mock Flashcards
True or False: An increase in the rate of technological progress, gA, increases the total
amount of depreciation (in per effective worker terms) in the steady state.
False, the increase in gA reduces output per effective worker in the steady state , by
implication the amount of depreciation is also lower
True or False: In the steady state, output per worker and capital per worker grow at the
same rate.
true they both grow at the rate of tech gA
(1) what happens to consumption pew immediately after the saving rate is DECREASED
(1) Immediately after reducing the saving rate consumption per effective worker rises, as a
greater share of income per effective worker may be consumed and the capital stock per
effective worker has not yet adjusted
2) what happens to consumption pew once the new
steady state is reached (DECREASE)
(2) In the new steady state consumption per effective worker is higher than it was before (by
definition of the golden rule)
(3) what happens during the transition from the old to the new steady state. (DECREASE)
(3) During the transition the consumption per effective worker level falls from the high level
obtained directly after reducing s to the new steady-state value, but always remains above the
old level of consumption per effective worker.
f) True or False: A permanent increase in the oil price increases the natural interest rate.
True, an increase in the oil price increases the mark-up and shifts the PS-curve downwards,
increasing the natural rate of unemployment. This reduces the natural level of output, but does
not shift the IS-curve. It follows that the lower natural level of output must correspond to a
higher natural interest rate.
True or False: The government can increase the natural level of output by increasing government spending and taxes by the same amount
false, as the natural level of output is not effected by government spending or taxes in the medium run and will return to natural level
