Question 1

Graphically illustrate and explain the effects of an increase in the saving rate on the Solow growth model.In your graph,clearly label all curves and equilibria.

Accepted Answer

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Question 2

An increase in the saving rate will not affect which of the following variables in the long run?
A)output per worker
B)the growth rate of output per worker
C)the amount of capital in the economy
D)capital per worker
E) none of the above

Accepted Answer

In the long run, the growth rate of output per worker is determined by technological progress, not the saving rate. An increase in the saving rate can affect the level of output per worker, capital per worker, and the amount of capital in the economy, but not the long-term growth rate.

Question 3

In the absence of technological progress,we know with certainty that an decrease in the saving rate will cause which of the following?
A)decrease steady state consumption
B)increase steady state consumption
C)have no effect on steady state consumption
D)decrease steady state consumption only if the decrease in saving exceeds the increase in depreciation
E) decrease steady state consumption only if the decrease in saving is less than the decrease in depreciation

Accepted Answer

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Question 4

Which of the following represents the effects in period t of an increase in the saving rate in period t?
A)no change in K / N
B)no change in Y / N
C)a reduction in C / N
D)all of the above

Accepted Answer

An increase in the saving rate in period t leads to a reduction in consumption per capita (C/N) as more income is saved rather than consumed. Over time, this increased saving leads to an accumulation of capital per capita (K/N), which can increase output per capita (Y/N). However, in the immediate period t, the effects are primarily on consumption. The options suggest immediate effects, but the comprehensive understanding is that initially, there's a reduction in C/N, and changes in K/N and Y/N are more long-term effects. Thus, considering the immediate effect, the reduction in C/N is direct, making D the correct choice as it encompasses the immediate effect on consumption while acknowledging that there are no immediate changes in K/N and Y/N.

Question 5

As an economy adjusts to an decrease in the saving rate,we would expect output per worker
A)to decrease at a constant rate and continue decreasing at that rate in the steady state.
B)to decrease at a permanently higher rate.
C)to increase at a permanently higher rate.
D)to return to its original level.
E) none of the above

Accepted Answer

A decrease in the saving rate typically leads to a lower steady-state level of capital per worker, which results in a lower output per worker in the long run. However, output per worker does not decrease at a constant rate or permanently increase; it adjusts to a new steady state. Thus, none of the given options accurately describe the expected outcome.

Question 6

Which of the following will likely cause a reduction in output per worker?
A)a reduction in education expenditures
B)a reduction in the saving rate
C)a reduction in on-the-job training
D)all of the above

Accepted Answer

Each of the choices – a reduction in education expenditures, a reduction in the saving rate, and a reduction in on-the-job training – can cause a reduction in output per worker. Education expenditures can provide workers with valuable skills, training can help workers become more productive, and a higher saving rate can permit investment in physical and human capital that can increase productivity.

Question 7

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?
A)savings rate
B)depreciation rate
C)human capital per worker
D)all of above
E) none of above

Accepted Answer

In the Solow growth model with no technological change, steady-state output per worker depends on the savings rate, depreciation rate, and human capital per worker. Higher savings rate and human capital per worker increase the steady-state output per worker, while a higher depreciation rate decreases it. Therefore, all of the above parameters/variables affect the steady-state output per worker.

Question 8

Which of the following will likely cause an increase in output per worker?
A)an increase in education expenditures
B)an increase in the saving rate
C)an increase in on-the-job training
D)all of the above

Accepted Answer

All of the above choices will likely cause an increase in output per worker. Education expenditures increase human capital which can lead to improved productivity. An increase in the saving rate provides more resources for investment which can lead to more productive capital. On-the-job training helps workers acquire new skills and knowledge, improving their productivity in their current job.

Question 9

Based on our understanding of the model presented in chapter 11,which of the following will cause a permanent increase in growth?
A)an increase in education spending
B)an increase in the saving rate
C)an increase in capital accumulation
D)all of the above
E) none of the above

Accepted Answer

The answer of Based on our understanding of the model...

Question 10

Suppose the economy is initially in the steady state.A reduction in the depreciation rate (δ)will cause
A)an increase in K / N.
B)an increase in Y / N.
C)an increase in C / N.
D)all of the above
E) none of the above

Accepted Answer

A reduction in the depreciation rate means that capital depreciates more slowly. This leads to an accumulation of capital (K) over time, as it is not being reduced as quickly by depreciation. As a result, the capital-to-labor ratio (K/N) increases because there is more capital available per worker. This increase in capital per worker (K/N) leads to an increase in output per worker (Y/N) due to higher productivity. Finally, with higher output per worker, consumption per worker (C/N) also increases, assuming a portion of the increased output is directed towards consumption. Therefore, all of the statements A, B, and C are correct, making D the correct choice.

Question 11

When the economy is in the steady state,we know with certainty that
A)investment per worker is equal to depreciation per worker.
B)consumption per worker is maximized.
C)output per worker is maximized.
D)the growth rate is maximized.
E) all of the above

Accepted Answer

In steady state, investment per worker is equal to depreciation per worker, which means that the capital stock is constant. At this point, the economy achieves its maximum sustainable output level, but it does not necessarily mean that output per worker is maximized or that consumption per worker is maximized. The growth rate is also not maximized since the economy is no longer expanding. Therefore, only option A is correct.

Question 12

Suppose the following situation exists for an economy: Kt₊₁ / N < Kt / N.Given this information,we know that
A)saving per worker equals depreciation per worker in period t.
B)saving per worker is less than depreciation per worker in period t.
C)saving per worker is greater than depreciation per worker in period t.
D)the saving rate fell in period t.
E) none of the above

Accepted Answer

The expression Kt₊₁ / N < Kt / N means that the capital (K) per worker (N) in period t+1 is less than the capital per worker in period t. This could happen only if either the saving per worker (S/N) falls or the depreciation per worker (δK/N) increases between periods t and t+1. Assuming that depreciation rate is constant, the only possibility is that saving per worker is less than the depreciation per worker in period t. Hence, option B is the correct answer.

