HW 6

13) Growth in the Solow residual was fastest in the A) 1960s. B) 1950s. C) 1970s. D) 1980s.

A) 1960s.

2) Compared to the United States, GDP per capita in the poorest countries is about A) 2%. B) 200%. C) 20%. D) 0.2%.

A) 2%.

38) The Golden Rule says that A) one should save as much as possible. B) one should save as little as possible. C) one should save something between A and B. D) savings are irrelevant.

C) one should save something between A and B.

26) Which of the following, if implemented in the Solow growth model, would not lead to a steady state? A) A savings rate that increases as income increases. B) A higher savings rate. C) A population growth rate that increases as income increases. D) A higher depreciation rate.

A) A savings rate that increases as income increases.

50) 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? A) It will get back to its original status. B) It will grow back to be richer than before. C) It will stay poor forever. D) Anything can happen

A) It will get back to its original status.

49) What happens to a poor economy in Solow's exogenous growth model? A) Its saving per capita increases. B) It does not change. C) It becomes poorer. D) Its consumption per capita decreases

A) Its saving per capita increases.

41) Which feature of the data can the Solow growth model not replicate? A) There is a widening gap between income levels across countries. B) The population growth rate is negatively related to the income level. C) There is steady growth in income per capita. D) The investment rate is positively related to the income level.

A) There is a widening gap between income levels across countries.

30) Which of the following is not a feature of the steady state in Solow's exogenous growth model? A) Total saving is steady. B) Total capital grows continuously. C) Consumption per worker is steady. D) The capital/output ratio is steady.

A) Total saving is steady.

33) In Solow's exogenous growth model, the steady-state growth rate of capital can be increased by A) higher population growth. B) higher interest rate. C) higher saving rate. D) higher depreciation rate.

A) higher population growth.

28) In the steady state of Solow's exogenous growth model, an increase in the savings rate A) increases output per worker and increases capital per worker. B) decreases output per worker and increases capital per worker. C) decreases output per worker and decreases capital per worker. D) increases output per worker and decreases capital per worker.

A) increases output per worker and increases capital per worker.

11) Which of the following increases total factor productivity? A) new production procedures B) better access to credit C) investment in machinery D) a harsh winter

A) new production procedures

8) Growth accounting, popularized by Robert Solow, attempts to attribute a change in aggregate output A) separately between changes in total factor productivity and changes in the supplies of factors of production. B) separately between changes in the supplies of factors of production and changes in government policy. C) separately between changes in government policy and changes in total factor productivity. D) to its most important single cause.

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

7) The Solow residual attempts to measure the amount of output not explained by A) the direct contribution of labor and capital. B) the amount of a nation's human capital. C) economic projections. D) technological progress.

A) the direct contribution of labor and capital.

27) In Solow's exogenous growth model, the economy reaches a stable steady state because A) the marginal return of capital is decreasing. B) conditional convergence holds. C) capital is growing at a constant rate. D) the substitution effect is stronger than the income effect.

A) the marginal return of capital is decreasing.

48) Suppose a poor economy inches towards the steady state in Solow's exogenous growth model. What happens? A) Capital grows as fast as population. B) Capital grows faster than population. C) Capital grows slower than population. D) It depends.

B) Capital grows faster than population.

31) If the population growth rate increases by the same percentage points as the depreciation rate, what happens to the steady-state, per-worker output in Solow's exogenous growth model? A) It does not change. B) It decreases. C) It increases. D) It cannot exist anymore.

B) It decreases.

29) Which of the following is not a feature of the steady state in Solow's exogenous growth model? A) The capital/output ratio is steady. B) Total saving is steady. C) Consumption per worker is steady. D) Capital grows continuously.

B) Total saving is steady.

5) The Solow model emphasizes the role of which of the following factors of production? A) labor B) capital C) natural resources D) land

B) capital

21) In the Solow growth model, the law of motion of capital takes into account A) the cost of shipping and installing capital. B) the depreciation of old capital. C) the mobility of capital. D) the residential nature of houses.

B) the depreciation of old capital.

12) Growth in the Solow residual was slowest in the A) 1960s. B) 1950s. C) 1970s. D) 1980s.

C) 1970s.

1) 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. A) 2.0 B) 3.8 C) 2.7 D) 1.3

C) 2.7

47) Suppose a poor economy inches towards the steady state in Solow's exogenous growth model. What happens? A) Consumption per capita decreases. B) The depreciation rate increases. C) The growth rate of output decreases. D) Saving per capita decreases.

C) The growth rate of output decreases.

25) Which of the following, if implemented in the Solow growth model, would not lead to a steady state? A) A savings rate that decreases as income increases. B) A higher population growth rate. C) Decreasing returns to scale in production. D) A constant marginal product of capital.

D) A constant marginal product of capital.

44) Suppose a country is much richer than the others in the Solow growth model. What happens in the long run? A) The rich country grows the fastest. B) The rich country becomes poorer than the others. C) Nothing. D) The other countries catch up to the rich one.

D) The other countries catch up to the rich one.

9) For the production function, Y = zK N , if measured output is Y^, measured capital input is K^,and measured labor input is N^, then the Solow residual would be equal to D) Y^ / K^0.36 N^0.64.

D) Y^ / K^0.36 N^0.64.

6) A steady state is A) a temporary equilibrium. B) an economy with ongoing fluctuations. C) a Pareto Optimum. D) a long-run equilibrium.

D) a long-run equilibrium.

16) The biggest contribution to real U.S. GDP growth in the 1970s was due to growth in A) the capital stock. B) the labor force. C) total factor productivity. D) both the capital stock and the labor force.

D) both the capital stock and the labor force.

43) The rapid growth of output for the East Asian Growth Miracles was mostly due to A) Solow residual growth. B) labor force growth. C) total factor productivity growth. D) capital accumulation.

