Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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1.
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According to the neoclassical theory of growth, economic growth is the
consequence of
a. | active government policies which promote education. | b. | exogenous
improvements in total factor productivity. | c. | free and fair international
trade. | d. | an increasing population which requires more and more resources for
consumption. |
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2.
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The neoclassical theory of distribution says that factor inputs are paid
according to their marginal products. This would follow directly if
a. | factors of production are not mobile between different sectors of the
economy. | b. | the output market is perfectly competitive. | c. | factor markets are
perfectly competitive. | d. | firms are monopsonists in the input
markets. |
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3.
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Consider two countries A and B, which are similar in all respects except for
their savings rate. In particular, country A has a higher savings rate than country B. Labour
productivity in neither country is changing, nor is the labour force. Then, in the steady
state,
a. | country A will have a higher per capita GDP than country B. | b. | country A will have
a higher per capita capital stock but lower per capita GDP than country B. | c. | country A will have
a higher growth rate than country B. | d. | country A will have a higher growth rate than
country B, but a lower per capita capital stock. |
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4.
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Consider two countries A and B, which are similar in all respects except for
their depreciation rate. In particular, country A has a lower depreciation rate than country B.
Labour productivity in both countries increase by 3% per year. If the labour force in neither country
is changing, then
a. | country A will have a higher capital per efficiency unit of labour, but lower growth
rate of per capita GDP. | b. | country A will have a higher capital per
efficiency unit of labour, but per capita GDP in neither country will grow. | c. | country A will have
a lower capital per efficiency unit of labour, but both countries have the same growth rate of per
capita GDP. | d. | country A will have a higher capital per efficiency unit of labour, but both
countries have the same growth rate of per capita GDP. |
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5.
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The production function in Xanadu is YX =
AXK1/3L2/3, and in Letonia it is
YL = ALK1/3L2/3, where
AX < AL. If both countries are identical in all other
respects, and are not experiencing any productivity or population growth, then in steady state
a. | Xanadu will grow at a higher rate than Letonia. | b. | Letonia will grow at
a higher rate than Xanadu. | c. | Xanadu will have a lower per capita GDP than
Letonia. | d. | Letonia will have a lower per capita capital stock than
Xanadu. |
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6.
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Which of the following factors will not affect the steady state per
capita GDP in the neoclassical theory of growth?
a. | Savings rate. | c. | Population growth rate. | b. | Total
population. | d. | Depreciation
rate. |
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7.
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If the savings rate is 20%, the depreciation rate is 20%, the production
function is Y = 5K1/3(QL)2/3, and labour productivity
Q is growing at 5% per year, then
a. | Per capita GDP will grow at the rate 5% per year in the steady
state. | b. | Per capita capital stock will be constant in the steady state. | c. | Capital stock per
efficiency unit of labour will grow at 5% in the steady state. | d. | The steady state per
capita capital stock is 8. |
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8.
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Some newly industrialized countries, especially in East Asia, have pursued
active government policies to encourage saving. If such policies were to increase the saving rate
from, say 15% to 20%, and productivity does not grow at all, then the neoclassical growth theory
predicts that
a. | this will have no effect on per capita GDP. | b. | the steady-state per
capita capital stock will be higher, but the growth rate will be zero in the long
run. | c. | the steady state per capita capital stock will be higher, and the growth rate will be
higher forever. | d. | the growth rate of the economy would increase by 5% in the long
run. |
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9.
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The main difference between the neoclassical and endogenous theories of growth
is that
a. | in the neoclassical model, growth results from the accumulation of capital, but in
the endogenous growth model it results from exogenous productivity growth. | b. | growth in the
neoclassical model results from exogenous improvements in productivity, but in the endogenous growth
model productivity improvements depend upon the aggregate capital stock because of learning by
doing. | c. | population growth is the key mechanism driving growth in the neoclassical model, but
not in the endogenous growth model. | d. | the growth rate in the neoclassical model is
constant, but not so in the endogenous growth model. |
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10.
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The key mechanism, which allows countries to grow forever in the endogenous
growth model, is
a. | capital accumulation, with constant marginal product of capital. | b. | population
growth. | c. | exogenous improvements in labor productivity. | d. | free mobility of
capital across countries. |
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