Question 1

When an economy begins above the Golden Rule, reaching the Golden Rule:

Accepted Answer

A) produces lower consumption at all times in the future. 
B) produces higher consumption at all times in the future. 
C) requires initially reducing consumption to increase consumption in the future. 
D) requires initially increasing consumption to decrease consumption in the future. 
A) produces lower consumption at all times in the future. 
B) produces higher consumption at all times in the future. 
C) requires initially reducing consumption to increase consumption in the future. 
D) requires initially increasing consumption to decrease consumption in the future. B

Question 2

The economies of two countries, North and South, have the same production functions, depreciation rates, and saving rates. The economies of each country can be described by the Solow growth model. Population growth is faster in South than in North.
a. In which country is the level of steady-state output per worker larger? Explain.
b. In which country is the steady-state growth rate of output per worker larger?
c. In which country is the growth rate of steady-state total output greater?

Accepted Answer

a. North will have a higher level of steady-state output per worker because the population growth is faster in South. The same saving in both countries means that investment in both countries will be the same. However, capital will be spread more thinly per worker in the South, where the population is growing more rapidly. Given the same production functions, output per worker will be higher in the North because it has a higher capital per worker ratio than the South.
a. In the steady state in both countries, capital per worker is constant, so output per worker is constant. The growth rate of output per worker is zero in both North and South.
b. In the steady state, total output grows at the rate of population growth. Since South has a higher rate of population growth, the growth rate of total output will be higher in South than in North.

Question 3

Starting from a steady-state situation, if the saving rate increases, the rate of growth of capital per worker will:

Accepted Answer

A) increase and continue to increase unabated. 
B) increase until the new steady state is reached. 
C) decrease until the new steady state is reached. 
A) increase and continue to increase unabated. 
B) increase until the new steady state is reached. 
C) decrease until the new steady state is reached. B

Question 4

Suppose that two countries are exactly alike in every respect except that the citizens of country A have a higher saving rate than the citizens of country B.
a. Which country will have the higher level of output per worker in the steady state? Illustrate graphically.
b. Which country will have the faster rate of growth of output per worker in the steady state?

Accepted Answer

a. Country A will have the hig

Question 5

Explain the two uses of saving in the steady state in the Solow model with population growth, but no technological progress.

Accepted Answer

Saving supplies: (1) the investment to

Question 6

Consider two countries that are otherwise identical (have the same saving rates and depreciation rates), but the population of Country Large is 100 million, while the population of Country Small is 10 million. Use the Solow model with no technological change to compare the steady-state levels of output per worker if:
a. the population growth rates are the same in the two countries.
b. the population growth rate is higher in Country Large.

Accepted Answer

a. The steady-state levels of output pe

Question 7

It rains so much in the country of Tropicana that capital equipment rusts out (depreciates) at a much faster rate than it does in the country of Sahara. If the countries are otherwise identical, in which country will the Golden Rule level of capital per worker be higher? Illustrate graphically.

Accepted Answer

The Golden Rule lev

Question 8

When an economy begins below the Golden Rule, reaching the Golden Rule:

Accepted Answer

A) produces lower consumption at all times in the future. 
B) produces higher consumption at all times in the future. 
C) requires initially reducing consumption to increase consumption in the future. 
D) requires initially increasing consumption to decrease consumption in the future. 
A) produces lower consumption at all times in the future. 
B) produces higher consumption at all times in the future. 
C) requires initially reducing consumption to increase consumption in the future. 
D) requires initially increasing consumption to decrease consumption in the future.

Question 9

In an economy with population growth at rate n, the change in capital stock per worker is given by the equation:

Accepted Answer

A) ∆k = sf(k) + δk. 
B) ∆k = sf(k) - δk. 
C) ∆k = sf(k) + (δ + n)k. 
D) ∆k = sf(k) - (δ + n)k. 
A) ∆k = sf(k) + δk. 
B) ∆k = sf(k) - δk. 
C) ∆k = sf(k) + (δ + n)k. 
D) ∆k = sf(k) - (δ + n)k.

Question 10

Suppose an economy is initially in a steady state with capital per worker below the Golden Rule level. If the saving rate increases to a rate consistent with the Golden Rule, then in the transition to the new steady state consumption per worker will:

Accepted Answer

A) always exceed the initial level. 
B) first fall below then rise above the initial level. 
C) first rise above then fall below the initial level. 
D) always be lower than the initial level. 
A) always exceed the initial level. 
B) first fall below then rise above the initial level. 
C) first rise above then fall below the initial level. 
D) always be lower than the initial level.

Question 11

The Golden Rule level of the steady-state capital stock:

Accepted Answer

A) will be reached automatically if the saving rate remains constant over a long period of time. 
B) will be reached automatically if each person saves enough to provide for his or her 
C) retirement. implies a choice of a particular saving rate. 
D) should be avoided by an enlightened government. 
A) will be reached automatically if the saving rate remains constant over a long period of time. 
B) will be reached automatically if each person saves enough to provide for his or her 
C) retirement. implies a choice of a particular saving rate. 
D) should be avoided by an enlightened government.

Question 12

If the per-worker production function is given by y = k1/2, the saving ratio is 0.3, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is:

Accepted Answer

A) 1. 
B) 2. 
C) 4. 
D) 9. 
A) 1. 
B) 2. 
C) 4. 
D) 9.

Question 13

In an economy with no population growth and no technological change, steady-state consumption is at its greatest possible level when the marginal product of:

Accepted Answer

A) labor equals the marginal product of capital. 
B) labor equals the depreciation rate. 
C) capital equals the depreciation rate. 
D) capital equals zero. 
A) labor equals the marginal product of capital. 
B) labor equals the depreciation rate. 
C) capital equals the depreciation rate. 
D) capital equals zero.

Question 14

The Solow growth model describes:

Accepted Answer

A) how output is determined at a point in time. 
B) how output is determined with fixed amounts of capital and labor. 
C) how saving, population growth, and technological change affect output over time. 
D) the static allocation, production, and distribution of the economy's output. 
A) how output is determined at a point in time. 
B) how output is determined with fixed amounts of capital and labor. 
C) how saving, population growth, and technological change affect output over time. 
D) the static allocation, production, and distribution of the economy's output.

Question 15

In the Solow growth model of an economy with population growth but no technological change, the break-even level of investment must do all of the following except:

Accepted Answer

A) offset the depreciation of existing 
B) capital. provide capital for new workers. 
C) equal the marginal productivity of capital (MPK). 
D) keep the level of capital per worker constant. 
A) offset the depreciation of existing 
B) capital. provide capital for new workers. 
C) equal the marginal productivity of capital (MPK). 
D) keep the level of capital per worker constant.

Question 16

In the Solow growth model, the assumption of constant returns to scale means that:

Accepted Answer

A) all economies have the same amount of capital per worker. 
B) the steady-state level of output is constant regardless of the number of workers. 
C) the saving rate equals the constant rate of depreciation. 
D) the number of workers in an economy does not affect the relationship between output per worker and capital per worker. 
A) all economies have the same amount of capital per worker. 
B) the steady-state level of output is constant regardless of the number of workers. 
C) the saving rate equals the constant rate of depreciation. 
D) the number of workers in an economy does not affect the relationship between output per worker and capital per worker.

Question 17

If the national saving rate increases, the:

Accepted Answer

A) economy will grow at a faster rate forever. 
B) capital-labor ratio will increase forever. 
C) economy will grow at a faster rate until a new, higher, steady-state capital-labor ratio is reached. 
D) capital-labor ratio will eventually decline. 
A) economy will grow at a faster rate forever. 
B) capital-labor ratio will increase forever. 
C) economy will grow at a faster rate until a new, higher, steady-state capital-labor ratio is reached. 
D) capital-labor ratio will eventually decline.

Question 18

If the per-worker production function is given by y = k1/2, the saving rate (s) is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is:

Accepted Answer

A) 1. 
B) 2. 
C) 4. 
D) 9. 
A) 1. 
B) 2. 
C) 4. 
D) 9.

Question 19

Larger quantities of steady-state capital have both a positive and negative effect on consumption per worker in the Solow model (assume no population growth or technological progress). Explain.

