ECON 510 Chapter 8

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 ratio is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of output per worker (y) is:

2

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

Investment; depreciation

A higher saving rate leads to a:

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

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

capital per worker is constant

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

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

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

constant

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

constant 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

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

describes changes in the economy over time

In the Solow growth model, with a given production function, depreciation rate, no technological change, and no population growth, a higher 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.

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

investment and consumption.

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

level of output per worker

The production function y = f(k) means:

output per worker is a function of capital per worker

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

saving

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 denotes:

the marginal product of capital

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.