Macro Chapter 6

Over the past year, output grew by 4%, capital grew by 2%, and labor grew by 1%. If the elasticities of output with respect to capital and labor are 0.3 and 0.7, respectively, by how much did productivity grow?

2.7%

Over the past year, productivity grew 2%, capital grew 1%, and labor grew 1%. If the elasticities of output with respect to capital and labor are 0.2 and 0.8, respectively, how much did output grow?

3%

Suppose the current level of output is 5000 and the elasticity of output with respect to capital is 0.4. A 10% increase in capital would increase the current level of output to

5200.

Suppose the current level of output is 5000 A 10% increase in productivity would increase the current level of to

5500.

Suppose the current level of output is 5000. If the elasticities of output with respect to capital and labor are 0.3 and 0.7, respectively, a 10% increase in capital combined with a 5% increase in labor and a 5% increase in productivity would increase the current level of output to

5575

If capital and labor each grows by 5% in a year, the elasticities of output with respect to capital and labor sum to one, and productivity grows by 2% in the year, by how much does output grow during the year?

7%

what two explanations of productivity growth does endogenous growth theory offer?

Accumulation of human capital and technological innovation

According to the solow model of economic growth, if there is no productivity growth, what will happen to output per consumption per worker, and capital per worker in the long run?

All will remain the same

Which of the following changes would lead, according to the Solow model, to a higher level of long-run output per worker?

An increase in the saving rate

two countries are identical in every way except that one has a much higher capital-labor ratio than the other. • In general terms, how will your answer be affected if the two countries are allowed to trade with each other?

Both countries will grow even faster

In the Solow model, if k=8, y=24, and s=0.25, what is c?

C=18

If the capital-labor ratio is above the Golden Rule capital-labor ratio, then in the steady state,

Consumption per worker is not at its maximum

How does the production function in an endogenous growth model differ from the production function in the Solow model? The Solow model, the production function _______, while in the endogenous growth model, the production function ______.

Exhibits diminishing marginal productivity; does not exhibit diminishing marginal productivity.

the higher the steady-state capital-labor ratio is, the more consumption each worker can enjoy in the long run. True or false?

False

which of the following are the main sources of economic growth, according to the growth accounting system?

Growth in capital, labor, and productivity

which of the following statement below describe what is meant by a steady state, in terms of the solw model? • I. Output per worker= consumption per worker= capital worker • II. Output per worker, consumption per worker, and capital worker are constant • III. Total output, total consumption and total capital all grow at the same rate (the growth of the labor force) • IV. Total output, total consumption, and total capital all grow at the same rate (the growth of the labor force)

II and IV

according to the Solow model, how would each of the following events affect long-run living standards? • A one-time improvement in productivity would _____ long-run living standards

Increase

according to the Solow model, how would each of the following events affect long-run living standards? • An increase in the savings rate would _____ long-run living standards.

Increase

According to the Solow model, an increase in the capital-labor ratio will

Increase steady state consumption per worker if the capital-labor ratio is below the golden rule capital stock.

The elasticity of output with respect to capital

Is the percentage increase in output resulting from a 1% increase in the capital stock.

The Golden Rule capital-labor ratio is the level of the capital-labor ratio that, in the steady state,

Maximizes consumption per worker

two countries are identical in every way except that one has a much higher capital-labor ratio than the other. • Does your answer depend on whether one country or the other is in a steady state?

No, the country with the lower capital-labor ratio will always grow faster

in a Solow-type economy, total national saving, St, is St=sYt-hKt the extra term, hKt reflects the idea that when wealth (as measured by capital stock) is higher, saving is lower. (wealthier people have less need to save for the future) • What is the effect on the steady state of per-worker consumption

Per-worker consumption decreases

according to the Solow model, how would each of the following events affect long-run living standards? • An increase in the population growth rate would _____ long-run living standards

Reduce

A new pollution law requires businesses to pay for inspections of their plants by independent pollution-monitoring firms. What effect is this likely to have?

Reduce productivity

two countries are identical in every way except that one has a much higher capital-labor ratio than the other. • According to the solow model which country's total output will grow more quickly

The country with the lower capital-labor ratio

In the Solow model if productivity doesn't change,

The economy must eventually reach a steady state

in the long run, a reduction in productivity will cause

a decrease in the capital-labor ratio and a decrease in consumption per worker

in the long run, an increase in the saving rate in a steady-state economy will cause

an increase in the capital-labor ratio and an increase in consumption per worker

A productivity improvement will cause

an upward shift in the saving-per-worker curve and an increase in the capital-labor ratio

In a steady state

both consumption per worker and the capital-labor ratio are constant.

The per-worker production function in the Solow model assumes

constant returns to scale and diminishing marginal productivity of capital.

which of the following is not an example of human capital formation

increases in the birth rate of the population

which of the following is a policy with a reasonable chance of increasing productivity growth?

increasing the number of grants for scientific research

Total factor productivity growth is that part of economic growth due to

neither capital growth nor labor growth

in a Solow-type economy, total national saving, St, is St=sYt-hKt the extra term, hKt reflects the idea that when wealth (as measured by capital stock) is higher, saving is lower. (wealthier people have less need to save for the future) • what is the effect on the steady-state value of per-worker output?

o Per-worker output decreases

in a Solow-type economy, total national saving, St, is St=sYt-hKt the extra term, hKt reflects the idea that when wealth (as measured by capital stock) is higher, saving is lower. (wealthier people have less need to save for the future) • what is the effect on the steady-state of an increase in h?

per-worker capital decreases

a decrease in the population growth will lead to a ______ in the steady-state capital-labor ratio and a _____ in output per worker

rise; rise

The idea that saving equals investment in the Solow model means that a steady state can be reached only when

sf(k) = (n + d)k

Steady-state investment per worker is positively related to the capital-labor ratio because the higher the capital-labor ratio

the more investment per worker is required to replace depreciating capital.

according to the Solow model, how would each of the following effects affect consumption per worker in the long run • Permanent increase in energy prices

would have decrease the level of consumption per worker in the steady state.

according to the Solow model, how would each of the following effects affect consumption per worker in the long run • The permanent increase in the rate of immigration (which raises the overall population growth rate

would have decrease the level of consumption per worker in the steady state.

according to the Solow model, how would each of the following effects affect consumption per worker in the long run • Temporary rise in the saving rate

would have no effect on the level of consumption per worker in the steady state

according to the Solow model, how would each of the following effects affect consumption per worker in the long run • the destruction of a portion of the nation's capital stock in a war:

would have no effect on the level of consumption per worker in the steady state

according to the Solow model, how would each of the following effects affect consumption per worker in the long run • A permanent increase in the fraction of the population in the labor force (holding the population growth the same):

would have no effect on the level of consumption per worker in the steady state.

The growth accounting equation is

∆Y/Y = ∆A/A + aK ∆K/K + aN ∆N/N