Chapter 4 - Working with the Solow Model

Name:

True/False
Indicate whether the statement is true or false.

An increase in the depreciation rate affects the steady-state capital per worker the same way as an increase in the population growth rate.

If the saving rate increases, then the optimum level of capital per worker falls.

An increase in technology causes the real GDP per worker to increase during the transition to the steady-state.

An increase in technology cause the growth in real output per worker to be higher in the long run or steady-state.

The Solow model of growth says that poorer economies should over time converge towards richer ones in terms of real output put worker.

Multiple Choice
Identify the choice that best completes the statement or answers the question.

In the revised version of the Solow growth model the optimal level of capital stock per worker depends on:

a.	the saving rating.
b.	the depreciation rate.
c.	population growth rate.
d.	all of the above.

In the revised version of the Solow growth model the optimal level of the capital stock per worker depends on:

a.	monetary growth.
b.	government spending.
c.	the saving rate.
d.	all of the above.

In the revised version of the Solow growth model the optimal level of the capital stock per worker depends on:

a.	monetary growth.
b.	the depreciation rate.
c.	appreciation in the stock market.
d.	all of the above.

In the revised version of the Solow growth model the optimal level of the capital stock per worker depends on:

a.	the population growth rate.
b.	government spending.
c.	inflation.
d.	all of the above.

10.

In the Solow growth model as a growing economy transitions to the steady state:

a.	the average product of capital falls.
b.	output per worker is constant.
c.	the average product of labor falls.
d.	the growth rate of capital is equal to zero.

11.

In the Solow growth model in the steady state the growth rate of capital per worker,

, is:

a.	rising.
b.	falling.
c.	fluctuating.
d.	zero.

12.

In the Solow growth model, if technology, A, improves, then in the steady state:

a.	output per worker grows faster.
b.	output per worker grows at the same rate, zero.
c.	capital per worker grows faster.
d.	all of the above.

13.

In the Solow growth model, if the population growth rate, n, increases, then in the steady state:

a.	output per worker grows slower.
b.	capital per worker grows slower.
c.	capital per worker grows at the same rate, zero.
d.	all of the above.

14.

In the Solow growth model, if the depreciation rate,

, increases, then in the steady state:

a.	output per worker grows at the same rate, zero.
b.	output per worker grows faster.
c.	capital per worker grows faster.
d.	all of the above.

15.

In the Solow growth model, if labor input, L(0), increases, then in the steady state:

a.	output per worker grows faster.
b.	capital per worker grows at the same rate, zero.
c.	capital per worker grows faster.
d.	all of the above.

16.

In the Solow growth model in the steady state the growth rate of output per worker, y*, is:

a.	rising.
b.	falling.
c.	constant at zero.
d.	fluctuating.

17.

If the saving rate increases in the Solow growth model, then during the transition to the steady state:

a.	the growth rate of capital per worker will increase.
b.	the growth rate of capital per worker will decrease.
c.	the growth rate of capital per worker is constant.
d.	the growth rate of capital per worker is zero.

18.

If the saving rate increases in the Solow growth model, then in the steady state the growth rate of capital per worker is:

a.	constant.
b.	unchanged.
c.	zero.
d.	all of the above.

19.

If the saving rate increases in the Solow growth model, then in the steady state the growth rate of capital per worker is:

a.	higher.
b.	unchanged.
c.	lower.
d.	rising.

20.

If the saving rate increases in the Solow growth model, then in the steady state:

a.	capital per worker and the growth of capital will be higher.
b.	capital per worker will be higher but the growth rate of capital will remain the same at zero.
c.	capital per worker will be higher but the growth rate of capital will be lower.
d.	capital per worker will be lower but the growth rate of capital will be higher.

21.

In the Solow growth model during the transition an increase in technology:

a.	lowers the growth rate of capital per worker.
b.	does not change the growth rate of capital per worker.
c.	raises the growth rate of capital per worker.
d.	causes the growth rate of capital to fall to zero per worker.

22.

In the Solow growth model during the transition an increase in technology:

a.	lowers the growth rate of output per worker.
b.	does not change the growth rate of output per worker.
c.	raises the growth rate of output per worker.
d.	causes the growth rate of output per worker to fall to zero.

23.

In the Solow growth model during the transition an increase in technology:

a.	lowers the growth rate of capital and output per worker.
b.	raises the growth rate of capital per worker and lowers the growth rate of output per worker.
c.	raises the growth rate of capital and output per worker.
d.	lowers the growth rate of capital per worker and raises the growth rate of output per worker.

24.

In the Solow growth model in the short run, an increase in the labor input L(0):

a.	increases the growth rate of real output per worker.
b.	increases s•(y/k).
c.	reduces the growth rate of capital per worker.
d.	decreases .

25.

In the Solow growth model in the short run, an increase in the labor input L(0),

a.	decrease the growth rate of real output per worker.
b.	increases s•(y/k).
c.	increase the growth rate of capital per worker.
d.	decrease .

26.

In the Solow growth model in the long run or steady state, an increase in the labor input L(0) will,

a.	increase the capital stock.
b.	lead to a growth of the capital stock per worker of zero.
c.	not affect real output per worker.
d.	all of the above.

27.

In the Solow growth model in the long run or steady state, an increase in the labor input L(0) will,

a.	decrease the capital stock.
b.	lead to a positive growth of the capital stock per worker.
c.	not change real output per worker.
d.	all of the above.

	Figure 4.1

Determinants
of

k/k

28.

In Figure 4.1 the distance between s•(y/k) and s

+ n is the growth of capital per worker:

a.	in the transition.
b.	in the long-run.
c.	in the steady state.
d.	none of the above.

29.

In Figure 4.1 if the saving rate increases, then

a.	the curve increases.
b.	the curve becomes steeper.
c.	the curve decreases.
d.	the curve becomes flatter.

30.

In Figure 4.1, if the saving rate increase, then:

a.	s•(y/k) increases.
b.	s•(y/k) gets steeper.
c.	s•(y/k) decreases.
d.	s•(y/k) becomes vertical.

31.

In Figure 4.1, if the saving rate increase, then:

a.	s•(y/k) and increase.
b.	s•(y/k) increases while decreases.
c.	s•(y/k) and decrease.
d.	s•(y/k) decreases while increase.

32.

In Figure 4.1, if the technology improves, then:

a.	s•(y/k) increases.
b.	increases.
c.	s•(y/k) decreases.
d.	decreases.

33.

In Figure 4.1, if the initial amount of labor increases, then:

a.	s•(y/k) increases.
b.	K/L moves away from the optimum.
c.	increases.
d.	the growth rate of population increases.

34.

In Figure 4.1, if the initial amount of labor increases, then in the steady state:

a.	the growth rate of capital per worker increases.
b.	the growth rate of output per worker rises.
c.	the growth rate of output per worker is the same.
d.	the population growth rate rises.

35.

In Figure 4.1, if the initial amount of labor increases, then during the transition to they steady state:

a.	the growth rate of capital per worker and output per worker increase.
b.	the growth rate of capital per worker and output per worker.decrease.
c.	the growth rate of capital per worker increases and output per worker decrease.
d.	the growth rate of capital per worker decreases and output per worker increases.

36.

In Figure 4.1, if the population growth rate increases, then:

a.	s•(y/k) increases.
b.	K/L moves away from the optimum.
c.	increases.
d.	the initial amount of labor increases.

37.

In Figure 4.1, an increase in productivity:

a.	raises the steady state growth rate of capital per worker.
b.	does not change steady-state growth rates of output or capital per worker.
c.	lowers the steady state growth rate of output per worker
d.	lowers the steady-state level of capital.

38.

In Figure 4.1, an increase in the depreciation rate has the same effects as:

a.	an increase in the savings rate.
b.	an increase in the initial amount of labor.
c.	an increase in the population growth rate.
d.	all of the above.

39.

In Figure 4.1, an increase in technology:

a.	increases s•(y/k)
b.	decreases s•(y/k)
c.	increases
d.	decreases

40.

In Figure 4.1, an increase in technology:

a.	increases k*.
b.	does not affect k*.
c.	decreases k*.
d.	makes k* zero.

41.

In Figure 4.1, an increase in the population growth rate:

a.	increases k*.
b.	does not affect k*.
c.	decreases k*.
d.	makes k* zero.

42.

In Figure 4.1, an increase in the depreciation rate:

a.	increases k*.
b.	does not affect k*.
c.	decreases k*.
d.	makes k* zero.

43.

In Figure 4.1, if the technology improves, then:

a.	the steady-state capital stock increases.
b.	the steady-state growth in capital per worker increases.
c.	the steady-state growth in output per worker increases.
d.	the population growth rate increases.

44.

Convergence of economies is the tendency according to the Solow growth model for:

a.	richer countries to buy up all the capital in poorer countries.
b.	richer countries to tend decline as pollution damage increases.
c.	poorer economies to grow faster in terms of real GDP per capital than richer countries.
d.	the tendency for richer economies to shrink to the size of poorer economies.

45.

Since 1960 the data show a tendency of output per worker to converge:

a.	in all countries in the world.
b.	countries with different savings rates.
c.	in OECD countries.
d.	none of the above.

46.

The data show a tendency of output per worker to converge:

a.	among US States from 1880 to 2000.
b.	countries with similar economies.
c.	in OECD countries from 1960 to 2000.
d.	all of the above.

47.

Convergence will not happen if economies around the world have:

a.	different saving rates.
b.	different technologies.
c.	different population growth rates.
d.	all of the above.

48.

Convergence will not happen if economies around the world have:

a.	different saving rates.
b.	different average products of capital in the transition.
c.	different levels out labor input.
d.	all of the above.

49.

Convergence will not happen if economies around the world have:

a.	different capital labor ratios in during the transition.
b.	different population growth rates.
c.	different levels out labor input.
d.	all of the above.

50.

Convergence will not happen if economies around the world have:

a.	different average products of capital during the transition.
b.	different initial levels of labor input.
c.	different levels of technology.
d.	all of the above.

51.

Convergence will not happen if economies around the world have:

a.	different average products of capital during the transition.
b.	different initial levels of labor input.
c.	different optimum levels of capital per worker, k*.
d.	all of the above.

52.

Economies are said to have converged if they:

a.	have the same growth rate in the transition.
b.	have the same capital per worker, k*, in the steady state.
c.	have the same saving rate.
d.	all of the above.

53.

When converging economies:

a.	have the same growth rate of capital per worker.
b.	the same steady state capital per worker, k*.
c.	have the same growth rate of output per worker.
d.	all of the above.

54.

Convergence will not happen if economies around the world have:

a.	different savings rates.
b.	different population growth rates.
c.	different optimum levels of capital per worker, k*.
d.	all of the above.

55.

Convergence will not happen if economies around the world have:

a.	different capital per worker growth rates in the transition.
b.	different initial levels of labor input, L(0).
c.	different initial starting points.
d.	none of the above.

Short Answer

56.

What are the short and long run effects of an increase in the saving rate in the Solow growth model?

57.

What are the long and short run effects of an increase in technology, A, in the Solow growth model?

58.

What are the long run and short run effects to an increase in the labor input in the Solow growth model?

59.

What are the long and short run effects of an increase in the population growth rate the Solow growth model?

60.

Why does the Solow growth model show the economies of poor countries tend to converge over time toward richer ones in terms of per capita and real GDP per worker?