Exam 4: Theories of Economic Growth

A) coordination failures between the banking sector and industry.
B) business cycles that naturally occur in all economies.
C) diminishing returns to capital in the production function.
D) fluctuations in macroeconomic policy.

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A) Both underline the importance of factor accumulation and productivity in the growth process.
B) Both treat technology as endogenous.
C) Both take externalities into account.
D) Both assume increasing returns to scale.

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A) capital deepening.
B) dynamic economic growth and development.
C) the fulfillment of the Malthusian hypothesis.
D) lower average income per worker.

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Diminishing Marginal Product of Capital:...

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Savings and investment are two key conce...

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A) take labor as well as capital into account.
B) are L-shaped.
C) are capital-intensive rather than labor-intensive.
D) are curved.

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A) declines, leading to what is referred to as a "failed state."
B) matches population growth, with no chance for sustained increases in average income.
C) causes a rapid inflation, leading to an erosion of gains made during the growth period.
D) subsides, as socialism becomes an acceptable form of political economy for the people.

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A) accumulation of assets and making those assets more productive
B) harnessing natural resources and marketing them to developed nations at a "fair trade" rate
C) exploitation of the agricultural sector in order to advance industrialization
D) engaging in free trade while subsidizing domestic agricultural and industrial production

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A

A) limits of growth.
B) capital intensity of the production process.
C) a country's production function.
D) the health and educational level of the population.

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Level Effect and Growth Effect are two c...

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A) ICOR = 15.4; GDP growth rate = 7.6 percent per annum
B) ICOR = 2.86; GDP growth rate = 5.1 percent per annum
C) ICOR = 50.6; GDP growth rate = 2.2 percent per annum
D) ICOR = 1 percent; GDP growth rate = 22 percent per annum

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1. Meaning and Significance of Each Term...

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A) 10 percent
B) 0 percent
C) 5 percent
D) We cannot say without more information.

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A) population growth.
B) substitution between labor and capital.
C) endogenous technical change.
D) depreciation.

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Capital Deepening and Capital Widening are two concepts related to investment in an economy, particularly in the context of physical capital, which includes machinery, buildings, and infrastructure. **Capital Deepening:** Capital deepening refers to an increase in the amount of capital per worker within an economy. This typically means that each worker has more tools, equipment, or technology to work with, which can lead to an increase in productivity. Capital deepening is often achieved through investment in new technologies, better machinery, or more sophisticated equipment. The significance of capital deepening lies in its potential to enhance the efficiency and output of the labor force, leading to economic growth and potentially higher standards of living. It is a key factor in economic development and is often associated with technological advancement and innovation. **Capital Widening:** Capital widening, on the other hand, occurs when the stock of capital in an economy increases at the same rate as the labor force. In other words, new investments are made to keep the capital-to-labor ratio constant, even as more workers are employed. This is often necessary in growing economies where the labor force is expanding due to population growth or other factors. The significance of capital widening is that it allows for the accommodation of a larger workforce without reducing the capital available to each worker, thus maintaining productivity levels. **Relationship between Capital Deepening and Capital Widening:** The relationship between capital deepening and capital widening is that they are both ways in which an economy can grow its capital stock, but they have different implications for productivity and economic growth. Capital deepening is directly related to increases in productivity per worker, as it involves providing more capital for each worker. This can lead to higher economic output per capita and potentially to economic growth if the increase in productivity outweighs the increase in capital costs. Capital widening, while necessary to sustain productivity levels in a growing economy, does not by itself lead to higher productivity per worker. It simply maintains the status quo in terms of the capital-to-labor ratio. For an economy to experience sustained growth, capital widening needs to be complemented by capital deepening. In summary, capital deepening and capital widening are both important for economic development, but they serve different purposes. Capital deepening is crucial for improving productivity and fostering economic growth, while capital widening is necessary to support a growing workforce without diminishing productivity. An optimal investment strategy for a country would likely involve a combination of both, ensuring that the workforce is adequately equipped while also investing in technologies and equipment that enhance worker productivity.

A) 2.1 percent.
B) 3.9 percent.
C) 4.7 percent.
D) 7.5 percent.

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A) capital widening.
B) capital deepening.
C) labor widening.
D) labor deepening.

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A) 18 percent.
B) 3 percent.
C) 50 percent.
D) 9 percent.

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D