Macroeconomics Quiz 4

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

(investment - depreciation).

Suppose that the production function for the economy is Y = AK1/4L3/4. Assume that real GDP is $8,000 billion, capital stock is $32,000 billion, and the labor supply is 120 million (or 0.120 billion) workers. Total factor productivity for this economy is

2933.65

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

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

production function

The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs is called the firm's

Which of the following equations best represents the concept of constant returns to scale? a. 3Y = AF(3K, 3L) b. 2Y = 2AF(2K,2 L) c. 1/4Y = (AF / 4 )(4K, 4L) d. 5Y = [AF(K, L)] / 5

a

In the Cobb-Douglas production function Y = AK3/4L1/4, capital compares to labor by having

a larger share in national income than does labor.

Assume the capital-labor ratio remains constant. If investment increases at a constant rate, real GDP per worker will increase ________, and if total factor productivity increases at a constant rate, real GDP per worker will increase ________.

at a decreasing rate; at a constant rate

Which of the following equations best represents a Cobb-Douglas production function? a. Y = AK1L1 b. Y = AK3/4L1/4 c. Y = AK1/3L3 d. Y = AK2/3L3/2

b

The marginal product of capital is the ________ curve for capital and the marginal product of labor is the ________ curve for labor.

demand; demand

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

higher levels of total factor productivity.

As the capital-labor ratio increases, investment per worker

increases at a diminishing rate.

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

increases; increases

In the Solow growth model, the steady state occurs when

investment = depreciation.

An economy accumulates capital when

its capital-labor ratio increases.

In the Solow growth model, if the level of investment is less than depreciation at the initial capital-labor ratio, then △k is ________ and the capital-labor ratio ________ toward the steady-state capital-labor ratio.

less than zero; decreases

All else equal, an increase in the capital stock will cause a

movement up and to the right along PF1.

All else equal, an increase in the number of workers will cause a

movement up and to the right along PF1.

All else equal, in an economy with an upward-sloping production function, as an economy accumulates more capital goods,

real GDP increases.