chapter 8 final review.

micheal kemerian

argued that population growth is the key for advancing economic posperity

MPK (marginal product of capital) decreases

as the capital per worker increases

Assuming that the production function has constant returns to scale implies that:

doubling the amounts of capital and labor will double output.

as a country approuches its steady state its rate of growth will

fall

Two countries, Argo and Beaurepaire, have identical production functions. If Argo has a higher saving rate Beaurepaire, and Argo has a higher rate of depreciation than Beaurepaire, then:

it is indeterminate whether Argo or Beaurepaire has a higher steady-state capital stock per worker.

an increase of capital per worker means that

more out should be devoted to replacing the depreciation capital

higher saving will temeroryly cause economic growth, when the

new steady state is reached the growth comes to an end

Solow Growth Model

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

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

20000

Golden Rule of Capital K* gold

The steady state value of capital that maximizes per capita consumption

An increase in the saving rate will have:

a level effect but no growth effect.

If two countries, Cheli and Dunland, have identical production functions and saving rates, but Cheli has a higher rate of depreciation than Dunland, then Cheli will have _____ in the steady state.

a lower capital per worker ratio

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

false

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

false

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 the steady state again, consumption per worker will be _____ than its initial level, and investment per worker will be _____ than its initial level. Please choose the correct answer from the following choices, and then select the submit answer button.

greater; more

a country that maintain a high saving rate will have high capital stock and high level of output but not

growth

steady state

a state in which inputs equal outputs, so that the system is not changing over time

An economy will _____ move to a steady state but _____ to the Golden Rule steady state

always; not necessarily

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, then investment per worker is i equals:

10

In the Solow growth model, c = C / L = (1 − s)y. The simple Keynesian consumption function is C = a + bY. These two consumption functions are identical only if Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices

(1 − s) = band a = 0.

The capital stock per worker increases when:

sy > δ k.

When we have too much capital

Government policies to reduce the saving rate are successful at time t0 Invesvesment imidiatly falls at t0 and consumtion will increase Since investment is now less than depreciation the capital stock begins to decline. The decline in the capital stock reduces output and consumtion and investment. These will all continue a gradual decline until the new stradt state is reached. Since the new steady state is rhe golden rule level of capital consumption will be higher that ir eas orignalli

The economists _____ predict that population growth will decrease standards of living, whereas the economist _____ maintains that a large population raises standards of living through faster technological progress.

Robert Solow and Thomas Malthus; Michael Kremer

Malthusian Theory

The theory that population grows faster than food supply

predicted that the pressures of an increasing population would cause extended poverty.

Thomas Malthus

a high population growth reduges k* and y*

a change in growth level of population has a growth level effect but not growth effect.

crowding out

a decrease in investment that results from government borrowing

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 sgold. When the economy reaches steady state again, consumption will be greater than its initial level, and output will ____ its initial level.

be less than

The amount of investment that keeps the stock of capital per worker constant is called _____ investment.

break even

The Solow growth model assumes a production function with

constant returns to scale and a diminishing marginal product of capital.

There are two methods to determine the Golden Rule capital level, looking at steady-state: Please choose the correct answer from the following choices, and then select the submit answer button.

consumption or comparing the marginal product of capital to the depreciation rate.

If an economy has achieved the Golden Rule steady-state level of capital, then

consumption per worker cannot be increased.

In the Solow model, C stands for consumption, and c stands for:

consumption per worker.

If an economy begins with less capital than the Golden Rule level, and the saving rate is increased, then consumption per worker MOST likely will initially:

decrease

an increase in population

decrease in capital per worker

MPK< depreciation

decreases in k will decrease consumption

Solow Model Assumptions

if war destroyed capital stock, but saving rate remains the same there will be an immidiat drop in output followed by rapid growth

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:

increase.

MPK > depreciation

increases in k will increase consumption

In the Solow model, demand consists of consumption and _____; government purchases and net exports are ignored.

investment

the slop of the production function

is the MPK(marginal prouduct of capital)

the slope of the depretiation line

is the rate of depreciation

the golden rule

is where the distance between the output and depreciation is the greatest

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:

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 steady state.

lower saving lower saving

Thomas Malthus anticipated that:

more than 1 billion people in the world might live on less than 1 dollar a day in 2006 and that 2.7 billion (the equivalent of the entire population of the world in 1955) would struggle to survive on less than 2 dollars per day.

per capita output in Agora is higher than in Bensalem. the marginal product of capital in Agora is lower than in Bensalem. per capita investment in Agora is higher than in Bensalem. Correct: output is higher in Bensalem than in Agora. output is higher in Bensalem than in Agora.

more; less

If the capital stock per worker is greater than the steady-state capital stock per worker, then the change in capital is:

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

the increase of capital per worker will increase the

per capita output

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 that all of the following are true EXCEPT that:

per capita output in Agora is higher than in Bensalem. the marginal product of capital in Agora is lower than in Bensalem. per capita investment in Agora is higher than in Bensalem. Correct: output is higher in Bensalem than in Agora. **output is higher in Bensalem than in Agora.

An increase in the saving rate will cause

raise in investment causing the capital stock to grow towards a new steady level

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.

An economy will _____ move to the Golden Rule steady state.

sometimes

if the saving rate is high

the economy will have a large capital stock and a high level of output in its steady state. like in germany and japan

if the saving rate is low

the economy will have a small capital stock and a low level of output in its steady state

MPK= deprciation

the golden rule of capital MPK-deprciation=0

a budget deficit decreases saving, that casuses

the reduction in investment(crowding out) in the long time that causes a lower capital stock and a lower national income.

solow an increase in saving rate means that

the saving function will rotate upward

at the golden rule level of capital, the slope of the production function is equal to

the slope of the depreciation line

Solow Growth Model designed

to show how growth in the capital stock, growth in the labor force, and advances in technology interact in an economy as well as how they affect a nation's total output of goods and services.

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.

The Cobb-Douglas production function Y = K^2/3 L^1/3 can be rearranged into the output per worker function: Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices

y = k^2/3.