Chapter 03 - Growth and Accumulation

Chapter 03
Growth and Accumulation

MultipleChoiceQuestions

1.Growthaccountingexplains
a.Howeconomicdecisionscontroltheaccumulationofcapital
b.Howthecurrentsavingsrateaffectsthestockofcapitalinthefuture
c.Whatpartofgrowthintotaloutputisduetogrowthindifferentfactorsofproduction?
d.Alloftheabove
e.OnlyAandB

Difficulty:Medium

2.Therelationshipbetweentheoutputproducedinaneconomy,theinputoffactorsof
production,andthestateoftechnologicalknowledgeiscalledthe
a.Theaggregatesupplyfunction
b.Aggregateproductionfunction
c.Aggregateinvestmentfunction
d.Marginalproductoflabor
e.Marginalproductofcapital

Difficulty:Easy

3.GiventheproductionfunctionY=AF(K,N)andassumingconstantreturnstoscale,the
contributionofcapitaltooutputgrowthcanbeestimatedby
a.AddingthegrowthrateofcapitaltothetermA
B.Multiplyingthegrowthrateofcapitalbycapital'sshareinproduction
c.Subtractingthegrowthrateoflaborfromtherateoftechnologicaladvancement
d.Multiplyingthecapitallaborratiobythelevelofoutput
e.Multiplyingtotalfactorproductivitywithcapital'sshareinproduction

Difficulty:Medium

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Chapter 03 - Growth and Accumulation

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Chapter 03 - Growth and Accumulation

4.FortheU.S.economy,wecanassumethat
a.Outputgrowsatthesamerateasbothcapitalandlabor
b.Capitalisalargersourceofgrowththanlabor
C.Laborisalargersourceofgrowththancapital
d.Capitalandlaborbothcontributeequallytooutputgrowth
e.BothAandD

Difficulty:Easy

5.WhichofthefollowingisNOTasourceoflongtermoutputgrowth?
A.Growthinconsumptionexpenditures
b.Growthinlaborinputs
c.Growthincapitalinputs
d.Improvedtechnologicalefficiency
e.Growthinthestockofknowledge

Difficulty:Easy

6.WhichofthefollowingisNOTasourceofincreasedfactorproductivity?
a.Advancesinknowledge
B.Growthinthelaborforce
c.Moreefficientresourceallocation
d.Improvedmethodsofproduction
e.Technologicalprogress

Difficulty:Medium

7.Whichofthefollowingeconomistscontributedgreatlytoneoclassicalgrowththeoryinthe
1950sand1960s?
a.RobertBarro
b.RobertLucas
c.GregoryMankiw
d.PaulRomer
E.RobertSolow

Difficulty:Easy

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Chapter 03 - Growth and Accumulation

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Chapter 03 - Growth and Accumulation

8.Changesintotalfactorproductivityarealsocalled
a.Changesinlaborproductivity
b.Changesinthemarginalproductofcapital
c.Changesininputcosts
d.TheCobbDouglasresidual
E.TheSolowresidual

Difficulty:Easy

9.WhichofthefollowingisNOTasourceofincreasedfactorproductivity?
a.Anincreaseinaverageyearsofschooling
b.Anincreaseinonthejobtraining
c.Increasedinvestmentinhealth
D.Anincreaseinthesizeofthecapitalstock
e.Anincreaseintherateofinnovation

Difficulty:Easy

10.AccordingtoSolow'sestimate,outoftheaverageannualeconomicgrowthrateof2.9%
fortheU.S.from1909to1949,howmuchwasattributabletotheaccumulationofcapital?
a.0.12%
B.0.32%
c.0.75%
d.1.22%
e.1.55%

Difficulty:Easy

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Chapter 03 - Growth and Accumulation

11.TheCobbDouglasaggregateproductionfunctionprovidesafairlygoodapproximationof
theU.S.economyifweassumethat
a.Thesharesofcapitalandlaborareequal
b.Theshareofcapitalis0.65andtheshareoflaboris0.35
c.Theshareofcapitalis0.45andtheshareoflaboris0.55
D.Theshareofcapitalis0.25andtheshareoflaboris0.75
e.Theshareofcapitalis0.15andtheshareoflaboris0.85

Difficulty:Easy

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Chapter 03 - Growth and Accumulation

12.IfweassumeaCobbDouglasproductionfunction,wheretheshareofcapitalis0.25and
theshareoflaboris0.75,thenthemarginalproductoflaborisequalto
a.Y/N
B.3Y/4N
c.(3/4)N
d.3K/4N
e.3N/4Y

Difficulty:Medium

13.IfweassumeaCobbDouglasproductionfunctionwheretheshareofcapitalisequalto
0.2andtheshareoflaborisequalto0.8,thenthemarginalproductofcapitalisequalto
a.5N/K
b.5Y/K
c.Y/4K
D.Y/5K
e.Y/K

Difficulty:Medium

14.AssumeaCobbDouglasproductionfunctionwheretheshareofcapitalandlaboriseach
1/2.Ifthegrowthintotalfactorproductivityiszeroandlaborandcapitaleachgrowby2%,
then
a.Outputgrowthis4%andthemarginalproductofcapitalisY/K
B.Outputgrowthis2%andthemarginalproductofcapitalisY/(2K)
c.Outputgrowthis2%andthemarginalproductoflaboris(2Y)/N
d.Outputgrowthis1%andthemarginalproductoflaborisY/(2N)
e.Outputgrowthis1%andthemarginalproductofcapitalis(2Y)/K

Difficulty:Difficult

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Chapter 03 - Growth and Accumulation

15.AssumeaCobbDouglasproductionfunctionwheretheshareofcapitalis0.3andthe
shareoflaboris0.7.Ifcapitalgrowsby1.5%,laborgrowsby2%,andgrowthoftotalfactor
productivityis1.2%,byhowmuchdoestotaloutputgrow?
a.4.70%
b.3.50%
C.3.05%
d.2.85%
e.1.20%

Difficulty:Difficult

16.AssumeaCobbDouglasproductionfunctionwheretheshareoflaboris0.7andtheshare
ofcapitalis0.3.Ifthereisnotechnologicalprogress,capitalgrowsat1.5%,andlabordoesn't
growatall,whatisthegrowthrateofoutput?
A.0.45%
b.0.60%
c.1.05%
d.1.50%
e.2.00%

Difficulty:Difficult

17.AssumeaCobbDouglasproductionfunctionwheretheshareoflaboris0.7andtheshare
ofcapitalis0.3.Ifthereisnotechnologicalprogress,laborgrowsat2%,andcapitalgrowsat
1.5%,thenrealoutputwillgrowby
a.0.45%
b.1.50%
C.1.85%
d.2.85%
e.3.05%

Difficulty:Difficult

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Chapter 03 - Growth and Accumulation

18.Assumethattherateoftechnologicaladvanceis1.5%andbothlaborandcapitalgrowata
rateof2%.Whatistherateofoutputgrowthiflabor'sshareofincomeisthreetimesashigh
ascapital'sshareandthereareconstantreturnstoscale?
a.1.5%
b.2.0%
c.3.0%
D.3.5%
e.5.5%

Difficulty:Medium

19.Assumelabor'sshareofincomeis80%andcapital'sshareofincomeis20%.Ifwe
assumeconstantreturnstoscale,therearenotechnologicaladvances,andbothlaborand
capitalgrowatanannualrateof3%,thenthegrowthrateofoutputwillbe
a.0.6%
b.Between0.6%and2.4%
c.Between2.4%and3%
D.3%
e.Greaterthan3%

Difficulty:Medium

20.Assumeaproductionfunctionwithconstantreturnstoscale.Theshareofcapitalin
productionis1/4andtheshareoflaboris3/4.Ifbothlaborandcapitalgrowat1.6%andthe
rateoftechnologicalprogressis1.2%,whatistherateofgrowthofrealoutput?
a.1.2%
b.1.6%
C.2.8%
d.3.2%
e.4.8%

Difficulty:Medium

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Chapter 03 - Growth and Accumulation

