4002 econ osu chapter 9

Total output must grow at a rate of ______ in the steady state

(n+g)

efficiency of labor

A variable in the Solow growth model that measures the health, education, skills, and knowledge of the labor force.

labor - augmenting technological progress

Advances in productive capability that raise the efficiency of labor. represented by g & is the rate that the efficiency of each unit of labor (E) is growing

according to the endogenous growth model as long as _______, the economy will continue to grow forever even without exogenous technological progress

As long as sA > δ, the economy will continue to grow forever even without exogenous technological progress

Entrepreneurs rely on venture capital to bring innovations to market. Successful start-ups often generate large capital gains for their investors. If a government wants to encourage growth through investment and technological growth, should it increase taxes on capital gains or lower taxes on capital gains? A Raise the capital gains tax. B Lower the capital gains tax.

B Lower the capital gains tax

creative destruction

The process whereby entrepreneurs introduce innovations that render some incumbent producers unprofitable while promoting overall economic growth.

A simple endogenous growth model:

Y = AK ΔK = sY - δK = ΔY ΔY/Y = ΔK/K = sA - δ A is a constant that measures the amount of output that is produced for each unit of capital

The purpose of _______ growth theory is to explain technological progress. Some of these models do so by questioning the Solow model's assumption of ______ returns to capital. a. endogenous, diminishing b. endogenous, constant c. exogenous, diminishing d. exogenous, constant

a

The idea of government encouraging specific types of investments is called _____

industrial policy

capital per effective worker is .....

k = K / (E*L) & steady-state growth rate = 0

An economy is described by the information below. The steady-state capital per effective worker is ___. (Round your answer to one decimal place.) y = 2k^0.2 s = 0.28 ẟ = 0.04 n = 0.01 g = 0.02 MPK = 0.4/k^0.8

k = capital per effective worker k/f(k) = s / (ẟ + n + g) k / 2k^0.2 = 0.28 / 0.04 + 0.01 + 0.02 k / 2k^0.2 = 4 k/k^0.2 = 8 k = 13.3

Technological growth is better than ______

saving

The steady state exists when:

sf(k) = (ẟ + n + g)k

whats the most important thing we can encourage?

technological growth

Does the Solow model under or over estimate growth when there are technological externalities

underestimate

What does balanced growth mean & what does the Solow model have to do with it?

Balanced growth means that many variables rise together in the steady state & the Solow model predicts that technological change leads to balanced growth

T/F When two countries begin with different levels of capital stock per effective worker, their economies will always converge over time.

False, we would expect convergence only if the countries were similar in saving and population growth and ect (he said he really likes this one and it would be good for a test)

Output per worker will grow at a rate of __. y = 2k^0.2 s = 0.28 ẟ = 0.04 n = 0.01 g = 0.02 MPK = 0.4/k^0.8

It will grow at a rate of g which is 0.02 from the chart

Assume the rate of depreciation is 0.04, the rate of population growth is 0.01, and the rate of efficiency growth is 0.03. The MPK at the steady state Golden rule level of capital per effective labor is ___.

MPK = δ + n + g = 0.04 + 0.03 + 0.01

The steady- state consumption will be maximized if:

MPK = ẟ + n + g

The Golden Rule level of capital per effective worker is ___. (Round your answer to one decimal place.) y = 2k^0.2 s = 0.28 ẟ = 0.04 n = 0.01 g = 0.02 MPK = 0.4/k^0.8

MPK = ẟ + n + g 0.4/k^0.8 = 0.04+0.01+0.02 k = 8.8

endogenous growth theory

Models of economic growth that try to explain the rate of technological change. they are models that reject the Solow model's assumption of exogenous technological change

Ways the government can encourage more private saving?

Reduce taxes on capital Make saving tax exempt or tax deferred Replace the income tax with consumption tax

Models of Schumpeterian creative destruction aim to explain..... a. why economies grow quickly after suffering the ravages of war. b. how entrepreneurs with new products displace incumbent producers. c. how old capital is best retired and replaced with new capital. d. why seeming technological progress can reduce average income

b

If (MPK - δ) < (n + g), then the savings rate is too _____

high

Suppose an economy is described by the Solow model. The rate of population growth is 1 percent, the rate of technological progress is 3 percent, the depreciation rate is 5 percent, and the saving rate is 10 percent. In steady state, output per person grows at rate of a. 1 percent. b. 2 percent. c. 3 percent. d. 4 percent.

c

The U.S. economy has _____ capital than at the Golden Rule steady state, suggesting that it may be desirable to _____ the rate of saving. a. more, increase b. more, decrease c. less, increase d. less, decrease

c

The Golden Rule level of consumption per effective worker is ___. (Round your answer to one decimal place.) y = 2k^0.2 s = 0.28 ẟ = 0.04 n = 0.01 g = 0.02 MPK = 0.4/k^0.8

c* = f(k*) - (ẟ + n + g)k* c* = 3.08977 - 0.616 = 2.5

the endogenous growth model exhibits ____ returns to scale

constant

the Golden Rule savings rate that maximizes __________

consumption

If two countries have the same steady state, but different levels of initial capital stock, they should _____ over time

converge Convergence means that economies will move towards each other over time To have the same steady state, countries must have similar rates of saving, depreciation, population growth and labor efficiency growth In this case the poor country will grow faster than the rich country and eventually catch up

If the capital stock is 2 times annual GDP, depreciation is 8 percent of GDP, and capital income is 20 percent of GDP, then the net marginal product of capital is a. 2. b. 4. c. 5. d. 6.

d

In the steady state of the Solow model with technological progress, which of the following variables is not constant? a. capital per effective worker b. the capital-output ratio c. the real rental price of capital d. the real wage

d

You have estimated that the Golden Rule level of capital per effective worker is 16 and the output per effective worker is 8. If the rate of depreciation is 0.04, the rate of population growth is 0.01, and the rate of efficiency growth is 0.03, the Golden Rule savings rate is ___. (Express your answer as a decimal.)

k=16 f(k) = 8 ẟ = 0.04 g = 0.03 n = 0.01 k/f(k) = s / (ẟ + n + g) 16/8 = s / (0.04 + 0.03 + 0.01) 2 = s / 0.08 s = 0.16

If (MPK - δ) > (n + g), then the savings rate is too _____

low

An economy is described by the information below. The total output in the economy will grow at a rate of ___. y = 2k^0.2 s = 0.28 ẟ = 0.04 n = 0.01 g = 0.02 MPK = 0.4/k^0.8

n + g = 0.01 + 0.02 = 0.03

L * E can be interpreted as .....

the effective number of workers available for production