PrQ8

decline decrease

Assume that a war reduces a country's labor force but does not directly affect its capital stock. If the economy was in a steady state before the war and the saving rate does not change after the war, then, over time, capital per worker will _____, and output per worker will _____ as it returns to the steady state.

the same level of output per person as before.

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:

steady-state consumption per worker would be higher in a steady state with a lower saving rate.

If an economy is in a steady state with no population growth or technological change and the marginal product of capital is less than the depreciation rate:

16

If y = k^1/2, there is no population growth or technological progress, 5 percent of capital depreciates each year, and a country saves 20 percent of output each year, then the steady-state level of capital per worker is:

the number of workers in an economy does not affect the relationship between output per worker and capital per worker.

In the Solow growth model, the assumption of constant returns to scale means that:

fall fall

In the Solow model, if the economy starts with more capital per worker than the steady-state level of capital per worker, then the capital per worker will _____ and the output per worker will _____ as the economy approaches steady state.

increase

In this graph, starting from capital-labor ratio k1, the capital-labor ratio will:

fall fall

Suppose an economy is at its steady-state equilibrium and there is a permanent reduction in the saving rate of the economy. In this case, as the economy approaches its new steady state, capital per worker will _____ and output per worker will _____.

output, investment, and depreciation will decrease, and consumption will increase and then decrease but finally approach a level above its initial state.

Suppose that an economy is in its steady state and the capital stock is above the Golden Rule level. Assuming that there are no population growth or technological change, if the saving rate falls:

consumption per worker will be higher compared to the original steady state.

Suppose the economy is originally at a steady state where the marginal product of capital is less than the depreciation rate. If the saving rate of the economy changes to a rate consistent with the golden rule level of capital, then at the new steady state

AB

The Golden Rule level of steady-state consumption per worker is: AC AB BC DE

saving rate

The Solow model shows that a key determinant of the steady-state ratio of capital to labor is the:

constant proportion of income

The consumption function in the Solow model assumes that society saves a:

c* = f (k*) - 𝛿k*

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

0

The steady-state level of capital occurs when the change in the capital stock per worker (Δk) equals:

results in higher consumption at all times in the future.

When an economy begins above the Golden Rule level, reaching the Golden Rule level:

requires initially reducing consumption to increase consumption in the future.

When an economy's capital is below the Golden Rule level, reaching the Golden Rule level:

The marginal product of capital always is equal to the depreciation rate.

Which of these statements is NOT true about the steady state of the basic Solow model? -- The capital per worker and output per worker are constant. -- The investment per worker is always equal to the depreciation per worker. -- The marginal product of capital always is equal to the depreciation rate. -- The saving and consumption per worker are constant.

investment depreciation

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