Question 1

In an open economy, the government can accelerate growth by:

Accepted Answer

A)   increasing the trade deficit and importing consumption goods.
B)   taxing consumption and using the tax revenues for capital formation.
C)   increasing government spending to finance additional consumption.
D)   taxing investment and using the tax revenues for capital formation. B

Question 2

Define human capital. Also explain how it can affect economic growth.

Accepted Answer

Human capital represents the skills and knowledge possessed by labor. As human capital increases, labor is, therefore, more skilled. This implies that the given workforce can produce a greater quantity of goods and services. This also implies that an increase in human capital will cause an increase in output per capita and, therefore, an increase in economic growth.

Question 3

If a country uses trade deficits to finance consumption, then the country will experience:

Accepted Answer

A)   a smaller portion of GDP in the future used for capital deepening.
B)   a decline in real GDP per capita in the future.
C)   no capital deepening.
D)   All of the above are correct. D

Question 4

Suppose country A has a per capita income of $1000 while country B has a per capita income of $2000. If country A's GDP grows at 7 percent per year, while country B's GDP grows at 3.5 percent per year, how long will it take for country A's income per capita equal country B's?

Accepted Answer

The answer of Suppose country A has a per capita...

Question 5

Recall Application 2, "Growth Need Not Cause Increased Inequality," to answer the following questions:
-According to the application, Kuznets' theory states that as a country develops:

Accepted Answer

A)   income inequality initially increases and then narrows over time.
B)   income inequality decreases faster early on than later in time.
C)   pollution initially increases and then narrows over time.
D)   differences in wages and salaries decrease.

Question 6

A(n) _______ in the capital stock can _______ output, without a corresponding labor force _______.

Accepted Answer

A)   increase; decrease; decrease
B)   decrease; increase; increase
C)   decrease; decrease; decrease
D)   decrease; increase; decrease

Question 7

According to the Solow Model, an increase in technology will always result in an increase in output.

Accepted Answer

A) True 
 B)False

Question 8

New growth theory:

Accepted Answer

A)   accounts for technological progress within a model of economic growth.
B)   considers human capital to be superior to physical capital.
C)   considers population growth to be the key to economic growth.
D)   considers capital deepening an obsolete engine of economic growth.

Question 9

Figure 8.1
-Refer to Figure 8.1. If the saving rate were s1 and the economy's level of K is at K1, then:

Accepted Answer

A)   the capital stock will decrease over time.
B)   the capital stock is constant over time.
C)   the capital stock will first increase, then decrease over time.
D)   the capital stock will increase over time.

Question 10

Recall Application 4, "Growth Accounting and Information Technology," to answer the following questions:
-According to the application, the proponents of the "New Economy" believe that the increased labor productivity is caused by:

Accepted Answer

A)   more defined property rights.
B)   innovations in healthcare.
C)   agricultural innovations.
D)   the computer and internet revolution.

Question 11

Growth promotion through capital deepening is constrained due to:

Accepted Answer

A)   the income effect.
B)   the principle of opportunity cost.
C)   slow population growth.
D)   the principle of diminishing returns.

Question 12

The convergence hypothesis suggests that, all else equal, poor countries grow more rapidly than rich countries.

Accepted Answer

A) True 
 B)False

Question 13

Making comparisons of real GDP across countries is difficult because:

Accepted Answer

A)   prices differ sharply across countries.
B)   patters of consumption change from country to country.
C)   different countries have different currencies.
D)   All of the above are true.

Question 14

What is convergence? How is it related to the principle of diminishing returns?

Accepted Answer

The answer of What is convergence? How is it related...

Question 15

If total output grows at 4 percent per year while labor and capital grow at 2.0 percent and 2.0 percent pre year, respectively, then:

Accepted Answer

A)   technology grew by 4.0 percent per year.
B)   technology declined by 0.4 percent per year.
C)   there was no technological progress.
D)   technology grew by 2.0 percent per year.

Question 16

"A trade deficit will always hurt a country." Do you agree or disagree? Explain.

Accepted Answer

The answer of "A trade deficit will always hurt a...

Question 17

Explain what else the government must provide along with free public education in order to promote economic growth?

Accepted Answer

The answer of Explain what else the government must provide...

Question 18

Governments in developing countries can hinder economic growth by:

Accepted Answer

A)   stemming population growth.
B)   promoting policies that tax exports.
C)   providing free schooling.
D)   accepting large volumes of foreign aid.

Question 19

Due to diminishing returns, the larger the number of scientists and engineers employed in a country, the slower the pace of technological progress.

Accepted Answer

A) True 
 B)False

Question 20

Bob has been working for a mortgage company for the last 14 years. When Bob first worked in the company, the company was paying him $12 per hour. This year, he makes $24 per hour. What is the average growth rate of his wage over the past 14 years?

Accepted Answer

A)   20 percent per year
B)   7 percent per year
C)   10 percent per year
D)   5 percent per year

Exam 8: Why Do Economies Grow

In an open economy, the government can accelerate growth by:

Define human capital. Also explain how it can affect economic growth.

If a country uses trade deficits to finance consumption, then the country will experience:

Suppose country A has a per capita income of $1000 while country B has a per capita income of $2000. If country A's GDP grows at 7 percent per year, while country B's GDP grows at 3.5 percent per year, how long will it take for country A's income per capita equal country B's?

Recall Application 2, "Growth Need Not Cause Increased Inequality," to answer the following questions: -According to the application, Kuznets' theory states that as a country develops:

A(n) ___ in the capital stock can _ output, without a corresponding labor force _____.

According to the Solow Model, an increase in technology will always result in an increase in output.

New growth theory:

Figure 8.1 -Refer to Figure 8.1. If the saving rate were s1 and the economy's level of K is at K1, then:

Recall Application 4, "Growth Accounting and Information Technology," to answer the following questions: -According to the application, the proponents of the "New Economy" believe that the increased labor productivity is caused by:

Growth promotion through capital deepening is constrained due to:

The convergence hypothesis suggests that, all else equal, poor countries grow more rapidly than rich countries.

Making comparisons of real GDP across countries is difficult because:

What is convergence? How is it related to the principle of diminishing returns?

If total output grows at 4 percent per year while labor and capital grow at 2.0 percent and 2.0 percent pre year, respectively, then:

"A trade deficit will always hurt a country." Do you agree or disagree? Explain.

Explain what else the government must provide along with free public education in order to promote economic growth?

Governments in developing countries can hinder economic growth by:

Due to diminishing returns, the larger the number of scientists and engineers employed in a country, the slower the pace of technological progress.

Bob has been working for a mortgage company for the last 14 years. When Bob first worked in the company, the company was paying him $12 per hour. This year, he makes $24 per hour. What is the average growth rate of his wage over the past 14 years?