Chapter 8

Question 1

The Solow growth model describes:

1. how output is determined at a point in time.
2. how output is determined with fixed amounts of capital and labor.
3. how saving, population growth, and technological change affect output over time.
4. the static allocation, production, and distribution of the economy’s output.

Answer 1

3

Question 2

Unlike the long-run classical model in Chapter 3, the Solow growth model:

1. assumes that the factors of production and technology are the sources of the economy’s output.
2. describes changes in the economy over time.
3. is static.
4. assumes that the supply of goods determines how much output is produced.

Answer 2

describes changes in the economy over time.

Question 3

In the Solow growth model, the assumption of constant returns to scale means that:

1. all economies have the same amount of capital per worker.
2. the steady-state level of output is constant regardless of the number of workers.
3. the saving rate equals the constant rate of depreciation.
4. the number of workers in an economy does not affect the relationship between output per worker and capital per worker.

Answer 3

the number of workers in an economy does not affect the relationship between output per worker and capital per worker.

Question 4

The production function y = f(k) means:

1. labor is not a factor of production.
2. output per worker is a function of labor productivity.
3. output per worker is a function of capital per worker.
4. the production function exhibits increasing returns to scale.

Answer 4

output per worker is a function of capital per worker.

Question 5

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

1. graph is a straight line.
2. slope of the line eventually gets flatter and flatter.
3. slope of the line eventually becomes negative.
4. slope of the line eventually becomes steeper and steeper

Answer 5

slope of the line eventually gets flatter and flatter.

Question 6

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:

1. more in Highland.
2. more in Lowland.
3. by the same amount in Highland and Lowland.
4. in Highland, but not in Lowland.

Answer 6

more in Lowland.

Question 7

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

1. constant proportion of income.
2. smaller proportion of income as it becomes richer.
3. larger proportion of income as it becomes richer.
4. larger proportion of income when the interest rate is higher.

Answer 7

constant proportion of income.

Question 8

In the Solow growth model of Chapter 8, the demand for goods equals investment:

1. minus depreciation.
2. plus saving.
3. plus consumption.
4. plus depreciation.

Answer 8

plus consumption.

Question 9

In the Solow growth model of Chapter 8, where s is the saving rate, y is output per worker, and i is investment per worker, consumption per worker (c) equals:

1. sy
2. (1 – s)y
3. (1 + s)y
4. (1 – s)y – i

Answer 9

(1 – s)y

Question 10

In the Solow growth model of Chapter 8, investment equals:

1. output.
2. consumption.
3. the marginal product of capital.
4. saving.

Answer 10

saving.

Question 11

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.

1. saving rate; production function
2. depreciation rate; population growth rate
3. production function; saving rate
4. population growth rate; saving rate

Answer 11

production function; saving rate

Question 12

In the Solow growth model the saving rate determines the allocation of output between:

1. saving and investment.
2. output and capital.
3. consumption and output.
4. investment and consumption

Answer 12

investment and consumption.

Question 13

______ cause(s) the capital stock to rise, while ______ cause(s) the capital stock to fall.

1. Inflation; deflation
2. Interest rates; the discount rate
3. Investment; depreciation
4. International trade; depressions

Answer 13

Investment; depreciation

Question 14

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

1. s + f(k).
2. s – f(k).
3. sf(k).
4. s/f(k).

Answer 14

sf(k).

Question 15

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

1. output per worker.
2. output per unit of capital.
3. the marginal product of labor.
4. the marginal product of capital.

Answer 15

the marginal product of capital.

Question 16

In this graph, when the capital–labor ratio is OA, AB represents:

1. investment per worker, and AC represents consumption per worker.
2. consumption per worker, and AC represents investment per worker.
3. investment per worker, and BC represents consumption per worker.
4. consumption per worker, and BC represents investment per worker.

Answer 16

investment per worker, and BC represents consumption per worker.

Question 17

If the capital stock equals 200 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.

1. 210
2. 200
3. 195
4. 190

Answer 17

190

Question 18

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

1. smaller
2. larger
3. constant
4. increasing

Answer 18

constant

Question 19

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:

1. ∆k = sf(k)/δk.
2. ∆k = sf(k) × δk.
3. ∆k = sf(k) + δk.
4. ∆k = sf(k) – δk.

Answer 19

∆k = sf(k) – δk.

Question 20

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

1. 0.
2. the saving rate.
3. the depreciation rate.
4. the population growth rate.

Answer 20

0.

Question 21

In the steady state with no population growth or technological change, the capital stock does not change because investment equals:

1. output per worker.
2. the marginal product of capital.
3. depreciation.
4. consumption.

Answer 21

depreciation.

Question 22

In the Solow growth model of Chapter 8, the economy ends up with a steady-state level of capital:

1. only if it starts from a level of capital below the steady-state level.
2. only if it starts from a level of capital above the steady-state level.
3. only if it starts from a steady-state level of capital.
4. regardless of the starting level of capital.

Answer 22

regardless of the starting level of capital.

Question 23

In the Solow growth model, the steady-state occurs when:

1. capital per worker is constant.
2. the saving rate equals the depreciation rate.
3. output per worker equals consumption per worker.
4. consumption per worker is maximized.

Answer 23

capital per worker is constant.

Question 24

In this graph, capital–labor ratio k is not the steady-state capital–labor ratio because:

1. the saving rate is too high.
2. the investment ratio is too high.
3. gross investment is greater than depreciation.
4. depreciation is greater than gross investment.

Answer 24

depreciation is greater than gross investment.

Question 25

In this graph, the capital–labor ratio that represents the steady-state capital–ratio is:

1. k0
2. k1
3. k2
4. k3

Answer 25

k2

Question 26

In this graph, starting from capital–labor ratio k1, the capital–labor ratio will:

1. decrease.
2. remain constant.
3. increase.
4. first decrease and then remain constant.

Answer 26

increase.

Question 27

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

1. increase; increase
2. increase; decrease
3. decrease; decrease
4. decrease; increase

Answer 27

increase; increase

Question 28

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

1. increase; increase
2. increase; decrease
3. decrease; decrease
4. decrease; increase

Answer 28

decrease; decrease

Question 29

An economy in the steady state with no population growth or technological change will have:

1. investment exceeding depreciation.
2. no depreciation.
3. saving equal to consumption.
4. no change in the capital stock.

Answer 29

no change in the capital stock.

Question 30

In the Solow growth model with no population growth and no technological progress, the higher the steady capitalper-worker ratio, the higher the steady-state:

1. growth rate of total output.
2. level of consumption per worker.
3. growth rate of output per worker.
4. level of output per worker.

Answer 30

level of output per worker.

Question 31

The formula for the steady-state ratio of capital to labor (k*), with no population growth or technological change, is s:

1. divided by the depreciation rate.
2. multiplied by the depreciation rate.
3. divided by the product of f(k*) and the depreciation rate.
4. multiplied by f(k*) divided by the depreciation rate.

Answer 31

multiplied by f(k*) divided by the depreciation rate.

Question 32

If the per-worker production function is given by y = k^1/2, the saving rate (s) is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is:

• 1
• 2
• 4
• 9

Answer 32

4

Question 33

If the per-worker production function is given by y = k^1/2, the saving ratio is 0.3, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is:

• 1.
• 2.
• 4.
• 9.

Answer 33

9

Question 34

If the per-worker production function is given by y = k^1/2, the saving ratio is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of output per worker (y) is:

• 1.
• 2.
• 3.
• 4.

Answer 34

2

Question 35

If the per-worker production function is given by y = k^1/2, the saving ratio is 0.3, and the depreciation rate is 0.1, then the steady-state ratio of output per worker (y) is:

• 1.
• 2.
• 3.
• 4.

Answer 35

3

Question 36

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:

1. a higher level of output per person than before.
2. the same level of output per person as before.
3. a lower level of output per person than before.
4. the Golden Rule level of output per person.

Answer 36

the same level of output per person as before.

Question 37

Among the four countries—the United States, the United Kingdom, Germany, and Japan—the one that experienced the most rapid growth rate of output per person between 1948 and 1972 was:

1. the United States.
2. the United Kingdom.
3. Germany.
4. Japan.

Answer 37

Japan.

Question 38

If the national saving rate increases, the:

1. economy will grow at a faster rate forever.
2. capital–labor ratio will increase forever.
3. economy will grow at a faster rate until a new, higher, steady-state capital–labor ratio is reached.
4. capital–labor ratio will eventually decline.

Answer 38

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

Question 39

Starting from a steady-state situation, if the saving rate increases, the rate of growth of capital per worker will:

1. increase and continue to increase unabated.
2. increase until the new steady state is reached.
3. decrease until the new steady state is reached.
4. decrease and continue to decrease unabated.

Answer 39

increase until the new steady state is reached.

Question 40

The Solow model shows that a key determinant of the steady-state ratio of capital to labor is the:

1. level of output.
2. labor force.
3. saving rate.
4. capital elasticity in the production function.

Answer 40

saving rate.

Question 41

A higher saving rate leads to a:

1. higher rate of economic growth in both the short run and the long run.
2. higher rate of economic growth only in the long run.
3. higher rate of economic growth in the short run but a decline in the long run.
4. larger capital stock and a higher level of output in the long run.

Answer 41

larger capital stock and a higher level of output in the long run.

Question 42

Assume 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 as/than the country with the lower saving rate.

1. the same; the same
2. the same; a higher
3. a higher; the same
4. a higher; a higher

Answer 42

a higher; the same

Question 43

In the Solow growth model, with a given production function, depreciation rate, no technological change, and no population growth, a higher saving rate produces a:

1. higher MPK in the new steady state.
2. higher steady-state growth rate of output per worker.
3. higher steady-state growth rate of total output.
4. higher steady-state level of output per worker.

Answer 43

higher steady-state level of output per worker.

Question 44

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

1. high saving rates mean permanently higher growth rates of output.
2. high saving rates lead to high levels of capital per worker.
3. countries with high levels of output per worker can afford to save a lot.
4. countries with large amounts of natural resources have both high output levels and high saving rates.

Answer 44

high saving rates lead to high levels of capital per worker.

Question 45

The Golden Rule level of capital accumulation is the steady state with the highest level of:

1. output per worker.
2. capital per worker.
3. savings per worker.
4. consumption per worker.

Answer 45

consumption per worker.

Question 46

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

1. c* = f(k*) – ^δk*.
2. c* = f(k*) + ^δk*.
3. c* = f(k*) ÷ ^δk*.
4. c* = k* – ^δf(k)*.

Answer 46

c* = f(k*) – δk*.

Question 47

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

1. increase; increase
2. increase; decrease
3. decrease; increase
4. decrease; decrease

Answer 47

increase; increase

Question 48

The Golden Rule level of the capital–labor ratio is:

1. K*a
2. above K*a but below K*b
3. K*b
4. above K*b

Answer 48

K*a

Question 49

The Golden Rule level of steady-state consumption per worker is:

1. AC.
2. AB.
3. BC.
4. DE.

Answer 49

AB.

Question 50

The Golden Rule level of steady-state investment per worker is:

1. AC.
2. AB.
3. BC.
4. DE.

Answer 50

BC.

Question 51

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:

1. labor equals the marginal product of capital.
2. labor equals the depreciation rate.
3. capital equals the depreciation rate.
4. capital equals zero.

Answer 51

capital equals the depreciation rate.

Question 52

The Golden Rule level of the steady-state capital stock:

1. will be reached automatically if the saving rate remains constant over a long period of time.
2. will be reached automatically if each person saves enough to provide for his or her retirement.
3. implies a choice of a particular saving rate.
4. should be avoided by an enlightened government.

Answer 52

implies a choice of a particular saving rate.

Question 53

If an economy is in a steady state with no population growth or technological change and the marginal product of capital is less than the depreciation rate:

1. the economy is following the Golden Rule.
2. steady-state consumption per worker would be higher in a steady state with a lower saving rate.
3. steady-state consumption per worker would be higher in a steady state with a higher saving rate.
4. the depreciation rate should be decreased to achieve the Golden Rule level of consumption per worker.

Answer 53

steady-state consumption per worker would be higher in a steady state with a lower saving rate.

Question 54

If an economy with no population growth or technological change has a steady-state MPK of 0.125, a depreciation rate of 0.1, and a saving rate of 0.225, then the steady-state capital stock:

1. is greater than the Golden Rule level.
2. is less than the Golden Rule level.
3. equals the Golden Rule level.
4. could be either above or below the Golden Rule level.

Answer 54

is less than the Golden Rule level.

Question 55

If an economy with no population growth or technological change has a steady-state MPK of 0.1, a depreciation rate of 0.1, and a saving rate of 0.2, then the steady-state capital stock:

1. is greater than the Golden Rule level.
2. is less than the Golden Rule level.
3. equals the Golden Rule level.
4. could be either above or below the Golden Rule level.

Answer 55

equals the Golden Rule level.

Question 56

With a per-worker production function y = k^1/2, the steady-state capital stock per worker (k*) as a function of the saving rate (s) is given by:

1. k* = (s/δ)2.
2. k* = (^δ/s)².
3. k* = s/δ.
4. k* = ^δ/s.

Answer 56

k* = (s/δ)2.

Question 57

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:

1. largest MPK.
2. smallest depreciation rate.
3. largest consumption per worker.
4. largest output per worker.

Answer 57

3

Question 58

If an economy is in a steady state with no population growth or technological change and the capital stock is above the Golden Rule level and the saving rate falls:

1. output, consumption, investment, and depreciation will all decrease.
2. output and investment will decrease, and consumption and depreciation will increase.
3. output and investment will decrease, and consumption and depreciation will increase and then decrease but finally approach levels above their initial state.
4. output, investment, and depreciation will decrease, and consumption will increase and then decrease but finally approach a level above its initial state.

Answer 58

4

Question 59

Suppose an economy is initially in a steady state with capital per worker exceeding the Golden Rule level. If the saving rate falls to a rate consistent with the Golden Rule, then in the transition to the new steady state, consumption per worker will:

1. always exceed the initial level.
2. first fall below then rise above the initial level.
3. first rise above then fall below the initial level.
4. always be lower than the initial level.

Answer 59

1

Question 60

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.

1. increase
2. decrease
3. first increase, then decrease
4. first decrease, then increase

Answer 60

2

Question 61

When an economy begins above the Golden Rule, reaching the Golden Rule:

1. produces lower consumption at all times in the future.
2. produces higher consumption at all times in the future.
3. requires initially reducing consumption to increase consumption in the future.
4. requires initially increasing consumption to decrease consumption in the future.

Answer 61

2

Question 62

If an economy is in a steady state with a saving rate below the Golden Rule level, efforts to increase the saving rate result in:

1. both higher per-capita output and higher per-capita depreciation, but the increase in per-capita output would be greater.
2. both higher per-capita output and higher per-capita depreciation, but the increase in per-capita depreciation would be greater.
3. higher per-capita output and lower per-capita depreciation.
4. lower per-capita output and higher per-capita depreciation.

Answer 62

1

Question 63

If an economy is in a steady state with no population growth or technological change and the capital stock is below the Golden Rule:

1. a policymaker should definitely take all possible steps to increase the saving rate.
2. if the saving rate is increased, output and consumption per capita will both rise, both in the short and long runs.
3. if the saving rate is increased, output per capita will at first decline and then rise above its initial level, and consumption per capita will rise both in the short and long runs.
4. if the saving rate is increased, output per capita will rise and consumption per capita will first decline and then rise above its initial level.

Answer 63

4

Question 64

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:

1. always exceed the initial level.
2. first fall below then rise above the initial level.
3. first rise above then fall below the initial level.
4. always be lower than the initial level.

Answer 64

2

Question 65

When an economy begins below the Golden Rule, reaching the Golden Rule:

1. produces lower consumption at all times in the future.
2. produces higher consumption at all times in the future.
3. requires initially reducing consumption to increase consumption in the future.
4. requires initially increasing consumption to decrease consumption in the future.

Answer 65

3

Question 66

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.

1. increase
2. decrease
3. first increase, then decrease
4. first decrease, then increase

Answer 66

1

Question 67

In an economy with population growth at rate n, the change in capital stock per worker is given by the equation:

1. ∆k = sf(k) + δk.
2. ^∆k = sf(k) – ^δk.
3. ^∆k = sf(k) + (^δ + n)k.
4. ^∆k = sf(k) – (^δ + n)k.

Answer 67

4 ∆k = sf(k) – (δ + n)k.

Question 68

The formula for the steady-state ratio of capital to labor (k*) with population growth at rate n but no technological change, where s is the saving rate, is s:

1. divided by the sum of the depreciation rate plus n.
2. multiplied by the sum of the depreciation rate plus n.
3. divided by the product of f(k*) and the sum of the depreciation rate plus n.
4. multiplied by f(k*) divided by the sum of the depreciation rate plus n.

Answer 68

4

Question 69

In the Solow growth model of an economy with population growth but no technological change, the break-even level of investment must do all of the following except:

1. offset the depreciation of existing capital.
2. provide capital for new workers.
3. equal the marginal productivity of capital (MPK).
4. keep the level of capital per worker constant.

Answer 69

3

Question 70

In the Solow growth model of an economy with population growth but no technological change, if population grows at rate n, then capital grows at rate ______ and output grows at rate ______.

1. n; n
2. n; 0
3. 0; 0
4. 0; n

Answer 70

n; n

Question 71

In the Solow growth model of an economy with population growth but no technological change, if population grows at rate n, total output grows at rate ______ and output per worker grows at rate ______.

1. n; n
2. n; 0
3. 0; 0
4. 0; n

Answer 71

2

Question 72

Assume 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 as/than the country with the lower population growth rate.

1. higher; the same
2. higher; a higher
3. lower; the same
4. lower; a lower

Answer 72

3

Question 73

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:

1. 0.
2. n.
3. δ.
4. (n + ^δ).

Answer 73

1. (Zero)

Question 74

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:

1. 0
2. n.
3. δ.
4. (n + ^δ).

Answer 74

2

Question 75

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, then the steady-state level of output per worker will be _____ and the steady-state growth rate of output per worker will be _____.

1. the same in both countries; the same in both countries
2. higher in Country Large; higher in Country Large
3. higher in Country Small; higher in Country Small
4. higher in Country Large; higher in Country Small

Answer 75

1

Question 76

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:

1. output needed to achieve the maximum level of consumption per worker.
2. capital needed to replace depreciated capital and to equip new workers.
3. saving needed to achieve the maximum level of output per worker.
4. output needed to make the capital per worker ratio equal to the marginal product of capital.

Answer 76

2

Question 77

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

1. saving rate; depreciation rate
2. population growth rate; depreciation rate
3. depreciation rate; population growth rate
4. population growth rate; saving rate

Answer 77

1

Question 78

In the Solow growth model with population growth, but no technological change, a higher level of steady-state output per worker can be obtained by all of the following except:

1. increasing the saving rate.
2. decreasing the depreciation rate.
3. increasing the population growth rate.
4. increasing the capital per worker ratio.

Answer 78

3

Question 79

In the Solow growth model with population growth, but no technological change, which of the following will generate a higher steady-state growth rate of total output?

1. a higher saving rate
2. a lower depreciation rate
3. a higher population growth rate
4. a higher capital per worker ratio

Answer 79

3

Question 80

The Solow growth model with population growth but no technological progress can explain:

1. persistent growth in output per worker.
2. persistent growth in total output.
3. persistent growth in consumption per worker.
4. persistent growth in the saving rate.

Answer 80

2

Question 81

In the Solow growth model, with a given production function, depreciation rate, saving rate, and no technological change, higher rates of population growth produce:

1. higher steady-state ratios of capital per worker.
2. higher steady-state growth rates of output per worker.
3. higher steady-state growth rates of total output.
4. higher steady-state levels of output per worker.

Answer 81

3

Question 82

In the Solow growth model, with a given production function, depreciation rate, saving rate, and no technological change, lower rates of population growth produce:

1. lower steady-state ratios of capital per worker.
2. lower steady-state growth rates of output per worker.
3. lower steady-state growth rates of total output.
4. lower steady-state levels of output per worker.

Answer 82

3

Question 83

The Solow model with population growth but no technological change cannot explain persistent growth in standards of living because:

1. total output does not grow.
2. depreciation grows faster than output.
3. output, capital, and population all grow at the same rate in the steady state.
4. capital and population grow, but output does not keep up.

Answer 83

3

Question 84

With population growth at rate n but no technological change, the Golden Rule steady state may be achieved by equating the marginal product of capital (MPK):

1. net of depreciation to n.
2. to n.
3. net of depreciation to the depreciation rate plus n.
4. to the depreciation rate.

Answer 84

1

Question 85

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

1. 0.
2. the population growth rate.
3. the saving rate.
4. output per worker.

Answer 85

2

Question 86

In the Solow growth model with population growth, but no technological progress, if in the steady state the marginal product of capital equals 0.10, the depreciation rate equals 0.05, and the rate of population growth equals 0.03, then the capital per worker ratio ____ the Golden Rule level.

1. is above
2. is below
3. is equal to
4. will move to

Answer 86

2

Question 87

In the Solow growth model with population growth but no technological progress, increases in capital have a positive impact on steady-state consumption per worker by _____, but have a negative impact on steady-state consumption per worker by _____.

1. increasing the capital to worker ratio; reducing saving in the steady state.
2. reducing investment required in the steady state; increasing saving in the steady state.
3. increasing output; increasing output required to replace depreciating capital.
4. decreasing the saving rate; increasing the depreciation rate.

Answer 87

3

Question 88

An increase in the rate of population growth with no change in the saving rate:

1. increases the steady-state level of capital per worker.
2. decreases the steady-state level of capital per worker.
3. does not affect the steady-state level of capital per worker.
4. decreases the rate of output growth in the short run.

Answer 88

2

Question 89

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

1. have high income per worker.
2. have a lower level of income per worker than other parts of the world.
3. have the same standard of living as other parts of the world.
4. tend to be the high-income-producing nations of the world.

Answer 89

2

Question 90

According to Kremer, large populations:

1. require the capital stock to be spread thinly, thereby reducing living standards.
2. place great strains on an economy’s productive resources, resulting in perpetual poverty.
3. are a prerequisite for technological advances and higher living standards.
4. are not a factor in determining living standards.

Answer 90

3

Question 91

According to Malthus, large populations:

1. require the capital stock to be spread thinly, thereby reducing living standards.
2. place great strains on an economy’s productive resources, resulting in perpetual poverty.
3. are a prerequisite for technological advances and higher living standards.
4. are not a factor in determining living standards.

Answer 91

2

Question 92

According to the Solow growth model, high population growth rates:

1. force the capital stock to be spread thinly, thereby reducing living standards.
2. place great strains on an economy’s productive resources, resulting in perpetual poverty.
3. are a prerequisite for technological advances and higher living standards.
4. are not a factor in determining living standards.

Answer 92

1

Question 93

The Malthusian model that predicts mankind will remain in poverty forever:

1. underestimated the possibility for technological progress.
2. failed to predict that scarcity would be eliminated in the modern world.
3. assumed that prosperity would lead to declining human fertility.
4. recognized that the ability of natural resources to sustain humans is far greater than the power of population to consume resources.

Answer 93

1

Question 94

According to the Kremerian model, large populations improve living standards because:

1. crowded conditions put more pressure on people to work hard.
2. there are more people who can make discoveries and contribute to innovation.
3. more people have the opportunity for leisure and recreation.
4. most people prefer to live with many other people.

Answer 94

2

Question 95

If Y = K^0.3L^0.7, then the per-worker production function is:

1. Y/L = F(K/L).
2. Y/L = (K/L)^0.3.
3. Y/L = (K/L)^0.5.
4. Y/L = (K/L)^0.7.

Answer 95

2

Question 96

If y = k^1/2, 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:

1. 2.
2. 4.
3. 8.
4. 16.

Answer 96

4. 16

Question 97

If y = k^1/2, 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:

1. 2 and 1.6, respectively.
2. 2 and 1.8, respectively.
3. 4 and 3.2, respectively.
4. 4 and 3.6, respectively.

Answer 97

2

Question 98

Assume that two countries both have the per-worker production function y = k^1/2, neither has population growth or technological progress, depreciation is 5 percent of capital in both countries, and country A saves 10 percent of output whereas country B saves 20 percent. If A starts out with a capital–labor ratio of 4 and B starts out with a capital–labor ratio of 2, in the long run:

1. both A and B will have capital–labor ratios of 4.
2. both A and B will have capital–labor ratios of 16.
3. A’s capital–labor ratio will be 4 whereas B’s will be 16.
4. A’s capital–labor ratio will be 16 whereas B’s will be 4.

Answer 98

3

Question 99

Assume that a war reduces a country’s labor force but does not directly affect its capital stock. Then the immediate impact will be that:

1. total output will fall, but output per worker will rise.
2. total output will rise, but output per worker will fall.
3. both total output and output per worker will fall.
4. both total output and output per worker will rise.

Answer 99

1

Question 100

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.

1. decline; increase
2. increase; increase
3. decline; decrease
4. increase; decrease

Answer 100

3

Question 101

If a larger share of national output is devoted to investment, then living standards will:

1. always decline in the short run but rise in the long run.
2. always rise in both the short and long runs.
3. decline in the short run and may not rise in the long run.
4. rise in the short run but may not rise in the long run.

Answer 101

3

Question 102

If a larger share of national output is devoted to investment, starting from an initial steady-state capital stock below the Golden Rule level, then productivity growth will:

1. increase in the short run but not in the long run.
2. increase in the long run but not in the short run.
3. increase in both the short run and the long run.
4. not increase in either the short run or the long run.

Answer 102

1

Question 103

If the U.S. production function is Cobb–Douglas with capital share 0.3, output growth is 3 percent per year, depreciation is 4 percent per year, and the Golden Rule steady-state capital–output ratio is 4.29, to reach the Golden Rule steady state, the saving rate must be:

1. 17.5 percent.
2. 25 percent.
3. 30 percent.
4. 42.9 percent.

Answer 103

3

Question 104

If all wage income is consumed, all capital income is saved, and all factors of production earn their marginal products, then:

1. the economy will reach a steady-state level of capital stock below the Golden Rule level.
2. the economy will reach a steady-state level of capital stock above the Golden Rule level.
3. wherever the economy starts out, it will not grow.
4. wherever the economy starts out, it will reach a steady-state level of capital stock equal to the Golden Rule level.

Answer 104

4

Question 105

If an economy moves from a steady state with positive population growth to a zero population growth rate, then in the new steady state, total output growth will be ______ and growth of output per person will be ______.

1. lower; lower
2. lower; the same as it was before
3. higher; higher than it was before
4. higher; lower

Answer 105

2

Question 106

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

1. growth in total output and growth in output per worker.
2. growth in total output but no growth in output per worker.
3. growth in total output but a decrease in output per worker.
4. no growth in total output or in output per worker.

Answer 106

3

Question 107

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:

1. growth in total output and growth in output per worker.
2. growth in total output but no growth in output per worker.
3. growth in total output but a decrease in output per worker.
4. no growth in total output or in output per worker.

Answer 107

1