Question

Link w DOC d. 16. nase 29. According to the Solow-Swan theory of long-run economic growth, higher rates of saving for, equivalently, investment) lead to a higher income per person and higher consumption per person b. higher income per person and lower consumption per person c. higher income per person but not necessarily higher consumption per person d. higher consumption per person if the saving rate rises from an already high level and lower consumption per person if the saving rate rises from a low level AD AS N 30. Data on investment ratios (that is, investment as a percentage of output) for countries around the world suggests that countries with higher investment ratios tend to: a. have a higher rate of growth of income per worker than other countries. b. have a higher level of income per worker than other countries. c. have the same standard of living as other parts of the world. d. be the poorer nations of the world. 31. According to the basic Solow-Swan theory of long-run economic growth, the people of a country may achieve continuous growth in their standard of living: a. By using a large share of the country's output for consumption b. By using a large share of the country's output for investment. This will ensure rapid increases in the country's accumulated stock of physical capital C. Only by means of continuous technological progress. d. By keeping the rate of population growth low. Chapter 9 Economic Growth II 32. Consider the Solow-Swan model with technological progress in which there are 1+n+gunits of effective labor in period t + 1 for every unit of effective labor in period t. (This increase is caused by in part by population growth (n) and in part by technological progress (gl.) In this version of the Solow-Swan model, capital per effective worker (k) a. Grows forever at the rate n. b. Grows forever at the rate g. c. Grows forever at the rate n+g. d. Reaches a steady-state level at which investment per effective worker is equal to break-even investment per effective worker, (n + g + 6)k. 33. Continuing with the previous question, in this version of the Solow-Swan model, per-person incom a. Grows forever at the rate n. b. Grows forever at the rate g. C. Grows forever at the rate n+g. d. Reaches a steady-state level at which investment per effective worker is equal to break-eve investment per effective worker, (n +9+5)k. The End

Answer 1

29. The answer is option c. According to Solow-Swan model of long-run economic growth, higher rates of saving lead to higher income per person but not necessarily higher consumption per person. An increase in saving rate leads to higher K/L and hence higher level of per capita output. with this there may be an increase in per capita consumption but an increase in saving rate (s) also lowers the consumption share of income.

K/L=k

Y= f(K/L)....................Output as a function of per capita capital

savings, S= sf(k)...................Saving as a function of output

C/L=c= (1-s)f(k), where C/L is consumption per worker.

30. Option b is correct. In Solow-Swan model investmnet is equal to savings. therefore investment will increase when savings increases. Solow predicts that there is positive correlation between investment and standard of living of people. thus, with an increase in investment ratio a country will have higher level of income per worker than other countries.

31. Option c is correct. Solow predicts that only way to have a continuous increase in standard of living is through increase in total factor productivity which can be achieved by technological progress. in steady state, income per worker can be increased with increase in saving rate and total factor productivity. since there is no plausible way to increase savings the only way is to have an increase in technology.