Practice Quiz 7 and 8

Suppose that the production function for the economy is Y = AK1/4L3/4. Assume that real GDP is $8,000 billion, capital stock is $32,000 billion, and the labor supply is 120 million (or 0.120 billion) workers. Total factor productivity for this economy is 16.50 1,016.52 2,083.33 2,933.65

2,933.65

Which of the following equations best represents the concept of constant returns to scale? 3Y = AF(3K, 3L) 2Y = 2AF(2K,2 L) 1/4Y = (AF / 4 )(4K, 4L) 5Y = [AF(K, L)] / 5

3Y = AF(3K, 3L)

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 1 9 2

4

The steady-state level of capital occurs when the change in the capital stock per worker (Δk) equals: the depreciation rate. the population growth rate. 0. the saving rate.

0

If the capital stock equals 150 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. 142.5 157.5 150 7.5

142.5

Suppose y = k1/2, total factor productivity is constant and equal to 1, s = 0.40, and d = 0.10. When the economy reaches a steady state, the capital-labor ratio is ________ of capital per worker. 2 4 8 16

16

Suppose y = k1/2, total factor productivity is constant and equal to 1, s = 0.40, and d = 0.10. When the economy reaches the steady state, consumption per worker is ________. $1.20 $2.40 $4.80 $13.60

$2.40

Suppose y = k1/2, total factor productivity is constant and equal to 1, s = 0.40, and d = 0.10. When the economy reaches the steady state, real GDP per worker is ________. $2 $4 $8 $16

$4

If d = the depreciation rate, n = the growth rate of the labor force, and k = the capital-labor ratio, which of the following expressions best describes break-even investment? dnk (d - n)/k dk - nk (d + n)k

(d + n)k

In the Solow growth model, a change in the capital-labor ratio is equal to (saving - investment). (saving + depreciation). (investment - depreciation). (capital stock - labor force).

(investment - depreciation).

Suppose y = k1/2, total factor productivity is constant and equal to 1, s = 0.50, and d = 0.15, population grows at a rate of 0.05, and the technological level grows at a rate of 0.4. When the economy reaches the steady state, the capital-labor ratio is ________ of capital per worker. 2.08 0.23 4.34 1.44

4.34

The level of investment necessary to keep the capital-labor ratio constant is called capital investment. break-even investment. depreciated investment. diluted investment.

break-even investment.

The formula for steady-state consumption per worker (c*) as a function of output per worker and investment per worker is: c* = f (k*) - dk*. c* = f (k*) + dk*. c* = f (k*) ÷ dk*. c* = k* - df (k)*.

c* = f (k*) - dk*.

In the Cobb-Douglas production function Y = AK3/4L1/4, capital is a more expensive input than labor. capital is more plentiful than labor. diminishing returns to capital are three times greater than are diminishing returns to labor. capital has a larger share in national income than does labor.

capital has a larger share in national income than does labor.

When incorporating labor-augmenting technological change into the Solow growth model, the focus is on capital per worker and output per worker. capital per effective worker and output per worker. capital per worker and output per effective worker. capital per effective worker and output per effective worker.

capital per effective worker and output per effective worker.

The production function Y = 2(K 0.5L 0.5) will exhibit _________ returns to scale as both inputs change. decreasing constant initially increasing followed by diminishing increasing

constant

The Golden Rule level of capital accumulation is the steady state with the highest level of: capital per worker. consumption per worker. output per worker. savings per worker.

consumption per worker.

The Solow growth model predicts that a lower labor force growth rate will lead to a decreased steady state and higher break-even investment. higher productivity and a higher standard of living. a lower saving rate and decreased investment. a higher rate of dilution and lower break-even investment.

higher productivity and a higher standard of living.

The Solow growth model predicts that a lower labor force growth rate will lead to a lower saving rate and decreased investment. higher productivity and a higher standard of living. a decreased steady state and higher break-even investment. a higher rate of dilution and lower break-even investment.

higher productivity and a higher standard of living.

