Topic 2

In a steady-state economy with population growth n and labor-augmenting technological progress g, persistent increases in standards of living are possible because the: - capital stock grows faster than does the labor force. - saving rate constantly increases. - capital stock grows faster than does the number of effective workers. - rate of depreciation constantly decreases.

capital stock grows faster than does the labor force.

In the Solow model with technological change, the Golden Rule level of capital is the steady state that maximizes: - output per worker. - consumption per effective worker. - consumption per worker. - output per effective worker.

consumption per effective worker.

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

consumption per worker.

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

0.

In a Solow model with technological change, if population grows at a 2 percent rate and the efficiency of labor grows at a 3 percent rate, then in the steady state, output per actual worker grows at a ______ percent rate. 2 0 3 5

3

If the labor force is growing at a 3 percent rate and the efficiency of a unit of labor is growing at a 2 percent rate, then the number of effective workers is growing at a rate of: - 5 percent. - 6 percent. - 3 percent. - 2 percent.

5 percent.

Empirical investigations into whether differences in income per person are the result of differences in the quantities of the factors of production available or differences in the efficiency with which the factors are employed typically find: - a negative correlation between the quantity of factors and the efficiency of use. - no correlation between the quantity of factors and the efficiency of use. - a positive correlation between the quantity of factors and the efficiency of use. - large gaps between the quantity of factors accumulated and the efficiency of use.

a positive correlation between the quantity of factors and the efficiency of use.

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

are a prerequisite for technological advances and higher living standards.

In the Solow growth model, technological change is ______, whereas in endogenous growth theories, technological change is ______. - persistent; constant - assumed; explained - constant; persistent - explained; assumed

assumed; explained

In the basic endogenous growth model, income can grow forever—even without exogenous technological progress—because: - the saving rate exceeds the rate of depreciation. - the saving rate equals the rate of depreciation. - capital does not exhibit diminishing returns. - capital exhibits diminishing returns.

capital does not exhibit diminishing returns.

In an economy with no population growth and no technological change, steady-state consumption is at its greatest possible level when the marginal product of: - capital equals the depreciation rate. - capital equals zero. - labor equals the marginal product of capital. - labor equals the depreciation rate.

capital equals the depreciation rate.

If a larger share of national output is devoted to investment, then living standards will: - always rise in both the short and long runs. - decline in the short run and may not rise in the long run. - rise in the short run but may not rise in the long run. - always decline in the short run but rise in the long run.

decline in the short run and may not rise in the long run.

Unlike the long-run classical model in Chapter 3, the Solow growth model: - is static. - describes changes in the economy over time. - assumes that the factors of production and technology are the sources of the economy's output. - assumes that the supply of goods determines how much output is produced.

describes changes in the economy over time.

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: - always exceed the initial level. - always be lower than the initial level. - first fall below then rise above the initial level. - first rise above then fall below the initial level.

first fall below then rise above the initial level.

The preponderance of empirical evidence supports the hypothesis that economies that are open to trade _____ than comparable closed economies. - converge more slowly to a steady-state equilibrium - grow more rapidly - have faster rates of population growth and technological progress - have lower steady-state levels of income per worker due to foreign competition

grow more rapidly

The production function feature called "constant returns to scale" means that if we: - multiply capital by z1 and labor by z2, we multiply output by z3. - increase capital by 10 percent and increase labor by 5 percent, we increase output by 7.5 percent. - increase capital and labor by 5 percent each, we increase output by 10 percent. - increase capital and labor by 10 percent each, we increase output by 10 percent.

increase capital and labor by 10 percent each, we increase output by 10 percent.

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

increase; increase

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: - in Highland, but not in Lowland. - more in Highland. - by the same amount in Highland and Lowland. - more in Lowland.

more in Lowland.

With population growth at rate n and labor-augmenting technological progress at rate g, the Golden Rule steady state requires that the marginal product of capital (MPK): - plus n be equal to the depreciation rate plus g. - net of depreciation be equal to n + g. - plus g be equal to the depreciation rate plus n. - net of depreciation be equal to the depreciation rate plus n + g.

net of depreciation be equal to n + g.

