4002 osu chapter 8

In the steady state of the Solow model, higher population growth leads to a ______ level of income per worker and ______ growth in total income. a. higher, higher b. higher, lower c. lower, higher d. lower, lower

c

Given the information below, the Golden Rule consumption per worker is ___. y = 2k^3 = 5.8 s = 0.3 ẟ = 0.05 MPK = 0.6/k^0.7 i = 1.7

c = y - i c = 5.8 - 1.7 c = 4.1

Given the information below, the Golden Rule level of capital is__. (Calculate your answer to one decimal.) y = 2k^3 s = 0.3 ẟ = 0.05 MPK = 0.6/k^0.7

o.6/k^0.7 = 0.05 12^(1/0.7) = k 34.8 = k

The Golden Rule level of capital is where the distance between _____ and _____ is the greatest

output & depreciation

what does this mean Y=F(K,L) ?

output (Y) depends on the capital stock (K) and the labor force (L)

The steady state level of capital can be estimated by ______

(ẟ+n)k* = i*

The production function is described by the function y = 100k. If one more unit of capital is added, the marginal product of that unit of capital is

100 y=100k is a constant returns so an increase in 1 unit of capital increases the MPK by 100

A production function is described by the function y = 100k. If k is 20, output will be equal to

2000

steady state

A condition in which key variables are not changing. it is significant for 2 reasons: - an economy at the steady state will stay there -an economy not at the steady state will go there the steady state represents the long-run equilibrium of the economy

Solow growth model

A model showing how saving, population growth, and technological progress determine the level of and growth in the standard of living.

According to the Solow model, if an economy increases its saving rate, then in the new steady state, compared with the old one, the marginal product of capital is ______ and the growth rate is ._______ a. the same, lower b. the same, higher c. lower, the same d. higher, the same

c

T/F A production function is described by the function y = 100k. This production function exhibits diminishing marginal returns

False because constant returns

T/F According to the Solow model, an economy in its steady state experiences a constant rate of growth.

False, in the steady state there is no growth (𝝙k = 0)

The Golden Rule level of capital exists when...

MPK - ẟ = 0 marginal product of capital = rate of depreciation

Golden Rule level of capital

The saving rate in the Solow growth model that leads to the steady state in which consumption per worker (or consumption per efficiency unit of labor) is maximized.

An economy has the production function y=20k^1/2.The current capital stock is 100, the depreciation rate is 10 percent, and the population growth rate is 2 percent. For income per person to grow, the saving rate must exceed a. 6 percent. b. 8 percent. c. 10 percent. d. 12 percent. (k is the capital stock per worker)

a.

Thomas Malthus believed that... a. larger populations experience greater innovation because they have more scientists and inventors. b. larger populations put a strain on an economy's food-producing capacity. c. higher population growth depresses the steady-state amount of capital per worker. d. higher population growth allows economies to take advantage of economies of scale.

b

ẟ+ n is the___________

break even level of investment

If the economy has more capital than in the Golden Rule steady state, reducing the saving rate will... a. increase both steady-state income and steady-state consumption. b. decrease both steady-state income and steady-state consumption. c. increase steady-state income but decrease steady-state consumption. d. decrease steady-state income but increase steady-state consumption.

d

In the Solow model, an increase in which of the following raises steady-state growth in income per person? a. the saving rate b. the population growth rate c. the depreciation rate d. none of the above

d

An increase in the population causes a _____ in the capital per worker

decrease

If saving is less than depreciation, the stock of capital will _______

decrease

what does investment equal?

i = sy investment equals saving

If saving is greater than depreciation, the stock of capital will _______

increase

Given the information below, the Golden Rule saving rate is ___. y = 2k^3 s = 0.3 ẟ = 0.05 MPK = 0.6/k^0.7

k*/f(k*) = s/ẟ 34.8 / (2k^0.3) = s / 0.05 34.8 / 5.801 = s / 0.05 s = 0.3

Given the information below, the Golden Rule output per capita is ___. y = 2k^3 s = 0.3 ẟ = 0.05 MPK = 0.6/k^0.7 k = 34.8

y = 2k^0.3 y = 2(34.8)^0.3 y = 5.8

Given the information below, the Golden Rule investment per worker is ___. y = 2k^3 s = 0.3 ẟ = 0.05 MPK = 0.6/k^0.7 k = 34.8

y = 2k^0.3 y = 2(34.8)^0.3 y = 5.8 investment = s*y investment = 0.3 * 5.8 investment = 1.7

The change in capital stock per worker is (whats the equation for this)

𝝙k = i - (ẟ + n)k