Deck 5: The Solow Growth Model

Question 1

If
Denotes consumption,
Denotes investment,and
Is output,the resource constraint in the Solow model is:

A) .
B) .
C) .
D) .
E)none of the above

Answer 1

B

Question 2

Using the Solow model,if,in time t = 0,the initial capital stock is
,investment is
,and
Is the depreciation rate,capital accumulation is:

A) .
B) .
C) .
D) .
E) .

Answer 2

C

Question 3

Using the Solow model,if,in time t = 50,the capital stock is
,investment is
,and
Is the depreciation rate,capital accumulation is

A) .
B) .
C) .
D) .
E) .

Answer 3

E

Question 4

The production function used in the Solow model is:

A) .
B) .
C) .
D) .
E) .

Question 5

In the Solow model,in every period,a fraction of total output __________,which __________.

A)is saved;reduces next period's capital stock
B)depreciates;adds to next period's capital stock
C)is saved;adds to next period's capital stock
D)is consumed;adds to next period's capital stock
E)is consumed;reduces next period's capital stock

Question 6

In the Solow model,if
,the capital stock:

A)declines.
B)stays the same.
C)grows.
D)Not enough information is given.
E)none of the above

Question 7

In the Solow model,it is assumed that a(n)__________ fraction of capital depreciates regardless of the capital stock.

A)increasing
B)constant
C)decreasing
D)undetermined
E)none of the above

Question 8

In the Solow model,if investment is __________ depreciation,the capital stock __________.

A)less than;declines
B)greater than;grows
C)greater than;declines
D)equal to;declines
E)a and b are correct.

Question 9

In the Solow model,the parameter
Denotes __________ and is __________.

A)investment;less than one
B)the depreciation rate;equal to zero
C)consumption;greater than one
D)the depreciation rate;less than one
E)investment;greater than one

Question 10

The key insight in the Solow model is that:

A)saving rates are determined in a particular manner.
B)savings have no impact on economic growth.
C)capital depreciation enhances economic growth.
D)the relationship between capital and output is static.
E)capital accumulation contributes to economic growth.

Question 11

In the corn farm example,saving some of the corn produced:

A)future output,which grows over time.
B)higher consumption in the future.
C)future output,which grows over time.
D)higher consumption today.
E)both a and b

Question 12

The endogenous variables in the Solow model are:

A)the capital stock,labor,and output.
B)consumption,investment,the capital stock,labor,and the saving rate.
C)consumption,investment,the capital stock,labor,and output.
D)productivity and the depreciation and saving rates.
E)the capital stock,labor,output,and the saving rate.

Question 13

In the Solow model,defining
As the saving rate,Yt as output,and
As investment,consumption is given by:

A) .
B) .
C) .
D) .
E) .

Question 14

In the Solow model,defining
As the saving rate,
As output;and
As consumption,investment
Is given by:

A) .
B) .
C) .
D) .
E) .

Question 15

The Solow model describes:

A)how saving rates are determined.
B)the static relationship between capital and output.
C)how savings,population growth,and technological change affect output over time.
D)how savings,population growth,and technological change affect output in a single period.
E)what constitutes technological change.

Question 16

The amount of capital in an economy is a (an)__________,while the amount of investment is a (an)__________.

A)flow;stock
B)stock;flow
C)final good;intermediate good
D)intermediate good;final good
E)none of the above

Question 17

Capital accumulation is a:

A)stock.
B)flow.
C)final good.
D)intermediate good.
E)none of the above

Question 18

In the Solow model,the equation of capital accumulation is:

A) .
B) .
C) .
D) .
E)Both a and b are correct.

Question 19

The Solow model of economic growth:

A)endogenizes labor.
B)endogenizes physical capital.
C)exogenizes physical capital.
D)exogenizes investment.
E)endogenizes investment.

Question 20

In the corn farm example,corn can be used as:

A)only investment.
B)either saving or depreciation.
C)only consumption.
D)either consumption or investment.
E)tax revenue.

Question 21

The Solow model assumes the saving rate is:

A)zero.
B)constant.
C)decreasing as income increases.
D)increasing as income increases.
E)larger as the interest rate rises.

Question 22

If we define the saving rate as
,output as
,and the depreciation rate as
,and if
,the economy is:

A)contracting.
B)growing.
C)at the steady state.
D)in its short-run equilibrium.
E)none of the above

Question 23

In the Solow model,if net investment is positive,

A)capital accumulation is zero.
B)capital accumulation is negative.
C)capital accumulation is positive.
D)Not enough information is given.
E)savings are negative.

Question 24

In Figure 5.1,if the economy begins with the initial capital stock at K3,the capital stock __________ and the economy __________.

A)will increase;grow
B)will decrease;shrink
C)stay constant;is in its steady state
D)will decrease;is in its steady state
E)will stay constant;shrink

Question 25

In Figure 5.1,if the economy begins with the initial capital stock at K1,the capital stock will __________ and the economy will __________.

A)decrease,grow
B)increase,grow
C)stay constant,shrink
D)decrease,shrink
E)stay constant,grow

Question 26

Which of the following are an exogenous variable in the Solow model?

A)productivity
B)depreciation rate
C)saving rate
D)the initial capital stock
E)all of the above

Question 27

In the Solow model,the steady-state level of output per worker is a function of:

A)productivity.
B)the initial capital stock,productivity,and the saving rate.
C)the initial capital stock,productivity,and the depreciation rate.
D)the initial capital stock and the steady-state level of capital stock.
E)productivity,the depreciation rate,and the saving rate.

Question 28

A change in the capital stock,
,can be expressed as a function of the saving rate,
,output,
,the capital stock,
,and the depreciation rate,
,by:

A) .
B)
C) .
D) .
E) .

Question 29

The Solow model assumes:

A)the capital stock is constant.
B)the number of workers is growing.
C)the number of workers is constant.
D)the saving rate changes each period.
E)the depreciation rate changes each period.

Question 30

In the Solow model,if,in the absence of any shocks,the capital stock remains at K* forever,this rest point is called the __________.

A)saving rate
B)short-run equilibrium
C)steady state
D)the rate of capital accumulation
E)none of the above

Question 31

In Figure 5.1,the capital stock at K1 is not the steady state because:

A)the saving rate is too low.
B)the saving rate is too high.
C)the depreciation rate is too low.
D)gross investment is higher than capital depreciation.
E)gross investment is lower than capital depreciation.

Question 32

If we define the saving rate as
,output as
,and the depreciation rate as
,and if
,the economy is:

A)contracting.
B)at the steady state.
C)growing.
D)in its short-run equilibrium.
E)none of the above

Question 33

The steady state is defined as the point where capital accumulation,DKt,is equal to:

A)the saving rate.
B)zero.
C)the depreciation rate.
D)the productivity growth rate.
E)the population growth rate.

Question 34

In Figure 5.1,at K1,net investment is __________ and the economy __________.

A)negative;will grow
B)positive;is in its steady state
C)zero;is in its steady state
D)positive;will grow
E)negative;will contract

Question 35

In the Solow model,the steady-state capital stock is a function of:

A)productivity.
B)the initial capital stock,productivity,and the saving rate.
C)the initial capital stock,productivity,and the depreciation rate.
D)the labor stock and the steady-state level of capital stock.
E)productivity,the depreciation rate,the labor stock,and the savings rate.

Question 36

In Figure 5.1,if the economy begins with the initial capital stock at K2,the capital stock will __________ and the economy will __________.

A)decrease,grow
B)increase,grow
C)stay constant;be in its steady state
D)stay constant,shrink
E)stay constant,grow

Question 37

In the Solow model,investment,
,as a function of saving,
,and output,
,is written as:

A) .
B) .
C) .
D) .
E) .

Question 38

In the Solow model,if capital is in the steady state,then output:

A)will continue to grow.
B)is also in the steady state.
C)will continue to grow but its rate of growth will slow down.
D)will decline but its rate of growth will be positive.
E)will begin to contract.

Question 39

In the Solow model,net investment is defined as:

A)investment plus capital depreciation.
B)investment minus capital depreciation.
C)the saving rate minus the depreciation rate.
D)the saving rate plus the depreciation rate.
E)none of the above

Question 40

The equation
,is called:

A)saving.
B)investment.
C)net investment.
D)the capital stock.
E)depreciation.

