Test Bank For Macroeconomics 6th Canadian Edition Abel

Test Bank for Macroeconomics, 6th Canadian Edition : Abel
Test Bank for Macroeconomics, 6th Canadian Edition

: Abel
To download the complete and accurate content document, go to:

https://testbankbell.com/download/test-bank-for-macroeconomics-6th-canadian-editio
n-abel/
Visit TestBankBell.com to get complete for all chapters

Macroeconomics, 6Ce (Abel/Bernanke/Croushore/Kneebone)
Chapter 6 Long-Run Economic Growth
6.1 Multiple-Choice Questions
1) From 1982 to 1992 North Samaria's economy grew at an annual rate of 3.5%, but from 1992
to 2002 North Samaria's economy grew by only 1% per year. In 1992 Samaria's per capita
income was $8000. How much higher would North Samaria's per capita income have been in
2002 if growth from 1992 to 2002 had been 3.5% rather than 1%?
A) $2241
B) $2448
C) $2508
D) $3285
Answer: B
Diff: 3 Type: MC Page Ref: 206
2) An economy's output of goods and services depends on all of the following except
A) the quantity of capital input.
B) the quantity of labour input.
C) the productivity of inputs.
D) the interest rate.
Answer: D
3) The major source of economic growth is

A) capital.
B) labour.
C) technology.
D) all of the above.
Answer: D
4) The elasticity of output with respect to capital

A) is the increase in output resulting from an increase in the capital stock.
B) is the percentage increase in output resulting from a one percent increase in the capital stock.
C) is always greater than one.
D) is the inverse of the elasticity of output with respect to labour.
Answer: B
5) Growth accounting equation

A) measures empirically the relative importance of the sources of output growth.
B) is the production function written in growth rate form.
C) is used to calculate the total factor productivity.
D) all of the above.
Answer: D
1
Copyright © 2012 Pearson Canada Inc.
6) Suppose the current level of output is 5000, and the elasticity of output with respect to capital
is 0.4. A 10% increase in capital would increase the current level of output to
A) 5020.
B) 5050.
C) 5200.
D) 5500.
Answer: C
7) Suppose the current level of output is 5000, and the elasticity of output with respect to labour
is 0.7. A 10% increase in labour would increase the current level of output to
A) 5035.
B) 5070.
C) 5350.
D) 5700.
Answer: C
8) Suppose the current lever of output is 5000. A 10% increase in productivity would increase
the current level of output to
A) 5050.
B) 5100.
C) 5500.
D) 6000.
Answer: C
9) Suppose the current level of output is 5000. If the elasticities of output with respect to capital
and labour are 0.3 and 0.7 respectively, a 10% increase in capital combined with a 5% increase
in labour would increase the current level of output to
A) 5015.
B) 5325.
C) 5600.
D) 5650.
Answer: B
10) Suppose the current level of output is 5000. If the elasticities of output with respect to capital
and labour are 0.3 and 0.7 respectively, a 10% increase in capital combined with a 5% increase
in labour and a 5% increase in productivity would increase the current level of output to
A) 5015.
B) 5325.
C) 5575.
D) 6000.
Answer: C
2
11) Total factor productivity growth is that part of economic growth due to
A) capital growth plus labour growth.
B) capital growth less labour growth.
C) capital growth times labour growth.
D) neither capital growth nor labour growth.
Answer: D
12) Over the past year, output grew 6%, capital grew 2%, and labour grew 4%. If the elasticities
of output with respect to capital and labour are 0.3 and 0.7 respectively, how much did
productivity grow?
A) 2.0%
B) 2.6%
C) 3.0%
D) 3.3%
Answer: B
13) Over the past year, output grew 3%, capital grew 4%, and labour grew 3%. If the elasticities
of output with respect to capital and labour are 0.3 and 0.7 respectively, how much did
productivity grow?
A) -0.6%
B) -0.3%
C) 0.0%
D) 0.3%
Answer: B
14) Suppose the rate of economic growth in Mainland was 25 percent, Capital growth 30
percent, and labour growth 20 percent. If the elasticities output with respect to capital and labour
are 0.3 and 0.7 respectively, how much is the capital contribution to economic growth?
A) 2 percent
B) 6 percent
C) 9 percent
D) 14 percent
Answer: C
are 0.3 and 0.7 respectively, how much is the labour contribution to economic growth?
A) 2 percent
B) 6 percent
C) 9 percent
D) 14 percent
Answer: D
3
are 0.3 and 0.7 respectively, how much is the productivity growth?
A) 2 percent
B) 6 percent
C) 9 percent
D) 14 percent
Answer: A
percent, and labour growth 20 percent. If capital contribution to economic growth is 9 percent,
how much is the elasticity of output with respect to capital?
A) 0.3
B) 0.7
C) 0.5
D) 0.8
Answer: A
percent, and labour growth 20 percent. If labour contribution to economic growth is 14 percent,
how much is the elasticity of output with respect to labour?
A) 0.3
B) 0.7
C) 0.5
D) 0.8
Answer: B
19) Harvey Lithwick found that labour's contribution to output growth in Canada since 1891 was
attributable to all the factors below except
A) rising population.
B) an increase in the percentage of the population in the labour force.
C) an increase in the number of hours worked per person.
D) higher educational levels.
Answer: C
4
20) Analysis of the Canadian economy found that
A) total factor productivity was the largest source of economic growth since 1948.
B) the contribution of labour growth has been more variable than the contribution of capital
growth.
C) productivity growth has been positive over any period of more than five years since World
War II.
D) the contribution of labour growth has been greater than the contribution of capital growth.
Answer: D
21) During the period from 1984 to 1998, productivity growth was
A) positive and greater than productivity growth between 1962 and 1973.
B) positive but less than productivity growth between 1962 and 1973.
C) positive and greater than input growth.
D) negative.
Answer: B
22) All of the following are explanations for the post-1973 productivity slowdown except
A) problems in measuring productivity.
B) technological depletion.
C) higher oil prices.
D) greater competition from foreign imports.
Answer: D
23) The idea that measurement problems could explain the productivity slowdown since 1973 is
based on the fact that
A) official output measures make no adjustment for quality.
B) output can't be measured.
C) capital can't be measured.
D) quality improvements aren't fully accounted for in the data.
Answer: D
24) The main reason economists such as Bally and Gordon don't think measurement issues are
the primary explanation for the productivity slowdown since 1973 is
A) measurement problems explain only about 1% of the slowdown.
B) there are no measurement problems.
C) measurement problems also existed before 1973.
D) measurement problems are important in all industries.
Answer: C
5
25) The computerization of police departments throughout the country has greatly reduced the
crime rate. What macroeconomic variable is likely to be directly affected by this change?
A) productivity
B) inflation
C) the real interest rate
D) the trade deficit
Answer: A
26) Why do some people think that the productivity slowdown since 1973 is just a return to
normalcy after fast productivity growth during the previous 25 years?
A) Productivity growth of the previous 25 years was abnormally low.
B) The Great Depression and World War II had prevented technological opportunities from
being exploited.
C) Canada is the only country to face the slowdown, due to poor regulatory decisions.
D) Canada has allowed countries like Japan to steal its technological breakthroughs.
Answer: B
27) The idea that technological innovation has temporarily dried up rests on the argument that
A) greater competition from foreign countries has reduced the capital firms have to invest in
research and development.
B) government support of research and development has fallen, reducing the amount of
technological innovation that occurs.
C) the backlog of technological opportunities not exploited during the Great Depression and
World War II has largely been used up.
D) government "red tape" has prevented many innovations from coming to market.
Answer: C
28) Skeptics of the contribution of oil price hikes to the slowdown in economic growth after
1973 point out that
A) the productivity slowdown had begun prior to 1973.
B) the productivity slowdown occurred in only some industrial countries, but all were affected
by the oil price hikes.
C) there is no theoretical reason why an oil price hike should cause a slowdown in productivity
growth.
D) energy costs are a relatively small part of total costs in industrial countries.
Answer: D
6
29) The oil price explanation of the slowdown in economic growth after 1973 is inconsistent
with which of the following facts?
A) Prices of used capital goods that were dependent on oil did not drop sharply when oil prices
increased.
B) The productivity slowdown began just as oil prices were quadrupled in 1973.
C) The productivity slowdown occurred in all industrial countries.
D) Industry-by-industry analysis of the impact on oil prices bears out the damage done by the oil
price increases.
Answer: A
30) The per-worker production function in the Solow model assumes

A) constant returns to scale and increasing marginal productivity of capital.
B) constant returns to scale and diminishing marginal productivity of capital.
C) increasing returns to scale and diminishing marginal productivity of capital.
D) decreasing returns to scale and diminishing marginal productivity of capital.
Answer: B
31) The bowed shape of the per-worker production function is caused by

A) wealth effects that reduce labour supply.
B) diminishing marginal productivity of capital.
C) increasing marginal productivity of labour.
D) increasing marginal productivity of capital.
Answer: B
32) In a steady-state economy,

A) the total capital stock remains constant.
B) net investment remains constant.
C) net investment equals the depreciation rate for the economy.
D) the total capital stock grows at the same rate as the labour force.
Answer: D
33) In a steady state,

A) both consumption per worker and the capital-labour ratio are constant.
B) consumption per worker is constant, but the capital-labour ratio can change.
C) capital and labour, by definition, are inversely related to one another.
D) consumption per worker can change, but the capital-labour ratio is constant.
Answer: A
7
34) In the neoclassical growth model, if productivity does not grow,
A) output per worker will be constant.
B) output will grow at the same rate as the population growth.
C) consumption will be constant.
D) both A and B are correct.
Answer: D
35) Steady-state investment per worker is positively related to the capital-labour ratio because
the higher the capital-labour ratio
A) the lower the capital depreciation rate.
B) the greater the amount of resources available for capital investment.
C) the more investment per worker is required to replace depreciating capital.
D) the less the economy needs to equip new workers with the same high level of capital.
Answer: C
36) In the absence of productivity growth, in a steady-state economy

A) output per worker and consumption per worker remain constant over time.
B) output per worker remains constant over time, but consumption per worker grows over time.
C) output per worker grows over time, but consumption per worker remains constant over time.
D) output per worker and consumption per worker both grow overtime.
Answer: A
37) Which of the following statements does not describe the steady state of an economy, when
technology is constant?
A) Investment per worker is equal to the requirement (break-even) investment.
B) Output per worker and consumption per worker are constant.
C) The growth rate of the output per worker is zero.
D) The capital per worker grows at a constant rate.
Answer: D
38) The idea that saving equals investment in the Solow model means that a steady state can be
reached only when
A) s = k.
B) s = n + d.
C) sf(k) = (s + d)k.
D) sf(k) = (n + d)k.
Answer: D
8
39) If f(k) = 6k0.5, s = 0.1, n = 0.1, and d = 0.2, what is the value of k at equilibrium?
A) 1
B) 2
C) 3
D) 4
Answer: D
40) If f(k) = 6k0.5, s = 0.1, n = 0.1, and d = 0.2, what is the value of f(k) at equilibrium?
A) 6
B) 12
C) 18
D) 24
Answer: B
41) If f(k) = 80.5, s = 0.2, n = 0.3, and d = 0.1, what is the value of k at equilibrium?
A) 1
B) 4
C) 9
D) 16
Answer: B
42) If f(k) = 6k0.5, s = 0.1, n = 0.1, and d = 0.2, what is the value of c (consumption) at
equilibrium?
A) 10
B) 12
C) 10.8
D) 11.2
Answer: C
43) If k = 10, y = 30, and s = 0.2, what is c (consumption)?

A) 24
B) 20
C) 18
D) 12
Answer: A
9
44) The Solow model demonstrates that
A) in the absence of productivity growth, economic growth will turn negative in the long run.
B) in the absence of productivity growth, economic growth will reach a steady state of zero per-
capita growth in the long run.
C) productivity growth must exceed the rate of growth in the population to avoid a steady state in
the long run.
D) productivity growth will inevitably decline due to diminishing marginal productivity.
Answer: B
45) One effect of the Gulf War was the destruction of a good portion of Kuwait's capital stock.
How would you expect this to affect Kuwait's capital-labour ratio in the long run? There would
be
A) a rightward movement along the saving-per-worker curve and an increase in the capital-
labour ratio.
B) no change in the long-run capital-labour ratio.
C) a downward shift in the saving-per-worker curve and a decrease in the capital-labour ratio.
D) a leftward movement along the saving-per-worker curve and a decrease in the capital-labour
ratio.
Answer: B
46) An increase in pollution has caused a permanent increase in the rate of capital depreciation.
This would cause
A) capital per worker to increase.
B) output per worker to fall.
C) consumption per worker to increase.
D) the total capital stock to be unaffected.
Answer: B
47) An increase in the saving rate in a steady-state economy would cause

labour ratio.
B) an upward shift in the saving-per-worker curve and an increase in the capital-labour ratio.
ratio.
Answer: B
10
48) In the long run, an increase in the saving rate in a steady-state economy will cause
A) an increase in the capital-labour ratio and an increase in consumption per worker.
B) an increase in the capital-labour ratio and a decrease in consumption per worker.
C) a decrease in the capital-labour ratio and a decrease in consumption per worker.
D) a decrease in the capital-labour ratio and an increase in consumption per worker.
Answer: A
49) All else being equal, a permanent decrease in the saving rate in a steady-state economy
would cause
Answer: C
50) If the saving rate in Canada increases, the steady-state level of output
A) will grow at a higher rate.
B) will be higher.
C) will be the same.
D) will decline.
Answer: B
51) The higher saving rate in an economy would result in

A) the higher economic growth in the long run.
B) the higher output per capita in the long run.
C) the higher productivity growth in the long run.
D) the lower output per capital in the long run.
Answer: B
52) The Golden Rule of the capital stock is the level of capital stock that
A) maximizes the output per worker in the steady state.
B) maximizes the consumption per worker in the steady state.
C) maximizes the investment per worker in the steady state.
D) maximizes the saving per worker in the steady state.
Answer: B
11
53) An increase in the growth rate of population in a steady-state economy would cause
A) a parallel shift upward in the investment line.
B) a pivot up and to the left in the investment line.
C) a pivot down and to the right in the investment line.
D) a parallel shift downward in the investment line.
Answer: B
54) A decline in population growth will lead to a ________ in the steady-state capital-labour
ratio and a ________ in output per worker.
A) fall; fall
B) fall; rise
C) rise; rise
D) rise; fall
Answer: C
55) Which of the following arguments would you make against a policy that discourages
population growth?
A) It means less total output in the economy, reducing the country's ability to defend itself or
influence world events.
B) It means less output per worker in the economy, reducing the country's ability to defend itself
or influence world events.
C) It means more total output in the economy, increasing the country's ability to defend itself or
influence world events.
D) It means more output per worker in the economy, increasing the country's ability to defend
itself or influence world events.
Answer: A
56) A productivity improvement raises steady-state output and consumption per worker in all the
ways given below except
A) it increases the amount that can be produced at any given capital-labour ratio.
B) it decreases the depreciation rate of capital.
C) it causes the steady-state capital-labour ratio to rise.
D) it causes saving per worker to rise.
Answer: B
12
57) A productivity improvement will cause
labour ratio.
B) an upward shift in the saving-per-worker curve and an increase in the capital-labour ratio.
ratio.
Answer: B
58) In the long run, a productivity improvement will cause

Answer: A
59) Which of the following would cause an increase in consumption per worker in a steady state?
A) a permanent increase in the amount of immigration allowed into the country
B) a permanent decrease in energy prices
C) a reduction in the number of hours worked per person
D) a reduction in government expenditures on the nation's infrastructure
Answer: B
60) In the very long run, the level of consumption per worker can grow continually if
A) the saving rate continually falls.
B) the population growth rate continually rises.
C) productivity continually improves.
D) the depreciation rate continually rises.
Answer: C
61) Which of the following changes would lead to a higher living standards?
A) a higher saving rate, higher population rate, and higher productivity
B) a lower saving rate, higher population rate, and higher productivity
C) a lower saving rate, lower population rate, and higher productivity
D) a higher saving rate, lower population rate, and higher productivity
Answer: D
13
62) Unconditional convergence means that in the long run,
A) living standards converge only within groups of countries having similar characteristics.
B) living standards converge only for countries that have the same initial capital-labour ratio.
C) living standards around the world become the same.
D) differences persist in living standards around the world.
Answer: C
63) Conditional convergence means that in the long run,

