Test Bank for Macroeconomics 5th Edition Charles I Jones
Test Bank for Macroeconomics 5th Edition Charles I
Jones
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CHAPTER 6: Growth and Ideas
MULTIPLE CHOICE
1. In Romer’s influential paper he divided the economic world into:
a. resources and ideas.
d. utilities and objects.
b. objects and resources.
e. None of these answers is correct.
c. objects and ideas.
ANS: C
DIF: Easy
MSC: Remembering
REF: 6.1
TOP: I.
2. Which of the following is an example of an idea?
a. new irrigation techniques
d. the steam engine
b. turning sand into computer chips
e. All of these answers are correct.
c. the assembly line
ANS: E
MSC: Evaluating
DIF: Moderate
REF: 6.1
TOP: I.
3. Which of the following flowcharts best summarizes Romer’s description of ideas and growth?
a. Ideas → Nonrivalry → Increasing returns → Imperfect competition
b. Ideas → Capital → Constant returns → Imperfect competition
c. Capital → Rivalry → Increasing returns → Perfect competition
d. Ideas → Rivalry → Increasing returns → Perfect competition
e. Capital → Nonrivalry → Decreasing returns → Imperfect competition
ANS: A
DIF: Easy
MSC: Understanding
REF: 6.2
TOP: II.
4. According to the text, there are approximately ________ different coherent paragraphs written
with 100 words or less in the English language.
a. 1020,000
d. 10430
b. 20,000
e. 4  1077
c. 10330
ANS: D
DIF: Easy
MSC: Understanding
REF: 6.2
TOP: II.
5. The amount of raw material in the universe—the amount of sand, oil, and the number of atoms of
carbon, oxygen, and so on—is ________. The number of ways of arranging and using these raw
materials is ________.
a. finite; also finite
d. virtually infinite; zero
b. infinite; virtually infinite
e. zero; infinite
c. finite; virtually infinite
ANS: C
DIF: Easy
MSC: Remembering
REF: 6.2
6. In economics, a rival good is one that:
a. cannot be consumed by more than two people at a time.
b. can be consumed by more than one person at a time.
c. is congested if used by more than one person at a time.
d. cannot be consumed by more than one person at a time.
TOP: II.A.
e. None of these answers is correct.
ANS: D
DIF: Easy
MSC: Understanding
REF: 6.2
TOP: II.B.
7. In economics, a nonrival good is one that:
a. cannot be consumed by more than one person at a time.
b. can be consumed by more than one person at a time.
c. can be consumed by more than one person at a time but is congested.
d. cannot be consumed by more than two people at a time.
e. None of these answers is correct.
ANS: B
DIF: Easy
MSC: Understanding
8. Which of the following is a nonrival good?
a. a peanut butter sandwich
b. orange juice
c. a jacket
ANS: E
MSC: Analyzing
DIF: Easy
9. Which of the following is a nonrival good?
a. a TV signal
b. a blueprint
c. national defense
ANS: E
MSC: Analyzing
DIF: Easy
REF: 6.2
TOP: II.B.
d. All of these answers are correct.
e. None of these answers is correct.
REF: 6.2
TOP: II.B.
d. a dam
e. All of these answers are correct.
REF: 6.2
TOP: II.B.
10. If there are large fixed or research and development costs, such as in the pharmaceutical industry,
production can be characterized by:
a. negative costs.
d. large variable costs.
b. constant returns to scale.
e. increasing returns to scale.
c. decreasing returns to scale.
ANS: E
DIF: Moderate
MSC: Understanding
REF: 6.2
TOP: II.C.
11. If Y is a good’s output, X is spending to produce a good,
is the fixed cost associated with
production, and C is the average cost of production, which of the following production functions
exhibits increasing returns?
a.
d.
b.
e.
c.
ANS: D
MSC: Analyzing
DIF: Moderate
REF: 6.2
TOP: II.C.
12. Increasing returns to scale is characterized by:
a. constantly declining fixed costs.
b. diseconomies of scale; that is, the average cost falls as output rises.
c. economies of scale; that is, the average cost rises as output rises.
d. diseconomies of scale; that is, the average cost is constant as output rises.
e. economies of scale; that is, the average cost falls as output rises.
ANS: E
DIF: Moderate
MSC: Understanding
REF: 6.2
TOP: II.C.
13. To get increasing returns to scale using the production function
, we need to
replace total factor productivity with:
a. more capital.
d. the number 2.
b. the flow of ideas, At.
e. twice the factor productivity,
.
c. the stock of ideas, At.
ANS: C
DIF: Moderate
MSC: Understanding
14. With the production function
returns production.
a. capital
b. capital and the stock of ideas
c. capital and labor
ANS: D
MSC: Analyzing
DIF: Moderate
15. With the production function
production.
a. capital
b. capital, labor, and the stock of ideas
c. capital and the stock of ideas
ANS: D
MSC: Analyzing
DIF: Moderate
16. The production function
labor, assumes:
a. At is rivalrous.
b. At is nonrivalrous.
c. Kt is nonrivalrous.
ANS: B
DIF: Moderate
MSC: Understanding
REF: 6.2
TOP: II.C.
, if we double ________, we have an increasing
d. capital, labor, and the stock of ideas
e. labor and the stock of ideas
REF: 6.2
TOP: II.C.
, if we double ________, we have a constant returns
d. capital and labor
e. labor and the stock of ideas
REF: 6.2
TOP: II.C.
, where At is the stock of ideas, Kt is capital, and Lt is
d. Lt is rivalrous.
e. At is fixed.
REF: 6.2
TOP: II.C.
17. The difference between total factor productivity (TFP) in the Solow model and the stock of ideas
in the Romer model is that:
a. TFP grows and ideas are fixed.
d. TFP is rivalrous and ideas are not.
b. TFP is fixed and ideas can grow.
e. There is no difference.
c. TFP is nonrivalrous and ideas are not.
ANS: B
MSC: Evaluating
DIF: Moderate
REF: 6.2
TOP: II.C.
18. If there are large fixed costs due to research and development, perfect competition does not
generate new ideas because:
a. firms need to recoup these costs through higher profits.
b.
c.
d.
e.
with monopolistic competition, prices are equal to the marginal cost.
with monopolistic competition, prices are equal to the marginal cost minus a markup.
perfectly competitive firms always set prices lower than the marginal cost.
the government does not adequately fund innovation.
ANS: A
DIF: Easy
MSC: Understanding
REF: 6.2
TOP: II.D.
19. Because in many industries the cost of generating new ideas is so high, firms must charge a price
________ cost.
a. equal to the marginal
d. equal to the average fixed
b. higher than the marginal
e. lower than the average fixed
c. lower than the marginal
ANS: B
DIF: Easy
MSC: Understanding
REF: 6.2
TOP: II.D.
20. In perfect competition, the price is ________; in a monopoly, the price is ________.
a. zero; positive
b. greater than the marginal cost; equal to the marginal cost
c. less than the marginal cost; greater than the marginal cost
d. equal to the marginal cost; greater than the marginal cost
e. positive; zero
ANS: D
DIF: Easy
MSC: Understanding
REF: 6.2
TOP: II.D.
21. Because of fixed R&D costs, ________ are needed to generate ________.
a. profits; capital
d. variable costs; total factor productivity
b. costs; capital
e. profits; total factor productivity
c. profits; new ideas
ANS: C
MSC: Evaluating
DIF: Easy
REF: 6.2
TOP: II.D.
22. The reason perfect competition cannot generate new ideas is that:
a. profits are positive.
b. perfectly competitive firms have no ideas.
c. profits are zero.
d. firms are too small to generate ideas.
e. revenues are positive.
ANS: C
MSC: Evaluating
DIF: Easy
REF: 6.2
TOP: II.D.
23. Which of the following can be used to give firms incentive to innovate?
a. patents
d. lower taxes
b. copyrights
e. All of these answers are correct.
c. trade secrets
ANS: E
MSC: Evaluating
DIF: Easy
REF: 6.2
TOP: II.D.
24. Which of the following can be used to give firms incentive to innovate?
a. patents
d. subsidies
b. copyrights
e. All of these answers are correct.
c. prizes
ANS: E
MSC: Evaluating
DIF: Easy
REF: 6.2
TOP: II.D.
25. The president of Tunisia asks you to suggest an idea to improve the economy’s growth without
worrying about decreasing returns. You suggest:
a. paying a competitive wage.
b. offering firms an incentive to produce new ideas.
c. placing a higher tax on firms.
d. removing legal protection for firms.
e. None of these answers is correct.
ANS: B
MSC: Evaluating
DIF: Moderate
REF: 6.2
TOP: II.D.
26. An allocation that is ________ exists if there is no way to change a resource allocation that makes
someone worse off when allocating more to another.
a. Hotelling competitive
d. Kuhn-Tucker conditional
b. Fama efficient
e. Arrow impossible
c. Pareto optimal
ANS: C
DIF: Easy
MSC: Remembering
27. An example of open source software is:
a. Linux.
b. Mountain Lion.
c. Win32.
ANS: A
DIF: Easy
MSC: Understanding
REF: 6.2
TOP: II.D.
d. Red Hat.
e. Hummingbird.
REF: 6.2
TOP: II.E.
28. What might be an explanation for the production of open source, free software?
a. marginal cost at zero
d. moral hazard
b. increasing returns
e. altruism
c. diminishing marginal utility
ANS: E
DIF: Easy
MSC: Understanding
REF: 6.2
TOP: II.E.
29. In 1994, the ________ passed the ________ to ________.
a. World Trade Organization; Trade-Related Aspects of Intellectual Property Rights; protect
intellectual property rights
b. Bretton Woods System; General Agreement on Tariffs and Trade; promote free trade
c. United Nations; United Nations Conference on Trade and Development; reduce trade
barriers
d. United States; Toxic Asset Relief Program; improve banking procedures
e. Generalized Agreement on Tariffs and Trade; U.S. Agency for International Development;
improve research potential in developing countries
ANS: A
DIF: Easy
MSC: Understanding
REF: 6.2
30. In the Romer model, what are the two key outputs produced?
a. a government good and new ideas
TOP: II.E.
b.
c.
d.
e.
a consumption good and new ideas
a consumption good and total factor productivity
a consumption good and capital
None of these answers is correct.
ANS: B
DIF: Easy
MSC: Understanding
REF: 6.3
TOP: III.
31. In the Romer model, the inputs to production are:
a. capital and labor.
d. natural resources, labor, and ideas.
b. capital and ideas.
e. labor and total factor productivity.
c. labor and ideas.
ANS: C
DIF: Easy
MSC: Understanding
REF: 6.3
32. In the Romer model, the production function
TOP: III.
, where At is knowledge and Lyt is the
amount of labor in the output sector, exhibits:
a. constant returns to labor and increasing returns to labor and knowledge.
b. constant returns to labor and increasing returns to knowledge.
c. increasing returns to labor and constant returns to labor and knowledge.
d. decreasing returns to labor and constant returns to labor and knowledge.
e. increasing returns to labor and increasing returns to labor and knowledge.
ANS: A
DIF: Moderate
MSC: Understanding
REF: 6.3
33. In the knowledge production function
a. natural resources.
b. the cost of producing new ideas.
c. the marginal cost of labor.
d. how good an economy is at generating knowledge.
e. labor’s wage.
ANS: D
DIF: Easy
MSC: Understanding
REF: 6.3
TOP: III.
represents:
TOP: III.
34. In the Romer model, ________ is the resource constraint.
a.
d.
and
b.
c.
ANS: B
DIF: Easy
MSC: Remembering
e. There is no resource constraint.
REF: 6.3
TOP: III.A.
35. In the Romer model, the more labor you dedicate to generating ideas, the ________ but ________.
a. faster you accumulate knowledge; at a loss to current output in the consumption sector
b. faster you accumulate knowledge; at a gain to current output in the consumption sector
c. slower you accumulate knowledge; at a loss to current output in the consumption sector
d. less you accumulate knowledge; at a gain to current output in the consumption sector
e. more knowledge you lose; at a gain to current output in the consumption sector
ANS: A
DIF: Moderate
MSC: Understanding
REF: 6.3
TOP: III.A.
