ECON 100C. Midterm #1 Multiple Choice Questions – Version APython

Java Python ECON 100C. Midterm #1

Multiple Choice Questions – Version A

Identify the choice that best completes the statement or answers the question.

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1.

Before 1700 per capita GDP across countries differed by a factor of: a. 1 d. 50 b. 2-3                           e.     100. c. 10

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2.

The labor share of income is defined as and it is approximately equal to in the US. (Notations: Y is GDP, L is labor force, K is the stock of capital, w is the real wage, and r is the rental price of capital) a. L/Y; 50% b. WL/rk; 40% c. k/Y; 30% d. WL/Y; 70% e. W/Y; 30%

3.   The firm’s demand for labor is obtained by equalizing:

a.    Marginal product of labor to 0                      d.   Average product of labor to the real wage

b.   Marginal product of labor to the real wage   e.    Marginal product of labor to average

product of labor

c.   Average product of labor to 0

4.   In the Cobb-Douglas production function  Y = ko.4Lo.6 , labor’s share of GDP is:

a.    40%, regardless of how much labor there is

b.   40% but can change as more laborers are added c.    60%, regardless of how much labor there is

d.   always equal to one e.    4/6.

5.   Suppose the production function takes the form  Y = k α L1一α  and we measure income differences between

two countries by  ∆= ln(yrich) 一 ln(ypoor ) where  yrich  is per capita GDP of the rich country and  ypoor

per capita GDP of the poor country. Assuming the two countries have the same productivity, then Δ is equal to:

a.    (1 一 α)(ln(k rich) +ln(kpoor ))

b.   ln(k rich) ×ln(kpoor)/α

c.    (1 一 α) ln(krich +k poor)  d.    ln(krich 一 kpoor)/(1 一 α) e.    α(ln(k rich) 一 ln(kpoor ))

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6.

Suppose the production function takes the form y = A-ko.5Lo.5. Two countries (1 and 2) share the same productivity, but the capital stock per worker of country 1 is 100 times larger than the capital stock per worker of country 2. It follows that per capita GDP in country 1 is times the one of country 2. a. 1000 b. 100 c.    50 d. 10 e.    2

7.   In the production model, an increase in total factor production (A) leads to an increase in:

a. K (capital rented by firms) b. L (labor hired by firms)

c. r (rental price) and K

d. w (real wage), r, and Y e. w, r, K, L, and Y

8.   In the production model, TFP explains about % of income differences across countries while capital per

person explains about %.

a. 50; 50 b. 75; 25 c. 25; 75 d. 0; 100 e. 100; 0

9.   Differences in TFPs across countries are explained by differences in:

a.    Monetary policy b.   Country sizes

c.   Natural resources

d.   Institutions, such as property rights and rule of law. e.    Weather

10.   In the Solow model, the equation of capital accumulation is:

a. Δkt 三 kt 一 kt一1 = S-yt +dkt一1

b. Δkt 三 kt 一 kt一1  = S-kt +dyt

c. Δkt 三 kt 一 kt一1  = S-yt

d.   Δkt+1 e.    Δkt+1

三 kt+1 一 kt  = S-yt 一 dkt

三 kt 一 kt一1  = S-yt  一 dkt一1

Refer to the following figure when answering the next question.

Figure 5.1: Solow Diagram

11.   In Figure 5.1, if the economy begins with the initial capital stock at K1, the capital stock will and

the economy will .

a.    decrease; grow                                               d.    decrease; shrink

b.   increase; grow                                                 e.    stay constant; grow

c.    stay constant; shrink

12. In the equation  Y = F(K, L) = A— K1/3 L2/3 , the “bar” over the A means that it is a:

a.   parameter that is endogenous.

b.   variable that is fixed but not exogenous.

c.   variable that is exogenous, either constant or varying over time.

d.   variable that is endogenous.

e.   parameter that is fixed and endogenous.

13. Consider a Solow growth model with production function  Y = F(K, L) = A— K1/3 (eL)2/3, where e is an exogenous variable that measures the efficiency of an hour of work. Suppose L is constant but e grows at the

constant rate >0. We denote  k = K/(eL) the capital stock per effect unit of labor. Using that = 一 , the change in k over time,  ∆k, is equal to:

a. k1/3 一 k                                         d. k1/3 一 ( + )k

b. k1/3 + 一 k                                   e. k1/3 一 ( 一 )k

c. k1/3 +( 一 )k

14. If the production function is given by  Y = A— K— 1/3 L2/3  and = 1 and  K = L = 8, total output equals:

a. Y = 2                                                               d. Y = 8

b. Y = 6                                                              e.    None of these answers is correct

c. Y = 14

15. The firm’s profit maximization problem is:

a. max τ = F(r, w) – rK – wL {r, w}

b. max τ = rK + wL – F(K, L) {r, w}

c. max τ = F(K, L) – rK – wL {r, w}

d. max τ = F(K, L) – rK – wL {K, L}

e.   All of these answers are correct.