Accepted Answer

Larger quantities of steady-state capita

Question 20

Assume that a country's per-worker production is y = k1/2, where y is output per worker and k is capital per worker. Assume also that 10 percent of capital depreciates per year (= 0.10).
a. If the saving rate (s) is 0.4, what are capital per worker, production per worker, and consumption per worker in the steady state? (Hint: Use sy = δk and y = k1/2 to get an equation in s, δ, k, and k1/2, and then solve for k.)
b. Solve for steady-state capital per worker, production per worker, and consumption per worker with s = 0.6.
c. Solve for steady-state capital per worker, production per worker, and consumption per worker with s = 0.8.
d. Is it possible to save too much? Why?

Accepted Answer

a. k = 16; y = 4; consumption per worker

When an economy begins above the Golden Rule, reaching the Golden Rule:

Starting from a steady-state situation, if the saving rate increases, the rate of growth of capital per worker will:

Explain the two uses of saving in the steady state in the Solow model with population growth, but no technological progress.

It rains so much in the country of Tropicana that capital equipment rusts out (depreciates) at a much faster rate than it does in the country of Sahara. If the countries are otherwise identical, in which country will the Golden Rule level of capital per worker be higher? Illustrate graphically.

When an economy begins below the Golden Rule, reaching the Golden Rule:

In an economy with population growth at rate n, the change in capital stock per worker is given by the equation:

Suppose an economy is initially in a steady state with capital per worker below the Golden Rule level. If the saving rate increases to a rate consistent with the Golden Rule, then in the transition to the new steady state consumption per worker will:

The Golden Rule level of the steady-state capital stock:

If the per-worker production function is given by y = k^1/2, the saving ratio is 0.3, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is:

In an economy with no population growth and no technological change, steady-state consumption is at its greatest possible level when the marginal product of:

The Solow growth model describes:

In the Solow growth model of an economy with population growth but no technological change, the break-even level of investment must do all of the following except:

In the Solow growth model, the assumption of constant returns to scale means that:

If the national saving rate increases, the:

If the per-worker production function is given by y = k^1/2, the saving rate (s) is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is:

Larger quantities of steady-state capital have both a positive and negative effect on consumption per worker in the Solow model (assume no population growth or technological progress). Explain.

The Science of Macroeconomics

The Data of Macroeconomics

National Income Where It Comes From and Where It Goes

Money and Inflation

The Open Economy

Unemployment

Economic Growth I: Capital Accumulation and Population Growth

Introduction to Economic Fluctuations

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Aggregate Demand II: Applying the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

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Exam 8: Economic Growth II: Technology, Empirics, and Policy

When an economy begins above the Golden Rule, reaching the Golden Rule:

Starting from a steady-state situation, if the saving rate increases, the rate of growth of capital per worker will:

Explain the two uses of saving in the steady state in the Solow model with population growth, but no technological progress.

It rains so much in the country of Tropicana that capital equipment rusts out (depreciates) at a much faster rate than it does in the country of Sahara. If the countries are otherwise identical, in which country will the Golden Rule level of capital per worker be higher? Illustrate graphically.

When an economy begins below the Golden Rule, reaching the Golden Rule:

In an economy with population growth at rate n, the change in capital stock per worker is given by the equation:

Suppose an economy is initially in a steady state with capital per worker below the Golden Rule level. If the saving rate increases to a rate consistent with the Golden Rule, then in the transition to the new steady state consumption per worker will:

The Golden Rule level of the steady-state capital stock:

If the per-worker production function is given by y = k1/2, the saving ratio is 0.3, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is:

In an economy with no population growth and no technological change, steady-state consumption is at its greatest possible level when the marginal product of:

The Solow growth model describes:

In the Solow growth model of an economy with population growth but no technological change, the break-even level of investment must do all of the following except:

In the Solow growth model, the assumption of constant returns to scale means that:

If the national saving rate increases, the:

If the per-worker production function is given by y = k1/2, the saving rate (s) is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is:

Larger quantities of steady-state capital have both a positive and negative effect on consumption per worker in the Solow model (assume no population growth or technological progress). Explain.

The Science of Macroeconomics

The Data of Macroeconomics

National Income Where It Comes From and Where It Goes

Money and Inflation

The Open Economy

Unemployment

Economic Growth I: Capital Accumulation and Population Growth

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Is-Lm Model

Aggregate Demand II: Applying the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

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If the per-worker production function is given by y = k^1/2, the saving ratio is 0.3, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is:

If the per-worker production function is given by y = k^1/2, the saving rate (s) is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is: