posted by Julia
Here are my answers and i wanted to check if they were correct to the quiz posted below.
1.a because its a model for the ppf
2.b Just wha thappens when technology is completely ignored
3.a because the model is based off of inputs and outputs
4.c because savings greatly increases economic growth
5.b more workers increase the amount of workers but interupt cost of production
6.c because worker output is greatly increased
7.b because poverty stricken countries rely on other countries and have a huge growth
1) The long run growth rate of the economy is consistent with:
a.An outward expansion the economy's production possibilities frontier.
b.A rightward shift in the aggregate demand curve.
c.An inward expansion the economy's production possibilities frontier.
d.An increase in the consumption of goods and services.
2) Assuming technology remains constant, the steady state growth rate will equal:
a.The growth rate of population plus the depreciation rate of capital.
b.The growth rate of population plus the rate of net additions to the capital stock.
c.The growth rate of population plus the rate of net additions to the capital stock minus the depreciation rate of capital.
d.The rate of net additions to the capital stock plus the depreciation rate of capital.
3) The production function describes:
a.The relationship between inputs used in production and output.
b.The linkage between capital and labor productivity.
c.How an increase in technology improves the quality of capital used in production.
d.How income distribution is affected by the production of goods and services.
4) Which of the following will allow for a country's economic growth rate to rise above the steady state?
a.A constant increase in the rate of population growth.
b.An increase in the rate of capital depreciation.
c.An increase in the domestic savings rate.
d.A decrease in the level of foreign direct investment.
5) If the rate of population growth increases while holding total savings and the rate of additions to the capital stock constant, the result would be:
a.An increased capital-labor ratio and faster steady-state economic growth.
b.An increased capital-labor ratio but reduced output per worker.
c.A decreased capital-labor ratio and a constant steady-state growth rate.
d.A decreased capital-labor ratio and a decrease in the economic growth rate.
6) Improvements in technology result in:
a.A drop in the capital-labor ratio.
b.A decrease in output per worker.
c.A potentially greater steady state growth rate.
d.An increase in the domestic savings rate.
7) Using the (Solow) steady-state growth model, which of the following is true for a poor country with very low savings rates.
a.Due to high levels of unemployment and low savings rates, the government can raise taxes to stimulate growth.
b.Because of the extreme poverty and low domestic savings present, significant growth will only occur with an inflow of foreign savings.
c.Rapid economic growth will be slowed by foreign intervention.
d.Domestic growth will be encouraged simply by importing high-tech capital to use in production.
Note: with all of your questions, it is important to distinguish between economic growth and the economic growth rate. Most of your questions ask about growth rates.
1) I agree.
2) I agree. However c) seem plausable. I think of the net increase of the capital stock as new capital less depreciation. Under this definition, answer c would double-count depreciation.
3) I agree.
4) Hummmmm. We answered in 2) that a steady-state growth rate would equal the growth rate in population plus the net increase in capital stock. So, an "constant INCREASE" in the population growth rate should cause a growth above steady state. However, and increase in savings should also expand capital and thus increase economic growth. So, bottom line, both a) and c) appear to be correct. If I had to make a choice, I would go with a)
5) I disagree. I think of capital-labor ratio as capital divided by labor. Hence, an increase in labor holding capital constant is an decrease in the capital-labor ratio. As capital is fixed and population is growing, the economic growth rate should likely decline.
6) I agree.
7) I agree. (Although, it has been years since I have studied the nuances of the Solow growth models.)
I hope this helps.