Macro Test 2

Total factor productivity (TFP)

An index of the overall level of efficiency of transforming capital and labor into real GDP.

total factor productivity

shift the aggregate production up

Increase in the number of workers

shifts the aggregate production up

All else equal, continued increases in the labor supply in an economy will lead to

smaller increases in real GDP

In the Solow growth model, a change in the capital-labor ratio is equal to

( investment-depreciation)

Solow growth model

A model that explains how the long-run growth rate of the economy depends on saving, population growth, technological change.

Constant returns to scale

A property of a production function such that if all inputs increase by the same percentage, real GDP increases by the same percentage.

Balanced Growth Model

A situation in which the capital-labor ratio and real GDP per worker grow at the same rate.

Steady state

An equilibrium in the Solow growth model in which the capital-labor ratio and real GDP per worker are constant but capital, labor and output are growing

As the capital-labor ratio increases, real GDP per worker___, and investment per worker___.

Increases , Decreases

Keeping total factor productivity constant, as the capital-labor ratio increases, labor productivity

Increases at a decreasing rate

The aggregate production function is an equation that shows the relationship between

The Inputs employed by firms; the maximum output firms can produce with those inputs

Cobb-Douglas Production Function characteristics

The function exhibits constant returns to scale The function exhibits diminishing returns to scale Capital and labor both earn shares of total income equal to the value of their exponents.

Aggregate production function formula?

Y= AF (K,L)

Y= AF (K,L) components?

Y= real GDP K= quantity of capital goods available to firms, or the capital stock. L= quantity of labor A= index of how efficiently the economy transforms capital and labor into real GDP.

The marginal product of capital is the ___ curve for capital and the marginal product of labor is the ___curve for labor

demand; demand

In the steady state, assuming that a constant share of the population is working

both real GDP per worker and real GDP per capital will grow at the same rate

In the Cobb-Douglas production function Y=AK^(3/4)L^(1/4),

capital has a larger share in national income than does labor.

When incorporating labor-augmenting technological change into the Solow growth model, the focus is on

capital per effective worker and output per effective worker.

Increase in capital stock will

cause movement along production function

An increase in foreign investments in Brazil"s mining industry will increase the capital stock in Brazil. All else equal, as the capital stock increases, the marginal product of capital (MPK) will

decrease due to diminishing marginal returns

Labor-augmenting technological change refers to improvements in efficiency that

increase the productivity of labor but that do not directly make capital goods more efficient.

Solow growth model, the steady state occurs when

investment= depreciation

In the Solow growth model, if the level of investments is less than depreciation at the initial capital-labor , then change K is ___and the capital-labor ratio___toward the steady-state capital-labor ratio.

less than zero; decreases

In the aggregate production function, the symbol "A" represents an index of how efficiently the economy transforms capital and labor into real GDP. "A" measures the influence

of any factor that determines real GDP other than the quantities of capital and labor.

Countries that have experience sustained increases in their standard of living have achieved them because

sustained technological change

depreciation rate

the rate at which the capital stock declines due to either capital goods becoming worn out by use or becoming obsolete.