ch 8 macro

In the steady state of the solow model, higher population growth leads to a ________ level of income per worker and a _________ growth in total income

lower; higher

what equation is the solow models main equation

Eq.of Motion for K

what is this formula? Y=C+I

National Income Identity

the solow growth model looks at?

determinants of economic growth and the standard of living in the long run.

what is this equation? k=sf(k)-depreciation(k)

Equation of Motion forK

what is the basic idea for capital accumulation

Investment increases the capital stock; depreciation reduces it.

T or F : Policymakers can affect the national saving rate?

T

True or False: Anything that affects the long-run rate of economic growth—even by a tiny amount—will have huge effects on living standards in the long run

True

True or false? The Solow model predicts that countries with higher rates of saving and investment will have higher levels of capital and income per worker in the long run.

True

what is the solow growth model

a major paradigm: - widely used in policymaking - benchmark against which most recent growth theories are compared

If an economy has more capital than in the Golden Rule steady state, reducing the saving rate will

decrease steady state income but increase steady state consumption

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.

If the economy has MORE capital than the Golden Rule level, then reducing saving will

increase consumption at all points in time, making all generations better off.

If the economy has LESS capital than the Golden Rule level, then increasing saving will

increase consumption for future generations, but reduce consumption for the present generation.

In the Solow model, an increase in which of the following raises steady state growth in incomer per person

none: not sav rate not depreciation not population growth rate

The Solow growth model shows that, in the long run, a country's standard of living depends:

positively on its saving rate negatively on its population growth rate

An increase in the saving rate leads to:

- higher output in the long run - faster growth temporarily - but not faster steady-state growth

what are the lessons of growth theory

1. understand why poor countries are poor 2. design policies that can help them grow 3. learn how our own growth rate is affected by shocks and our government's policies

Consider an economy with y = f(k) = k1/2, s = 0.25, and δ = 0.05. If the capital stock per worker in year 1 is at k = 16, then the capital stock in year 2 equals:

16.2

what does the equation of motion for k determine?

Determines behavior of capital over time . . . . . . which, in turn, determines behavior of all the other endogenous variables because they all depend on k.

who believed that: Larger populations put a strain on an economys food producing capacity

thomas malthus

The capital stock increases through investment and decreases through:

depreciation.

Assuming that the production function has constant returns to scale implies that:

doubling the amounts of capital and labor will double output.

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

increasing the saving rate will increase the standard of living.

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

investment

If MPK = 0.5 in the steady state of an economy, with δ = 0.05 and n = 0.01, then the steady-state level of capital per worker _____ the Golden Rule level of capital per worker.

less than

Economic growth raises?

living standards and reduces poverty

A fall in savings (ex: tax cuts, or increase in gov.spending) leads to:

lower standarad of living

According to the Solow growth model, if an economy increases its saving rate, then in the new steady state, compared with the old one, the marginal product of capital (mpk) is _________ and the growth rate of income per person is __________

lower, the same