Chapter 7

26. The production function y = f(k) means: A) labor is not a factor of production. B) output per worker is a function of labor productivity. C) output per worker is a function of capital per worker. D) the production function exhibits increasing returns to scale.

C

28. To determine whether an economy is operating at its Golden Rule level of capital stock, a policymaker must determine the steady-state saving rate that produces the: A) largest MPK. B) smallest depreciation rate. C) largest consumption per worker. D) largest output per worker.

C

14. The formula for steady-state consumption per worker (c*) as a function of output per worker and investment per worker is: A) c* = f(k*) - k*. B) c* = f(k*) + k*. C) c* = f(k*) / dk*. D) c* = k* - f(k)*.

A

20. With a per-worker production function y = k1/2, the steady-state capital stock per worker (k*) as a function of the saving rate (s) is given by: A) k* = (s/)2. B) k* = (/s)2. C) k* = s/. D) k* = /s.

A

25. With population growth at rate n but no technological change, the Golden Rule steady state may be achieved by equating the marginal product of capital (MPK): A) net of depreciation to n. B) to n. C) net of depreciation to the depreciation rate plus n. D) to the depreciation rate.

A

29. Suppose an economy is initially in a steady state with capital per worker exceeding the Golden Rule level. If the saving rate falls to a rate consistent with the Golden Rule, then in the transition to the new steady state consumption per worker will: A) always exceed the initial level. B) first fall below then rise above the initial level. C) first rise above then fall below the initial level. D) always be lower than the initial level.

A

30. If an economy is in a steady state with a saving rate below the Golden Rule level, efforts to increase the saving rate result in: A) both higher per-capita output and higher per-capita depreciation, but the increase in per-capita output would be greater. B) both higher per-capita output and higher per-capita depreciation, but the increase in per-capita depreciation would be greater. C) higher per-capita output and lower per-capita depreciation. D) lower per-capita output and higher per-capita depreciation.

A

31. In the Solow growth model of an economy with population growth but no technological change, if population grows at rate n, then capital grows at rate ______ and output grows at rate ______. A) n; n B) n; 0 C) 0; 0 D) 0; n

A

34. In the Solow growth model, an economy in the steady state with a population growth rate of n but no technological growth will exhibit a growth rate of output per worker at rate: A) 0 B) n C) D) (n + )

A

7. The steady-state level of capital occurs when the change in the capital stock (k) equals: A) 0. B) the saving rate. C) the depreciation rate. D) the population growth rate.

A

13. Starting from a steady-state situation, if the saving rate increases, the rate of growth of capital per worker will: A) increase and continue to increase unabated. B) increase until the new steady state is reached. C) decrease until the new steady state is reached. D) decrease and continue to decrease unabated.

B

18. 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: A) the economy is following the Golden Rule. B) steady-state consumption per worker would be higher in a steady state with a lower saving rate. C) steady-state consumption per worker would be higher in a steady state with a higher saving rate. D) the depreciation rate should be decreased to achieve the Golden Rule level of consumption per worker.

B

19. If an economy with no population growth or technological change has a steady-state MPKof 0.125, a depreciation rate of 0.1, and a saving rate of 0.225, then the steady-state capital stock: A) is greater than the Golden Rule level. B) is less than the Golden Rule level. C) equals the Golden Rule level. D) could be either above or below the Golden Rule level.

B

21. If Y = K0.3L0.7, then the per-worker production function is: A) Y = F(K/L). B) Y/L = (K/L)0.3. C) Y/L = (K/L)0.5. D) Y/L = (K/L)0.7.

B

23. 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: A) 2 and 1.6, respectively. B) 2 and 1.8, respectively. C) 4 and 3.2, respectively. D) 4 and 3.6, respectively.

