Practise Quiz 2 Flashcards
Q1 - Unlike the long-run classical model in chapter 3, the Solow growth model:
A - assumes that the factors of production and technology are the sources of the economy’s output.
B - describes changes in the economy over time
C - Is static
D - assumes that the supply of goods determines how much output is produced.
B - Describes changes in the economy over time
Q2 - The production function feature called “constant returns to scale” means that if we:
A - multiply capital by z1 and labor by z2, we multiply output by z3.
B - increase capital and labor by 10 percent each, we increase output by 10 percent.
C - increase capital and labor by 5 percent each, we increase output by 10 percent.
D - increase capital by 10 percent and increase labor by 5 percent, we increase output by 7.5 percent.
B - Increase capital and labor by 10 percent each, we increase output by 10 percent
Q3 - When f(k) is drawn on a graph with increases in k noted along the horizontal axis, the slope of the line denotes:
A - Output per worker
B - Output per unit of capital
C - The marginal product of labor
D - The marginal product of capital
D - The marginal product of capital
Q5 - Two economies are identical except that the level of capital per worker is higher in Highland than Lowland. The production functions in both economies exhibit diminishing marginal product of capital. An extra unit of capital per worker increases output per worker:
A - More in Highland
B - More in Lowland
C - By the same amount in Highland and Lowland
D - In Highland, but not in Lowland
B - More in Lowland
Q6 - 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
A - Saving rate; Production Function
B - Depreciation Rate; Population Growth Rate
C - Production Function; Saving Rate
D - Population Growth Rate; Saving Rate
C - Production Function; Saving Rate
Q7 - The steady state lvel of capital occurs when the change in the capital stock (Delta K) equals:
A - 0
B - The saving rate
C - The depreciation rate
D - The population growth rate
A - 0
Q8 - In the Solow growth model, if investment exceeds depreciation, the capital stock will ___ and output will ___ until the steady state is attained.
A - Increase, increase
B - Increase, decrease
C - Decrease, decrease
D - Decrease, increase
A - Increase, Increase
Q9 - 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:
A - A higher level of output per person than before
B - The same level of output per person as before
C - A lower level of output per person than before
D - The Golden Rule level of output per person
B - The same level of output per person as before
Q10 - The golden Rule level of capital accumulation is the steady state with the highest level of:
A - Output per worker
B - Capital per worker
C - Savings per worker
D - Consumption per worker
D - Consumption per worker
Q12 - In an economy with no population growth and no technological change, the steady state consumption is at its greatest possible level when the marginal product of:
A - Labor equals the marginal product of capital
B - Labor equals the depreciation rate
C - Capital equals the depreciation rate
D - Capital equals zero
C - Capital equals the depreciation rate
Q13 - To determine whether an economy is operating at its Golden Rule level of capital stock, a policy maker 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
C - Largest consumption per worker
Q14 - If a larger share of national output is devoted to investment, then living standards will:
A - Always decline in the short run but rise in the long run
B - Always rise in both the short and long runs
C - Decline in the short run and may not rise in the long run
D - Rise in the short run but may not rise in the long run
C - Decline in the short run and may not rise in the long run
Q15 - If all wage income is consumed, all capital income is saved, and all factors of production earn their marginal products then:
A - The economy will reach a steady state level of capital stock below the Golden Rule level
B - The economy will reach a steady state level of capital stock above the Golden Rule level
C - Wherever the economy starts out, it will not grow
D - Wherever the economy starts out, it will reach a steady state level of capital stock equal to the Golden Rule level
D - Wherever the economy starts out, it will reach a steady state level of capital stock equal to the Golden Rule Level
