Intermediate Macro Theory: Chapter 8

In steady-state, depreciation equals investment. Therefore the equation sf(k*)=Sk* can be solved for k*, the steady-state level of capital per worker. For y=f(k)=k^(1/2), s=.25, and S=0.05, the steady-state level of capital k* equals:

25

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

An increase in the saving rate will have:

A level effect, but no growth effect

If two countries, Cheli and Dunland, have identical production functions and saving rates, but Cheli has a higher rate of depreciation than Dunland, then Cheli will have ________ in the steady state.

A lower capital per worker ratio

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 equip new workers

There are two methods to determine the Golden Rule capital level, looking at steady-state:

Consumption, or comparing the marginal product of capital to the depreciation rate

In the Solow growth model, if the investment is less than depreciation, the capital stock will ______ and output will ______ until the steady-state is attained.

Decrease; decrease

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 capital stock increases through investment, and decreases through:

Depreciation

At the steady-state capital stock per worker:

Depreciation equals investment

Data about income from about 100 countries from about 1960 to 2010 indicates that:

Different investment shares of output explain some, but not most, of the variation in income per person among countries

According to the Solow growth model, high population growth rates:

Force the capital stock to be spread thinly, thereby reducing living standards

If the production function exhibits decreasing returns to scale in the steady state, an increase in the rate of population would lead to:

Growth in total output but a decrease in output per worker

If an economy is in a steady state with no population growth or technological change and the capital stock is below the Golden Rule:

If the saving is increased, output per capita will first decline and then ride above its initial level

Suppose that the per-worker production function y=f(k)=k^(0.5), and that the saving rate is s=0.2, and that the depreciation rate is S=0.02. If k=49, then the capital stock per worker will:

Increase

If a larger share of national output is devoted to investment, starting from an initial steady-state capital stock below the Golden Rule level, then productivity growth will:

Increase in the short run but not in the long run

When the capital stock per worker is lower than the steady-state capital stock per worker, the capital stock per worker MOST likely will:

Increase, because investment exceeds depreciation

If MPK = 0.5 in the steady state of an economy, with S=0.05 and n=0.01, then the steady-state level of capital per worker _____ the Golden Rule level of capital per worker.

Is smaller than

If the production function is y = k1/2, s = 0.5, and δ = 0.05, then the steady-state level of capital per worker _____ the Golden Rule level.

Is the same as

Among the four countries—the United States, the United Kingdom, Germany, and Japan—the one that experienced the most rapid growth rate of output per person between 1948 and 1972 was:

Japan

Two countries, Anastasia and Beersheba, have identical production functions, y=f(k) fut Anastasia has a higher saving rate than Beersheba. This implies that, for identical levels of capital per worker, Anastasia has:

Lower consumption per worker than Beersheba

If two countries, Enland and Flora, have identical production functions and savings rates but Enland has a higher rate of depreciation than Flora, then Enland will have _____ per worker in steady state

Lower saving

In the Solow growth model, with a given production function, depreciation rate, saving rate, and no technological change, lower rates of population growth produce:

Lower steady-state growth rates of total output

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

When the depreciation rate is constant, as in the Solow model, an economy with more capital per worker has to invest _____ a country with a lower k in order to keep constant its stock of capital per worker.

More than

Three countries with relatively high population growth rates from 1961 to 2010 were:

Niger, Gambia, and Jordan

The production function in figure 8-1 in the text, y=f(k), implies that as k increases:

Output per worker increases at a decreasing rate

If an economy is in a steady state with no population growth or technological change and the capital stock is above the Golden Rule level and the saving rate falls:

Output, investment, and depreciation will decrease, and consumption will increase and then decrease but finally approach a level about its initial state

The economists _______ and ________ predict that population growth will decrease standards of living, where as the economist ________ maintains that a large population raises standards of living through faster technological progress.

Robert Solow and Thomas Malthus; Michael Kremer

According to the text, the observed correlation between income per person and the population growth rate is:

Strongly negative

_______ predicted that the pressures of an increasing population would cause extended poverty

Thomas Malthus

___________ predicted that the pressures of an increasing population would cause extended poverty.

Thomas Malthus

Assume that a war reduces a country's labor force but does not directly affect its capital stock. Then the immediate impact will be that:

Total output will fall, but output per worker will rise

In the Solow model with population growth, if investment were equal to depreciation, then k:

Would decrease

An economy begins with a level of steady-state capital per worker that is less than the Golden Rule level of capital per worker, and policy makers increase the saving rate to s-gold. When the economy reaches the steady state again, consumption per worker will be _________ than its initial level, and investment per worker will be ______ than its initial level.

greater; more

In the Solow growth model, increases in capital ______ output and ______ the amount of output used to replace depreciating capital.

increase; increase

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 capital stock per worker increases when:

sy > Sk

The Cobb-Douglas production function Y=K^(1/2)L^(1/2) can be rearranged into the output per worker function:

y=k^(1/2)