Chapter 8/9 MC

Which of these statements is NOT true about the steady state of the basic Solow model?

The marginal product of capital always is equal to the depreciation rate. True statements: The investment per worker is always equal to the depreciation per worker, the capital per worker and output per worker are constant, the saving and consumption per worker are constant.

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:

16

If an economy has a steady state MPK of 0.15 and a depreciation rate of 0.10, then the economy has _____ capital than the golden rule level and a(n) _____ in saving rate will lead to an increase in the consumption per worker in the long run.

less; increase

In the Solow growth model, the steady-state level of output per worker would be higher if the _____ increased or the _____ decreased.

saving rate; depreciation rate

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

saving rate

If the saving rate increases, the:

economy will grow at a faster rate until a new, higher, steady-state capital-labor ratio is reached.

In this graph, capital-labor ratio k2 is not the steady-state because:

depreciation is greater than gross investment.

The assumption that technological progress increases the efficiency of each unit of labor is called:

labor-augmenting technological progress

Assume that 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 output per person and _____ rate of growth of output per worker compared to the country with the lower population growth rate.

lower; the same

In the Solow model with technological change, the Golden Rule level of capital is the steady state that maximizes:

consumption per effective worker

In the Solow growth model of an economy with population growth but no technological change, the break-even level of investment must do all of these EXCEPT:

equal the marginal productivity of capital (MPK) True statements: offset the depreciation of existing capital, keep the level of capital per worker constant, provide capital for new workers