Intermediate Macro Exam 2

The per effective worker production function is given by y = k^1/2. And in this economy, the saving rate is 0.1, the depreciation rate is 0.04, the population growth rate is 0.02, the rate of technological change is 0.04, then the steady-state k and y are: (Production function with alpha = 1/2)

1; 1.

If the per-worker production function is given by y = k^1/2 the saving rate is 0.15, and the depreciation rate is 0.05, then the steady-state output per worker is: (Production function with alpha = 1/2)

3

Suppose for an economy the total capital stock is 6 times one year's GDP and the depreciation of capital is18 percent of the GDP. In this case, we can conclude that the depreciation rate is equal to _____ percent.

3

In the Solow growth model, if investment exceeds depreciation, the capital stock will _____, and output will_____ until the steady state is attained.

increase; increase

In the Solow growth model, for any given capital stock, the _____ determines how much output the economyproduces, and the _____ determines the allocation of output between consumption and investment.

production function; saving rate

In the Solow growth model, the steady-state level of output per (effective) worker would be higher if the_____ increased or the _____ decreased.

saving rate; population growth rate

If the marginal product of capital net depreciation equals 8 percent, the rate of growth of population equals 2percent, and the rate of labor-augmenting technical progress equals 2 percent, to reach the Golden Rule level of the capital stock, the _____ rate in this economy must be _____.

saving; increased

According to the Solow model, persistently rising living standards can only be explained by:

technological progress.

If two economies are otherwise identical (same capital share, depreciation rate, technological growth rate, andpopulation growth rate, etc.), but one country has initially a lower level of capital per worker than the other,then as the countries approach the steady state:

the country with the lower capital per worker will grow faster

In the Solow model with population growth and technological progress, the steady-state growth rate of output per effective worker is:

0

Suppose the marginal product of capital is 0.09, depreciation rate is 0.05, and technology is growing at 0.03.If the economy is at a steady state where consumption is being maximized, then the population growth rate must be:

0.1 percent

If the per-worker production function is given by y = k^1/2 and the depreciation rate is 0.05, then GoldenRule steady-state value of saving rate is: (Production function with alpha = 1/2)

0.5

If the per-worker production function is given by y = k^1/2 and the depreciation rate is 0.05, then the GoldenRule steady-state level of capital per worker is: (Production function with alpha = 1/2)

100

Suppose for an economy the capital stock is 6 times one year's GDP and the capital income is 30 percent ofGDP. In this case, we can conclude that the marginal product of capital is equal to _____ percent per year.

5

If the labor force L is growing at a 3 percent rate and the efficiency of a unit of labor E is growing at a 2percent rate, then the number of effective workers L*E is growing at a rate of:

5 percent.

If the per-worker production function is given by y = k^1/2, the saving rate is 0.15, and the depreciation rate is0.05, then the steady-state capital per worker is: (Production function with alpha = 1/2)

9

Which of these policies of the government is NOT designed to increase resources devoted to research anddevelopment?

Increasing the amount people can put in tax-exempt retirement accounts.

_____ cause(s) the capital stock to rise, while _____ cause(s) the capital stock to fall.

Investment; depreciation

In the Solow model with population growth and labor-augmenting technological progress, which of thesedescribes the condition for the maximization of consumption per effective worker at the steady state? (Hint:Think about the GRSS condition. And the rectangle in options should be lowercase Greek alphabet delta, i.e.the depreciation rate.)

MPK = δ + n + g

If two economies are otherwise identical (same capital share, depreciation rate, technological growth rate, andpopulation growth rate, etc.), but one economy has a smaller capital stock, then the steady-state level ofincome per worker in the economy with the smaller capital stock will be:

at the same level as in the steady state of the high capital economy

In the Solow growth model in Chapter 8, the steady state occurs when: (Read options carefully.)

capital per worker is constant.

The Golden Rule steady-state is the steady state with the highest level of _____. In this graph, the GoldenRule level of steady-state consumption per worker is______

consumption per worker; AB.

