Chapter 1

Question 1

If overall GDP growth rate is faster than population growth rate

Answer 1

—> Then GDP per capita growth is positive

—> The overall economy must grow faster than the population in order to boost living standards

Question 2

International Comparisons, what do we use to compare standard of living across countries?

Answer 2

Purchasing Power Parity (PPP) exchange rate: T

Question 3

Determinants of Growth

Answer 3

—> Growth is basically determined by the ability of an economy to produce goods and services.

Question 4

How does an economy produce goods and services?

Answer 4

Labor (raw labor and human capital) and physical capital

Know-how (technology or total factor productivity [TFP])

Question 5

frontier

Answer 5

richest set of countries

Question 6

Marginal product of capital (MPK)

Answer 6

extra output generated by an additional unit of capital, holding all else equal.

Question 7

As K increases, holding all else equal, MPK

Answer 7

decreases

Question 8

Marginal product of labor (MPN)

Answer 8

Marginal product of labor (MPN)

Question 9

As N increases, holding all else equal, MPN

Answer 9

decreases

Question 10

diminishing returns to factors of production

Answer 10

This negative relationship between the marginal product of a factor and the amount of that factor used

Question 11

Discrete-time

Answer 11

Periodic changes, that is, variables remain stable during a given interval of time (say, for one period). At the end of the period, variables may take on different values for the following period, but then once again remain unchanged for the duration of that period. Graphically, the time path of variables in a discrete-time model looks like step functions.

Question 12

Continuous-time models

Answer 12

Time flow is assumed to be continuous and thus variables (like GDP, GDP per capita) can take on new values at any moment. Variables in a continuous-time model typically have a time path that appears like a smooth line (often with a trend).

Question 13

All fast-growing economies made large investments in

Answer 13

New factories and plants
Physical infrastructure
Telecommunications
—> Often provided or supported by the government

Question 14

These investments increased

Answer 14

Productive capacity
Labor productivity
Technical progress
Economic growth
Living standards.

Question 15

Financed by (fast-growing investments

Answer 15

Domestic savings—by households, corporations, and governments.
External financing

Question 16

Solow Model output=

Answer 16

capital + labor + technology

Question 17

𝑨

Answer 17

Technology level is fixed

Question 18

𝒏

Answer 18

Population growth rate

Question 19

𝜹 / 𝒅

Answer 19

Depreciation rate

Question 20

𝒔

Answer 20

Saving or Investment rate

Question 21

Steady state or the Balanced Growth Path

Answer 21

When no tech progress with constant capital-labor ratio, output per worker, and consumption per worker.
Us a star * or the subscript ss to indicate steady state level
The economy is at its steady state when output per worker, consumption per worker and capital per worker are all stable and not changing.

Question 22

If k begins at some level other than k, it will move toward k

Answer 22

For k below k, saving > the amount of investment needed to keep k constant, so k rises.
For k above k, saving < the amount of investment needed to keep k constant, so k falls.

Question 23

In the basic Solow model, the fundamental determinants of long-run living standards

Answer 23

• The saving (or investment) rate
  
  • Population growth rate
  • Level of Technology or TFP

Question 24

golden rule level of capital labor ratio

Answer 24

hich maximizes steady

state consumption per worker, is reached when the following condition is satisfied: