Question

12. Sectoral shifts

A. lead to wage rigidity

B. explain the payment of efficiency wages

C. depend on the level of the minimum wage

D. make frictional employment inevitable

13. The Solow growth model describes

A. how output is determined at a point in time

B. how output is determined with fixed amounts of capital and labor

C. how saving, population growth, and technological change affect output over time

D. the static allocation, production, and distribution of the economy's output

14. In the Solow growth model, the assumption of constant returns to scale means that

A. all the economies have the same amount of capital per worker

B. the steady-state level of output is constant regardless of the number of workers

C. the saving rate equals the constant rate of depreciation

D. the number of workers in an economy does not affect the relationship between output per worker and capital per worker

15. Two economies are identical except that the level of capital per worker is higher in Highland than in Lowland. The production function in both economies exhibit diminishing marginal product of capital. An extra unit of capital per worker increases output per worker

A. more in Highland

B. more in Lowland

C. by the same amount in Highland and Lowland

D. in Highland, but not in Lowland

Please Explain

Answer 1

12. Option D

• Sectoral shift refers to the movement of the real location of labour across various sectors.
• Sectoral shifts can lead to frictional unemployment when these workers shift from declining to growing sectors of an economy.

13. Option C

• The solow growth model describes how saving population growth and technological change, can affect the output overtime.
• It shows the interaction of all these 3 factors in changing the output.

14. Option D

In solow growth model, there is an assumption of constant return to scale, .this means that the number of workers remains the same or constant and is not affected by the relationship between output per worker and capital per worker.

15. Option B

• Given that the two economies are identical, but highland has higher capital per worker than lowland.
• The production function in both economies exhibit diminishing marginal product of capital.
• Which means that when more of the capital is added, the marginal product starts to fall
• But as the capital per worker is higher in highland, exhibits higher diminishing marginal product of capital.
• Hence an extra unit of capital per worker increases output per worker more in lowland.