Chapter 8

If the per-worker production function is given by y = k^1/2, the saving ratio is 0.3, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is:

9

In the Solow growth model of an economy with population growth but no technological change, the break-even level of investment must do all of the following except:

equal the marginal productivity of capital (MPK).

The change in capital stock per worker (Δk) may be expressed as a function of s = the saving ratio, f(k) = output per worker, k = capital per worker, and δ = the depreciation rate, by the equation:

Δk = sf(k) - δk.

In the Solow growth model of Chapter 8, where s is the saving rate, y is output per worker, and i is investment per worker, consumption per worker (c) equals:

(1 - s)y

In the Solow growth model, an economy in the steady state with a population growth rate of n but no technological growth will exhibit a growth rate of output per worker at rate:

0

In the Solow growth model, the steady-state occurs when:

capital per worker is constant.

Suppose an economy is initially in a steady state with capital per worker exceeding the Golden Rule level. If the saving rate falls to a rate consistent with the Golden Rule, then in the transition to the new steady state, consumption per worker will:

always exceed the initial level.

According to Kremer, large populations:

are a prerequisite for technological advances and higher living standards.

In the Solow growth model, if investment is less than depreciation, the capital stock will ______ and output will ______ until the steady state is attained.

decrease; decrease

Unlike the long-run classical model in Chapter 3, the Solow growth model:

describes changes in the economy over time.

According to the Solow growth model, high population growth rates:

force the capital stock to be spread thinly, thereby reducing living standards.

In the Solow growth model, with a given production function, depreciation rate, saving rate, and no technological change, higher rates of population growth produce:

higher steady-state growth rates of total output.

If an economy with no population growth or technological change has a steady-state MPK of 0.125, a depreciation rate of 0.1, and a saving rate of 0.225, then the steady-state capital stock:

is less than the Golden Rule level.

If an economy moves from a steady state with positive population growth to a zero population growth rate, then in the new steady state, total output growth will be ______ and growth of output per person will be ______.

lower; the same as it was before

Two economies are identical except that the level of capital per worker is higher in Highland than in Lowland. The production functions in both economies exhibit diminishing marginal product of capital. An extra unit of capital per worker increases output per worker:

more in Lowland.

The production function y = f(k) means:

output per worker is a function of capital per worker.

According to Malthus, large populations:

place great strains on an economy's productive resources, resulting in perpetual poverty.

In the Solow growth model, the assumption of constant returns to scale means that:

the number of workers in an economy does not affect the relationship between output per worker and capital per worker.

If a war destroys a large portion of a country's capital stock but the saving rate is unchanged, the Solow model predicts that output will grow and that the new steady state will approach:

the same level of output per person as before.

If the capital stock equals 200 units in year 1 and the depreciation rate is 5 percent per year, then in year 2, assuming no new or replacement investment, the capital stock would equal _____ units.

190

If an economy is in a steady state with a saving rate below the Golden Rule level, efforts to increase the saving rate result in:

both higher per-capita output and higher per-capita depreciation, but the increase in per-capita output would be greater.

The Golden Rule level of capital accumulation is the steady state with the highest level of:

consumption per worker.

A higher saving rate leads to a:

larger capital stock and a higher level of output in the long run.

With population growth at rate n but no technological change, the Golden Rule steady state may be achieved by equating the marginal product of capital (MPK):

net of depreciation to n.

In the Solow growth model, if two countries are otherwise identical (with the same production function, same saving rate, same depreciation rate, and same rate of population growth) except that Country Large has a population of 1 billion workers and Country Small has a population of 10 million workers, then the steady-state level of output per worker will be _____ and the steady-state growth rate of output per worker will be _____.

the same in both countries; the same in both countries

Assume that a war reduces a country's labor force but does not directly affect its capital stock. Then the immediate impact will be that:

total output will fall, but output per worker will rise.

In an economy with population growth at rate n, the change in capital stock per worker is given by the equation:

Δk = sf(k) - (δ + n)k.