Oxford University Press | Online Resource Centre

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Question 1

The figure above represents an economy with a constant population and unchanging labour force participation as well as unchanging technology. Assume that output only has two uses: consumption and investment.
Aggregate consumption in the steady-state according to this diagram is…

a) the length of line segment D-E.

b) the length of line segment D-k2.

c) the length of line segment E-k2.

d) none of the other answers are correct.

Question 2

"Dynamic inefficiency" in the context of a model of economic growth means…

a) …the economy's output per unit labour is below its steady-state value.

b) …the economy's unemployment rate is too high.

c) …the economy's steady state is not at the golden-rule steady-state.

d) …none of the other answers are correct.

Question 3

The figure above represents an economy with a population growing at rate n with an unchanging labour force participation rate. The rate of technological progress is a and the rate of depreciation is δ.
In the steady state of this model, output per unit labour…

a) will grow at the rate a.

b) will grow at the rate a + n.

c) will grow at the rate a - n.

d) will grow at the rate δ + a + n.

Question 4

The Solow residual…

a) …is the difference between the rate of growth of productivity and the rate of growth of inputs.

b) …is the difference between the rate of growth of output and the rate of growth of savings.

c) …is the difference between the rate of growth of output and the rate of growth of inputs.

d) …is the difference between the golden rule level of consumption and the steady-state level of consumption.

Question 5

"Capital widening" refers to that part of investment needed to…

a) …increase the capital per unit effective labour ratio.

b) …replace capital that has depreciated.

c) …equip new units of effective workers at the same capital per unit effective labour ratio.

d) …do all of the above.

Question 6

The aggregate production function for the Solow growth model assumes (A)____________ returns to scale and (B)______________marginal productivity of labour and capital.

a) A: increasing
B: diminishing

b) A: constant
B: diminishing

c) A: decreasing
B: constant

d) A: constant
B: increasing

Question 7

Among the so-called "stylized facts" of economic growth, economists have noted that over time that the share of national income paid to labour (A)______________ and capital intensity (B)_______________.

a) A: follows a positive trend
B: displays no trend

b) A: follows a positive trend
B: follows a positive trend

c) A: displays no trend
B: displays no trend

d) A: displays no trend
B: follows a positive trend

Oxford University Press, Online Resource Centre, Chapter 03.

Chapter 03