Question 1

According to the Solow model, an increase in the fraction of output that is saved will increase ________ in the long run.
A) investment.
B) output.
C) per capita GDP.
D) All of the answers are correct.

Accepted Answer

According to the Solow model, an increase in the fraction of output that is saved will lead to a higher level of investment. The increased investment will lead to more capital accumulation, which in turn will increase output and per capita GDP in the long run. Therefore, all of the answers (investment, output, and per capita GDP) are correct.

Question 2

In the Solow model, an increase in the investment rate will _____ the amount of capital needed to achieve a steady state of output.
A) increase
B) decrease
C) not affect
D) equal

Accepted Answer

According to the Solow model, an increase in the investment rate leads to a higher level of capital accumulation, which in turn increases output. However, as the amount of capital increases, the marginal product of capital falls, eventually resulting in diminishing returns to capital. Therefore, to achieve a steady state level of output, the economy must have a higher level of capital accumulation than before the increase in the investment rate. Therefore, an increase in the investment rate will increase the amount of capital needed to achieve a steady state of output.

Question 3

When a country is at its steady state, I. capital is neither increasing nor decreasing. II. net investment is 0. III. economic growth is 0.
A) I only
B) II only
C) I and II only
D) I, II, and III

Accepted Answer

The answer of When a country is at its steady...

Question 4

Assume that a country's production function changes from to . Which of the following could explain the   change in this production function?
A) the disappearance of diminishing returns from the production function
B) the arrival of robotic technology in production
C) greater capital accumulation
D) less depreciation due to better capital stock maintenance.

Accepted Answer

The answer of Assume that a country's production function changes...

Question 5

According to Robert Solow, better ideas are responsible for about _____ of our standard of living.
A) 15 percent
B) 25 percent
C) 50 percent
D) 75 percent

Accepted Answer

Robert Solow's research suggests that technological progress accounts for about 75 percent of the growth in our standard of living over time, with the remaining 25 percent attributable to increases in capital and labor.

Question 6

In the long run, economic growth is driven by
A) physical capital.
B) human capital.
C) technological change.
D) All of the answers are correct.

Accepted Answer

The answer of In the long run, economic growth is...

Question 7

Which of the following are TRUE? I. Even with a low domestic savings rate, a country can still have high investment with foreign savings. II. Good savings rates require well-functioning financial intermediaries. III. If savings do not flow into an economy from other countries, it will have a low level of capital stock.
A) I and II only
B) I and III only
C) II and III only
D) I, II, and III

Accepted Answer

The answer of Which of the following are TRUE? I....

Question 8

A small country has an aggregate production function per hour of labor given by Y = K1/2. Its depreciation rate is 1 percent and its investment rate is 10 percent. What is its steady-state level of capital?
A) 10
B) 100
C) 1
D) You need to know the steady-state level of RGDP to answer this question.

Accepted Answer

To find the steady-state level of capital, we need to set investment equal to depreciation. Investment is 10 percent of the current level of capital, while depreciation is 1 percent of the current level of capital. Thus, the steady-state level of capital will be where I = 0.01K, or 0.1K = 0.01K, which implies K = 100.

Question 9

A small country has 400 units of capital for each labor hour. This year it will produce 20 units of new capital goods, and depreciate 5 percent of its capital stock. Based on this information it should expect to have ______ growth over the next year if technological advancement occurs; otherwise it should expect to have _______.
A) positive; no growth
B) positive; positive growth but less than the amount it would have with technological advancement
C) no; negative growth
D) negative; positive growth

Accepted Answer

The answer of A small country has 400 units of...

Question 10

(Figure: Increased Production) Figure: Increased Production  Refer to the figure above. Which of the following factors could cause the upward shift of the production function from Y to Y'?
A) foreign direct investment
B) technological advancement
C) increase in the capital stock
D) an aging labor force

Accepted Answer

Technological advancement can cause an upward shift of the production function, as it allows for more output to be produced with the same inputs or for the same amount of output to be produced with fewer inputs. Foreign direct investment and an aging labor force are not directly related to the production function, and an increase in the capital stock would cause a movement along the production function rather than a shift.

Question 11

If a country is at its steady-state level of capital stock, which of the following will NOT result in economic growth in future years, ceteris paribus?
A) a technological advancement
B) an increase in the savings rate
C) producing capital at its current rate
D) a decrease in the depreciation rate

Accepted Answer

If a country is already at its steady-state level of the capital stock, producing capital at its current rate will not result in economic growth in future years. In order to achieve economic growth, the country needs to either increase its savings rate, adopt new technologies or decrease the rate of depreciation of capital.

Question 12

In a steady state, the capital stock
A) increases.
B) decreases.
C) remains constant.
D) becomes unimportant.

Accepted Answer

In a steady state, the capital stock remains constant. This is because the economy is producing enough new capital to replace the depreciated capital, but not enough to increase the overall stock. Therefore, there is no net change in the capital stock over time.

Question 13

Countries with more human capital have a
A) higher GDP per capita.
B) lower GDP per capitB.
C) higher population.
D) lower population.

Accepted Answer

Human capital refers to the skills, knowledge, and experience of a population. Countries with more human capital tend to have a higher productivity level, leading to a higher GDP per capita. Thus, choice A is the best answer.

Question 14

Other things held constant, an increase in depreciation will cause the capital stock to
A) decrease.
B) grow at a slower pace.
C) remain unchanged.
D) become unprofitable.

Accepted Answer

If depreciation increases, it means that a larger portion of the investment is being used up to replace worn-out capital goods. This leaves less investment available for adding to the capital stock, meaning that the capital stock will decrease.

Question 15

Consider the following production function . The level  of technology in this economy is represented by a value of
A) 1.
B) 4.
C) 2.
D) 0.5.

Accepted Answer

The level of technology is represented by the exponent on the capital input in the production function. In this case, the exponent on capital is 0.5, which means the level of technology is √2, or approximately 1.41. Therefore, the answer is C).

Question 16

Which of the following is correct?
A) If investment > depreciation, the nation's capital stock will grow.
B) If investment < depreciation, the nation's capital stock will grow.
C) If investment = depreciation, the nation's capital stock will grow.
D) If investment > depreciation, the nation's capital stock will stay constant.

Accepted Answer

Investment refers to the amount of new capital that is being added to the existing stock. Depreciation, on the other hand, refers to the amount of capital that is being worn out, used up, or becoming obsolete. If investment exceeds depreciation, then the net increase in the capital stock will be positive, leading to growth.

Question 17

With additional education, the marginal product of human capital
A) increases at an increasing rate.
B) increases at a decreasing rate.
C) is relatively constant.
D) decreases and then increases.

Accepted Answer

The marginal product of human capital increases at a decreasing rate with additional education. This means that for each additional unit of education, the increase in productivity or earnings is less than the increase for the previous unit of education. This is because as more education is obtained, the marginal benefit of each additional unit of education becomes smaller, while the marginal cost remains the same or may even increase.

Question 18

South Korea's high investment rate of 35 percent in the 1990s helped ensure that _______ would be higher, even though its ________ slowed.
A) population; education rate
B) GDP; growth rate
C) growth rate; GDP
D) growth rate; savings rate

Accepted Answer

South Korea's high investment rate contributed to a higher GDP, even though the growth rate of the economy slowed down.

Question 19

A small country's aggregate production function per hour of labor is given by Y = K1/2. Its depreciation rate is 5 percent and its investment rate is 25 percent. What is its steady-state level of real GDP?
A) 25
B) 5
C) 1.25
D) You need to know the steady-state level of capital stock to answer this question.

Accepted Answer

In the steady-state, the economy's capital stock will be such that investment equals depreciation. Therefore, the steady-state level of capital stock is:
I = δK
0.25Y = 0.05K
Y/K = 0.2
Substituting the production function gives:
K1/2/K = 0.2
K = 0.2^2 = 0.04
Substituting into the production function gives:
Y = K1/2 = (0.04)1/2 = 0.2
Therefore, the steady-state level of real GDP is 0.2 (or 20% of the initial level of capital stock). The closest answer choice is B (5).

Question 20

According to the Solow model, countries with higher savings rates have higher levels of
A) investment.
B) output.
C) per capita GDP.
D) All of the answers are correct.

Accepted Answer

According to the Solow model, savings rates directly impact investment levels, which in turn impact output and per capita GDP. Therefore, higher savings rates lead to higher levels of investment, output, and per capita GDP, making option D the correct answer.

Quiz 26: Gdp and the Measurement of Progress

According to the Solow model, an increase in the fraction of output that is saved will increase ________ in the long run.

In the Solow model, an increase in the investment rate will _____ the amount of capital needed to achieve a steady state of output.

When a country is at its steady state, I. capital is neither increasing nor decreasing. II. net investment is 0. III. economic growth is 0.

Assume that a country's production function changes from to . Which of the following could explain the change in this production function?

According to Robert Solow, better ideas are responsible for about _____ of our standard of living.

In the long run, economic growth is driven by

A small country has an aggregate production function per hour of labor given by Y = K1/2. Its depreciation rate is 1 percent and its investment rate is 10 percent. What is its steady-state level of capital?

(Figure: Increased Production) Figure: Increased Production Refer to the figure above. Which of the following factors could cause the upward shift of the production function from Y to Y'?

If a country is at its steady-state level of capital stock, which of the following will NOT result in economic growth in future years, ceteris paribus?

In a steady state, the capital stock

Countries with more human capital have a

Other things held constant, an increase in depreciation will cause the capital stock to

Consider the following production function . The level of technology in this economy is represented by a value of

Which of the following is correct?

With additional education, the marginal product of human capital

South Korea's high investment rate of 35 percent in the 1990s helped ensure that _ would be higher, even though its __ slowed.

A small country's aggregate production function per hour of labor is given by Y = K1/2. Its depreciation rate is 5 percent and its investment rate is 25 percent. What is its steady-state level of real GDP?

According to the Solow model, countries with higher savings rates have higher levels of