Ch 8

Suppose an economy is initially in a steady state with capital per worker below the Golden rule level. If the saving rate increases to a rate consistent with the Golden rule, then in the transition to the new steady state consumption per worker

first fall below and than rise above the initial level

In the Solow growth model, increases in capital ___________ output and ___________ the amount of output used to replace depreciating capital

increase; increase

In this graph, starting from capital-labor ratio k, the capital-labor will:

increase

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

growth in total output and growth in output per worker

In the Solow growth model, with a given production function, depreciation rate, saving rate, and no tech change, higher rates of population growth produce:

higher steady-state growth rates of total output

In the Solow growth model, if investment exceeds depreciation, the capital stock will ______ , and output will __________ untill the steady sate is attained

increase; increase

In the graph, when the capital stock per worker is OA, AB represents:

investment per worker and BC represents consumption per worker (graph isn't the same )

To determine whether an economy is operating at its Golden rule level of capital stock, a policymaker must determine the steady-state saving that produces the:

largest consumption per worker

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

4

If an economy is in a steady state with no population growth or technological change and the MPK is less than the depreciation rate

Steady-state consumption per worker would be higher in a steady state with a lower saving rate

Assume that two economies are identical in every way expect 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 compared to the country with the lower saving rate.

a higher; the same

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

lower; the same as it was before

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:

more in Lowland

In the Solow growth model of an economy with population but no tech progress, when the economy finds itself at the Golden Rule steady state, the marginal product of capital minus the rate of depreciation will equal

the population growth rate

Assume that a war reduces a country's labor force but does not directly affect its capital stock. Then the immediate impact will be that:

total output will fall, but output per worker will rise

In the Solow growth model of an economy with population but no tech progress, the steady state amount of investment can be thought of as a break-even amount of investment because the quantity of investment just equals the amount of:

capital needed to replace depreciated capital and to equip workers

In the Solow growth model of an economy with population but no tech change, if population grows at rate n, then capital in the steady state grows at rate _________, and output grows at rate _________ in the steady state

n; n