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.
Short Answer
1) If we allow for capital depreciation and population growth, what is the required condition for positive net investment and an increase in the capital stock. Discuss the effect on the capital-labor ratio and output per worker when there is positive net investment.
2) Using the steady state model, discuss two specific policies that a developing country can use to accelerate growth. Be sure to present your answer within the framework of the model.
We'll be glad to check YOUR answers.
I was wanting to use answers to check my own, but here are my own answers
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 of the economy's production possibilities frontier.
In the long run, an economy's growth rate is determined by its ability to increase its productive capacity. This is represented by an outward shift of the production possibilities frontier (PPF). The PPF shows the maximum amount of goods and services that can be produced using the available resources.
2) Assuming technology remains constant, the steady state growth rate will equal:
c. The growth rate of population plus the rate of net additions to the capital stock minus the depreciation rate of capital.
In the steady state, the economy is in equilibrium where the capital stock is being maintained, and output per worker and the capital-labor ratio remain constant. The growth rate in this state is determined by the growth rate of population plus the rate of net additions to the capital stock, which is the investment rate, minus the rate of capital depreciation.
3) The production function describes:
a. The relationship between inputs used in production and output.
The production function shows how different inputs, such as labor and capital, are combined to produce output. It describes the relationship between the quantities of inputs used in production and the resulting output.
4) Which of the following will allow for a country's economic growth rate to rise above the steady state?
c. An increase in the domestic savings rate.
To increase the economic growth rate above the steady state, a country needs to increase the investment rate. This can be achieved by increasing the domestic savings rate, as more savings lead to more funds available for 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:
d. A decreased capital-labor ratio and a decrease in the economic growth rate.
An increase in the rate of population growth, while holding other factors constant, leads to a decrease in the capital-labor ratio. This means there is less capital per worker, which can lead to reduced output per worker and a decrease in the economic growth rate.
6) Improvements in technology result in:
c. A potentially greater steady-state growth rate.
Technological improvements increase productivity, allowing more output to be produced with the same amount of inputs. This can lead to a potentially greater steady-state growth rate because it increases the efficiency of production.
7) Using the (Solow) steady-state growth model, which of the following is true for a poor country with very low savings rates.
b. Because of the extreme poverty and low domestic savings present, significant growth will only occur with an inflow of foreign savings.
In the Solow growth model, low domestic savings rates are indicative of a lack of investment in the country. In the absence of sufficient domestic savings, significant growth can only occur if there is an inflow of foreign savings or foreign investments to supplement the domestic investment.
Short Answer:
1) The required condition for positive net investment and an increase in the capital stock, assuming capital depreciation and population growth, is that the investment rate should be greater than the combined rate of population growth and capital depreciation rate. If the investment rate is higher than the combined rate, then there will be positive net investment, leading to an increase in the capital stock.
When there is positive net investment, the capital-labor ratio increases because the capital stock is growing at a faster rate than the population. This means that there is more capital available per worker, which can lead to increased productivity and output per worker.
2) Two specific policies that a developing country can use to accelerate growth within the framework of the steady-state model are:
a. Increasing the domestic savings rate: By implementing policies that encourage savings, such as tax incentives or promoting a culture of saving, the country can increase the amount of funds available for investment. This will lead to higher capital accumulation and potentially faster economic growth.
b. Improving technological advancements: The country can focus on investing in research and development, education, and infrastructure to promote technological advancements. This can lead to an increase in productivity and output per worker, resulting in faster economic growth. It is important to note that technological advancements can also potentially increase the steady-state growth rate by improving productivity.