Learning Curve Questions - 7, 8, 9

If the per-worker production function is given by y = k^1/2, the saving rate is s = 0.25, the population growth rate is n = 0.01, and depreciation is δ = 0.04, then the steady-state level of capital per worker is: 2. 3. 5. 25.

25.

In the steady state, depreciation equals investment. Therefore, the equation sf(k*) = δk* can be solved for k*, the steady-state level of capital per worker. For y = f(k) = k^1/2, s = 0.25, and δ = 0.05, the steady-state level of capital k* equals: 2.5. 5. 12.5. 25.

25.

If E = 1 in 1990 and then increases to E = 1.5 in 2000, all else equal, it took _____ worker(s) in 1990 as long as it takes two workers in 2000 to produce the same output. 1 2 3 4

3 **Because each worker in 2000 is 1.5 times as productive as a worker in 1990, two-thirds of a worker in 2000 is the equivalent of one worker in 1990 in terms of output produced.

In the Solow model with population growth and technological progress, what explains persistently rising living standards? technological progress depreciation saving capital accumulation

technological progress

In 2005, annual hours worked per person were about _____ percent higher in the United States than in Germany. 5 10 25 40

40

The production function Y = AK exhibits _____ MPK. an increasing a constant a decreasing a fluctuating

a constant **For Y = AK, the MPK = A.

If the marginal product of capital is 0.3, the Golden Rule steady state would be achieved when the depreciation rate is: 0.3. 0.1. 0.4 0.8.

0.3.

If the depreciation rate in an economy is 0.5, the Golden Rule steady state would be achieved when the marginal product of capital is: 0.5. 0.8. 0.3. −0.4.

0.5.

Suppose that the per-worker production function y = f(k) = k^1/3 and that the saving rate is s = 0.2. If k = 125,000, investment per worker is i equals: 10. 25. 50. 100.

**y = 125,000^1/3 = 50, and so i = sy = 0.2 × 50.

If the per-worker production function is y = k1/2, the saving rate is s = 0.25, the population growth rate is n = 0.01, depreciation is δ = 0.04, and the economy is in steady state, then total output will grow at the rate: 0. 0.01. 0.04. 0.25.

0.01. **Recall that y = Y / L. **In steady state, k = K / L is constant, but K must grow at the same rate as L.

The effective number of workers is the product of E and L. When E grows at a rate of g = 0.05, and L grows at a rate of n = 0.01, the effective number of workers grows at a rate of: −0.04. 0.04. 0.05. 0.06.

0.06. **If z = x × y, then %Δz ≈ %Δx + %Δy. **The percentage change of a product of two variables is approximately the sum of the percentage changes in each of the variables.

Consider the production function y = k^0.5. The marginal product of capital MPK = f(k + 1) − f(k) for k = 25 is: 0.1. 0.5. 1. 25.

0.1. **When k is low, the average worker has only a little capital to work with, so an extra unit of capital is very useful and produces a great deal of additional output; when k is high, the average worker has a great deal of capital already, so an extra unit increases production only slightly. **MPK = 26^0.5 − 25^0.5

A country's labor force is 60 million people in year 1. The labor force is 62.4 million people two years later. What is the growth rate of the labor force? 1 percent per year 2 percent per year 2.4 percent per year 62.4

1 percent per year

Suppose that the per-worker production function y = f(k) = 10k^0.5; in addition, the saving rate is s = 0.3, and the depreciation rate is δ = 0.01. If k = 10,000, then output per worker is _____, and investment per worker is i equals _____. 1,000; 200 1,000; 100 100; 100 1,000; 300

1,000; 300 **In this case, output per worker y = 10 × 10,000^0.5, and investment per worker = sy = 0.3 × 1,000.

If capital per effective worker is k = 5, K = 500, and L = 80, then E equals: 0.8. 1.1. 1.25. 6.3.

1.25. **Capital per effective worker is defined as k = K / (E × L); solve for E.

Assume that the per-worker production function y = f(k) = k^0.5 and that the saving rate is s = 0.2. If k = 49, then investment per worker is: 0.7. 1.4. 7. 14.

1.4. **y = 49^0.5 = 7, and so i = sy = 0.2 × 7.

When the labor force consists of 180 million people and 162 million people are employed, the unemployment rate is _____ percent. 8 10 12 90

10

Suppose that the per-worker production function y = f(k) = k^1/3 and that the saving rate is s = 0.2. If k = 125,000, investment per worker is i equals: 10. 25. 50. 100.

10. **y = 125,0001/3 = 50, and so i = sy = 0.2 × 50.

In the steady state, depreciation equals investment. Therefore, the equation sf(k*) = δk* can be solved for k*, the steady-state level of capital per worker. For f(k) = k^1/2, s = 0.1, and δ = 0.05, the steady-state level of capital k* equals: 0.2. 0.4. 2. 4.

4.

If the production function is y = 2k1/2 and δ = 0.5, then the Golden Rule level is reached when k is: 1. 4. 6. 10.

4. **MPK = 1 / k^1/2. In this case, the net MPK is negative, indicating that a smaller capital stock is needed.

_____ refers to the number of people currently employed in the economy, either full time or part time. Underemployment The labor force Unemployment Employment

Employment

Who wrote Capitalism, Socialism, and Democracy? Joseph Schumpeter Paul Romer Thomas Malthus Michael Kremer

Joseph Schumpeter

At the steady-state level of capital, which maximizes consumption: c = i. f(k*) = δk*. MPK = δ. y = i.

MPK = δ. **In any steady state, c* = f(k*) − δk*; c* is maximized when the slope of the production function equals the slope of the depreciation line.

The model developed to explain economic growth over time is called the _____ growth model. Solow Yellen Schumpeter Mitchell

Solow

For which group is the minimum wage most often binding? Middle-aged skilled African Americans Teenagers Older women College graduates

Teenagers

In the model with endogenous technological change, what is the implication of sA − δ > 0? The capital stock grows at a constant rate. The marginal product of capital is positive. The economy will eventually reach a steady state. There is no limit to income growth.

There is no limit to income growth. **The only variable in the inequality that is constant is A. **The marginal product of capital is positive: The positive value may be less than depreciation.

_____ predicted that the pressures of an increasing population would cause widespread poverty. Thomas Piketty Paul Samuelson Thomas Malthus Michael Kremer

Thomas Malthus

In the two-sector model, what would result in a constant growth rate in the efficiency of labor? a lower rate of depreciation a saving rate that results in an amount of investment that offsets depreciation increasing the fraction of the labor force in universities to offset diminishing returns to labor a constant fraction of the labor force in universities

a constant fraction of the labor force in universities

An increase in the saving rate will have: neither a level effect nor a growth effect. a growth effect but no level effect. a level effect but no growth effect. a level effect and a growth effect.

a level effect but no growth effect. **A higher saving rate will have a level effect because only the level of income per person, and not its growth rate, is influenced by the saving rate in the steady state.

Suppose that demand for new housing falls dramatically, leading to a decrease in demand for labor in construction firms. At the same time, demand for health care services increases, increasing the demand for health care workers. This is an example of _____ that causes frictional unemployment. seasonal unemployment structural unemployment a sectoral shift a regional shift

a sectoral shift

In the Solow model, with labor-augmenting technological progress and population growth, the steady-state level of capital per effective worker will: only be achieved if capital per effective worker is initially above k*. never be at any level other than k*. only be achieved if capital per effective worker is initially below k*. always be achieved, regardless of the starting point of the economy.

always be achieved, regardless of the starting point of the economy. **In a dynamic economy, changes in the growth rates of technological progress or population could result in k ≠ k*, at least temporarily. **If k > k*, then actual investment is less than break-even investment, and capital per effective work will decrease.

An economy will _____ move to a steady state but _____ to the Golden Rule steady state. rarely; never sometimes; not necessarily always; never always; not necessarily

always; not necessarily

An economy begins with less capital than the Golden Rule level of capital, and the saving rate increases. Initially, MOST consumers will: be worse off. be unaffected. be better off. spend more money to balance the increased saving rate.

be worse off. **If the capital stock is less than the Golden Rule level, how will an increase in the saving rate affect consumption?

The amount of investment that keeps the stock of capital per worker constant is called _____ investment. demand break-even steady-state network effect

break-even

The amount of investment that keeps the stock of capital per worker constant is called _____ investment. demand break-even steady-state network effect

break-even

Models of economic growth that are based on the notion of creative destruction hold that there are both winners and losers from technological progress. The winners are _____, and the losers are _____. consumers; incumbent producers all entrepreneurs; entrepreneurs some entrepreneurs; consumers consumers; new entrants

consumers; incumbent producers **Incumbent producers have to compete with new entrants who make products available at lower cost, benefiting consumers.

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. labor-augmenting technological progress. capital gains. consumer surplus.

consumption per effective worker.

If an economy has achieved the Golden Rule steady state, then: consumption per worker cannot be increased. investment is larger than depreciation. consumption per worker can be increased by lowering the saving rate. output matches depreciation.

consumption per worker cannot be increased. **Consumption is maximized at the Golden Rule steady-state level of capital.

In the Solow model, which is NOT a source of growth? population growth changes in the capital stock creative destruction technological progress

creative destruction

According to the text, legislation that makes it more difficult to fire employees can cause all of these EXCEPT: decrease the natural rate of unemployment because the rate of job separation will decrease by more than the rate of job finding decreases. decrease the natural rate of unemployment because the rate of job separation will decrease. decrease the rate of employment because employers will be less concerned about the well-being of their employees. increase the natural rate of unemployment because the rate of job separation will decrease at the same time that the rate of job finding decreases significantly.

decrease the rate of employment because employers will be less concerned about the well-being of their employees.

When u increases, the immediate impact is that more of the labor force is employed in research activities, and, initially, output in the manufacturing sector tends to: decrease. increase. fluctuate. remain the same.

decrease.

If a production function has constant returns to scale, then: the law of diminishing returns is violated. the rate of profit remains constant as output expands. doubling the amounts of capital and labor will triple output. doubling the amounts of capital and labor will double output.

doubling the amounts of capital and labor will double output. **Returns to scale concern the relationship between changes in output and changes in inputs, where all inputs are allowed to vary by the same proportional amount; constant returns to scale are not inconsistent with the idea that returns to a single factor decline as that factor alone increases.

The concept of moral hazard is based on asymmetric information. In the context of efficiency-wage theories, this implies that workers have more information than: firms. the government. voters. economists.

firms.

Karen graduated last month with a major in classics. She has two job offers and is deciding which one to accept. Currently she MOST likely would be classified as: employed. cyclically unemployed. structurally unemployed. frictionally unemployed.

frictionally unemployed.

An economy begins with a level of steady-state capital per worker that is above the Golden Rule level of capital per worker, and policymakers lower the saving rate to sgold. When the economy reaches the steady state again, consumption per worker will be _____ than its initial level, and the MPK will be _____ than its initial level. less; greater less; less greater; greater greater; less

greater; greater **Beginning in any steady state, a reduced saving rate will move the economy to a new steady state with a lower stock of capital per worker. What does this trend imply with respect to the MPK? **Because consumption per worker is maximized at the Golden Rule steady state, moving there from any other steady state will lead to higher consumption per worker.

According to the text, the high rate of unemployment among all 16- to 19-year-olds in the United States can be attributed to: low rates of job finding. high rates of job separation. low rates of job separation. high rates of job finding.

high rates of job separation.

When the economy is in the steady state and the saving rate increases, investment exceeds depreciation, and the economy moves to a new steady state with _____ capital per worker. higher the same lower indeterminate

higher **If investment exceeds depreciation, what must happen to capital per worker?

Firms pay workers a wage above the market equilibrium for all of these reasons EXCEPT to: improve worker effort. improve the average quality of its workforce. increase labor turnover to keep morale high. maintain a healthy workforce.

increase labor turnover to keep morale high.

Break-even investment _____ rate as k becomes larger. increases at a constant increases at a decreasing increases at an increasing decreases at a decreasing

increases at a constant **Break-even investment is (δ + n)k, a linear, positively sloped function of k.

When u — the fraction of the labor force in universities — increases, the growth rate of the stock of knowledge E _____, and break-even investment ____. decreases; decreases decreases; increases increases; decreases increases; increases

increases; increases

Sustained growth of output per worker: is the main prediction of the Solow model. results in a higher saving rate. is linked to temporary negative growth of capital per worker. is not explained by capital accumulation in the Solow model.

is not explained by capital accumulation in the Solow model. **When the capital stock falls because of a lower saving rate, the growth rate of output per worker is temporarily negative. **The Solow model predicts constant output per worker in steady state. **More saving may result, but the rate of saving doesn't necessarily change.

In the Solow model with labor-augmenting technological progress and population growth, an increase in the saving rate will: increase the growth rate of output per effective worker in the steady state. increase the growth rate of output per worker in the steady state. increase the growth rate of total output in the steady state. lead to a higher steady-state capital per effective worker.

lead to a higher steady-state capital per effective worker. **An increase in the saving rate will not affect growth rates in the steady state; a higher saving rate leads only to a higher growth rate of output per effective worker during the transition to a new steady state.

If the production function is y = 3k1/3, δ = 0.2, and k = 10, then the saving rate is ____ the Golden Rule level. erratic compared to the same as more than less than

less than

If the production function is y = k^1/2, s = 0.25, and δ = 0.05, then the steady-state level of capital per worker is _____ the Golden Rule level. less than irrelevant to more than the same as

less than **At k* = 25, an additional unit of steady-state capital per worker would increase output per worker by more than the additional depreciation, and so consumption would rise. **If y = k^1/2, s = 0.25, and δ = 0.05, the steady state occurs when 0.25 × k1/2 = 0.05 × k, or at k* = 25.

If the production function is y = k1/2, s = 0.4, and δ = 0.05, then the steady-state level of capital per worker is _____ the Golden Rule level. the same as more than erratic compared to less than

less than **If y = k^1/2, s = 0.4, and δ = 0.05, the steady state occurs when 0.25 × k^1/2 = 0.05 × k, or at k* = 64. **At k* = 64, an additional unit of steady-state capital per worker would increase output per worker by more than the additional depreciation, and so consumption would rise.

In the Solow model with population growth and technological progress, break-even investment is necessary for all of these reasons EXCEPT to: provide capital for additional workers. make employees more docile so they will work for less than the maximum wage. replace worn-out capital. provide capital for more effective workers.

make employees more docile so they will work for less than the maximum wage. **What three things tend to reduce the quantity of capital per effective worker? **In the steady state, investment sf(k) exactly offsets reductions in k attributable to depreciation, population growth, and technological progress.

The Golden Rule level of capital is the steady-state value of k that: maximizes consumption. maximizes output. maximizes saving. maximizes growth.

maximizes consumption.

When a firm undertakes successful research and development activities, there are likely to be: positive externalities for both competitors and for society overall. negative externalities for both competitors and for society overall. positive externalities for competitors and negative externalities for society overall. negative externalities for competitors and positive externalities for society overall.

negative externalities for competitors and positive externalities for society overall.

If the capital stock per worker is greater than the steady-state capital stock per worker, then the change in capital is: negative; investment increases over time, but depreciation increases. positive; consumption increases over time, and so does output. positive; consumption decreases over time, and so does investment. negative; consumption decreases over time, and so does output.

negative; consumption decreases over time, and so does output.

The potential for profit encourages _____ to engage in research and development. universities but not private firms neither private firms nor universities both private firms and universities private firms but not universities

private firms but not universities **both private firms and universities: Universities are non-profit seekers in the model.

If MPK > δ + n in the steady state, then the slope of the _____ is larger than the slope of the break-even investment line, and increasing steady-state capital per worker will _____ consumption per worker. consumption function; decrease consumption function; increase production function; increase production function; decrease

production function; increase **Bear in mind the principle of diminishing returns to capital. **The marginal product of capital is the slope of the function y = f(k). **The MPK is the slope of the production function; if MPK > δ + n, then k* < kgold.

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. the growth rate of capital exceeds the growth rate of output. the marginal product of capital equals the rate of depreciation. the capital stock is below the Golden Rule capital stock.

s × (Y / K) exceeds the rate of depreciation. **The growth of output is ΔY / Y = ΔK / K = sA − δ, where A = (Y / K) is the amount of output produced for each unit of capital. What is needed for this expression to be positive? **the marginal product of capital equals the rate of depreciation: This is almost correct, but it does not consider the saving rate. The growth of output is ΔY / Y = ΔK / K = sA − δ, where A = (Y / K) is a constant that measures the amount of output produced for each unit of capital. What is needed for this expression to be positive?

According to the text, in seeking to achieve the Golden Rule steady-state capital, policymakers can only influence the: the governmental budget. the depreciation rate. marginal product of capital. saving rate.

saving rate.

To find the steady-state capital per effective worker, k*, in the Solow model with labor-augmenting technological progress, it is necessary to solve: (δ + n + g) / sf(k) = 1. sf(k*) / (δ + n + g) = 1. MPK = (δ + n + g). sf(k*) = (δ + n + g)k*.

sf(k*) = (δ + n + g)k*.

When the capital stock per worker is greater than the steady-state capital stock per worker, the capital stock per worker will: shrink because depreciation exceeds investment. increase because investment exceeds depreciation. increase because depreciation exceeds investment. shrink because investment exceeds depreciation.

shrink because depreciation exceeds investment.

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. larger than smaller than the same as irrelevant to

smaller than **At the Golden Rule level of capital per effective worker, MPK = δ + n + g. **If g increases, then the MPK would need to rise; does this imply that the level of capital per effective worker would rise or fall?

The efficiency of labor reflects: the percentage of people who could be in the labor force who are actually in the labor force. the percentage of time workers engage in production as opposed to non-productive activities. how much workers produce per time period. society's knowledge of production methods.

society's knowledge of production methods.

n 2015, a country has a labor force of L = 100. The growth rate of labor-augmenting technological progress is g = 0.03. In 2016: it takes three more workers to produce the same output as in 2015. the number of workers has increased by 3 percent. the average worker is as productive as 1.03 workers in 2015. the saving rate has increased by 3 percent.

the average worker is as productive as 1.03 workers in 2015. **In 2016, E will be 3 percent greater. **The simplest assumption about technological progress is that it causes the efficiency of labor to grow at some constant rate known as g; this form of technological progress is called labor augmenting, and g is called the rate of labor-augmenting technological progress.

In the Solow model with technological progress and population growth, _____ reflects society's knowledge of production methods. the labor-force participation rate endogenous technological growth the efficiency of labor productivity

the efficiency of labor

If an economy begins with a level of steady-state capital that is less than the Golden Rule level of capital, then, to guide the economy to the Golden Rule level of capital, policymakers must increase: the saving rate. investment per worker. the tax rate. consumption per worker.

the saving rate. **While choices about consumption play a key role in determining the level of the capital stock, the resources used in investment are drawn from a different source. **Tax rates can play a role in moving the capital stock toward the Golden Rule level, but there is a better, more precise answer. **While investment plays a key role in determining the level of the capital stock, investment requires resources; where must those resources come from?

Unions can influence all of these factors EXCEPT: the target for annual revenue growth. the rate of annual wage growth. an upgrade in working conditions. an improvement in health benefits.

the target for annual revenue growth.

Consider an economy that consists of two industries, Industry A and Industry B. Suppose that labor can either work in Industry A or Industry B, that there is wage flexibility, and that labor is perfectly mobile between the two sectors. If the demand for Industry A output and the demand for labor in Industry A fall, then: wages in industry B will not be affected. wages in industry A will fall. there will be an increase in unemployment in both industries. there will be an increase in unemployment in Industry A but not in Industry B.

wages in industry A will fall.

When the economy is in the steady state and the saving rate increases, the growth rate of output per worker: will be positive for all subsequent periods. will decline until the economy reaches a new steady state. will be positive until the economy reaches a new steady state. may be positive, neutral, or negative for all subsequent periods.

will be positive until the economy reaches a new steady state. **In the steady state, the growth rate of output per worker is zero.

In the Solow model, _____ is output per worker. k g y n

y

For each month over the course of a year, 8 million workers are unemployed; 4 million workers are unemployed for a month, and 4 million workers are unemployed for the entire year. In this case, the total number of spells of unemployment is _____ million. 8 16 52 100

52 **Each month, 4 million people are unemployed for a month, producing 48 million spells, plus the 4 million people who are unemployed for the entire year comes to a total of 52 spells. **Each month 4 million people become unemployed (12 × 4 = 48), plus 4 million are unemployed for the entire year. **

Consider an economy with y = f(k) = k2/3, s = 0.25, and δ = 0.05. In this economy, the steady-state capital stock per worker equals: 5. 25. 100. 125.

125.

In a hypothetical economy in a steady state, f = 0.25, s = 0.02, and E = 150 million. In this case, the number of unemployed is _____ million, and the steady-state unemployment rate is _____ percent. 37.5; 25 12; 8 3; 7.4 12; 7.4

12; 7.4 **In a steady state, fU = sE, so in this question, 0.25 × U = 0.02 × 150 million, or U = 0.02 × 150 million / 0.25 = 12 million.

In the nation of Erewhon, 10 million workers are unemployed, and 140 million workers are employed. The total population is 300 million, and the population that is aged 16 and older is 200 million. The labor force of Erewhon is _____ million workers. 140 150 200 390

150 **The labor is force is the number of employed plus the number of unemployed

With a rate of job separation of 0.05 and a rate of job finding of 0.25, the natural rate of unemployment is about _____ percent (rounded to the nearest integer). 5.8 12.5 17 20

17 **The steady-state unemployment rate is s / (s + f) = 0.05 / (0.05 + 0.25).

The economy of the republic of Sardonica has a saving rate of s = 0.24, a depreciation rate of δ = 0.05, a population growth rate of n = 0.01, and a growth rate of effective labor of g = 0.02. The production function is y = k1/2. In Sardonica, the steady-state output per effective worker is: 2. 3. 4. 6.

