Intermediate Macro Exam 2

The per effective worker production function is given by y=k^1/2. And in this economy, the saving rate is 0.1, the depreciation rate is 0.04, the population growth rate is 0.02, the rate of technological change is 0.04, then the steady-state k and y are: (Production function with alpha = 1/2)

1; 1

If the per-worker production function is given by y=k^1/2, the saving rate is 0.15, and the depreciation rate is 0.05, then the steady-state output per worker is: (Production function with alpha = 1/2)

3

Suppose for an economy the total capital stock is 6 times one year's GDP and the depreciation of capital is18 percent of the GDP. In this case, we can conclude that the depreciation rate is equal to _____ percent.

3

If the marginal product of capital net depreciation equals 8 percent, the rate of growth of population equals 2percent, and the rate of labor-augmenting technical progress equals 2 percent, to reach the Golden Rule levelof the capital stock, the _____ rate in this economy must be _____.

saving; increased

In the Solow growth model, the steady-state level of output per (effective) worker would be higher if the _____ increased or the _____ decreased.

saving rate; population growth rate

According to the Solow model, persistently rising living standards can only be explained by:

technological progress.

In the Solow model with population growth and technological progress, the steady-state growth rate of output per effective worker is:

0

If the per-worker production function is given by y=k^1/2, and the depreciation rate is 0.05, then Golden Rule steady-state value of saving rate is: (Production function with alpha = 1/2)

0.5

Suppose for an economy the capital stock is 6 times one year's GDP and the capital income is 30 percent ofGDP. In this case, we can conclude that the marginal product of capital is equal to _____ percent per year.

5

If the labor force L is growing at a 3 percent rate and the efficiency of a unit of labor E is growing at a 2 percent rate, then the number of effective workers L*E is growing at a rate of:

5 percent.

If the per-worker production function is given by y = k^1/2, the saving rate is 0.15, and the depreciation rate is 0.05, then the steady-state capital per worker is: (Production function with alpha = 1/2)

9

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

Investment; depreciation

In the Solow model with population growth and labor-augmenting technological progress, which of these describes the condition for the maximization of consumption per effective worker at the steady state? (Hint: Think about the GRSS condition. And the rectangle in options should be lowercase Greek alphabet delta, i.e. the depreciation rate.)

MPK = δ + n + g

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

a higher; the same

If two economies are otherwise identical (same capital share, depreciation rate, technological growth rate, and population growth rate, etc.), but one economy has a smaller capital stock, then the steady-state level of income per worker in the economy with the smaller capital stock will be:

at the same level as in the steady state of the high capital economy

In the Solow growth model in Chapter 8, the steady state occurs when: (Read options carefully.)

capital per worker is constant

In the Solow growth model with population growth and labor-augmenting technological change, the break-even level of investment must cover:

depreciating capital, capital for new workers, and capital for new effective workers.

Suppose an economy is initially in a steady state with capital per worker below the Golden Rule level. If the saving rate increases to a rate consistent with the Golden Rule, then in the transition to the new steady state consumption per worker will:

first fall below and then rise above the initial level.

In the Solow model with population growth and technological progress, the steady-state growth rate of output per worker is:

g

If two economies are otherwise identical (same capital share, depreciation rate, technological growth rate, and population growth rate, etc.), but one country has initially a lower level of capital per worker than the other, then as the countries approach the steady state:

he country with the lower capital per worker will grow faster

Starting from a steady-state situation, if the saving rate increases, 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

Same as previous question, the per effective worker production function is given by y = k^1/2. And in this economy, the saving rate is 0.1, the depreciation rate is 0.04, the population growth rate is 0.02, the rate of technological change is 0.04. This economy___at the Golden Rule steady state, therefore, the saving rate should___ to maximize the consumption (per effective worker): (Production function with alpha = 1/2)

is not; be increased.

If the per effective worker production function is given by y = k^1/2, the steady-state value of k in the Solow model with population growth rate at n and the rate of technological progress g is: (Production function with alpha = 1/2. And the rectangle in options should be lowercase Greek alphabet delta, i.e. the depreciation rate.)

k* = (s / (δ + n + g))^2.

With a per-worker production function y = k^1/2, the steady-state capital stock per worker (k*) as a function of the saving rate (s) is given by: (Production function with alpha = 1/2. And if you see a rectangle in the option, it means your computer cannot display the formula properly. The rectangle should be lowercase Greek alphabet delta, i.e. the depreciation rate.)

k* = (s/δ)^2

A higher saving rate leads to a:

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

In the Solow model with population growth and technological progress, the steady-state growth rate of total output is:

n + g

The production function y = f (k) means:

output per worker is a function of capital per worker.

In the Solow growth model, 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

If two economies with the same production function, have the same depreciation rates, population growth rates and rates of technological progress, but one economy has a lower saving rate, then the steady-state levelof income per worker in the economy with the lower saving rate:

will be at a lower level than in the steady state of the high-saving economy

Consider an economy described by the aggregate production function: , the per-worker production function in this economy should be: (The production function may not be entirely displayed on your laptops. The complete production function should be Y=K^0.5L^0.5. It means that we have a CD production function with alpha = 0.5.)

y = k^0.5

Consider an economy described by the labor-augmenting aggregate Cobb-Douglas production function: Y= F(K,LE) = K^0.5 (LE)^0.5, the per effective worker production function in this economy should be: (The production function may not be entirely displayed on your laptops. The complete production function should be Y=K^0.5(LE)^0.5. It means that alpha = 0.5.)

y = k^0.5

If the per effective worker production function is given by y = k^1/2 , the steady-state value of y in the Solow model with population growth rate at n and the rate of technological progress g is: (Production function with alpha = 1/2. And the rectangle in options should be lowercase Greek alphabet delta, i.e. the depreciation rate.)

y* = s / (δ + n + g).

In the Solow growth model with population growth and technological progress, the steady-state growth rate of capital per effective worker is _____, and the steady-state growth rate of capital per (normal) worker is _____.

zero; the rate of technological progress

In an economy with population growth at rate n but without any technological progress, the change in capital stock per worker is given by the equation: (If you see a rectangle in the option, it means your laptop cannot display the formula properly. The rectangle should be lowercase Greek alphabet delta, i.e. the depreciation rate.)

Δk = sf (k) - (δ + n) k.