macro economics

In the Solow model with population growth and technological progress, break-even investment is necessary for all of these reasons EXCEPT to:

make employees more docile so they will work for less than the maximum wage.

The inclusion of knowledge in the definition of capital means:

marginal returns to capital do not have to diminish.

The assumption that capital has diminishing returns appears in:

the Solow model but not endogenous growth models

In an economic model, exogenous variables are:

determined independently of the model.

In the Solow model, capital accumulation explains

- positive growth rates in output per worker for some time. - a movement to a higher level of output per worker. - negative growth rates in output per worker for some time.

If the per-worker production function is given by y = k1/2, the saving rate is s = 0.25, the population growth rate is n = 0.01, depreciation equals δ = 0.04, and the economy is in steady state, then output per worker will grow at a rate of:

0

If the per-worker production function is y = k1/2, the saving rate is s = 0.25, the population growth rate is n = 0.01, depreciation is δ = 0.04, and the economy is in steady state, then total output will grow at the rate:

0.01.

The economy of the Southern Kingdom has a saving rate of s = 0.20, a depreciation rate of δ = 0.05, a population growth rate of n = 0.01, and a growth rate of effective labor g = 0.02. In the steady state, output per worker will grow at a rate of _____, and total output will grow at a rate of _____.

0.02; 0.03

A country's labor force is 60 million people in year 1. The labor force is 62.4 million people two years later. What is the growth rate of the labor force?

2 percent per year

A country's labor force is 80 million people in year 1 and 82 million in year 2. What is the labor force growth rate?

2.5 percent

If the per-worker production function is given by y = k1/2, the saving rate is s = 0.25, the population growth rate is n = 0.01, and depreciation is δ = 0.04, then the steady-state level of capital per worker is:

25.

If the per-worker production function is given by y = k1/2, the saving rate is s = 0.16, the population growth rate is n = 0.02, and depreciation is δ = 0.06, then the steady-state level of capital per worker is:

4.

If the per-worker production function is given by y = k1/2, the saving rate is s = 0.16, the population growth rate is n = 0.03, the depreciation rate is δ = 0.03, and the rate of labor-augmenting technological progress is g = 0.02, then the steady-state level of capital per effective worker is:

4.

This describes exogenous variables.

determined independently of the model.

In an economic model, endogenous variables are:

determined within the model.

The growth rate of a labor force is 0.02, and 80 million people are working. At this rate, _____ million people will be working one year later.

81.6

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

If MPK = 0.1 in the steady state of an economy with δ = 0.1 and n = 0.05, then the steady-state level of capital per worker _____ the Golden Rule level of capital per worker.

is larger than

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

Who wrote Capitalism, Socialism, and Democracy?

Joseph Schumpeter

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

In the Solow model, _____ is the population growth rate.

N

In the steady state of the Solow model with population growth,

Output per worker is constant, but output grows at the rate n.

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

There is no limit to income growth.

k

This is capital per effective worker.

y

This is output per worker.

g

This is the rate of labor-augmenting technological progress.

decreasing returns to scale

This phenomenon occurs when all inputs are scaled up by some factor but output increases by less than that factor.

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

Thomas Malthus

What is the process of 'creative destruction?'

When new products or ideas drive older products out of the market.

The production function Y = AK exhibits _____ MPK.

a constant

In the two-sector model, what would result in a constant growth rate in the efficiency of labor?

a constant fraction of the labor force in universities

Which of these factors would NOT help prevent Malthus's predictions from coming true?

a rising population growth rate

The ratio k = K / (E × L) is:

capital per effective worker.

In the Solow model with population growth, a rise in the growth rate of the labor force will:

cause capital per worker to fall.

Both the Solow model and endogenous growth models:

assume that a fraction of income is saved and invested.

Private firms undertaking research and development create _____ externalities.

both positive and negative

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

both the Solow model and endogenous growth models.

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

break-even

According to the text, including knowledge in the definition of capital makes it plausible that:

capital has constant returns.

Models of economic growth that are based on the notion of creative destruction hold that there are both winners and losers from technological progress. The winners are _____, and the losers are _____.

consumers; incumbent producers

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

Suppose that an economy has reached the Golden Rule steady state and then, because of favorable economic policies, the rate of technological progress increases. In order to return to the Golden Rule steady state, the saving rate would need to:

decrease.

An increase in u initially will _____ output and consumption; in the long run, output will grow more quickly because of the faster growth in _____.

decrease; E

In the Solow model, _____ is the rate of labor-augmenting technological progress.

g

An economy has a depreciation rate of δ = 0.05, a population growth rate of n = 0.01, and a rate of labor-augmenting technological progress of g = 0.02. If the marginal product of capital is 0.1 in the steady state, then the saving rate would need to _____ in order to reach the Golden Rule steady state.

increase

Assume that an economy has labor-augmenting technological progress but that capital does not depreciate (δ = 0), and the population growth rate is n = 0. To maintain steady-state capital per effective worker of k*:

investment is necessary to provide additional capital in the amount of gk*.

In the steady state of the Solow model with population growth:

investment per worker is at the break-even level.

In this view, capital is not necessarily the physical equipment of an economy; it also includes the development of new uses for this equipment.

investment.

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

keeps the stock of capital per worker constant.

According to the text, the assumption that capital has constant returns to scale may be plausible if the definition of capital includes:

knowledge.

In the Solow model with labor-augmenting technological progress and population growth, an increase in the saving rate will:

lead to a higher steady-state capital per effective worker.

When a firm undertakes successful research and development activities, there are likely to be:

negative externalities for competitors and positive externalities for society overall.

The conclusion that humankind will eventually produce only a subsistence level of output is an implication of:

neither the Solow model nor endogenous growth models.

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.

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*.

In the Solow model, with labor-augmenting technological progress and population growth, if the production function is y = k1/2, s = 0.5, δ = 0.02, n = 0.01, and g = 0.02, then the steady-state level of capital per worker is _____ the Golden Rule level.

the same as

When discussing research and development, "standing on the shoulders of giants" and "stepping on toes" refer:

to positive and negative externalities, respectively.

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.

In the Solow model, with labor-augmenting technological progress and population growth, a decline in the rate of depreciation of capital because of favorable climatic changes that slow the corrosion of materials _____ the steady-state capital per effective worker.

will increase

In the Solow model, _____ is output per worker.

y

The conclusion that an economy will eventually reach a steady state is drawn in:

the Solow model but not endogenous growth models.