D) capital accumulation.

34) In Solow's exogenous growth model, the steady-state growth rate of aggregate capital can be increased by A) higher interest rate. B) higher saving rate. C) higher depreciation rate. D) higher population growth

D) higher population growth

45) In the Solow growth model, countries with identical total factor productivities, identical labor force growth rates, and identical savings rates A) in equilibrium, have identical levels of capital per worker but not necessarily identical levels of output per worker. B) in equilibrium, have identical levels of output per worker but not necessarily identical levels of capital per worker. C) always have identical levels of capital per worker and output per worker. D) in equilibrium, have identical levels of capital per worker and output per worker.

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

23) The saving rate has the following characteristic in Solow's exogenous growth model A) it first increases, then decreases with output. B) it first decreases, then increases with output. C) it increases with output. D) it is constant.

D) it is constant.

10) All of the following increase total factor productivity except A) new management techniques. B) favorable changes in government regulations. C) new inventions. D) more capital.

D) more capital.

36) In the Golden Rule steady state, the marginal product of capital is equal to the A) depreciation rate plus the savings rate. B) savings rate plus the population growth rate. C) savings rate divided by the marginal product of labor. D) population growth rate plus the depreciation rate.

D) population growth rate plus the depreciation rate.

15) Percentage deviations from trend in the Solow residual are A) procyclical and smaller than percentage deviations from trend in GDP. B) procyclical and larger than percentage deviations from trend in GDP. C) unrelated to the business cycle. D) procyclical and have about equal magnitude as percentage deviations from trend in GDP.

D) procyclical and have about equal magnitude as percentage deviations from trend in GDP.

37) With the Golden Rule, A) savings optimize the population level. B) savings maximize output. C) savings minimize costs. D) savings maximize consumption.

D) savings maximize consumption.

46) Suppose that two countries share identical levels of total factor productivity, identical labor force growth rates and identical savings rates. According to the Solow model A) if both countries start out with different levels of income per worker, both countries may have different growth rates of output per worker, but we cannot be certain which country will have the higher growth rate of output per worker. B) both countries will have the same growth rates of output per worker, even if they start out with different levels of output per worker. C) the country with the greater initial level of output per worker will grow more rapidly than the country with the smaller initial level of output per worker. D) the country with the smaller initial level of output per worker will grow more rapidly than the country with the greater initial level of output per worker.

D) the country with the smaller initial level of output per worker will grow more rapidly than the country with the greater initial level of output per worker.

24) In Solow's exogenous growth model, the principal obstacle to continuous growth in output per capita is due to A) too little savings. B) limits in the ability of government policymakers. C) the declining marginal product of labor. D) the declining marginal product of capital.

D) the declining marginal product of capital.

42) With an increase in total factor productivity in the Solow growth model, A) output decreases temporarily and returns to the previous steady state. B) the economy reaches a steady state with lower output. C) output increases temporarily and returns to the previous steady state. D) the economy reaches a steady state with higher output.

D) the economy reaches a steady state with higher output.

18) The per-worker production function relates output per worker A) in different countries. B) to the participation rate. C) to production per worker. D) to capital per worker.

D) to capital per worker.

14) One plausible explanation of the U.S. productivity slowdown starting in 1973 is that it was the result of the time needed to adapt to new technology. This explanation would require that A) a large number of new entrants be attracted to the labor force. B) workers withdraw from the labor force to learn about the new technology. C) managers be reluctant to adopt changes. D) workers time at their jobs be diverted from production to learning the technology.

D) workers time at their jobs be diverted from production to learning the technology.

32) If the population growth rate increases by the same percentage points as the depreciation rate decreases, what happens to the steady-state, per-worker consumption in Solow's exogenous growth model? A) It does not change. B) It decreases. C) It increases. D) It cannot exist anymore.

A) It does not change.

40) In the steady state of Solow's exogenous growth model, an increase in total factor productivity A) increases output per worker and increases capital per worker. B) decreases output per worker and increases capital per worker. C) decreases output per worker and decreases capital per worker. D) increases output per worker and decreases capital per worker.

A) increases output per worker and increases capital per worker.

3) On average, real GDP per capita in the United States increases by A) 0.5%. B) 2%. C) 4%. D) 1%.

B) 2%.

35) The Golden Rule of capital accumulation maximizes the steady-state level of A) investment per worker. B) consumption per worker. C) capital per worker. D) output per worker.

B) consumption per worker.

17) The biggest contribution to real GDP growth in the "East Asian Tigers" during the period 1966-1991 was due to growth in A) total factor productivity. B) the capital stock. C) international trade. D) the labor force.

B) the capital stock.

19) We can express the per-worker production function as a function of only per-worker capital thanks to A) the impatience of households. B) the constant returns to scale. C) the decreasing marginal return of labor. D) the decreasing marginal return of capital.

B) the constant returns to scale.

39) In the steady state of Solow's exogenous growth model, an increase in the growth rate of labor force A) increases output per worker and decreases capital per worker. B) decreases output per worker and increases capital per worker. C) decreases output per worker and decreases capital per worker. D) increases output per worker and increases capital per worker.

C) decreases output per worker and decreases capital per worker.

4) In an exogenous growth model, growth is caused by A) government policies. B) capital accumulation. C) forces that are not explained by the model itself. D) human capital accumulation.

C) forces that are not explained by the model itself.

20) The slope of the output per worker function is equal to the A) growth rate of the population. B) marginal product of labor. C) marginal product of capital. D) savings rate.

C) marginal product of capital.

22) 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 A) nf(k*) = sk*/ (s+d) . B) szk* = (n + d)f(k*) C) f(k*) =s/ (n+d) k* D) szf(k*) = (n + d)k*.

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