ecchapter7

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

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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: A) labor is not a factor of production. B) output per worker is a function of labor productivity. C) output per worker is a function of capital per worker. D) the production function exhibits increasing returns to scale. 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: A) more in Highland. B) more in Lowland. C) by the same amount in Highland and Lowland. D) in Highland, but not in Lowland. 4. The consumption function in the Solow model assumes that society saves a: A) constant proportion of income. B) smaller proportion of income as it becomes richer. C) larger proportion of income as it becomes richer. D) larger proportion of income when the interest rate is higher. 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: A) investment per worker, and AC represents consumption per worker. B) consumption per worker, and AC represents investment per worker. C) investment per worker, and BC represents consumption per worker. D) consumption per worker, and BC represents investment per worker. 7. If capital lasts an average of 25 years, the depreciation rate is ______ percent per year. A) 25 B) 5 C) 4 D) 2.5 8. The steady-state level of capital occurs when the change in the capital stock (a k ) equals: A) 0. B) the saving rate. C) the depreciation rate. D) the population growth rate.

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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 10. In the Solow growth model of an economy with no population growth and no technological progress, the higher the steady capital-per-worker ratio, the higher the steady-state: A) growth rate of total output. B) level of total output.
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## This note was uploaded on 11/28/2010 for the course ECO 2023 taught by Professor Foran during the Fall '08 term at Miami Dade College, Miami.

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ecchapter7 - Name: _ Date: _ 1. In the Solow growth model,...

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