Econ 101: Chapter 7
Growth accounting, popularized by Robert Solow, attempts to attribute a change in aggregate output
separately between changes in total factor productivity and changes in the supplies of factors of production
One plausible explanation of the U.S. productivity slowdown starting in 1973 is that it is an artifact of mismeasurement. This explanation would require that production of
services is underestimated
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
szf(k*) = (n + d)k*
In Solow's exogenous growth model, the economy reaches a stable steady state because
the marginal return of capital is decreasing
It is useful to study the Solow growth model because it is useful in understanding
the sources of economic growth after 1800
What happens to a very rich economy in Solow's exogenous growth model?
It becomes poorer
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?
It will get back to its original status
The importance of barriers to the adoption of technologies is supported by research by
S. Parente and E. Prescott
Suppose a poor economy inches towards the steady state in Solow's exogenous growth model. What two things happen?
The growth rate of output decreases, and capital grows faster than population
The idea that an improvement in technology causes an increase in population but causes no increase in the average standard of living is attributed to
Thomas Malthus
True or false: A constant marginal product of capital in the Solow growth model would not lead to a steady state
True
True or false: New production procedures increases total factor productivity
True
A steady state is
a long-run equilibrium
The biggest contribution to real U.S. GDP growth in the 1970s was due to growth in
both the capital stock and the labor force
The Solow model emphasizes the role of which of the following factors of production?
capital
We can use a per-worker production function in the Malthusian model because
the production function has constant returns to scale
There is evidence that income per worker is converging in
the richest countries, but not the poorest countries
In a Malthusian world, what would improve the standard of living temporarily?
a war
In Solow's exogenous growth model, the steady-state growth rate of capital can be increased by
higher population growth
In the Malthusian model, improvements in health care lead to ____________ population and ___________ per-capita production
higher; lower
The Malthusian model predicts that population control
improves the standard of living
If an epidemic hits a Malthusian economy, the immediate consequence is an ____________ in the standard of living
increase
In the Golden Rule steady state, the marginal product of capital is equal to the
population growth rate plus the depreciation rate
Endogenous growth theory is about
explaining growth
In an exogenous growth model, growth is caused by
forces that are not explained by the model itself
In the Malthusian model of economic growth, an increase in the quantity of land __________________ steady state per capita consumption, and ______________ the steady state population
has no effect on; increases
Growth in the Solow residual was fastest in the
1960s
Growth in the Solow residual was slowest in the
1970s
On average, for the last 100 years or more, real GDP per capita in the United States has increased by
2% per year
The Golden Rule of capital accumulation maximizes the steady-state level of
consumption per worker
The slope of the output per worker function is equal to the
marginal product of capital
True or false: A savings rate that increases as income increases, if implemented in the Solow growth model, would lead to a steady state
False
True or false: More capital increases total factor productivity
False
True or false: Total saving being steady is a feature of the steady state in Solow's exogenous growth model
False
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
2.7
Why do we analyze the steady state in the Malthusian model?
Because the long run equilibrium of the model is the steady state
The Malthusian model performs poorly in explaining economic growth after the
Industrial Revolution
What happens to a poor economy in Solow's exogenous growth model?
Its saving per capita increases
In a Malthusian world, why is misery recurrent?
Mortality depends on the standard of living
In a Malthusian world, what events would improve permanently the standard of living, as measured by output per capita?
a new mutation of germs
In more modern times as opposed to the times of Malthus, higher standards of living appear to ___________ death rates and also ___________ birth rates
decrease; decrease
In the Malthusian model, state-mandated population control policies are likely to ____________ the equilibrium size of the population and _____________ the equilibrium level of consumption per worker
decrease; increase
In the steady state of Solow's exogenous growth model, an increase in the growth rate of labor force ____________ output per worker and ____________ capital per worker
decreases; decreases
In the Solow growth model, the law of motion of capital takes into account the
depreciation of old capital
In the endogenous growth models of Lucas and Romer, workers divide their time between market work and
accumulating human capital
In the steady state of the Solow growth model
aggregate consumption grows at a constant rate
In a Malthusian world, what event would improve temporarily the standard of living, as measured by output per capita?
an increase in violent crime
Barriers to Riches, by S. Parente and E. Prescott, emphasizes the importance of
barriers to technological adoption
For the Solow model to accurately explain the observed divergence of growth experience around the world would require
barriers to the introduction of new technologies
In a Malthusian world, what would improve the standard of living permanently?
birth control
In the Malthusian model of economic growth, per capita consumption affects ________________ and ________________
birth rates; death rates
The per-worker production function relates output per worker to
capital per worker
In the Solow growth model, countries with identical total factor productivities, identical labor force growth rates, and identical savings rates, in equilibrium, have identical levels of ___________________ and __________________
capital per worker; output per worker
One plausible explanation of the U.S. productivity slowdown starting in 1973 is that it was a result of the increase in the relative price of energy. This explanation would require that, in light of higher energy costs, the
capital stock is overestimated
Income per worker has been _______________ in the rich countries, but ____________________ in the poor countries
converging; not converging
In the Malthusian model, an improvement in the technology of growing food is likely to ______________ the equilibrium size of the population and __________________ the equilibrium level of consumption per worker
increase; have no effect on
In the endogenous growth models of Lucas and Romer, an increase in a worker's level of human capital
increases both the amount of additional human capital she can produce and the amount of output she can produce
Malthus was too pessimistic because he did not foresee the effects of
increases in the capital stock and the effects of such increases on production
In the steady state of Solow's exogenous growth model, an increase in the savings rate ___________ output per worker and ___________ capital per worker
increases; increases
In the steady state of Solow's exogenous growth model, an increase in total factor productivity _____________ output per worker and _____________ capital per worker.
increases; increases
The saving rate has the following characteristic in Solow's exogenous growth model
it is constant
The Malthusian model emphasizes fixity in which of the following factors of production?
land
Before the Industrial Revolution, standards of living differed
little over time and across countries.
The period from 2000 to 2010 was a period of
low productivity growth, almost as bad as the period 1970-1980
If an epidemic hits a Malthusian economy, the long-term consequence is ____________ in the standard of living
no change
When we compare poor and rich countries in the world there is much greater dispersion in growth rates in per capita income for the _______ countries than for the _______ countries
poor; rich
In the Malthusian model, the population growth rate is
positively related to consumption per worker
Recent evidence suggests that output per worker is ______________ related to the rate of investment and ______________ related to the rate of population growth
positively; negatively
In the Solow growth model, an increase in the savings rate
raises steady state per capita output
In the context of the Solow growth model, so-called growth miracles, such as Japan, South Korea, Singapore, and Hong Kong, are most easily explained by
removal of barriers to technology
In the Malthusian model, population growth is endogenous because
the birth and death rates are endogenous
We can express the per-worker production function as a function of only per-worker capital thanks to
the constant returns to scale
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
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
In Solow's exogenous growth model, the principal obstacle to continuous growth in output per capita is due to
the declining marginal product of capital
The Solow residual attempts to measure the amount of output not explained by
the direct contribution of labor and capital
With an increase in total factor productivity in the Solow growth model
the economy reaches a steady state with higher output
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
workers time at their jobs be diverted from production to learning the technology