MacMillan material

What was the most important thing Malthus did NOT take into account that rendered his predictions untrue?

technological progress

Consider the production function y = k^0.5. The marginal product of capital MPK = f(k + 1) − f(k) for k = 25 is:

.1

The effective number of workers is the product of E and L. When E grows at a rate of g = 0.05, and L grows at a rate of n = 0.01, the effective number of workers grows at a rate of:

0.06.

Suppose that the per-worker production function y = f(k) = 10k0.5; in addition, the saving rate is s = 0.3, and the depreciation rate is δ = 0.01. If k = 10,000, then output per worker is _____, and investment per worker is i equals _____.

1,000; 300

The Solow model and endogenous growth theories primarily differ in the ways they treat:

technological growth.

If the marginal product of capital is 0.3, the Golden Rule steady state would be achieved when the depreciation rate is:

0.3.

The assumption that capital has constant returns appears in:

endogenous growth models but not the Solow model.

The capital stock per worker increases when:

sy > δk.

If a country had a saving rate of 100 percent, then:

there would be no consumption.

In the Solow model, _____ is output per worker.

y

In the Solow growth model, c = C / L = (1 − s)y. The simple Keynesian consumption function is C = a + bY. These two consumption functions are identical only if

(1 − s) = b and a = 0.

The amount of investment that keeps the stock of capital per worker constant is called _____ investment.

break-even

The assumption that a fraction of income is saved and invested appears in:

both the Solow model and endogenous growth models.

When the economy is in the steady state and the saving rate increases, the growth rate of output per worker:

will be positive until the economy reaches a new steady state.

In the steady state, depreciation equals investment. Therefore, the equation sf(k*) = δk* can be solved for k*, the steady-state level of capital per worker. For y = f(k) = k1/2, s = 0.25, and δ = 0.05, the steady-state level of capital k* equals:

25 k/f(k) = s/d = k/√k = .25/.05 = 5^2 = 25

The growth rate of a labor force is 0.03, and in 2020, 80 million people are working. At this rate, in 2021, _____ million people will be working one year later.

82.4

In the Solow model with population growth, which of these factors will cause capital per worker to fall?

a rise in the growth rate of the labor force

The supply of goods and services can grow for all of these reasons EXCEPT:

an increase in the interest rate.

Both the Solow model and endogenous growth models:

assume that a fraction of income is saved and invested.

An economy begins with less capital than the Golden Rule level of capital, and the saving rate increases. Initially, MOST consumers will:

be worse off.

The ratio k = K / (E × L) is:

capital per effective worker.

In the Solow growth model with population growth, in the steady state:

capital per worker and output per worker are constant.

The Solow growth model assumes that the production function has _____ returns to scale.

constant

If an economy has achieved the Golden Rule steady state, then:

consumption per worker cannot be increased.

In the Solow model, C stands for consumption, and c stands for:

consumption per worker.

What did Schumpeter call the process of entrepreneurs bringing new products or processes to the marketplace, driving out old and now outmoded items and methods?

creative destruction

When u decreases, break-even investment _____, and the growth rate of the stock of knowledge E ____.

decreases; decreases

In an economic model, exogenous variables are:

determined independently of the model.

In an economic model, endogenous variables are:

determined within the model.

When the private returns to research and development activities within a firm are 5 percent and the societal returns are 10 percent, private profit-maximizing firms:

engage in less research and development than they would if they earned the social return.

An economy begins with a level of steady-state capital per worker that is less than the Golden Rule level of capital per worker, and policymakers increase the saving rate to sgold. When the economy reaches steady state again, consumption will exceed its initial level, and output will ____ its initial level.

exceed

In the two-sector model, break-even investment must perform all of these functions EXCEPT:

give firms permanent monopolies on new products so they can recoup their investments.

