Econ Midterm 2

Which of the following statements correctly differentiates catching-up growth from cutting-edge growth?

Catching-up growth comes primarily from capital accumulation while cutting-edge growth comes from technological development.

Which statement best explains why growth in China has been so rapid recently?

China began with very little capital, so its marginal product of capital was very high.

Technological knowledge is the stock of tools, including machines, structures, and equipment, used to produce goods and services.

False

Which statement best describes the cross-country evidence on the relationship between a nation's GDP per capita and standard measures of societal well-being

GDP per capita is positively related to measures of societal well-being.

Which statement about the effects of patents is TRUE?

Patents increase the incentive to research and develop new products but also increase monopoly power once the products are created.

Which of the following is TRUE about the lifecycle theory of savings?

People tend to borrow during the early years of their lifetimes, save during their prime working years, and dissave during their retirement years.

Which of the following chains of logic explain the functions of banks in the process of economic growth?

Savers deposit their savings in banks. Banks direct these funds to firms that invest and engage in capital accumulation that furthers economic growth.

If individuals become more impatient, what will happen in the market for loanable funds?

The supply of loanable funds will decrease, interest rates will rise, and the quantity of saving and borrowing will decrease.

What is a result of a high level of government corruption?

There are few entrepreneurs.

A country's institutions can ultimately be shaped by its history, culture, geography, and even luck.

True

. Which is NOT an example of human capital?

a calculator

Insecure property rights typically lead to:

a decrease in the supply of savings.

Which is NOT an institution that leads to sustained long-term economic growth?

a more equal income distribution

The main reason people save during their working years is:

a preference toward a smooth consumption path over time.

The source of "cutting-edge" growth is:

advances in technological knowledge.

For most of recorded human history, long-run economic growth was:

almost nonexistent.

In the Solow model, if a country's saving rate (γ) increased from 10% to 12% and it was operating at its steady state before the change, we would expect to see:

an increase in both the capital stock and output.

In North Korea, workers are rewarded for:

being loyal to the ruling Communist Party.

Wealthier nations tend to have:

better educational opportunities.

If the interest rate increases, then:

both the quantity saved and the quantity supplied of loanable funds will increase.

Conditional convergence refers to the tendency for:

countries with similar steady-state levels of output to grow faster when they're poor than when they're rich until their per capita GDP levels converge.

At lower interest rates, the cost of investing _____ and the quantity of funds demanded for investment _____.

decreases; increases

When industries are limited by the size of the domestic market, opening trade to the world markets will likely lead to _____ and _____ real GDP per capita in the domestic country.

economies of scale; increase

Which of the following is NOT a reason for the financial crisis of 2007-2008?

excessive confidence about the stock market

The level of capital stock increases when investment in physical capital is:

greater than depreciation

Time preference is the desire to:

have goods and services sooner rather than later.

A business that pays for its workers to attend a technical college is increasing its:

human capital.

Bond prices and bond interest rates move:

in opposite directions.

Savings is:

income that is not spent on consumption goods.

Which would be most effective in ensuring sustained long-term economic growth?

increasing technological knowledge

Which of the following defines the "rules of the game" that structure economic incentives?

institutions

According to the Solow model, output is a function of the quantity of:

labor, capital, and ideas.

Ideas are not rivalrous, meaning that:

many people can benefit from an idea at the same time.

Since 1974 Nigeria's growth rate has been:

negative.

Beginning in the _____ century, economic growth became a clear trend in parts of the world.

nineteenth

The United States and Western European countries began to experience accelerated economic growth during which century?

nineteenth

When economists speak of "long-run economic growth," they mean increasing the:

per capita real GDP of a country.

One measure of student output is number of completed math problems produced. Using pen and paper only, a student can complete 50 math problems in 2 hours. Using pen, paper, and a calculator, the same student can complete 100 math problems in 2 hours. (The student is already familiar with, and knows how to use, the calculator.) This scenario illustrates the use of which factor of production?

physical capital

Factors of production that contribute to growth in per capita GDP include:

physical capital, skilled labor, and technological know-how

Increases in productivity cause the:

production function to shift upward.

Which of the following has the greatest potential for solving free-rider problems?

property rights

Governments can play a role in supporting the production of new ideas by:

protecting intellectual property.

The main reason for the influence of institutions on the wealth of nations is that good institutions:

raise people's incentives to build wealth.

Financial intermediaries:

reduce the costs of moving savings from savers to borrowers and investors.

A country increases its technological knowledge by engaging in:

research and development.

One of the best explanations for why some countries are rich and others are poor is that:

rich countries organize their factors of production more efficiently than poor countries.

When investment exceeds depreciation, the capital stock:

rises and output rises.

The process in which bank loans are bundled together and sold on the market as financial assets is called:

securitization.

Over the past 200 years, economic growth in the United States has been:

slow and consistent.

Which of the following represents ownership in a corporation?

stocks

If the government raises taxes on investment returns, then:

the demand for loanable funds will decrease and the equilibrium interest rate will decrease.

Diminishing returns to capital implies that _____ diminishes as more capital is added.

the marginal product of capital

The production function is a mathematical function that shows:

the relationship between output and the factors of production.

Depreciation refers to the:

wear and tear on capital through normal use.

If U.S. per capita GDP is $50,000 and grows at 2% per year, what will U.S. per capita GDP be in 70 years?

$200,000

If U.S. per capita GDP is $50,000 and grows at 3% per year, what will U.S. per capita GDP be in 70 years?

$400,000

If real GDP per capita in a country was $14,000 in year 1 and $14,140 in year 2, then the economic growth rate for this country from year 1 to year 2 was:

1%

Imagine an economy with production function Y = F(K) = and 400 units of capital. If the fraction of output invested in new capital is γ = 0.2 and the depreciation rate is δ = .05, what is the steady-state amount of capital?

16 units

An economy with production function Y = F(K) = that has 400 units of capital will produce _____ units of output.

20

Imagine an economy with production function Y = F(K) = and 400 units of capital. If the depreciation rate is δ = .05, how much capital will deteriorate in the next period?

20 units

Imagine an economy with production function Y = F(K) = and 400 units of capital. If the fraction of output invested in new capital is γ = 0.2 and the depreciation rate is δ = .05, how much total capital will be available in the next period?

384 units

Imagine an economy with production function Y = F(K) = and 400 units of capital. If the fraction of output invested in new capital is γ = 0.2, how much new capital will be created in the next period?

4

Suppose a country's real GDP per capita was $9,000 in 1990, and it grew to $18,000 by 2000. What is the annual growth rate of the country's real GDP per capita during this period?

7%

Which statement is TRUE about economic growth?

A country can grow and become wealthy, never grow, or grow and then begin to stagnate.