Exam 2 Achieve Questions

Suppose an economy has 100 units of capital, 100 units of labor, and the efficiency of each worker is equal to 2. The effective number of workers for this economy is _____ and the capital per effective worker is _____.

200: 1/2

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

constant proportion of income

The rate of labor-augmenting technological progress (g) is the growth rate of:

efficiency of labor

T/F total capital stock and total output grow at the rate of population growth in the Solow model's steady state

f

When an economys capital is below the golden rule level reaching the golden rul level requires...

initially reducing consumption to increase consumption in the future

The balanced growth property of the Solow growth model with population growth and technological progress predicts which of these sets of variables will grow at the same rate in the steady state?

output per worker, capital per worker, real wage

In the Solow model with technological progress, the steady-state growth rate of capital per effective worker is:

0

The efficiency of labor depends on

depends on the knowledge, health, and skills of labor.

T/f Marginal product of capital always equals the depreciation rate

F

Which one of these is a reason why many economists are skeptical about industrial policies?

Measuring externalities from different sectors is hard

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

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

In the two-sector endogenous growth model, income growth persists because the:

creation of knowledge in universities never slows down

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.

decline, decrease

In the Solow model with population growth and no technological progress, an increase in the population growth rate leads to a(n) _____ in the effective investment rate leading to a(n) _____ in the steady-state income per worker.

decrease;decrease

WHen an economy begins above the golden rule level there will be _______ consumption at all times in the future

higher

In the Solow model with technological progress, the steady-state growth rate of total output is:

n+g

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:

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

In the Solow growth model with population growth but no technological progress, when the economy finds itself at the Golden Rule steady state, the marginal product of capital minus the rate of depreciation will equal:

population growth rate

In a steady state with population growth and technological progress what happens to real rental price of capital and real wage growth?

real rental price of capital is constant and the real wage grows at the rate of the technological progress

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:

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

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:

same level of output as before

In a steady-state economy with a saving rate s, population growth n, depreciation rate 𝛿δ, and labor-augmenting technological progress g, the steady-state ratio of capital per effective worker (k*), in terms of output per effective worker (f (k*)), is

sf (k) / (δ + n + g).

Endogenous growth theory rejects the assumption of exogenous:

technological change

Prescott interpreted fluctuations in the Solow residual as evidence that:

technology shocks are an important source of short run economic fluctuations

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

the number of workers in an economy doesnt affect the relationship between output per worker and capital per worker