Labor-augmenting technological change refers to improvements in efficiency that occur without increasing the productivity of labor or the efficiency of capital goods. increase the productivity of labor and the efficiency of capital goods. increase the efficiency of capital goods without having to increase the productivity of labor. increase the productivity of labor but that do not directly make capital goods more efficient.

increase the productivity of labor but that do not directly make capital goods more efficient.

In the Solow growth model with population and technological progress, increasing the population means savings must ________ to maintain capital at its current steady state amount, while increasing the technology level means savings must __________ to maintain its capital at its current steady state. decrease; increase increase; increase decrease; decrease increase ;decrease

increase; increase

As the capital-labor ratio increases, investment per worker increases at an increasing rate. decreases at a constant rate. increases at a diminishing rate. decreases at an increasing rate.

increases at a diminishing rate.

In the steady state of Solow's growth model, an increase in the rate of savings: increases output per worker and decreases capital per worker decreases output per worker and increases capital per worker increases output per worker and increases capital per worker decreases output per worker and decreases capital per worker

increases output per worker and increases capital per worker

As the capital-labor ratio increases, real GDP per worker ________, and investment per worker ________. increases; decreases decreases; increases increases; increases decreases; decreases

increases; increases

In the Solow growth model, the steady state occurs when investment = depreciation. depreciation = 0. the capital-labor ratio = 1. saving = investment.

investment = depreciation.

In the Solow growth model, if the level of investment is less than depreciation at the initial capital-labor ratio , then △k is ________ and the capital-labor ratio ________ toward the steady-state capital-labor ratio. greater than zero; increases greater than zero; decreases less than zero; increases less than zero; decreases

less than zero; decreases

In the aggregate production function, the symbol "A " represents an index of how efficiently the economy transforms capital and labor into real GDP. "A" measures the influence of any factor that determines real GDP. of the quantities of capital and labor that determine real GDP. of any factor that determines real GDP other than the quantities of capital and labor. of the quantities of capital and labor that determine real GDP, holding other factors constant.

of any factor that determines real GDP other than the quantities of capital and labor.

According to Thomas Malthus, large populations: place great strains on an economy's productive resources, resulting in perpetual poverty. require the capital stock to be spread thinly, thereby reducing living standards. are not a factor in determining living standards. are a prerequisite for technological advances and higher living standards.

place great strains on an economy's productive resources, resulting in perpetual poverty.

In the Solow growth model total output equals investment: plus consumption. plus saving. plus depreciation. minus depreciation.

plus consumption.

The marginal product of labor is typically ________ and it _________ as the size of the workforce increases positive; decreases positive; increases negative; decreases negative; increases

positive; decreases

In the Solow growth model, the steady state level of output per worker would be higher if the _____ increased or the _____ decreased. population growth rate; depreciation rate population growth rate; saving rate saving rate; depreciation rate depreciation rate; population growth rate

saving rate; depreciation rate

In the Solow growth model, investment equals: consumption. saving. output. the marginal product of capital

saving.

All else equal, continued increases in the labor supply in an economy will lead to continued increases in the capital stock. higher levels of total factor productivity. smaller increases in real GDP. an increase in labor's share of income.

smaller increases in real GDP.

If two firms are identical in all respects except that one has more fixed input capital than another, the total product curve for the firm with more capital: will lie below the total product curve for the firm with less capital. must equal the total product curve for the firm with less capital. will show no diminishing marginal returns. will lie above the total product curve for the firm with less capital.

will lie above the total product curve for the firm with less capital.

In an economy with population growth at rate n, the change in capital stock per worker is given by the equation: Δk = sf (k) - dk. Δk = sf (k) - (d + n) k. Δk = sf (k) + (d + n) k. Δk = sf (k) + dk.

Δk = sf (k) - (d + n) k.