Chapter 11

Question 1

An increase in the saving rate will affect which of the following variables in the long run?
A) output per worker
B) capital per worker
C) the level of investment
D)  all of the above

Answer 1

D) all of the above

Question 2

A reduction in the saving rate will not affect which of the following variables in the long run?
A) output per worker
B) the growth rate of output per worker
C) the amount of capital in the economy
D) capital per worker

Answer 2

B) the growth rate of output per worker

Question 3

Which of the following statements is always true?
A) Investment equals depreciation.
B) Investment equals the capital stock minus depreciation.
C) The capital stock is equal to investment minus depreciation.
D) Any change in the capital stock is equal to investment minus depreciation.
E) The increase in investment is equal to the capital stock minus depreciation.

Answer 3

D) Any change in the capital stock is equal to investment minus depreciation.

Question 4

In the absence of technological progress, which of the following remains constant in the steady state equilibrium?
A) investment per worker
B) output per worker
C) saving per worker
D) all of the above

Answer 4

D) all of the above

Question 5

When an economy is operating at the steady state, we know that
A) steady state saving equals consumption.
B) steady state saving is less than total consumption.
C) steady state saving is equal to depreciation per worker.
D) steady state saving exceeds depreciation each year by a constant amount.

Answer 5

C) steady state saving is equal to depreciation per worker.

Question 6

In the absence of technological progress, which of the following is true when the economy is operating at the steady state?
A) The growth of output per worker is zero.
B) The growth of output per worker is equal to the saving rate.
C) The growth of output per worker is equal to the rate of investment.
D) The growth of output per worker is equal to the rate of depreciation.

Answer 6

A) The growth of output per worker is zero.

Question 7

When steady state capital per worker is above the golden-rule level, we know with certainty that an increase in the saving rate will
A) increase consumption in both the short run and the long run.
B) decrease consumption in both the short run and the long run.
C) decrease consumption in the short run, and increase it in the long run.
D) increase consumption in the short run, and decrease it in the long run.

Answer 7

B) decrease consumption in both the short run and the long run.

Question 8

Suppose two countries are identical in every way with the following exception. Economy A has a higher rate of depreciation (δ) than economy B. Given this information, we know with certainty that
A) steady state consumption in A is higher than in B.
B) steady state consumption in A is lower than in B.
C) steady state consumption in A and in B are equal.
D) steady state growth of output per worker is higher in A than in B.

Answer 8

B) steady state consumption in A is lower than in B.

Question 9

Which of the following represents the change in the capital stock?
A) consumption minus depreciation
B) output minus depreciation
C) investment minus saving
D) investment minus depreciation

Answer 9

D) investment minus depreciation

Question 10

When the economy is in the steady state, we know with certainty that
A) investment per worker is equal to depreciation per worker.
B) consumption per worker is maximized.
C) output per worker is maximized.
D) the growth rate is maximized.

Answer 10

A) investment per worker is equal to depreciation per worker.

Question 11

Suppose the economy is initially in the steady state. An increase in the depreciation rate (δ) will cause
A) a reduction in K/N.
B) a reduction in Y/N.
C) a reduction in C/N.
D) all of the above

Answer 11

D) all of the above

Question 12

Suppose the following situation exists for an economy: Kt+1/N < Kt/N. Given this information, we know that
A) saving per worker equals depreciation per worker in period t.
B) saving per worker is less than depreciation per worker in period t.
C) saving per worker is greater than depreciation per worker in period t.
D) the saving rate fell in period t.

Answer 12

B) saving per worker is less than depreciation per worker in period t.

Question 13

If the saving rate is 1 (i.e., s = 1), we know that
A) K/N will be at its highest level.
B) Y/N will be at its highest level.
C) C/N = 0.
D) all of the above

Answer 13

D) all of the above