Macro-Ch.9

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

0

Introducing labor-augmenting technological progress into the production function requires that the production function Y = F(K, L) be rewritten as:

Y = F(K, E × L).

A possible externality associated with the process of accumulating new capital is that:

a new production process may be devised

In the Solow model, with labor-augmenting technological progress and population growth, the steady-state level of capital per effective worker will

always be achieved, regardless of the starting point of the economy.

According to the text, when the steady-state capital stock is above the Golden Rule capital stock, the saving rate should:

be decreased

In the Solow model with labor-augmenting technological growth, the Golden Rule level of capital per effective worker is defined as the steady state that maximizes:

consumption per effective worker (and therefore economic well being)

Labor hoarding refers to:

continuing to employ workers during a recession to ensure they will be available in the recovery.

You can increase the savings rate by...

increasing public and private saving

Which of the following changes would bring the U.S. capital stock, currently below the Golden Rule level, closer to the steady-state, consumption-maximizing level?

increasing the savings rate

If the per-worker production function is y = Ak, where A is a positive constant, then the marginal product of capital:

is constant as k increases

capital per effective worker equation

k = K / (E × L)

According to the text, the assumption that capital has constant returns to scale may be plausible if capital is interpreted to include: Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices

knowledge

The U.S. economy has _________ capital than at the Golden Rule steady state, suggesting that it may be desirable to ________ the rate of saving

less increase

Overtime, E increases because

literacy rates of workers increase better nutrition workers better understand who they are dealing with

MPK

marginal product of capital

The Golden Rule level of capital is now defined as the steady state that

maximizes consumption per effective worker

What is constant in the steady state of the Solow model with technological progress?

the capital-output ratio the real rental price of capital capital per effective worker

Once the economy is in steady state, the rate of growth of output per worker depends only on

the rate of technological progress

The Solow growth model with technological progress predicts that, in the steady state, _____ grows at the rate of technological progress.

the real wage

a high rate of saving leads to a high rate of growth only until

the steady state is reached

capital stock

the total amount of physical capital available in a country

If two economies are identical (including having the same saving rates, population growth rates, and efficiency of labor), but one economy has a SMALLER CAPITAL STOCK, then the steady-state level of income per worker in the economy with the smaller capital stock:

will be at THE SAME level as in the steady state of the high capital economy.

Marginal Product of Capital

the additional output produced by one more unit of capital

According to the text, if economies converge (that is, if the gap in income per person becomes smaller), then this gap shrinks on average by about _____ percent per year.

2

One particular saving rate produces the ____________ state, which maximizes ________________ and thus economic well-being.

Golden Rule steady consumption per worker

If Y is output, K is capital, u is the fraction of the labor force in universities, L is labor, and E is the stock of knowledge, and the production Y = F (K,(1 - u) EL) exhibits constant returns to scale, then output (Y) will double if:

K & E are doubled

If g increases,

MPK needs to rise

The Golden Rule stock of capital per effective worker is that:

MPK − δ = n + g

Endogenous Growth Theory

Models of economic growth that try to explain the rate of technological change.

Suppose that an economy has reached the Golden Rule steady state and then, because of favorable economic policies, the rate of technological progress increases. In order the return to the Golden Rule steady state, the saving rate would need to:

decrease

In the Solow growth model with population growth and labor-augmenting technological change, the break-even level of investment must cover:

depreciating capital, capital for new workers, and capital for new effective workers

International findings suggest that countries converge to _____ steady states.

different

According to the Solow model, international differences in income per person primarily can be attributed to either differences in _____ or differences in _____.

efficiency factors of production

Technological progress in the Solow model occurs at the rate g, which is taken to be _____ to the model.

exogenous

K/ L

g

The majority of empirical evidence supports the hypothesis that economies that are open to trade _____ than comparable closed economies.

grow more rapidly

Empirical results justify substantial government subsidies to research based on the finding that the:

private return to research is less than the social return to research.

One explanation for greater economic development in moderate versus tropical climates is that institutions established by colonial settlers in moderate climates ______, while institutions established by colonists in tropical climates ______.

protected property rights were extractive and authoritarian

Another term for infrastructure investment is investment in:

public capital

The basic model of endogenous growth implies that the growth rate of output is positive as long as

s × (Y / K) exceeds the rate of depreciation.

Suppose that an economy has reached the Golden Rule steady state and then, because of favorable economic policies, the rate of technological progress increases. The new Golden Rule level of capital per effective worker will be _____ the original level.

smaller than

One economic reason for governments to decide on the allocation of saving to specific investment projects is that the private marginal returns of a project are:

substantially lower than its social marginal returns.

Total factor productivity may be measured by:

subtracting the rate of growth of capital input, multiplied by capital's share of output, plus the rate of growth of labor input, multiplied by labor's share of output, from the rate of growth of output.

Endogenous growth theory rejects the assumption of exogenous:

technological change

If two economies are identical (with the same population growth rates and rates of technological progress), but one economy has a LOWER SAVINGS RATE, then the steady-state level of income per worker in the economy with the lower saving rate:

will be at a LOWER LEVEL than in the steady state of the high-saving economy.