If a government's tax revenue is less than what it spends, then the government runs a budget _____, whichlead to the_____ national saving, and the_______ saving rate s compare to the government with the balancedbudget.

deficit; negative effect on; lower level of

In the Solow growth model with population growth and labor-augmenting technological change, the break-even level of investment must cover:

depreciating capital, capital for new workers, and capital for new effective workers.

In this graph, capital per worker level k2 is not the steady-state because:

depreciation is greater than investment.

In the Solow model with population growth and technological progress, the steady-state growth rate of outputper worker is:

g

ssume that two economies are identical in every way except that one has a higher saving rate. According tothe Solow growth model, in the steady state the country with the higher saving rate will have _____ level ofoutput per worker and _____ rate of growth of output per worker compared to the country with the lowersaving rate.

higher; the same

Starting from a steady-state situation, if the saving rate increases, capital per worker will:

increase until the new steady state is reached.

Differences in which of these variables do NOT prevent countries from converging to the same steady state?

initial capital stock per worker

In this graph, when the capital stock per worker is OA, AB represents:

investment per worker, and BC represents consumption per worker.

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

irst fall below and then rise above the initial level

A higher saving rate leads to a:

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

Same as previous question, the per effective worker production function is given by y = k^1/2. And in this economy, the saving rate is 0.1, the depreciation rate is 0.04, the population growth rate is 0.02, the rate of technological change is 0.04. This economy___at the Golden Rule steady state, therefore, the saving rate should___ to maximize the consumption (per effective worker): (Production function with alpha = 1/2)

is not; be increased.

If the per effective worker production function is given by y = k^1/2, the steady-state value of k in the Solow model with population growth rate at n and the rate of technological progress g is: (Production function with alpha = 1/2. And the rectangle in options should be lowercase Greek alphabet delta, i.e. the depreciation rate.)

k* = (s / (d + n + g))2.

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: (Production function with alpha = 1/2. And if you see a rectangle in the option, it means your computer cannot display the formula properly. The rectangle should be lowercase Greek alphabet delta, i.e. the depreciation rate.)

k* = (s / d)2

In the Solow model with population growth and technological progress, the steady-state growth rate of total output is:

n + g

The production function y = f (k) means:

output per worker is a function of capital per worker.

The balanced growth property of the Solow growth model with population growth and technological progresspredicts which of these sets of variables will grow at the same rate g (the rate of technological progress) in thesteady state?

output per worker, capital per worker

Balanced growth refers to the property where:

values of many variables within a country rise together in the steady state.

If two economies with the same production function, have the same depreciation rates, population growth rates and rates of technological progress, but one economy has a lower saving rate, then the steady-state level of income per worker in the economy with the lower saving rate

will be at a lower level than in the steady state of the high-saving economy.

Consider an economy described by the aggregate production function: Y = F(K,L) = K^0.5 L^0.5 the per-worker production function in this economy should be: (The production function may not be entirely displayed on your laptops. The complete production function should be Y=K^0.5L^0.5. It means that we have a CDproduction function with alpha = 0.5.

y = k^0.5

Consider an economy described by the labor-augmenting aggregate Cobb-Douglas production function: Y = F (K,LE) = K^0.5 (LE)^0.5, the per effective worker production function in this economy should be: (The production function may not be entirely displayed on your laptops. The complete production function should be Y=K^0.5(LE)^0.5. It means that alpha = 0.5.)

y = k^0.5

If the per effective worker production function is given by y = k^1/2, the steady-state value of y in the Solow model with population growth rate at n and the rate of technological progress g is: (Production function with alpha = 1/2. And the rectangle in options should be lowercase Greek alphabet delta, i.e. the depreciation rate.)

y* = s / (d + n + g).

In the Solow growth model with population growth and technological progress, the steady-state growth rateof capital per effective worker is _____, and the steady-state growth rate of capital per (normal) worker is_____.

zero; the rate of technological progress

In an economy with population growth at rate n but without any technological progress, the change in capitalstock per worker is given by the equation (Hint: the equation of motion for capital stock per worker. And ifyou see a rectangle in the option, it means your computer cannot display the formula properly. The rectangleshould be lowercase Greek alphabet delta, i.e. the depreciation rate.):

Δk = sf (k) - (δ + n) k