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200 Intermediate Macroeconomics

Tutorial (12)

Economic Growth

Short Answer Questions from Textbook 1. Question 4 of Questions for Review on P213. In the Solow model, how does the rate of population growth affect the steady-state level of income? How does it affect the steady-state rate of growth?

Short Answer Questions from Textbook 2. Question 6 of Questions for Review on P241. How does endogenous growth theory explain persistent growth without the assumption of exogenous technological progress? How does this differ from the Solow model?
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Numerical Questions
1. Suppose that the production function is Y = 10( K )1/ 4 ( L) 3 / 4 and 2% of capital wears out every year. Assume that the rate of growth of population equals 0. If the saving rate s is 0.128, population equals 0. If the saving rate s is 0.128, calculate the steady state level of capital per worker, output per worker, consumption per worker, saving and investment per worker, and depreciation per worker.
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Numerical Questions 2. Suppose the production function is Y = 10( K )1/ 4 ( EL) 3 / 4 and capital lasts an average of 10 years. Assume that the rate of growth of population is 4% and the rate of technological growth is 2%. The MPK can be expressed as MPK = 2.5(k ) 3 / 4 where k is the level of capital per effective worker.
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Numerical Questions a. Derive the equation for output per effective worker y = Y/(EL) = f(k).

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Numerical Questions b. Calculate the Golden Rule level of capital per effective worker and the output per effective worker associated with the steady state.

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Numerical Questions c. Calculate all of the following at the Golden Rule level: saving rate, saving and investment per effective worker, and consumption per effective worker.

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Multiple-Choice Questions
(2005 Exam Question)

(1) In a steady state with no population growth: a. The amount of capital per worker remains constant over time. b. Investment per worker equals depreciation per b. Investment per worker equals depreciation per worker. c. Saving per worker equals depreciation per worker. d. All of the above.
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Multiple-Choice Questions
(2005 Exam Question)

(2) With no population growth, the steady state level of capital per worker will increase whenever: a. The amount of investment per worker a. The amount of investment per worker decreases. b. The depreciation rate increases. c. The saving rate increases. d. All of the above.
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Multiple-Choice Questions
(2005 Exam Question)

(3) If y = k , s = 0.4, and the depreciation rate = 20 percent, the steady state level of the capital stock per worker is: of the capital stock per worker is: 4. 8. 2. 16. a. b. c. d.
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Multiple-Choice Questions
(2005 Exam Question)

(4) The Golden Rule level of capital k gold denotes the steady state with the highest: Level of consumption per worker. Level of output per worker. Growth rate of consumption per worker. Growth rate of output per worker. a. b. c. d.
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Multiple-Choice Questions
(2005 Exam Question)

(5) Excluding population growth, at the * Golden Rule level of capital k gold : * * a. a. f (k gold ) = k gold . b. MPK = . c. f(k) reaches a maximum. d. All of the above.
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Multiple-Choice Questions
(2005 Exam Question)

(6) Suppose that a country in a steady state implements policies to increase its saving rate. After the new steady state is reached: a. Output per worker will grow more rapidly than before. before. b. The level of output per worker will be higher than before. c. The amount of capital per worker will be the same as before. d. All of the above.
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Multiple-Choice Questions
(2005 Exam Question)

(7) If y = k 1/ 2 , = 5%, and the Golden Rule * level of capital k gold = 100, then the saving rate associated with the Golden Rule level of capital is: of capital is: 5%. 10%. 20%. 50%. a. b. c. d.
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Multiple-Choice Questions
(2005 Exam Question)

(8) In the Solow growth model with population growth n, the change in capital per worker is equal to: sf(k) + ( + n)k. sf(k) + ( - n)k. sf(k) - ( + n)k. sf(k) - ( - n)k. a. b. c. d.
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Multiple-Choice Questions
(2005 Exam Question)

(9) An increase in the rate of population growth n will: a. Increase the steady state level of capital per worker. b. Decrease the steady state level of capital per b. Decrease the steady state level of capital per worker. c. Have no effect on the steady state level of capital per worker. d. Decrease the steady state level of capital per worker if < n and increase the steady state level if > n.
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Multiple-Choice Questions
(2005 Exam Question)

(10) The Solow growth model predicts that countries with higher population growth rates will have: a. Lower steady state level of output per worker. b. Lower steady state growth rates of output per b. Lower steady state growth rates of output per worker. c. Both a and b. d. Higher steady state growth rates of output per worker.
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Multiple-Choice Questions
(2005 Exam Question)

(11) In the Solow growth model with population growth n and labor augmenting technological progress g, the change in capital per effective worker is equal to: capital per effective worker is equal to: sf(k) + ( + n + g)k. sf(k) + ( n - g)k. sf(k) - ( + n + g)k. sf(k) - ( n - g)k. a. b. c. d.
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Multiple-Choice Questions
(2005 Exam Question)

(12) In the Solow growth model with population growth and technological progress, the steady state growth rate in output per effective worker is equal to: a. zero. b. The rate of technological progress g. c. The growth rate of population n plus the rate of technological progress g. d. The saving rate s.
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Multiple-Choice Questions
(2005 Exam Question)

(13) In the Solow growth model with population growth and technological progress, the steady state growth rate in output per worker is equal to: a. zero. b. The rate of technological progress g. c. The growth rate of population n plus the rate of technological progress g. d. The saving rate s.
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Multiple-Choice Questions
(2005 Exam Question)

(14) If the capital stock in a country is initially below the Golden Rule level of capital, the country can move toward the Golden Rule steady state by: a. Increasing the rate of saving. a. Increasing the rate of saving. b. Reducing government expenditures on noninvestment items. c. Providing tax incentives that reward new investment. d. All of the above.
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Multiple-Choice Questions
(2005 Exam Question)

(15) Technological progress is encouraged by: a. The patent system. b. Tax incentives for research and b. Tax incentives for research and development. c. Government subsidies for research. d. All of the above.
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Multiple-Choice Questions
(2005 Exam Question)

(16) When the steady state has been reached: a. Real wages grow at the rate of technological progress. b. The real rental cost of capital grows at the rate of technological progress. c. The number of effective workers grows at the rate of technological progress. d. All of the above.
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Multiple-Choice Questions
(2005 Exam Question)

(17) In the Solow growth model, the rate of technological progress is: exogenous. exogenous. endogenous. 3%. 0%. a. a. b. c. d.
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Multiple-Choice Questions
(2005 Exam Question)

(18) Acceptance of endogenous growth theory implies: a. Additional saving and investment can lead to persistent growth. b. Capital may not be subject to diminishing returns if knowledge is viewed as a type of capital. c. The rate of technical change is endogenous. d. All of the above.
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