EC 309 Test 3

If the U.S. production function is Cobb-Douglas with capital share 0.3, output growth is 3 percent per year, depreciation is 4 percent per year, and the Golden Rule steady-state capital-output ratio is 4.29, to reach the Golden Rule steady state, the saving rate must be:

30 percent

If an economy moves from a steady state with positive population growth to a zero population growth rate, then in the new steady state, total output growth will be ______, and growth of output per person will be ______.

lower; the same as it was before

Break-even Investment

the amount of investment necessary to keep k constant

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:

0

If y = k 1/2 , 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:

2 and 1.8, respectively.

If Central Bank A cares only about keeping the price level stable and Central Bank B cares only about keeping output at its natural level, then in response to an exogenous decrease in the velocity of money:

both Central Bank A and Central Bank B should increase the quantity of money.

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:

both higher per-capita output and higher per-capita depreciation, but the increase in per-capita output would be greater

Assume that two countries both have the per-worker production function y = k 1/2 , neither has population growth or technological progress, depreciation is 5 percent of capital in both countries, and country A saves 10 percent of output whereas country B saves 20 percent. If country A starts out with a capital-labor ratio of 4 and country B starts out with a capital-labor ratio of 2, in the long run:

country A's capital-labor ratio will be 4, whereas country B's will be 16.

If the production function is Y = AK 2/3 L 1/3 in the land of Antegria, and the labor force increases by 5 percent while capital is constant, labor productivity, measured by Y / L, will:

decrease by 3.33 percent.

If the production function exhibits increasing returns to scale in the steady state, an increase in the rate of growth of population would lead to:

growth in total output and growth in output per worker.

According to the quantity theory of money, when velocity is constant, if output is higher, ______ real balances are required, and for fixed M this means ______ P.

higher; lower

If the Fed reduces the money supply by 5 percent and the quantity theory of money is true, then output will fall 5 percent in the short run, and:

prices will fall 5 percent in the long run.

If the marginal product of capital net depreciation equals 8 percent, the rate of growth of population equals 2 percent, and the rate of labor-augmenting technical progress equals 2 percent, to reach the Golden Rule level of the capital stock, the ____ rate in this economy must be _____.

saving; increased

In a steady-state economy with a saving rate s, population growth n, depreciation rate δ, and laboraugmenting technological progress g, the formula for 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).

The Golden Rule Level of Capital

steady state value of k that maximizes consumption

If the per-worker production function is given by y = k 1/2 , the saving rate (s) is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is:

4

If the marginal product of capital net of depreciation equals 10 percent and the rate of population growth equals 2 percent, then this economy will be at the Golden Rule steady state if the rate of technological progress equals _____ percent.

8

The Golden Rule level of steady-state investment per worker is:

BC

In comparing two countries with different levels of education but the same saving rate, population growth, and rate of technological progress, one would expect the more highly educated country to have:

the same growth rate of total income and a higher real wage.

If the production function is y = k1/2, the steady-state value of y is:

y = s / (δ + n + g).

Assume that the economy is initially at point A with aggregate demand given by AD 2 . A shift in the aggregate demand curve to AD 0 could be the result of either a(n) ______ in the money supply or a(n) ______ in velocity.

increase; increase

In the Solow growth model with population growth but no technological progress, if in the steady state the marginal product of capital equals 0.10, the depreciation rate equals 0.05, and the rate of population growth equals 0.03, then the capital per worker ratio ____ the Golden Rule level.

is below

If the Japanese production function is Cobb-Douglas with capital share 0.3, output growth is 3 percent per year, depreciation is 4 percent per year, and the capital-output ratio is 2.5, the saving rate that is consistent with steady-state growth is:

17.5 percent