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Exam 7: Economic Growth I: Capital Accumulation and Population Growth

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Question 31

Multiple Choice

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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:

A) largest MPK.
B) smallest depreciation rate.
C) largest consumption per worker.
D) largest output per worker.

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Question 32

Multiple Choice

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A reduction in the saving rate starting from a steady state with more capital than the Golden Rule causes investment to in the transition to the new steady state.

A) increase
B) decrease
C) first increase, then decrease
D) first decrease, then increase

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Question 33

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Examination of recent data for many countries shows that countries with high saving rates generally have high levels of output per person because:

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:

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

The change in capital stock per worker (∆k) may be expressed as a function of s-the saving ratio, f(k) -output per worker, k-capital per worker, and δ-the depreciation rate, by the equation:

If capital lasts an average of 25 years, the depreciation rate is percent per year.

If the per-worker production function is given by y = k1/2, the saving ratio is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of output per worker (y) is:

The steady-state level of capital occurs when the change in the capital stock (∆k) equals:

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

When f(k) is drawn on a graph with increases in k noted along the horizontal axis, the:

In the Solow growth model of Chapter 7, for any given capital stock, the determines how much output the economy produces and the determines the allocation of output between consumption and investment.

An economy in the steady state will have:

(Exhibit: Capital-Labor Ratio and the Steady State) Reference: Ref 7-2 (Exhibit: Capital-Labor Ratio and the Steady State) In this graph, starting from capital-labor ratio k₁ , the capital-labor ratio will:

In the steady state, the capital stock does not change because investment equals:

In the Solow growth model of Chapter 7, the economy ends up with a steady-state level of capital:

In the Solow growth model of Chapter 7, where s is the saving rate, y is output per worker, and i is investment per worker, consumption per worker (c) equals:

The economies of two countries, Thrifty and Profligate, have the same production functions and depreciation rates. There is no population growth or technological progress in either country. The economies of each country can be described by the Solow growth model. The saving rate in Thrifty is 0.3. The saving rate in Profligate is 0.05. a. In which country is the level of steady-state output per worker larger? Explain. b. In which country is the steady-state growth rate of output per worker larger? c. In which country is the growth rate of steady-state total output greater?

The consumption function in the Solow model assumes that society saves a:

Investment per worker (i) as a function of the saving ratio (s) and output per worker (f(k) ) may be expressed as: