ECN 503 || acknowledged answers 100%.
In the production model from the text, which of the following is NOT an exogenous variable or a
parameter?
a. The supply of capital
b. The supply of labor
c. The productivity parameter
d. The amount of capital correct answers d. The amount of capital
Page 74 The amount of capital used in production is an unknown endogenous variable that must
be solved for. All of the other three variables are exogenous parameters.
Output per person is higher when
a. a country is more efficient in adopting a technology.
b. a country has a higher capital-to-population ratio.
c. a country has stronger property rights and contract enforcement.
d. All of these choices are correct. correct answers d. All of these choices are correct.
Pages 79-81 A country has higher per capita output if capital per person and the productivity
parameter are higher. The productivity parameter is higher under better institutions and when
technologies are adopted more efficiently.
Output per capita and output per worker are
a. equal in the production model, but output per capita is smaller in general.
b. equal in general, but output per capita is smaller in the production model.
c. always equal.
d. are not equal, because output per capita is always greater. correct answers a. equal in the
production model, but output per capita is smaller in general.
Page 79 Note that in the production model output per capita and output per worker are equal, but
this need not be the case in all models. Given that you cannot have more laborers in an economy
than its population, output per capita is usually less than output per worker.
Which of the following is included in TFP?
a. The amount of labor
b. The amount of capital
c. The quality of labor
d. All of these choices are correct. correct answers c. The quality of labor
Pages 85 and 89 Because TFP represents the residual, it includes anything not explicitly in the
mathematical model. The amount of labor and capital are included, but differences in human
capital (labor quality) are not explicitly included in the model—and thus are in TFP.
Suppose India has a per capita GDP that is .074 times the United States GDP. It has a capital-
per-person ratio that is .035 times that of the United States. Compared to the United States, the
implied value of total factor productivity for India is approximately
, a 0.07
b. 0.23
c. 0.30
d. 0.12 correct answers b. 0.23
Page 85 The United States is standardized to a value of 1 in this problem. The implied value of
TFP is equal to the ratio of output per person divided by the capital-to-labor ratio raised to the
1/3 power.
We cannot tell whether the production function Y = K^á * L^(1-á) has constant returns to scale,
because we do not know the value of á.
a. False
b. True correct answers a. False
Page 71 The Cobb-Douglas production function has constant returns to scale because the
exponents á + (1 - á) sum to 1.
Capital per person explains about one-half of the difference in per capita income between the
richest and poorest countries.
a. True
b. False correct answers b. False
Page 87 The capital-to-population ratio explains about one-quarter of the difference, while TFP
explains the rest.
In a Cobb-Douglas production function, the factor share of income going to each input is equal
to the exponent on the input in the production function.
a. False
b. True correct answers b. True
Pages 76-77 Regardless of the amount of capital or labor in an economy, the exponents in the
production function determine the factor shares.
The standard replication argument implies that Italy can double its per capita GDP by doubling
the amount of capital per person.
a. True
b. False correct answers b. False
Page 81 Capital per person is subject to diminishing returns to capital. Thus, because the
exponent on capital per person is less than 1, doubling it will not double per capita output.
If the marginal product of capital is less than the rental rate of capital, the firm should rent more
capital.
a. False
b. True correct answers a. False
In the production model from the text, which of the following is NOT an exogenous variable or a
parameter?
a. The supply of capital
b. The supply of labor
c. The productivity parameter
d. The amount of capital correct answers d. The amount of capital
Page 74 The amount of capital used in production is an unknown endogenous variable that must
be solved for. All of the other three variables are exogenous parameters.
Output per person is higher when
a. a country is more efficient in adopting a technology.
b. a country has a higher capital-to-population ratio.
c. a country has stronger property rights and contract enforcement.
d. All of these choices are correct. correct answers d. All of these choices are correct.
Pages 79-81 A country has higher per capita output if capital per person and the productivity
parameter are higher. The productivity parameter is higher under better institutions and when
technologies are adopted more efficiently.
Output per capita and output per worker are
a. equal in the production model, but output per capita is smaller in general.
b. equal in general, but output per capita is smaller in the production model.
c. always equal.
d. are not equal, because output per capita is always greater. correct answers a. equal in the
production model, but output per capita is smaller in general.
Page 79 Note that in the production model output per capita and output per worker are equal, but
this need not be the case in all models. Given that you cannot have more laborers in an economy
than its population, output per capita is usually less than output per worker.
Which of the following is included in TFP?
a. The amount of labor
b. The amount of capital
c. The quality of labor
d. All of these choices are correct. correct answers c. The quality of labor
Pages 85 and 89 Because TFP represents the residual, it includes anything not explicitly in the
mathematical model. The amount of labor and capital are included, but differences in human
capital (labor quality) are not explicitly included in the model—and thus are in TFP.
Suppose India has a per capita GDP that is .074 times the United States GDP. It has a capital-
per-person ratio that is .035 times that of the United States. Compared to the United States, the
implied value of total factor productivity for India is approximately
, a 0.07
b. 0.23
c. 0.30
d. 0.12 correct answers b. 0.23
Page 85 The United States is standardized to a value of 1 in this problem. The implied value of
TFP is equal to the ratio of output per person divided by the capital-to-labor ratio raised to the
1/3 power.
We cannot tell whether the production function Y = K^á * L^(1-á) has constant returns to scale,
because we do not know the value of á.
a. False
b. True correct answers a. False
Page 71 The Cobb-Douglas production function has constant returns to scale because the
exponents á + (1 - á) sum to 1.
Capital per person explains about one-half of the difference in per capita income between the
richest and poorest countries.
a. True
b. False correct answers b. False
Page 87 The capital-to-population ratio explains about one-quarter of the difference, while TFP
explains the rest.
In a Cobb-Douglas production function, the factor share of income going to each input is equal
to the exponent on the input in the production function.
a. False
b. True correct answers b. True
Pages 76-77 Regardless of the amount of capital or labor in an economy, the exponents in the
production function determine the factor shares.
The standard replication argument implies that Italy can double its per capita GDP by doubling
the amount of capital per person.
a. True
b. False correct answers b. False
Page 81 Capital per person is subject to diminishing returns to capital. Thus, because the
exponent on capital per person is less than 1, doubling it will not double per capita output.
If the marginal product of capital is less than the rental rate of capital, the firm should rent more
capital.
a. False
b. True correct answers a. False
