Question 1

What is the marginal product of capital (MPK), as shown with the Solow model?

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Question 2

What does the Solow model predict?

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Question 3

Many policymakers are concerned that Americans do not save enough. Using the Solow growth model, with no technological change and no population growth, explain why:

a. for a given production function and depreciati on rate, the saving rate determines the level of output per worker.
b. a higher saving rate will not necessarily generate more consumpti on per worker.
c. a higher saving rate will not produce a faster steady-state growth rate of output per worker.

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Question 4

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.

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Question 5

When does a steady state occur?

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Question 6

What are the two main ingredients and assumptions of the Solow model?

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Question 7

The economy of Alpha can be described by the Solow growth model. The following are some characteristics of the Alpha economy: $\begin{array}{lr}
\text { saving rate (s) } & 0.20 \
\text { depreciati on rate  $ (  \delta   $}) & 0.12 \
\text { steady-state capital per worker ( } k) & 4 \
\text { populati on growth rate (n) } & 0.02 \
\text { steady-state output per worker } & 20,000
\end{array}$

a. What is the steady-state growth rate of output per worker in Alpha?
b. What is the steadv-state growth rate of total output in } Alpha ?
c.What is the level of steady-state consumption per worker in Alpha? 
 d. What is the steady-state level of investment per worker in Alpha?

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Question 8

How does population growth affect the steady state?

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Question 9

Compare and contrast the impact of a faster rate of population growth on the standard of living (output per worker) in the models by Solow, Malthus, and Kremer.

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Question 10

The economies of two countries, Thrifty and Profligate, have the same production functions and depreciation rates. There is no population growth or technological progress in either country. The economies of each country can be described by the Solow growth model. The saving rate in Thrifty is 0.3. The saving rate in Profligate is 0.05.

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?

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Question 11

The initial steady-state level of capital per worker in Macroland is 5. The Golden Rule level of capital per worker in Macroland is 8.

a. What must change in Macroland to achieve the Golden Rule steady state?
b. Why might the Golden Rule steady state be preferred to the initial steady state?
c. Why might some current workers in $M$ acroland prefer the initial steady state to the Golden Rule steady state?

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Question 12

How does population growth help explain why some countries are poor and some are rich?

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Question 13

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.

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Question 14

One of the key distinctions made in the analysis of the Solow growth model is between changes in levels and changes in growth rates. How does an increase in the rate of population growth change the steady-state levels and growth rates of output and output per worker in the Solow model with no technological change?

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Question 15

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.

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Question 16

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?

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Question 17

When an economy reaches a steady state other than the Golden Rule, what actions should the policy makers take to achieve the Golden Rule steady state when:
a. The economy begins with more capital than in the Golden Rule steady state
b. The economy begins with less capital than in the Golden Rule steady state

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Question 18

Define 'Golden Rule level of capital'. How is it denoted?

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Question 19

If, in a war condition, the capital stock falls rapidly, how can a country experience high growth? Give an example.

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Question 20

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

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Quiz 8: Economic Growth I: Capital Accumulation and Population Growth