Chapter 7 Mishkin

Macreconomics: Policy and Practice (Mishkin)
Chapter 7 Drivers of Growth: Technology, Policy, and nstit!tions

7.1 Technology as a Production Input
1) The Solow model is used to explain ________.
A) why some economies experience higher rates of growth than others.
) the relationship !etween price and "uantity demanded.
#) the relationship !etween the rate of inflation and the rate of unemployment.
$) the notion of opportunity cost.
Answer% A
Topic% 7.1 Technology as a Production Input
AA#S% Analytical S&ills
') Another term for an economic (aria!le whose (alue is gi(en is________.
A) endogenous.
) exogenous.
#) autonomous.
$) ornamental.
Answer%
)) Physical o!*ects are ri(al in the sense that________.
A) they are necessarily in opposition to one another.
) they are nontri(ial.
#) when they are used in one acti(ity+ they cannot !e used in another.
$) some countries possess natural resources + e.g. oil+ while some do not.
Answer% #
,) -hich of the following is nonri(al in character.
A) la!or.
) capital.
#) a des&.
$) technology.
Answer% $
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#opyright / '01' Pearson 1ducation+ Inc.
2) The a!ility of an owner of a piece of property to deny its use to others is la!eled________.
A) excluda!ility.
) ri(alry.
#) non3ri(alry.
$) lugu!rious.
Answer% A
4) #apital and la!or are distinct from technology since________.
A) technology is exogenous
) technology is ri(al in its use.
#) capital and la!or are physical things.
$) technology is a physical thing.
Answer% #
7) The nonri(alrous character of technological ideas suggests that________.
A) patent law protection is ultimately inefficient.
) technological change follows a logarithmic pattern.
#) technology de(eloped in one industry+ e.g. the (od&a industry+ cannot !e used in another
industry+ e.g. the automo!ile industry.
$) ideas can !e used o(er and o(er again.
Answer% $
5) -hich of the following is most easily excluda!le.
A) ideas.
) capital.
#) technology.
$) a set of designs or instructions.
Answer%
6) ecause original ideas are li&ely to !ecome &nown and used !y others+ without the in(entor7s
&nowledge or consent+ ________.
A) technology is the &ey dri(er of economic growth
) new ideas contri!ute little to economic growth
#) we refer to ideas as rival
$) technology is inherently exogenous
Answer% A
AA#S% 8eflecti(e Thin&ing
'
7.' Policies to Promote Producti(ity
1) In(estments in pu!lic infrastructure ________.
A) are not su!*ect to diminishing returns
) are a misallocation of national sa(ings
#) typically decline during periods of rapid economic growth
$) may !oost producti(ity and income
Answer% $
Topic% 7.' Policies to Promote Producti(ity
') -hich of the following groups recei(es the highest wages.
A) high school drop3outs.
) college drop3outs.
#) indi(iduals who complete a !achelor7s degree program.
$) indi(iduals with ad(anced degrees.
Answer% $
)) uilding infrastructure is left to the go(ernment since________.
A) the cost of such pro*ects would not !e economical for any indi(idual firm.
) !orrowing costs ma&e such pro*ects prohi!iti(ely expensi(e.
#) inflation tends to erode the real (alue of de!t.
$) a natural monopoly would result if this acti(ity were underta&en !y an indi(idual pri(ate firm.
Answer% A
,) The 9.S. interstate system was !egun under________.
A) President :ran&lin $elano 8oose(elt in 16)) as part of the ;ew $eal.
) President <er!ert <oo(er in 16').
#) President $wight $. 1isenhower in 1624.
$) President =eorge -. ush in '00' after the 6>11 attac&s.
Answer% #
2) The Interstate <ighway system in the 9.S. has !oosted economic producti(ity mainly through
________.
A) the positi(e impact on tourism
) reduction in transportation costs
#) increased competition among fast food restaurants
$) increased speed of military deployments
Answer%
)
4) The &nowledge and s&ills that wor&ers ha(e !uilt up through education and training programs
is &nown as________.
A) the college premium.
) human capital.
#) producti(ity.
$) financial torsion.
Answer%
7) A &ey difference !etween human capital and technology is that ________.
A) human capital is excluda!le
) human capital is nonri(al
#) scarce resources are used in the production of human capital
$) technology is an input in the production of new technology
Answer% A
5) :or the period 1612 to '002+ educational impro(ements in the 9.S. la!or force contri!uted
what percentage of real per3capita =$P growth.
A) 0.01.
) 12.
#) )17.
$) ),
Answer%
6) 9.S. educational achie(ements________.
A) !egan to stagnate in the 1670s.
) ha(e always fallen !ehind our 1uropean and Asian counterparts.
#) ha(e not had a measura!le effect on 9.S. growth rates.
$) ha(e not !een duplicated outside the 9.S.
Answer% A
10) 1ducation achie(ements ________.
A) are a sufficient condition for economic de(elopment to occur.
) are a guarantee of ma&ing a poor country wealthy.
#) cannot raise human capital.
$) are !oth ri(al and nonri(al in character.
Answer% $
,
11) =o(ernment spending on child de(elopment promotes economic producti(ity !y ________.
A) encouraging research and de(elopment
) increasing national sa(ings
#) increasing human capital
$) !uilding infrastructure
Answer% #
1') =o(ernment spending on pu!lic health promotes economic producti(ity !y ________.
A) encouraging research and de(elopment
) increasing national sa(ings
#) increasing human capital
$) !uilding infrastructure
Answer% #
1)) Pri(ate !usinesses tend to spend too little on research and de(elopment+ !ecause ________.
A) in(estments to increase the capital stoc& are a !etter way to !oost producti(ity
) go(ernments tend to spend too much on research and de(elopment
#) patent laws ma&e it difficult to reap the !enefits of such spending
$) technology is often nonexcluda!le
Answer% $
1,) The three ways go(ernment can encourage research and de(elopment are________.
A) patents+ foreign aid and direct go(ernment spending.
) foreign aid+ direct go(ernment spending and tax incenti(es.
#) direct go(ernment spending+ tax incenti(es and patents.
$) tax incenti(es+ patents and foreign aid.
Answer% #
12) Intellectual property rights pro(ided !y patent systems typically________.
A) pro(ide tax incenti(es to encourage research and de(elopment.
) allow for the depreciation of capital.
#) compensate the go(ernment for !uilding infrastructure.
$) last a!out twenty years.
Answer% $
2
14) 1ntities that !uy up patents then try to extract large payments from companies that use
similar technologies are &nown as________.
A) Solow pirates.
) tertiary leeches.
#) =reat =oogly ?ooglies.
$) patent trolls.
Answer% $
17) Patent trolls________.
A) are paid !y inno(ati(e firms to the federal go(ernment.
) !uy up patents then attempt to extract large payments from firms using similar technology.
#) de(elop new machines and machine processes in small3scale firms+ rather than large
corporations.
$) can e(ol(e into natural monopolies.
Answer%
15) The #oca3#ola #ompany has chosen to &eep its soda formula a secret+ ________.
A) !ecause soda is a non3ri(al good
) to preser(e its patent rights
#) !ecause the soda formula is a ri(al good
$) to reap the !enefits of excluda!ility
Answer% $
16) According to the Solow model+ which type of go(ernment spending is more li&ely to raise
the long3term growth rate of output per person+ spending on infrastructure or spending on
research and de(elopment.
Answer% Spending on research and de(elopment. As a production input+ infrastructure is much
li&e capital+ su!*ect to diminishing returns. Infrastructure in(estments are li&ely to raise the le(el
of output per person+ !ut any effect on the growth rate is li&ely to !e temporary. Spending on
research and de(elopment+ when effecti(e+ raises producti(ity directly. There are no diminishing
returns+ and impro(ements in technology may stimulate and ena!le further impro(ements+
including those funded !y pri(ate !usinesses.
4
'0) 9se the distinction !etween rival and nonrival to explain the college premium.
Answer% #ollege graduates ha(e ac"uired &nowledge and s&ills that ena!le their interaction with
other inputs 33 raw materials+ capital goods+ and other wor&ers 33 to !e "uite producti(e.