Question 13

At the current steady state capital-labor ratio,assume that the steady state level of per capita consumption,(C / N)*,is greater than the golden rule level of steady state per capita consumption.Given this information,we can be certain that
A)a reduction in the saving rate will cause a decrease in the steady state level of per capita consumption ((C / N)*).
B)an increase in the capital-labor ratio will cause an increase in (C / N)*.
C)the capital labor ratio will tend to decrease over time.
D)the capital labor ratio will tend to increase over time.
E) a reduction in the saving rate will have an ambiguous effect on (C / N)*.

Accepted Answer

The answer of At the current steady state capital-labor ratio,assume...

Question 14

The capital-labor ratio will tend to increase over time when
A)investment per worker equals saving per worker.
B)investment per worker exceeds saving per worker.
C)investment per worker is less than depreciation per worker.
D)saving per worker equals depreciation per worker.
E) output per worker is less than capital per worker.

Accepted Answer

Investment per worker exceeding saving per worker means that more capital is being invested in each worker, resulting in an increase in the capital-labor ratio over time. Option A and D suggest a balance between investment and saving or saving and depreciation, which will not necessarily result in an increase in capital-labor ratio. Option C suggests that the amount invested per worker is less than the amount depreciated per worker, which will result in a decrease in the capital-labor ratio. Option E suggests that there is not enough capital per worker to produce the desired level of output, but does not necessarily imply an increase in the capital-labor ratio.

Question 15

Suppose the economy is initially in the steady state.An increase in the depreciation rate (δ)will cause
A)a reduction in K / N.
B)a reduction in Y / N.
C)a reduction in C / N.
D)all of the above
E) none of the above

Accepted Answer

An increase in the depreciation rate (δ) will reduce the capital stock (K) at a faster rate, which reduces K/N. This, in turn, reduces the output per capita (Y/N) and hence consumption per capita (C/N). Therefore, all of the above statements are correct.

Question 16

Suppose there is an increase in the saving rate.Explain what effect this will have on output,output per worker,the rate of growth of output,and the rate of growth of output per worker.

Accepted Answer

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Question 17

Suppose there are two countries that are identical in every way with the following exception: Country A has a lower depreciation rate (δ)than country B.Given this information,we know with certainty that
A)the growth rate will be the same in the two countries.
B)the growth rate will be higher in A than in B.
C)K / N will be higher in B.
D)Y / N will be higher in B.

Accepted Answer

The answer of Suppose there are two countries that are...

Question 18

Suppose the economy is initially in the steady state.A reduction in the depreciation rate (δ)will cause
A)an increase in K / N.
B)an increase in the growth rate in the long run.
C)a reduction in C / N.
D)all of the above

Accepted Answer

A reduction in the depreciation rate (δ) will cause an increase in the capital stock per worker (K/N) in the long run. This is because with lower depreciation, each unit of capital is being "used up" at a slower rate, so more of it can be used to produce output in the future. However, it will not necessarily lead to an increase in the growth rate (B) or a reduction in consumption per worker (C).

Question 19

In the absence of technological progress,a decrease in the saving rate will cause which of the following?
A)decrease temporarily the growth of output per worker
B)decrease the steady state growth of output per worker
C)increase temporarily the growth of output per worker
D)increase the steady state growth of output per worker
E) have an ambiguous effect on the growth of output per worker

Accepted Answer

A decrease in the saving rate leads to a decrease in investment in new capital, which can temporarily slow down the growth of output per worker until the economy adjusts to a new lower steady state. The steady state growth of output per worker is not affected by the saving rate in the long run, as it is determined by technological progress.

Question 20

During the latter half of the 1990s,the U.S.saving rate decreased.Will this reduction in the saving rate have a permanent effect on the rate of growth of output per worker? Explain.

Accepted Answer

The answer of During the latter half of the 1990s,the...

Quiz 11: Saving, capital Accumulation, and Output

Graphically illustrate and explain the effects of an increase in the saving rate on the Solow growth model.In your graph,clearly label all curves and equilibria.

An increase in the saving rate will not affect which of the following variables in the long run?

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

Which of the following represents the effects in period t of an increase in the saving rate in period t?

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

Which of the following will likely cause a reduction in output per worker?

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?

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

Based on our understanding of the model presented in chapter 11,which of the following will cause a permanent increase in growth?

Suppose the economy is initially in the steady state.A reduction in the depreciation rate (δ) will cause

When the economy is in the steady state,we know with certainty that

Suppose the following situation exists for an economy: Kt₊₁ / N < Kt / N.Given this information,we know that

At the current steady state capital-labor ratio,assume that the steady state level of per capita consumption,(C / N) *,is greater than the golden rule level of steady state per capita consumption.Given this information,we can be certain that

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

Suppose the economy is initially in the steady state.An increase in the depreciation rate (δ) will cause

Suppose there is an increase in the saving rate.Explain what effect this will have on output,output per worker,the rate of growth of output,and the rate of growth of output per worker.

Suppose there are two countries that are identical in every way with the following exception: Country A has a lower depreciation rate (δ) than country B.Given this information,we know with certainty that

Suppose the economy is initially in the steady state.A reduction in the depreciation rate (δ) will cause

In the absence of technological progress,a decrease in the saving rate will cause which of the following?

During the latter half of the 1990s,the U.S.saving rate decreased.Will this reduction in the saving rate have a permanent effect on the rate of growth of output per worker? Explain.