Econ302 Ch 7

Using the Solow model, could differences in population growth, all other things being equal, explain persistent differences in standards of living across countries?

Yes, the high-population growth country will have lower standards of living.

Assume there is a slowdown in the population growth rate n and that policymakers want to accelerate the path to the new golden rule level of the per capita capital stock. The best policy would most likely be

to tax current consumption

Using the Solow model and the notation from class, we can predict that a poor country will catch up to, or converge with, a rich country because for the poor country

(n+d)k < szf(k)

In the Solow growth model from class, the aggregate resource constraint is:

Y = C-(1-d)K + K'

What conclusion can be made from the Solow Growth Model from Chapter 7?

a. there is a positive relationship between the savings rate and per capita capital in the steady state. b. there is a negative relationship between the depreciation rate and the capital per capita.

In the steady state of the Solow model

aggregate consumption grows at a constant rate

In the steady state of the Solow Growth model from class

aggregate output grows at a constant rate.

Imagine that the US is currently in the steady state of the Solow model. As a sign of friendship, another country gives the US a large shipment of capital goods (increase in the per-capita capital stock k). According to the Solow model, the US should:

Accept the gift because it would increase consumption.

In the steady-state of the Solow growth model:

Aggregate capital is growing at the same rate as the population

In the steady state of the Solow model and using the notation from class, per capita GDP (y) is

constant

The Golden Rule of capital accumulation maximizes the steady-state level of

consumption per worker

The Solow growth model tells us that the standard living in country A can be higher than in country B for all the following reasons, except

country A has a higher depreciation rate than country B

In the steady state of Solow's exogenous growth model, an increase in the growth rate of the labor force (increase in population)

decreases output per worker and decreases capital per worker

In the Solow growth model (chapter 7), a decrease in the savings rate (s)

does not shift the production curve

Assume the Solow model from class. If there is an increase in the population growth rate, which of the following statements is true in the new steady state

growth rate of per capita GDP is the same at both steady states.

Assume the Solow model from class. If there is a decrease in the depreciation rate, what happens with the golden rule per capita capital stock

it increases

In the Solow growth model from Chapter 7, the steady-state per capita capital stock is determined by the equation

k = sy/(n + d)

Which of the following is consistent with the Malthusian model of growth?

output is produced using land and labor

Assume the Solow model from class. If there is a decrease in the depreciation rate, which of the following statements is NOT true?

per capita capital stock decreased with respect to the original steady state.

Consider the Solow growth model from Chapter 7 where mpk > n + d. The model predicts that

per capita savings should increase

In the golden steady state, the marginal product of capital is equal to the

population growth rate plus the depreciation rate (mpk = n+d)

Recent evidence suggests that output per worker is

positively related to the rate of investment and negatively related to the rate of population growth

In the steady state of the Solow growth model, which of the following is ALWAYS TRUE?

szf(k*) = (n+d)k*

All of the following lead to an increase in steady-state capital per-capita, EXCEPT

A decrease in the savings rate

In the Solow growth model from class, suppose now that a constant fraction of income, t, is paid to finance government spending. In that case aggregate consumption might be written as

C = (1-s-t)Y

The Malthusian model can not describe post-industrial revolution growth because:

Capital is in fixed supply in the Malthusian model

In the steady state of the Solow model a. Aggregate Output is constant b. Consumption growth equals the depreciation rate c. Per capita variables grow at the rate of population growth d. None of the above

D

Consider the local economy of Houston Texas. As a result of the recent hurricane, much of the (per capita) capital stock, k, was destroyed. Assume before the hurricane that they were in a steady state. What does the Solow growth model suggest will happen moving forward?

Houston will grow faster than areas not affected by the hurricane; Consumption will be temporarily lower than before the hurricane

Assume that mpk>n+d. To reach the new golden rule level of capital in the Solow model from class, the social planner would:

Increase steady-state per-capita k and increase steady-state per-capita c

Based on the Solow growth model, poor countries should have higher

MPK than rich countries

All the following are ALWAYS true for steady state capital per worker, except

MPk = n+d

Assume the Solow model from Chapter 7. If there is a decrease in the depreciation rate, which of the following statements is NOT true?

Savings rates (s) will decrease.

In the Solow growth model, a decrease in the savings rate would make:

Steady-state per capita output go down, golden rule capital per-capita stay the same

In the Solow growth model an increase in the depreciation rate leads to:

Steady-state per-capita output decreases, golden rule level of capital per-capita decreases

In Solow's exogenous growth model, the steady-state growth rate of the capital stock can be increased by

higher population growth

If there is an increase in TFP (z) in the Solow Growth model (Chapter 7), the social planner would choose to

increase per capita capital stock and increase steady-state per capita consumption.

In the Malthusian model, an improvement in the technology of growing food is likely to

increase the equilibrium size of the population and have no effect on the equilibrium level of consumption per worker

In the Solow growth model, if mpk>n+d, the social planner would choose to

increase the savings rate and increase steady-state per-capita consumption

According to the Solow growth model, an increase in TFP will most likely lead to a(n) __________ in the golden rule level of the per capita capital stock and a movement to the ________ along the new savings curve

increase; right

In the Solow growth model, an increase in the savings rate (s)

increases capital stock tomorrow

In the steady state of Solow's exogenous growth model, an increase in the savings rate

increases output per worker and increases capital per worker

All of the following are found in the data to contribute to rising average standards of living except

protection of domestic firms from foreign competition

Assume the Solow model from class (Chapter 7) using the usual notation: n is the population growth rate, d is the depreciation rate, k is the per capita capital stock, s is the savings rate and y is per capita output. Assume that the per capita capital stock of the economy is lower than the steady state per capita capital stock. Then:

sy > (n+d)k

Assume the Solow model from class. Using the usual notation: n is population growth rate, d is depreciation rate, k is per capita capital stock, s is the savings rate and y is per capita output. Assume that the per capita capital stock of the economy is lower than the steady state per capita capital stock. Then

sy > (n+d)k

In Solow's model of economic growth, suppose that s represents the savings rate, z represents total factor productivity, k represents the level of capital per worker, and f(k) represents the per-worker production function. Also suppose that n represents the population growth rate and d represents the depreciation rate of capital. The equilibrium level of capital per worker, k*, will satisfy the equation

szf(k*) = (n+d)k*

In our exogenous growth model (Solow model from Chapter 7), all the following variables are exogenous except

the capital stock

Which of the following statements is true about the Solow model from class?

the growth rate of per capita GDP in the long run is exogenous.

Which of the following statements is NOT true about correlations observed in the data considering rich and poor countries?

the level of per capita output is correlated with per capita GDP growth.

At the golden rule savings rate

the steady-state level of per-capita consumption is maxmimized

When we compare rich and poor countries in the world

there is much greater dispersion in growth rates in per capita income among the poor countries than among the rich ones

According to the Solow growth model (Chapter 7), if we observe an increase in the level of per capita GDP, we would most likely observe also

we don't know the change in the growth rate of per capita GDP