Question

1.

In Solow model without technological progress, a 5% increase in capital stock K
will cause:

Group of answer choices

Y to increase by exactly 5%.

a decrease in K/N.

a decrease in Y/N.

no change in Y/N.

Y to increase by less than 5%.

2.

Assume that an economy experiences both positive population growth and technological progress. Once the economy has achieved balanced growth, according to Solow model with technological progress, we know that the output per effective worker ratio (Y/NA) is

Group of answer choices

none of the other answers is correct.

growing at a rate of g_A + g_N.

growing at a rate of g_A.

growing at a rate of 0.

growing at a rate of g_N.

3.

When the economy is in a liquidity trap with a zero interest rate:

Group of answer choices

the central bank is unable to raise interest rates in response to falling prices.

the central bank abandons monetary policy altogether.

the central bank is unable to raise interest rates in response to rising prices.

the central bank is unable to lower interest rates in response to rising prices.

the central bank is unable to lower interest rates in response to falling prices.

4.

Use the information provided below to answer the following question.

δ = 0.11
g_A= 0.03
g_N = 0.02

Refer to the information above. According to Solow model, which of the following represents the steady-state growth rate of standard of living in this economy?

Group of answer choices

3%.

12%.

2%.

18%.

5%.

5.

Based on our understanding of Solow model, which of the following will cause a permanent increase in growth?

Group of answer choices

none of the other answers is correct

an increase in the saving rate

an increase in education spending

a decrease in the depreciation rate

an increase in capital accumulation

6.

Suppose nominal GDP in 2011 increased by 5% (over its previous level in 2010). Given this information we know with certainty that

Group of answer choices

real GDP increased during 2010

the price level increased during 2010

either the price level or real GDP increased during 2010

more information is needed to answer this question.

both the price level and the real GDP increased during 2010

Answer 1

1) option 5)

Y will rise by less than 5%

2) option 4)

Per capita effective output grows at rate of zero, at steady state

3) option 5)

In case of liquidity trap, monetray policy becomes ineffective in reducing the price level to stimulate Economy

So, interest rates can't be lowered in case of falling prices

4) option 1) 3%

5) option 2)

Increase in education spending leads to permanent rise in y

6) option 3)

As nominal GDP = real GDP* Price

So either Real GDP or price could rise