If the production function is Y = K^1/3L^2/3, then in per worker terms, it can be written as Y=K^1/3L.
FALSE
In the steady state, gross investment is less than capital depreciation.
False
The Solow model of economic growth endogenizes the savings rate.
False
The key difference between the Solow and production models is that the Solow model endogenizes the saving rate.
False
The number of ideas is finite.
False
In the Solow model, investment, It, as a function of saving, s(bar), and output, Yt= F(Kt,Lbar), is written as:
Lt = s(bar)F (Kt, Lbar)
The influences of institutions on economic performance can be easily contrasted using:
North and South Korea.
An allocation that is ________ exists if there is no way to change a resource allocation that makes someone worse off when allocating more to another.
Pareto optimal
The reason perfect competition cannot generate new ideas is that:
profits are zero.
Over the past 30 years, ________ has averaged a saving rate of ________ percent.
the United States; 25
In the Cobb-Douglas production function mc011-1.jpg, labor's share of GDP is:
two-thirds, regardless of how much labor there is.
Using the Solow model, if, in time t = 50, the capital stock is K50 = 150, investment is I50 = 15, and mc006-1.jpg is the depreciation rate, capital accumulation from period 50 to 51 is:
ΔK51 = 15
Both the United States and France, among the richest countries in the world, have similar levels of education and capital per worker, but U.S. citizens enjoy higher incomes than the French. One explanation might be differences in:
institutions.
The Solow model of economic growth:
endogenizes physical capital
As an economist working at the International Monetary Fund, you are given the following data for Japan: observed per capita GDP, relative to the United States, is 0.760; predicted per capita GDP, given by y=k^1/3, is 1.06. What is total factor productivity?
0.72
As an economist working at the International Monetary Fund, you are given the following data for Burundi: observed per capita GDP, relative to the United States, is 0.01; predicted per capita GDP, given by y=k^1/3, is 0.18. What is total factor productivity?
0.06
According to the text, there are approximately ________ different coherent paragraphs written with 100 words or less in the English language.
10^430
In the year 2014 the five richest countries had a per capita GDP ________ times higher than the five poorest countries. Differences in capital per worker explain about ________ percent of this difference, with total factor productivity making up about ________ percent of this difference.
70; 5; 14
In the Solow model, if gross investment is equal to capital depreciation, the economy accumulates new capital.
False
Which of the following explain(s) differences in total factor productivity?
All of these answers are correct. institutions natural resources human capital technology
Which of the following can be used to give firms incentive to innovate?
All of these answers are correct. subsidies prizes patents copyrights
Which of the following is an example of an idea?
All of these answers are correct. -new irrigation techniques -All of these answers are correct. -turning sand into computer chips -the steam engine -the assembly line
For which of the following does the Solow model NOT provide adequate explanations?
All of these answers are correct. -what causes long-term economic growth -the cause of productivity differences across countries -why saving rates differ across countries -why population growth rates differ across countries
Which of the following explain(s) differences in total factor productivity?
All of these answers are correct. infrastructure legal structure institutions human capital
Which of the following can be used to give firms incentive to innovate?
All of these answers are correct. patents copyrights trade secrets lower taxes
(T/F) Consider two countries, A and B. If each country produces using identical production functions, but yA > yB and kA = kB, the total factor productivity of country A equals that of B.
False
(T/F) If you have data on per capita GDP and capital per worker, to find total factor productivity you can use the equation A(bar)=y/k^1/3, if capital's share of GDP is two-thirds.
False
According to the combined Solow-Romer model, all countries grow at the same rate in the medium and long runs.
False
If we define the saving rate as s(bar), output as F(Kt,L), and the depreciation rate as d(bar), and if s(bar)F(Kt,L(bar)) > d(bar)Kt, the economy is in the steady state.
False
Throughout the text, a simplifying assumption was made in the production function model of economic growth: the capital share, α, is set equal to one-third. But this is not necessarily the case; indeed, α can be any number greater than zero and less than one. Consider two economies, H and L, with different capital shares, αH > αL. Which country will get more output for each unit of capital added? Explain.
The country that will get more output depends on the amount of capital and labor available in the economy.
What are the three sources of total factor productivity discussed in the text? Can you name other possible sources? Explain your answer.
The three sources of total factor productivity are human capital, technology, and institutions. Another possible source is natural resources. Some countries have the benefit of better weather or geography, which allows them to grow agriculture that can increase their per capita GDP and income.
The equation y= F(K,L) = AK^1/3L^2/3 is an example of : a) a production function. b) a consumption function. c) a utility function. d) the production possibilities frontier. e) a growth model.
a) a production function.
A production function exhibits decreasing returns to scale when you: a) double each input—you less than double the output. b) double each input—you double the output. c) hold inputs constant—you double the output. d) double one input—you double the output. e) double each input—you more than double the output.
a) double each input—you less than double the output.
A production function exhibits increasing returns to scale when you: a) double each input—you more than double the output. b) double each input—you double the output. c) double each input—you less than double the output. d) double one input—you double the output. e) hold inputs constant—you double the output.
a) double each input—you more than double the output.
One of the key characteristics of the Cobb-Douglas production function is: a) that it compacts all inputs into a single equation. b) decreasing returns to scale. c) increasing returns to scale. d) constant returns to scale. e) that it is an exact replication of a firm's production function.
d) constant returns to scale.
Immediately following the increase in the saving rate, output grows rapidly. As the economy approaches its new steady state, the growth rate:
gradually declines
Because in many industries the cost of generating new ideas is so high, firms must charge a price ________ cost.
higher than the marginal
In the Romer model in Figure 6.1, at time t0, a change in the growth rate of per capita output can be explained by a(n):
increase in the population.
In Figure 5.1,, if the economy begins with the initial capital stock at K1, the capital stock will ________ and the economy will ________.
increase; grow
Consider two economies. If each country has the same production function and the same amount of capital and labor, the country that ________ produces more. a) is more productive b) has more workers c) is less productive d) has lower costs of production e) has more natural resources
is more productive
In the Solow model, in every period, a fraction of total output ________, which ________ next period's capital stock.
is saved; adds to
In the Romer model, ________ is the driving force behind sustained ________ economic growth.
knowledge; long-term
In the simple Solow model, we assume:
labor is exogenous.
In the Romer model, with decreasing returns to the knowledge sector:
more researchers produce more ideas, raising the long-run level of per capita income.
In the Solow model, if a country's saving rate increases, the country:
moves from a relatively low steady state to one that is higher
The Romer model might be made more realistic by considering:
the global stock of ideas.
Which of the following do(es) NOT explain differences in total factor productivity?
the labor stock
If a natural disaster destroys a large portion of a country's capital stock but the saving and depreciation rates are unchanged, the Solow model predicts that the economy will grow and eventually reach:
the same steady-state level of output as it would have before the disaster.
If K = K(bar) and L=L(bar), then output is determined by: -a percentage of capital and labor in an economy. -the total amount of capital in an economy. -the total amount of capital and labor available in an economy. -Not enough information is given. -the total amount of labor in an economy.
the total amount of capital and labor available in an economy.
In the Romer model, with decreasing returns to the knowledge sector:
the transition dynamics appear very similar to those in the Solow model.
In the Cobb-Douglas production function mc012-1.jpg, defining y = Y/L as output per person and k = K/L as capital per person, the per person production function is:
y= a(bar)k^1/3
