Macroeconomics, 3e (Williamson)

Chapter 7

Income Disparity Among Countries and Endogenous Growth

1)

Income per worker has been

A)

converging in both the rich countries and the poor countries.

B)

converging in the rich countries, but not converging in the poor countries.
C)

converging in the poor countries, but not converging in the rich countries.
D)

converging in neither the poor nor the rich countries.

Answer:

B
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2)

For the Solow model to accurately explain the observed divergence of growth experience around the
world would require
A)

differences in savings rates across countries.

B)

differences in population growth rates across countries.

C)

barriers to the introduction of new technologies.

D)
inadequate educational opportunities in poor countries.
Answer:

C
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3)

In the Solow growth model, countries with identical total factor productivities, identical labor force
growth rates, and identical savings rates
A)

always have identical levels of capital per worker and output per worker.
B)

in equilibrium, have identical levels of capital per worker and output per worker.
C)

in equilibrium, have identical levels of capital per worker but not necessarily identical levels of output per
worker.
D)

in equilibrium, have identical levels of output per worker but not necessarily identical levels of capital per
worker.
Answer:

B
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4)

Suppose that two countries share identical levels of total factor productivity, identical labor force growth
rates and identical savings rates. According to the Solow model
A)

the country with the greater initial level of output per worker will grow more rapidly than the country
with the smaller initial level of output per worker.
B)

the country with the smaller initial level of output per worker will grow more rapidly than the country
with the greater initial level of output per worker.
 C)

both countries will have the same growth rates of output per worker, even if they start out with different
levels of output per worker.
D)

if both countries start out with different levels of income per worker, both countries may have different
growth rates of output per worker, but we cannot be certain which country will have the higher growth
rate of output per worker.
Answer:

B
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 5)

In the context of the Solow growth model, so-called growth miracles, such as Japan, South Korea,
Singapore, and Hong Kong, are most easily explained by
A)

reductions in the population growth rate.

B)

increases in the savings rate.

C)

removal of barriers to technology.

D)

improvements in public health.

Answer:

C
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6)

Suppose a poor economy inches towards the steady state in Solow's exogenous growth model. What
happens?
A)

Consumption per capita decreases.

B)

Saving per capita decreases.

C)

The depreciation rate increases.

D)

The growth rate of output decreases.

Answer:

D
Question Status:
New

7)

Suppose a poor economy inches towards the steady state in Solow's exogenous growth model. What
happens?
A)

Capital grows faster than population.

B)

Capital grows slower than population.

C)

Capital grows as fast as population.

D)

It depends.
Answer:

A
Question Status:

New

8)

What happens to a poor economy in Solow's exogenous growth model?

A)

It becomes poorer.
B)

It does not change.

C)

Its consumption per capita decreases.

D)

Its saving per capita increases.

Answer:

D
Question Status:
New

9)

What happens to a very rich economy in Solow's exogenous growth model?

A)

It becomes poorer.
B)

It does not change.

C)

Its consumption per capita increases.

D)

Its saving per capita increases.

Answer:

A
Question Status:

New

10)

According to Solow's exogenous growth theory, what happens to a country at steady state that suffered
extensive capital destruction due to a war or climate event?
A)

It will stay poor forever.

B)

It will grow back to be richer than before.

C)

It will get back to its original status.

D)

Anything can happen.

Answer:

C
Question Status:
New
 11)

Barriers to Riches, by S. Parente and E. Prescott, emphasizes the importance of

A)

barriers to technological adoption.

B)

barriers to the development of natural resources.

C)

public education.
D)

endogenous growth.
Answer:

A
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12)

The importance of barriers to the adoption of technologies is supported by research by

A)

P. Romer.
B)

R. Lucas.
C)

S. Parente and E. Prescott.

D)

G. Glomm and B. Ravikumar.

Answer:

C
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 13)

In the endogenous growth models of Lucas and Romer, an increase in a worker's level of human capital
A)

increases the amount of additional human capital she can produce, but does not increase the amount of
output she can produce.
B)

increases the amount of additional output she can produce, but does not increase the amount of human
capital she can produce.
C)

increases both the amount of additional human capital she can produce and the amount of output she can
produce.
D)

increases neither the amount of additional human capital she can produce nor the amount of output she
can produce.
Answer:

C
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14)

In the endogenous growth models of Lucas and Romer, workers divide their time between market work
and
A)

accumulating physical capital.

B)

accumulating human capital.

C)

trying to invent new production processes.

D)

work at home.
Answer:
B
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15)

Endogenous growth theory is about

A)

the welfare of indigenous people.

B)

explaining growth.
C)

studying fertility choices.

D)

giving more importance to capital accumulation.

Answer:

B
Question Status:

New
 16)

In the endogenous growth models of Lucas and Romer, human capital accumulation is best described as
a form of
A)

consumption.
B)

investment.
C)

government spending.
D)

none of the above

Answer:

B
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17)

Human capital is
A)

knowledge found in books.

B)

knowledge found in people.

C)

wealth.
D)

machines owned by people.

Answer:

B
Question Status:
New

18)

Which of the following statements best describes the characteristics of accumulating physical capital and
human capital?
A)

Both physical capital accumulation and human capital accumulation are characterized by decreasing
marginal returns.
B)

Physical capital accumulation is subject to decreasing marginal returns, but human capital accumulation
is not.
C)

Human capital accumulation is subject to decreasing marginal returns, but physical capital accumulation
is not.
D)

Neither physical capital accumulation nor human capital accumulation is characterized by decreasing
marginal returns.
Answer:

B
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19)

Paul Romer argues that a key feature of knowledge is

A)

divisibility.
B)

private ownership.
C)

nonrivalry.
D)

durability.
Answer:
C
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20)

What is a characteristic of human capital?

A)

rivalry
B)

rapid accumulation
C)

private ownership
D)

concavity
Answer:

C
Question Status:

New

21)

What characteristic of human capital is crucial in giving the possibility of sustained growth?
A)

It is embodied in people.
B)

It has constant returns to scale in production.

C)

It takes time to accumulate it.

D)

It grows at the same rate as consumption.

Answer:
B
Question Status:

New

22)

What characteristic do human and physical capital share?

A)

Both are controlled by the government.

B)

Current costs are incurred for future benefits.

C)

Their growth depends crucially on the growth of total factor productivity.

D)

The use of both exhibits rivalry.

Answer:

B
Question Status:

New

23)

Which of the following is best characterized as being nonrivalrous?

A)

consumption goods
B)

services
C)

physical capital
D)

knowledge
Answer:
D
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24)

A key characteristic of the production function in the endogenous growth model presented in the text is
that
A)

there are increasing returns to scale in human capital.

B)

there are decreasing returns to scale in human capital.

C)

there are constant returns to scale in human capital.

D)

at low levels of human capital, there are increasing returns to scale in human capital, while at high levels
of human capital, there are decreasing returns to scale in human capital.
Answer:

C
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25)

In the endogenous growth model presented in the text, suppose that u represents the fraction of time
spent working (as opposed to accumulating human capital), b represents the efficiency of human capital
accumulation, H represents the amount of human capital, and z represents the marginal product of
efficiency units of labor. Consumption equals
A)

buH.
B)

zuH.
C)

buz.
 D)

buzH.
Answer:

B
Question Status:

Revised

26)

In the endogenous growth model presented in the text, suppose that u represents the fraction of time
spent working (as opposed to accumulating human capital) and b represents the efficiency of human
capital accumulation. The growth rate of human capital equals
A)

u(1 - b) - 1.
B)

1 + b(1 - u).
C)

(1 + b)(1 - u).
D)

b(1 - u) - 1.
Answer:

D
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 27)

In the endogenous growth model presented in the text, suppose that u represents the fraction of time
spent working (as opposed to accumulating human capital) and b represents the efficiency of human
capital accumulation. The growth rate of consumption equals
A)

u(1 - b) - 1.
B)

1 + b(1 - u).
C)

(1 - b)(1 - u).
D)

b(1 - u) - 1.
Answer:

D
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28)

In the endogenous growth model presented in the text,

A)

consumption grows faster than human capital.

B)

human capital grows faster than consumption.

C)

both consumption and human capital grow at the same rate.

D)

neither consumption nor human capital grows in the steady state.

Answer:

C
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29)

In the endogenous growth model presented in the text, an increase in the efficiency of human capital
accumulation
A)

increases the growth rate of human capital and increases the growth rate of output.
B)

increases the growth rate of human capital and decreases the growth rate of output.
C)

decreases the growth rate of human capital and increases the growth rate of output.
D)

decreases the growth rate of human capital and decreases the growth rate of output.
Answer:

A
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30)

In the endogenous growth model presented in the text, an increase in the fraction of time accumulating
human capital
A)

increases the growth rate of human capital and increases the growth rate of output.
B)

increases the growth rate of human capital and decreases the growth rate of output.
C)

decreases the growth rate of human capital and increases the growth rate of output.
D)

decreases the growth rate of human capital and decreases the growth rate of output.
Answer:

A
 Question Status:

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31)

An example of an increase in b, the efficiency of human capital accumulation, is

A)

more mandatory school years.

B)

better teachers.
C)

better school material.

D)

better total factor productivity.

Answer:

C
Question Status:

New

32)

Which of the following policies would increase the growth rate of an economy in the endogenous growth
model with human capital?
A)

Mandatory schooling.
B)

Minimum wages.
C)

Redistributive taxation.
D)

Lump-sum taxation.
Answer:
A
Question Status:

New
 33)

According to the endogenous growth model with human capital, what can we say about countries with
more efficient schools?
A)

They are richer.

B)

They are richer and grow faster.

C)

They are richer and grow more slowly.

D)

They grow faster.

Answer:

D
Question Status:

New

34)

The idea that contact with others with high levels of human capital increases ones own human capital is
called human capital
A)

contagion.
B)

externality.
C)

transference.
D)

convergence.
Answer:

B
Question Status:
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35)

Schooling is subsidized in the United States in part

A)

so that the golden rule capital level can be reached.

B)

because otherwise people would not get educated.

C)

because there is a constitutional right to education.

D)

because there is a positive externality from schooling.

Answer:

D
Question Status:

New

36)

An improvement in school quality translates into an increase in which model parameter?

A)

H
B)

z
C)

b
D)

1-u
Answer:

C
Question Status:
New

37)

Evidence suggests that income per worker and education are

A)

negatively correlated.
B)

positively correlated.
C)

uncorrelated.
D)

positively correlated in the richer countries and negatively correlated in the poorer countries.
Answer:

B
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38)

What immediate consequence does an increase in education time have in the endogenous growth model
with human capital?
A)

lower output
B)

lower output in the future

C)

lower wages
D)

lower human capital

Answer:

A
Question Status:
New
 39)

A study by Gerhard Glomm and B. Ravikumar suggests that relying more on private education relative
to public education results in
A)

more income inequality and higher per-capita income in the long run.
B)

more income inequality and lower per-capita income in the long run.
C)

less income inequality and higher output per worker in the long run.
D)

less income inequality and lower output per worker in the long run.
Answer:

A
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