Econ 320 Exam 2 Practice Questions

If population grows at rate n and workers become more effective at rate g, which variable grows at rate n + g ? A. Output B. Output per worker C. Output per effective worker D. Capital per effective worker

A. Output

Assuming the production function is 𝑦= 𝑘^1/2, What is the approximate depreciation rate for an economy with a steady-state capital stock of 8 units of capital per worker and a saving rate of 0.4? A. 0.05 B. 0.14 C. 0.32 D. 0.40

B. 0.14

In the Solow growth model, which variable is endogenous? A. The capital stock B. The saving rate C. The depreciation rate D. Technological progress

A. The capital stock

Steady-state consumption is the gap between: A. output and depreciation. B. depreciation and investment. C. saving and investment. D. saving and depreciation.

A. output and depreciation.

Which statement is TRUE according to the Solow growth model? A. A higher saving rate results in faster, sustained growth. B. A higher saving rate results in temporarily faster growth. C. A sustained high saving rate will result in a larger capital stock but not more output. D. An increase in the saving rate does not change the steady state but enables the economy to reach it more quickly.

B. A higher saving rate results in temporarily faster growth.

Which economist predicted that humanity's long-run prospect is poverty? A. Paul Romer B. Thomas Malthus C. Michael Kramer D. Robert Solow

B. Thomas Malthus

The Golden Rule level of capital maximizes: A. output. B. the growth rate. C. the steady state. D. consumption.

D. consumption.

Which statement is TRUE when the economy starts with LESS capital than the Golden Rule level? A. Depreciation must be reduced to reach the Golden Rule level of capital. B. Current generations must sacrifice to maximize future consumption. C. To maximize consumption, the current saving rate must fall. D. Increasing the capital stock to the Golden Rule level benefits both current and future generations.

B. Current generations must sacrifice to maximize future consumption.

In the Solow growth model, which expression defines the marginal product of capital? A. MPK = f (k + 1)/f (k ) B. MPK = f (k + 1) − f (k ) C. MPK = f (k + 1) + f (k ) D. MPK = f (k ) − f (k + 1)

B. MPK = f (k + 1) − f (k )

In the steady state in the Solow model, which is NOT one of the uses of new capital? A. To replace depreciating capital B. To replace capital exported to other countries C. To provide capital for new 'effective workers' created by technological progress D. To provide capital for new workers

B. To replace capital exported to other countries

Lewis dual economies are countries A. with double capital and labor. B. with a modern manufacturing sector as well as traditional agriculture sector. C. are a pair of countries where one specializes in labor-intensive products and the other specializes in capital-intensive products. D. with foreign-owned and domestically-owned capital.

B. with a modern manufacturing sector as well as traditional agriculture sector.

How do the long-run predictions of the Solow growth model and endogenous growth model compare? A. Both predict an eventual steady-state equilibrium. B. Both recognize the possibility of unlimited growth. C. The Solow model predicts an eventual steady-state equilibrium, and the endogenous growth model allows for continued growth. D. The endogenous growth model predicts an eventual steady-state equilibrium, and the Solow model allows for continued growth.

C. The Solow model predicts an eventual steady-state equilibrium, and the endogenous growth model allows for continued growth.

Assuming the production function is 𝑦= 𝑘^1/2, what is the steady-state capital stock for an economy with a saving rate of 0.4 and a depreciation rate of 0.2? A. 0.25 B. 0.5 C. 2 D. 4

D. 4

10. Which statement is TRUE when the economy starts with MORE capital than the Golden Rule level? A. Depreciation must be increased to reach the Golden Rule level of capital. B. Current generations must sacrifice to maximize future consumption. C. To maximize consumption, the current saving rate must rise. D. Decreasing the capital stock to the Golden Rule level benefits both current and future generations.

D. Decreasing the capital stock to the Golden Rule level benefits both current and future generations.

In the Solow model, which two variables have similar effects on the capital stock per worker? A. Depreciation and technological change B. The saving rate and depreciation C. Population growth and technological change D. Depreciation and population growth

D. Depreciation and population growth

Assuming the labor force and technology are fixed, why is there a limit to capital accumulation? A. Over time, consumers become unwilling to save. B. The current generation is unwilling to sacrifice for future generations. C. There is a finite limit on output. D. More capital means more capital must be replaced.

D. More capital means more capital must be replaced.

How do the Solow growth model and endogenous growth (Romer) model view the marginal product of capital? A. Both assume diminishing returns to capital. B. Both assume constant returns to capital. C. The Solow model assumes constant returns, and the endogenous growth model assumes diminishing returns to capital. D. The Solow model assumes diminishing returns, and the endogenous growth model assumes constant returns to capital.

D. The Solow model assumes diminishing returns, and the endogenous growth model assumes constant returns to capital.

At the Golden Rule level of capital, what must the marginal product of capital equal? A. Zero B. The saving rate C. The interest rate D. The depreciation rate plus the population growth if there is no labor productivity growth is zero

D. The depreciation rate plus the population growth if there is no labor productivity growth is zero

After the Lewis Turning Point (LTP): A. the traditional sector workers start moving back to their villages B. The model becomes identical to the Solow model C. The capitalists' income triangle becomes less than the workers' income rectangle. D. Wages start rising in the urban manufacturing sector.

D. Wages start rising in the urban manufacturing sector.

In the Solow model with population growth and static technology, what is the Golden Rule condition? A. MPK = δ −n B. MPK + n = δ C. MPK −δ = n D. MPK + δ = n

MPK −δ = n