Question 1

According to modern growth theory, convergence in the level of wealth across countries depends mainly on:

Accepted Answer

A)   the acquisition of physical capital.
B)   access to technology.
C)   institutions.
D)   natural resource availability.
E)   skilled labor.F) All of the above
G) D) and E)

Question 2

According to the Solow growth theory, developing nations will catch up to the developed nations:

Accepted Answer

A)   if developing nations become more politically stable.
B)   if developing nations invest in more education for their workers.
C)   because developing nations can borrow technologies from the developed nations and learn from their mistakes.
D)   in about 100 years.
E)   at no foreseeable time in the future.F) A) and B)
G) A) and D)

Question 3

Consider the data in the following table.  Do the data match the experience of a developed country like the United States?

Accepted Answer

A)   Yes, because the two growth rates are positively correlated.
B)   No, because the two growth rates should be positively correlated.
C)   Yes, because the two growth rates are negatively correlated.
D)   No, because the two growth rates should be negatively correlated.
E)   Yes, because these two growth rates are unrelated.F) A) and B)
G) B) and C)

Question 4

When private property rights are established, the expected payoffs from investment will _________ and the amount of production will _________.

Accepted Answer

A)   increase; increase
B)   decrease; decrease
C)   increase; decrease
D)   decrease; increase
E)   increase; remain unchangedF) None of the above
G) A) and E)

Question 5

Consider the following table that shows the total number of acres plowed per hour as a function of the number of tractors used is increased. Use this table to answer the next  questions. 
-The total acres plowed when five tractors are used is:

Accepted Answer

A)   500.
B)   540.
C)   520.
D)   480.
E)   460.F) A) and E)
G) None of the above

Question 6

In equation form, the production function for a single firm can be expressed as:

Accepted Answer

A)   q = f(human capital, physical capital) .
B)   q = f(price of output, price of inputs) .
C)   q = f(labor, price of inputs) .
D)   q = f(price of inputs, profit) .
E)   q = f(production cost, profit) .F) C) and E)
G) A) and C)

Question 7

Which of the following is true?

Accepted Answer

A)   Economists formulate theory and then sometimes try to verify the theory with real-world observations.
B)   Real-world observations are used to formulate economic theory, but this is of little use to policymakers.
C)   Once an economic theory is developed, it is rarely tested against real-world observations.
D)   When a policymaker has an idea about how to advance economic growth, she will ask an economist to formulate a theory, and then this will be compared to real-world observations.
E)   Real-world observations motivate economists to formulate theories about how economic growth evolves, and these theories are then used and reevaluated as new data become available.F) A) and B)
G) A) and C)

Question 8

Economic theories about growth:

Accepted Answer

A)   are mainly used for intellectual debate.
B)   are mainly used for teaching.
C)   are not based on real-world facts.
D)   are used to set economic policies that impact human lives.
E)   have had no influence on government policy.F) A) and B)
G) A) and E)

Question 9

A key assumption of the Solow model is:

Accepted Answer

A)   increasing returns to labor and diminishing returns to capital.
B)   diminishing returns to capital only.
C)   diminishing marginal product of capital and labor.
D)   diminishing marginal product of capital and increasing marginal product of labor.
E)   constant marginal product of capital only.F) B) and C)
G) A) and B)

Question 10

Historical evidence supports which of the following claims?

Accepted Answer

A)   Aid from developed countries to less developed countries has not always resulted in sustained growth for the less developed countries.
B)   Only the less developed countries that have received aid from the wealthy countries have succeeded in achieving sustained growth.
C)   Sending financial resources to developing countries has helped them all achieve sustained growth.
D)   Building capital in the developing countries has helped them all achieve sustained growth.
E)   Developed countries should not send any more aid to less developed countries because the effort has never resulted in sustained growth.F) B) and C)
G) None of the above

Question 11

When the amount of physical capital is increased, then all else the same, the marginal product of capital will:

Accepted Answer

A)   increase.
B)   decrease.
C)   remain unchanged.
D)   eventually decrease.
E)   eventually increase.F) A) and E)
G) A) and B)

Question 12

Suppose that the level of capital in the economy is 200 units, the depreciation rate is 10%, and the level of investment is equal to 10 units. In this case:

Accepted Answer

A)   the economy is in a steady state.
B)   investment is less than net investment.
C)   investment is equal to net investment.
D)   investment is greater than net investment.
E)   the level of output will increase.F) C) and D)
G) All of the above

Question 13

When firms buy new capital, it is called:

Accepted Answer

A)   investment.
B)   net investment.
C)   depreciation.
D)   a steady state.
E)   an unstable state.F) C) and E)
G) B) and C)

