Question

18）At the current steady state capital - labor ratio, assume that the steady state level of per capita consumption, ( C N ) ∗, is less than the golden rule level of steady state per capita consumption. Given this information, we can be certain that:

A.An increase in the saving rate will cause an increase in the steady state level of per capita consumption .

B.A decrease in the capital-labor ratio will cause a decrease in the steady state level of per capita consumption.

C.The capital-labor ratio will tend to increase over time.

D.The capital-labor ratio will tend to decrease over time.

E.A decrease in the saving rate will have an ambiguous effect on the steady state level of per capita consumption.

20.What happens to the AD curve when the economy is in the liquidity trap with a zero interest rate?

A.The AD curve becomes vertical.

B.The AD curve becomes horizontal.

C.The AD curve becomes upward-sloping.

D.The AD curve becomes downward-sloping.

E.The AD curve becomes U-shaped.

Answer #1

1> C.The capital-labor ratio will tend to increase over time.

If the consumption level is lower than the golden rule, then the savings rate will be higher than the golden rule. so the capital-labor ratio will increase as more savings will produce more capital.

2> The AD curve becomes horizontal.

The aggregate demand is horizontal as in a liquidity trap, monetary policies become ineffective, so the aggregate demand does not increase with lowering interest rate.

Which of the following statements about the Solow growth model
is FALSE?
A. The higher steady-state capital per capita, the higher the
output/income per capita.
B. The higher output/income per capita, the higher consumption
per capita.
C. Golden-rule capital per capita must be a steady state, but
not all steady-state is also a golden-rule.
D. Golden-rule capital per capita can be achieved by setting
the saving rate at the appropriate level.

Assume that a war reduces a country's labor force but does not
directly affect its capital stock. If the economy was in a steady
state before the war and the saving rate does not change after the
war, then, over time, capital per worker will ______ and output per
worker will ________ as it returns to the steady rate
a) decline, increase
b) increase, increase
c) decline, decrease
d) increase, decrease
Please explain why

Suppose an economy is initially in a steady state with capital
per worker below the Golden Rule level. If the saving rate
increases to a rate consistent with the Golden Rule, then in the
transition to the new steady state consumption per worker will:
a. always exceed the initial level.
b. first rise above then fall below the initial level.
c. always be lower than the initial level.
d. first fall below then rise above the initial level.

Consider an economy: Y=4K.5N.5S=0.3Yd=5%n=5%a)What are the
steady-state values of capital-labor ratio? Output per worker?
Consumption per worker?b)Suppose that the government institutes a
policy that encourages savings increasing it to 40% instead of 30%.
Show graphically and calculate all the steady state
values.c)Instead of encouraging savings suppose that the government
institutes a policy that discourages population growth decreasing
it from 5% to 3%. Show graphically and calculate all the steady
state values.

13. Suppose there is an increase in government spending in a
closed economy. In medium-run such a fiscal policy will cause:
none of the other answers is correct.
ambiguous effects on the neutral real interest rate
the nominal wage to rise
no change in the neutral real interest rate
the neutral real interest rate to rise
14. Suppose the economy is initially in the steady state.
According to Solow model without technological progress, an
increase in the depreciation rate (δ)...

3. a. Consider a country that is at its steady-state level of
capital per worker. Now assume that this country receives a gift of
foreign aid in the form of capital. What should happen to
per-capita output levels and growth in the short-run and long-run
as a result of this aid? Use the Solow Model to explain your
answer.
b. Based on your answer what can you conclude about the
effectiveness of foreign aid in increasing growth among developing
countries?

Question 1
Production is given by:
? 1−? ?≡?(?,?)=?? ?
where ??+1 = (1 + ?)?? and ??(0,1)
Show that F exhibits a constant return to scale technology.
Express output as a function of the capital labor ratio ?? = ??
∕ ??.
Find the dynamical system (describing the evolution of ?? over
time) under the assumption
that the saving rate is ? ?(0,1) and the depreciation rate is ?
∈ (0,1].
What is the growth rate of ??, ???≡(??+1...

Use the Solow-Swan model to explain what would happen to steady
state capital per
effective worker resulting from:
a. A decrease in the population growth rate.
b. An increase in labor productivity.
c. An increase in the investment share of GDP.

1) In the steady state of the Solow model with technological
progress, which of the following variables is not
constant?
(a) capital per effective worker
(b) the real rental price of capital
(c) the real wage
(d) the capital-output ratio
2) The U.S. economy has more/less capital than at
the Golden Rule steady state, suggesting that it may be desirable
to
increase/decrease the rate of saving.
3) The purpose of exogenous/endogenous
growth theory is to explain technological progress. Some of these...

In the Phillips curve equation, which of the following will NOT
cause an increase in the current inflation rate?
A a reduction in the unemployment rate
B an increase in the markup of prices over wages
C a decrease in the strength of the effect of unemployment on
the wage, α.
D an increase in the expected inflation rate
E a decrease in the catch-all variable z
22.Suppose there are two countries that are identical with the
following exception. The...

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