Chapter 8

If the per-worker production function is given by y = k1/2, the saving rate (s) is 0.3, and the depreciation rate is 0.1, then the steady-state ratio of output per worker (y) is:

3

If the per-worker production function is given by y = k1/2, the saving rate (s) is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is:

4

The steady-state level of capital occurs when the change in the capital stock (Δk) equals:

0

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 the per-worker production function is given by y = k1/2, the saving rate (s) is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of output per worker (y) is:

2

Among the four countries—the United States, the United Kingdom, Germany, and Japan—the one that experienced the most rapid growth rate of output per person between 1948 and 1972 was:

Japan

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

In the Solow growth model of Chapter 8, for any given capital stock, the ______________ determines how much output the economy produces and the _____________ determines the allocation of output between consumption and investment.

Production function; Saving rate

Examination of recent data for many countries shows that countries with high saving rates generally have high levels of output per person because:

high savings rates lead to high levels of capital per worker

(Exhibit: steady state consumption I) The golden rule level of the capital-labor is:

k*ₐ

(exhibit: steady-state labor ratio) in this graph, the capital-labor ratio that represents the steady-state capital-ratio is:

k₂*

A higher saving rate leads to a:

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

An economy in the steady state with no population growth or technological change will have

no change in the capital stock

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

(1-s)y

If the per-worker production function is given by y = k1/2, the saving ratio) is 0.3, and the depreciation rate is 0.1, then the steady state ratio of capital to labor is:

9

(Exhibit: Steady-State Consumption II) The Golden Rule level of steady-state consumption per worker is:

AB

(Exhibit: Steady-State Consumption II) The Golden Rule level of steady-state investment per worker is:

BC

In the Solow model, it is assumed that a(n) ________________ fraction of capital wears out as the capital-labor ratio increases.

Constant

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

Consumption per worker

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

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

Assume two economies are identical in every way except that one has a higher population growth rate. According to the Solow growth model, in the steady state the country with the higher saving rate will have a ______ level of output per person and ______ rate of growth of output per worker as/than the country with the lower population growth rate.

a higher; the same

The formula for steady-state consumption per worker (c*) as a function of output per worker and investment per worker is:

c*=f(k*)-δk*

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

capital per worker is constant

The consumption function in the Solow model assumes that society saves a:

constant portion of income proportion of income

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

In the steady state with no population growth or technological change, the capital stock does not change because investment equals:

depreciation

(exhibit: Capital-labor ratio and the steady state) In this graph, capital-labor ratio k₂ is not the steady-state capital-labor ratio because:

depreciation is greater than gross investment

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

describes changes in the economy over time

If the national income saving rate increases, the:

economy will grow at a faster rate until a new, higher steady-state capital labor ratio is reached

In the Solow growth model, with a given production function, depreciation rate, no technological change, and no population growth, a high saving rate produces a:

higher steady-state level of output per worker

The Solow growth model describes:

how saving, population growth, and technological change affect output over time.

(Exhibit: the capital-labor ratio) In this graph, starting from capital-labor ratio k₁, the capital-labor ratio will:

increase

Starting from a steady-state situation, if the saving rate increases, the rate of growth of capital per worker will:

increase until the new steady state is reached

In the solow growth model, if investment exceeds depreciation, the capital stock will ____________ and output will_____________ until the steady state is attained.

increase, increase

In the Solow growth model, increases in capital ___________ output and _____________ the amount of output used to replace depreciating capital.

increase; increase

In the Solow growth model the saving rate determines the allocation of output between:

investment and consumption

(Exhibit: Output, consumption, and investment) in this graph, then the capital-labor ratio is OA, AB represents:

investment per worker, and BC represents consumption per worker

_________________ cause(s) the capital stock to rise, while _________________ cause(s) the capital stock to fall.

investment; depreciation

In the solow growth model with no population growth and no technological progress, the high the steady capital-per-worker ratio, the higher the steady-state:

level of output per worker

The formula for the steady-state ratio of capital to labor (k*), with no population growth or technological change is, s:

multiplied by f(k*) divided by the depreciation rate.

In the Solow growth model of Chapter 8, the demand for goods equals investment:

plus consumption

In the Solow growth model of Chapter 8, the economy ends up with a steady-state level of capital:

regardless of the starting level of capital

In the Solow growth model of chapter 8, investment equals

saving

The solow model shows that a key determinant of the steady-state ratio of capital to labor is the:

saving rate

Investment per worker (i) as a function of the saving ratio (s) and output per worker (f(k)) may be expressed as:

sf(k)

When f(k) is drawn on a graph with increases in k noted along the horizontal axis, the

slope of the line eventually gets flatter and flatter

When f(k) is drawn on a graph with increases in k noted along the horizontal axis, the slope of the line denotes:

the marginal product of capital

The production function y= f(k) means

the production function exhibits increasing returns to scale

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

The change in capital stock per worker (Δk) may be expressed as a function 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