Question 14

If the production function in the Solow growth model is given by q = f(human capital, physical capital) , then in this model:

Accepted Answer

A)   there is no investment.
B)   there is no labor.
C)   labor is represented by the human capital variable.
D)   there is no depreciation.
E)   there is no economic growth.F) C) and D)
G) C) and E)

Question 15

Suppose that in the economy the level of capital is 500 units, the depreciation rate is 4%, and the level of investment is 20 units. In this case:

Accepted Answer

A)   net investment is negative.
B)   net investment is positive.
C)   the level of output will decrease.
D)   the level of capital will increase.
E)   the economy is in a steady state.F) A) and B)
G) A) and C)

Question 16

Use the following graph to answer the next  questions. 
-Suppose that the level of capital is 200,000, the depreciation rate is 15%, and investment is equal to 20,000. In this case, you would expect that:

Accepted Answer

A)   the production function will shift upward.
B)   the production function will shift downward.
C)   there will be an upward movement along the production function.
D)   there will be a downward movement along the production function.
E)   there will be an upward shift of the production function and an upward movement along the production function.F) B) and D)
G) A) and E)

Question 17

Explain the difference between investment and net investment.

Accepted Answer

Investment represents the purchase of ne...

Question 18

When the production function shifts upward, we can expect the marginal product of capital to:

Accepted Answer

A)   increase.
B)   decrease.
C)   remain constant.
D)   double in value.
E)   turn negative.F) A) and D)
G) A) and C)

Question 19

If country X has a higher growth rate of real investment than country Y, then it must have a higher level of real gross domestic product (GDP) than country Y. Is this true or false? Explain your answer.

Accepted Answer

A) True 
 B)False

Question 20

Bob owns and manages an apple orchard. In Bob's business, an example of human capital would be:

Accepted Answer

A)   a ladder.
B)   the time spent by the workers picking apples.
C)   the apple trees.
D)   the amount of fertilizer used on the trees.
E)   the boxes used to store the apples.F) A) and D)
G) D) and E)

Exam 12: Growth Theory

A key assumption of the Solow model is:

Correct AnswerverifiedShow Answer

When the amount of physical capital is increased, then all else the same, the marginal product of capital will:

Correct AnswerverifiedShow Answer

According to modern growth theory, convergence in the level of wealth across countries depends mainly on:

Correct AnswerverifiedShow Answer

When private property rights are established, the expected payoffs from investment will _________ and the amount of production will _________.

Correct AnswerverifiedShow Answer

If country X has a higher growth rate of real investment than country Y, then it must have a higher level of real gross domestic product (GDP) than country Y. Is this true or false? Explain your answer.

Correct AnswerverifiedShow Answer

Economic theories about growth:

Correct AnswerverifiedShow Answer

If the production function in the Solow growth model is given by q = f(human capital, physical capital) , then in this model:

Correct AnswerverifiedShow Answer

Explain the difference between investment and net investment.

Correct AnswerverifiedInvestment represents the purchase of ne...View AnswerShow Answer

Suppose that in the economy the level of capital is 500 units, the depreciation rate is 4%, and the level of investment is 20 units. In this case:

Correct AnswerverifiedShow Answer

Consider the data in the following table. Do the data match the experience of a developed country like the United States?

Correct AnswerverifiedShow Answer

Consider the following table that shows the total number of acres plowed per hour as a function of the number of tractors used is increased. Use this table to answer the next questions. -The total acres plowed when five tractors are used is:

Correct AnswerverifiedShow Answer

Bob owns and manages an apple orchard. In Bob's business, an example of human capital would be:

Correct AnswerverifiedShow Answer

Which of the following is true?

Correct AnswerverifiedShow Answer

When firms buy new capital, it is called:

Correct AnswerverifiedShow Answer

According to the Solow growth theory, developing nations will catch up to the developed nations:

Correct AnswerverifiedShow Answer

Use the following graph to answer the next questions. -Suppose that the level of capital is 200,000, the depreciation rate is 15%, and investment is equal to 20,000. In this case, you would expect that:

Correct AnswerverifiedShow Answer

In equation form, the production function for a single firm can be expressed as:

Correct AnswerverifiedShow Answer

Suppose that the level of capital in the economy is 200 units, the depreciation rate is 10%, and the level of investment is equal to 10 units. In this case:

Correct AnswerverifiedShow Answer

When the production function shifts upward, we can expect the marginal product of capital to:

Correct AnswerverifiedShow Answer

Historical evidence supports which of the following claims?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

When private property rights are established, the expected payoffs from investment will _ and the amount of production will _.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Investment represents the purchase of ne...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified