ECON 214 quiz 5 solutions complete answers

ECON 214 quiz 5 solutions complete answers 

 

The fundamental characteristic of modern growth theory is the focus on:

 

According to Solow growth theory, the developing nations:

 

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

 

A country lowers trade barriers and institutes monetary and price stability. As a result, the annual growth rate of gross domestic product (GDP) increases from 2% to 4% per year. All else the same, in 35 years, GDP will be __________ as high as if there were no reform.

 

If net investment is positive, then:

 

If more natural resources are discovered, then:

 

The marginal product of the 15th unit of capital is:

 

The early Solow model focused on:

 

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 questions that follow.

 

The total acres plowed when five tractors are used is:

 

A reason wealthy nations have continued to realize sustained growth is:

 

A type of policy that would be advocated by modern growth theory would be to:

 

When growth is driven by factors inside the economy, it is said to be:

 

Consider the Solow model reflecting technical change. This model assumes that technical change occurs:

 

Suppose that the level of capital is 100,000, the depreciation rate is 5%, and investment is equal to 5,000. In this case, you would expect that:

 

If capital is equal to 150,000 and investment is equal to 12,000, then this is a steady state if depreciation is at a rate of:

 

According to modern growth theory, the key to economic growth is:

 

According to modern growth theory, a country that wants to foster long-run economic growth and the accumulation of wealth should focus on:

 

An example of physical capital is:

 

Which best explains the relationship between physical capital and the level of wealth in a country?

 

Economic growth theory is based on:

 

The growth theory we study today was formulated:

           

Economic models are:

           

Economic growth is determined by:

           

Economic growth theory originated about 60 years ago as a result of contributions by:

           

Economic theories about growth:

           

Which of the following is true?

         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.

 

The main focus of the Solow growth model is:

           

The production function describes the relationship between:

           

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

           

The aggregate production function describes the relationship between the total output in the economy and:

           

The relationship between the growth rate of real gross domestic product (GDP) and the growth rate of real investment is:

           

The graphical relationship between real gross domestic product (GDP) and capital is called the:

           

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

           

A restaurant’s production function would show the relationship between:

           

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

           

Do the data match the experience of a developed country like the United States?

           

Human capital relates to _________ and physical capital relates to _________.

           

Country X has a higher growth rate of real investment than country Y. You might expect country X to have:

           

In the Solow growth model, human capital measures:

           

In the Solow growth model, human capital will increase if (choose the best answer):

           

In a population, not all workers have a high school diploma. Suppose the size of the labor force increases but a smaller percentage of the labor force has a high school diploma. It is reasonable to expect that the larger labor force will _________ the human capital input and the smaller percentage of the labor force with a high school diploma will _________ the human capital input.

           

In a population, the size of the labor force shrinks but a greater percentage of the labor force has a college degree. We can expect the human capital input to:

           

If capital is increasing, then:

           

If this country experiences an epidemic that reduces human capital, then:

           

Consider a country that improves its educational system such that a greater percentage of workers become college educated. It is reasonable to expect:

           

The marginal product of an input is defined as:

           

 The change in output divided by the change in input is defined as:

           

When the marginal product of an input falls as the quantity of the input rises, this is known as:

           

The Solow model emphasizes:

           

Diminishing marginal product is also known as:

           

When firms buy new capital, it is called:

           

A key assumption of the Solow model is:

           

There are diminishing returns to:

           

It is reasonable to expect that as the amount of physical capital is increased, the amount of output produced will:

           

When moving up along the production function, the marginal product of capital will:

           

 The marginal product of an input is:

           

As additional units of an input are employed, the marginal product of the input is:

           

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

           

This production function exhibits diminishing returns to capital for:

           

This production function exhibits:

           

 When the second unit of capital is hired, the marginal product is equal to:

           

How many units of capital should be produced in order to achieve the steady state?

           

The marginal product of the 5th unit of capital is ________ and the marginal product of the 10th unit is ________.

           

Consider the following table that shows the number of trucks owned by a delivery firm and the corresponding number of deliveries made. Use the table to answer the next three questions.

The marginal product of the third truck is:

           

When the firm bought their last truck, they found that the number of deliveries increased by 10. In this case, they must have just bought truck number:

           

Diminishing returns set in after the _________ truck is purchased.

           

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 two questions.

 

The total acres plowed when two tractors are used is:

           

Consider the following table, which shows the total number of customers served per hour as the number of cash registers is increased.

 

The marginal product of the third cash register is:

           

When _________ units of capital are purchased, the marginal product will _________.

           

Suppose a major hurricane hits the eastern coast of Florida and only destroys significant amounts of physical capital. All else the same, in the short run, real gross domestic product (GDP) will _________, and in the long run, real GDP will _________.

           

When the value of a resource declines over time, this is known as:

           

Depreciation is:

           

An economy is in a steady state if:

           

If an economy is in the steady state, then:

           

An economy is in the steady state if:

           

According to the Solow growth model, advanced economies with large stocks of capital will:

           

As a nation approaches its steady state, the returns to capital _________ and the growth of real gross domestic product (GDP) _________.

           

The economy tends to approach a steady state because:

           

As a country approaches the steady state, the returns to capital _________.

           

When a firm buys a new computer _________ increases, and when the firm gets rid of old computers _________ decreases.

           

A firm has 100 computers, and each year 5 of them become obsolete and must be recycled. This firm is in a steady state if investment each year is equal to:

           

A firm has 50 computers. Every year, they buy 3 new ones and get rid of 3 old ones. In this case, investment is equal to _________ and net investment is equal to _________.

           

A lawn service company has 20 lawn mowers. This year they buy 3 new ones and get rid of 2 old ones. In this case, investment is equal to _________ and net investment is equal to _________.

           

A firm has a total of 25 workstations in four different office buildings. This year they build 3 new workstations and get rid of 5 old ones. In this case, investment is equal to _________ and net investment is equal to _________.

           

Suppose that the level of capital in the economy is 100 units, the depreciation rate is 5%, and investment is equal to 10 units. In this case:

           

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:

           

A company has three delivery trucks. Each month the trucks require repairs to keep them in good working order. Which of the following is true?

           

Suppose a major hurricane hits the eastern coast of Florida and only destroys significant amounts of physical capital. In the long run, you would expect that:

           

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:

           

In the economy, the level of capital will increase if:

           

When is net investment equal to investment?

           

In the economy, the level of capital will decrease if:

           

In the economy, the level of capital will remain the same if:

           

According to the Solow model, an economy should build:

           

According to the Solow growth model, rich nations are rich because:

           

At the turn of the twenty-first century, most poor nations had:

           

Since 1820, the growth rate of real gross domestic product (GDP) per capita in the United States has:

           

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

           

Data show that:

           

Considering the growth experience for all countries in the world:

           

According to the Solow growth model, growth will eventually:

           

Convergence is the idea that ___________ will equalize across nations as they approach the steady state.

           

According to the Solow growth model, investment in developing nations should be ___________ investment in more developed nations.

           

Use the following graph to answer the next four questions.

 

Suppose that the level of capital is 150,000, the depreciation rate is 20%, and investment is equal to 40,000. In this case, you would expect that:

           

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:

           

Suppose a major hurricane hits the eastern coast of Florida and only destroys significant amounts of physical capital. In the short run, you would expect that:

           

Suppose a major hurricane hits the eastern coast of Florida and only destroys significant amounts of physical capital. All else the same, in the short run, we can expect the marginal product of capital to _________ and investment will _________.

           

Suppose that the value of the capital stock in the economy is $150 million. If investment is equal to zero, then:

           

 

Country A has been growing at a rate of 7% per year, whereas country B has been growing at a rate of 2% per year. The Solow growth model would predict that:

           

Since 1980, growth rates in China have exceeded growth rates in the United States. Based on this information, the Solow growth model would predict that:

           

Ten economies have all reached a steady state. According to the Solow growth model, which of the following is true?

           

If all countries are going to converge at the same level of real gross domestic product (GDP) per capita as predicted by the Solow growth model, then:

           

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

           

Technological advancement will:

           

New technology makes capital _________ and income will _________.

           

How will technological advancement impact the steady state level of capital in the Solow growth model?

           

What would cause an upward shift of the production function?

           

If net investment is negative but technology has advanced, then:

           

Growth that is independent of any factors in the economy is:

           

According to the Solow growth model, exogenous growth is:

           

The Solow growth theory of the 1950s assumed:

           

Historical evidence supports which of the following claims?

           

In which area of the world were policies based on the Solow growth model consistently applied, but with very limited success?

           

The relationship between international aid and economic growth for less developed countries is:

           

Modern growth theory views economic growth as:

           

Modern growth theory views technological innovation as _________, whereas Solow growth theory views technological change as _________.

           

Modern growth theory and the Solow growth model are both based on the importance of:

           

All of the following are examples of institutions except:

           

Consider the following graph. What would cause a downward shift of the production function?

 

When a country adopts a more efficient tax system, it is likely to:

           

Consider a country that suffered through five years of civil war, but now has a stable government that has the support of the majority of the people. In this country, we are likely to observe:

           

In the economy with efficient institutions, technological advancement:

           

Voluntary investment occurs only if:

           

Which of the following describes the correct direction of causality?

           

An example of an institution that will increase the expected payoff of investment is:

           

An example of an institution that will decrease the expected payoff of investment is:

           

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