36. The production function in the Romer model is given by ________, where is the growth rate of
________.
a.
d.
; knowledge
; capital
b.
e.
; knowledge
; population
c.
; population
ANS: D
DIF: Moderate
MSC: Understanding
REF: 6.3
TOP: III.A.
37. In the Romer model, output is increasing in the ________ and decreasing in the ________.
a. saving rate; depreciation rate
b. research share; growth rate of knowledge
c. growth rate of knowledge; fraction of population in the ideas sector
d. growth rate of knowledge; depreciation rate
e. saving rate; growth rate of knowledge
ANS: C
MSC: Analyzing
DIF: Moderate
REF: 6.3
TOP: III.A.
38. In the Romer model, if an economy allocates all of its labor to production, it will:
a. reduce output.
b. reduce the number of ideas it generates.
c. increase the number of ideas it generates.
d. not generate any ideas.
e. None of these answers is correct.
ANS: D
MSC: Analyzing
DIF: Moderate
REF: 6.3
TOP: III.A.
39. The production of new ideas in the Romer model is:
a. increasing in the efficiency of creating knowledge and the fraction of labor in research and
development.
b. decreasing in the efficiency of creating knowledge and increasing the fraction of labor in
research and development.
c. increasing in the efficiency of creating knowledge and decreasing in the fraction of labor
in research and development.
d. increasing in the population growth rate and capital accumulation.
e. decreasing in the efficiency of creating knowledge and in the fraction of labor in research
and development.
ANS: A
MSC: Analyzing
DIF: Moderate
REF: 6.3
TOP: III.A.
40. In the Romer model, the growth rate of ideas, , is increasing in the:
a. share of the population doing research and the total population.
b. knowledge efficiency parameter and the population growth rate.
c. knowledge efficiency parameter, the research share, and the total population.
d. knowledge efficiency parameter and the saving rate.
e. share of population engaged in research and development and the saving rate.
ANS: C
MSC: Analyzing
DIF: Moderate
REF: 6.3
TOP: III.A.
41. In the Romer model, the growth rate of knowledge is given by:
a.
d.
.
b.
e.
.
c.
.
.
.
ANS: E
DIF: Easy
MSC: Understanding
REF: 6.3
TOP: III.A.
42. In the Romer model, if Canada and Taiwan have the same fraction of researchers and the same
knowledge efficiency parameter but Canada’s population is larger, then:
a. Taiwan has a higher per capita output growth rate.
b. Canada has a higher per capita output growth rate.
c. each country’s per capita output grows at the same rate.
d. Canada has higher per capita income than Taiwan.
e. Canada’s level of income is greater than Taiwan’s.
ANS: B
MSC: Analyzing
DIF: Difficult
REF: 6.3
TOP: III.A.
43. Suppose the parameters of the Romer model take the following values:
and
a. 10 percent
b. 40 percent
c. 0.02 percent
ANS: D
MSC: Analyzing
,
What is the growth rate of this country’s economy?
d. 50 percent
e. 0.10 percent
DIF: Moderate
REF: 6.3
TOP: III.A.
44. Suppose the parameters of the Romer model take the following values:
and
a. 2 percent
b. 20 percent
c. 0.2 percent
ANS: B
MSC: Analyzing
What is the growth rate of this country’s economy?
d. 10 percent
e. 0.01 percent
DIF: Moderate
REF: 6.3
TOP: III.A.
45. Suppose the parameters of the Romer model take the following values:
and
a. 20
b. 1 million
c. 100
ANS: C
MSC: Analyzing
What is the number of researchers in this country?
d. 0.10
e. 200
DIF: Moderate
REF: 6.3
TOP: III.A.
46. Suppose the parameters of the Romer model take the following values:
and
What is the per capita income of this country in the
first period, y1?
a. about 1.19
b. about 11.9
c. about 12.0
ANS: B
MSC: Analyzing
d. about 14.3
e. about 9.9
DIF: Moderate
REF: 6.3
TOP: III.A.
47. Suppose the parameters of the Romer model take the following values:
and
What is the per capita income of this country in the 10th
period, y10?
a. about 6.13
b. about 61.3
c. about 12.0
ANS: B
MSC: Analyzing
d. about 11.9
e. about 10.9
DIF: Difficult
REF: 6.3
TOP: III.A.
48. Suppose the parameters of the Romer model take the following values:
and
What is the per capita income of this country in the initial
period, y0?
a. about 12.1
b. about 11.9
c. about 12.0
ANS: E
MSC: Analyzing
d. about 1.19
e. about 9.9
DIF: Moderate
REF: 6.3
TOP: III.A.
49. If the economies of East and West Timor are identical in every way except that East Timor has
fewer researchers:
a. West and East Timor will grow at the same rate.
b. East Timor should grow faster, according to the Romer model.
c. West Timor should grow faster, according to the Solow model.
d. West Timor should grow faster, according to the Romer model.
e. East Timor is smaller than West Timor.
ANS: D
MSC: Analyzing
DIF: Difficult
REF: 6.3
TOP: III.B.
50. Suppose the Romer model parameters in East Timor are
while in North Timor they are
and
and
then:
a. neither country grows.
b. East Timor’s per capita income growth rate is 20 percent and North Timor’s is 2 percent.
c. East Timor’s per capita income growth rate is 5 percent and North Timor’s is 0.05 percent.
d. East Timor’s per capita income growth rate is 100 percent and North Timor’s is 1 percent.
e. each country’s per capita income growth rate is 20 percent.
ANS: B
MSC: Analyzing
DIF: Difficult
REF: 6.3
TOP: III.B.
51. Nonrivalry in the knowledge sector means that:
a. per capita income depends on the total population.
b. per capita income depends on some of the stock of ideas.
c. per capita income depends on the total stock of ideas.
d. labor in the ideas sector also can be used in the output sector.
e. all labor is used in the ideas sector.
ANS: C
DIF: Moderate
MSC: Remembering
REF: 6.3
TOP: III.B.
52. In the Romer model, ________ is the driving force behind sustained ________ economic growth.
a. labor; long-term
d. capital; short-term
b. knowledge; short-term
e. capital; long-term
c. knowledge; long-term
ANS: C
DIF: Easy
MSC: Understanding
REF: 6.3
TOP: III.B.
53. Idea accumulation in the Romer model exhibits:
a. increasing returns to capital.
b. diminishing returns in the stock of ideas.
c. negative returns in the stock of ideas.
d. no diminishing returns in the stock of ideas.
e. diminishing returns to labor.
ANS: D
DIF: Easy
MSC: Understanding
REF: 6.3
TOP: III.B.
54. Because there are no diminishing returns in the stock of ideas in the Romer model:
a. old ideas continue to contribute to current economic growth.
b. economic growth cannot be sustained forever.
c. the economy eventually reaches a steady state.
d. economic growth eventually slows.
e. new ideas must be continually created.
ANS: A
DIF: Moderate
MSC: Understanding
REF: 6.3
TOP: III.B.
55. The Romer model might be made more realistic by considering:
a. that there is a fixed labor productivity measure for all countries.
b. the global population instead of a single country’s population.
c. that researchers are heterogeneous.
d. the global stock of ideas.
e. productivity as being infinite.
ANS: D
DIF: Moderate
MSC: Understanding
REF: 6.3
TOP: III.B.
56. In the Romer model, the Mexican economy:
a. never generates new ideas.
b. can use ideas devised in the United States.
c. cannot use ideas devised in the United States.
d. eventually will reach a steady state.
e. does not have an ideas sector.
ANS: B
DIF: Moderate
REF: 6.3
TOP: III.H.
MSC: Evaluating
57. Nonrivalry in the Romer model means that ideas created can:
a. benefit only similar economies.
b. benefit only a few economies across the world.
c. be used only in the economy that devised them.
d. benefit virtually all economies across the world.
e. None of these answers is correct.
ANS: D
MSC: Evaluating
DIF: Easy
REF: 6.3
TOP: III.B.
58. A balanced growth path is defined as a situation in which the:
a. output growth rate is zero.
b. growth rates of all endogenous variables are variable.
c. growth rates of some of the endogenous variables are constant.
d. growth rates of all endogenous variables are constant.
e. All of these answers are correct.
ANS: D
DIF: Easy
MSC: Remembering
REF: 6.3
TOP: III.C.
59. The parameter(s) in the Romer model is/are the:
a. initial stock of ideas, the population, the fraction of population in the ideas sector, and the
ideas efficiency parameter.
b. ideas efficiency parameter.
c. fraction of population in the ideas sector and the ideas efficiency parameter.
d. initial capital stock and the fraction of population in the ideas sector.
e. initial capital stock and the ideas efficiency parameter.
ANS: A
DIF: Moderate
MSC: Understanding
REF: 6.3
TOP: III.C.
60. The reason that economic growth in Luxembourg is greater than the growth rate in the United
States is:
a. that Luxembourg has more researchers.
b. the globalization of ideas.
c. that it has a higher level of capital stock.
d. that there are more resources in the United States and diminishing returns to natural
resources.
e. that the capital depreciation rate is higher in the United States.
ANS: B
DIF: Easy
MSC: Remembering
REF: 6.3
Figure 6.1: Romer Model: Per Capita Output
TOP: III.D.
61. In the Romer model in Figure 6.1, at time t0, a change in the growth rate of per capita output can be
explained by a(n):
a. decrease in the ideas efficiency parameter.
b. increase in the population.
c. increase in the share of labor engaged in research.
d. increase in the saving rate.
e. decrease in the population.
ANS: B
MSC: Analyzing
DIF: Moderate
REF: 6.3
TOP: III.E.1.
Figure 6.2: Romer Model: Per Capita Output
62. In the Romer model in Figure 6.2, at time t0, a change in the shape of the production function can
be explained by an increase in the:
a. population.
b. share of labor engaged in research.
c. ideas efficiency parameter.
d. saving rate.
e. growth rate.
ANS: B
MSC: Analyzing
DIF: Moderate
REF: 6.3
63. In the Romer model, if an economy’s population increases:
a. output growth decelerates.
b. output immediately increases and output growth slows.
c. output immediately decreases and output growth slows.
d. output immediately decreases and output growth accelerates.
TOP: III.E.2.
e. output growth accelerates.
ANS: E
MSC: Analyzing
DIF: Moderate
REF: 6.3
TOP: III.E.1.
64. In the Romer model, if an economy’s share of researchers decreases, there will be:
a. an immediate decrease in output and output growth will slow.
b. an immediate increase in output and output growth will slow.
c. an immediate increase in output and output growth will accelerate.
d. an immediate decrease in output and output growth will accelerate.
e. no change in output but output growth will slow.
ANS: B
MSC: Analyzing
DIF: Moderate
REF: 6.3
TOP: III.E.2.
65. In the ideas sector production function,
, there are:
a. increasing returns to the ideas stock but decreasing returns overall.
b. decreasing returns to the ideas stock but increasing returns overall.
c. decreasing returns to the ideas stock and labor.
d. increasing returns to the ideas stock and labor.
e. None of these answers is correct.
ANS: B
MSC: Analyzing
DIF: Moderate
REF: 6.3
TOP: III.F.
66. Even if there are decreasing returns to the ideas stock in the knowledge sector, the Romer model:
a. cannot explain sustained growth.
b. can explain an economy that reaches its steady state.
c. can explain sustained growth.
d. cannot explain why economies’ saving rates differ.
e. cannot explain why the output sector exhibits decreasing returns.
ANS: C
DIF: Easy
MSC: Understanding
REF: 6.3
TOP: III.F.
67. In the Romer model, with decreasing returns to the knowledge sector:
a. the transition dynamics appear very similar to those in the Solow model.
b. an increase in the research share decreases the growth rate in the short run.
c. an increase in the research share increases the growth rate in the short and long runs.
d. a decrease in the research share increases the growth rate in the short run.
e. There are no level effects.
ANS: A
DIF: Moderate
MSC: Understanding
REF: 6.3
TOP: III.F.
68. In the Romer model, with decreasing returns to the knowledge sector:
a. the number of researchers is irrelevant to long-term per capita income.
b. more researchers produce more ideas, raising the long-run growth rate of per capita
income.
c. more researchers produce fewer ideas, raising the long-run growth rate of per capita
income.
d. more researchers produce more ideas, raising the long-run level of per capita income.
e. more researchers cause the knowledge stock to contract.
ANS: D
DIF: Moderate
REF: 6.3
TOP: III.F.
MSC: Understanding
69. According to the Case Study on Globalization and Ideas in the text, in ________ there are about
________ for every phone landline in the region.
a. sub-Saharan Africa; 10 cell phones
d. Latin America; two cars
b. Southeast Asia; 0.5 computers
e. eastern Europe; three modems
c. the Indian subcontinent; five pagers
ANS: A
DIF: Easy
MSC: Remembering
REF: 6.3
TOP: III.H.
70. In the combined Solow-Romer model, long-run growth is sustained because of:
a. population growth.
d. total factor productivity.
b. capital accumulation.
e. no capital depreciation.
c. the nonrivalry of ideas.
ANS: C
DIF: Easy
MSC: Remembering
REF: 6.4
TOP: IV.
71. According to the combined Solow-Romer model, all countries grow at:
a. the same rate in the long run, but actual growth rates can differ across countries for long
periods of time.
b. the same rate in the medium and long runs.
c. different rates forever.
d. the same rate as the United States in each period.
e. different rates in the long run, but actual growth rates are the same across countries for
long periods of time.
ANS: A
DIF: Easy
MSC: Remembering
REF: 6.4
TOP: IV.
72. In the combined Solow-Romer model, the growth rate of total output, using the standard
production function, is given as:
a.
.
d.
.
b.
.
e.
.
c.
.
ANS: B
DIF: Easy
MSC: Understanding
REF: 6.5
TOP: V.
73. In the combined Solow-Romer model, the growth rate of total output, using the production
function
, is given as:
a.
b.
c.
.
.
ANS: C
MSC: Analyzing
d.
e.
.
REF: 6.5
TOP: V.
.
.
DIF: Moderate
74. Labor composition is used in “growth accounting” because it:
a. includes total number of hours worked.
b. can include changes in the age distribution of the labor force.
c. can include the educational attainment in the labor force.
d. includes the total number of workers.
e. All of these answers are correct.
ANS: C
DIF: Moderate
MSC: Understanding
REF: 6.5
TOP: V.
75. “Growth accounting” endeavors to:
a. measure GDP.
b. measure economic growth rates.
c. determine how capital accumulates.
d. measure what factors—and in what proportions—affect overall economic growth.
e. measure global output and the proportion of global output attributed to each country.
ANS: D
DIF: Easy
MSC: Understanding
REF: 6.5
TOP: V.
76. In the growth accounting equation,
, B represents
________, while C is called ________.
a. labor composition; capital accumulation
b. the contribution from capital; the (Solow) residual
c. labor composition; the (Solow) residual
d. educational attainment; labor composition
e. None of these answers is correct.
ANS: C
DIF: Moderate
MSC: Understanding
REF: 6.5
77. In the growth accounting equation,
TOP: V.
, A represents
________, while B is called ________.
a. labor composition; capital accumulation
b. the contribution from capital; the (Solow) residual
c. the contribution from capital; labor composition
d. educational attainment; labor composition
e. per capita capital contribution; labor composition
ANS: C
DIF: Moderate
MSC: Understanding
REF: 6.5
TOP: V.
78. In growth accounting, the residual, gA, is so named because:
a. the economy is complicated.
b. economists know exactly what contributes to growth.
c. it is a way to measure observed TFP growth.
d. it is a way to measure unobserved TFP growth.
e. it measures labor composition.
ANS: D
DIF: Moderate
MSC: Understanding
REF: 6.5
TOP: V.
79. For the years 1995–2007, if output per person in the private sector grew 2.7 percent, capital
intensity grew 1.1 percent, and labor composition grew 0.2 percent, what was the growth rate of
total factor productivity?
a. 3.6 percent
d. 4.0 percent
b. 1.8 percent
e. 2.3 percent
c. 1.4 percent
ANS: C
MSC: Analyzing
DIF: Moderate
REF: 6.5
TOP: V.
80. For the years 2011–2015, if output per person in the private sector grew 1.9 percent, capital
intensity grew 1.1 percent, and total factor productivity grew 0.2 percent, what was the growth rate
of labor composition?
a. 0.6 percent
d. 1.2 percent
b. 2.6 percent
e. 1.3 percent
c. 3.4 percent
ANS: A
MSC: Analyzing
DIF: Moderate
REF: 6.5
TOP: V.
81. For the years 1948–1973, output per person in the private sector grew 3.3 percent, labor
composition grew 0.2 percent, and total factor productivity grew 2.2 percent. What was the growth
rate of capital intensity?
a. −1.5 percent
d. 5.3 percent
b. 1.3 percent
e. 0.9 percent
c. 3.2 percent
ANS: E
MSC: Analyzing
DIF: Moderate
REF: 6.5
TOP: V.
Refer to the following table when answering the following questions.
Table 6.1: Growth Accounting
Growth (%)
K/L
Labor Comp
TFP
1948–2011
0.9
0.2
1.4
1948–1973
0.9
0.2
2.2
1973–1995
0.7
0.3
0.5
1995–2007
1.1
0.2
1.5
2007–2011
1.1
0.4
0.4
82. Consider the growth accounting data in Table 8.1. If the production function is given by
, the growth rate of per capita GDP for 1948–2011 is ________ percent.
a. −1.7
d. 2.6
b. 2.1
e. 1.8
c. 3.3
ANS: E
MSC: Analyzing
DIF: Moderate
REF: 6.5
TOP: V.
