Macroeconomics Ch.8

In this graph, the capital-labor ratio that represents the steady-state capital-ratio is: 1) k0 2) k1 3) k2 4) k3

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In the Solow growth model, if investment exceeds depreciation, the capital stock will ______ and output will ______ until the steady state is attained. 1) increase; increase 2) increase; decrease 3) decrease; decrease 4) decrease; increase

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In the Solow growth model, the steady-state occurs when: 1) capital per worker is constant. 2) the saving rate equals the depreciation rate. 3) output per worker equals consumption per worker. 4) consumption per worker is maximized.

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The consumption function in the Solow model assumes that society saves a: 1) constant proportion of income. 2) smaller proportion of income as it becomes richer. 3) larger proportion of income as it becomes richer. 4) larger proportion of income when the interest rate is higher.

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The steady-state level of capital occurs when the change in the capital stock (∆k) equals: 1) 0. 2) the saving rate. 3) the depreciation rate. 4) the population growth rate.

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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: 1) a higher level of output per person than before. 2) the same level of output per person as before. 3) a lower level of output per person than before. 4) the Golden Rule level of output per person.

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If the per-worker production function is given by y = k1/2, the saving ratio is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of output per worker (y) is: 1) 1. 2) 2. 3) 3. 4) 4.

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In the Solow growth model of Chapter 8, where s is the saving rate, y is output per worker, and i is investment per worker, consumption per worker (c) equals: 1) sy 2) (1 - s)y 3) (1 + s)y 4) (1 - s)y - i

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In the Solow growth model of Chapter 8, the demand for goods equals investment: 1) minus depreciation. 2) plus saving. 3) plus consumption. 4) plus depreciation.

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The Solow growth model describes: 1) how output is determined at a point in time. 2) how output is determined with fixed amounts of capital and labor. 3) how saving, population growth, and technological change affect output over time. 4) the static allocation, production, and distribution of the economy's output.

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The Solow model shows that a key determinant of the steady-state ratio of capital to labor is the: 1) level of output. 2) labor force. 3) saving rate. 4) capital elasticity in the production function.

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When f(k) is drawn on a graph with increases in k noted along the horizontal axis, the slope of the line denotes: 1) output per worker. 2) output per unit of capital. 3) the marginal product of labor. 4) the marginal product of capital.

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Starting from a steady-state situation, if the saving rate increases, the rate of growth of capital per worker will: 1) increase and continue to increase unabated. 2) increase until the new steady state is reached. 3) decrease until the new steady state is reached. 4) decrease and continue to decrease unabated.

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Two economies are identical except that the level of capital per worker is higher in Highland than in Lowland. The production functions in both economies exhibit diminishing marginal product of capital. An extra unit of capital per worker increases output per worker: 1) more in Highland. 2) more in Lowland. 3) by the same amount in Highland and Lowland. 4) in Highland, but not in Lowland.

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Unlike the long-run classical model in Chapter 3, the Solow growth model: 1) assumes that the factors of production and technology are the sources of the economy's output. 2) describes changes in the economy over time. 3) is static. 4) assumes that the supply of goods determines how much output is produced.

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When f(k) is drawn on a graph with increases in k noted along the horizontal axis, the: 1) graph is a straight line. 2) slope of the line eventually gets flatter and flatter. 3) slope of the line eventually becomes negative. 4) slope of the line eventually becomes steeper and steeper

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Assume two economies are identical in every way except that one has a higher saving rate. According to the Solow growth model, in the steady state the country with the higher saving rate will have ______ level of output per person and ______ rate of growth of output per worker as/than the country with the lower saving rate. 1) the same; the same 2) the same; a higher 3) a higher; the same 4) a higher; a higher

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If the national saving rate increases, the: 1) economy will grow at a faster rate forever. 2) capital-labor ratio will increase forever. 3) economy will grow at a faster rate until a new, higher, steady-state capital-labor ratio is reached. 4) capital-labor ratio will eventually decline.

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If the per-worker production function is given by y = k1/2, the saving rate (s) is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is: 1) 1 2) 2 3) 4 4) 9

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If the per-worker production function is given by y = k1/2, the saving ratio is 0.3, and the depreciation rate is 0.1, then the steady-state ratio of output per worker (y) is: 1) 1. 2) 2. 3) 3. 4) 4.

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In the Solow growth model of Chapter 8, for any given capital stock, the ______ determines how much output the economy produces and the ______ determines the allocation of output between consumption and investment. 1) saving rate; production function 2) depreciation rate; population growth rate 3) production function; saving rate 4) population growth rate; saving rate

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In the Solow growth model, if investment is less than depreciation, the capital stock will ______ and output will ______ until the steady state is attained. 1) increase; increase 2) increase; decrease 3) decrease; decrease 4) decrease; increase

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In the Solow model, it is assumed that a(n) ______ fraction of capital wears out as the capital-labor ratio increases. 1) smaller 2) larger 3) constant 4) increasing

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In the steady state with no population growth or technological change, the capital stock does not change because investment equals: 1) output per worker. 2) the marginal product of capital. 3) depreciation. 4) consumption.

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In this graph, starting from capital-labor ratio k1, the capital-labor ratio will: 1) decrease. 2) remain constant. 3) increase. 4) first decrease and then remain constant.

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In this graph, when the capital-labor ratio is OA, AB represents: 1) investment per worker, and AC represents consumption per worker. 2) consumption per worker, and AC represents investment per worker. 3) investment per worker, and BC represents consumption per worker. 4) consumption per worker, and BC represents investment per worker.

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Investment per worker (i) as a function of the saving ratio (s) and output per worker (f(k)) may be expressed as: 1) s + f(k). 2) s - f(k). 3) sf(k). 4) s/f(k).

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The production function y = f(k) means: 1) labor is not a factor of production. 2) output per worker is a function of labor productivity. 3) output per worker is a function of capital per worker. 4) the production function exhibits increasing returns to scale.

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______ cause(s) the capital stock to rise, while ______ cause(s) the capital stock to fall. 1) Inflation; deflation 2) Interest rates; the discount rate 3) Investment; depreciation 4) International trade; depressions

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A higher saving rate leads to a: 1) higher rate of economic growth in both the short run and the long run. 2) higher rate of economic growth only in the long run. 3) higher rate of economic growth in the short run but a decline in the long run. 4) larger capital stock and a higher level of output in the long run.

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Among the four countries—the United States, the United Kingdom, Germany, and Japan—the one that experienced the most rapid growth rate of output per person between 1948 and 1972 was: 1) the United States. 2) the United Kingdom. 3) Germany. 4) Japan.

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An economy in the steady state with no population growth or technological change will have: 1) investment exceeding depreciation. 2) no depreciation. 3) saving equal to consumption. 4) no change in the capital stock.

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If the capital stock equals 200 units in year 1 and the depreciation rate is 5 percent per year, then in year 2, assuming no new or replacement investment, the capital stock would equal _____ units. 1) 210 2) 200 3) 195 4) 190

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If the per-worker production function is given by y = k1/2, the saving ratio is 0.3, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is: 1) 1. 2) 2. 3) 4. 4) 9.

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In the Solow growth model of Chapter 8, investment equals: 1) output. 2) consumption. 3) the marginal product of capital. 4) saving.

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In the Solow growth model of Chapter 8, the economy ends up with a steady-state level of capital: 1) only if it starts from a level of capital below the steady-state level. 2) only if it starts from a level of capital above the steady-state level. 3) only if it starts from a steady-state level of capital. 4) regardless of the starting level of capital.

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In the Solow growth model the saving rate determines the allocation of output between: 1) saving and investment. 2) output and capital. 3) consumption and output. 4) investment and consumption

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In the Solow growth model with no population growth and no technological progress, the higher the steady capitalper-worker ratio, the higher the steady-state: 1) growth rate of total output. 2) level of consumption per worker. 3) growth rate of output per worker. 4) level of output per worker.

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In the Solow growth model, the assumption of constant returns to scale means that: 1) all economies have the same amount of capital per worker. 2) the steady-state level of output is constant regardless of the number of workers. 3) the saving rate equals the constant rate of depreciation. 4) the number of workers in an economy does not affect the relationship between output per worker and capital per worker.

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In the Solow growth model, with a given production function, depreciation rate, no technological change, and no population growth, a higher saving rate produces a: 1) higher MPK in the new steady state. 2) higher steady-state growth rate of output per worker. 3) higher steady-state growth rate of total output. 4) higher steady-state level of output per worker.

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In this graph, capital-labor ratio k is not the steady-state capital-labor ratio because: 1) the saving rate is too high. 2) the investment ratio is too high. 3) gross investment is greater than depreciation. 4) depreciation is greater than gross investment.

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The change in capital stock per worker (∆k) may be expressed as a function of s = the saving ratio, f(k) = output per worker, k = capital per worker, and δ = the depreciation rate, by the equation: 1) ∆k = sf(k)/δk. 2) ∆k = sf(k) × δk. 3) ∆k = sf(k) + δk. 4) ∆k = sf(k) - δk.

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The formula for the steady-state ratio of capital to labor (k*), with no population growth or technological change, is s: 1) divided by the depreciation rate. 2) multiplied by the depreciation rate. 3) divided by the product of f(k*) and the depreciation rate. 4) multiplied by f(k*) divided by the depreciation rate.

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