1mployees wor&ing together enhance the contri!ution of each other7s s&ills without using up
anyone7s s&ills. Indeed+ the producti(e application of s&ills is a way to strengthen and ac"uire
s&ill. The s&ills are nonri(al among employees and o(er time @allowing for periods of rest).
;onetheless+ a single wor&er can+ at any one time+ perform *ust one set of tas&s for a particular
employer. The s&ills are ri(al across employers and tas&s. Thus+ incenti(es guide the allocation
of s&illed wor&ers among a(aila!le employers and tas&s. -or&ers whose s&ills ma&e a large
contri!ution in producti(e tas&s will !e sought !y employers eager to offer a wage that is
correspondingly high.
'1) Imagine that encryption and related technologies !ecome so ad(anced that the &nowledge
produced !y research and de(elopment are as excluda!le as any other good+ while technology
remains nonri(al. In a world in which technology is !oth nonri(al and excluda!le+ do the
go(ernment policies of go(ernment spending on 8A$+ tax incenti(es for 8A$+ and patents
continue to ma&e sense.
Answer% If technology were inherently excluda!le+ patent protections would !e redundant. Baws
against theft would suffice. oth go(ernment spending and tax incenti(es would !e *ustified+
!ecause pri(ate !usinesses would allocate resources to research and de(elopment !ased on profit
expectations. ecause new ideas are costly to produce+ pri(ate 8A$ efforts will focus on ideas
for which users will !e willing to pay a high price+ excluding all other potential users. The result
is that a(aila!le ideas are underutiliCed+ gi(en that the true resource cost of using them once they
exist is near Cero. The underutiliCation of ideas leads+ as well+ to underproduction of ideas+ since
technology is a &ey input in its own production.
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7.) Institutions and Property 8ights
1) The legal system in which the law is continually reinterpreted !y *udges is la!eled________.
A) a ;apoleonic system of law.
) a tropicalismo system.
#) a common law system.
$) a constitutional system.
Answer% #
Topic% 7.) Institutions and Property 8ights
') According to ;o!el PriCe winner $ouglass ;orth+ the most important factor in limiting
economic growth in de(eloping countries today is________.
A) the relati(ely low le(el of sa(ing.
) the relati(ely high rate of inflation.
#) the ina!ility to de(elop effecti(e low3cost contract enforcement.
$) the inade"uate state of the health care system
Answer% #
)) The legal system !ased on common law deri(es from the experience of which country.
A) :rance.
) 1ngland.
#) =ermany.
$) 8ome.
Answer%
,) 1nglish common law is particularly effecti(e !ecause________.
A) it was deri(ed from the ;apoleonic codes of the period of industrialiCation.
) it is the only system that pro(ides protection for personal property rights.
#) it is a!le to e(ol(e o(er time.
$) of the di(erse character of the ritish 1mpire.
Answer% #
2) The elements of an effecti(e legal system include ________.
A) strict limits on the a!ility of *udges to interpret law
) a temperate climate
#) a large !ody of legislators
$) an ade"uate supply of lawyers
Answer% $
5
4) The $oing usiness reports pro(ide information on________.
A) the siCe of a country7s national de!t.
) the rate of inflation.
#) the independence of indi(idual central !an&s.
$) how easy it is to conduct !usiness in different parts of the world.
Answer% $
7) The $oing usiness reports are considered !y many economists to ha(e contri!uted to
economic growth and po(erty reduction. The effecti(eness of the reports may !e attri!uted to
________.
A) their encouragement to go(ernments to reduce impediments to !usiness
) their encouragement to !usinesses to migrate to !usiness3friendly locations
#) their deepening of economists7 understanding of economic growth
$) their exposing of corrupt officials and practices
Answer% A
5) =o(ernments that steal from their own citiCens are &nown as________.
A) pure democracies.
) &leptocracies.
#) ?uga!es.
$) antedilu(ians.
Answer%
6) -hich of the following is poorest country.
A) #anada.
) ?exico.
#) <aiti.
$) ;ew Drleans.
Answer% #
10) The amount of foreign aid pro(ided !y the 9nited States________.
A) constitutes a ma*or proportion of federal go(ernment outlays.
) is the highest in percentage terms for any de(eloped mar&et economy.
#) a(erages a!out '.7 percent of 9.S. income per year.
$) is a (ery small percentage of gross national income.
Answer% $
6
11) 1xtreme glo!al po(erty is defined as________.
A) income of less than one dollar a day.
) foreign de!t in excess of 100E of =$P
#) one percent of 9.S. income.
$) one3fourth of 9.S. income.
Answer% A
1') ?o!utu Sese Se&o was President of________.
A) #anada.
) Faire.
#) #ote d7I(oire
$) Ta*i&istan.
Answer%
1)) The impact of foreign aid on de(eloping countries has !een reduced !y________.
A) the low rate of sa(ing in these countries.
) the ?arshall Plan.
#) the misuse of foreign aid funds !y corrupt go(ernments.
$) the low rate of consumption in these countries.
Answer% #
1,) An example of foreign aid that has impro(ed economic conditions is ________.
A) funding of pu!lic health programs
) funding of the 9.S. Interstate <ighway System
#) programs to reduce foreign de!t
$) the ;apoleonic code
Answer% A
12) <ow does the centrality of institutions and property rights in economic growth help to
explain the predominance of rich countries in temperate climates and of poor countries in the
tropics.
Answer% Begal systems in most countries throughout the world are a legacy of 1uropean
colonialism. 1conomic growth in any country seems to depend a great deal on how the Ga(erage
personG is treated !y the legal system. In the tropics+ generally+ legal systems were designed to
fa(or the tiny 1uropean minority+ rather than the Ga(erage person.G 1(en now+ these systems tend
to protect the elite+ rather than to pro(ide opportunities for others. y contrast+ in temperate
locations where large num!ers of 1uropeans and their descendants exceeded the indigenous
populations+ legal systems were designed to restrict the power of the elite+ which has promoted
the economic potential and am!itions of the ma*ority of citiCens.
10
7., 1ndogenous =rowth Theory
1) The goal of endogenous growth theory is to explain________.
A) supply and demand in indi(idual mar&ets.
) the causes of technological ad(ance.
#) the !usiness cycle.
$) the relationship !etween economic growth and the rates of inflation and unemployment.
Answer%
Topic% 7., 1ndogenous =rowth Theory
') The 8omer model is distinct from the Solow model in that the former assumes that________.
A) technology is fixed.
) an increase in price affects "uantity demanded+ rather than demand.
#) some la!or is de(oted to producing new technology.
$) output per wor&er is fixed.
Answer% #
)) The &ey endogenous (aria!le in endogenous growth theory is ________.
A) the le(el of technology
) the producti(ity of research and de(elopment
#) the growth rate of output
$) the le(el of per capita income
Answer% A
,) The "uote+ GIf I ha(e seen farther than others+ it is !ecause I ha(e stood on the shoulders of
giantsG is attri!uted to________.
A) Al!ert 1instein.
) Paul 8omer.
#) :riedrich ;ietsCche.
$) Sir Isaac ;ewton.
Answer% $
2) A change in which of the following can change the long3run growth rate of the economy in the
8omer model.
A) in(estments in pu!lic infrastructure
) the national sa(ing rate
#) the fraction of the population engaged in and the producti(eness of research and de(elopment
$) go(ernment spending and tax rates
Answer% #
11
4) A li&ely way to increase the producti(ity of wor&ers engaged in research and de(elopment is
to ________.
A) increase the siCe of the la!or force
) increase the num!er of wor&ers engaged in research and de(elopment
#) in(est more in the education of scientists
$) increase the national sa(ing rate
Answer% #
7) The &ey assumption of the 8omer model that allows an explanation of sustained growth in
output per person is ________.
A) technology is nonri(alrous
) the total amount of la!or is fixed
#) some la!or is de(oted to producing new technology
$) the sa(ing rate is fixed
Answer% A
5) =rowth of output per person at a constant rate is referred to as ________.
A) a !alanced growth path
) a steady state
#) a ratio scale
$) an amplification effect
Answer% A
6) The result that the growth rate of output per wor&er is e"ual to 1.,) H is ________.
A) true of the Solow model only
) true of !oth the Solow model and the 8omer model
#) true of the 8omer model only
$) true under the common3law legal system only
Answer%
10) If the le(el of technology rises from 5 to 5.' in one period+ the growth rate of technology is
________.
A) '.2 percent
) '0 percent
#) two percent
$) 0.' percent
Answer% A
1'
11) Dutput per person is 170 in an economy in which 12 percent of the population are engaged in
research and de(elopment+ where their producti(ity is 0.00'+ and the total population siCe is 100
million. If this economy is on a !alanced growth path+ then output per person in the next period
will !e ________.
A) 172.1
) 162.2
#) 174.'
$) 177.)
Answer% $
1') An economy with population 200 million has a research and de(elopment producti(ity of
0.0002+ and its output per person has risen from one period to the next along its !alanced growth
path from )20 to )4'.2. The fraction of this economy7s population engaged in research and
de(elopment is ________.
A) 1,E
) '.2E
#) ).4E
$) 10 E
Answer% $
1)) In a logarithmic scale________.
A) the ratio of capital to la!or is constant.
) the (ertical axis lies along the horiContal axis.
#) e"ual distances reflect the same percentage change.
$) (alues along the (ertical axis correspond to the s"uare root of (alues along the horiContal
axis.
Answer% #
1,) ecause old ideas are an input in the production of new ideas+ nothing pre(ents the growth
rate of output per person from rising without limit. #omment.
Answer% The inference is false. The growth rate of output per person depends on the growth rate
of technology%
t
A
t
A
I xB
A
. oth the producti(ity of 8A$ and the "uantity of la!or engaged in
8A$ can change+ !ut are su!*ect to strict limits. The technology3growth e"uation implies that
li(ing standards need ne(er stop impro(ing+ !ut the rate of impro(ement is always limited !y our
finite a!ility to reach a !it higher than our giant fore!ears.
1)
12) An economy has '0 million wor&ers in research and de(elopment+ where their producti(ity is
0.00,+ and the le(el of technology is 4.72. The depreciation rate is 0.12+ and the sa(ing rate is
0.'. The per wor&er production function is y I A&
1>)
@13J)+ and there are 150 million production
wor&ers. Show that+ in e"uili!rium+ the ratio of capital to output is constant.
Answer% The current e"uili!rium capital3la!or ratio e"uals
) > '
sA
I '7. Dutput per wor&er is

15.'+ so the capital3output ratio is 1.,5. After one period+ technology has risen to 7.'6+ and the
capital3la!or ratio rises to )0.). Dutput per wor&er is now '0.2+ so the capital3output ratio is still
1.,5.
14) The growth accounting e"uation is g
K
I g
A
L @0.))
gM
L @0.7)
gB
. An economy with an
initial wor&force of 20 million allocates '0 percent of them to research and de(elopment+ where
their producti(ity is 0.00). If the la!or input in this economy is growing at one percent+ and the
growth rates of capital and output are e"ual+ what is that common growth rate. Is this a realistic
scenario.
Answer% The growth rate of technology I 0.00) N 0.' N 20 I 0.0). Setting g
K
I g
M
+ we ha(e g
K
I 0.0) L 0.) N g
K
L 0.007. Sol(ing+ g
K
I 0.02). If the underlying parameters do not change+ the
rising la!or force will cause continual increases in the growth rates of technology+ capital+ and
output. The growth path is !alanced+ !ut implausi!le+ since no real economy can grow at an e(er3
accelerating pace.
7.2 :actors That Affect 1ndogenous =rowth
1) In the 8omer model. as more la!or is de(oted to research and de(elopment________.
A) there is an immediate decrease in output per capita.
) there is an immediate increase in output per capita.
#) output per capita is unaffected+ !ut the sa(ings rate !egins to rise.
$) output per capita is unaffected+ !ut the sa(ings rate !egins to fall.
Answer% A
Topic% 7.2 :actors that Affect 1ndogenous =rowth
') In the 8omer model+ as more la!or is de(oted to research and de(elopment there is________.
A) an immediate increase in output per capita and a permanent increase in output per capita.
) an immediate decrease in output per capita and a permanent increase in output per capita.
#) an immediate increase in output per capita and a permanent decrease in output per capita.
$) an immediate decrease in output per capita and a permanent decrease in output per capita.
Answer%
1,
)) The 8omer model suggests that there is a trade3off !etween ________.
A) the use of resources in research and de(elopment and the producti(eness of 8A$
) the rate of sa(ing and the long3run growth of output
#) per capita output in the short3run and long3run
$) the siCe of the total population and the sa(ing rate
Answer% #
,) Spending on education is li&ely to raise output per person !y ________.
A) increasing the producti(eness of 8A$
) !y increasing the population
#) increasing the fraction of the population engaged in producti(e acti(ities
$) increasing the sa(ing rate
Answer% A
2) 1ndogenous growth theory supports the conclusion that________.
A) go(ernment spending cannot influence the le(el of research and de(elopment.
) increased go(ernment spending on research and de(elopment is counterproducti(e.
#) per capita income growth is a function of real factors+ such as the supply of money.
$) increased go(ernment spending on research and de(elopment is useful.
Answer% $
4) Dne difference !etween a policy of direct spending !y the go(ernment on research and
de(elopment and an alternati(e policy of tax incenti(es to encourage pri(ate spending on 8A$ is
________.
A) the former impro(es the producti(ity of 8A$+ while the latter raises its le(el
) the former re"uires a decrease in national sa(ing+ while the latter causes an increase
#) the former raises the le(el of 8A$ spending+ while the latter also impro(es its producti(ity
$) the former re"uires an increase in national sa(ing+ while the latter causes a decrease
Answer% #
7) According to the 8omer model+ tax incenti(es to support research and de(elopment will lead
to________.
A) higher tax rates in the future.
) an increase in the general le(el of prices.
#) a decrease in the general le(el of prices.
$) increased per capita income.
Answer% $
12
"ss!#e that the growth rate of the capital stock in each period is deter#ined $y the level of
o!tp!t in the previo!s period%
5) An economy of 50 million people has ten percent of them engaged in research and
de(elopment+ where their producti(ity is 0.00)2. The economy is on a !alanced growth path+
when suddenly '.55 million people mo(e from goods production into 8A$+ raising the fraction
there to 1).4 percent. In the one period that !egins with this la!or reallocation+ the growth rate of
output is ________. O8efer to the instruction a!o(e.P
A) '.5E
) 0.0E
#) ).5E
$) '.'E
Answer% $
6) An economy of 5' million people has twenty percent of them engaged in research and
de(elopment+ where their producti(ity is 0.00). The economy is on a !alanced growth path+
when suddenly the producti(eness of 8A$ rises to 0.00,. :or the one period that !egins with
this producti(ity increase+ the growth rate of output is ________. O8efer to the instruction
a!o(e.P
A) 5.7E
) 6.,E
#) 4.4E
$) 7E
Answer%
10) An economy of '2 million people has twenty percent of them engaged in research and
de(elopment+ where their producti(ity is 0.0024. The economy is on a !alanced growth path+
when suddenly a wa(e of immigration raises the population to '7 million. Assume that the new
wor&ers are immediately Gon the *o!+G and that the fraction engaged in 8A$ remains twenty
percent. :or the one period that !egins with this population increase+ the growth rate of output
per person is ________. O8efer to the instruction a!o(e.P
A) ,.)E
) 1.5E
#) )E
$) 5E
Answer%
14
11) According to the 8omer model+ an increase in population will cause________.
A) an immediate increase in output per capita and a permanent increase in output per capita.
) an immediate decrease in output per capita and a permanent increase in output per capita.
#) an immediate increase in output per capita and a permanent decrease in output per capita.
$) an immediate and permanent decrease in output per capita.
Answer%
1') The Solow model is distinct from the 8omer model in that an increase in population tends to
cause________.
A) a permanent decrease in the standard of li(ing in the 8omer model.
) an increase in spillo(er effects in the Solow model+ !ut not in the 8omer model.
#) a permanent increase in the standard of li(ing in the Solow model.
$) a permanent increase in the standard of li(ing in the 8omer model.
Answer% $
1)) Technological spillo(er________.
A) is made possi!le !y the nonri(alry of ideas.
) generates an increase in !oth capital and la!or.
#) is caused !y population growth.
$) is caused !y population decline.
Answer% A
1,) The o!ser(ation that countries with high rates of population growth don7t ha(e higher per
capita income ________.
