Question 1

In the absence of productivity growth,in a steady-state economy

Accepted Answer

In a steady-state economy, the output is maintained at a constant level and there is no growth. Therefore, output per worker and consumption per worker will remain constant over time in the absence of productivity growth.

Question 2

In a steady state

Accepted Answer

In a steady state, the economy has reached a balanced level of capital accumulation and population growth. This means that both consumption per worker and the capital-labor ratio are constant. Any changes in the economy would disturb this balance and move it away from the steady state. Therefore, choice A is the best answer.

Question 3

According to the Solow model,an increase in the capital-labor ratio will

Accepted Answer

According to the Solow model, an increase in the capital-labor ratio leads to an increase in the steady-state income per worker until it reaches the Golden rule capital stock. Beyond the Golden rule capital stock, an increase in the capital-labor ratio will result in a decrease in the steady-state income per worker. Therefore, an increase in the capital-labor ratio will increase steady state consumption per worker only if the capital-labor ratio is below the Golden rule capital stock.

Question 4

The idea that measurement problems could explain the productivity slowdown since 1973 is based on the fact that

Accepted Answer

The idea that measurement problems could explain the productivity slowdown since 1973 is based on the fact that quality improvements aren't fully accounted for in the data. Official output measures make no adjustment for quality, which means that if there are improvements in quality, they are not reflected in the output data. This leads to an underestimation of economic growth and productivity gains.

Question 5

All of the following are explanations of the post-1973 productivity slowdown EXCEPT

Accepted Answer

The answer of All of the following are explanations of...

Question 6

Over the past year,an economy's labor supply increased from 100 to 102,its capital stock increased from 1000 to 1030,and its output increased from 500 to 525.All measurements are in real terms.Calculate the contributions to economic growth of growth in capital,labor,and productivity if aK = 0.2 and aN = 0.8.

Accepted Answer

The answer of Over the past year,an economy's labor supply...

Question 7

The Golden Rule capital-labor ratio is the level of the capital-labor ratio that,in the steady state,

Accepted Answer

The Golden Rule capital-labor ratio is the level of the capital-labor ratio that maximizes consumption per worker in the steady state. This concept is key in the Solow growth model, indicating the optimal amount of capital accumulation that allows for the highest possible standard of living in the long run.

Question 8

Why do some people think that the productivity slowdown since 1973 is just a return to normalcy after fast productivity growth during the previous 25 years?

Accepted Answer

The Great Depression and World War II had prevented technological opportunities from being exploited, leading to a surge in productivity growth during the post-war period. The slowdown since 1973 could be seen as a return to a more normal level of productivity growth, after a period of unusually fast growth. Choices A, C, and D are not accurate explanations for the productivity slowdown.

Question 9

In the Solow model,if productivity doesn't change,

Accepted Answer

In the Solow model, if productivity doesn't change, then the economy must eventually reach a steady state. This is because the capital stock and output per worker will grow at the same rate as the population and labor force, which means that the capital-labor ratio will remain constant. At the steady state, the economy reaches a balanced growth path where the growth rate is equal to the exogenous rate of technological progress. Thus, there will be no need for the capital-labor ratio to decline or rise, nor will there be any restriction on saving.

Question 10

If the capital-labor ratio is above the Golden Rule capital-labor ratio,then in the steady state,

Accepted Answer

The answer of If the capital-labor ratio is above the...

Question 11

Steady-state investment per worker is positively related to the capital-labor ratio because the higher the capital-labor ratio

Accepted Answer

The more investment per worker is required to replace depreciating capital because as the capital-labor ratio increases, maintaining that higher level of capital per worker necessitates more investment to counteract depreciation.

Question 12

The idea that saving equals investment in the Solow model means that a steady state can be reached only when

Accepted Answer

In the Solow model, the steady state is reached when capital per person (k) no longer changes. This occurs when investment per person (sf(k)) is equal to the rate of depreciation (d) plus the rate of population growth (n). From the equation, s is the savings rate, so sf(k) represents investment per person. Therefore, the best choice is D: sf(k)= (n + d)k.

Question 13

The bowed shape of the per-worker production function is caused by

Accepted Answer

The bowed shape of the per-worker production function is caused by diminishing marginal productivity of capital. As more capital is added to the production process, the marginal productivity of each additional unit of capital decreases. This leads to a point where adding more capital actually leads to a smaller increase in output. As a result, the per-worker production function becomes bowed, with a decreasing slope as capital per worker increases.

Question 14

Use the growth accounting equation to calculate productivity growth,given output growth of 3.5%,capital stock growth of 5%,labor employment growth of 2%,the output elasticity of capital of 0.3,and the output elasticity of labor of 0.7.

Accepted Answer

The answer of Use the growth accounting equation to calculate...

Question 15

Steady state consumption per worker is

Accepted Answer

The answer of Steady state consumption per worker is
...

Question 16

The level of the capital-labor ratio that maximizes consumption per worker in the steady state is known as the

Accepted Answer

The level of the capital-labor ratio that maximizes consumption per worker in the steady state is known as the Golden Rule capital-labor ratio. This is because at this level, the marginal product of capital is equal to the rate of time preference of individuals, meaning that society is consuming at a sustainable rate and maximizing the welfare of future generations.

Question 17

Greenwood and Yorukoglu view the post-1973 productivity slowdown as resulting from

Accepted Answer

Greenwood and Yorukoglu attribute the post-1973 productivity slowdown to the information technology revolution, arguing that the initial phases of adopting new technologies, such as IT, can temporarily slow apparent productivity as economies adjust to new ways of working and incorporate these technologies into everyday business practices.

Question 18

The per-worker production function in the Solow model assumes

Accepted Answer

The per-worker production function in the Solow model assumes constant returns to scale but diminishing marginal productivity of capital, which means that as more capital is added, the additional output produced by each additional unit of capital decreases. This is a key assumption in the Solow model's analysis of long-run economic growth.

Question 19

From one year to the next,a country's output rose from 4000 to 4500,its capital stock rose from 10,000 to 12,000,and its labor force declined from 2000 to 1750.Suppose aK = 0.3 and aN= 0.7.
(a)How much did capital contribute to economic growth over the year?
(b)How much did labor contribute to economic growth over the year?
(c)How much did productivity contribute to economic growth over the year?

Accepted Answer

The answer of From one year to the next,a country's...

Question 20

A new pollution law requires businesses to pay for inspections of their plants by independent pollution-monitoring firms.What effect is this likely to have?

Accepted Answer

The requirement to pay for inspections by independent pollution-monitoring firms would likely reduce productivity as the costs associated with the inspections would increase operating expenses for businesses. This would likely result in businesses needing to cut costs elsewhere, potentially leading to reduced productivity. The requirement would not necessarily have an impact on capital stock or demand for labor.

Quiz 6: Long-Run Economic Growth