EC410 Test 1

1. Suppose x grows at a rate percent and y grows at a rate percent. If z = y ´ x, then z grows at ________; if z = x/y, z grows at ________.

17% and -7%

Over the past 50 years, Brazil's population growth rate has averaged about 2.3 percent. According to the rule of 70, Brazil's population will double in about:

30 years

Which of the following production functions exhibits increasing returns to scale?

Y=K1/2L3/4

Using the Solow model, if, in time t = 0, the initial capital stock is K0 = 100, investment is I0 = 25, and .1 is the depreciation rate, capital accumulation is:

^K0= 15

Which of the following is/are the benefit(s) of economic growth?

an expansion in the range of goods and services available

The key insight in the Solow model is that:

capital accumulation contributes to economic growth

One of the key characteristics of the Cobb-Douglas production function is:

constant returns to scale

With a Cobb-Douglas production function , the marginal product of capital is ________ and the marginal product of labor is ________.

MPK=(1/3)(Y/K); MPL=(2/3)(Y/L)

The solution to the firm's profit maximization is:

MPL=w and MPK= r

Economic growth is defined as:

the percentage change in per capita income or GDP

If a natural disaster destroys a large portion of a country's capital stock but the saving and depreciation rates are unchanged, the Solow model predicts that the economy will grow and eventually reach:

the same steady state level of output as it would have been before the disaster

Consider the two production functions in Figure 4.6, representing two countries. Which of the following is true? i. At points a and b, each country has the same per capita capital stock but different factor productivity. ii. Points a and c represent the same country but with different factor productivity. iii. Points b and d represent the same country but with different stock of per capita capital.

i and iii only

The costs of economic growth include which of the following?

pollution and depletion of natural resources, the gradual release of individuals from physical labor

The president of the World Bank has asked you to calculate the average population growth rate of Nigeria from 1960 to 2010. You know the population in 1960 was about 42 million and in 2010 about 152 million. The average growth rate is about:

2.6%

If per capita GDP in 2014 was $1,000 and in 2015 was $1,200, the growth rate of per capita GDP was:

20%

Suppose k grows at a rate percent and l grows at a rate percent. If then y grows at:

6%

Assume a production function is given by . If a = 2 and l = 1 and , the depreciation rate is d=.05, and the saving rate is , s = .1 the steady-state level of capital is about:

8.0

Which of the following explain(s) differences in total factor productivity?

All of these answers are correct

A central lesson of the Solow model is a bit of a surprise:

Capital accumulation cannot serve as the engine of long-run per capita economic growth

In the Cobb-Douglas production function , if a = 1/4, then

Capitals share of GDP is 1/4

Consider Figure 5.6. If KSK is the current capital stock in South Korea and KCH is the current capital stock in China, according to the principle of transition dynamics:

China initially will grow faster than South Korea, but will each have the same steady state

Suppose that in 1960 Japan had an initial per capita GDP of $12,000 per year and China had a per capita GDP of $5,000. But China is growing at 5 percent per year and Japan is growing at 3 percent per year. ________ is richer in 2010 with a per capita GDP of approximately ________.

China; 57,337

Suppose you are given the data for Brazil and Portugal. In Brazil, the saving rate is 0.1 and the depreciation rate is 0.1, while in Portugal the saving rate is 0.2 and the depreciation rate is 0.1. Using the Solow model, you conclude that in the steady state:

Portugal has a higher capital output ratio than Brazil

In the production function y=f(K,L)=AK1/3l2/3 , A represents:

a productivity parameter

The production function Y=AK1/3L2/3 describes

how particular amounts of capital and labor can be combined to generate output

In Figure 5.3, at K1, the difference between and is ________ and the difference between Y and is ________.

net investment, consumption

5. An increase in ________ leads to a higher steady-state capital stock, and a decline in ________ leads to a lower steady-state capital stock.

the saving rate, productivity

Suppose k0 = 100 and assume it grows at a constant rate percent per year. If what is the approximate value of y in 50 years?

y50= 269

In the Cobb-Douglas production function , defining y = Y/L as output per person and k = K/L as capital per person, the per person production function is:

y=Ak1/3

In Figure 5.3, at K2, capital accumulation is ________, the economy is ________, and consumption is ________.

zero, in the steady state, positive