16. As measure for total factor productivity, we can use the quantity of in an economy.

a.    Computers                                                     d.    kilowatt hours used

b.   Factories                                                        e.   None of these answers is correct

c.    Machines

17. As an economist working at the International Monetary Fund, you are given the following data for Burundi:

per capita GDP relative to the United States, is 0.01. If we were to assume that total factor productivity (TFP) in Burundi is the same as in the US, = 1, and the technology is  y = k1/3 , then predicted per capita GDP would be 0.18. Under this assumption the model clearly overestimates per capita GDP in Burundi. So what is the implied total factor productivity in Burundi relative to the US that makes the model consistent with the data?

a.    0.44 b.   0.98 c.    0.06

d.   0.00   e.    18.00

18. Assume the production function of an economy is given by  Y = kt1/3L-2/3 . If = 2  and  L- = 1, the

depreciation rate is  d = 0.05, and the saving rate is = 0.1, then the steady-state level of capital is about:

a.    0.1                                                                    d.    8.0

b.   2.5                                                                   e.    0.6

c.    1.6

19. The steady-state level of output per worker in the Solow model, with the production function  Y = kt1/3L-2/3 , is given by:

20. In the textbook production model, the productivity parameter enters the production function with an exponent of one, while in the Solow model’s equation for the steady-state stock of capital it is greater than one because:

a.    the endogenous level of the capital stock itself depends on productivity.

b.   there is no productivity parameter in the production model. c.    the productivity measure is zero in the production model.    d.   the productivity measure is negative in the Solow model.

e.   the exogenous level of the capital stock itself depends on productivity.

21. The key difference between the Solow model and the production model is that the:

a.    Solow model endogenizes the process of capital accumulation.

b.   production model endogenizes the process of capital accumulation. c.    Solow model uses different values for the capital share.

d.   Solow model does not contain a productivity measure.

e.    Solow model exogenizes the process of capital accumulation.

22. The production function,  Y = A-kaLb , exhibits constant returns to scale if and only if:

a.    a+b=1                                                             d.    a+b>1

b.   a+b=0                                                             e.    a+b<1

c.    a+b>0

23. In the production model with CRS, aggregate output (Y) is than/to the sum of payments to input

factors.

a.    larger   b.   smaller c.    equal

24. In the Solow growth model, an increase in the depreciation rate steady-state investment.

a.   raises

b.   decreases

c.    does not affect

____	25. Consider a Solow economy where the per worker production function is f(k). The investment rate is S- and the depreciation rate is d. The golden-rule capital stock, denoted k*, solves: a. f I (k*) = 0 d. f I (k*) = +∞ - b. f I (k*) = d e. None of above. - c. S-f I (k*) = d

26. The principle of transition dynamics can be summarized as:

a.   the further below its steady state an economy is, the faster the economy will grow. b.   the closer to its steady state an economy is, the faster the economy will grow.

c.   the further below its steady state an economy is, the slower the economy will grow.

d.   regardless of how close to its steady state an economy is, the economy grows at the same rate.

e.    if the economy is very close to the steady state, it stops growing.

27. For which of the following does the Solow model NOT provide adequate explanations?

a.   why saving rates differ across countries

b.   the cause of productivity differences across countries c.   why population growth rates differ across countries

d.   what causes long-term economic growth e.   All of these answers are correct.

28. A nonrival good is one that:

a.    cannot be consumed by more that one person at a time.

b.   can be consumed by more than one person at a time.

c.    can be consumed by more than one person at a time but is congested.

d.   cannot be consumed by more than two people at a time. e.   None of these answers is correct.

29. In the Romer model each individual produces:
a. Capital and consumption goods only.	d. Consumption goods, capital goods, and ideas.
b. Either consumption goods or ideas.	e.    Ideas only.
c. Both consumption goods and ideas.

30. In the AK model, there exists:

____

a.    a unique positive steady state independent of the investment rate.

b.   a unique steady state such that the capital stock increases with the investment rate  c.    a unique steady state such that the capital stock decreases with the investment rate

d.   A balanced growth path such that the rate of growth of the capital stock increases with the investment rate

e.   A balanced growth path such that the rate of growth of the capital stock decreases with the investment rate