A) living standards converge only within groups of countries having similar characteristics.
B) living standards converge only for countries that have the same initial capital-labour ratio.
C) living standards around the world become the same.
D) living standards converge even if countries have different population growth rates.
Answer: A
64) How does the possibility of international trade and finance affect the convergence
conclusions of the Solow model?
A) Capital should flow from rich to poor countries.
B) Capital should flow from poor to rich countries.
C) Labour should flow from rich to poor countries.
D) Capital will flow to countries with low tariffs.
Answer: A
65) If there is international trade and finance, output per worker will converge in rich and poor
countries. Will consumption per worker converge?
A) Yes, with the same output, consumption must be the same.
B) Yes, in equilibrium, consumption per worker must be the same around the world.
C) No, because total output is different.
D) No, because part of the output must be used to repay foreign investors.
Answer: D
66) The empirical evidence on convergence suggests that

A) there is support for conditional convergence.
B) there is support for unconditional convergence.
C) there is no support for any type of convergence.
D) there is support for unconditional convergence among all English-speaking countries.
Answer: A
14
67) The endogenous growth theory attempts to
A) replace the Solow model with a model in which money growth plays a key role.
B) explain how societies can more easily reach the "Golden Rule."
C) show how population growth reduces capital and output.
D) explain why productivity changes.
Answer: D
68) Which of the following statement is not true?

A) In the Solow model, the marginal productivity of capital depends on the level of capital.
B) In the endogenous growth model, the marginal productivity of capital is diminishing.
C) In the Solow model, the marginal productivity of capital diminishes as capital increases.
D) In the endogenous growth model, the marginal productivity of capital is constant.
Answer: B
69) The explanations for why the marginal productivity of capital is not diminishing, in the
endogenous growth model, rely on
A) constant saving rate in the steady state.
B) human capital and the R&D activities.
C) the golden rule level of capital.
D) the constant technological growth.
Answer: B
70) You believe that democracy is compatible with high rates of economic growth. Which of the
following arguments would you be least likely to use to justify this belief?
A) Democratic governments are more stable than dictatorships.
B) Democratic governments are less likely to start wars than dictatorships.
C) Democratic governments have better relations with advanced industrial nations than
dictatorships.
D) Democratic governments are better able to undertake unpopular but necessary economic
reforms.
Answer: D
71) You support an industrial policy for Canada. Which of the following would be the weakest
argument for an industrial policy?
A) The private sector is unlikely to undertake large, complex, risky investment programs without
government assistance.
B) Canada must support its industries because Japan and other countries are subsidizing their
high-tech firms.
C) Technological advance will be the primary source of economic growth in the future.
D) The government is able to take a longer view of investment strategies and is more successful
at picking "winners" than is the private sector.
Answer: D
15
72) Government policy can improve the long-run economic growth through
A) providing an incentive for higher saving such as lower capital gain taxes.
B) encouraging more consumption and less saving.
C) increasing productivity growth by improving infrastructure, investing in human capital, and
supporting R&D activities.
D) subsidizing the manufacturing industries.
Answer: C
73) If in an economy the human capital increases with the increase in the physical capital,
A) there will be a diminishing marginal productivity of physical capital.
B) there will be no change in marginal productivity of physical capital.
C) the economy's growth rate will depend on its saving rate.
D) Both B and C are correct.
Answer: D
6.2 Essay Questions
1) In the past ten years, Patagonia's total output has increased from 2000 to 3000, the capital
stock has risen from 4000 to 5200, and the labour force has increased from 400 to 580. Suppose
aK = 0.4 and aN = 0.6.
a. How much did capital contribute to economic growth over the decade?
b. How much did labour contribute to economic growth over the decade?
c. How much did productivity contribute to economic growth over the decade?
Answer: a. ΔaK△K/K = 0.4 (1200/4000) = 12%
b. ΔaN△N/N = 0.6(180/400) = 27%
c. ΔY/Y = 50%
ΔA/A = ΔY/Y - ΔaKΔK/K - ΔaNΔN/N = 50% - 12% - 27% - 11%
Diff: 3 Type: ES Page Ref: Sec. 6.1
2) From 2000 to 2001 a country's output rose from 4000 to 4500, its capital stock rose from
10,000 to 12,000, and its labour force declined from 2000 to 1750. Suppose aK = 0.3 and aN =
0.7.
a. How much did capital contribute to economic growth over the year?
b. How much did labour contribute to economic growth over the year?
c. How much did productivity contribute to economic growth over the year?
Answer: a. ΔaKΔK/K = 0.3 (2000 / 10,000) = 6%
b. ΔaNΔN/N = 0.7 (250 / 2000) = -8.75%
c. ΔY/Y = 500/4000 = 12.5%
ΔA/A = ΔY/Y - ΔaKΔK/K - ΔaNΔN/N = 12.5% - 6% - (-8.75%) = 15.25%
16
3) A country has the per-worker production function yt = 5kt0.5, where yt is output per worker
and kt is the capital-labour ratio. The depreciation rate is 0.2 and the population growth rate is
0.05. The saving function is St = 0.2 yt, where St is total national saving and Yt is total output.
a. What is the steady-state value of the capital-labour ratio?