In the Solow growth model of Chapter 8, for any given capital stock, the ______ determines how much output the economy produces and the ______ determines the allocation of output between consumption and investment. - saving rate; production function - depreciation rate; population growth rate - population growth rate; saving rate - production function; saving rate

production function; saving rate

If the marginal product of capital net depreciation equals 8 percent, the rate of growth of population equals 2 percent, and the rate of labor-augmenting technical progress equals 2 percent, to reach the Golden Rule level of the capital stock, the ____ rate in this economy must be _____. - saving; increased. - depreciation; decreased - population growth; decreased - total output growth; decreased

saving; increased.

The type of legal system and the level of corruption in a country have been found to be: - important topics for political discussion, but not economic explanations of growth. - important variables explaining the Golden Rule level of capital. - unrelated to the rate of economic growth in a country. - significant determinants of the rate of economic growth in a country.

significant determinants of the rate of economic growth in a country.

When f(k) is drawn on a graph with increases in k noted along the horizontal axis, the slope of the line denotes: - the marginal product of labor. - the marginal product of capital. - output per unit of capital. - output per worker.

the marginal product of capital.

If a war destroys a large portion of a country's capital stock but the saving rate is unchanged, the Solow model predicts that output will grow and that the new steady state will approach: - the Golden Rule level of output per person. - a lower level of output per person than before. - a higher level of output per person than before. - the same level of output per person as before.

the same level of output per person as before.

The preponderance of empirical evidence supports the hypothesis that economies that are open to trade _____ than comparable closed economies. - have faster rates of population growth and technological progress - converge more slowly to a steady-state equilibrium - have lower steady-state levels of income per worker due to foreign competition - grow more rapidly

grow more rapidly

The efficiency of labor: - includes the knowledge, health, and skills of labor. - is the rate of growth of the labor force. - is the marginal product of labor. - equals output per worker.

includes the knowledge, health, and skills of labor.

The endogenous growth model's assumption of constant returns to capital is more plausible if capital is defined to include: - plant and equipment. - knowledge. - technology. - depreciation.

knowledge

To determine whether an economy is operating at its Golden Rule level of capital stock, a policymaker must determine the steady-state saving rate that produces the: - smallest depreciation rate. - largest output per worker. - largest consumption per worker. - largest MPK.

largest consumption per worker.

To determine whether an economy is operating at its Golden Rule level of capital stock, a policymaker must determine the steady-state saving rate that produces the: - largest output per worker. - largest consumption per worker. - smallest depreciation rate. - largest MPK.

largest consumption per worker.

The balanced growth property of the Solow growth model with population growth and technological progress predicts which of the following sets of variables will grow at the same rate in the steady state? - capital-output ratio, output per worker, capital per worker - real rental price of capital, real wage, output per worker - output per effective worker, capital per effective worker, real wage - output per worker, capital per worker, real wage

output per worker, capital per worker, real wage

One explanation for greater economic development in moderate versus tropical climates is that institutions established by colonial settlers in moderate climates ______, while institutions established by colonists in tropical climates ______. - were based on the Napoleonic Code; were based on English common law - were based on English common law; were based on the Napoleonic Code - were extractive and authoritarian; protected property rights - protected property rights; were extractive and authoritarian

protected property rights; were extractive and authoritarian

When an economy begins below the Golden Rule, reaching the Golden Rule: - requires initially increasing consumption to decrease consumption in the future. - requires initially reducing consumption to increase consumption in the future. - produces higher consumption at all times in the future. - produces lower consumption at all times in the future.

requires initially reducing consumption to increase consumption in the future.

If all wage income is consumed, all capital income is saved, and all factors of production earn their marginal products, then: - wherever the economy starts out, it will reach a steady-state level of capital stock equal to the Golden Rule level. - the economy will reach a steady-state level of capital stock below the Golden Rule level. - wherever the economy starts out, it will not grow. - the economy will reach a steady-state level of capital stock above the Golden Rule level.

wherever the economy starts out, it will reach a steady-state level of capital stock equal to the Golden Rule level.

In the Solow growth model, the steady-state growth rate of output per effective worker is ______, and the steady-state growth rate of output per actual worker is ______. - the rate of technological progress; the rate of population growth - zero; zero - zero; the rate of technological progress - the sum of the rate of technological progress plus the rate of population growth; zero

zero; the rate of technological progress