51.Supposethattherearediminishingreturnstocapital.SupposealsothattwocountriesarethesameexceptonehaslesscapitalandsolessrealGDPperperson.Supposethatbothincreasetheirsavingratefrom3percentto4percent.Inthelongrun
a.bothcountrieswillhavepermanentlyhighergrowthratesofrealGDPperperson,andthegrowthratewillbehigherinthecountrywithmorecapital.
b.bothcountrieswillhavepermanentlyhighergrowthratesofrealGDPperperson,andthegrowthratewillbehigherinthecountrywithlesscapital.
c.bothcountrieswillhavehigherlevelsofrealGDPperperson,andthetemporaryincreaseingrowthinthelevelofrealGDPperpersonwillhavebeengreaterinthecountrywithmorecapital.
d.bothcountrieswillhavehigherlevelsofrealGDPperperson,andthetemporaryincreaseingrowthinthelevelofrealGDPperpersonwillhavebeengreaterinthecountrywithlesscapital.
52.Otherthingsequal,relativelypoorcountriestendtogrow
a.slowerthanrelativelyrichcountries;thisiscalledthepovertytrap.
b.slowerthanrelativelyrichcountries;thisiscalledthefall-behindeffect.
c.fasterthanrelativelyrichcountries;thisiscalledthecatch-upeffect.
d.fasterthanrelativelyrichcountries;thisiscalledtheconstant-returns-to-scaleeffect.
53.Twocountriesarethesame,exceptoneispoorer.Assumingthetraditionalassumptionabouttheproductionfunctionismadethereare
a.diminishingreturnstocapitalsothepoorcountrygrowsslower.
b.increasingreturnstocapitalsothepoorcountrygrowsslower.
c.diminishingreturnstocapitalsothepoorcountrygrowsfaster.
d.increasingreturnstocapitalsothepoorcountrygrowsfaster.
54.Anincreaseinthesavingratewould,otherthingsthesame,
a.increasegrowthmoreforapoorcountrythanforarichcountry,andraisegrowthpermanently.
b.increasegrowthmoreforapoorcountrythanforarichcountry,butraisegrowthtemporarily.
c.increasegrowthmoreforarichcountrythanforapoorcountry,andraisegrowthpermanently.
d.increasegrowthmoreforarichcountrythanforapoorcountry,butraisegrowthtemporarily.
55.RealGDPperpersonis$10,000inCountryA,$20,000inCountryB,and$30,000inCountryC.Thesavingrateincreasesbythesamerateinallthreecountries.Otherthingsequal,wewouldexpectthat
a.allthreecountrieswillgrowatthesamerate.
b.CountryAwillgrowthefastest.
c.CountryBwillgrowthefastest.
d.CountryCwillgrowthefastest.
56.Assumingdiminishingreturns,
a.theincreaseinoutputgrowthfromanincreaseinthesavingraterisesovertime,andthat,otherthingsthesame,richcountriesshouldgrowfasterthanpoorones.
b.theincreaseinoutputgrowthfromanincreaseinthesavingratefallsovertime,andthat,otherthingsthesame,richcountriesshouldgrowfasterthanpoorones.
c.theincreaseinoutputgrowthfromanincreaseinthesavingraterisesovertime,andthat,otherthingsthesame,poorcountriesshouldgrowfasterthanrichones.
d.theincreaseinoutputgrowthfromanincreaseinthesavingratefallsovertime,andthat,otherthingsthesame,poorcountriesshouldgrowfasterthanrichones.
57.Thecatch-upeffectreferstotheideathat
a.savingwillalwayscatch-upwithinvestmentspending.
b.itiseasierforacountrytogrowfastandsocatch-upifitstartsoutrelativelypoor.
c.populationeventuallycatches-upwithincreasedoutput.
d.ifinvestmentspendingislow,increasedsavingwillhelpinvestmentto”catch-up.”
58.Thetraditionalviewoftheproductionprocessisthatcapitalissubjectto
a.diminishingreturns,sothatotherthingsthesame,realGDPinpoorcountriesshouldgrowatafasterratethaninrichcountries.
b.diminishingreturns,sothatotherthingsthesame,realGDPinpoorcountriesshouldgrowataslowerratethaninrichcountries.
c.increasingreturns,sothatotherthingsthesame,realGDPinpoorcountriesshouldgrowatafasterratethaninrichcountries.
d.increasingreturns,sothatotherthingsthesame,realGDPinpoorcountriesshouldgrowataslowerratethaninrichcountries.
59.Thelogicbehindthecatch-upeffectisthat
a.workersincountrieswithlowincomeswillworkmorehoursthanworkersincountrieswithhighincomes.
b.thecapitalstockinrichcountriesdeterioratesatahigherratebecauseitalreadyhasalotofcapital.
c.newcapitaladdsmoretoproductioninacountrythatdoesn’thavemuchcapitalthaninacountrythatalreadyhasmuchcapital.
d.Noneoftheaboveiscorrect.
60.CountryAhasrealGDPperpersonof100,000whilecountryBhasrealGDPperpersonof200,000.Allelseconstant,countryAwilleventuallyhaveahigherstandardoflivingthancountryBif
a.thelevelofsavingperpersonis10,000incountryAand10,000incountryB.
b.thelevelofsavingperpersonis12,000in countryAand15,000incountry B.
c.Bothoftheabovearecorrect.
d.Noneoftheabovearecorrect.
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