1.Which statement about the synchronization of business cycles across countries is least accurate?

A)   The less synchronized global economies are, the more valuable equity portfolio diversification is.

B)   The less synchronized global economies are, the lower the covariances in equity returns and thus the lower the risk-adjusted portfolio returns.

C)   Industrialized countries tend to be more synchronized with each other than with emerging market economies.

D)   The degree of synchronization across economies is increasing as international capital markets become more integrated.

2.Which statement about neoclassical growth theory and endogenous growth theory is most accurate?

A)   Neoclassical growth theory assumes a diminishing marginal productivity of capital.

B)   Neoclassical growth theory predicts that an increase in the savings rate will increase long-term GDP growth.

C)   Neoclassical growth theory predicts that the economy may never reach a steady state.

D)   Endogenous growth theory predicts that an increase in the savings rate in countries enjoying endogenous growth from increased efficiencies will reduce the long-run rate of dividend growth.

3.Which statement least accurately describes the behavior of capital investment and savings in the endogenous growth model?

A)   Marginal productivity of capital does not necessarily fall as more capital is employed.

B)   An increase in the savings rate increases long-run economic growth.

C)   The returns to investment in human capital do not accrue solely to the firm making the investment.

D)   An increase in the savings rate will create a smaller increase in equity values than it would under neoclassical growth theory.

4.Which statement least accurately describes the behavior of capital investment and savings in the endogenous growth model?

A)   Marginal productivity of capital does not necessarily fall as more capital is employed.

B)   An increase in the savings rate increases long-run economic growth.

C)   An increase in the savings rate will create a smaller increase in equity values than it would under neoclassical growth theory.

D)   The returns to investment in human capital do not accrue solely to the firm making the investment.

5.Which statement least accurately describes the behavior of capital investment and savings in the endogenous growth model?

A)   An increase in the savings rate will create a smaller increase in equity values than it would under neoclassical growth theory.

B)   Marginal productivity of capital does not necessarily fall as more capital is employed.

C)   An increase in the savings rate increases long-run economic growth.

D)   The returns to investment in human capital do not accrue solely to the firm making the investment.

1.Which statement about the synchronization of business cycles across countries is least accurate?

A)   The less synchronized global economies are, the more valuable equity portfolio diversification is.

B)   The less synchronized global economies are, the lower the covariances in equity returns and thus the lower the risk-adjusted portfolio returns.

C)   Industrialized countries tend to be more synchronized with each other than with emerging market economies.

D)   The degree of synchronization across economies is increasing as international capital markets become more integrated.

The correct answer was B)

The less synchronized global economies are, the lower the covariances in equity returns and thus the higher, not lower, the risk-adjusted portfolio returns. Consequently, the less synchronized global economies are, the more valuable equity portfolio diversification is. Synchronization is increasing over time, but industrialized countries may synchronize with each other without synchronizing with emerging market economies.

2.Which statement about neoclassical growth theory and endogenous growth theory is most accurate?

A)   Neoclassical growth theory assumes a diminishing marginal productivity of capital.

B)   Neoclassical growth theory predicts that an increase in the savings rate will increase long-term GDP growth.

C)   Neoclassical growth theory predicts that the economy may never reach a steady state.

D)   Endogenous growth theory predicts that an increase in the savings rate in countries enjoying endogenous growth from increased efficiencies will reduce the long-run rate of dividend growth.

The correct answer was A)

Neoclassical growth theory assumes that the marginal returns to capital diminish as more capital is employed. The neoclassical model predicts that an increase in the savings rate will increase the level of per capital GDP but not long-term GDP growth. Neoclassical growth theory predicts that the economy reaches a long-run steady state. Endogenous growth theory predicts that a higher savings rate will lead to higher long-run growth rate in dividends.

3.Which statement least accurately describes the behavior of capital investment and savings in the endogenous growth model?

A)   Marginal productivity of capital does not necessarily fall as more capital is employed.

B)   An increase in the savings rate increases long-run economic growth.

C)   The returns to investment in human capital do not accrue solely to the firm making the investment.

D)   An increase in the savings rate will create a smaller increase in equity values than it would under neoclassical growth theory.

The correct answer was D)

An increase in the savings rate results in a larger increase in equity value than under neoclassical growth because of the higher long-term growth in dividends.

4.Which statement least accurately describes the behavior of capital investment and savings in the endogenous growth model?

A)   Marginal productivity of capital does not necessarily fall as more capital is employed.

B)   An increase in the savings rate increases long-run economic growth.

C)   An increase in the savings rate will create a smaller increase in equity values than it would under neoclassical growth theory.

D)   The returns to investment in human capital do not accrue solely to the firm making the investment.

The correct answer was C)

An increase in the savings rate results in a larger increase in equity value than under neoclassical growth because of the higher long-term growth in dividends.

5.Which statement least accurately describes the behavior of capital investment and savings in the endogenous growth model?

A)   An increase in the savings rate will create a smaller increase in equity values than it would under neoclassical growth theory.

B)   Marginal productivity of capital does not necessarily fall as more capital is employed.

C)   An increase in the savings rate increases long-run economic growth.

D)   The returns to investment in human capital do not accrue solely to the firm making the investment.

The correct answer was A)     

An increase in the savings rate results in a larger increase in equity value than under neoclassical growth because of the higher long-term growth in dividends.