PRELIMINARY EXAMINATIONS – ECONOMIC DEVELOPMENT

Name:
PART I
1. An economic model that explains how capital accumulation and technological change
affect the economy. It was pioneered by Robert Solow.
2. What are the major components of the model defined in ‘Item Number 1’?
3. What is the process of increasing the amount of capital per worker?
4. What is the economic law that explains why increasing the amount of capital per worker
does not lead to a proportional increase in output?
5. Economy enters _______________ in which capital deepening ceases as the capital-labor ratio
stops rising.
6. It is only through __________ that modern economies can avoid the trap of economic
stagnation.
7. & 8. Give four examples of technological change.
9. Draw the aggregate production function (AGP) graph.
10. From the drawn figure of the graph of the AGP in ‘Item Number 9’, show the
representation of technological change
PART II
1. Enumerate the underlying categories of economic development.

2. The economic growth from new ideas/technology is sometimes called as the ______________.
3. What kind of growth was shown in Japan and Germany after world war, which showed
high rate of return in capital investments?
4. As economies get wealthier, they often experience ____________________________________.
5. There is a convergence of economic state between the rich and poor countries. (True or
False)
6. The Law of Diminishing Returns (LDR) is one of the oldest and more important postulates
in economics. It states that increasing one ingredient of production keeping all other
ingredients constant has a decreasing marginal impact on output. (True or False)
7. It is defined as the minimum income necessary to sustain the life of a human being.
8. Enumerate the three phases of economic development according to Malthus.

9. The number of children per women in the reproductive age.

10. When the production exhibits ________________, if one sets capital and labor to expand at the
same rate, then output will grow at the very same rate.
11. What is the property that is explored in the Solow Model and not the in the Malthus model.
12. The Fundamental Dynamic Equation of the Solow model states that the capital-labor ratio
_________ with per capita saving and __________ with the depreciation rate and the population
growth rate.
13. The negative effect of population growth on capital per worker is often called __________.
14. It depicts, for each level of capital per worker, the exact amount of gross savings that will
be necessary to offset the corresponding capital depreciation and capital dilution.
15. Robert Solow developed his model with the main purpose being a better understanding of
the growth performance of the Philippine economy. (True or False)
16. According to the so-called Kaldor’s facts, output per worker grows over time at a
sustained rate. (True or False)
17. It states that the steady state level of per capita consumption is maximized when the slope
of the production function is equal to the slope of the break-even investment line.
18. According to the Solow Model, the ______________ is the one that delivers the highest level of
per capita consumption in the steady state.
19. In economics, the ____________ is the observation that capital does not flow from developed
countries to developing countries despite the fact that developing countries have lower
levels of capital per worker.
20. ________________ is the term used to coin the stock of knowledge and health embodied in
labor. This notion comes from the observation that people invest in knowledge and in
health with the aim to obtain a return, just like people invest in physical capital.
21. An extension of the Solow model to account for human capital as an input to production
which was first proposed by Mankiw, Romer and Weil (1992).
1. An economic model that explains how capital accumulation and technological change
affect the economy. It was pioneered by Robert Solow. Neoclassical Growth Model
2. What are the major components of the model defined in ‘Item Number 1’? Capital and
technological change
3. What is the process of increasing the amount of capital per worker? Capital deepening
4. What is the reason why increasing the amount of capital per worker does not lead to a
proportional increase in output? Law of diminishing returns
5. Economy enters _______________ in which capital deepening ceases as the capital-labor ratio
stops rising. steady state
6. It is only through __________ that modern economies can avoid the trap of economic
stagnation. Technological change
7. & 8. Give four examples of technological change.
 Advances in production process
 Introduction of new and improved goods and services
 New managerial techniques
 New forms of business organizations
9. Draw the aggregate production function (AGP) graph.

10. From the drawn figure of the graph of the AGP in ‘Item Number 9’, show the
representation of technological change
1. Enumerate the underlying categories of economic development.
Capital, Labor and ideas/ new tech
2. The economic growth from new ideas/technology is sometimes called as the ______________.
Solow residual
3. What kind of growth was shown in Japan and Germany after world war, which showed
high rate of return in capital investments? Catch-up growth
4. As economies get wealthier, they often experience ____________________________________.
Diminishing marginal returns to capital
5. There is a convergence of economic state between the rich and poor countries. (True or
False)
False
6. The Law of Diminishing Returns (LDR) is one of the oldest and more important postulates
in economics. It states that increasing one ingredient of production keeping all other
ingredients constant has a decreasing marginal impact on output. (True or False) True
7. It is defined as the minimum income necessary to sustain the life of a human being.
Subsistence level of per capita income
8. Enumerate the three phases of economic development according to Malthus.
The Malthusian Regime, The Modern Growth and The Post-Malthusian regime
9. The number of children per women in the reproductive age. Fertility rates
10. When the production exhibits ________________, if one sets capital and labor to expand at the
same rate, then output will grow at the very same rate. Constant Returns to Scale CRS
11. What is the property that is explored in the Solow Model and not the in the Malthus model.
CRS
12. The Fundamental Dynamic Equation of the Solow model states that the capital-labor ratio
_________ with per capita saving and __________ with the depreciation rate and the population
growth rate. Increases, decreases
13. The negative effect of population growth on capital per worker is often called __________.
Capital dilution
14. It depicts, for each level of capital per worker, the exact amount of gross savings that will
be necessary to offset the corresponding capital depreciation and capital dilution. Break-
even investment line.
15. Robert Solow developed his model with the main purpose being a better understanding of
the growth performance of the Philippine economy. (True or False) False
16. According to the so-called Kaldor’s facts, output per worker grows over time at a
sustained rate. (True or False) true
17. It states that the steady state level of per capita consumption is maximized when the slope
of the production function is equal to the slope of the break-even investment line. Golden
Rule of Capital Accumulation
18. According to the Solow Model, the ______________ is the one that delivers the highest level of
per capita consumption in the steady state. Golden rule saving rate
19. In economics, the ____________ is the observation that capital does not flow from developed
countries to developing countries despite the fact that developing countries have lower
levels of capital per worker. Lucas paradox or the Lucas puzzle
20. ________________ is the term used to coin the stock of knowledge and health embodied in
labor. This notion comes from the observation that people invest in knowledge and in
health with the aim to obtain a return, just like people invest in physical capital. Human
capital
21. An extension of the Solow model to account for human capital as an input to production
which was first proposed by Mankiw, Romer and Weil (1992). Augmented Solow model