QUIZ 3

If y = k1/2, the country saves 10 percent of its output each year, and the steady-state level of capital per worker is 4, then the steady-state levels of output per worker and consumption per worker are:

2 and 1.8, respectively.

In the Solow model, it is assumed that a(n) ______ fraction of capital wears out as the capital-labor ratio increases.

constant

An increase in the saving rate starting from a steady state with less capital than the Golden Rule causes investment to ______ in the transition to the new steady state.

increase

With a per-worker production function y = k1/2, the steady-state capital stock per worker (k*) as a function of the saving rate (s) is given by:

k* = (s / δ)^2.

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

increase; increase

If y = k1/2, there is no population growth or technological progress, 5 percent of capital depreciates each year, and a country saves 20 percent of output each year, then the steady-state level of capital per worker is:

16

In the Solow growth model, where s is the saving rate, y is output per worker, and i is investment per worker, consumption per worker (c) equals:

(1 - s) y

In the Solow growth model, an economy in the steady state with a population growth rate of n but no technological growth will exhibit a growth rate of output per worker at rate:

0

If the per-worker production function is given by y = k1/2, the saving ratio is 0.3, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is:

9

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 person and ______ rate of growth of output per worker compared to the country with the lower saving rate.

a higher; the same

Assume that a war reduces a country's labor force but does not directly affect its capital stock. If the economy was in a steady state before the war and the saving rate does not change after the war, then, over time, capital per worker will ______, and output per worker will ______ as it returns to the steady state.

decline; decrease

Analysis of population growth around the world concludes that countries with high population growth tend to:

have a lower level of income per worker than countries with low population growth.

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

lower; the same

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.

In the Solow growth model, an economy in the steady state with a population growth rate of n but no technological growth will exhibit a growth rate of total output at rate:

n

Suppose that an economy is in its steady state and the capital stock is above the Golden Rule level. Assuming that there are no population growth or technological change, if the saving rate falls:

output, investment, and depreciation will decrease, and consumption will increase and then decrease but finally approach a level above its initial state.

In the Solow growth model with population growth but no technological progress, when the economy finds itself at the Golden Rule steady state, the marginal product of capital minus the rate of depreciation will equal:

the population growth rate.

In the Solow growth model, if two countries are otherwise identical (with the same production function, same saving rate, same depreciation rate, and same rate of population growth) except that Country Large has a population of 1 billion workers and Country Small has a population of 10 million workers, the steady-state level of output per worker will be _____, and the steady-state growth rate of output per worker will be _____.

the same in both countries; the same in both countries

The steady-state level of capital occurs when the change in the capital stock per worker (Δk) equals:

0

The formula for steady-state consumption per worker (c*) as a function of output per worker and investment per worker is:

c* = f (k*) - δk*.

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 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 to equip new workers.

If the saving rate increases, the:

economy will grow at a faster rate until a new, higher, steady-state capital-labor ratio is reached