Question

QUESTION 1

Suppose an economy can be characterized by a Cobb-Douglas production function with capital share of 1/3, and A = 200. The investment rate is 0.12 (12%), the annual rate of growth of the labor force is 0.02 (2%), and the annual depreciation rate of capital is 0.04 (4%). According to the Solow growth model, this economy's steady state capital/labor ratio (capital per worker, k) is

		4,000
		8,000
		10,000
		12,000
		None of the above.

QUESTION 2

The steady state income per worker in the economy of the previous question is

		4,000
		8,000
		10,000
		12,000
		None of the above.

QUESTION 3

Suppose that the investment rate in the economy described in the previous questions was to increase. In the new steady state

		income per worker would be higher.
		income per worker would remain unchanged.
		income per worker would be lower.
		we cannot say what will happen to income per worker.

QUESTION 4

Which of the following statements concerning the increase in the investment rate of the previous question are implied by the Solow growth model?

		The growth rate of income per worker in the new steady state will be higher.
		The growth rate of income per worker in the new steady state will remain unchanged.
		The growth rate of income per worker in the new steady state will be lower.
		The growth rate of income per worker during the transition to the new steady state will be higher than in the original steady state.
		The growth rate of income per worker during the transition to the new steady state will be lowerer than in the original steady state.

QUESTION 5

Suppose that instead of the investment rate it is the population growth rate that increases. According to the Solow growth model in the new steady state

		income per worker would be higher.
		income per worker would remain unchanged.
		income per worker would be lower.
		we cannot say what will happen to income per worker.

QUESTION 6

Which of the following statements concerning the increase in the rate of growth of the labor force in the previous question are implied by the Solow growth model?

		The growth rate of income per worker in the new steady state will be higher.
		The growth rate of income per worker in the new steady state will remain unchanged.
		The growth rate of income per worker in the new steady state will be lower.
		The growth rate of income per worker during the transition to the new steady state will be higher than in the original steady state.
		The growth rate of income per worker during the transition to the new steady state will be lower than in the original steady state.

QUESTION 7

Which of the following statements concerning the simple Solow growth model with population growth are correct?

		The model can account for most of the variation across countries in income per worker as the result of differences in steady state capital per worker and population growth rates.
		The model can account for less than half the variation across countries in income per worker as the result of differences in steady state capital per worker and population growth rates.
		The model can account for the variation across countries in growth rates of income per worker as a steady state phenomenon.
		The model cannot account for the variation across countries in growth rates of income per worker as a steady state phenomenon.

Answer 1