Chapter 2 - Macro

Question 1

The convergence hypothesis states:

a) Countries with lower levels of GDP per capita will grow faster on average than those with higher levels until they catch up to the leaders.

b) Countries converge to the same steady-state GDP per capita through the elimination of inefficient production.

c) Modern economic growth eliminates countries comparative advantages as they become more like each other.

d) None of the above.

Question 2

The convergence hypothesis is confirmed by data from advanced economies but cannot be confirmed by data that mixes rich with poor countries. This is because:

a) ...the business cycles of advanced economies converged during the first third of the twentieth century.

b) ...prices in developing countries are sticky in the long-run whereas prices in advanced economies are flexible in the long-run.

c) ...the simple Solow model does not consider complementary inputs such as infrastructure and human capital.

d) ...there are significant barriers preventing international factor mobility.

Question 3

Which of the following is not an implication of externalities to human capital?

a) Basic education should be made compulsory.

b) Human capital should be paid better in poor countries.

c) Educational subsidies are economically justifiable.

d) Human capital would not necessarily be subject to decreasing returns in the aggregate.

Question 4

What is the social trade-off involved in patent protection?

a) A longer patent period means that less knowledge will be available for use.

b) The higher the cost of a patent application, the fewer patent applications will be made.

c) Increasing the cost of new knowledge through patent licensing will decrease the demand to use new knowledge.

d) Less than full-exploitation of new knowledge by potential users is the cost of increasing the incentive for inventors to produce new knowledge.

Question 5

The explanation offered in this chapter for why poor nations appear caught in a poverty trap is that...

a) ...patents restrict access to new technologies to those nations that can afford the fees.

b) ...low human capital endowments lead to low rates of diffusion of technological innovations.

c) ...multinational corporations do not reinvest their profits from poor nations in the poor nations.

d) ...all of the above.

Question 6

In an economy where capital were not subject to decreasing marginal returns, which of the following statements would NOT be true?

a) An increase in the rate of saving (s) could lead to an increase in the rate of growth of output.

b) Policies that would only lead to a one-time increase in the level of output could lead to a permanent increase in the rate of output growth.

c) The economy would not converge to a unique steady state capital to effective labour ratio.

d) The golden rule rate of saving would be zero.

Question 7

The presumption that costly new knowledge would be undersupplied by private markets is based on two essential characteristics of new knowledge: it is (A) ______ and (B) _______.

a) A: non-rivalrous
B: non-excludable

b) A: non-rivalrous
B: excludable

c) A: rivalrous
B: non-excludable

d) A: rivalrous
B: excludable

Question 8

Long-term waves of economic activity are associated with…

a) …cycles of economic expansion and contraction.

b) …variations in fertility across generations.

c) …major innovations followed by imitation and further improvements.

d) …alternating historical periods of economies and diseconomies of scale.

Answer1. a) Countries with lower levels of GDP per capita will grow faster on average than those with higher levels until they catch up to the leaders.2. c) ...the simple Solow model does not consider complementary inputs such as infrastructure and human capital.3. b) Human capital should be paid better in poor countries.4. d) Less than full-exploitation of new knowledge by potential users is the cost of increasing the incentive for inventors to produce new knowledge.5. b) ...low human capital endowments lead to low rates of diffusion of technological innovations.6. d) The golden rule rate of saving would be zero.7. a) A: non-rivalrous               B: non-excludable    8. c) …major innovations followed by imitation and further improvements.