Figure 5.6 a.
an increase in the depreciation rate.
d.
a decrease in the capital stock.
b.
a positive TFP shock.
e.
both a and c.
c.
a decline in the saving rate.
-The principle of transition dynamics can be summarized as:
A) the further below its steady state an economy is, the faster the economy will grow.
B) the closer to its steady state an economy is, the faster the economy will grow.
C) the further below its steady state an economy is, the slower the economy will grow.
D) regardless of how close to its steady state an economy is, the economy grows at the same rate.
E) if the economy is very close to the steady state, it stops growing.

Question

Figure 5.6  a.
an increase in the depreciation rate.
d.
a decrease in the capital stock.
b.
a positive TFP shock.
e.
both a and c.
c.
a decline in the saving rate.
-The principle of transition dynamics can be summarized as:
A) the further below its steady state an economy is, the faster the economy will grow. 
B) the closer to its steady state an economy is, the faster the economy will grow. 
C) the further below its steady state an economy is, the slower the economy will grow. 
D) regardless of how close to its steady state an economy is, the economy grows at the same rate. 
E) if the economy is very close to the steady state, it stops growing.

Quizplus · Accepted Answer

The principle of transition dynamics suggests that economies grow faster the further they are from their steady state because there are more opportunities for rapid growth through capital accumulation, technological catch-up, and efficiency improvements. As they approach the steady state, growth tends to slow down.

Figure 5.6 A