Question

• Consider two countries, Tanzania and Italy. Further assume output in both countries can be defined by the same production function and each country has the same savings rate. The only difference is that Italy currently has a higher level of capital stock k. If each country received a gift from a wealthy ally that increased capital stock by the same amount, what is an expected outcome?

A) Tanzanian output would increase at a slower rate

B) Italian output would increase at a faster rate

C) Italian output would increase at a slower rate

D) The two countries would grow at the same rate

E) None of the above

• Which best describes why growth models are described as dynamic?

A) Dynamic models are identical in nature to static models.

B) We are studying the effects of different institutions on economic growth over time.

C) Because the models are exciting to draw.

D) Growth models are not considered dynamic models.

• Assume Ted is 27 and working full time. The lifecycle theory of consumption supports which of the following?

A) Ted’s savings today will support his standard of living when he retires.

B) Ted is likely paying off debt he accumulated while attending college.

C) Ted doesn’t feel as if he consumes substantially more than he did in college.

D) All of the above

• Which of the following behaviors best describe consumption smoothing?

A) A biology major taking out a student loan to pay rent.

B) A retired pilot using pension funds (earned while she worked) to pay for a vacation.

C) Quitting a job after only working for two weeks.

D) All of the above

E) A&B

• An alternative definition we might use for investment is

A) the purchase of stocks and bonds by individuals in the market

B) the difference between output and consumption

C) the amount of time you spend reading the text

D) the level of wealth in an economy

Answer 1

• Consider two countries, Tanzania and Italy. Further assume output in both countries can be defined by the same production function and each country has the same savings rate. The only difference is that Italy currently has a higher level of capital stock k. If each country received a gift from a wealthy ally that increased capital stock by the same amount, what is an expected outcome?

B) Italian output would increase at a faster rate

Which best describes why growth models are described as dynamic?

B) We are studying the effects of different institutions on economic growth over time.

Assume Ted is 27 and working full time. The lifecycle theory of consumption supports which of the following?

D) All of the above

• Which of the following behaviors best describe consumption smoothing?

E) A&B

• An alternative definition we might use for investment is

B) the difference between output and consumption