Chapter 12

Professor Blanchard discusses the​ IMF's most recent predictions of economic activity. Because of downward revisions in the​ IMF's predictions, he also notes the importance of implementing polices that will boost​ "potential output​ growth." Based on your understanding of the long run growth model presented in the​ text, which of the following would cause an increase in potential output​ or, similarly, an increase in the natural level of​ output? A. an increase in technological progress B. an increase in human capital C. an increase in the saving rate D. all of the above

all of the above

What are some of the requirements or​ "needs" for economic growth in Middle Eastern and North African​ economies? A. increased stability B. building finances to support projects C. broad structural reforms D. all of the above

all of the above

Writing the production function in terms of capital and effective labor implies that as the level of technology increases by​ 10%, the number of workers required to achieve the same level of output​ __________.

decreases by​ 10%.

Which of the following is not a reason for firms to engage in basic​ research: A. firms' spending on research tends to lead to technological progress. B. firms' gains in basic research can be used to further applied research. C. firms cannot patent a theorem. D. firms can create new products and increase profits.

firms cannot patent a theorem.

If the rate of technological progress​ increases, in order to keep capital per effective worker​ constant, the​ __________.

investment rate must increase.

A​ country's openness to trade can affect output per worker through​ __________ because it can impact the diffusion of technology.

productivity

The geographic location of a country affects output per worker through​ __________.

productivity, because the climate of a country may make it easier or more difficult to produce goods and services.

Low population growth would be expected to​ __________.

raise output per​ worker, because it will raise all of the levels of inputs and productivity per worker.

Which of the following is not a necessity for this country to attain a rapid output growth​ rate?

Make large investments in​ R&D so that the country will sustain a rapid growth rate over a long period of time.

The amount of education in a country affects output per worker​ __________. A. by impacting the level of human capital in an economy. B. through productivity if changes in human capital improve the fertility of research. C. by changing the amount of physical capital because education is a type of physical capital. D. A and B are both correct.

A and B are both correct.

Why is the amount of​ R&D spending important for​ growth? A. Most technological progress comes from​ R&D activities. B. Unlike other factors of​ production, R&D has virtually unlimited potential growth. C. R&D is a major factor in creating new ideas and products. D. All of the above.

All of the above.

Where does technological progress come from for the economic leaders of the​ world?

By generating new ideas through research and development.

Developing countries do not generally create new ideas through research and development. Which of the following is not a source of technological progress for developing​ countries? A. Developing countries can import technology from the economic leaders by copying their technology. B. Developing countries can import technology by receiving a transfer of technology as a result of joint ventures with firms headquartered in the economic leaders. C. Foreign direct investment can increase technological progress in developing countries by substituting more productive foreign production techniques for less efficient domestic ones. D. Discovering new sources of natural resources can lead to progress in developing countries.

Discovering new sources of natural resources can lead to progress in developing countries.

Technology has not played an important part in Chinese economic growth.

False

The fact that one cannot patent a theorem implies that private firms will not engage in basic research.

False

In steady​ state, output per effective worker grows at the rate of population growth.

False In steady​ state, there is no growth of output per effective worker.

A higher saving rate implies a higher level of capital per effective worker in the steady state and thus a higher rate of growth of output per effective worker.

False The​ steady-state rate of growth of output per effective worker is zero. A higher saving rate leads to a higher​ steady-state level of capital per effective​ worker, but has no effect on the​ steady-state rate of growth of output per effective worker.

Which of the following is not a reason developing countries may choose to have poor patent​ protection? A. Poor patent protection may facilitate a more rapid adoption of new technologies in developing countries. B. Firms in developing countries are more willing to engage in research and development with poor patent protection. C. Poor patent protection allows developing countries to more easily copy technologies from economic leaders. D. The costs of poor patent protection are relatively​ small, since developing countries generate relatively few new technologies.

Firms in developing countries are more willing to engage in research and development with poor patent protection.

The government of a centrally planned economy wants to boost the rates of technological​ progress, investments, and output growth in the economy. Which of the following strategies will be most effective for the​ country?

Following a policy of slow paced privatization of state enterprises and developing a good set of property rights.

Which of the following is not a true​ statement? A. The usual sequence is that a major discovery leads to the exploration of potential​ applications, then to the development of new​ products, and finally to the adoption of these new products. B. In a competitive​ market, If firms have made large profits from new​ products, they tend to have fewer incentives to create new discoveries. C. If research is very​ fertile, other things​ equal, firms will have strong incentives to spend on​ R&D. D. If firms cannot appropriate the profits from the development of new​ products, they will not engage in​ R&D, and technological progress will be slow.

In a competitive​ market, If firms have made large profits from new​ products, they tend to have fewer incentives to create new discoveries.

Suppose that an international treaty ensuring that each​ country's patents are legally protected all over the world is signed. How does this affect the appropriability and fertility of​ research, R&D spending in the long​ run, and output in the long​ run?

It will raise the appropriability for​ firms, increase​ R&D spending, and raise growth for developed economies.

Assume there is a permanent reduction in the rate of technological progress. What is the likely impact on the growth rate and the level of output per worker in the short run and in the long​ run?

The growth rate of output per worker falls in the short run. In the long​ run, the growth rate approaches a new steady state with a permanently lower growth rate. Output per worker continues to rise over​ time, just at a slower rate.

Assume there is a permanent reduction in the saving rate. What is the likely impact on the growth rate and the level of output per worker in the short run and in the long​ run?

There is no effect on the​ steady-state growth rate of output per worker. The growth rate of output per worker falls in the short​ run, but in the long run it approaches its original​ steady-state rate.

All else​ constant, people are better off with a lower rate of growth in the number of workers.

True

An increase in the rate of technological progress reduces the​ steady-state levels of capital and output per effective worker but increases the rate of growth of output per worker.

True

Even if the potential returns from​ R&D spending are identical to the potential returns from investing in a new​ machine, R&D spending is much riskier for firms than investing in new machines.

True

If banking services are mismeasured—for example, by not taking into account the introduction of telebanking—we will overestimate inflation and underestimate productivity growth.

True

Writing the production function in terms of capital and effective labor implies that as the level of technology increases by​ 10%, the number of workers required to achieve the same level of output decreases by​ 10%.

True

If the rate of technological progress​ increases, the investment rate​ (the ratio of investment to​ output) must increase to keep capital per effective worker constant.

True Because it is a​ ratio, to keep capital per effective worker constant both parts have to move at the same rate.

In steady​ state, output per worker grows at the rate of technological progress.

True In steady​ state, there is no change in capital per​ worker, so technology can raise output per worker.

Because eventually we will know​ everything, growth will have to come to an end.

Uncertain

Even if the potential returns from​ R&D spending are identical to the potential returns from investing in a new​ machine, R&D spending is much riskier for firms than investing in new machines because​ __________. A. spending on​ R&D activities does not always lead to new ideas and products. B. it takes many​ years, and often many​ decades, for the full potential of major discoveries to be realized. C. a new machine is a physical item in hand that the firm can use right away. D. all of the above.

all of the above.

Low tax rates and good public infrastructure would be expected to raise output per worker because​ __________. A. low tax rates encourage​ R&D, since firms can keep more of their​ gains, which raises productivity. B. good infrastructure makes it easier to transport goods and​ services, which raises productivity. C. low tax rates encourage​ investment, which raises physical capital and human capital. D. all of the above.

all of the above.

How do each of the following policy proposals affect the appropriability and fertility of​ research, R&D spending in the long​ run, and output in the long​ run? Suppose that tax credits are given for each dollar of​ R&D spending. This proposal would lead to​ __________ in​ R&D spending. There would be​ __________ in the rates of technological progress and​ __________ in output growth.

an​ increase; an​ increase; an increase

Suppose there is a decrease in funding of​ government-sponsored conferences between universities and corporations. This proposal would lead to​ __________ in the fertility of applied research and to a​ __________ in growth.

a​ decrease; a decrease

The amount of protection of property rights in a country affects output per worker by​ _________. A. impacting the amount of productivity because strong property rights encourage more​ R&D. Your answer is correct. B. impacting human capital because people have an incentive to gain more education. C. impacting productivity because strong property rights create more diffusion of technology. D. B and C are both correct.

impacting the amount of productivity because strong property rights encourage more​ R&D.

Suppose there is an elimination of patents on new pharmaceutical​ drugs, so the drugs can be copied and sold at a low cost as soon as they become available. This proposal would​ __________ the appropriability of drug research. There would be​ __________ in the development of new​ drugs, __________ in the rate of technological​ progress, and​ __________ in the growth rate.

​reduce; a​ reduction; a​ reduction; a reduction