Special Quiz

Question 1

Q1 - In the Solow growth model with population growth and technological change, the steady-state growth rate of income per person depends on:

A - The savings rate
B - The rate of technological progress
C - the rate of population growth plus the rate of technological progress.
D - The rate of population growth

Answer 1

B - The rate of technological progress

Question 2

Q2 - According to the Solow model, persistently rising living standards can only be explained by:

A - Population growth
B - Capital accumulation
C - Technological progress
D - Saving rates

Answer 2

C - Technological progress

Question 3

Q3 - The balanced growth property of the Solow growth model with population growth and technological progress predicts which of the following sets of variables will grow at the same rate in the steady state?

A - Output per worker, capital per worker, real wage
B - real rental price of capital, real wage, output per worker
C - output per effective worker, capital per effective worker, real wage
D - capital-output ratio, output per worker, capital per worker

Answer 3

A - Output per worker, capital per worker, real wage

Question 4

Q4 - One explanation for greater economic development in moderate versus tropical climates is that institutions established by colonial settlers in moderate climates ______, while institutions established by colonists in tropical climates ______.

A - Were based on the Napoleonic Code; were based on English common law
B - were extractive and authoritarian; protected property rights
C - were based on English common law; were based on the Napoleonic Code
D - protected property rights; were extractive and authoritarian

Answer 4

D - protected property rights; were extractive and authoritarian

Question 5

Q5 - If Y is output, K is capital, u is the fraction of the labor force in universities, L is labor, and E is the stock of knowledge, and the production Y = F(K,(1 – u) EL) exhibits constant returns to scale, then output (Y) will double if:

A - K is doubled
B - K and E are doubled
C - L is doubled
D - K and u are doubled

Answer 5

B - K and E are doubled

Question 6

Q6 - In the two sector endogenous model, the saving rate (s) affects the steady state:

A - Level of income
B - Growth rate of income
C - Level of income and growth rate of income
D - Growth rate of the stock of knowledge

Answer 6

A - Level of income

Question 7

Q7 - In the two-sector endogenous growth model, the steady-state stock of physical capital is determined by _____, and the growth in the stock of knowledge is determined by _____.

A - the efficiency of labor; the saving rate
B - the saving rate; the fraction of labor in universities
C - the fraction of labor in universities; the saving rate
D - the production function; the efficiency of labor

Answer 7

B - The saving rate; the fraction of labour in universities

Question 8

Q8 - In comparing two countries with different levels of education but the same saving rate, same rate of population growth, and same rate of technological progress, one would expect the more highly educated country to have:

A - the same growth rate of total income and a higher real wage.
B - a higher growth rate of total income and a higher real wage.
C - the same growth rate of total income and the same real wage.
D - a higher growth rate of total income and the same real wage.

Answer 8

A - The same growth rate of total income and a higher real wage

Question 9

Q9 - If the per-worker production function is y = Ak, where A is a positive constant, then the marginal product of capital:

A - Increases as K increases
B - Decreases as K increases
C - Is constant as K increases
D - Cannot be measured in this case

Answer 9

C - Is constant as K increases

Note: MPK is partial derivative of production function

Question 10

Q10 - Based on the Solow’s (1956) growth model with population growth and labor-augmenting technological progress, indicate which of the following policies would likely to lower the steady-state level of total output per person:

A - Greater protection of private property rights
B - Additional grants to support research and development
C - Tax incentives to increase private saving
D - An increase in the GOVT’s budget deficit

Answer 10

D - An increase in the GOVT’s budget deficit

Question 11

Q11 - Suppose that the education level of the workers in country A is higher than in Country B and that, in each country, the national income (and output Y) is distributed to the owners of labour (L) and capital (K) according to their marginal products so that: Y = L.MPL + K.MPK. Next, denote by y=Y/EL and by k=K/EL, where E denotes the effectiveness of labour and is proportional to the average level of education in a country. Note that MPL=E(y – k.MPK). According to the Solow (1956) model,

A - both k and MPK would be higher in country B
B - both k and MPK would be higher in country A
C - not k but only MPK would be the same in both countries
D - k and MPK would be the same in both countries.

Answer 11

D - K and MPK would be the same in both countries

Question 12

Q12 - Suppose that the education level of the workers in country A is higher than in Country B and that, in each country, the national income (and output Y) is distributed to the owners of labour (L) and capital (K) according to their marginal products so that: Y = L.MPL + K.MPK. According to the Solow (1956) model,

A - MPL would be higher in country B
B - MPL would be higher in country A
C - MPL would be equal to MPK in both countries
D - MPL would be the same in both countries

Answer 12

B - MPL would be higher in country A

Question 13

Q13 - Suppose that the education level of the workers in country A is higher than in Country B and that, in each country, the national income (and output Y) is distributed to the owners of labour (L) and capital (K) according to their marginal products so that: Y = L.MPL + K.MPK. According to the Solow (1956) model,

A - the real wage per unit of labour would be the same in both countries.
B - the real wage per unit of labour would be higher in country B.
C - the real wage per unit of labour would be higher in the country with a higher per capita income.
D - the real wage per unit of labour would be higher in country A.

Answer 13

D - The real wage per unit of labour would be higher in country A

Question 14

Q14 - Suppose that the growth rates of population and technology are denoted by, n and g, respectively. Then, in the Solow (1956) model,

A - the growth rates of the real wage rate and the real rental price of capital are equal to g.
B - the growth rate of saving and the growth rate of consumption are both equal to (n+g).
C - the growth rate of consumption per capita equals (n+g).
D - the growth rate of MPK and MPL are equal to g.

Answer 14

B - The growth rate of saving and the growth rate of consumption are both equal to (n + g)

Question 15

Q15 - If the global financial crisis poses a serious problem for the governments around the world to provide additional loans to students with low interest rate and the prospect of repayment burden with a higher interest rate deter a larger section of the young generation from pursuing higher studies then,

A - inequality would decline as everyone would grow at a lower rate.
B - Income inequality would decline as the average education level drops.
C - income inequality would likely to increase and economic growth may slow down further due to rise in income inequality.
D - income inequality may increase but would not deter economic growth.

Answer 15

C - Income inequality would likely increase and economic growth may slow down further due to rise in income equality

Question 16

Q16 - As the technology advances (typically with improved quality of machines and tools, i.e., physical capital),

A - he demand for skilled labour (or human capital) increases.
B - both the demand and the supply of skilled labour (human capital) increase.
C - the supply of skilled labour (human capital) increases.
D - both the demand and the supply of skilled labour (human capital) decrease.

Answer 16

A - The demand for skilled labour (or human capital) increases

• To operate new technology

Question 17

Q17 - As the number of educated people and the average years of schooling in a country increase

A - The demand for skilled labour (human capital) increases
B - Both the demand for and the supply of skilled labour (human capital) increase
C - Both the demand for and the supply of skilled labour (human capital) decrease
D - The supply of skilled labour increases

Answer 17

D - The supply of skilled labour increases

Question 18

Q18 - Income inequality measured by the price of skill (or skill premium, which determines the gap between earnings from jobs that require skill and those which requires only manual labour) increases,

A - if the demand increases faster than the supply of skilled labour
B - if the demand decreases faster than the supply of skilled labour
C - if the demand increases slower than the supply of skilled labour
D - if the demand and the supply of skilled labour move together at the same speed.

Answer 18

A - If the demand increases faster than the supply of skilled labour

Question 19

Q19 - If there are borrowing constraints related to acquiring student loans and the prospect of large student debt deter the young to pursue education then

A - the earning gap between the skilled and the unskilled would not change.
B - the earning gap between the skilled and the unskilled labour would continue to increase.
C - the earning gap between the skilled and the unskilled labour may decrease.
D - the earning gap between the skilled and the unskilled may increases temporarily but will disappear in the steady state.

Answer 19

B - The earning gap between the skilled and the unskilled labour would continue to increase

Question 20

Q20 - If the MPK augmenting technology advances faster than the supply of human capital due to the economic barriers to education (faced by a large section of the population), then the endogenous growth will slow down in

A - Romer’s (1986) model where the MPK increases as the stock of human capital grows.
B - Romer’s (1986) model where the MPH increases as the stock of human capital grows.
C - Lucas’s (1988) model where the MPH increases as the stock of human capital grows.
D - in Solow’s (1956) model where the MPK increases as the stock of human capital grows.

Answer 20

A - Romer’s (1986) model where the MPK increases as the stock of human capital grows.

Question 21

Q21 - As the level of communication is expected to drop in a society with thinner middle class due to a higher income inequality, the growth rate of technology declines according to the model of

A - Romer (1986).
B - Romer (1990).
C - Solow (1956).
D - Lucas (1988).

Answer 21

D - Lucas (1988).

Question 22

Q24 - Global warming drastically changes the weather pattern to make the current technology of production obsolete in various places around the world. It also leads to rising water levels to drown the cities which traditionally served as ports for benefiting from international trade and knowledge diffusion. If the supply of human capital and knowledge from interaction (ref. Lucas 1988) in the cities do not grow sufficiently to replace the obsolete technology then there would be a greater flow of migration across the globe because, according to Lucas (1988) model,

A - the growth of GDP will slow down in the affected regions and people would try to find new land and new technology to grow their productivity.
B - the growth of GDP will slow down due to the laws of diminishing returns and people would try to find new land to overcome the scarcity of land to grow their productivity.
C - the growth of GDP will not change but GDP per capita will fall due to the shortage of land and capital and people would try to find countries with a higher GDP per capita to enjoy a better standard of living.
D - the growth of GDP will slow down due to the shortage of physical capital and people would try to find new capital in richer countries to grow their productivity.

Answer 22

A - the growth of GDP will slow down in the affected regions and people would try to find new land and new technology to grow their productivity.

Question 23

Q23 - Global warming leads to the rise of the water level, that reduces land mass and drastically changes the weather pattern to make the current technology of production obsolete in various places around the world. In particular, it’s now drowning the cities which traditionally served as ports for benefiting from international trade. In the Solow (1956) model, by the law of diminishing returns, if the supply of land per unit of capital or land per unit of labour diminishes then

A - Both MPK and MPL would be higher
B - MPK would be higher but MPL would be lower
C - MPK would be lower but MPL would be higher
D - MPK and MPL both would be lower

Answer 23

D - MPK and MPL both would be lower

Question 24

Q25 - Conflicts between the residents and the migrants competing for scarce land and the scarce opportunity to grow technology may lead to the rise of intolerance among the “Haves” (with access to land and technology) and extremism among the “Have Nots” if the global resources are divided by national border while the impact of global warming is not equally shared by everyone. According to which growth model, such global increase of conflicts may contribute to a worldwide productivity slow-down

A - Solow (1956)
B - Romer (1990)
C - Lucas (1988)
D - Romer (1986)

Answer 24

C - Lucas (1988)