ECON Chapter-8

If the production function exhibits increasing returns to scale in the steady state, an increase in the rate of growth of population would lead to:

growth in total output but a decrease in output per worker.

Analysis of population growth around the world concludes that countries with high population growth tend to:

have a lower level of income per worker than other parts of the world.

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

implies a choice of a particular saving rate.

In the Solow growth model with population growth, but no technological change, a higher level of steady-state output per worker can be obtained by all of the following except:

increasing the population growth rate.

In the Solow growth model with population growth, but no technological progress, if in the steady state the marginal product of capital equals 0.10, the depreciation rate equals 0.05, and the rate of population growth equals 0.03, then the capital per worker ratio ____ the Golden Rule level.

is below

A higher saving rate leads to a:

larger capital stock and a higher level of output in the long run.

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:

4

Assume that two countries both have the per-worker production function y = k1/2, neither has population growth or technological progress, depreciation is 5 percent of capital in both countries, and country A saves 10 percent of output whereas country B saves 20 percent. If A starts out with a capital-labor ratio of 4 and B starts out with a capital-labor ratio of 2, in the long run:

A's capital-labor ratio will be 4 whereas B's will be 16.

(Exhibit: Steady-State Consumption II) The Golden Rule level of steady-state investment per worker is:

BC

Among the four countries—the United States, the United Kingdom, Germany, and Japan—the one that experienced the most rapid growth rate of output per person between 1948 and 1972 was:

Japan

The formula for steady-state consumption per worker (c*) as a function of output per worker and investment per worker is:

c* = f(k*) - δk*.

In this graph, capital-labor ratio k2 is not the steady-state capital-labor ratio because:

depreciation is greater than gross investment.

If an economy moves from a steady state with positive population growth to a zero population growth rate, then in the new steady state, total output growth will be ______ and growth of output per person will be ______.

lower; the same as it was before

Two economies are identical except that the level of capital per worker is higher in Highland than in Lowland. The production functions in both economies exhibit diminishing marginal product of capital. An extra unit of capital per worker increases output per worker:

more in Lowland.

According to Malthus, large populations:

place great strains on an economy's productive resources, resulting in perpetual poverty.

In the Solow growth model of Chapter 8, for any given capital stock, the ______ determines how much output the economy produces and the ______ determines the allocation of output between consumption and investment.

production function; saving rate

In the Solow growth model of Chapter 8, the economy ends up with a steady-state level of capital:

regardless of the starting level of capital.

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

sf(k).

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

slope of the line eventually gets flatter and flatter.

If a war destroys a large portion of a country's capital stock but the saving rate is unchanged, the Solow model predicts that output will grow and that the new steady state will approach:

the same level of output per person as before.