Economic Growth and Development

Midterm Exam

  1. In the basic Solow model, the problem of profit maximization results in the wage rate being equal to the
  2. Average product of labor
  3. Marginal product of labor
  4. Average product of capital
  5. Marginal product of capital
  1. If a production function is characterized by the constant returns to scale property, tripling its inputs will result in the
  2. Tripling of output
  3. Doubling of output
  4. Same output
  5. Lower output
  1. The fact that in the basic Solow model represents payment to capital K means that for each unit of capital the producer is
  2. Actually paying r dollars for the right to use capital
  3. Borrowing r dollars from the bank in order to pay for the right to use capital
  4. Never actually paying anything to the capital owners
  5. Considered to be paying r dollars for the right to use capital irrespectively of who owns the capital
  1. In the basic Solow model, the shares of output paid to ___ and ___ are constant
  2. Capital and labor
  3. Capital and intermediate inputs
  4. Capital and inventory
  5. Capital and management
  1. The following production function is characterized by the property of
  2. Diminishing returns
  3. Increasing returns
  4. Constant returns
  5. Increasing returns if A is also considered to be a factor of production

Hint: it is important to recall the exact definition of returns to scale

  1. If capital per worker k in the basic Solow model is equal to its steady-state value, the aggregate capital stock K is
  2. Growing
  3. Growing faster than L is growing
  4. Decreasing
  5. Decreasing faster than L is decreasing
  1. Suppose that, in the basic Solow model, firms do not save anything, and their capital stock never depreciates. The value of output per capita y will be
  2. Increasing with time
  3. Decreasing with time
  4. Staying constant
  5. Following an irregular time path that depends on the government policy
  1. Consider the following model: the production function is described by , and you allow the technology parameter A to grow at rate g. In this case the steady state will correspond to an unchanging value of:
  1. Growth in terms of per capita income in the basic Solow model is:
  2. Never possible
  3. Possible along the transition path
  4. Possible in the steady state
  5. Possible in the steady state if capital stock grows faster than the population
  1. Suppose the government has abolished the capital gains tax, i.e. the tax you have to pay on the interest you earn from your bank deposit. The basic Solow model predicts that the steady state capital per worker will:
  2. Stay the same
  3. Increase
  4. Decrease
  5. Increase to become equal to the logarithm of the population
  1. Consider a variant of the basic Solow model with technology, i.e. a model where the production function is defined as . Defining and , the production function in terms of and will look like:
  2. None of the above
  1. If we allow for the technology level A in the Solow model where the production function looks like and technology level growth rate is given by, the growth rate of per capita income will be equal to
  2. g
  3. n
  4. None of the above, the per capita income will grow according to ______
  1. The government policies can influence long-term growth rates
  2. In the basic Solow model, but not in the technology-augmented Solow model
  3. In the technology-augmented Solow model, but not in the basic Solow model
  4. In both the basic Solow model, and in the technology-augmented Solow model
  5. In neither the basic Solow model, nor the technology-augmented Solow model

Note:the basic Solow model is the one where the production function is , the technology-augmented Solow model’s production function is where the level of technological development evolves according to .

  1. Total factor productivity growth is equal to the
  2. Growth rate of output per worker
  3. Growth rate of output per worker minus the growth rate of capital
  4. Growth rate of output per worker minus the growth rate of labor
  5. Growth rate of output per worker minus the sum of the growth rates of capital and labor
  1. Solow paradox refers to
  2. The lack of computers in industry
  3. The low growth rates of total factor productivity prior to the early nineties
  4. The fact that his growth models do not have long-lasting growth effects
  5. The fact that his growth models do not have long-lasting level effects
  1. In the graph tracing the evolution of the logarithm of capital stock per worker over time the slope of the graph is representing the
  2. Growth of capital per worker
  3. Growth rate of capital per worker
  4. Growth rate of capital per effective worker
  5. Growth rate of capital per effective worker adjusted for technology growth
  1. Suppose human capital H is linked to the amount of labor L in the following fashion:

The term u would be best interpreted as:

  1. The efficiency of educational efforts
  2. The educational efforts
  3. The fraction of time workers spend on producing goods and services
  4. The fraction of time workers spend on investing in the additional stock of capital
  1. Consider the following graph:

The fact that countries like Korea, Singapore and Japan are located above the 45-degree line indicates that:

  1. These countries grew mostly due to the technological progress
  2. These countries grew mostly due to the expansion of exports
  3. These countries grew mostly due to factor accumulation
  4. These countries grew mostly due to the increases in total factor productivity
  1. In the Solow growth model augmented with human capital, wealthy economies are characterized by:
  2. Higher investment rates
  3. Larger fractions of time spent on education
  4. Lower population growth rates
  5. All of the above
  1. Consider the following variable: , where i indexes all of the world’s countries, and denotes per capita income in country i. What do you think is the upper limit on the value of ?
  2. 0.5
  3. 1
  4. >1
  5. <1
  1. “In 1960, about 60% of the world’s population lived on per capita incomes that were less than or equal to 10% of the U.S. per capita income.” The two countries that contributed the most to the truth of this statement are:
  2. India and China
  3. India and sub-Saharan Africa
  4. China and sub-Saharan Africa
  5. India, China, and the former USSR
  1. Which one of the government policies is not conducive to increased growth rates in the framework of the Solow model with human capital?
  2. Birth control
  3. Subsidies to producers of investment goods
  4. Investments in medical care system
  5. Import restrictions on foreign-produced machine tools
  1. According to the principle of transition dynamics, the further an economy is ______its steady state, the ______the economy should grow.
  2. Below, faster
  3. Above, faster
  4. Below, slower
  5. Above, slower
  1. We observe convergence in per capita income levels when we analyze data for the group of:
  2. The Asian countries
  3. Sub-Saharan countries
  4. OECD countries
  5. South American countries
  1. Since the 1960s, the gaps in incomes across countries over time have
  2. Grown
  3. Narrowed
  4. Stayed the same
  5. Fluctuated around some steady state level
  1. Suppose the technological growth rate g in the Solow model increases at time t=0by some amount for some unknown reason. The growth rate of output per capita at time t=0 will:
  2. Decrease
  3. Stay the same
  4. Increase
  5. Increase, but then decrease down to the previous steady state level
  1. A view of a spectacular sunset along a private beach is an example of a

a. / private good.
b. / public good.
c. / nonrival but excludable good.
d. / rival but nonexcludable good.
  1. Some goods can be either common resources or public goods depending on

a. / whether the good is rival in consumption.
b. / whether the good is an investment good.
c. / the marginal cost of the good.
d. / None of the above is correct.
  1. The Tragedy of the Commons for sheep grazing on common land can be eliminated by the government doing each of the following except

a. / assigning land property rights.
b. / auctioning off sheep-grazing permits.
c. / introducing quotas on the number of sheep that can graze on specific land plots
d. / subsidizing the production of wool
  1. Ideas are
  2. Rival
  3. Nonrival
  4. Excludable and rival
  5. Excludable and rival if their production is characterized by increasing returns to scale
  1. Large fixed costs in combination with low marginal costs result in
  2. Constant returns to scale
  3. Increasing returns to scale
  4. Diminishing returns to scale
  5. None of the above
  1. In case the fixed costs associated with the production process are quite substantial, the average cost curve will be
  2. Decreasing slowly
  3. Increasing slowly
  4. Decreasing fast
  5. Increasing fast
  1. Patents and copyrights ensure
  2. Excludability of inventions
  3. Rivalry of inventions
  4. Non-rivalry of inventions
  5. Non-excludability of inventions
  1. Suppose technology grows according to where is the number of researchers, and is the rate at which new ideas are being discovered, and . The “standing on shoulders” effect is captured by
  2. A
  1. The “stepping on toes” effect in the Romer growth model refers to the fact that
  2. The stock of ideas that can be possibly discovered is finite
  3. Two or more researchers may be working on the same idea simultaneously
  4. An increasing number of manual workers in the economy will result in diminished returns in terms of per capita incomes
  5. The productivity of researchers grows over time even if the number of researchers is constant

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