ECON EXAM II

In the basic endogenous growth model, income can grow forever—even without exogenous technological progress—because:

capital does not exhibit diminishing returns.

In an economy with no population growth and no technological change, steady-state consumption is at its greatest possible level when the marginal product of

capital equals the depreciation rate.

1. Net capital outflow is equal to:

national saving minus domestic investment.

If y = k1/2, the country saves 10 percent of its output each year, and the steady-state level of capital per worker is 4, then the steady-state levels of output per worker and consumption per worker are:

2 and 1.8, respectively.

Which of the following changes would bring the U.S. capital stock, currently below the Golden Rule level, closer to the steady-state, consumption-maximizing level?

A) increasing the population growth rate B) increasing the rate of capital depreciation C) increasing the rate of technological progress D) increasing the saving rate D) increasing the saving rate

2. If the purchasing-power parity theory is true, then:

all changes in the nominal exchange rate result from changes in price levels.

The Solow growth model describes:

how saving, population growth, and technological change affect output over time.

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

increase; increase

According to efficiency-wage theories, firms benefit by paying higher-than-equilibrium wages because worker _____ increases.

productivity

When there is structural unemployment, the real wage is:

rigid at a level above the market-clearing level.

Endogenous growth theory rejects the assumption of exogenous

technological change.

In the Solow growth model, the steady-state growth rate of output per effective worker is ______, and the steady-state growth rate of output per actual worker is ______.

zero; the rate of technological progress