ECO 3311 - PS5

To determine whether an economy is operating at its Golden Rule level of capital stock, a policymaker must determine the steady-state saving rate that produces the:

largest consumption per worker.

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.

(Exhibit: Steady-State Consumption I) The Golden Rule level of the capital-labor ratio is:

k*A.

(Exhibit: Capital-Labor Ratio and the Steady State) In this graph, the capital-labor ratio that represents the steady-state capital-labor ratio is:

k2.

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.

If capital lasts an average of 25 years, the depreciation rate is ______ percent per year.

4

In the Solow growth model of an economy with population growth but no technological change, if population grows at rate n, total output grows at rate ______ and output per workers grows at rate ______.

n; 0

In the Solow growth model of Chapter 7, 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

If y = k1/2, there is no population growth or technological progress, 5 percent of capital depreciates each year, and a country saves 20 percent of output each year, then the steady-state level of capital per worker is:

16

If y = k1/2, the country saves 10 percent of its output each year, and the steady-state level of capital per worker is 4, then the steady-state levels of output per worker and consumption per worker are:

2 and 1.8, respectively.

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.

If Y = K0.3L0.7, then the per-worker production function is:

Y/L = (K/L)0.3.

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.

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

c* = f(k*) - k*.

In the Solow growth model with population growth, but no technological progress, the steady-state amount of investment can be thought of as a break-even amount of investment because: the quantity of investment just equals the amount of:

capital needed to replace depreciated capital and to equip new workers.

The Solow growth model describes:

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

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.

(Exhibit: Output, Consumption, and Investment) In this graph, when the capital-labor ratio is OA, AB represents:

investment per worker, and BC represents consumption per worker.

With a per-worker production function y = k1/2, the steady-state capital stock per worker (k*) as a function of the saving rate (s) is given by:

k* = (s/)2.

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 population growth rate will have a ______ level of total output and ______ rate of growth of output per worker as/than the country with the lower population growth rate.

lower; the same

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.

An economy in the steady state will have:

no change in the capital stock.

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

sf(k).

If an economy is in a steady state with no population growth or technological change and the marginal product of capital is less than the depreciation rate:

steady-state consumption per worker would be higher in a steady state with a lower saving rate.

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.

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.

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

0.

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 an economy with population growth but no technological change, if population grows at rate n, then capital grows at rate ______ and output grows at rate ______.

n; n

The production function y = f(k) means:

output per worker is a function of capital per worker.

(Exhibit: Capital-Labor Ratio and the Steady State) In this graph, starting from capital-labor ratio k1, the capital-labor ratio will:

increase.