An economy begins with a level of steady-state capital per worker that is less than the Golden Rule level of capital per worker, and policymakers increase the saving rate to sgold. When the economy reaches the steady state again, consumption per worker will be greater than its initial level, investment per worker will be _____ than its initial level, and the MPK will be _____ than its initial level.

greater; less

If a country begins in the steady state but would like to increase its standard of living as measured by output per worker, then the Solow growth model suggests that _____ will increase the standard of living.

increasing the saving rate

In the Solow model, I stands for _____, and i stands for investment per worker.

investment

In the Solow model, demand consists of consumption and _____; government purchases and net exports are ignored.

investment

In the Solow model, with labor-augmenting technological progress and population growth, if the production function is y = k1/2, s = 0.4, δ = 0.03, n = 0.05, and g = 0.02, then the steady-state level of capital per worker _____ the Golden Rule level.

is less than

If the production function is y = k1/2, s = 0.5, and δ = 0.05, then the steady-state level of capital per worker _____ the Golden Rule level.

is the same as

Two countries, Agora and Bensalem, have identical production functions f(k) and saving rates s, but Agora has a higher capital-labor ratio k than Bensalem. This implies all of these EXCEPT that:

output is higher in Bensalem than in Agora.

When the private returns to research and development activities within a firm are 4 percent and the societal returns are 10 percent, research and development activities have _____ externalities.

positive

The potential for profit encourages _____ to engage in research and development.

private firms but not universities

The basic model of endogenous growth implies that the growth rate of output is positive as long as:

s × (Y / K) exceeds the rate of depreciation.

According to the text, in seeking to achieve the Golden Rule steady-state capital, policymakers can only influence the:

saving rate.

To find the steady-state capital per effective worker, k*, in the Solow model with labor-augmenting technological progress, it is necessary to solve:

sf(k*) = (δ + n + g)k*.

When the capital stock per worker is greater than the steady-state capital stock per worker, the capital stock per worker will:

shrink because depreciation exceeds investment.

Who were the Luddites?

skilled artisans in England who opposed the introduction of weaving machines

The efficiency of labor reflects:

society's knowledge of production methods.

An economy will _____ move to the Golden Rule steady state.

sometimes

The assumption that capital has diminishing returns appears in:

the Solow model but not endogenous growth models.

German and Japanese output per person increased rapidly after World War II because:

they maintained high rates of saving, leading to rapid capital accumulation.

If a production function has constant returns to scale, then:

doubling the amounts of capital and labor will double output.

Assume MPK = δ + n, i.e., the slope of the production function is equal to the slope of the break-even investment line. This identifies the _____ level of capital per worker.

Golden Rule

Entrepreneurs benefit society by developing new products. What costs may be associated with entrepreneurial activities?

Some competitors may be forced out of business.

In the model with endogenous technological change, what is the implication of sA − δ > 0?

There is no limit to income growth.

_____ predicted that the pressures of an increasing population would cause widespread poverty.

Thomas Malthus

Over time, E increases for all of these reasons EXCEPT that:

employers strive to generate maximum profit from their workers.

When the capital stock per worker is lower than the steady-state capital stock per worker, the capital stock per worker will:

increase because investment exceeds depreciation.

In the Solow model with population growth and technological progress, the break-even amount of investment:

keeps the stock of capital per worker constant.

If the production function is y = 3k1/3, δ = 0.2, and k = 10, then the saving rate is ____ the Golden Rule level.

less than

If the production function is y = k1/2, s = 0.25, and δ = 0.05, then the steady-state level of capital per worker is _____ the Golden Rule level.

less than

If the production function is y = 3k1/3, δ = 0.3, and k = 10, then the saving rate is _____ the Golden Rule level.

more than

If the production function is y = 5k1/5, δ = 0.1, and k = 50, then the saving rate is _____ the Golden Rule level.

more than

In the Solow model with technological progress and population growth, _____ reflects society's knowledge of production methods.

the efficiency of labor

Suppose that two economies, Argo (A) and Benfica (B), both have a saving rate of s = 0.15, a depreciation rate of δ = 0.03, a population growth rate of n = 0.01, and a growth rate of effective labor of g = 0.02. The only difference between them is that Benfica has a better-educated workforce, so that EB > EA. According to the Solow model, these data imply that:

total output and output per worker will grow at the same rate in Benfica and Argo.