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