Question

1. How do the national income accounts change if social security payments increase? A) Consumption falls.
   B) Consumption rises.
   C) Savings rise.

   D) This change is not captured in the national income accounts.

2. How do the national income accounts change if unemployment benefits paid to people increase?

   A) Consumption falls.
   B) Consumption rises.
   C) Savings rise.
   D) This change is not captured in the national income accounts.

3. How do the national income accounts change if national defense spending increases? A) Government expenditures fall.
   B) Government expenditures rise.
   C) Consumption rises.

   D) This change is not captured in the national income accounts.

4. Say a Mexican resident buys a new Ford Fiesta made in their factory in Mexico. Assume that the Ford factory is owned by an American citizen. This means that Mexican GDP will ___________, Mexican GNP will ____________, while American GDP will ____________, and American GNP will ____________.

   A) Rise; rise; not change; not change. B) Not change; not change; rise; rise. C) Rise; fall; not change; rise.
   D) Rise; not change; not change; rise.

5. If your income doubled today, what statistic would you want to double check before you celebrate?

A) B) C) D)

6. If a A)

B) C) D)

Nominal interest rates. Inflation.
Real interest rates. Real GDP.

country’s CPI increased from 2.0 to 2.3 in 1 year, what is the inflation for that year? .3%
3%
13%

15%

Consumption

Gross investment

Exports

Imports

Government transfers

Government purchases of goods and services

Taxes collected

7. For the economy above, what is GDP? A) $24,500

   B) $25,500 C) $26,000 D) $26,500

8. Again, taking the economy above, what are national savings? A) $4,500

   B) $5,000 C) $5,500 D) $6,000

$15,000

8,000

3,000

4,000

1,500

2,500

6,500

9. Given a production function y = f (K, N), if capital’s share of income is .4 labour’s share is .6, and the annual growth rates of capital and labour are 2 and 5 respectively, what is the growth rate of output? Assume there is no technological growth.
   A) 3%

   B) 3.5% C) 3.8% D) 4.3%

10. You are given a production function y = f (K, N), where capital’s share of income is .2 and labour’s share is .8. The annual growth rates of capital and labour are 2 and 5 respectively. Given that the growth rate of output is 5%, what is the growth rate of technological progress?

    A) .3% B) .5% C) .6% D) 1.3%

11. You have a production function y = f (k), where capital’s share of income is 0.5. If capital per capita is growing at a rate of 4%, and GDP is growing at a rate of 4.5%, what is the rate of technological growth?
    A) 2.3%
    B) 2.5%
    C) 2.8%
    D) 3%

12. Suppose that you have an economy where output is growing by 3% per year and capital and labour’s shares are .3 and .7 respectively. What is the growth rate of total factor productivity if both the labour and capital stocks are fixed?
    A) 2%

    B) 3%
    C) 7%
    D) Cannot be determined with the information given.

13. Suppose again that capital’s and labour’s shares of income are .3 and .7 respectively, and assume there is no technological progress. What would be the effect on output of increasing the capital stock by 10%?
    A) .3%

    B) 3%
    C) 30%
    D) Cannot be determined with the information given.

14. Using the table above, how much of the difference in growth rates between Japan and the US can attributed to differences in capital per capita between 1950 and 1992? (Assume capital and labour shares are .3 and .7 respectively.)
    A) 12%

    B) 15% C) 33% D) 41%

15. What factors of the economy affect changes in capital per capita in the long run? A) Population growth, savings rate, and the depreciation rate.
    B) Population growth and the depreciation rate.
    C) Production, population growth, savings rate, and the depreciation rate.

    D) Population growth does not affect long run growth.

16. What factors of the economy affect changes in capital per capita in the short run? A) Production, population growth, savings rate, and the depreciation rate.
    B) Population growth and the depreciation rate.
    C) Population growth does not affect short run growth.

    D) Population growth, savings rate, and the depreciation rate.

17. Suppose that you have the economy above with a capital stock at k1. What is the steady state GDP per capita for this economy?
    A) y1
    B) y2

    C) y3 D) k2

18. Suppose that you have the previous economy with a capital stock at k1. What is the current GDP per capita for this economy?
    A) y1
    B) y2

    C) y3 D) k2

19. Suppose an economy is in its steady state. What happens to the growth rate of GDP per capita in the short run if the population begins to grow more slowly?
    A) It increases.
    B) It falls.

    C) It stays the same.
    D) Cannot be determined with the given information.

20. Suppose again that an economy is in its steady state. What happens to the growth rate of GDP per capita in the long run if the population begins to grow more slowly?
    A) It increases.
    B) It falls.

    C) It stays the same.
    D) Cannot be determined with the given information.

21. If an economy is in its steady state, what happens to the growth rate of GDP per capita in the short run if the savings rate of the population increases?
    A) It increases.
    B) It falls.

    C) It stays the same.
    D) Cannot be determined with the given information.

22. Suppose an economy is in its steady state. According to the Neoclassical growth model, what happens to the growth rate of GDP per capita in the long run if the savings of the population increases?
    A) It increases.

    B) It falls.
    C) It stays the same.
    D) Cannot be determined with the given information.

23. Endogenous growth theory was inspired by which observation?

    1. A) We do not observe countries converging in the data as predicted by the

       Neoclassical growth model.

    2. B) Countries with higher savings rates showed consistently higher growth rates in the

       data which was inconsistent with the predictions of the Neoclassical growth model.

