Question 1

The new growth theory attempts to explain
A)the rate of population growth within a country.
B)the rate of capital accumulation within a country.
C)the factors that determine the size of the Solow residual.
D)why there are diminishing returns to capital.

Accepted Answer

The new growth theory focuses on explaining the factors that determine the size of the Solow residual, which represents productivity improvements not accounted for by labor or capital increases, emphasizing the role of technology, innovation, and knowledge in driving economic growth.

Question 2

Explain the basic idea behind the Big Push model?

Accepted Answer

The Big Push model is an economic development theory that suggests that in order for a developing country to escape poverty and achieve sustained economic growth, it needs to make a coordinated and simultaneous investment in multiple sectors of the economy. This approach is based on the idea that individual investments in different sectors may not be enough to kickstart economic development, but a large and coordinated effort across multiple sectors can create a positive feedback loop that leads to overall economic growth.

The basic idea behind the Big Push model is that by investing in multiple sectors at the same time, the economy can overcome the barriers to development, such as lack of infrastructure, low productivity, and market failures. This approach can create a domino effect where the development of one sector supports the development of others, leading to a self-sustaining cycle of growth.

The Big Push model was popularized by economist Paul Rosenstein-Rodan in the 1940s and has been influential in shaping development policies in many countries. However, it has also been subject to criticism, as it requires a significant amount of resources and coordination, and there is no guarantee that the investments will lead to the desired economic growth. Nonetheless, the idea of coordinated investment across multiple sectors remains an important concept in development economics.

Question 3

What is meant by the term technological spillover?

Accepted Answer

Technological spillovers are present when investment generates external economies.The knowledge component of the firm's capital stock is like a public good that spills over to other firms in the economy.

Question 4

In endogenous growth models,it is assumed that
A)there are external economies from public or private investments.
B)there are diminishing marginal returns to capital.
C)growth is explained by forces outside the model.
D)the capital-labor ratio is constant.

Accepted Answer

Endogenous growth models assume that there are external economies from public or private investments, which contribute to economic growth. This is in contrast to exogenous growth models, which assume that growth is explained by forces outside the model. Additionally, endogenous growth models typically do not assume diminishing marginal returns to capital, and the capital-labor ratio may change over time as the economy grows.

Question 5

The O-ring theory places emphasis on
A)education of the labor force.
B)skill complementarities.
C)purchases of machinery and equipment by firms.
D)none of the above.

Accepted Answer

The O-ring theory, developed by Michael Kremer, places emphasis on skill complementarities, meaning that the productivity of a worker depends on the skills of those around them. This theory applies particularly to industries with complex production processes, where a failure of one skilled worker or component can lead to a complete breakdown of the entire system. Therefore, it is important to have complementary skilled workers to avoid such failures. The theory does not place emphasis on education of the labor force or purchases of machinery and equipment by firms.

Question 6

The Solow residual helps explain growth that derives from
A)increasing the size of the labor force.
B)increasing the size of the capital stock.
C)increasing the capital-labor ratio.
D)anything except increases in the size of the labor force or the capital stock.

Accepted Answer

The Solow residual measures the portion of economic growth that cannot be attributed to increases in the labor force or by increasing the size of the capital stock. Instead, it is associated with technological progress, improvements in management practices, or other factors that lead to increased efficiency in production.

Question 7

What three factors distinguish models of endogenous growth from their neoclassical counterparts?

Accepted Answer

The answer of What three factors distinguish models of endogenous...

Question 8

Explain how relatively high wages in the modern sector,as compared to the traditional sector,can lead to a coordination failure.

Accepted Answer

The answer of Explain how relatively high wages in the...

Question 9

In contrast to the earlier neoclassical models of economic growth,in endogenous growth models,there is more emphasis on
A)human capital.
B)externalities.
C)increasing returns to scale.
D)all of the above.

Accepted Answer

Endogenous growth models emphasize the importance of human capital, externalities, and increasing returns to scale in contrast to the earlier neoclassical models of economic growth which placed relatively less emphasis on these factors. Therefore, option D - all of the above is the correct answer.

Question 10

Is a coordination failure a type of market failure? Explain.

Accepted Answer

The answer of Is a coordination failure a type of...

Question 11

The S-curve is used to illustrate
A)the typical path taken by the current account over time.
B)economic fluctuations in the economy.
C)the typical growth path of a developing economy.
D)the existence of multiple equilibria.

Accepted Answer

The answer of The S-curve is used to illustrate
A)the typical...

Question 12

Explain how the government can help the economy avoid a coordination failure.

Accepted Answer

The answer of Explain how the government can help the...

Question 13

Explain what is meant by the term coordination failure and provide an example.

Accepted Answer

The answer of Explain what is meant by the term...

Question 14

The big-push theory argues that coordination failures may arise because of
A)pecuniary externalities.
B)technological externalities.
C)lack of human capital.
D)all of the above.

Accepted Answer

The big-push theory primarily focuses on pecuniary externalities, which occur when the actions of one firm affect the market conditions faced by other firms, leading to coordination failures.

Quiz 4: Contemporary Models of Development and Underdevelopment

The new growth theory attempts to explain

Explain the basic idea behind the Big Push model?

What is meant by the term technological spillover?

In endogenous growth models,it is assumed that

The O-ring theory places emphasis on

The Solow residual helps explain growth that derives from

What three factors distinguish models of endogenous growth from their neoclassical counterparts?

Explain how relatively high wages in the modern sector,as compared to the traditional sector,can lead to a coordination failure.

In contrast to the earlier neoclassical models of economic growth,in endogenous growth models,there is more emphasis on

Is a coordination failure a type of market failure? Explain.

The S-curve is used to illustrate

Explain how the government can help the economy avoid a coordination failure.

Explain what is meant by the term coordination failure and provide an example.

The big-push theory argues that coordination failures may arise because of