Question 41

An increase in the __________ leads to a higher steady-state level of output per worker;and a decline in __________ leads to a lower steady-state level of output per worker.

A)productivity;saving rate
B)saving rate;productivity
C)saving rate;depreciation rate
D)Both a and b are correct.
E)none of the above

Question 42

The steady-state level of output per worker in the Solow model,with the production function
,is given by:

A)
B)
C)
D)
E)

Question 43

In Figure 5.2,at
,capital accumulation is __________;the economy is __________;and consumption is __________.

A)positive;growing;positive
B)zero;in the steady state;zero
C)negative;growing;positive
D)zero;in the steady state;positive
E)zero;contracting;negative

Question 44

In the Solow model,it is assumed a(n)__________ fraction of capital depreciates each period.

A)zero
B)increasing
C)decreasing
D)constant
E)none of the above

Question 45

In the Solow model,if we assume that capital depreciation rates are the same across all countries,differences in per capita output can be explained by:

A)the steady-state capital stock.
B)the initial capital stock and saving rates.
C)differences in productivity and saving rates.
D)the labor stock and saving rates.
E)none of the above

Question 46

If the production function is given by
,the savings rate,s,is 20 percent,the depreciation rate,
,is 10 percent,and
,the steady-state level of output is:

A)1.
B)4.
C)2.
D)8.
E)3.

Question 47

The key difference between the Solow model and the production model is:

A)the Solow model endogenizes the process of capital accumulation.
B)the standard model endogenizes the process of capital accumulation.
C)the Solow model uses different values for the capital share.
D)the Solow model does not contain a productivity measure.
E)the Solow model exogenizes the process of capital accumulation.

Question 48

In the Solow model,the __________ plays a __________ role than it does in the standard production function model.

A)labor supply;larger
B)productivity parameter;larger
C)capital stock;larger
D)capital stock;smaller
E)productivity parameter;smaller

Question 49

If we define
As the saving rates in Countries 1 and 2,respectively;
As the depreciation rates in Countries 1 and 2;
As productivity in Countries 1 and 2;and the production function per worker is
,the Solow model predicts the difference in GDP per worker between Countries 1 and 2 is:

A) .
B)
C)
D)
E)

Question 50

In the standard production model,the productivity parameter enters the equation with an exponent of one,while in the Solow model it is greater than one because:

A)the endogenous level of the capital stock itself depends on productivity.
B)there is no productivity parameter in the standard production function model.
C)the productivity measure is zero in the standard production function model.
D)the productivity measure is negative in the Solow model.
E)the exogenous level of the capital stock itself depends on productivity.

Question 51

If we define
As the saving rates in Countries 1 and 2,respectively,and
As productivity in Countries 1 and 2,in the Solow model,the equation __________ predicts that __________ contributes the majority to differences in steady-state output per worker.

A) ;productivity differences
B) ;saving rate differences
C) ;productivity differences
D) ;productivity differences
E) ;saving rate differences

Question 52

If a natural disaster destroys a large portion of a country's capital stock but the saving and depreciation rates are unchanged,the Solow model predicts that the economy will grow and eventually reach:

A)the same steady-state level of output as it would have before the disaster.
B)a higher steady-state level of output than it would have before the disaster.
C)a lower steady-state level of output than it would have before the disaster.
D)Not enough information is given.
E)None of the above is correct.

Question 53

Suppose you are given the data for Brazil and Portugal.In Brazil,the saving rate is 0.1 and the depreciation rate is 0.1,while in Portugal the saving rate is 0.2 and the depreciation rate is 0.1.Using the Solow model,you conclude that in the steady state:

A)Brazil has a higher level of output than Portugal.
B)Brazil has a higher capital-output ratio than Portugal.
C)Portugal has a higher level of output than Brazil.
D)Portugal has a higher capital-output ratio than Brazil.
E)Portugal and Brazil have the same capital-output ratio.

Question 54

An increase in the __________ leads to a higher steady-state capital stock;and a decline in __________ leads to a lower steady-state capital stock.

A)saving rate;depreciation rate
B)saving rate;productivity
C)productivity;the initial capital stock
D)depreciation rate;the labor stock
E)none of the above

Question 55

In Figure 5.2,at
,the difference between
And
Is __________ and the difference between Y and
Is __________.

A)output;investment
B)net investment;consumption
C)gross investment;consumption
D)output;consumption
E)depreciation;gross investment

Question 56

An increase in the __________ leads to a higher steady-state level of output;and an increase in __________ leads to a lower steady-state level of output.

A)saving rate;depreciation rate
B)saving rate;productivity
C)productivity;the initial capital stock
D)depreciation rate;the labor stock
E)none of the above

Question 57

Assume a production function is given by
)If
And
,and the steady state capital stock is 8.0,the steady-state level of capital is about:

A)8.0.
B)4.0.
C)45.3.
D)2.0.
E)22.6

Question 58

According to the Solow model,in the steady state,countries with high savings rates should have a:

A)low labor-output ratio.
B)low capital-output ratio.
C)high capital-output ratio.
D)high depreciation rate.
E)none of the above

Question 59

Assume a production function is given by
)If
And
,the depreciation rate is
,and the saving rate is
,the steady-state level of capital is about:

A)0.1.
B)2.5.
C)1.6.
D)8.0.
E)0.6.

Question 60

Assume a production function is given by
)If
,the depreciation rate is
,and the saving rate is
,the steady-state level of capital is about:

A)0.3.
B)1.3.
C)2.8.
D)0.8.
E)1.6.

Question 61

In the Solow model,saving and investing in additional factories and computers does __________ .But in the long-run,the __________ accumulation leads the return to these investments to fall.

A)lead output to grow in the medium run;diminishing returns to capital
B)lead output to grow in the long run;increasing returns to capital
C)lead output to grow in the medium run;increasing returns to capital
D)not lead output to grow in the medium run;diminishing returns to capital
E)not lead output to grow in the long run;diminishing returns to capital

Question 62

Assume two economies are identical in every way except that one has a higher saving rate.According to the Solow growth model,in the steady state,the country with the higher saving rate will have __________ level of total output and __________ rate of growth of output as (than)the country with the lower saving rate.

A)a higher;a higher
B)a higher;the same
C)a lower;a higher
D)a higher;a lower
E)the same;the same

Question 63

If the depreciation and saving rates are constant,the economy eventually will settle in the steady state in the Solow model because of:

A)the lack of productivity.
B)increasing returns to capital in production.
C)constant returns to capital in production.
D)diminishing returns to capital in production.
E)increasing returns to labor in production.

Question 64

Among the OECD countries,those that were relatively __________ in 1960 __________ between 1960 and 2000.

A)poor;grew slowly
B)rich;grew quickly
C)poor;grew quickly
D)rich;did not grow
E)poor;did not grow

Question 65

An implication of the Solow model is that,once an economy reaches the steady state,

A)long-term growth continues indefinitely.
B)long-term growth does not continue.
C)long-term growth accelerates.
D)long-term growth decelerates.
E)None of the above is correct.

Question 66

Consider Figure 5.5.If
Is the current capital stock in South Korea and
Is the current capital stock in China,according to the principle of transition dynamics:

A)China initially will grow faster than South Korea,but each will have the same steady state.
B)China initially will grow slower than South Korea,but each will have the same steady state.
C)China initially will grow faster than South Korea and will have a higher steady state.
D)China initially will grow faster than South Korea and will have a lower steady state.
E)Both South Korea and China initially will grow at the same rate and have the same steady state.

Question 67

A central lesson of the Solow model is a bit of a surprise:

A)Capital accumulation cannot serve as the engine of long-run per capita economic growth.
B)Capital accumulation is the only engine of long-run per capita economic growth.
C)Capital accumulation is the only engine of short-run per capita economic growth.
D)Saving rates serve as the engine of long-run per capita economic growth.
E)Both a and c are correct.