b. What is the steady-state value of output per worker?
c. What is the steady-state value of consumption per worker?
Answer:
a. sf(k) = (n + d)k, so 0.2 × 5 k0.5 = 0.25 k, or k0.5 = 4, so k = 16
b. y = 5k0.5 = 20.
c. c = (1 - s)y = 0.8y = 16
4) Suppose the aggregate production function in ADANAC is Yt = A K1/3 L 2/3. Assume A is

constant and equal to 2.
a. What are the returns to scale in this production function?
b. Are there decreasing returns to labour and capital?
c. Write the aggregate production function in per worker terms.
d. Assume that saving rate is equal to 0.32, population growth 0.03, and the depreciation rate
0.05. What is the steady state level of output per worker?
e. If the saving rate decreases to 0.20, what would happen to the steady state level of output per
worker?
Answer:
a. The production function is characterized by constant returns to scale, because the capital
elasticity (1/3) and labour elasticity (2/3) add up to 1. Alternatively, if you double the levels of
capital and labour, the level of output will double: A (2K)1/3 (2L) 2/3 = 2A K1/3 L 2/3 = 2Y.
b. There are decreasing returns to capital and worker. Given the level of labour (capital), the
output will increase at slower rate as the level of capital (labour) increases. [You can show this
by taking the second derivatives of the production function with respect to K and L, i.e., the
slope of the marginal product of K and L, and showing that they are negative.]
c. Divide both sides by L to obtain yt = Akt1/3.
d. sf(k) = (n + d)k, so 0.32 × 2k1/3 = (0.03 + 0.05)k, or k2/3 = 8, so k = 22.63, and y = 5.66.
e. 0.2 × 2k1/3 = (0.03 + 0.05)k, or k2/3 = 5, so k = 11.18, and y = 4.47.
17
5) A country has the per-worker production function yt = 3kt2/3, where yt is output per worker
and kt is the capital-labour ratio. The depreciation rate is 0.1 and the population growth rate is
0.05. The saving function is St = 0.2Yt, where St is total national saving and Yt is total output.
a. What is the steady-state value of capital-labour ratio?

