Question

One of the central predictions of neo-classical macroeconomic growth theory is that an increase in the growth rate of the population causes at first a decline the growth rate of real output per capita, but that subsequently the growth rate returns to its natural level, itself determined by the rate of technological innovation. The intuition is that, if the growth rate of the workforce increases, then more has to be saved to provide the new workers with physical capital. However, accumulating capital takes time, so that output per capita falls in the short run.

Under the assumption that population growth is exogenous, a number of regressions of the growth rate of output per capita on current and lagged population growth were performed, as reported below. (A constant was included in the regressions but is not reported. HAC standard errors are in brackets. BIC is listed at the bottom of the table).

Regression of Growth Rate of Real Per-Capita GDP on Lags of Population Growth, United States, 1825-2000

	(1)	(2)	(3)	(4)	(5)
Lag number	Dynamic multipliers	Dynamic multipliers	Dynamic multipliers	Dynamic multipliers	Dynamic multipliers
0	-0.9 (1.3)	-1.1 (1.3)	-1.3 (1.7)	-0.2 (1.7)	-2.0 (1.5)
1	3.5 (1.6)	3.2 (1.6)	1.8 (1.6)	0.8 (1.5)	-
2	-1.3 (1.7)	-3.0 (1.6)	-2.2 (1.4)	-	-
3	0.2 (1.7)	1.5 (1.2)	-	-	-
4	-2.0 (1.5)	-	-	-	-
BIC	-234.4	-236.1	-238.5	-240.0	-241.8

(a) Which of these models is favored by the information criterion?
(b) How consistent are these estimates with the theory? Is this a fair test of the theory? Why or why not?
(c) Can you think of any improved data to test the theory?

Answer 1

1) ans : D )The central concept underlying the production possibilities curve is that of limited resources.

as production possibility frontier tells about how much we cn produce give the resources.

2)ans :C )increases product supply.

as subsidy means reducing cost of supplier. So he produces more.

3)ans : A)increase.

By law of demand

4)ans :D)resources are perfectly shiftable (equally efficient) among alternative uses.

this is assumption production possibility curve

5)ans:B) enhances economic growth by increasing the probability that a person can gain from making investments today

As private property right gives sole right for profit.So this will make man investing and which increases growth

6)ans :D)shift outward

as growth inrease means production has increased. so it will sghift outward

7)ans :A) real per capita Gross Domestic Product (GDP) growth will be less than the growth of real Gross Domestic Product (GDP).

this is bcoz as percapita GDP = GDP/population .so if population increase, percapita gdp decreases

8) ans :D. )the rate of population growth increases at the same rate as economic growth.

this is based on empirical research