Question 1

As an economy adjusts to an increase in the saving rate,we would expect output per worker

Accepted Answer

In the long run, an increase in the saving rate leads to a higher level of output per worker, but not a permanently higher growth rate. Output per worker will increase until it reaches a new steady state, after which growth will return to the rate determined by technological progress.

Question 2

A reduction in the saving rate will not affect which of the following variables in the long run?

Accepted Answer

In the long run, the growth rate of output per worker is determined by technological progress, not the saving rate.

Question 3

Explain the relationship among output,saving,and investment.

Accepted Answer

The level of output (per worker)will depend on the capital-labor ratio.The amount of capital will depend on investment (and depreciation).Investment will,in turn,depend on the amount of saving.Changes in saving will cause changes in investment,capital,and,therefore,output.

Question 4

In the absence of technological progress,which of the following is true when the economy is operating at the steady state?

Accepted Answer

In a steady state without technological progress, the growth of output per worker is zero because all savings are used to replace depreciating capital, leaving no room for growth in output per worker.

Question 5

Which of the following statements is always true?

Accepted Answer

Investment is the addition of new capital to the economy, whereas depreciation is the reduction in the value of existing capital. Any change in the capital stock (increase or decrease) is equal to investment minus depreciation, which makes option D the correct statement. A is incorrect because investment can be greater or less than depreciation. B and E are incorrect because they only hold true if there are no changes in the capital stock due to other factors such as natural disasters or technological advancements. C is incorrect because it only holds true when there are no changes in investment.

Question 6

For an economy in which there is no technological progress,explain what must occur for the steady state to occur.Also explain what this implies about the rate of growth of output,output per worker,and the capital stock.

Accepted Answer

The answer of For an economy in which there is...

Question 7

Explain what condition must occur for each of the following to occur: (1)the capital stock to increase; (2)the capital stock to decrease; and (3)the capital stock to remain constant.

Accepted Answer

The answer of Explain what condition must occur for each...

Question 8

An increase in the saving rate will affect which of the following variables in the long run?

Accepted Answer

An increase in the saving rate leads to an increase in the level of investment. This, in turn, leads to an increase in the capital per worker, which leads to an increase in output per worker in the long run. Therefore, all the variables mentioned in the options (A, B, and C) will be affected in the long run.

Question 9

In the absence of technological progress,we know with certainty that an increase in the saving rate will cause which of the following?

Accepted Answer

The answer of In the absence of technological progress,we know...

Question 10

In the absence of technological progress,which of the following remains constant in the steady state equilibrium?

Accepted Answer

In the steady state equilibrium without technological progress, investment per worker, output per worker, and saving per worker all remain constant. This is because, in the steady state, the economy has reached a point where all these variables do not change over time, assuming no technological advancement to alter productivity or efficiency.

Question 11

When an economy is operating at the steady state,we know that

Accepted Answer

In the steady state, the economy is not growing, so there is no net investment. Therefore, the amount saved (which includes investment) must be exactly equal to the amount that is being depreciated (which includes the wear and tear on capital goods) to maintain the capital stock at a constant level. Therefore, steady state saving is equal to depreciation per worker. Choices A, B, and D are incorrect.

Question 12

The capital-labor ratio will tend to decrease over time when

Accepted Answer

When investment per worker is less than saving per worker, it implies that the economy is not investing enough to replace the existing capital stock that is wearing out or becoming obsolete. This leads to a decrease in the capital-labor ratio over time.

Question 13

Which of the following is not a flow variable?

Accepted Answer

The answer of Which of the following is not a...

Question 14

In the model where it is assumed that the state of technology does not change,what parameters and / or variables cause changes in steady state output per worker.

Accepted Answer

The answer of In the model where it is assumed...

Question 15

Which of the following will cause an increase in output per worker in the long run?

Accepted Answer

An increase in the saving rate (A) leads to an increase in investment, which in turn can lead to more capital per worker and higher productivity. A reduction in the depreciation rate (B) means that capital lasts longer, leading to a higher capital stock and higher output per worker. An increase in the stock of human capital (C) means that workers become more skilled and efficient at their jobs, which leads to higher productivity. Therefore, all three options (A, B, and C) will cause an increase in output per worker in the long run.

Question 16

In the absence of technological progress,an increase in the saving rate will cause which of the following?

Accepted Answer

An increase in the saving rate leads to a temporary increase in the growth of output per worker by allowing more investment in capital per worker, which boosts productivity and output. However, without technological progress, this effect is not sustainable in the long run, leading to a return to the original steady-state growth rate.

Question 17

In the absence of technological progress,we know that the level of output per worker in the steady state will

Accepted Answer

In the absence of technological progress, the level of output per worker in the steady state will remain constant. This is because as the economy approaches the steady state, the capital stock accumulates to the point where the diminishing returns to capital offset the benefits of additional accumulation, resulting in a constant level of output per worker.

Question 18

Suppose,due to the effects of a military conflict that has ended,that a country experiences a large reduction in its capital stock.Assume no other effects of this event on the economy.Which of the following will tend to occur as the economy adjusts to this situation?

Accepted Answer

When a country experiences a large reduction in its capital stock, it often leads to a period of rebuilding and investment to replace what was lost. This rebuilding process can stimulate economic activity and lead to a relatively high growth rate for some time as the economy adjusts and recovers from the reduction in capital stock.

Question 19

For this question assume that technological progress does not occur.The rate of saving in Canada has generally been greater than the saving rate in the U.S.Given this information,we know that in the long run

Accepted Answer

In the absence of technological progress, a higher saving rate in Canada compared to the U.S. implies a higher investment in capital per worker, leading to a higher capital per worker ratio in Canada. This does not necessarily translate to a higher long-term growth rate, as growth can also be influenced by other factors such as labor, technology, and efficiency. Therefore, options A, B, and C are not correct by themselves, making E the correct choice.

Question 20

Suppose depreciation per worker is less than saving per worker.Given this situation,explain what will happen to each of the following variables over time: capital per worker,output per worker,saving per worker,and consumption per worker.

Accepted Answer

The answer of Suppose depreciation per worker is less than...

Quiz 11: Saving, capital Accumulation, and Output