83. Consider the growth accounting data in Table 8.1. If the production function is given by
, the growth rate of per capita GDP for 1948–1973 is ________ percent.
a. −1.7
d. 0.0
b. 0.8
e. 2.6
c. 1.1
ANS: E
MSC: Analyzing
DIF: Moderate
REF: 6.5
TOP: V.
84. Consider the growth accounting data in table 8.1. If the production function is given by
, the growth rate of per capita GDP for 1995–2007 is ________ percent.
a. 2.2
d. 1.5
b. 2.8
e. −0.9
c. 2.0
ANS: A
MSC: Analyzing
DIF: Moderate
REF: 6.5
TOP: V.
85. Consider the growth accounting data in table 8.1. If the production function is given by
, the fastest growth rate of per capita GDP occurred during which period?
a. 1948–1973
d. 2007–2011
b. 1973–1995
e. Not enough information is given.
c. 1995–2007
ANS: A
MSC: Evaluating
DIF: Moderate
REF: 6.5
TOP: V.
86. In growth accounting, if we subtract the capital intensity growth rate and the labor composition
growth rate from the growth rate of output per person, we have:
a. the growth rate of total factor productivity.
b. the Markov residual.
c. capital accumulation.
d. savings.
e. education.
ANS: A
MSC: Evaluating
DIF: Moderate
REF: 6.5
TOP: V.
87. In the combined Solow-Romer model, an exogenous increase in the saving rate:
a. immediately increases the growth rate of per capita output, which eventually slows to its
previous rate.
b. immediately decreases the per capita output, but the growth rate does not change.
c. increases the growth rate of per capita income, but eventually the economy reaches a new
steady-state level of per capita output.
d. immediately decreases the growth rate of per capita output, which eventually accelerates
to a higher rate.
e. has no impact on the growth rate or level of per capita output.
ANS: A
MSC: Evaluating
DIF: Difficult
REF: 6.5
TOP: IV.
88. In the combined Solow-Romer model, an exogenous increase in the saving rate:
a. pushes the economy to a lower per capita output balanced growth path.
b. pushes the economy to a higher per capita output balanced growth path.
c. pushes the economy’s growth rate of per capita output to infinity.
d. pushes the economy to a new steady-state level of per capita output.
e. has no impact on the growth rate or level of per capita output.
ANS: B
MSC: Evaluating
DIF: Difficult
REF: 6.5
TOP: IV.
89. In the combined Solow-Romer model, the total output growth rate:
a. equals the growth rate of ideas.
b. is greater than the growth rate of ideas.
c. is lower than the growth rate of ideas.
d. equals the rate of capital depreciation.
e. is greater than the population growth rate.
ANS: B
MSC: Evaluating
DIF: Difficult
REF: 6.5
TOP: IV.
90. In the combined Solow-Romer model, the total output growth rate is greater than in the Romer
model because:
a. the saving rate is higher.
d. of capital accumulation.
b. of population growth.
e. of a greater research share.
c. capital depreciation is zero.
ANS: D
MSC: Evaluating
DIF: Difficult
REF: 6.5
TOP: IV.
TRUE/FALSE
1. New irrigation techniques are examples of ideas.
ANS: T
MSC: Evaluating
DIF: Easy
REF: 6.1
TOP: II.A.
2. The signals of the TV show Dexter are a rival good.
ANS: F
DIF: Easy
REF: 6.2
TOP: II.B.
MSC: Evaluating
NOT: They are nonrivalrous. It is difficult or too costly to prevent others from watching it if you
are.
3. The “idea” of the assembly line leads to increasing returns.
ANS: T
MSC: Evaluating
DIF: Easy
REF: 6.2
TOP: III.A.
NOT: All firms can use the same production technology.
4. The number of ideas is finite.
ANS: F
DIF: Easy
MSC: Understanding
5. The production function
labor, assumes that At is rivalrous.
REF: 6.2
TOP: II.A.
NOT: They are limited only by imagination.
, where At is the stock of ideas, Kt is capital, and Lt is
ANS: F
DIF: Moderate
REF: 6.2
TOP: II.B.
MSC: Understanding
NOT: The technology “bleeds” throughout the aggregate production process; it is nonrivalrous.
6. There is no difference between the stock of ideas and total factor productivity.
ANS: F
DIF: Easy
REF: 6.2
TOP: II.B.
MSC: Evaluating
NOT: The stock of ideas changes from one period to the next; factor productivity is assumed to be
an economy-specific idiosyncratic parameter.
7. In a monopolistically competitive market equilibrium, the price is equal to the marginal cost.
ANS: F
DIF: Moderate
REF: 6.2
TOP: II.C.
MSC: Understanding
8. Offering inventors a prize is a way of providing an incentive to generate new ideas.
ANS: T
DIF: Easy
MSC: Understanding
REF: 6.2
TOP: II.C.
9. In the Romer model, the more labor you dedicate to generating ideas, the slower you accumulate
knowledge, but at a loss to current output in the consumption sector.
ANS: F
DIF: Moderate
MSC: Understanding
REF: 6.3
10. In the Romer model, the growth rate of knowledge is
ANS: F
DIF: Easy
MSC: Remembering
TOP: III.A.
.
REF: 6.3
TOP: III.A.
11. Suppose Chile and Côted’Ivoire have the same fraction of researchers and the same knowledge
efficiency parameter, but Chile’s population is larger. Chile has a higher per capita output growth
rate.
ANS: T
MSC: Evaluating
DIF: Moderate
REF: 6.3
TOP: III.A.
12. In the Romer model, the creation of capital is the driving force behind sustained long-term
economic growth.
ANS: F
DIF: Easy
REF: 6.3
TOP: III.A.
MSC: Understanding
NOT: In the Romer model, the generating of ideas sustains long-term economic growth.
13. The Romer model relies on increasing returns to ideas and labor.
ANS: T
DIF: Easy
MSC: Understanding
REF: 6.3
TOP: III.A.
14. In the Romer model, if the population increases exogenously, the growth of knowledge stays
constant.
ANS: F
DIF: Moderate
MSC: Understanding
REF: 6.4
NOT: It increases.
TOP: IV.
15. According to the combined Solow-Romer model, all countries grow at the same rate in the medium
and long runs.
ANS: F
DIF: Moderate
REF: 6.4
TOP: IV.
MSC: Understanding
NOT: All countries grow at the same rate in the long run, but actual growth rates can differ across
countries for significant periods of time.
16. In the combined Solow-Romer model, the growth rate of total output, using the standard
production function, is given as
.
ANS: T
DIF: Moderate
MSC: Understanding
REF: 6.4
TOP: V.
17. In the growth accounting equation for the standard Cobb-Douglas production function,
.
ANS: F
DIF: Easy
MSC: Understanding
REF: 6.5
TOP: V.
18. In growth accounting, if we subtract the capital intensity growth rate and the labor composition
growth rate from the growth rate of output per person, we have the growth rate of total factor
productivity.
ANS: T
MSC: Evaluating
DIF: Moderate
REF: 6.5
TOP: V.
NOT: We also call it the (Solow) residual.
19. In the growth accounting equation
represents the growth rate of labor composition.
ANS: F
DIF: Moderate
MSC: Remembering
REF: 6.5
TOP: V.
NOT: It represents the (Solow) residual.
20. In the combined Solow-Romer model, an exogenous increase in the saving rate has no effect on
the growth rate or level of per capita output.
ANS: F
DIF: Difficult
REF: 6.5
TOP: IV.
MSC: Evaluating
NOT: It pushes the economy to a higher per capita output balanced growth path.
21. In the combined Solow-Romer model, the steady-state level of output is positively related to the
saving and depreciation rates.
ANS: F
DIF: Difficult
REF: 6.5
TOP: VII.
MSC: Evaluating
NOT: It is positive in the saving rate but not the depreciation rate; see equation (6.23) in
Appendix.
SHORT ANSWER
1. How does the Romer model of economic growth exploit the concept of nonrivalry?
ANS:
In the Romer model, new ideas are “public” goods (that is, nonrival in consumption). Essentially,
new ideas can be consumed by everyone, in this case producers, without reducing other
individuals’ consumption of that good. In this context, ideas can be used by everyone, which leads
to increasing returns to scale. This justifies the production function in the Romer model,
, which has increasing returns to scale with respect to both factors together. In the
Romer model, this leads to a balanced growth path, or a constant steady-state growth rate, but not a
steady-state (zero growth) level of output.
DIF: Difficult
REF: 6.2
TOP: II.B.
MSC: Evaluating
2. Consider the production function
, where Y is output and X represents inputs.
Graph this production function. Does it display decreasing, constant, or increasing returns to scale?
ANS:
This is an alternative production function to the one presented in Figure 6.1 in the text. Essentially,
for
, output is zero; at
output rises at a slope of 1/20. Rays drawn from the
origin to each level output are progressively steeper; that is, average product, Y/X, rises as
production rises (that is, increasing returns to scale).
DIF: Difficult
REF: 6.2
TOP: II.C.
MSC: Evaluating
3. Consider the following Romer model of economic growth:
(a) If
and
, what is the growth rate of knowledge in
this economy?
(b) What is the growth rate of per capita output in this economy?
(c) Using the information from year 1, what is the level of per capita output in this economy
in year 5?
ANS:
(a) From equation 6.7 we have the growth rate of knowledge, which is
or
.
(b) The growth rate of the economy is from the first equation: in the steady state,
; output and knowledge grow at the same rate.
(c)
DIF: Difficult
REF: 6.3
TOP: III.
MSC: Analyzing
4. Consider the Romer model. If the percentage of the population engaged in ideas formation, ,
decreases, what are the short- and long-term impacts of this shift?
ANS:
This is the opposite of Figure 6.4; initially, output rises as more people are engaged in production
for current consumption, but because ideas accumulation growth slows, so does output growth.
Thus, output per person initially shifts up, but the slope of the curve becomes less steep.
DIF: Difficult
REF: 6.3
TOP: III.
MSC: Evaluating
5. Consider the following data:
China India
Total R&D/
GNP
Science and
1.32
1.23
United States
Japan
Germany
Russia
2.69
2.98
2.48
1.00
Engineering
Students (%)
43
25
19
21
47
50
Researchers
in R&D
(per million)
584
157
4,048
5,322
3,154
3,492
Note: Total R&D/GNP is the share of research and development in gross national product
share. Define the percentage of science and engineering students as a representation
of in Romer’s model. All things being equal
across all countries, which
country does the Romer model predict will grow the fastest? Explain.
ANS:
In the Romer model, the growth in the ideas (R&D) sector is
is given by
. Economic growth
. Because Russia has a higher percentage of science and
engineering students, it will grow the fastest.
DIF: Difficult
REF: 6.3
TOP: III.
MSC: Evaluating
6. Consider the table below, which shows the number of researchers in R&D (per million) in 2010
and the average growth rate of real GDP for the years 1985–2014. Explain how the Romer model
explains the relationship between the number of researchers and economic growth. Given your
answer, does the data below corroborate your story? How might you explain any inconsistencies
between the data and the model?
Table 6.2
R&D
Researchers
GDP Growth
China
Hungary
South Korea
Mexico
903
6.9%
2,131
1.0%
5,380
5.7%
340
2.4%
(Source: Penn World Tables 9.0 and the World Bank)
ANS:
In the Romer model we have two basic equations we can use:
and
From the first equation, we see that higher numbers of researchers lead to a lower level of GDP in
the short run, while the second equation states that more researchers lead to more ideas. Because
ideas contribute to output, in the long run, growth will be higher.
The most obvious contradiction is the researchers and growth in China and Hungary. Clearly, in
this model, China has fewer researchers per capita but very high growth, and vice versa for
Hungary. The data appears to do OK for South Korea and Mexico, with the most and least number
of researchers, respectively. An obvious explanation for China and Hungary is the term . China
clearly has more workers than Hungary, which contributes to the ideas sector. Secondly, is the
productivity, or efficiency, term ; perhaps Chinese researchers are more productive/efficient, as
they have more access to technology, machinery, education, ideas, and so on. Also, perhaps a
combined Solow-Romer model would apply better in this context, with capital accumulation
explaining much of China’s high growth rate.
DIF: Difficult
REF: 6.3
TOP: III.
MSC: Analyzing
7. Consider the Cobb-Douglas production function
.
(a) Write this in growth-rate terms.
(b) Next, define this in terms of per capita growth and identify the contributions of the
components of per capita growth.
(c) If the growth rate of capital per worker is 1.3 percent, the labor composition growth rate is
0.4 percent, TFP growth is 1.2 percent, and
, what is the growth rate of output per
worker? If
?
ANS:
(a) In growth terms we have:
.
(b) To calculate per capita, we need to subtract
from each side or
(Note:
.)
is TFP growth, A is contribution from K/L, and B is labor composition.
(c) If a = 1/2 we have
,
and if a = 1/3,
.
DIF: Difficult
REF: 6.5
TOP: V.
MSC: Evaluating
8. Consider the data in the following table:
(a) Fill in the missing values, assuming the capital share is equal to  = 1/4.
(b) Which period had the greatest per capita growth? The slowest?
(c) Which period has the slowest TFP growth, and what might have contributed to this?
1948–1973
Y/L
K/L
Labor Comp
TFP
0.9
0.2
2.2
1973–1995
0.9
0.7
1995–2007
1.9
0.5
ANS:
We start by noting that we need to use the equation
0.2
1.5
2007–2011
1.0
1.1
0.4
in various algebraic positions. Doing so we get:
(a)
1948–1973 1973–1995 1995–2007 2007–2011
Y/L
2.6
0.9
1.9
1.0
K/L
0.9
0.7
1.1
1.1
Labor Comp
0.2
0.3
0.2
0.4
TFP
2.2
0.5
1.5
0.4
(b) We see that the period 1948–1973 had the fastest per capita output growth and 1973–1995
was the slowest, which was the growth slowdown. The Internet expansion of the 1990s had
the second fastest.
(c) The slowest TFP was in 2007–2011, likely due to the Great Recession.
DIF: Difficult
REF: 6.5
TOP: V.
MSC: Evaluating
9. You have been asked to calculate TFP growth for four countries from 1985–2014: China, Hungary,
South Korea, and Mexico. You decide to reach for the Solow growth model to do your
calculations, specifically, the Cobb-Douglas production function:
. Using the data
available in the table below, which shows the average labor share and growth rates of real GDP per
capita, labor composition, and capital per capita from 1985–2014, find the TFP growth rate for
each country. Given what you know about each country, what may explain your results?
Table 6.3
China
Hungary
South Korea
Mexico
Labor Share
0.60
0.65
0.55
0.45
Y/L
6.9%
1.0%
5.7%
2.4%
Labor Comp
1.1%
–0.7%
1.8%
2.5%
K/L
9.5%
2.1%
7.3%
3.4%
(Source: Penn World Tables 9.0)
ANS:
We first note that the second column, labor share, is represented by  in the production function.
Converting this equation into growth terms and rearranging to find TFP, we have
. Plugging in the numbers we get:
Table 6.3
China
Hungary
South Korea
Mexico
Labor Share
0.60
0.65
0.55
0.45
Y/L
6.9%
1.0%
5.7%
2.4%
Labor Comp
1.1%
−0.7%
1.8%
2.5%
K/L
9.5%
2.1%
7.3%
3.4%
TFP
2.4%
0.7%
1.4%
−0.6%
Answers depend on students:
• China: for Maoist country, undergone market reforms beginning in mid-1980s; a lot of
state-sponsored investment, export-led growth
• Hungary: former command-style economy, began market reforms after the collapse of
communism in 1989; joined NATO in 1999; joined EU in 2004
• Korea: began export-led growth policy in 1960s; experienced Southeast Asian Crisis (1997);
continued market reforms
• Mexico: import substitution, lots of natural resources, corruption, drug wars, Latin American
debt crisis (early 1980s), Mexican peso crisis (1994), maquiladora production, market
Test Bank for Macroeconomics 5th Edition Charles I Jones
reforms
DIF: Difficult
REF: 6.5
TOP: V.
MSC: Evaluating
10. You have been asked to calculate real GDP growth rates for four countries from 1985–2014:
China, Hungary, South Korea, and Mexico. You decide to reach for the Solow growth model to do
your calculations, specifically the Cobb-Douglas production function:
. Using the
data available in the table below, which shows the average labor share and growth rates of labor
composition, capital per capita, and TFP from 1985–2014, find the output growth rate for each
country. Given what you know about each country, what may explain your results?
Table 6.4
China
Hungary
South Korea
Mexico
Labor Share
0.60
0.65
0.55
0.45
Labor Comp
1.1%
−0.7%
1.8%
2.5%
K/L
9.5%
2.1%
7.3%
3.4%
TFP
1.7%
0.4%
1.4%
−1.0%
(Source: Penn World Tables 9.0)
ANS:
We first note that the second column, labor share, is represented by  in the production function.
Converting this equation into growth terms, we have
. Plugging in the
numbers we get:
Table 6.4
China
Hungary
South Korea
Mexico
Labor Share
0.60
0.65
0.55
0.45
Labor Comp
1.1%
−0.7%
1.8%
2.5%
K/L
9.5%
2.1%
7.3%
3.4%
TFP
1.7%
0.4%
1.4%
−1.0%
Y/L
6.2%
0.7%
5.7%
2.0%
Answers depend on students:
• China: for Maoist country, undergone market reforms beginning in mid-1980s; a lot of
state-sponsored investment, export-led growth
• Hungary: former Soviet economy, began market reforms after the collapse of communism
in 1989; joined NATO in 1999; joined EU in 2004
• Korea: began export-led growth policy in 1960s; experienced Southeast Asian Crisis (1997);
continued market reforms
• Mexico: import substitution, lots of natural resources, corruption, drug wars, Latin American
debt crisis (early 1980s), Mexican peso crisis (1994), maquiladora production
DIF: Difficult
REF: 6.5
TOP: V.
MSC: Evaluating
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