B

32. In the Solow growth model of an economy with population growth but no technological change, if population grows at rate n, total output grows at rate ______ and output per workers grows at rate ______. A) n; n B) n; 0 C) 0; 0 D) 0; n

B

35. In the Solow growth model with population growth, but no technological progress, the steady-state amount of investment can be thought of as a break-even amount of investment because: the quantity of investment just equals the amount of: A) output needed to achieve the maximum level of consumption per worker. B) capital needed to replace depreciated capital and to equip new workers. C) saving needed to achieve the maximum level of output per worker. D) output needed to make the capital per worker ratio equal to the marginal product of capital.

B

5. Two economies are identical except that the level of capital per worker is higher in Highland than in Lowland. The production functions in both economies exhibit diminishing marginal product of capital. An extra unit of capital per worker increases output per worker: A) more in Highland. B) more in Lowland. C) by the same amount in Highland and Lowland. D) in Highland, but not in Lowland.

B

In the Solow growth model of Chapter 7, the demand for goods equals investment: Select one: A. minus depreciation. B. plus consumption. C. plus saving. D. plus depreciation.

B

In the Solow growth model of Chapter 7, where s is the saving rate, y is output per worker, and i is investment per worker, consumption per worker (c) equals: A) sy B) (1 - s)y C) (1 + s)y D) (1 - s)y - i

B

11. If the per-worker production function is given by y = k1/2, the saving rate (s) is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is: A) 1. B) 2. C) 4. D) 9.

C

24. If capital lasts an average of 25 years, the depreciation rate is ______ percent per year. A) 25 B) 5 C) 4 D) 2.5

C

33. Assume two economies are identical in every way except that one has a higher population growth rate. According to the Solow growth model, in the steady state the country with the higher population growth rate will have a ______ level of total output and ______ rate of growth of output per worker as/than the country with the lower population growth rate. A) higher; the same B) higher; a higher C) lower; the same D) lower; a lower

C

8. The Solow growth model describes: A) how output is determined at a point in time. B) how output is determined with fixed amounts of capital and labor. C) how saving, population growth, and technological change affect output over time. D) the static allocation, production, and distribution of the economy's output.

C

In the Solow growth model of Chapter 7, for any given capital stock, the ______ determines how much output the economy produces and the ______ determines the allocation of output between consumption and investment. Select one: A. saving rate; production function B. depreciation rate; population growth rate C. production function; saving rate D. population growth rate; saving rate

C

Investment per worker (i) as a function of the saving ratio (s) and output per worker (f(k)) may be expressed as: A) s + f(k). B) s - f(k). C) sf(k). D) s/f(k).

C

The change in capital stock per worker (Δk) may be expressed as a function of s—the saving ratio, f(k)—output per worker, k—capital per worker, and δ—the depreciation rate, by the equation: Select one: A. Δk = sf(k) × δk. B. Δk = sf(k) + δk. C. Δk = sf(k) - δk. D. Δk = sf(k) ÷ δk.

C

12. If the per-worker production function is given by y = k1/2, the saving ratio is 0.3, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is: A) 1. B) 2. C) 4. D) 9.

D

22. If y = k1/2, 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: A) 2. B) 4. C) 8. D) 16.

D

27. An economy in the steady state will have: A) investment exceeding depreciation. B) no depreciation. C) saving equal to consumption. D) no change in the capital stock.

D

In the Solow growth model, the assumption of constant returns to scale means that: A) all economies have the same amount of capital per worker. B) the steady-state level of output is constant regardless of the number of workers. C) the saving rate equals the constant rate of depreciation. D) the number of workers in an economy does not affect the relationship between output per worker and capital per worker.

D

When f(k) is drawn on a graph with increases in k noted along the horizontal axis, the slope of the line denotes: A) output per worker. B) output per unit of capital. C) the marginal product of labor. D) the marginal product of capital.

D

______ cause(s) the capital stock to rise, while ______ cause(s) the capital stock to fall. Select one: A. Inflation; deflation B. Interest rates; the discount rate C. International trade; depressions D. Investment; depreciation

D