Macroeconomics Ch 10
The Solow growth model predicts a constant capital-output ratio k / y = K / Y in the steady state. If an economy has a steady-state capital-output ratio of 3 and is characterized by δ = 0.04, n = 0.01, and g = 0.01, then the saving rate in this economy is:
0.18 In the steady state, sy = (δ + n + g)k, so s = (δ + n + g)(k / y) = (0.04 + 0.01 + 0.01) × 3.
The Solow growth model predicts a constant capital-output ratio, k / y = K / Y, in the steady state. If an economy has a steady-state capital-output ratio of 2.5 and is characterized by δ = 0.04, n = 0.02, and g = 0.02, then the saving rate in this economy is:
0.20 In the steady state, sy = (δ + n + g)k, so s = (δ + n + g)(k / y) = (0.04 + 0.02 + 0.02) × 2.5.
Assume that an economy described by the Solow model is in a steady state with output and capital growing at 3 percent and labor growing at 1 percent. The capital share is 0.3. The growth-accounting equation indicates that the contributions to growth of capital, labor, and total factor productivity are:
0.9 percent, 0.7 percent, and 1.4 percent, respectively.
According to the Solow model, international differences in income per person are primarily attributable to either differences in _____ or differences in _____.
efficiency; factors of production
Suppose that the growth of rate of the capital stock is 2 percent, and that of the labor supply is 3 percent. If the economy becomes more capital-intensive, all else equal, the growth rate of output will:
fall
The findings of Nicholas Bloom and John Van Reenen, cited in the chapter, suggest that policies that _____ would enable countries to raise their levels of income per person.
foster the international competiveness of a nation's firms
Which of these cultural trends plausibly promotes economic development?
greater participation in the labor force by women and minorities
A study by economists on the relationship between firm management and productivity concludes that well-managed firms have all of these features EXCEPT:
higher bankruptcy rates
Economic research shows that _____ in explaining international differences in living standards.
human capital is at least as important as physical capital
The saving rate can be increased by _____ public saving _____ private saving.
increasing; or increasing
The evidence on the effectiveness of various policies to increase private saving:
is mixed, and there is no consensus on the best policy to increase private saving.
Conditional convergence occurs when economies converge to:
their own individual steady states.
Countries that save and invest more in physical capital will appear to be more efficient if:
there are positive externalities to physical capital accumulation.
An economy in the steady state has a marginal product of capital of 6 percent, a rate of depreciation of 3 percent, a population growth rate n of 1 percent, and a rate of technological progress of g = 2 percent. This economy will achieve the Golden Rule capital per effective worker if the saving rate were:
unchanged.
Balanced growth refers to the property where:
values of many variables within a country rise together in the steady state.
Two countries have the same production function y = k1/2, and both countries are characterized by δ = 0.04, s = 0.24, n = 0.02, and g = 0.02. The only difference is that Country A has capital per effective worker of kA = 6, and Country B has capital per effective worker of kB = 4. According to the text, the two economies _____ converge.
will
Two countries have the same production function y = k1/2, and both countries are characterized by δ = 0.04, s = 0.24, n = 0.02, and g = 0.02. The only difference is that Country A has capital per effective worker of kA = 6, and Country B has capital per effective worker of kB = 4. According to the text, Country B:
will grow faster than Country A until the steady state is reached.
Which of these policies of the government is NOT designed to increase resources devoted to research and development?
Increasing the amount people can put in tax-exempt retirement accounts.
The total capital stock of an economy increases by 10 units and the total labor increases by 50 units. The marginal product of capital and labor are 50 and 10, respectively. If there is no TFP growth, the total output will increase by _____ units.f
1000
Capital's and labor's shares of output are 40 and 60 percent, respectively. Assuming constant returns to scale, a 15 percent increase in labor will lead to a _____ percent increase in output.
15 * 60%? = 9
In the United States in the past 65 years, the growth rate of total factor productivity (TFP) was highest during the:
1950s and 1960s.
An economy has a saving rate of s = 0.20, a depreciation rate of δ = 0.03, a population growth rate of n = 0.05, and a growth rate of effective labor of g = 0.02. The steady-state capital-output ratio K / Y for this economy is:
2 Using K / Y = s / (δ + n + g) gives K / Y = 0.2 / (0.03 + 0.05 + 0.02).
Real gross domestic product in the United States has grown, on average, at approximately _____ percent per year since 1970.
3
If the contribution of capital to growth in output is 1.5 percent, the contribution of labor is 0.5 percent, and the Solow residual growth is equal to 1 percent, then total output must be growing at:
3 percent.
If the production function is Y = AK^2/3 L^1/3 in the land of Antegria, and the labor force increases by 3 percent, capital stock increases by 3 percent, and TFP grows by 3 percent, then the total output growth is _____ percent.
6
Suppose an economy described by the Solow model is in a steady state with population growth n of 1.8 percent per year and technological progress g of 1.8 percent per year. Total output and total capital grow at 3.6 percent per year. Suppose further that the capital share of output is 1313. a. Using the growth-accounting equation to divide output growth into three sources—capital, labor, and total factor productivity—determine how much output growth can be attributed to each source. (Indicate your answer to the tenths place.) Contribution of capital: Contribution of labor: Contribution of total factor productivity growth:
Contribution of capital: 1.2 Contribution of labor: 1.2 Contribution of total factor productivity growth: 1.2 Growth rate of output = capital share x growth rate of capital + labor share x growth rate of labor + growth rate of TFP
Two countries have the same production function, y = k1/2, and both countries are characterized by δ = 0.04, n = 0.01, and g = 0.03. The only differences are that Country A has a higher saving rate than Country B and that Country A has capital per effective worker of kA = 4, whereas Country B has capital per effective worker of kB = 6. According to the Solow model:
Country A will converge to a steady state with a higher output per effective worker than Country B.
Two countries have the same production function, y = k1/2, and both are characterized by δ = 0.04, s = 0.2, and g = 0.03. The only differences are that Country A has a higher population growth rate n than Country B and that Country A has capital per effective worker of kA = 4, whereas Country B has capital per effective worker of kB = 6. According to the Solow model:
Country A will converge to a steady state with a lower output per effective worker than Country B.
When capital increases by ΔK units, output increases by:
MPK × ΔK units.
According to the text, which of the following scenarios is most likely in a given economy?
MPK − δ > n + g
Which one of these is a reason why many economists are skeptical about industrial policies?
Measuring externalities from different sectors is quite hard.
The rate of growth of total factor productivity (TFP), estimated using the growth accounting formula, is also called the:
Solow residual.
Which three data points could one use to determine whether an economy has more or less capital than in the Golden Rule steady state?
The growth rate of gross domestic product (GDP), the marginal product of capital, and the depreciation rate
Which of these influences on output is NOT captured by total factor productivity?
a change in physical capital
Which of these should NOT occur, according to the Solow model, and that indeed has not occurred in the U.S. economy?
a rise in the real rental price of capital over time
The amount of education the typical person receives varies substantially among countries. Suppose you were to compare one country, called Gilder, with a highly educated labor force with another country, called Florin, with a less educated labor force. Assume that education only affects the level of the efficiency of labor. Also assume that the countries are otherwise the same: they have the same population growth, the same saving rate, the same depreciation rate, and the same rate of technological progress. Both countries are described by the Solow model and are in their steady states. Answer the following questions about Gilder and Florin. a. Which country will have a higher growth of total income? b. Which country will have the higher level of income per worker? c. Which country will have a higher real rental price of capital? d. How will the real wage differ in Gilder and Florin?
a) The growth of total income will be equal. b) Gilder c) They will have the same real rental price of capital. d) The wage per effective worker will be the same in both countries, but the wage per unit of labor will be higher in Gilder.
the economy of Solovia, the owners of capital get two‑thirds of national income, and the workers receive one‑third. The men of Solovia stay at home performing household chores, while the women work in factories. a. If some of the men started working outside the home, so that the labor force increased by 5 percent, measured output would __, labor productivity (defined as output per worker) would ___ and total factor productivity would be _____. b. In year 1, the capital stock was 6, the labor input was 3, and output was 12. In year 2, the capital stock was 7, the labor input was 4, and output was 14. Between the two years, factor productivity ___
a) rise by 1.67 fall by 3.33 uneffected b) fell by 5.6
One of the main hypotheses of the real business cycle theory is that recessions are caused by:
adverse technology shocks.
Andrew Warner and Jeffrey Sachs found that among developed nations, open economies grew at a rate of 2.3 percent per year, while closed economies grew at a rate of 0.7 percent per year. Additionally, they found that among developing nations, open economies grew at a rate of 4.5 percent per year, while closed economies again grew at a rate of 0.7 percent per year. These results provide prima facie evidence for:
conditional convergence.
The individual American states illustrate:
conditional convergence.
Labor hoarding refers to:
continuing to employ workers during a recession to ensure they will be available in the recovery.
Conditional convergence is the idea that:
countries converge over time to levels of income per person that are consistent with their steady states.
If the government's tax revenue is less than what it spends, then the government runs a budget _____, which represents _____ public saving.
deficit; negative
Total factor productivity typically falls during recessions. This could result from:
negative technology shocks or labor hoarding.
The text predominantly attributes the decline in measured productivity growth from the early 1970s onward to:
no specific cause, leaving the decline in productivity a mystery.
The balanced growth property of the Solow growth model with population growth and technological progress predicts which of these sets of variables will grow at the same rate in the steady state?
output per worker, capital per worker, real wage
A study by Jeffrey Frankel and David Romer concluded that trade and income levels of a country are _____ correlated.
positively
Increasing the rate of saving can be achieved by increasing all of these EXCEPT:
public but not private saving.
The type of legal system and the level of corruption in a country have been found to be:
significant determinants of the rate of economic growth in a country.
Andrew Warner and Jeffrey Sachs found that, from 1970 to 1989, open economies grew much faster, on average, than closed economies. These results _____ free trade is good for economic growth.
suggest that
