Question 1

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

Accepted Answer

The Golden Rule level of the steady-state capital stock implies a choice of a particular saving rate that maximizes consumption per worker in the long run. It is not reached automatically and is not something to be avoided.

Question 2

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

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 capital equals the depreciation rate. This condition ensures that the amount of capital in the economy is optimal, balancing the benefits of additional capital in terms of increased production against the costs of maintaining or replacing depreciating capital.

Question 3

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:

Accepted Answer

D

Question 4

When f(k) is drawn on a graph with increases in k noted along the horizontal axis, the:

Accepted Answer

When the slope of the line eventually gets flatter and flatter, it means that as the value of k increases, the rate of change in f(k) slows down. This indicates that the function f(k) is approaching a maximum value, and as k continues to increase, the change in f(k) becomes smaller and smaller. This behavior is consistent with functions that have a maximum value, such as a normal distribution or a hill-shaped curve.

Question 5

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

Accepted Answer

To find the steady-state ratio of output per worker (y), we set the change in capital per worker (k') and the change in output per worker (y') to zero and solve for y:

k' = sy - (n+δ)k = 0      (where s is the saving rate, n is the population growth rate (assumed to be zero in this case), and δ is the depreciation rate)
y' = f(k', L)/L - δ = 0

Substituting the given production function, we have:

y' = (kS^1u^1P^1/2)/(S+P^0.5k) - δ = 0

Solving for k, we get:

k = [(S/δ)P^-0.5u^-1y]^2

Substituting this into the production function, we get:

y = (S/δ)y^2P^-1u^-1

Rearranging, we get:

y = (δS/Pu)^0.5

Substituting the given values, we get:

y = (0.1*0.2/1)^0.5 = 0.1

Therefore, the steady-state ratio of output per worker (y) is 2.

Question 6

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

Accepted Answer

In the Solow growth model, the assumption of constant returns to scale means that if an economy doubles both its capital stock and the number of workers, output will also double. This implies that the number of workers in an economy does not affect the relationship between output per worker and capital per worker, which is the key determinant of economic growth in the Solow model. Therefore, choice D is the best answer. Choices A, B, and C are not valid implications of the assumption of constant returns to scale in the Solow model.

Question 7

The Solow growth model describes:

Accepted Answer

The Solow growth model focuses on how the changes in saving, population growth, and technological change affect the economy's output over time. It does not focus on output determination at a point in time, fixed amounts of capital and labor, or the static allocation, production, and distribution of output.

Question 8

In the Solow growth model of Chapter 8, the demand for goods equals investment:

Accepted Answer

The answer of In the Solow growth model of Chapter...

Question 9

The change in capital stock per worker (∆k) may be expressed as a function of s = the saving ratio, f(k) = output per worker, k = capital per worker, and δ = the depreciation rate, by the equation:

Accepted Answer

The equation for the change in capital stock per worker is ∆k = sf(k) - δk. This is because the increase in capital stock (∆k) is equal to the saving rate (s) times the output per worker (f(k)), minus the depreciation rate (δ) times the existing capital per worker (k).

Question 10

Investment per worker (i) as a function of the saving ratio (s) and output per worker (f(k)) may be expressed as:

Accepted Answer

Based on the given equation, investment per worker (i) is a product of the saving ratio (s) and output per worker (f(k)), which is equivalent to choice C.

Question 11

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

Accepted Answer

When the saving rate falls to a rate consistent with the Golden Rule, the economy will experience a transition towards a new steady state. During this transition period, consumption per worker will first fall below the initial level, as the economy invests more and saves less, leading to lower output and consumption. However, as the economy reaches the new steady state, consumption per worker will eventually rise back above the initial level, due to the higher level of capital per worker and increased productivity. Thus, option B is the correct answer.

Question 12

The steady-state level of capital occurs when the change in the capital stock (∆k) equals:

Accepted Answer

The steady-state level of capital is reached when the change in the capital stock (∆k) is zero, meaning that investment equals depreciation, and there is no net change in capital.

Question 13

If the national saving rate increases, the:

Accepted Answer

The answer of If the national saving rate increases, the:
...

Question 14

The Solow model shows that a key determinant of the steady-state ratio of capital to labor is the:

Accepted Answer

The Solow model includes the assumption that saving is a key determinant of long-run economic growth. Thus, the steady-state ratio of capital to labor will be determined by the saving rate (which determines investment in capital accumulation) and the depreciation rate (which determines the rate at which capital is depleted). Higher saving rates will lead to higher levels of capital accumulation and a higher steady-state ratio of capital to labor. Hence, the correct answer is C.

Question 15

If the capital stock equals 200 units in year 1 and the depreciation rate is 5 percent per year, then in year 2, assuming no new or replacement investment, the capital stock would equal units.

Accepted Answer

The answer of If the capital stock equals 200 units...

Question 16

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

Accepted Answer

When the saving rate increases, the amount of investment per worker increases, which in turn increases the rate of capital accumulation per worker. This leads to an increase in the rate of economic growth until a new, higher steady-state level of output per worker is reached. Once the new steady state is reached, the rate of growth of capital per worker will return to its original level but at a higher level of output per worker.

Question 17

If an economy is in a steady state with no population growth or technological change and the marginal product of capital is less than the depreciation rate:

Accepted Answer

In a steady state, the economy is not growing, so changes in saving rates affect consumption per worker. If the marginal product of capital is less than the depreciation rate, then increasing the saving rate does not lead to faster growth, but only to a higher capital stock and lower consumption per worker in the steady state. Therefore, steady-state consumption per worker would be higher in a steady state with a lower saving rate. The Golden Rule saving rate is the saving rate that maximizes steady-state consumption per worker, but it cannot be achieved in this case since the marginal product is less than the depreciation rate. Therefore, the economy is not following the Golden Rule. Decreasing the depreciation rate would not help achieve the Golden Rule level of consumption per worker as it depends on the marginal product of capital.

Question 18

If an economy is in a steady state with no population growth or technological change and the capital stock is above the Golden Rule level and the saving rate falls:

Accepted Answer

The answer of If an economy is in a steady...

Question 19

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 output per worker (y) is:

Accepted Answer

The answer of If the per-worker production function is given...

Question 20

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:

Accepted Answer

In the steady state, output per worker is constant (y*) and capital per effective worker (k*) is constant. Therefore, we can write the steady-state equation as:
y* = k*S^1/2*U1*(P1/2)/(S+δ) 
where δ is the depreciation rate which is given as 0.1.

We know that s = 0.2, and accordingly, we can express k* in terms of S as follows. 
s*Y* = δK*
0.2*Y*/K* = δ
K*/Y* = 0.2/δ = 2

Substituting this value for K*/Y* in the steady-state equation and solving for K*/S^1/2 will give us the steady-state ratio of capital to labor:

y *= k *S^1/2*U1*(P1/2)/(S+δ) 
y* = k*S^1/2*U1*(P1/2)/(S+0.1) 
1 = k*/(S^1/2*U1*(P1/2)/(S+0.1))
K*/S^1/2 = (U1*(P1/2))/(1-0.1/0.2)

K*/S^1/2 = 4

Therefore, the steady-state ratio of capital to labor is 4 (Option C).

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

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

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:

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:

When f(k) is drawn on a graph with increases in k noted along the horizontal axis, the:

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

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

The Solow growth model describes:

In the Solow growth model of Chapter 8, the demand for goods equals investment:

The change in capital stock per worker (∆k) may be expressed as a function of s = the saving ratio, f(k) = output per worker, k = capital per worker, and δ = the depreciation rate, by the equation:

Investment per worker (i) as a function of the saving ratio (s) and output per worker (f(k) ) may be expressed as:

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

The steady-state level of capital occurs when the change in the capital stock (∆k) equals:

If the national saving rate increases, the:

The Solow model shows that a key determinant of the steady-state ratio of capital to labor is the:

If the capital stock equals 200 units in year 1 and the depreciation rate is 5 percent per year, then in year 2, assuming no new or replacement investment, the capital stock would equal units.

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

If an economy is in a steady state with no population growth or technological change and the marginal product of capital is less than the depreciation rate:

If an economy is in a steady state with no population growth or technological change and the capital stock is above the Golden Rule level and the saving rate falls:

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 output per worker (y) 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:

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

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

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:

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:

When f(k) is drawn on a graph with increases in k noted along the horizontal axis, the:

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

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

The Solow growth model describes:

In the Solow growth model of Chapter 8, the demand for goods equals investment:

The change in capital stock per worker (∆k) may be expressed as a function of s = the saving ratio, f(k) = output per worker, k = capital per worker, and δ = the depreciation rate, by the equation:

Investment per worker (i) as a function of the saving ratio (s) and output per worker (f(k) ) may be expressed as:

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

The steady-state level of capital occurs when the change in the capital stock (∆k) equals:

If the national saving rate increases, the:

The Solow model shows that a key determinant of the steady-state ratio of capital to labor is the:

If the capital stock equals 200 units in year 1 and the depreciation rate is 5 percent per year, then in year 2, assuming no new or replacement investment, the capital stock would equal units.

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

If an economy is in a steady state with no population growth or technological change and the marginal product of capital is less than the depreciation rate:

If an economy is in a steady state with no population growth or technological change and the capital stock is above the Golden Rule level and the saving rate falls:

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 output per worker (y) is:

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:

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 ratio is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of output per worker (y) is:

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 output per worker (y) 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: