Question

7) An invention that raises the future marginal product of capital in a closed economy) would cause an increase in desired investment, which would cause the investment curve to shift to the and would cause the real interest rate to A) right; increase B) right; decrease C) left: increase D) left: decrease 8) Over the past year, output grew 4%, capital grew 2%, and labor grew 1%. If the elasticities of output with respect to capital and labor are 0.3 and 0.7, respectively, how much did productivity grow? A) 2.0% B) 2.7% C) 3.0% D) 3.3% 9) According to the Solow model, an increase in the capital-labor ratio will A) always reduce steady state consumption per worker. B) always increase steady state consumption per worker C) reduce steady state consumption per worker if the capital-labor ratio is below the Golden rule capital stock. D) increase steady state consumption per worker if the capital-labor ratio is below the Golden rule capital stock in the 10) According to the Solow model, in the long run, an increase in population growth will lead to a steady-state capital-labor ratio and a in output per worker A) fall: fall B) fall: rise C) rise, rise D) rise, fall

Answer 1

7)

Answer: (A)

An increase in the marginal product of capital would shift the demand for investment to right and real interest rate rises.

8)

Answer: (B)

4% = A +2%*0.3 + 0.7*1

4 = A +0.6 +0.7

A = 4 - 1.3

= 2.7%

9)

Answer: ( D)

there will be a rise in the consumption per worker when the capital/labour ratio increases.

10)

Answer: ( A)

rise in population growth rate reduces the output per workers and steady state equilibrium.