3. **In the steady state, Δk = 0. **If k* = 9, the steady-state value of output per effective worker is y* = (k*)^1/2. **The steady-state value of capital per effective worker solves sf(k*) = (δ + n + g)k* for k*; substitute into the equation the given values: 0.24 × (k*)^1/2 = (0.05 + 0.01 + 0.02)k*.

The production function of an economy is y = k^1/2, in which k is capital per effective worker. When K = 1,200, E = 1.5, and L = 50, then y equals: 4. 6. 9. 24.

4

In the country of Beluxia, the job-finding rate is 0.49, and the natural rate of unemployment is 12.5 percent. The job-separation rate is about _____ percent (rounded to the nearest integer). 4 7 9 10

7 **Use U / L = s / (s + f) and solve for s.

In the Isle of Fortuna, 10 million workers are unemployed, and 140 million workers are employed. The total population is 300 million, and the population aged 16 and older is 200 million. The labor-force participation rate for the Isle of Fortuna is _____ percent. 47 50 67 75

75

Which statement is TRUE? Capital exhibits constant returns in both endogenous growth models and in the Solow model. Capital exhibits diminishing returns in endogenous growth models and constant returns in the Solow model. Capital exhibits diminishing returns in the Solow model and constant returns in endogenous growth models. Capital exhibits diminishing returns in both endogenous growth models and in the Solow model.

Capital exhibits diminishing returns in the Solow model and constant returns in endogenous growth models.

The labor force can increase for all of these reasons EXCEPT: Immaculata, a retired accountant, decides to become a substitute teacher. Art, a recent college graduate, begins to look for a job. Devonn, an engineer, quits his job in Pennsylvania in order to look for a similar job in Alaska. Sherelle, a stay-at-home mom, begins to look for a job outside her home.

Devonn, an engineer, quits his job in Pennsylvania in order to look for a similar job in Alaska.

What are the two ways to determine the Golden Rule level of the capital stock? Find the capital stock at the saving rate is maximized, and find the capital stock at which the net marginal product of capital equals zero. Find the capital stock at which steady-state consumption is maximized, and find the capital stock at which the the depreciation rate equals the saving rate. Find the capital stock at which steady-state consumption is maximized, and find the capital stock at which the net marginal product of capital equals zero. Find the capital stock at which capital per worker is maximized, and find the capital stock at which the marginal product of capital equals the saving rate.

Find the capital stock at which steady-state consumption is maximized, and find the capital stock at which the net marginal product of capital equals zero. **If capital per worker exceeds the steady-state capital per worker that prevails at the Golden Rule steady state, capital per worker must fall.

Assume MPK = δ + n, i.e., the slope of the production function is equal to the slope of the break-even investment line. This identifies the _____ level of capital per worker. Malthusian Golden Rule steady-state aggregate

Golden Rule **In the Golden Rule steady state, MPK = δ + n. There can be various steady-state outcomes, but the one at which MPK = δ + n maximizes consumption per worker.

Minimum-wage laws set by the government lead to wage rigidity and prevent the market from clearing. Which of the following would explain why such laws might not be similarly effective in less developed countries? Efficiency wages are normally paid to workers in less developed countries and this makes minimum-wage laws redundant. The presence of a large informal sector which is not documented by the government makes monitoring wages for unskilled workers difficult. Most of the workforce in less developed countries is skilled and earns more than the minimum wage. Norms in less developed countries dictate that teenagers finish their education before they enter the workforce. Therefore, there are very few people in the market who earn minimum wage.

The presence of a large informal sector which is not documented by the government makes monitoring wages for unskilled workers difficult.

Considering Kremer's hypothesis, what lesson does the story of Flinders Island offer? Populations grow exponentially, regardless of the situation. Technological progress occurs at a dependably steady rate in human society. Population growth puts pressure on food supplies. Too low a population may doom a society.

Too low a population may doom a society.

When a number of unemployed workers become discouraged and drop out of the labor force, other things equal, the _____ unemployment rate will change. U-3 U-4 U-5 U-6

U-3 **The U-6 unemployment rate counts the total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percentage of the civilian labor force plus all marginally attached workers. **The U-5 unemployment rate counts the total unemployed plus all marginally attached workers, as a percentage of the civilian labor force plus all marginally attached workers. **The U-4 unemployment rate counts the total unemployed, plus discouraged workers, as a percentage of the civilian labor force plus discouraged workers.

In the Solow model with labor-augmenting technological progress, if the production function is y = k^1/2, then the steady-state value of output per effective worker is: (δ + g + s) / n. (δ + n) / (g + s). (δ + n + g) / s. [s / (δ + n + g)]^2.

[s / (δ + n + g)]^2.

All EXCEPT which of these are possible reasons why annual hours worked in France and Germany decreased compared to the United States? cultural preferences regarding the value of leisure a better social safety net in the United States higher European unionization rates lower U.S. tax rates

a better social safety net in the United States

Annual hours worked in Germany are lower than in the United States for all of these reasons EXCEPT that there _____ in Germany are more overtime hours is a lower labor-force participation rate are shorter workweeks are more vacation days per worker

are more overtime hours

Both the Solow model and endogenous growth models: predict that the economy will eventually reach a steady state. assume diminishing returns to capital. treat technological change as endogenous. assume that a fraction of income is saved and invested.

assume that a fraction of income is saved and invested.

When wages simultaneously function as the price for labor services and a motivation device to elicit more effort from workers, the labor market is not perfectly competitive. This deviation from the competitive benchmark arises because of: imperfect competition because of a monopoly in bargaining. positive externalities. the existence of search cost. asymmetric information.

asymmetric information. **Efficiency-wage theories suggest that if a firm operates more efficiently when it pays its workers a high wage, then the firm may find it profitable to keep wages above the level that balances supply and demand. **Efficiency-wage theories propose that high wages make workers more productive; this influence of wages on worker efficiency may explain the failure of firms to cut wages despite an excess supply of labor. **Higher wages may be used as a motivation device when firms cannot perfectly monitor worker effort so that worker information regarding their productivity is better than firm information.

In the Solow growth model with population growth, in the steady state, capital and output grow _____ the population. more quickly more slowly at the same rate as at rates that together equal the rate of

at the same rate as

In the Solow growth model with population growth, in the steady state: capital and output grow at the same rate as the population. capital and output grow more slowly than the population. capital grows at a faster rate than output. capital and output are constant.

capital and output grow at the same rate as the population. **In the steady state, output per worker is constant.

In the Solow model, _____ is capital per effective worker. k g y n

k

When a number of unemployed workers become discouraged and drop out of the labor force, other things equal, the official unemployment rate (U-3): declines. may increase, decrease, or remain the same. increases. remains the same.

declines. **Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past; discouraged workers, a subset of the marginally attached, have given a job market-related reason for not currently looking for a job.

If an economy begins with less capital than the Golden Rule level, and the saving rate increases, then consumption per worker MOST likely will initially: increase. decrease. remain the same. be indeterminate.

decrease. **Because the capital stock will increase, investment will initially increase.

When u increases, the immediate impact is that more of the labor force is employed in research activities, and, initially, output in the manufacturing sector tends to: decrease. increase. fluctuate. remain the same.

decrease. **Given a constant L, if u rises, what must be the immediate impact on 1 − u?

if the population growth rate increases, then the Golden Rule level of capital will: decrease. increase. remain the same. fluctuate wildly.

decrease. **In the Golden Rule steady state, MPK = δ + n. **In the Golden Rule steady state, MPK = δ + n, so a rise in n implies a higher MPK.

An increase in u initially will _____ output and consumption; in the long run, output will grow more quickly because of the faster growth in _____. increase; K increase; E decrease; K decrease; E

decrease; E

When u decreases, break-even investment _____, and the growth rate of the stock of knowledge E ____. decreases; decreases increases; decreases decreases; increases increases; increases

decreases; decreases

If tax rates and unionization rates are positively correlated, and unions often push for shorter workweeks in contract negotiations, then a study focused only on the role of differences in tax rates in explaining differences in labor supply may _____ tax rates. exaggerate the role of underestimate the role of accurately explain the role of determine the causality of

exaggerate the role of **If two potential causal factors are positively correlated and a study considers only one of them, it will tend to overstate the role of the factor that it considers.

An economy begins with a level of steady-state capital per worker that is less than the Golden Rule level of capital per worker, and policymakers increase the saving rate to sgold. When the economy reaches steady state again, consumption will exceed its initial level, and output will ____ its initial level. fluctuate wildly compared to be identical to fall short of exceed

exceed **Beginning in any steady state, an increased saving rate will move the economy to a new steady state with a larger capital stock per worker.

Sheila is a teacher who recently quit her job in Connecticut to move to Oregon, where her husband will be employed as an archivist. Sheila has several interviews for teaching positions in Oregon. Sheila is classified as: cyclically unemployed. frictionally unemployed. structurally unemployed. employed.

frictionally unemployed.

In the Solow model, with labor-augmenting technological progress and population growth, the steady-state growth rate of capital per worker, K / L, is: 0. δ + n. g. n.

g. **K / L = k × E. **If k is constant, then K / L grows at the same rate as E. **Given k = K / (E × L), then K / L = k × E.

Suppose that the labor market in an economy can be characterized as consisting of a market for unskilled labor and a market for skilled labor, and the two types of labor cannot substitute for each other. Both labor markets are characterized by wage rigidity and, initially, both are in equilibrium. If the demand for unskilled labor falls, then the: employment of skilled workers will increase. unemployment of skilled workers will increase. wages of skilled workers will rise. income inequality between skilled and unskilled workers will rise.

income inequality between skilled and unskilled workers will rise. **The market for skilled workers will not be affected, but because wages in the market for unskilled workers cannot fall, unemployment of unskilled workers will rise, increasing income inequality.

Making social insurance programs less generous for unemployed workers MOST likely will result in a higher level of: docility among workers. income inequality. concern for the poor by the wealthy. unemployment.

income inequality.

A policy of increasing the age at which workers can collect retirement payments through a social security system MOST likely would _____ in a country. increase the total number of hours worked affect the hours worked by an individual, but not the total number of hours worked not affect the annual hours worked reduce the annual hours worked

increase the total number of hours worked

Suppose that the per-worker production function y = f(k) = k^0.5, that the saving rate is s = 0.2, and that the depreciation rate is δ = 0.02. If k = 49, then the capital stock per worker will: be impossible to compute given then information available. remain the same. decrease. increase.

increase. **The change in the capital stock per worker δk = sy −δk = 1.4 − 0.02 × 49 = 0.42.

If a country begins in the steady state but would like to increase its standard of living as measured by output per worker, then the Solow growth model suggests that _____ will increase the standard of living. increasing consumption per worker decreasing investment per worker increasing the saving rate increasing the marginal product of capital

increasing the saving rate

Private firms have an incentive to engage in research and development because: the benefits are positive and the costs are zero. innovations give firms temporary monopolies. there are positive externalities from research and development. the results create a more competitive marketplace.

innovations give firms temporary monopolies.

In the Solow model, I stands for _____, and i stands for investment per worker. inflation income intangible assets investment

investment **The I variable in the Solow model denotes one of the main components of aggregate demand. Inflation is not a component of aggregate demand even though it may influence it.

The percentage of the population aged 16 and older that is in the labor force is called the: interest rate. natural rate of unemployment. underemployment rate. labor-force participation rate.

labor-force participation rate.

If the production function is y = 5k^1/5, δ = 0.5, and k = 1, then the saving rate is _____ the Golden Rule level. erratic compared to the same as more than less than

less than **With net MPK greater than 0, is k too high or too low? What does this imply about the current saving rate? **MPK = 1 / k^4/5; is the net marginal product (MPK − δ) greater than, equal to, or less than zero? What does this imply about k and the current saving rate?

Two countries, Anastasia and Beersheba, have identical production functions y = f(k), but Anastasia has a higher saving rate than Beersheba. This implies that, for identical levels of capital per worker, Anastasia has: higher consumption per worker than Beersheba. lower consumption per worker than Beersheba. lower output per worker than Beersheba. lower investment per worker than Beersheba.

lower consumption per worker than Beersheba.

If two countries, Enlad and Flora, have identical production functions and saving rates, but Enlad has a higher rate of depreciation than Flora, then Enlad will have _____ per worker in the steady state. lower saving higher investment higher capital higher consumption

lower saving

The inclusion of knowledge in the definition of capital means: the steady state is delayed. depreciation is avoided. marginal returns to capital do not have to diminish. the capital stock will grow if investment is greater than depreciation.

marginal returns to capital do not have to diminish. **depreciation is avoided: Physical capital will still depreciate. **the steady state is delayed: This definition of capital makes it possible to avoid a steady state altogether. **the capital stock will grow if investment is greater than depreciation: That is true with or without this definition of capital.

If an economy's marginal product of capital is 0.5, and the depreciation rate is 0.8, then a government program that encourages people to save less: will take the country farther from the Golden Rule steady state. may lead the economy closer to its Golden Rule steady state. will bring the country to the Golden Rule steady state. will not influence whether the economy reaches the Golden Rule steady state.

may lead the economy closer to its Golden Rule steady state. **A change in the saving rate will alter the capital stock and thus also the marginal product of capital.

According to Malthus, what might check population growth? charity moral improvement rising real incomes misery and vice

misery and vice

Over the course of a year, 90 people are unemployed for 1 month each, and 10 people are unemployed for 6 months each. In this situation, the majority of unemployment spells is caused by: long-term unemployment, and the majority of time spent in unemployment is caused by short-term unemployment. short-term unemployment, and the majority of time spent in unemployment is caused by short-term unemployment. long-term unemployment, and the majority of time spent in unemployment is caused by long-term unemployment. short-term unemployment, and the majority of time spent in unemployment is caused by long-term unemployment.

short-term unemployment, and the majority of time spent in unemployment is caused by short-term unemployment.

An economy will _____ move to the Golden Rule steady state. sometimes never naturally always

sometimes

Investment in the two-sector model is determined by the saving rate and total output. Break-even investment is determined by [δ + n + g(u)]k. The intersection of the investment curve and the break-even investment curve determines the: Golden Rule level of capital per effective worker. Golden Rule level of capital per worker. steady-state level of capital per worker. steady-state level of capital per effective worker.

steady-state level of capital per effective worker.

