Econ 222

A pattern of population growth due to technological advancement followed by a partial population collapse due to population having surpassed the land's carrying capacity is known as

a malthusian cycle

A pattern of population growth due to technological advancement followed by a partial population collapse due to population having surpassed the land's carrying capacity was commonly seen everywhere around the world until

the 19th century

Why were the dismal predictions of Thomas Malthus wrong?

- the accelerated pace of technological progress did not end with the 1st Industrial Revolution

- the demographic transition ultimately reduced birth rates

Which elements of the Demographic Transition cause mortality rates to fall?

- Improved Public Health

- Increased Food Supply

Which elements of the Demographic Transition caused birth rates to drop?

- Female Empowerment via Labor Force Participation

- Increased availability of contraception

Which correctly describes the dynamics of the Demographic Transition?

Mortality Rates initially fall which increases the population-growth rates but then birth rates fall so much that population growth approaches 0 and the population plateaus

Correctly order the following major milestones in human history

1 Neanderthals and Denisovans emigrate from Africa to Eurasia and the Pacific Islands

2 Modern Humans emigrate from Africa to Eurasia and the Pacific Islands

3 Modern Humans mate with with Neanderthals and Denisovans

4 Neanderthals and Denisovans as a distinctly separate species of humanoids go extinct

5 Modern Humans emigrate from Asia to the Americas

6 Stone Age ends with copper metal working

7 Bronze Age

8 Steel Age

9 Industrial Revolution innovations based on coal and steam and machines

10 Industrial Revolution innovations based on electricity and chemistry

Which of the following statements about Kuznets Curves are correct?

- A Kuznets Curve describes how some ills may first increase with growth in GDP per capita but that richer people get government to take effective action to curtail those ills.

- The original Kuznets Curve was focused on income inequality based on the evidence known at that time

- Since Kuznet's time, the trend has switched and inequality had been on the rise in many economies at the frontier.

- The evidence for a Kuznets Curve describing Environmental Quality remains strong

Output per worker tends to grow steadily over time

true

Capital per worker tends to grow steadily over time

true

The ratio of output to capital has steadily declined over time.

false

Labor's share of national income appears to be steadily growing over time

false

We are able to explain almost all of the observed variation in growth using our best mesaures of physical and human capital

false

The empirical evidence suggests a strong scale effect: more populous a country is, the faster its growth rate.

false

Which of Klador's Stylized Fact appears in retrospect to have the weakest evidence?

Interest rates are remarkably stable with little variation and no trending

Which of the following options best describes how Economists think about growth?

A shift outward in the production possibilities frontier

Based on the Solow Model, which of the following can yield sustained growth in GDP per capita in the long run?

Improvements in Labor Productivity

When logarithms are unavailable, some Economists use a rule of thumb where they divide the number 72 by 100 times the growth rate. The adjacent table gives the results of this computation in comparison with exact answers (which require using logarithms). Which of the following statements are correct?

- The difference being annual compounding (discrete time) versus continuously compounding (continuous time) is smaller the closer the growth rate is to 0.

-The Rule of Thumb (called the Rule of 72) is a closer approximation to annual compounding than continuously compounding.

- The Rule of Thumb (called the Rule of 72) approximation gets worse the greater the growth rate

Consider a policy of the government increasing its investment in infrastructure (which is like publicly provided capital that gets shared across firms) and financing it with a tax on consumption (which decreases after-tax consumption so that some of the output that would have been consumed by households can instead be purchased by the government to be turned into infrastructure). How would this policy affect economic growth?

- Increase growth in the short-run by increasing the steady-state amount of capital (per ​[effective] worker

- The tax could induce some to substitute leisure for consumption (because it makes consumption relatively costlier) and that could result in a decrease in the labor force (and hence GDP).

- If education increases labor productivity then there might be better growth effects from investing in education than infrastructure.

Deng Xiaoping sought to grow China's Economy as aggressively as the neighboring success stories in Taiwan, South Korea, and Japan. Due to the strong command and control authority held by Chairman Deng, he could force China's economy to invest more of output in physical capital and less in consumption than those neighbors with their freer markets. What are the likely results of this strategy?

- This would create faster catch-up growth by increasing the savings rate and thus increased the steady-state amount of capital (per ​[effective] worker)

- This cannot generate sustained growth once China reached the steady-state because there are diminishing returns to physical capital and Chairman Deng cannot order the savings rate to get any higher than 100%

- This may not be sustainable in the long-run because the people of China might demand more consumption as they see the country approaching the frontier.

If we see unemployment as a fall in the labor force employed in production, then how can an economy experience both growth and increased unemployment?

- Increased capital accumulation from catch-up growth if the new steady-state capital per ​[effective] worker is still beyond the current state.

- Increased capital accumulation due to an increase in the savings rate

- Increased labor productivity large enough to increase the amount of effective workers despite the number of actual workers falling

What is the effect of an increase in labor productivity on the 3 curves in the diagram of the Solow Model?

Output stretches up, Actual Investment stretches up, and Replacement Investment is unchanged.

Suppose that we were offered an alien technology that would drive the depreciation rate of capital down to 0 but at the cost of the aliens no longer allowing us any gains in labor productivity because they feared that the implied increase in our intelligence would cause us to overtake them. Would this be a good bargain?

- No because the diminishing marginal product of capital implies that our endless growth in capital would yield less and less growth in output.

- Maybe if the short-term gains of more physical capital were big enough to overwhelm the lack of labor productivity growth and we didn't care about the long-run because that's the future generation's problem

- Maybe if the aliens were also willing to share a technology with us that would remove ​[effective] labor from our aggregate production function while maintaining Constant Returns to Scale in the only remaining input to production

Which of the following would likely result in differences in the average product of labor across countries?

- Labor Productivity (A) may differ across countries

- The parameters of the production function may differ across countries

- The amount of physical capital per ​[effective] worker may differ across countries

Which of the following statements is true about GDP per worker versus GDP per capita?

GDP per worker is larger than GDP per capita

The Cobb Douglas production function, Y=K^aL^1-a , can be logged to result in an equation that is linear in the parameters which is useful for estimating those parameters. Which of the following is a valid log transformation of the Cobb Douglas production function?

log(Y/L) = alog(K/L)

A generalized form of the Cobb-Douglas function, Y=K^aL^B , allows the aggregate production function to not necessarily have constant returns to scale. Which of the following conditions would ensure diminishing marginal product to labor but still produce increasing returns to scale?

0

Which of the following is not an equivalent way of writing the law of motion on capital?

Kt+1-Kt/Kt = It - s

When population and labor productivity growth are included in the Solow Growth Model, the Solow Model captures which of the following of Kaldor's stylized facts?

- Output per Worker has grown at a steady rate for countries on the frontier

- Physical Capital per Worker has grown at a steady rate for countries on the frontier

- The ratio of Output to Physical Capital has been fairly stable for countries on the frontier

- The real interest rate (although not appearing explicitly in the model, we know that the real interest rate should equal the marginal product of capital which is in the model) has been fairly stable for countries on the frontier.

- Labor's share of national income (although not appearing explicitly in the model, we know that the wage rate should equal the marginal product of labor which is in the model) has been fairly stable for countries on the frontier.

- There is considerable variation in growth rates across countries because some developing countries are experiencing catch-up growth.

Prior to 1853, Japan had closed itself off from contact with the rest of the world for over 200 years. When the US Navy arrived at Japan's ports with iron-clad gunships to encourage Japan to open up, the Emporer realized just how far behind the US that Japan was in development. Japan agreed to open up to trade and sought to rapidly modernize and acquire the more advanced technology of the US. As a result, Real GDP per capita in Japan grew from $1160 in 1870 to $4521 in 1941 when Japan considered itself to be strong enough to delcare War against the US via bombing Pearl Harbor. Japan's average annual growth rate of GDP per capita over that 71 period was actually just _______%.

1.9

What aspect of production technology prevents us from attaining sustained growth from physical capital accumulation?

Diminishing returns to physical capital

If Y=KL^1-a so that production is linear in the amount of capital, then what would happen if SSL^1-a

The economy would shrink towards 0.

Suppose that, instead of At = Kt in Romer's learning-by-doing model, knowledge was a linear function of the amount of capital: At = aKt. What would be the new equation describing output per capita?

longest one

As reflected in the modelling decisions made by Lucas in his human capital model, which features of Romer's Learning-by-Doing model did Lucas find unsatisfying?

- Gains in labor productivity were modeled as solely from free learning-by-doing when accumulating more capital

- It failed to produce catch-up growth

In the Lucas model of Human Capital Accumulation, what is the opportunity cost of investing in more human capital accumulation?

- Some current consumption

- Some investment in physical capital

Other than the difficulty of measuring human capital, what was the biggest drawback to the Lucas Model of Growth via Human Capital Accumulation

It added another state variable, which greatly complicated the math for future researchers looking to extend the model

How did Romer clarify the knowledge vs physical capital debate with his model of R&D?

- He included both physical capital and ideas in the model

- He showed that he still got sustained growth even if physical capital was removed

- He showed that physical capital only added catch-up growth to the dynamics

In Romer's model of R&D, knowledge is gained primarily by

Private firms investing in discovering new ideas for profit

Romer's model of R&D features which of the following externalities?

- Positive externality of R&D on consumers' welfare because firms cannot perfectly price discriminate to capture their entire willingness to pay

- Negative externality of R&D on the value of existing ideas via a business stealing effect

- Positive externality of R&D on other researchers who can build on the ideas of others

Which is true about Kremer's contribution toward long-run growth that supported the scale effect in Romer's model?

- Kremer showed that (assuming Malthus was right about productivity gains accommodating additional population) growth was higher when a larger population was available to think up new ideas.

- Kremer argued that ideas cross countries' borders so long as people interact across those borders (eg trade and immigration) so that a between-country analysis is not the right scope.

- Kremer argued that 3 continents which had been isolated from each other for millennia should have had roughly the same technology when that Ice Age ended

In the graph of output versus the stock of physical capital,

accumulating capital moves along the curve away from the origin versus technological development stretches the curve upwards

What is true about ideas and physical capital

- Ideas do not depreciate but physical capital does

- Ideas are non-rival and non-excludable but physical capital is rival and excludable

- Ideas promote additional ideas but capital cannot beget better capital

Which of the following is not a standard way of describing the usefulness of new ideas?

asset augmenting

Which of the following is least likely to come up with an innovative idea?

A subsistence farmer working land under the jurisdiction of an extractive regime.

Extractive Institutions unambiguously decrease the number of innovators by

Increasing the marginal cost of innovation and decreasing the marginal benefit of innovation

Which of the following shocks do not represent long-run threats to growth?

Recession

Which does not act on a drag on growth by contracting the population and hence sapping the labor supply?

Extractive Institutions

What is the effect on growth of including natural resources (that can be damaged by climate change) in the aggregate production function?

Sustained growth requires a dematerialization of the economy as ideas substitute for natural resources.

Which of the following is true about non-renewable natural resources and physical capital?

The physical capital stock can grow via investment but the stock of non-renewable natural resources cannot.

Why might the economy of a country fail to recover from the shock of a major war?

The country gets stuck in a poverty trap

Which is required for a society to face a poverty trap?

- Undulations in the amount of private investment as a function of the society's stock of wealth (ie physical capital and/or human capital)

- A lower steady-state that is locally attracting but also a higher steady-state that is also locally attracting

Which of the following must be true about the dynamics of steady-states?

- Stable steady-states must be attracting so that small shocks result in the economy returning to the steady-state

- Unstable steady-states must be repelling so that small shocks result in the economy not returning to the steady-state

- If GDP per capita reaching 0 means that humans go extinct then there must be a steady-state associated with that 0.

- If the investment curve is a continuous function of the amount of capital then there must be a repelling steady-state between any 2 attracting steady-states

Which of the following is not true about Institutions?

Any institutional change represents progress

Why has aid to African countries failed to eradicate poverty?

Extractive institutions have diverted those funds towards propping up corrupt regimes