    3. C) A large portion of growth was captured as a residual and lay outside the scope of

       the Neoclassical growth model.

    4. D) All of the above.

Problems 24 – 27 use a production function, y = f (K,N) subject to diminishing marginal product in both capital and labour.

24. In an economy with production function f, if one were to double capital, how should we expect production to respond?
    A) f (2K,N) < 2Y
    B) f (2K,N) = 2Y

    C) f (2K,N) > 2Y D) f (2K,N) = Y

25. What type of returns are there for both inputs combined? In other words, if one were to double both inputs, how should we expect production to respond?
    A) f (2K,2N) < 2Y
    B) f (2K,2N) = 2Y

    C) f (2K,2N) > 2Y D) f (2K,N) < 2Y

26. In this economy what would we expect to see?
    A) Perfect competition with many small firms participating in the economy. B) Oligopoly with some big firms participating in the economy.
    C) Duopoly with two firms dominating the economy.
    D) Monopoly with one firm dominating the economy.

27. What does the production graph for f look like?

A) B)

C) D)

Problems 28 – 33 use a production function, y = h (K,N) subject to constant marginal product in capital and diminishing marginal product in labour.

28. In an economy with production function h, if one were to double capital, how should we expect production to respond?
    A) h (2K,N) < 2Y
    B) h (2K,N) = 2Y

    C) h (2K,N) > 2Y D) h (2K,N) = Y

29. What type of returns are there for both inputs combined? In other words, if one were to double both inputs, how should we expect production to respond?
    A) h (2K,2N) < 2Y
    B) h (2K,2N) = 2Y

    C) h (2K,2N) > 2Y D) h (2K,N) < 2Y

30. What type of marginal product does this imply for the production function in both factors?

    A) Decreasing marginal product.
    B) Constant marginal product.
    C) Increasing marginal product.
    D) Cannot be determined with the information given.

31. In this economy, what would we expect to see?
    A) Perfect competition with many small firms participating in the economy. B) Oligopoly with some big firms participating in the economy.
    C) Duopoly with two firms dominating the economy.
    D) Monopoly with one firm dominating the economy.

32. What does the production graph for h look like? (Note that the x-axis is capital per capita, and can thus be interpreted as increasing both inputs.)

    A) B)

    C) D)

33. Is there a steady state for this economy?

    1. A) Yes, the steady state occurs where the production function and the investment

       requirement curves cross.

    2. B) Yes, the steady state occurs where the savings curve and investment requirement

       curves cross.

    3. C) No, because the production function and the investment requirement curve do not

       cross in this economy.

    4. D) No, because the savings curve and the investment requirement curve do not cross

       in this economy.

34. Endogenous growth theory assumes what about human capital?
    A) That it is subject to diminishing marginal returns, similar to capital.
    B) That it is impossible to measure or estimate.
    C) That all its benefits are captured by the creator of new knowledge.
    D) That it can feasibly be subject to constant or even increasing marginal returns.

35. Why is the assumption of labour augmenting technology important for endogenous growth theory?

    1. A) It explains why the economy grows faster than the rate of population growth, and

       grows instead at rate sN.

    2. B) It allows endogenous growth theory to account for the positive relationship

       between savings and growth.

    3. C) It isn’t important, since technology is usually just a multiplicative term Y = A f(K,N).

    4. D) It isn’t important since we still assume technological growth is set to 0.

36. Absolute convergence means countries achieve ____________ level(s) of income and ____________ growth rate(s). Conditional convergence means countries end up at ____________ level(s) of income and ____________ growth rate(s).
    A) The same; the same; the same; different

    B) The same; the same; different; the same C) The same; different; different; the same D) Different; the same; different; the same

37. Which of the following statements is true about population and growth theory?

    1. A) High population growth is good in both the Neoclassical and Endogenous growth

       theories since long run growth is tied to the growth rate of the population.

    2. B) Growth rates are negatively correlated with short term growth in both the

       Neoclassical and Endogenous growth theory frameworks.

    3. C) In poor countries, as incomes rise, we see an increase in the growth of their

       populations and thus their growth rates.

    4. D) An increase in the population growth rate increases both the short run and long

       run growth of an economy.

38. In the graph above, what is one way a country can escape from the “poverty trap” at point A?

A) B) C) D)

39. In A) B) C) D) E)

An increase in a country’s savings rate. An increase in the population growth. A country could import technology.
A and C, but not B.

the graph above again, which points are stable steady states for this economy? PointAonly.
PointBonly.
PointConly.

Points A, B, and C. PointsAandC.

40. In
Ghana’s. Applying endogenous growth theory, what reason does not help explain this observation?

1. A) China has imported a lot of technology from other countries and thus has become

   much more productive.

2. B) China has access to more physical capital than Ghana.

3. C) Ghana’s population growth is not high enough to support high growth.

4. D) Ghana’s savings rate has been much lower than that of China’s.

Answer 1

1. The correct answer is option D) because the social security payments are not included in the national income accounts because the security payments result in the production of new goods.
2. The correct answer is option D) because the unemployment benefits are not included in the national income accounts.
3. The correct answer is option C) because the expenditure on national defence is made from public purse thus government expenditure increases.
4. The correct answer is option C) because GDP includes value of all goods and service produced within the domestic country. The GNP includes values of all goods and service produced by country’s individuals either domestically or in foreign nation.

*We are supposed to do only four MCQ’s. Please post unrelated question separately in a set of four.