If the production function is y = 2k1/2, δ = 0.1, and k = 100, then the saving rate is _____ the Golden Rule level. less than the same as more than erratic compared to

the same as

All of these are true regarding the U.S. economy and unemployment EXCEPT that: the spike in the duration of unemployment after the 2008 recession was caused by the extension of unemployment benefits to 99 weeks. a typical policy response during recessions is to increase unemployment benefits beyond 26 weeks. whenever there is a recession, the average duration of an unemployment spell increases. unemployment benefits puts money in the pockets of people who badly need it, and so helps to support consumer spending in a recession.

the spike in the duration of unemployment after the 2008 recession was caused by the extension of unemployment benefits to 99 weeks.

If a country had a saving rate of 100 percent, then: there would be no consumption. there would be infinite growth. there would be no steady state. well-being would be maximized.

there would be no consumption.

Malthus felt anti-poverty programs would be counterproductive because: lifting people out of poverty would cause problems for employers. the poor were poor because they were lazy. they merely enable the poor to have more children. they would be run by charities and governments.

they merely enable the poor to have more children.

Assume that in an economy, the rate of job finding is f = 0.1, and the rate of job separation is s = 0.03. The number of employed is 180 million, and the labor force is 200 million. Given this data, _____ steady-state unemployment rate. this economy is below its there is not enough information to compute the this economy is above its this economy is at its

this economy is below its **If the unemployment rate is neither rising nor falling (that is, if the labor market is in a steady state), then the number of people finding jobs must equal the number of people losing jobs.

If the per-worker production function is given by y = k1/2, the saving rate is s = 0.16, the population growth rate is n = 0.02, and depreciation is δ = 0.06, then the steady-state level of capital per worker is: 4. 6. 8. 16.

4. **In the steady state, sf(k*) = (δ + n)k*. **Solve the equation sf(k) = (δ + n)k for k; this is the steady state at which investment equals break-even investment.

If the per-worker production function is given by y = k1/2, the saving rate is s = 0.16, the population growth rate is n = 0.02, and depreciation is δ = 0.06, then the steady-state level of capital per worker is: 4. 6. 8. 16.

4. **In the steady state, sf(k*) = (δ + n)k*. **Solve the equation sf(k) = (δ + n)k for k; this is the steady state at which investment equals break-even investment. **In the steady state, sf(k*) = (δ + n)k* so, with the data given, 0.16 × (k*)1/2 = (0.06 + 0.02) × k*.

In the steady state, depreciation equals investment. Therefore, the equation sf(k*) = δk* can be solved for k*, the steady-state level of capital per worker. For f(k) = k^1/2, s = 0.1, and δ = 0.05, the steady-state level of capital k* equals: 0.2. 0.4. 2. 4.

4. **Using the information given, sf(k*) = δk* becomes 0.1 × (k*)^1/2 = 0.05 × k*.

Over the course of a year, 90 people are unemployed for 1 month each, while 10 people are unemployed for 6 months each. The percentage of months of unemployment attributed to the long-term unemployed (6 months) is _____ percent. 10 40 50 90

40 **There is a total of 150 months of unemployment, of which 60 are attributable to the long-term unemployed.

Between 1950 and 2020, the average unemployment rate in the United States was about: 2 to 3 percent. 5 to 6 percent. 8 to 9 percent. 11 to 12 percent.

5 to 6 percent.

For each month over the course of a year, 8 million workers are unemployed; 4 million workers are unemployed for a month only, and 4 million workers are unemployed for the entire year. In this case, for the year, long-term unemployment accounts for _____ percent of all spells of unemployment (rounded to the closest integer). 8 48 50 92

8 **For each of the 12 months, 8 million workers are unemployed, so there is a total of 96 million months of unemployment; of the 52 spells of unemployment, 48 million are caused by the 4 million people who are unemployed each year for a month, and 4 million are caused by the 4 million long-term unemployed who are unemployed for the entire year. **For each of the 12 months, 8 million workers are unemployed, so there is a total of 96 million months of unemployment; of those, there are 4 million workers unemployed for the entire year, so long-term unemployment accounts for 48 million months of unemployment, or 50 percent of the total.

At a minimum wage of $7.25 per hour, a person working 40 hours per week would have to work for about _____ (nearest integer) weeks to earn $23,850, the 2014 official poverty level of a family of four in the United States. 22 42 62 82

82

Over the course of a year, 90 people are unemployed for 1 month each, while 10 people are unemployed for 6 months each. The percentage of unemployment spells attributable to short-term unemployment (1 month) is _____ percent. 10 40 50 90

90 **There is a total of 100 spells of unemployment, of which 90 are short term.

For each month over the course of a year, 8 million workers are unemployed; 4 million workers are unemployed for a month only, and 4 million workers are unemployed for the entire year. In this case, the total number of months spent in unemployment by all workers over the course of the year is _____ million. 8 16 96 192

96

An economy begins with a level of steady-state capital per worker that is above the Golden Rule level of capital per worker, and policymakers decrease the saving rate to s(gold). When the economy reaches steady state again, consumption will be above its initial level, and output will be ____ its initial level. more variable compared to below above identical to

below **Beginning in any steady state, a reduced saving rate will move the economy to a new steady state with a lower stock of capital per worker.

In the Solow model with population growth, a rise in the growth rate of the labor force will: cause capital per worker to fall. cause capital per worker to rise. lower the rate of depreciation. cause an increase in investment.

cause capital per worker to fall. **cause an increase in investment: This could follow, but it is not guaranteed. **lower the rate of depreciation: Depreciation and the growth rate of the labor force are independent of one another.

The Solow growth model assumes a production function with decreasing returns to scale and a constant marginal product of capital. constant returns to scale and an increasing marginal product of capital. increasing returns to scale to capture economic growth. constant returns to scale and a diminishing marginal product of capital.

constant returns to scale and a diminishing marginal product of capital. **The Solow model doesn't abandon the assumption of diminishing marginal returns to a factor. **In the Solow growth model, changes in the scale of production do not affect the relationship between output per worker and capital per worker.

Suppose that an economy has reached the Golden Rule steady state and then, because of favourable economic policies, the rate of technological progress increases. In order to return to the Golden Rule steady state, the saving rate would need to: increase. decrease. remain the same. do nothing; the saving rate is irrelevant to the Golden Rule steady state.

decrease. **At the Golden Rule level of capital per effective worker, MPK = δ + n + g, so if g increases, then the MPK would need to increase to return the economy to a Golden Rule steady state; does this imply that the saving rate would have to decrease or increase?

In the Solow growth model with population growth, population growth augments the growth rate of capital per worker along with: consumption. investment. depreciation. savings rates.

depreciation. **Recall that k = K / L, and consider how depreciation and population growth affect the numerator and denominator, respectively. **Δk = sf(k) − (δ + n)k.

The unemployment rate in the United States is much higher for African Americans than for European Americans. According to the text, one possible reason for this is: employer discrimination. most African Americans are younger than age 30. a lower rate of job separation for African Americans compared to European Americans. good access to job-finding networks.

employer discrimination.

Over time, E increases for all of these reasons EXCEPT that: better nutrition improves the health of workers. literacy among workers improves. employers strive to generate maximum profit from their workers. workers better understand the needs of the customers they deal with.

employers strive to generate maximum profit from their workers. **The efficiency of labor includes knowledge, health, and the skill of workers.

In the Solow model, technological progress is determined outside the model. However, a different set of growth models, called ____ growth theory, explain technological progress within the model. endocardial endogamous exogenous endogenous

endogenous

The assumption that capital has constant returns appears in: neither the Solow model nor endogenous growth models. both the Solow model and endogenous growth models. endogenous growth models but not the Solow model. the Solow model but not endogenous growth models.

endogenous growth models but not the Solow model.

When the private returns to research and development activities within a firm are 5 percent and the societal returns are 10 percent, private profit-maximizing firms: discourage the government from providing them with funds for research and development because taking government money tampers with the free market. invest heavily in research and development because they are concerned with the public good. invest heavily in research and development because they want the 5 percent gain. engage in less research and development than they would if they earned the social return.

engage in less research and development than they would if they earned the social return.

When the manufacturing industry shrinks, while the healthcare industry grows, the resulting unemployment is: frictional. cyclical. seasonal. structural.

frictional. **In structural unemployment, more people are seeking jobs in a particular labor market than there are jobs available at the current wage rate, even when the economy is at the peak of the business cycle. **Seasonal unemployment refers to periodic unemployment created by seasonal variations in particular industries, especially industries such as construction that are affected by the weather. **Cyclical unemployment is the deviation of the actual rate of unemployment from the natural rate caused by downturns in the business cycle.

In the two-sector model, break-even investment must perform all of these functions EXCEPT: compensate for depreciation. provide capital for the greater stock of knowledge created by universities. give firms permanent monopolies on new products so they can recoup their investments. provide capital for a growing population.

give firms permanent monopolies on new products so they can recoup their investments. **Break-even investment is δ + n + g(u)k. **In the two-sector model, the economy has two sectors: manufacturing firms and research universities. Firms produce goods and services, whereas universities produce a factor of production called "knowledge."

If the production function is y = k^1/4, δ = 0.1, and k = 5, then the saving rate is _____ the Golden Rule level. greater than less than erratic compared to the same as

greater than **MPK = 1 / 4k^3/4; is the net marginal product (MPK − δ) greater than, equal to, or less than zero? What does this imply about k and the current saving rate?

If the production function is y = k^1/4, δ = 0.05, and k = 20, then the saving rate is _____ the Golden Rule level. less than greater than the same as erratic compared to

greater than **With net MPK less than 0, is k too high or too low? What does this imply about the current saving rate? **MPK = 1 / 4k^3/4; is the net marginal product (MPK − δ) greater than, equal to, or less than zero? What does this imply about k and the current saving rate? **

In the United States 16- to 19-year-olds experience _____ and, therefore, higher rates of frictional unemployment. higher rates of job separation lower rates of job separation higher rates of job finding lower rates of job finding

higher rates of job separation

Data on transitions between employment and unemployment show that the higher unemployment rates observed for African Americans in the United States arise because of both _____ rates of job separation and _____ rates of job finding than European Americans. higher; higher lower; higher higher; lower lower; lower

higher; lower

The Solow growth model predicts that when the population growth rate drops from 0.02 to 0.01, capital per worker will _____ in the steady state. increase remain unchanged decrease fluctuate

increase **A lower population growth rate means that less investment is needed to maintain the existing amount of capital per worker. **A lower population growth rates correspond to higher levels of capital per worker. **In the steady state, sf(k*) = (δ + n)k*; a lower value of n means that, in the steady state, less output is needed per unit of capital per worker to offset the effects of population growth.

Sarah is a manager in a company that pays wages that are above the market equilibrium level. She succeeds in substantially reducing turnover and increasing effort among its workforce. These higher wages are MOST likely to: increase firm profit, so firms do not have an incentive to lower wages, and structural unemployment will persist. reduce firm profit, so firms do not have an incentive to lower wages, and structural unemployment will not persist. increase firm profit, so firms have an incentive to lower wages, and structural unemployment will persist. reduce firm profit, so firms have an incentive to lower wages, and structural unemployment will not persist.

increase firm profit, so firms do not have an incentive to lower wages, and structural unemployment will persist. **Some firms are able to increase profits by paying higher wages; firms have no incentive to lower wages in that situation and structural unemployment persists.

According to the text, if the workforce increases the time spent in research activities at universities u, then the growth rate g(u) will: fluctuate. increase. decrease. remain the same.

increase.

During recessions, the average duration of unemployment tends to: be indeterminate. increase. decrease. remain the same as during periods of normal growth.

increase.

In the Solow model, with labor-augmenting technological progress and population growth, if capital per effective worker, k = K / (E × L), is constant, then capital per worker, K / L, will: fluctuate. decrease. increase. remain the same.

increase. **Given k = K / (E × L), then K / L = k × E; given this, if k is constant, what happens to K / L over time?

If the population growth rate decreases, then the Golden Rule level of capital will: increase. decrease. remain the same. fluctuate wildly.

increase. **In the Golden Rule steady state, MPK = δ + n, so a fall in n implies a lower MPK.

When investment exceeds depreciation, the capital stock MOST likely will: remain the same. decrease. increase. fluctuate in a manner unrelated to the variable.

increase. **Note that i > δk. **If i > δk, is new captal just replacing capital that is wearing away?

Suppose that the per-worker production function y = f(k) = k0.5, that the saving rate is s = 0.2, and that the depreciation rate is δ = 0.02. If k = 49, then the capital stock per worker will: be impossible to compute given then information available. remain the same. decrease. increase.

increase. **Output per worker y = 49^0.5 = 7, so investment per worker = i = sy = 0.2 × 7 = 1.4. **The change in the capital stock per worker δk = sy −δk = 1.4 − 0.02 × 49 = 0.42.

If an economy begins with more capital than the Golden Rule level of capital, and the saving rate decreases, then initially consumption MOST likely will: remain the same. increase. collapse. decrease.

increase. **Recall that c = (1 − s)y. **Because the capital stock will have to decrease, initially investment will have to decrease.

In the steady state of the Solow model with population growth: total capital stock does not change from one period to the next. investment per worker is at the break-even level. total output does not change from one period to the next. output per worker fluctuates, but output grows at the rate n.

investment per worker is at the break-even level. **Output per worker is constant, but output grows at the rate n.

Employers tend to prefer the earned income tax credit, rather than the minimum wage, for raising the income of the working poor. This is true for all of these reasons EXCEPT that the earned income tax credit: involves less bureaucracy and paperwork for the worker than the minimum wage. does not raise labor costs for employers. shifts the burden of paying livable wages to the government and the taxpayer and away from the firm. allows employers to pay low wages and so boost their profits.

involves less bureaucracy and paperwork for the worker than the minimum wage.

If MPK = 0.1 in the steady state of an economy with δ = 0.1 and n = 0.05, then the steady-state level of capital per worker _____ the Golden Rule level of capital per worker. is larger than is smaller than may be larger, smaller, or the same as is the same as

is larger than **What is the value of MPK at the Golden Rule steady state? **In the Golden Rule steady state, MPK = δ + n, but in this question, MPK < δ + n; what does this imply about the relationship between k* and k(gold)?

If MPK = 0.5 in the steady state of an economy, with δ = 0.05 and n = 0.01, then the steady-state level of capital per worker _____ the Golden Rule level of capital per worker. is smaller than may be larger, smaller, or the same as is the same as is larger than

is smaller than

If the production function is y = k^1/2, s = 0.5, and δ = 0.05, then the steady-state level of capital per worker _____ the Golden Rule level. is the same as fluctuates compared to is more than is less than

is the same as

Two countries, Argo and Beaurepaire, have identical production functions. If Argo has a higher saving rate than Beaurepaire, and Argo has a higher rate of depreciation than Beaurepaire, then: Argo has a higher steady-state capital stock per worker than Beaurepaire. it is indeterminate whether Argo or Beaurepaire has a higher steady-state capital stock per worker. Beaurepaire has a higher steady-state capital stock per worker than Argo. steady-state capital stocks per worker in Argo and Beaurepaire will be equal.

it is indeterminate whether Argo or Beaurepaire has a higher steady-state capital stock per worker. **The steady-state capital stock per worker increases as the saving rate increases and decreases as the depreciation rate increases.

"Active" labor-market policies, such as _____, are policies that help increase the _____ rate. unemployment insurance; job-finding job training; job-finding unionization; job-separation job-search assistance; job-separation

job training; job-finding

According to the text, firms pay efficiency wages to their workers for all these reasons EXCEPT to: keep the outsiders out and form an exclusive workforce of the insiders. encourage workers to expend more effort. increase the average quality of a firm's employees. reduce worker turnover.

keep the outsiders out and form an exclusive workforce of the insiders.

In the Solow model with population growth and technological progress, the break-even amount of investment: keeps the stock of capital per worker constant. equals the depreciation rate, δ. keeps the rate of labor-augmenting technological progress constant. equals the rate of population growth.

keeps the stock of capital per worker constant.

If the production function is y = 5k1/5, δ = 0.1, and k = 50, then the saving rate is _____ the Golden Rule level. less than the same as erratic compared to more than

more than **MPK = 1 / k^4/5; is the net marginal product (MPK − δ) greater than, equal to, or less than zero? What does this imply about k and the current saving rate?

If the production function is y = 2k1/2, δ = 0.1, and k = 150, then the saving rate is _____ the Golden Rule level. less than the same as more than erratic compared to

more than **With net MPK less than 0, is k too high or too low? What does this imply about the current saving rate? **MPK = 1 / k^1/2; is the net marginal product (MPK − δ) greater than, equal to, or less than zero? What does this imply about k and the current saving rate?

In the Solow model, _____ is the population growth rate. n y g k

n **g: This is the rate of labor-augmenting technological progress. **k: This is capital per effective worker. **y: This is output per worker.

In the Solow model, with labor-augmenting technological progress and population growth, the steady-state growth rate of output, Y, is: δ + n. n + g. g. δ + n + g.

n + g. **Given y = Y / (E × L), then Y = y × L × E.

Moving to the Golden Rule steady state from a level of the capital stock above the Golden Rule level of the capital stock will involve sacrifices from: capital to benefit labor. future generations to benefit the current generation. the current generation to benefit future generations. neither future generations nor the current generation.

neither future generations nor the current generation.

Frictional unemployment is inevitable because: the recession phase of the business cycle leads to increases in unemployment. the expansion phase of the business cycle leads to increases in unemployment. new workers are constantly entering the job market, and jobs are constantly created and destroyed. many wages are above the equilibrium wage for that market.

new workers are constantly entering the job market, and jobs are constantly created and destroyed.

Two countries, Agora and Bensalem, have identical production functions f(k) and saving rates s, but Agora has a higher capital-labor ratio k than Bensalem. This implies all of these EXCEPT that: the marginal product of capital in Agora is lower than in Bensalem. per capita investment in Agora is higher than in Bensalem. per capita output in Agora is higher than in Bensalem. output is higher in Bensalem than in Agora.

output is higher in Bensalem than in Agora.

For the unemployment rate to fall, the: rate of job finding has to be greater than the rate of job separation. rate of job finding has to equal the rate of job separation. rate of job separation has to be greater than the rate of job finding. rate of job finding is not important.

rate of job finding has to be greater than the rate of job separation.

Investment in the two-sector model is determined by the saving rate and total output. Break-even investment is determined by [δ + n + g(u)]k. The intersection of the investment curve and the break-even investment curve determines the: Golden Rule level of capital per effective worker. Golden Rule level of capital per worker. steady-state level of capital per worker. steady-state level of capital per effective worker.

steady-state level of capital per effective worker.

Investment in the two-sector model is determined by the saving rate and total output. Break-even investment is determined by [δ + n + g(u)]k. The intersection of the investment curve and the break-even investment curve determines the: Golden Rule level of capital per effective worker. Golden Rule level of capital per worker. steady-state level of capital per worker. steady-state level of capital per effective worker.

steady-state level of capital per effective worker. **In the two-sector model, y = Y / EL = f[K / EL, (1 − u)] = f[k, (1 − u)]. **In the two-sector model, the steady state for a given value of u occurs at the intersection of the investment curve sf(k), (1 − u), and the break-even investment curve δ + n + g(u)k.

In the Solow model, capital accumulation explains every one of these outcomes for an economy EXCEPT: a movement to a higher level of output per worker. negative growth rates in output per worker for some time. sustained growth rates in output per worker. positive growth rates in output per worker for some time.

sustained growth rates in output per worker. **negative growth rates in output per worker for some time: When the capital stock falls because of a lower saving rate, temporary growth rates of output per worker are negative.

The Solow growth model with population growth explains all of these EXCEPT: temporary positive growth rates in output per worker. sustained increases in total capital. sustained increases in the standard of living. sustained increases in total output.

sustained increases in the standard of living.

The capital stock per worker increases when: (1 − δ)c > i. (1 − s)y > i. δk > sf(k). sy > δk.

sy > δk. **For the capital stock per worker to increase, investment per worker i must exceed the portion of capital per worker k that depreciates.

What was the most important thing Malthus did NOT take into account that rendered his predictions untrue? technological progress debtors' prisons anti-poverty programs the development of the social safety net

technological progress

What is necessary for steady-state growth in the Solow model? endogenous technological change technological progress a higher saving rate MPK = δ + n + g

technological progress **The basic Solow model treats technological change as exogenous.

Moving to the Golden Rule steady state from a level of the capital stock that is below the Golden Rule capital stock will involve sacrifices from: the current generation to benefit future generations. future generations to benefit the current generation. labor to benefit capital. capital to benefit labor.

the current generation to benefit future generations. **Because saving must increase across the economy as a whole, neither labor nor capital in particular must sacrifice more than the other.

In the Solow model with population growth, if investment were equal to depreciation, then k: might increase, decrease, or remain the same. would remain the same. would increase. would decrease.

would decrease. **In this model, Δk = i − (δ + n)k, so if i = δk, then Δk = −nk.

Which per-worker production function does NOT exhibit diminishing returns to capital? y = k^0.5 y = k^0.7 y = k y = k^0.8

y = k **When k is low, the average worker has only a little capital to work with, so an extra unit of capital is very useful and produces a lot of additional output; when k is high, the average worker has a great deal of capital already, so an extra unit increases production only slightly. **The production function y = k^α exhibits a diminishing MPK if 0 < α < 1.

The Cobb-Douglas production function Y = K^1/2 L^1/2 can be rearranged into the output per worker function: y = k^1/2 × K^1/2. yL = k^1/2. y = k^1/2 / L. y = k^

y = k^1/2.

The Cobb-Douglas production function Y = K2/3 L1/3 can be rearranged into the output per worker function: y = k^2. y = k^2/3. y = k^1/3. y = k^3.

y = k^2/3. **Y = K^2/3 L^1/3 implies y = Y/L = (K / L)^2/3 (L / L)^1/3.

Consumption per worker in steady state can be written in all of these ways EXCEPT: y(f) − (k − i). f(k) − i. f(k) − δk. y − i.

y(f) − (k − i). **f(k) − δk. Investment equals depreciation in the steady state.