Question 1

If an economy with no population growth or technological change has a steady-state MPK of 0.125, a depreciation rate of 0.1, and a saving rate of 0.225, then the steady-state capital stock:

Accepted Answer

In a steady-state economy with no population growth or technological change, the Golden Rule level of capital is achieved when the marginal product of capital (MPK) equals the depreciation rate. Since the steady-state MPK of 0.125 matches the depreciation rate of 0.1, this indicates the economy is at the Golden Rule level of capital, where net investment is zero, and the economy is in a state of optimal efficiency.

Question 2

If an economy is in a steady state with no population growth or technological change and the capital stock is below the Golden Rule:

Accepted Answer

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

Question 3

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 with no population growth or technological change and where the marginal product of capital is less than the depreciation rate, steady-state consumption per worker would be higher in a steady state with a lower saving rate. This is because a lower saving rate would result in higher consumption in the present, reducing the amount of capital available for investment and ultimately resulting in a lower steady-state capital stock. This lower capital stock would mean that each unit of capital would be used more efficiently, resulting in a higher marginal product of capital and therefore higher per-worker output and consumption.

Question 4

With a per-worker production function y = k^1/2, the steady-state capital stock per worker (k*) as a function of the saving rate (s) is given by:

Accepted Answer

The answer of With a per-worker production function y =...

Question 5

Use the following to answer questions :
Exhibit: Steady-State Consumption II 
-(Exhibit: Steady-State Consumption II) The Golden Rule level of steady-state consumption per worker is:

Accepted Answer

The Golden Rule level of steady-state consumption per worker is achieved when the economy is saving just enough to keep capital (and thus output) per worker constant over time, maximizing consumption per worker. This level occurs where the difference between the output per worker and the investment necessary to keep capital per worker constant (i.e., the consumption curve) is at its maximum, which is represented by the distance BC in typical economic models.

Question 6

A reduction in the saving rate starting from a steady state with more capital than the Golden Rule causes investment to ______ in the transition to the new steady state.

Accepted Answer

Starting from a steady state with more capital than the Golden Rule, the saving rate reduction causes consumption to increase, reducing the rate of investment. Therefore, investment decreases in the transition to the new steady state.

Question 7

Use the following to answer questions  :
Exhibit: Steady-State Consumption II 
-(Exhibit: Steady-State Consumption II) The Golden Rule level of steady-state investment per worker is:

Accepted Answer

The Golden Rule level of steady-state investment per worker is the level that maximizes consumption per worker in the steady state. This is achieved when the marginal product of capital equals the depreciation rate, which is represented by the distance BC in a diagram illustrating the Solow model.

Question 8

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 9

If an economy is in a steady state with a saving rate below the Golden Rule level, efforts to increase the saving rate result in:

Accepted Answer

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

Question 10

When an economy begins above the Golden Rule, reaching the Golden Rule:

Accepted Answer

The answer of When an economy begins above the Golden...

Question 11

If an economy with no population growth or technological change has a steady-state MPK of 0.1, a depreciation rate of 0.1, and a saving rate of 0.2, then the steady-state capital stock:

Accepted Answer

The Golden Rule level of capital is where the marginal product of capital (MPK) equals the depreciation rate. Here, MPK = 0.1 and depreciation rate = 0.1, so the economy is at the Golden Rule level. However, since the saving rate is 0.2, which is less than the MPK, the steady-state capital stock is greater than the Golden Rule level.

Question 12

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 13

When an economy begins below the Golden Rule, reaching the Golden Rule:

Accepted Answer

The answer of When an economy begins below the Golden...

Question 14

In the Solow growth model, increases in capital ______ output and ______ the amount of output used to replace depreciating capital.

Accepted Answer

According to the Solow growth model, increases in capital lead to increases in output as the production function creates a positive relationship between the two variables. However, as capital stock increases, the amount of output used to replace depreciating capital (i.e. depreciation) also increases. Therefore, both the capital and depreciation increase with the increase in capital.

Question 15

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

Accepted Answer

The answer of The Golden Rule level of the steady-state...

Question 16

To determine whether an economy is operating at its Golden Rule level of capital stock, a policymaker must determine the steady-state saving rate that produces the:

Accepted Answer

The steady-state level of capital stock that leads to the largest output per worker is the Golden Rule level of capital stock. This is because at the Golden Rule level of capital stock, the marginal product of capital (MPK) is equal to the rate of depreciation, leading to the highest level of output per worker. Therefore, the policymaker must determine the steady-state saving rate that leads to this level of capital stock.