b. What is the steady-state value of output per worker?
c. What is the steady-state value of consumption per worker?
Answer:
a. sf(k) = (n + d)k, so 0.2 > 3k2/3 = 0.15 k; or k1/3 = 4, so k = 6.4
b. y = 3k2/3 = 48
c. c = (1 - s)y = 0.8y = 38.4.
6) a. Draw figures showing the relationship in the Solow model between the capital-labour
ratio and (1) output per worker and steady-state investment per worker, (2) consumption per
worker, and (3) steady-state investment per worker and saving per worker
b. Show what happens to each of your figures in part (a) when each of the following changes
occur, and explain what happens to the capital-labour ratio, output per worker, and consumption
per worker.
(1) population growth rises
(2) the depreciation rate falls
(3) the saving rate rises
(4) productivity declines
Answer:
a. See text Figs. 6.2 and 6.3.
b. (1) k, y, and c all fall
(2) k, y, and c all rise
(3) k, y, and c all rise
(4) k, y, and c all fall
18
7) Country A has a capital-labour ratio that is initially twice as big as that of country B, but
neither is yet in a steady state. Both countries have the same production function, f(k) = 6 k1/2.
Country A has a 10% saving rate, 10% population growth rate, and 5% depreciation rate, while
country B has a 20% saving rate, 10% population growth rate, and 20% depreciation rate.
a. Calculate the steady-state capital- labour ratio for each country. Does the initial capital-
labour ratio affect your results?
b. Calculate output per worker and consumption per worker for each country. Which country
has the highest output per worker? The highest consumption per worker?
c. In general, do all the fundamental characteristics of different countries need to be identical
for convergence of output per worker?
Answer:
a. Using the formula sf(k) = (n + d)k, country A: 0.1 × 6 k1/2 = 0.15k, or k1/2 = 4, so k = 16;
country B: 0.2 × 6 k1/2 = 0.3 k, or k1/2 = 4, so k = 16 also. The initial capital labour ratios have
no effect on the steady-state capital-labour ratios.
b. y = 6 k1/2 = 24 for both countries c = (1 - s)y, so country A has c = 0.9y = 21.6, while
country B has c = 0.8y = 19.2. The two countries have the same capital-labour ratio and output
per worker, but different consumption per worker.
c. Convergence can arise even if the fundamental characteristics of different countries are
different.
8) How would each of the following changes affect the steady-state values of the capital-labour
ratio, output per worker, and consumption per worker?
a. A change in the composition of the capital stock raises the depreciation rate.
b. A change in social norms lowers the population growth rate.
c. Government tax policies change to encourage a higher saving rate.
d. A supply shock reduces productivity sharply.
Answer:
a. The rise in d reduces the capital-labour ratio, as well as output per worker and consumption
per worker.
b. The decline in n raises the capital-labour ratio, as well as output per worker and consumption
per worker.
c. The rise in s raises the capital-labour ratio, as well as output per worker and consumption per
worker.
d. The decline in productivity shifts the production function down, reducing the capital-labour
ratio, as well as output per worker and consumption per worker.
9) What is the empirical evidence on whether or not rich and poor countries converge?
Answer: There is little evidence for unconditional convergence; indeed, in many cases, rich
countries get richer and poor countries get poorer. But there is some evidence supporting the idea
of conditional convergence, as countries with similar fundamentals seem to end up with about
the same level of output per worker.
19
Test Bank for Macroeconomics, 6th Canadian Edition : Abel
10) Describe the main ideas of the endogenous growth theory. What does it have to say about the
role of government in economic growth?
Answer: The endogenous growth theory explains the main sources of productivity growth:
human capital (the knowledge, skills, and training of individuals) and technological innovation
(caused by research and development programs and learning by doing). Government may play a
positive role, because policies that increase the capital-labour ratio may lead to a virtuous circle
of growth, raising living standards. Also, the government may foster education and research and
development.
11) Describe the pros and cons of industrial policy. Which type of economist is more likely to
support industrial policy, a Keynesian or a classical economist? Why?
Answer: Proponents of industrial policy claim that government help is needed to ensure
economic growth. They believe that borrowing constraints on small firms prevent them from
undertaking the optimal amount of research and development. Further, government support for
research leads to spillover effects that help other firms. But opponents of industrial policy claim
that the free market allocates scarce resources far better than government. Politicians tend to
make decisions for noneconomic reasons, so industrial policy is likely to become politicized.
Keynesians are more likely to support government intervention, so they would be most likely to
believe in industrial policy. Classical economists believe more in market efficiency.
20
Visit TestBankBell.com to get complete for all chapters

Test Bank For Macroeconomics 6th Canadian Edition Abel

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Test Bank For Macroeconomics 6th Canadian Edition Abel

Uploaded by

Copyright:

Available Formats

Test Bank for Macroeconomics, 6th Canadian Edition : Abel

Test Bank for Macroeconomics, 6th Canadian Edition

To download the complete and accurate content document, go to:

Visit TestBankBell.com to get complete for all chapters

6.1 Multiple-Choice Questions

3) The major source of economic growth is

4) The elasticity of output with respect to capital

5) Growth accounting equation

30) The per-worker production function in the Solow model assumes

31) The bowed shape of the per-worker production function is caused by

32) In a steady-state economy,

33) In a steady state,

36) In the absence of productivity growth, in a steady-state economy

43) If k = 10, y = 30, and s = 0.2, what is c (consumption)?

47) An increase in the saving rate in a steady-state economy would cause

51) The higher saving rate in an economy would result in

58) In the long run, a productivity improvement will cause

63) Conditional convergence means that in the long run,

66) The empirical evidence on convergence suggests that

68) Which of the following statement is not true?

6.2 Essay Questions

a. What is the steady-state value of the capital-labour ratio?

4) Suppose the aggregate production function in ADANAC is Yt = A K1/3 L 2/3. Assume A is

a. What is the steady-state value of capital-labour ratio?

Visit TestBankBell.com to get complete for all chapters

You might also like