Question 68

A decline in the investment rate causes:

A)the steady-state level of output and capital to rise.
B)the steady-state level of output to rise and capital to fall.
C)the steady-state level of output and capital to fall.
D)the steady-state level of output and capital to remain constant.
E)the steady-state level of output to rise and capital to remain constant.

Question 69

In the Solow model,if a country's saving rate increases,the country:

A)moves from a relatively low steady state to one that is lower.
B)moves from a relatively low steady state to one that is higher.
C)moves from a relatively high steady state to one that is lower.
D)moves from a relatively low steady state to one that is higher.
E)stays at a constant steady state.

Question 70

Immediately following the increase in the investment rate,output grows rapidly.As the economy approaches its new steady state,

A)the growth rate gradually increases.
B)the growth rate gradually declines.
C)the growth rate is constant.
D)the growth rate is negative.
E)None of the above is correct.

Question 71

Consider the Solow model exhibited in Figure 5.3.
Which of the following is (are)true?
I)For any single country,the movement from point a to b is due to an increase in the saving rate,
)
Ii)For any single country,the movement from point c to b is due to an increase in capital stock for the saving rate
)
Iii)If
Stands for the saving rates in Countries 1 and 2,respectively,Country 2 has a lower saving rate.

A)i
B)ii
C)iii
D)i and ii
E)i,ii,and iii

Question 72

The principle of transition dynamics can be summarized as:

A)the further below its steady state an economy is,the faster the economy will grow.
B)the closer to its steady state an economy is,the faster the economy will grow.
C)the further below its steady state an economy is,the slower the economy will grow.
D)regardless of how close to its steady state an economy is,the economy grows at the same rate.
E)if the economy is very close to the steady state,it stops growing.

Question 73

Consider Figure 5.3,which represents two countries,1 and 2.Country __________ has a higher saving rate and will have a __________ steady state than the other country.

A)2;lower
B)1;higher
C)2;higher
D)1;lower
E)Not enough information is given.

Question 74

The analysis of how an economy approaches the steady state is called:

A)investment.
B)economic growth.
C)transition dynamics.
D)saving.
E)depreciation.

Question 75

Consider Figure 5.4,which represents two countries,1 and 2.Country __________ has a higher depreciation rate and,therefore,has a __________ steady state than the other country.

A)1;higher
B)1;lower
C)2;higher
D)2;lower
E)Not enough information is given.

Question 76

An implication of the Solow model is that,once an economy reaches the steady state,

A)per capita consumption is constant.
B)per capita output is constant.
C)per capita capital is constant.
D)per capita consumption continues to grow.
E)a,b,and c are correct.

Question 77

If the current capital stock in South Korea is greater than the current capital stock in China,according to the principle of transition dynamics,

A)China initially will grow faster than South Korea,but each will have the same steady state.
B)China initially will grow slower than South Korea,but each will have the same steady state.
C)China initially will grow faster than South Korea and will have a higher steady state.
D)China initially will grow faster than South Korea and will have a lower steady state.
E)Both South Korea and China initially will grow at the same rate and have the same steady state.

Question 78

Which of the following best answers the question,Can growth in the labor force lead to overall economic growth?

A)Population growth can produce growth in the Solow model in the aggregate but not in output per person.
B)Total capital and total production can grow as the population of the economy grows.
C)Never-only capital contributes to aggregate economic growth.
D)Population growth can produce growth in the Solow model in the aggregate and in output per person.
E)a and b are correct.

Question 79

In the Solow model,with population growth,

A)there is no steady state in output per person.
B)the economy never settles down to a steady state with no growth in output per person.
C)the economy eventually settles down to a steady state with no growth in output per person.
D)the economy eventually settles down to a steady state with no growth in aggregate output.
E)None of the above is correct.

Question 80

Consider the Solow model exhibited in Figure 5.4.
Which of the following is (are)true?
I)If 1 denotes Country 1 and 2 denotes Country 2,Country 1 has a higher saving rate.
Ii)If 1 denotes Country 1 and 2 denotes Country 2,Country 1 has a lower depreciation rate.
Iii)If 1 denotes Country 1 and 2 denotes Country 2,Country 2 has a lower steady state.

A)i
B)ii
C)iii
D)ii and iii
E)i,ii,and iii