ecchapter7

# ecchapter7 - Name Date 1 In the Solow growth model the...

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Name: __________________________ Date: _____________ 1. In the Solow growth model, the assumption of constant returns to scale means that: A) all economies have the same amount of capital per worker. B) the steady-state level of output is constant regardless of the number of workers. C) the saving rate equals the constant rate of depreciation. D) the number of workers in an economy does not affect the relationship between output per worker and capital per worker. 2. The production function y = f ( k ) means: 3. Two economies are identical except that the level of capital per worker is higher in Highland than in Lowland. The production functions in both economies exhibit diminishing marginal product of capital. An extra unit of capital per worker increases output per worker: 4. The consumption function in the Solow model assumes that society saves a: 5. In the Solow growth model of Chapter 7, where s is the saving rate, y is output per worker, and i is investment per worker, consumption per worker ( c ) equals: A) sy. B) (1 – s ) y. C) (1 + s ) y. D) (1 – s ) y i. Page 1 6. In this graph, when the capital-labor ratio is OA, AB represents: 7. If capital lasts an average of 25 years, the depreciation rate is ______ percent per year. 8. The steady-state level of capital occurs when the change in the capital stock (a k ) equals:

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9. 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 Page 2
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