Econ 102 Chapter 9

In the two-sector endogenous growth model, the saving rate (s) affects the steady-state:

level of income.

In the Solow model with technological progress, by increasing the efficiency of labor at rate g:

the real wage grows at rate g but the real rental price of capital is constant.

The preponderance of empirical evidence supports the hypothesis that economies that are open to trade _____ than comparable closed economies.

grow more rapidly

The type of legal system and the level of corruption in a country have been found to be:

significant determinants of the rate of economic growth in a country.

The number of effective workers takes into account the number of workers and the:

efficiency of each worker.

Hypotheses to explain the positive correlation between factor accumulation and production efficiency include each of the following except:

efficient economies make capital accumulation unnecessary.

International differences in income per person in accounting terms must be attributed to differences in either ______ and/or ______.

factor accumulation; production efficiency

The efficiency of labor is a term that does not reflect the:

high output that comes from labor cooperating with a large amount of capital.

Other things being equal, all of the following government policies are likely to increase national saving except:

running a budget deficit.

In a steady-state economy with population growth n and labor-augmenting technological progress g, persistent increases in standards of living are possible because the:

capital stock grows faster than does the labor force.

A recent study suggests that the spectacular growth rates experienced by Hong Kong, Singapore, South Korea, and Taiwan are largely due to:

increases in factor inputs.

Which of the following changes would bring the U.S. capital stock, currently below the Golden Rule level, closer to the steady-state, consumption-maximizing level?

increasing the saving rate

An alternative to Prescott's explanation of the cyclical behavior of the Solow residual is that it is the result of:

labor hoarding in recession and cyclical mismeasurement of output.

In the two-sector endogenous growth model, the fraction of labor in universities (u) affects the steady-state:

level of income, growth rate of income, and growth rate of the stock of knowledge.

In a steady state with population growth and technological progress:

the capital and labor shares of income are constant.

In the two-sector endogenous growth model, income growth persists because:

the creation of knowledge in universities never slows down.

In comparing two countries with different levels of education but the same saving rate, same rate of population growth, and same rate of technological progress, one would expect the more highly educated country to have:

the same growth rate of total income and a higher real wage.

In the two-sector endogenous growth model, the steady-state stock of physical capital is determined by _____, and the growth in the stock of knowledge is determined by _____.

the saving rate; the fraction of labor in universities

Conditional convergence occurs when economies converge to:

their own, individual steady states.

The efficiency of labor:

includes the knowledge, health, and skills of labor.

The endogenous growth model's assumption of constant returns to capital is more plausible if capital is defined to include:

knowledge.

The balanced growth property of the Solow growth model with population growth and technological progress predicts which of the following sets of variables will grow at the same rate in the steady state?

output per worker, capital per worker, real wage

In a steady state with population growth and technological progress:

the real rental price of capital is constant and the real wage grows at the rate of technological progress.

If the labor force is growing at a 3 percent rate and the efficiency of a unit of labor is growing at a 2 percent rate, then the number of effective workers is growing at a rate of:

5 percent.

Empirical evidence supports the theory that free trade:

increases economic growth.

The Solow residual measures the portion of output growth that cannot be explained by growth in:

capital and labor.

In the basic endogenous growth model, income can grow forever—even without exogenous technological progress —because:

capital does not exhibit diminishing returns.

In the Solow growth model, capital exhibits ______ returns. In the basic endogenous growth model, capital exhibits ______ returns.

diminishing; constant

If the marginal product of capital net depreciation equals 8 percent, the rate of growth of population equals 2 percent, and the rate of labor-augmenting technical progress equals 2 percent, to reach the Golden Rule level of the capital stock, the ____ rate in this economy must be _____.

saving; increased.

The recent worldwide slowdown in economic growth began in the early:

1970s.

When capital increases by ∆K units, output increases by:

MPK × ∆K units.

When capital increases by ∆K units and labor increases by ∆L units, output (∆Y) increases by:

(MPK × ∆K) + (MPL × ∆L) units.

In a Solow model with technological change, if population grows at a 2 percent rate and the efficiency of labor grows at a 3 percent rate, then in the steady state, output per effective worker grows at a ______ percent rate.

0

In the Solow model with technological progress, the steady-state growth rate of capital per effective worker is:

0

In the Solow model with technological progress, the steady-state growth rate of output per effective worker is:

0

If the U.S. production function is Cobb-Douglas with capital share 0.3, output growth is 3 percent per year, depreciation is 4 percent per year, and the capital-output ratio is 2.5, the saving rate that is consistent with steady-state growth is:

17.5 percent.

If productivity growth in the United States had remained at its level before the recent productivity slowdown, real income today would be more than ______ percent higher.

20

In a Solow model with technological change, if population grows at a 2 percent rate and the efficiency of labor grows at a 3 percent rate, then in the steady state, output per actual worker grows at a ______ percent rate.

3

In a Solow model with technological change, if population grows at a 2 percent rate and the efficiency of labor grows at a 3 percent rate, then in the steady state, total output grows at a ______ percent rate.

5

If the marginal product of capital net of depreciation equals 10 percent and the rate of population growth equals 2 percent, then this economy will be at the Golden Rule steady state if the rate of technological progress equals _____ percent.

8

If Y is output, K is capital, u is the fraction of the labor force in universities, L is labor, and E is the stock of knowledge, and the production Y = F(K,(1 - u) EL) exhibits constant returns to scale, then output (Y) will double if:

K and E are doubled.

The productivity slowdown that began in the 1970s has been attributed, at least partly, to each of the following except:

a decline in the number of workers in the labor force.

Empirical investigations into whether differences in income per person are the result of differences in the quantities of the factors of production available or differences in the efficiency with which the factors are employed typically find:

a positive correlation between the quantity of factors and the efficiency of use.

Increases in the rate of growth of income per person in the United States in the mid-1990s is mostly likely the result of:

advances in information technology.

In the Solow growth model, technological change is ______, whereas in endogenous growth theories, technological change is ______.

assumed; explained

The Solow model predicts that two economies will converge if the economies start with the same:

steady states.

In the Solow model with technological progress, the steady-state growth rate of output per (actual) worker is:

g

English-style legal systems give ______ protections to shareholders and creditors than French Napoleonic Codes, typically resulting in ______ capital markets and faster rates of economic growth.

greater; more developed

Empirical studies indicate that the rate of social return from positive "standing on others' shoulders" externalities of research ______ the negative "stepping on toes" externalities of research.

greatly exceed

The Solow residual equals the percentage change in output:

minus the percentage changes in factor inputs weighted by each factor's share of output.

In the Solow model with technological progress, the steady-state growth rate of total output is:

n + g.

With population growth at rate n and labor-augmenting technological progress at rate g, the Golden Rule steady state requires that the marginal product of capital (MPK):

net of depreciation be equal to n + g.

Schumpeter's thesis of "creative destruction" is an explanation of economic progress resulting from:

new product producers driving incumbent producers out of business.

A possible externality associated with the process of accumulating new capital is that:

new production processes may be devised.

Over the past 50 years in the United States:

output per worker hour, the real wage, and capital stock per worker hour have all increased about 2 percent per year, whereas the real rental price of capital has remained about the same.

Total factor productivity may be measured by:

subtracting the rate of growth of capital input, multiplied by capital's share of output, plus the rate of growth of labor input, multiplied by labor's share of output, from the rate of growth of output.

Public policies in the United States designed to stimulate technological progress do not include:

tax breaks to encourage homeownership.

Endogenous growth theory rejects the assumption of exogenous:

technological change.

In the Solow model with technological change, the Golden Rule level of capital is the steady state that maximizes:

consumption per effective worker.

Labor hoarding refers to:

continuing to employ workers during a recession to ensure they will be available in the recovery

If the per-worker production function is y = Ak, where A is a positive constant, then the marginal product of capital:

is constant as k increases.

The Solow residual will fall even if technology has not changed if there is:

labor hoarding.

Assuming that technological progress increases the efficiency of labor at a constant rate is called:

labor-augmenting technological progress.

The rate of labor-augmenting technological progress (g) is the growth rate of:

the efficiency of labor.

Empirical results justify substantial government subsidies to research based on the finding that the:

the private return to research is less than the social return to research.

In the Solow growth model with population growth and technological change, the steady-state growth rate of income per person depends on:

the rate of technological progress.

International data suggest that economies of countries with different steady states will converge to:

their own steady state.

The analysis in Chapter 9 of the current capital stock in the United States versus the Golden Rule level of capital stock shows that the capital stock in the United States is:

well below the Golden Rule level.

If two economies are identical (with the same population growth rates and rates of technological progress), but one economy has a lower saving rate, then the steady-state level of income per worker in the economy with the lower saving rate:

will be at a lower level than in the steady state of the high-saving economy.

If two economies are identical (including having the same saving rates, population growth rates, and efficiency of labor), but one economy has a smaller capital stock, then the steady-state level of income per worker in the economy with the smaller capital stock:

will be at the same level as in the steady state of the high capital economy.

If the production function is y = k1/2, the steady-state value of y is:

y = s/(δ + n + g).

In the Solow growth model, the steady-state growth rate of output per effective worker is ______, and the steady-state growth rate of output per actual worker is ______.

zero; the rate of technological progress

Assume that an economy described by the Solow model is in a steady state with output and capital growing at 3 percent, and labor growing at 1 percent. The capital share is 0.3. The growth-accounting equation indicates that the contributions to growth of capital, labor, and total factor productivity are:

0.9 percent, 0.7 percent, and 1.4 percent, respectively.

If capital grows at 3 percent per year and labor grows at 1 percent per year, and capital's share is 1/3 while labor's share is 2/3, if there is no technological progress and the neoclassical assumptions hold, the growth rate of output will be:

1-2/3 percent per year.

If the production function is Y = AK2/3L1/3 in the land of Solovia, and the labor force increases by 5 percent while capital is constant, labor productivity will:

decrease by 3.33 percent.

In year 1, capital stock was 6, labor input was 3, and output was 12. In year 2, capital was 7, labor was 4, and output was 14. If shares of labor and capital were each 1/2, between the two years, total factor productivity:

decreased by 1/12.

In the Solow growth model with population growth and technological change, the break-even level of investment must cover:

depreciating capital, capital for new workers, and capital for new effective workers.

If the per-worker production function is y = Ak, where A is a positive constant, in the steady state, a:

higher saving rate leads to a higher growth rate.

Economic research shows that ______ in explaining international differences in living standards.

human capital is at least as important as physical capital

Differences in factor accumulation and/or differences in production efficiency must account for all international differences in:

income per person.

Changes that can increase measured total factor productivity include:

increased expenditures on education.

The rate of growth of labor productivity (Y/L) may be expressed as the rate of growth of total factor productivity:

plus the capital share multiplied by the rate of growth of the capital-labor ratio.

One explanation for greater economic development in moderate versus tropical climates is that institutions established by colonial settlers in moderate climates ______, while institutions established by colonists in tropical climates ______.

protected property rights; were extractive and authoritarian

In a steady-state economy with a saving rate s, population growth n, and labor-augmenting technological progress g, the formula for the steady-state ratio of capital per effective worker (k*), in terms of output per effective worker (f(k*)), is (denoting the depreciation rate by δ):

sf(k)/(δ + n + g).

According to the Solow model, persistently rising living standards can only be explained by:

technological progress.

Prescott interpreted fluctuations in the Solow residual as evidence that:

technology shocks are an important source of short-run economic fluctuations.