1. The efficiency of labor is a term that does not reflect the:
A) high output that comes from labor cooperating with a large amount of capital.
B) health of the labor force.
C) education of the labor force.
D) skills of the labor force acquired through on-the-job training.
2. Assuming that technological progress increases the efficiency of labor at a constant
rate is called:
A) endogenous technological progress.
B) the efficiency-wage model of economic growth.
C) labor-augmenting technological progress.
D) the Golden Rule model of economic growth.
3. The Solow model predicts that two economies will converge if the economies start
with the same:
A) capital stocks.
B) populations.
C) steady states.
D) production functions.
4. If two economies are identical (including having the same saving rates, population
growth rates, and efficiency of labor), but one economy has a smaller capital stock,
then the steady-state level of income per worker in the economy with the smaller
capital stock:
A) will be at a lower level than in the steady state of the high capital economy.
B) will be at a higher level than in the steady state of the high capital economy.
C) will be at the same level as in the steady state of the high capital economy.
D) will be proportional to the ratio of the capital stocks in the two economies.
5. Empirical investigations into whether differences in income per person are the result
of differences in the quantities of the factors of production available or differences
in the efficiency with which the factors are employed typically find:
A) a negative correlation between the quantity of factors and the efficiency of use.
B) a positive correlation between the quantity of factors and the efficiency of use.
C) no correlation between the quantity of factors and the efficiency of use.
D) large gaps between the quantity of factors accumulated and the efficiency of use.
6. Empirical evidence supports the theory that free trade:
A) increases economic growth.
B) decreases economic growth.
C) increases imports, but decreases exports because of greater global competition.
D) increases both imports and exports, but does not contribute to overall economic
growth.
7. If the marginal product of capital net depreciation equals 8 percent, the rate of growth
of population equals 2 percent, and the rate of labor-augmenting technical progress
equals 2 percent, to reach the Golden Rule level of the capital stock, the ____ rate in
this economy must be _____.
A) saving; increased.
B) population growth; decreased
C) depreciation; decreased
D) total output growth; decreased
8. One explanation for greater economic development in moderate versus tropical
climates is that institutions established by colonial settlers in moderate climates
______, while institutions established by colonists in tropical climates ______.
A) were based on English common law; were based on the Napoleonic Code
B) were based on the Napoleonic Code; were based on English common law
C) protected property rights; were extractive and authoritarian
D) were extractive and authoritarian; protected property rights
9. If Y is output, K is capital, u is the fraction of the labor force in universities, L is labor,
and E is the stock of knowledge, and the production Y = F(K,(1 – u) EL) exhibits
constant returns to scale, then output (Y) will double if:
A) K is doubled.
B) K and u are doubled.
C) K and E are doubled.
D) L is doubled.
10. In the two-sector endogenous growth model, the fraction of labor in universities (u)
affects the steady-state:
A) level of income.
B) growth rate of income.
C) level of income and growth rate of income.
D) level of income, growth rate of income, and growth rate of the stock of knowledge.
11. Endogenous growth theory rejects the assumption of exogenous:
A) production functions.
B) rates of depreciation.
C) population growth rates.
D) technological change.
12. When capital increases by ΔK units and labor increases by ΔL units, output (ΔY)
increases by:
A) ΔK + ΔL units.
B) MPL + MPK units.
C) (MPK ∞ ΔK) + (MPL ∞ ΔL) units.
D) (MPL ∞ ΔK) + (MPK ∞ ΔK) units.
13. In a steady state with population growth and technological progress:
A) the real rental price of capital is constant and the real wage grows at the rate of
technological progress.
B) the real rental price of capital grows at the rate of technological progress and the real
wage is constant.
C) both the real rental price of capital and the real wage grow at the rate of technological
progress.
D) both the real rental price of capital and the real wage are constant.
14. Suppose that technological change is not labor-augmenting, but affects only capital.
Use the Solow growth model of Chapter 9 to graphically illustrate the impact of the
slower rate of technological change that increases the rate at which capital wears out
(the rate of depreciation increases) on the steady-state capital–labor ratio and the
steady-state level of output per worker.
Be sure to label the: a. axes; b. curves; c. initial steady-state levels; d. terminal
steady-state levels; and e. the direction curves shift.
15. Suppose a government is able to permanently reduce its budget deficit. Use the
Solow growth model of Chapter 9 to graphically illustrate the impact of a permanent
government deficit reduction on the steady-state capital–labor ratio and the steadystate level of output per worker.
Be sure to label the: a. axes; b. curves; c. initial steady-state levels; d. terminal
steady-state levels; and e. the direction curves shift.
Answer Key - Chapter9
1.
2.
3.
4.
5.
6.
7.
8.
A
C
C
C
B
A
A
C
9. C
10. D
11. D
12. C
13. A
14.
15.