A) suggests that the Solow model is unrealistic
) implies that technology doesn7t wor& as well in countries where the population is growing
rapidly
#) is not supported !y most empirical studies
$) is consistent with the 8omer model as applied to the world as a whole
Answer% $
12) -hen technology impro(es in a country with a fast3growing population ________.
A) output rises+ !ut output per person does not
) output rises in that country+ while output per person rises in other countries
#) output per person rises in that country and around the world
$) output per person rises temporarily+ then declines
Answer% #
17
14) The current world population is________.
A) 4 million.
) 4 !illion.
#) 4 trillion.
$) 4 gaCillion.
Answer%
17) The 8omer and Solow models reach the same conclusion with respect to________.
A) output growth in the long3run.
) the impact of changing population.
#) the effect of an increase in the sa(ing rate.
$) the general le(el of prices.
Answer% #
15) The graph a!o(e might represent the ________.
A) response to an increase in the fraction of the population engaged in research and de(elopment
) response to a rise in the producti(eness of research and de(elopment
#) response to an increase in the total population
$) response to a rise in the sa(ing rate
Answer% A
16) Dn the graph a!o(e+ for a while after t I 0+ the growth rate of output per wor&er is ________
the growth rate prior to time Cero+ and ________.
A) !elowQ rising
) !elowQ falling
#) a!o(eQ constant
$) a!o(eQ falling
Answer% A
15
'0) Dn the graph a!o(e+ for a while after t I 0+ the growth rate of technology is ________ the
growth rate prior to time Cero+ and ________.
A) !elowQ falling
) !elowQ rising
#) a!o(eQ constant
$) a!o(eQ falling
Answer% #
'1) Dn the graph a!o(e+ the constant (alue 1.,) is ________.
A) the producti(ity of la!or de(oted to research and de(elopment
) the logarithmic scale
#) the amplification effect of impro(ing technology
$) the initial le(el of technology
Answer% #
'') <ow might technological spillo(er explain why countries with high rates of population
growth don7t ha(e higher per3capita income.
Answer% In the 8omer model+ population increase causes an increase in the rate of technological
progress+ !ecause there are more people engaged in research and de(elopment. Technology+
howe(er+ is not easily contained within national !orders+ so the technology a(aila!le in each
economy depends not on the siCe of its own population !ut+ rather on the world technological
frontier. A population increase in any one economy has an impercepti!le effect on the technology
in use in that economy. Though technological !rea&throughs always occur Gsomewhere+G they are
"uic&ly a(aila!le Ge(erywhere+G so the growth impact in the economy of origin is not much
different from the impact in other economies.
')) Suppose a wa(e of immigration increases the num!er of wor&ers in research and
de(elopment without altering the la!or input in production. $escri!e the impact on the le(el and
growth rate of output per wor&er+ immediately+ and as time passes.
Answer% This scenario is an increase in !oth the total population and in the fraction of the
population engaged in research and de(elopment. Dne immediate impact is that an unchanged
le(el of output is di(ided among a larger total wor&force+ so output per @total) wor&er is reduced.
A second immediate impact is an increase in the growth rate of technology. Since the capital3
la!or ratio @in production of goods and ser(ices) is not immediately affected+ the growth rate of
output ad*usts all3at3once to e"ual 1.,) times the higher growth rate of technology.
16
',) Technology grows at a rate of three percent in an economy in which ten percent of the
wor&force is engaged in research and de(elopment+ where their producti(ity is 0.00). The
economy is on a !alanced growth path+ and the wor&force is growing at two percent. #alculate
the growth rates of output+ capital+ and output per wor&er now+ and fi(e years from now.
Answer% The growth rate of output and of capital per wor&er is 1.,) H 0.0) I 0.0,). Since the
wor&force is growing at two percent+ output and capital are growing at 0.04). The three percent
growth rate of technology e"uals 0.00) H 0.1 H ;+ so ; I 100. After fi(e years of growth at the
two percent rate+ ; I 110+ so the growth rate of technology has risen to ).) percent. The new
growth rate of capital and output per wor&er is 0.0,7+ so output and capital grow at 0.047.
'0

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