Question 17

Exhibit: Steady-State Consumption I  The Golden Rule level of the capital-labor ratio is:

Accepted Answer

The answer of Exhibit: Steady-State Consumption I  The Golden...

Question 18

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

Accepted Answer

The answer of Suppose an economy is initially in a...

Question 19

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

In a steady state with no population growth or technological change, a fall in the saving rate will lead to a decrease in capital stock, which in turn will decrease output, investment, and depreciation. Consumption will initially increase as households consume more of their current income, but it will eventually decrease as the capital stock falls and output decreases.

Question 20

An increase in the saving rate starting from a steady state with less capital than the Golden Rule causes investment to ______ in the transition to the new steady state.

Accepted Answer

The answer of An increase in the saving rate starting...

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

If an economy with no population growth or technological change has a steady-state MPK of 0.125, a depreciation rate of 0.1, and a saving rate of 0.225, then the steady-state capital stock:

If an economy is in a steady state with no population growth or technological change and the capital stock is below the Golden Rule:

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:

With a per-worker production function y = k^1/2, the steady-state capital stock per worker (k*) as a function of the saving rate (s) is given by:

Use the following to answer questions : Exhibit: Steady-State Consumption II -(Exhibit: Steady-State Consumption II) The Golden Rule level of steady-state consumption per worker is:

A reduction in the saving rate starting from a steady state with more capital than the Golden Rule causes investment to ______ in the transition to the new steady state.

Use the following to answer questions : Exhibit: Steady-State Consumption II -(Exhibit: Steady-State Consumption II) The Golden Rule level of steady-state investment per worker is:

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 an economy is in a steady state with a saving rate below the Golden Rule level, efforts to increase the saving rate result in:

When an economy begins above the Golden Rule, reaching the Golden Rule:

If an economy with no population growth or technological change has a steady-state MPK of 0.1, a depreciation rate of 0.1, and a saving rate of 0.2, then the steady-state capital stock:

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:

When an economy begins below the Golden Rule, reaching the Golden Rule:

In the Solow growth model, increases in capital output and the amount of output used to replace depreciating capital.

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

To determine whether an economy is operating at its Golden Rule level of capital stock, a policymaker must determine the steady-state saving rate that produces the:

Exhibit: Steady-State Consumption I The Golden Rule level of the capital-labor ratio is:

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

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:

An increase in the saving rate starting from a steady state with less capital than the Golden Rule causes investment to ______ in the transition to the new steady state.

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

If an economy with no population growth or technological change has a steady-state MPK of 0.125, a depreciation rate of 0.1, and a saving rate of 0.225, then the steady-state capital stock:

If an economy is in a steady state with no population growth or technological change and the capital stock is below the Golden Rule:

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:

With a per-worker production function y = k1/2, the steady-state capital stock per worker (k*) as a function of the saving rate (s) is given by:

Use the following to answer questions : Exhibit: Steady-State Consumption II -(Exhibit: Steady-State Consumption II) The Golden Rule level of steady-state consumption per worker is:

A reduction in the saving rate starting from a steady state with more capital than the Golden Rule causes investment to ______ in the transition to the new steady state.

Use the following to answer questions : Exhibit: Steady-State Consumption II -(Exhibit: Steady-State Consumption II) The Golden Rule level of steady-state investment per worker is:

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 an economy is in a steady state with a saving rate below the Golden Rule level, efforts to increase the saving rate result in:

When an economy begins above the Golden Rule, reaching the Golden Rule:

If an economy with no population growth or technological change has a steady-state MPK of 0.1, a depreciation rate of 0.1, and a saving rate of 0.2, then the steady-state capital stock:

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:

When an economy begins below the Golden Rule, reaching the Golden Rule:

In the Solow growth model, increases in capital ______ output and ______ the amount of output used to replace depreciating capital.

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

To determine whether an economy is operating at its Golden Rule level of capital stock, a policymaker must determine the steady-state saving rate that produces the:

Exhibit: Steady-State Consumption I The Golden Rule level of the capital-labor ratio is:

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

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:

An increase in the saving rate starting from a steady state with less capital than the Golden Rule causes investment to ______ in the transition to the new steady state.

With a per-worker production function y = k^1/2, the steady-state capital stock per worker (k*) as a function of the saving rate (s) is given by:

In the Solow growth model, increases in capital output and the amount of output used to replace depreciating capital.