Question 1

Empirical results justify substantial government subsidies to research based on the finding that the:

Accepted Answer

The social return to research is often greater than the private return because research can lead to broader societal benefits that are not captured by the individual or company conducting the research. This justifies government subsidies to encourage more research activities.

Question 2

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 _____.

Accepted Answer

In the two-sector endogenous growth model, the steady-state stock of physical capital is determined by the saving rate, while the growth in the stock of knowledge is determined by the fraction of labor allocated to universities or research activities.

Question 3

In a steady state with population growth and technological progress:

Accepted Answer

In a steady state with population growth and technological progress, capital and labor are utilized in such a way that the marginal products of both factors are constant. With technological progress, the production function shifts upward, leading to an increase in output per worker. As population grows, the capital-labor ratio decreases, causing the real rental price of capital to remain constant. At the same time, the increased productivity leads to an increase in the real wage, which grows at the rate of technological progress. Therefore, in this scenario, the real rental price of capital is constant and the real wage grows at the rate of technological progress.

Question 4

When capital increases by ΔK units and labour increases by ΔL units, output (ΔY) increases by:

Accepted Answer

The increase in output (ΔY) due to changes in capital (ΔK) and labor (ΔL) is determined by the marginal products of capital (MPK) and labor (MPL). The correct expression is (MPK × ΔK) + (MPL × ΔL), which accounts for the contribution of each additional unit of capital and labor to the total output.

Question 5

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

Accepted Answer

The marginal product of capital is the derivative of the production function with respect to capital, k. In this case, the derivative of y = Ak with respect to k is A, which is a constant. This means the marginal product of capital does not change as k increases, making it constant.

Question 6

The Solow residual will fall even if technology has not changed if there is:

Accepted Answer

Labour hoarding can lead to a fall in the Solow residual because it implies that labor is not being used efficiently, which can reduce measured productivity even if technology remains unchanged.

Question 7

Prescott interpreted fluctuations in the Solow residual as evidence that:

Accepted Answer

Prescott argued that technology shocks, which affect the Solow residual, are a significant source of short-run economic fluctuations, supporting the real business cycle theory.

Question 8

If the production function is Y = AK^2/3L^1/3 in the land of Antegria, and the labour force increases by 5 percent while capital is constant, labour productivity, measured by Y / L, will:

Accepted Answer

The answer of If the production function is Y =...

Question 9

An alternative to Prescott's explanation of the cyclical behaviour of the Solow residual is that it is the result of:

Accepted Answer

Labour hoarding and cyclical mismeasurement of output can cause fluctuations in the Solow residual, offering an alternative explanation to technology shocks.

Question 10

Labour hoarding refers to:

Accepted Answer

Labour hoarding occurs when firms retain employees during economic downturns to avoid the costs and difficulties of rehiring and retraining when the economy improves.

Question 11

In the two-sector endogenous growth model, income growth persists because:

Accepted Answer

In the two-sector endogenous growth model, persistent income growth is driven by the continuous creation of knowledge, which is typically modeled as occurring in universities or research sectors. This ongoing innovation and knowledge creation prevent diminishing returns to capital and sustain long-term economic growth.

Question 12

Total factor productivity may be measured by:

Accepted Answer

Total factor productivity is measured by subtracting the rate of growth of capital input, multiplied by capital's share of output, plus the rate of growth of labour input, multiplied by labour's share of output, from the rate of growth of output.

Question 13

In a steady state with population growth and technological progress:

Accepted Answer

In a steady state with population growth and technological progress, the capital and labor shares of income remain constant due to balanced growth, where output, capital, and labor grow at the same rate.

Question 14

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

Accepted Answer

Higher education typically leads to higher productivity, which increases real wages, but the growth rate of total income remains the same due to identical saving rates, population growth, and technological progress.

Question 15

If the Japanese production function is Cobb-Douglas with capital share 0.3, output growth is 3 percent per year, depreciation is 4 percent per year, and the capital-output ratio is 2.5, the saving rate that is consistent with steady-state growth is:

Accepted Answer

In a Cobb-Douglas production function, the steady-state saving rate (s) is given by s = (n + g + δ) * (K/Y), where n is the population growth rate (assumed to be 0 here), g is the output growth rate (3%), δ is the depreciation rate (4%), and K/Y is the capital-output ratio (2.5). Thus, s = (0 + 0.03 + 0.04) * 2.5 = 0.175 or 17.5%.