21.Assumeaproductionfunctionwithconstantreturnstoscale.Labor'sshareofincomeis
4/5andcapital'sshareis1/5.Iflaborgrowsat3%,capitalat2%,andtherateoftechnological
advanceis1.2%,roughlyhowmanyyearswouldittaketodoublethecurrentlevelofoutput?
a.12
B.18
c.23
d.35
e.48

Difficulty:Difficult

22.Assumeaproductionfunctionwithconstantreturnstoscale.Labor'sshareofincomeis
0.7andcapital'sshareis0.3.Iflaborgrowsat4%andcapitalgrowsat3%,howmanyyears
wouldittaketodoublethecurrentlevelofoutputifnotechnologicaladvancesaremade?
a.7
b.10
C.19
d.23
e.33

Difficulty:Difficult

23.AssumeaCobbDouglasproductionfunction,wheretheshareoflabor(N)andcapital(K)
iseach1/2andA=1.Ifthegrowthrateoflaborisn=0.06,therateofdepreciationisd=
0.04,andthesavingsrateiss=0.2,whatisthevalueofthesteadystatecapitallaborratio?
a.0.5
b.1
c.2
D.4
e.5

Difficulty:Difficult

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Chapter 03 - Growth and Accumulation

24.From1973to1992,byhowmuchmoredidGDPgrowinJapanthanintheUnited
States?
a.10%
b.22%
C.36%
d.54%
e.66%

Difficulty:Easy

25.WhichofthefollowingcountrieshadthelowestratioofinvestmenttoGDPin1992?
a.Japan
b.Norway
c.Singapore
d.Taiwan
E.UnitedStates

Difficulty:Easy

26.IfwecomparetheannualgrowthratesintheU.S.andJapan,weseethatfrom1950to
1992,thedifferenceinaverageannualgrowthinGDPpercapitabetweenJapanandtheU.S.
wasabout
a.1.2%
b.2.2%
c.2.8%
D.3.8%
e.5.2%

Difficulty:Easy

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Chapter 03 - Growth and Accumulation

27.WhichofthefollowingisFALSE?
A.Ahighlevelofinvestmentgenerallydoesnotleadtoahigherlivingstandard
b.Inindustrialcountriestheamountoflaborislessimportantthantheskillsandtalentofthe
workforce
c.Acountrythatpossessesrichnaturalresourcesshouldhaveahighstandardofliving
d.Countrieswithfeweraverageyearsofschoolingoftenhavelowerlivingstandards
e.Ifapoorcountryinvestsinhealthitcansignificantlyincreasethequalityofhumancapital
andthusraiseoveralllivingstandards

Difficulty:Easy

28.Iftwocountrieshavethesameaggregateproductionfunction,rateoftechnological
growth,andsavingsrate,then
a.Theywillalwayshavethesamepercapitaincome
b.Thecountrywiththehigherrateofpopulationgrowthwillhaveahigherpercapitaincome
C.Thecountrywiththelowerrateofpopulationgrowthwillhaveahigherpercapitaincome
d.Thecountrywiththehighestdepreciationratewillhavethehighestpercapitaincome
e.BothCandD

Difficulty:Medium

29.Intheneoclassicalgrowthmodel,anincreaseinthesavingsrate
A.Raisesthesteadystatelevelofoutput
b.Lowersthesteadystatelevelofoutput
c.Raisesthelongtermeconomicgrowthrate
d.Lowerstotalfactorproductivity
e.BothAandC

Difficulty:Medium

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Chapter 03 - Growth and Accumulation

30.Intheneoclassicalgrowthmodel,ifanation'ssavingsratedecreases,weshouldexpect
that
a.Thelongrunincomepercapitawillincrease
b.Thelongruncapitallaborratiowillincrease
C.Thegrowthrateofoutputwilltemporarilydecreasebuteventuallyreturntoitslongrun
trend
d.Alloftheabove
e.Noneoftheabove

Difficulty:Medium

31.Intheneoclassicalgrowthmodel,anincreaseintherateofpopulationgrowthwill
A.Raisethegrowthrateofoutput
b.Increasethelevelofoutputpercapita
c.Increasethesteadystatecapitallaborratio
d.Alloftheabove
e.OnlyBandC

Difficulty:Medium

32.Inaneoclassicalgrowthmodel,adeclineinpopulationgrowthwill
a.Shifttheproductionfunctiondown
b.Shiftthesavingsfunctiondown
C.Decreasetheslopeoftheinvestmentrequirementline
d.Alloftheabove
e.OnlyAandC

Difficulty:Medium

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Chapter 03 - Growth and Accumulation

33.Intheneoclassicalgrowthmodel,ifthecapitallaborratioisbelowthe(optimal)steady
statelevel,weshouldexpectthat
a.Economicgrowthwillcontinuetodeclineunlesstechnologicaladvancesaremade
b.Incomepercapitawilldecreasesincegrossinvestmentisnotsufficienttosupplynew
workerswithadequatecapital
c.Thesavingsratewilldeclineduetothelackofeconomicgrowth
d.Alloftheabove
E.Noneoftheabove

Difficulty:Medium

34.Inaneoclassicalgrowthmodel,ifthecapitallaborratioislowerthanthe(optimal)
steadystatelevel,weshouldexpectthat
a.Savingissmallerthantheinvestmentrequirement
b.Outputpercapitawilltemporarilygrowataratelowerthanpopulationgrowth
c.Incomepercapitawilldecrease
D.Therewillbeatemporaryincreaseinthecapitalstockthatisgreaterthantheincreasein
population
e.Alloftheabove

Difficulty:Medium

35.Theconvergencetoasteadystatecapitallaborratiok*isensuredbythefactthatifkisat
alevel
A.Lowerthank*,savingwillexceedtheinvestmentrequiredtomaintainaconstantk,
causingktorise
b.Lowerthank*,investmentwillexceedsaving,leadingtoanincreaseinthecapitalstock
c.Lowerthank*,savingwillexceedtheinvestmentrequiredtomaintainaconstantk,causing
outputpercapitatodecline
d.Higherthank*,therateofdepreciationwillbehigherthanthesavingsrate,causingkto
decrease
e.Higherthank*,outputpercapitawillcontinuetoincreaseuntilanewsteadystate
equilibriumisreached

Difficulty:Medium

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Chapter 03 - Growth and Accumulation

36.Aneconomywithacapitallaborratiothatislowerthanthesteadystatelevelcanachieve
asteadystateequilibriumatthislowercapitallaborratioonlyif
A.Thesavingsratedecreases
b.Therateofdepreciationdecreases
c.Therateofpopulationgrowthdecreases
d.Technologicaladvancesaremade
e.Alloftheabove

Difficulty:Difficult

37.Inaneoclassicalgrowthmodel,anationwithadecliningpopulationgrowthratewill
experience
a.Adecreaseinlivingstandards
B.Anincreaseinlivingstandards
c.Alowersavingsrate
d.Anincreaseinlongtermgrowth
e.Adecreaseinthesteadystatecapitallaborratio

Difficulty:Medium

38.Aneoclassicalgrowthmodelwouldpredictthatiftheratesofbothpopulationgrowthand
savingincrease,thenthesteadystatecapitallaborratiowill
a.Increase
b.Decrease
c.Staythesame
d.Temporarilyincrease,butthengobacktoitsoriginallevel
E.Mostlikelychangebutwecannotsayforsurehow

Difficulty:Medium

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Chapter 03 - Growth and Accumulation

39.Assumeaneoclassicalgrowthmodelwithconstantreturnstoscale.Whichofthe
followingstatementsisTRUE?
A.Adecliningpopulationgrowthratewillincreasepercapitaincome
b.Anincreaseinthesavingsratewillpermanentlyincreasethegrowthrateofoutput
c.Anincreaseinthedepreciationratewillincreasethecapitallaborratio
d.Technologicaladvanceswillhavenoeffectonthelongrungrowthrateofoutput
e.Noneoftheabove

Difficulty:Medium

40.Theideaofasteadystateisthat
a.Thecapitallaborratiogrowsataconstantrate
b.Outputpercapitagrowsataconstantrate
C.Output,capital,andlaborallgrowatthesamerate
d.Anincreaseinthesavingsratewillnotaffectthecapitallaborratio
e.Realoutputcannotgrow

Difficulty:Medium

41.Accordingtotheneoclassicalgrowthmodel,aonetimetechnologicaladvancewill
a.Shifttheinvestmentrequirementlineup
b.Increasethelongtermgrowthrateofoutput
c.Havenoeffectonthesteadystatecapitallaborratio
d.Leadtoadecreaseintherateofdepreciation
E.Noneoftheabove

Difficulty:Easy

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Chapter 03 - Growth and Accumulation

42.Thesteadystateisdefinedasalongrunequilibriumatwhichcapital,labor,andoutputall
growatthesamerate.Tobeinasteadystateinaneoclassicalmodel,whichofthefollowing
equationshastobesatisfied?
a.y=(nd)k
B.sy=(n+d)k
c.sf(k)=(nd)k
d.sy=nk+d
e.y=f(k)=sk+nd

Difficulty:Medium

43.Intheneoclassicalgrowthmodel,thesteadystatecapitallaborratioisdeterminedbythe
equation
a.k=(n+d)y
b.k=s(n+d)
C.k=sy/(n+d)
d.k=y/(nd)
e.k=(n+d)/sy

Difficulty:Medium

44.Inaneoclassicalgrowthmodelinwhichaonetimeadvanceintechnologyoccurswe
couldexpect
a.Thelevelofsavingandinvestmenttoincreaseuntilanewandhighersteadystatecapital
laborratioisreached
b.Thelevelofincomepercapitatoincreasebutthesteadystategrowthrateofoutputto
remainunaffected
c.Thelevelofoutputforanygivencapitallaborratiotoincrease
D.Alloftheabove
e.Noneoftheabove

Difficulty:Easy

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Chapter 03 - Growth and Accumulation

45.Whencurrentsavingandinvestmentarejustenoughtoequipnewentrantsintothelabor
forcewiththesameamountofcapitalthattheaveragepersonalreadyintheworkforceuses,
then
a.Theeconomyisinasteadystate
b.Outputperheadisconstant
c.Capitalperheadisconstant
d.Capitalisgrowingatthesamerateasthepopulation
E.Alloftheabove

Difficulty:Medium

46.Foraneoclassicalgrowthmodel,whichofthefollowingstatementsisFALSE?
A.Anincreaseinthesavingsratewillincreasethesteadystategrowthrateofaggregate
output
b.Anincreaseinpopulationgrowthwillincreasethesteadystategrowthrateofaggregate
output
c.Anincreaseinpopulationgrowthwillreducethesteadystatelevelofincomepercapita
d.Ifpoorcountriessaveatthesamerateasrichcountriesandhaveaccesstothesame
technology,theywilleventuallycatchup
e.Longrungrowthresultsfromimprovementsintechnology

Difficulty:Medium

47.AccordingtoneoclassicalgrowththeorywhichofthefollowingdoesNOTaffecta
nation'slongtermgrowthrate?
a.Thesavingsrate
b.Technologicalprogress
c.Therateofdepreciation
d.Populationgrowth
E.BothAandC

Difficulty:Medium

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Chapter 03 - Growth and Accumulation

48.Inaneoclassicalgrowthmodel,steadystateconsumptionismaximizedwhenthe
marginalincreaseinthecapitallaborratio(k)producesjustenoughextraoutputpercapita(y)
thatthemarginalproductofkisequalto
A.n+d
b.sy/(nd)
c.sy/(n+d)
d.sa(n+d)
e.s(n+d)

Difficulty:Medium

49.Thegoldenrulecapitalstock(k**)ensuringthatsteadystateconsumptionismaximizedis
atthepointontheproductionfunctionf(k)wherethemarginalproductofcapital(k)isequal
to
A.n+d
b.nd
c.s(n+d)
d.sa/(n+d)
e.sa/(nd)

Difficulty:Medium

50.Thegoldenrulecapitalstock(k**)correspondsto
a.Thehighestpermanentlysustainablelevelofsteadystateconsumption
b.Thepointatwhichamarginalincreaseincapitalproducesjustenoughextraoutputtocover
theincreasedinvestmentrequirement
c.Thepointontheproductionfunctiony=f(k),wheretheslopeoff(k)isequalto(n+d)
D.Alloftheabove
e.Noneoftheabove

Difficulty:Medium

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