Exam

Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
At the current steady state capital-labor ratio, assume that the steady state level of per capita consumption, (C/N)*, is less
than the golden rule level of steady state per capita consumption. Given this information, we can be certain that

1)

_______
A)
a reduction in the saving rate will have an ambiguous effect on (C/N)*.
B)
the capital labor ratio will tend to increase over time.
C)
the capital labor ratio will tend to decrease over time.
D)
a reduction in the capital-labor ratio will cause a reduction in (C/N)*.
E)
an increase in the saving rate will cause an increase in the steady state level of per capita consumption ((C/N)*).

2)
The golden rule level of capital refers to

2)

_______
A)
the level of capital that maximizes output per worker.
B)
the level of capital that maximizes consumption per worker in the steady state.
C)
the level of capital that maximizes the standard of living.
D)
all of the above
E)
none of the above

3)
An increase in the saving rate will not affect which of the following variables in the long run?

3)

_______
A)
output per worker
B)
the growth rate of output per worker
C)
capital per worker
D)
the amount of capital in the economy
E)
none of the above

4)
Suppose there are two countries that are identical in every way with the following exception Country A has a higher
saving rate than country B. Given this information, we know with certainty that

4)

_______
A)
the level of consumption per worker will be higher in A.
B)
the growth rate will be higher in A than in B.
C)
the growth rate will be the same in the two countries.
D)
the level of consumption per worker will be higher in B.

5)
Suppose two countries are identical in every way with the following exception. Economy A has a higher rate of
depreciation () than economy B. Given this information, we know with certainty that

5)

_______
A)
steady state growth of output per worker is higher in A than in B.
B)
steady state consumption in A is higher than in B.
C)
steady state consumption in A is lower than in B.
D)
steady state consumption in A and in B are equal.
E)
none of the above

6)
Which of the following statements is always true?
6)

_______
A)
Any change in the capital stock is equal to investment minus depreciation.
B)
The increase in investment is equal to the capital stock minus depreciation.
C)
Investment equals the capital stock minus depreciation.
D)
Investment equals depreciation.
E)
The capital stock is equal to investment minus depreciation.

7)
Suppose the following situation exists for an economy Kt+1/N > Kt/N. Given this information, we know that

7)

_______
A)
saving per worker equals depreciation per worker in period t.
B)
the saving rate fell in period t.
C)
saving per worker is less than depreciation per worker in period t.
D)
saving per worker is greater than depreciation per worker in period t.
E)
none of the above

8)
For this question assume that technological progress does not occur. Which of the following variables will not change
when the economy reaches steady state equilibrium?

8)

_______
A)
output per worker
B)
investment per worker
C)
capital per worker
D)
all of the above
E)
only A and B

9)
When steady state capital per worker is below the golden-rule level, we know with certainty that an increase in the saving
rate will

9)

_______
A)
increase consumption in the short run, and decrease it in the long run.
B)
increase consumption in both the short run and the long run.
C)
decrease consumption in both the short run and the long run.
D)
decrease consumption in the short run, and increase it in the long run.
E)
none of the above

10)
Suppose an economy experiences a 5% increase in human capital. We know that this will cause

10)

______
A)
Y/N to increase by exactly 5%.
B)
no change in Y/N.
C)
Y/N to increase by more than 5%.
D)
a reduction in output per worker.
E)
Y/N to increase by less than 5%.

11)
The Social Security system in the United States was introduced in which year?

11)

______
A)
1915
 B)
1935
C)
1945
D)
1955
E)
none of the above

12)
Based on our understanding of the model presented in Chapter 11, which of the following will cause a permanent
increase in growth?

12)

______
A)
an increase in education spending
B)
an increase in capital accumulation
C)
an increase in the saving rate
D)
all of the above
E)
none of the above

13)
When the economy is in the steady state, we know with certainty that

13)

______
A)
consumption per worker is maximized.
B)
output per worker is maximized.
C)
the growth rate is maximized.
D)
investment per worker is equal to depreciation per worker.
E)
all of the above

14)
Which of the following will likely cause an increase in output per worker?

14)

______
A)
an increase in on-the-job training

B)

an increase in education expenditures

C)
an increase in the saving rate

D)

all of the above

15)
Which of the following represents the change in the capital stock?

15)

______
A)
output minus depreciation

B)

investment minus saving

C)
consumption minus depreciation

D)

investment minus depreciation

16)
Suppose there are two countries that are identical in every way with the following exception Country A has a higher stock
of human capital than country B. Given this information, we know with certainty that

16)

______
A)
output per worker will be the same in the two countries.
B)
K/N will be higher in B.
C)
the growth rate will be the same in the two countries.
D)
the growth rate will be higher in A than in B.

17)
If endogenous growth models are correct, a lower rate of growth in the long run could occur as a result of which of the
following?

17)

______
A)
a redefinition of the steady state
B)
a lower rate of saving
C)
a redefinition of depreciation
D)
a lower rate of depreciation
E)
none of the above

18)
Suppose an economy experiences a reduction in the saving rate. We know with certainty that this increase in the saving
rate will

18)

______
A)
decrease temporarily the growth of output per worker.
B)
decrease the steady state growth of output per worker.
C)
have an ambiguous effect on the growth of output per worker.
D)
increase the steady state growth of output per worker.
E)
increase temporarily the growth of output per worker.

19)
Suppose two countries are identical in every way with the following exception. Economy A has a higher saving rate than
economy B. Given this information, we know with certainty that
19)

______
A)
steady state consumption in A is higher than in B.
B)
steady state growth of output per worker is higher in A than in B.
C)
steady state consumption in A is lower than in B.
D)
steady state consumption in A and in B are equal.
E)
none of the above

20)
For this question, assume that technological progress does occur. For such an economy, we know that the level of output
per worker will

20)

______
A)
increase over time.
B)
remain constant.
C)
increase or decrease, depending on the rate of saving.
D)
increase or decrease, depending on the rate of depreciation.
E)
decrease as a result of decreasing returns to scale.

21)
Suppose an economy experiences a reduction in the saving rate. As the economy adjusts to this, we would expect output
per worker

21)

______
A)
to decrease at a permanently higher rate.
B)
to decrease slower at the beginning, then faster, and then at a constant rate in the steady state.
C)
to first increase, then decrease at an increasing rate, then increase at a constant rate in the steady state.
D)
to decrease at a constant rate and continue increasing at that rate in the steady state.
E)
none of the above

22)
Suppose an economy experiences a reduction in the saving rate. We know with certainty that this reduction in the saving
rate will

22)

______
A)
increase steady state consumption.
B)
increase steady state consumption only if the decrease in saving exceeds the decrease in depreciation.
C)
have no effect on steady state consumption.
D)
decrease steady state consumption.

23)
Suppose there are two countries that are identical in every way with the following exception Country A has a lower
depreciation rate () than country B. Given this information, we know with certainty that

23)

______
A)
the growth rate will be the same in the two countries.
B)
the growth rate will be higher in A than in B.
C)
Y/N will be higher in B.
D)
K/N will be higher in B.

24)
For this question assume that technological progress does not occur. In Japan, the rate of saving has generally been greater
than in the U.S. Given this information, we know that in the long run

24)

______
A)
Output per worker in Japan will be greater than U.S. output per worker.
 B)
Japan's growth rate will be greater than the U.S. growth rate.
C)
Capital per worker in Japan will be no different than U.S. capital per worker.
D)
all of the above
E)
none of the above

25)
Suppose the saving rate is initially greater than the golden rule saving rate. We know with certainty that a reduction in the
saving rate will cause

25)

______
A)
a reduction in consumption per worker.
B)
a reduction in the rate of growth in the long run.
C)
a reduction in output per worker.
D)
all of the above
E)
none of the above

26)
Which of the following represents the effects in period t of an increase in the saving rate in period t?

26)

______
A)
no change in K/N

B)

a reduction in C/N
C)
no change in Y/N

D)

all of the above

 27)
Suppose a recent budgetary policy results in a reduction in the national saving rate. Such a change in the saving rate will
NOT affect which of the following variables in the long run?

27)

______
A)
output per worker

B)

the level of investment

C)
capital per worker

D)

none of the above

28)
If the saving rate is 1 (i.e., s = 1), we know that

28)

______
A)
Y/N will be at its highest level.

B)

K/N will be at its highest level.

C)
C/N = 0.

D)

all of the above

29)
Suppose, due to the effects of a military conflict that has ended, that a country experiences a large reduction in its capital
stock. Assume no other effects of this event on the economy. Which of the following will tend to occur as the economy
adjusts to this situation?

29)
______
A)
positive growth, followed by negative growth, and then zero growth
B)
a relative high growth rate for some time
C)
zero growth for some time, followed by a gradually increasing growth rate
D)
a relatively low growth rate for some time
E)
none of the above

30)
Suppose the economy is initially in the steady state. An increase in the depreciation rate () will cause

30)

______
A)
a reduction in C/N.
B)
a reduction in Y/N.
C)
a reduction in K/N.
D)
all of the above
E)
none of the above

1)

2)
E

3)
E

4)
C

5)
C

6)
A

7)
D

8)
D

9)
E

10)
E

11)
B

12)
E

13)
D

14)
D

15)
D

16)
C

17)
B
 18)
A

19)
E

20)
A

21)
E

22)
B

23)
A

24)
A

25)
C

26)
D

27)
D

28)
D

29)
B

30)
D