Question 16

The Solow residual equals the percentage change in output:

Accepted Answer

The Solow residual measures the portion of output growth that cannot be explained by changes in factor inputs, and is calculated by subtracting the percentage change in total factor productivity (TFP) from the percentage change in output. As TFP represents the portion of output growth that cannot be attributed to changes in factor inputs, the Solow residual is equal to the percentage change in output minus the percentage changes in factor inputs weighted by each factor's share of output. Therefore, the correct answer is C.

Question 17

If the production function is y = k^1/2, the steady-state value of y is:

Accepted Answer

In the Solow growth model, the steady-state level of output per worker (y) is determined by the savings rate (s), depreciation rate (δ), population growth rate (n), and technological growth rate (g). The correct formula for the steady-state output per worker when the production function is y = k^(1/2) is y = s / (δ + n + g).

Question 18

The Solow residual measures the portion of output growth that cannot be explained by growth in:

Accepted Answer

The Solow residual, also known as total factor productivity, measures the portion of output growth that cannot be explained by the growth in capital and labor, which are the inputs in the production function. It is often attributed to technological progress.

Question 19

Schumpeter's thesis of "creative destruction" is an explanation of economic progress resulting from:

Accepted Answer

Schumpeter's thesis of "creative destruction" highlights the idea that economic progress occurs when new product producers introduce innovative products or services that displace or force out incumbent producers. This process leads to the destruction of old and inefficient methods of production and creates room for rejuvenation and new economic opportunities.

Question 20

When capital increases by ΔK units, output increases by:

Accepted Answer

The increase in output due to an increase in capital by ΔK units is determined by the marginal product of capital (MPK), so the output increases by MPK × ΔK units.

Quiz 9: Economic Growth II: Technology, Empirics, and Policy

Empirical results justify substantial government subsidies to research based on the finding that the:

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 _.

In a steady state with population growth and technological progress:

When capital increases by ΔK units and labour increases by ΔL units, output (ΔY) increases by:

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

The Solow residual will fall even if technology has not changed if there is:

Prescott interpreted fluctuations in the Solow residual as evidence that:

If the production function is Y = AK^2/3L^1/3 in the land of Antegria, and the labour force increases by 5 percent while capital is constant, labour productivity, measured by Y / L, will:

An alternative to Prescott's explanation of the cyclical behaviour of the Solow residual is that it is the result of:

Labour hoarding refers to:

In the two-sector endogenous growth model, income growth persists because:

Total factor productivity may be measured by:

In a steady state with population growth and technological progress:

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

If the Japanese production function is Cobb-Douglas with capital share 0.3, output growth is 3 percent per year, depreciation is 4 percent per year, and the capital-output ratio is 2.5, the saving rate that is consistent with steady-state growth is:

The Solow residual equals the percentage change in output:

If the production function is y = k^1/2, the steady-state value of y is:

The Solow residual measures the portion of output growth that cannot be explained by growth in:

Schumpeter's thesis of "creative destruction" is an explanation of economic progress resulting from:

When capital increases by ΔK units, output increases by:

Quiz 9: Economic Growth II: Technology, Empirics, and Policy

Empirical results justify substantial government subsidies to research based on the finding that the:

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 _____.

In a steady state with population growth and technological progress:

When capital increases by ΔK units and labour increases by ΔL units, output (ΔY) increases by:

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

The Solow residual will fall even if technology has not changed if there is:

Prescott interpreted fluctuations in the Solow residual as evidence that:

If the production function is Y = AK2/3L1/3 in the land of Antegria, and the labour force increases by 5 percent while capital is constant, labour productivity, measured by Y / L, will:

An alternative to Prescott's explanation of the cyclical behaviour of the Solow residual is that it is the result of:

Labour hoarding refers to:

In the two-sector endogenous growth model, income growth persists because:

Total factor productivity may be measured by:

In a steady state with population growth and technological progress:

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

If the Japanese production function is Cobb-Douglas with capital share 0.3, output growth is 3 percent per year, depreciation is 4 percent per year, and the capital-output ratio is 2.5, the saving rate that is consistent with steady-state growth is:

The Solow residual equals the percentage change in output:

If the production function is y = k1/2, the steady-state value of y is:

The Solow residual measures the portion of output growth that cannot be explained by growth in:

Schumpeter's thesis of "creative destruction" is an explanation of economic progress resulting from:

When capital increases by ΔK units, output increases by:

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 _.

If the production function is Y = AK^2/3L^1/3 in the land of Antegria, and the labour force increases by 5 percent while capital is constant, labour productivity, measured by Y / L, will:

If the production function is y = k^1/2, the steady-state value of y is: