According to the Solow model, an increase in the capital-labor ratio will: a. always increase...
Question:
According to the Solow model, an increase in the capital-labor ratio will:
a. always increase steady state consumption per worker.
b. reduce steady state consumption per worker if the capital-labor ratio is below the Golden rule capital stock.
c. always reduce steady state consumption per worker.
d. increase steady state consumption per worker if the capital-labor ratio is below the Golden rule capital stock.
Capital:
Capital refers to anything of value and can also generate value in the future. There are several kinds of capital like fixed, working, and others. The firms' use of plant and machinery, and equipment are also considered part of the firm's capital. The amount invested in the business for its proper functioning is also a part of the capital.
Answer and Explanation: 1
Become a Study.com member to unlock this answer! Create your account
View this answer- The correct answer is d) increase steady-state consumption per worker if the capital-labor ratio is below the Golden rule capital stock
The increase...
See full answer below.
Ask a question
Our experts can answer your tough homework and study questions.
Ask a question Ask a questionSearch Answers
Learn more about this topic:
Get access to this video and our entire Q&A library
What is Economic Growth? - Definition, Theory & Impact
from
Chapter 8 / Lesson 6
55K
Learn all about economic growth. Read a detailed definition of economic growth, learn the theories of economic growth, and see the importance of this concept.
Related to this Question
- In the Solow model, if productivity doesn't change: a. the economy must eventually reach a steady state. b. the capital-labor ratio must decline. c. the capital-labor ratio must rise. d. there can be no saving.
- 1) In the steady state of Solow's exogenous growth model, an increase in the growth rate of labor force A) increases output per worker and increases capital per worker. B) increases output per worke
- In the long run, an increase in the population growth rate in a steady-state economy will cause: A) an increase in capital per worker and an increase in consumption per worker. B) an increase in capital per worker and a decrease in consumption per worker
- In the Solow model, if the economy starts off with less capital per worker than the steady-state level, the growth rate of output per worker: a) will remain constant over time. b) will decline over time. c) will increase over time. d) will accelerate over
- According to the Solow model of economic growth, if per capita savings, s(Y/N), exceeds required steady state investment, (n + d)K/N, then: a) per capita output declines b) capital per capita increases c) capital per capita decreases d) steady state growt
- In the Solow model, if a country increases its savings rate A. growth increases as the economy moves toward a new, higher steady-state capital stock. B. growth increases as a result of a new, higher production function. C. growth decreases as the economy
- According to the Solow Growth Model, the marginal product of capital is: a)zero and increases as the quantity of capital increases. b)zero and decreases as the quantity of capital increases. c)negat
- Beginning from a steady state in the Solow growth model, explain how an increase in the savings rate will affect the levels and growth rates of capital and output per worker. A) How does population growth affect the steady state levels of capital and outp
- In the Solow model, an increase in the saving rate leads to: a) an increase in real per capita capital stock and an increase in real per capita output. b) an increase in real per capita capital stock and a decrease in real per capita output. c) a decrease
- In the Solow model, suppose that the depreciation rate increases. Determine the effect of this on the quantity of capital per worker and on output per working the steady state. Explain the economic in
- In the Solow model, the faster growth of output that results from an increase in the saving rate is temporary because: a. of diminishing marginal product of capital b. with a larger stock of capital,
- In the Solow growth model of an economy with no population growth and no technological progress, the higher the steady capital-per-worker ratio, the higher the steady-state: A) growth rate of total ou
- Which of the following changes would lead, according to the Solow model, to a higher level of long-run output per worker? a. a lower level of capital per worker b. an increase in the saving rate c. a rise in the rate of population growth d. a decrease in
- An increase in pollution has caused a permanent increase in the rate of capital depreciation. This would cause: a. an increase in the capital-labor ratio. b. output per worker to fall. c. an increase in consumption per worker. d. the capital-labor ratio t
- In the steady-state of the Solow growth model: A) consumption equals depreciation. B) per capita variables grow at the rate of population growth. C) aggregate consumption grows at a constant rate.
- In the Solow model, if a country's depreciation rate (delta) increased from 1% to 2% and it was operating at its steady state before the change, we would expect to see A. a decrease in the capital stock only. B. a decrease in output only. C. an increase i
- Use Solow Growth model to explain how raised saving rate effects capital per worker and output per worker in short run and long run. Start with an initial steady state and show the new steady state on
- In the long run, a reduction in productivity will cause: a. an increase in the capital-labor ratio and a decrease in consumption per worker. b. a decrease in the capital-labor ratio and a decrease in consumption per worker. c. a decrease in the capital-la
- According to the Solow model, a higher investment rate leads to: a) no change in steady-state output. b) a decrease in steady-state output. c) volatility in steady-state output. d) an increase in steady-state output.
- The short-run demand for labor is downward sloping because the marginal product of labor (MPL) A. increases when we employ more workers, because we employ more capital. B B. is falling when we employ more workers because the capital stock remains constant
- According to Solow's model of economic growth, the growth rate of income per person is entirely determined by the growth rate of capital per worker when there is no technological progress. What determines the growth rate of capital per worker? In what sen
- Which of the following changes would lead, according to the Solow model, to a higher level of long-run output per worker? a. An increase in the saving rate. b. A lower level of capital per worker. c. A decrease in productivity. d. A rise in the rate of po
- When population growth is added to the Solow model, it is as if (blank) increases. (a) depreciation (b) output (c) capital (d) capital's share of output
- Assume the economy is at a Solow-model steady state. Explain what would happen over time and to the steady-state levels of per capita output (y) and per capita capital (k) if a. the rate of depreciation increases from d_0 to d_1, assuming no population gr
- In Neoclassical growth theory, when labour increases for a fixed level of capital, the aggregate production function exhibits: a. Diminishing output b. Diminishing marginal returns c. Increasing marginal returns d. Constant marginal returns
- Consider the Solow growth model. Derive an equation that determines the steady state level of capital per capita. Analyze the long-run effect on the steady state of the following changes to the environment: a. Tax rates on savings are decreased, hence sav
- Suppose we started out at the steady-state capital stock in the basic Solow growth model. If there subsequently were an increase in the demand for loanable funds due to the more favorable tax treatment of business investment, ceteris paribus (i.e., holdin
- If two economies have the same saving rate, population growth rate, depreciation rate and rate of growth of labor efficiency, and one economy begins with a smaller capital stock, then the steady-state
- Suppose the aim of the government is to increase the economic well-being of it's citizens. According to the Solow-Swan model, the government should try to increase the savings rate, as this will lead to a higher steady-state level of capital and a higher
- The Solow residual refers to growth in output a. due to the increase in labor force and the capital stock b.due to increase in capital stock c. due to things other than the increase in labor force
- In order to increase the capital stock, society must divert ____ that could be otherwise used to increase the current supply of ____. a. resources; consumer goods b. credit; labor c. money; consumer goods d. money; labor
- If saving is increased when starting with less capital than in the Golden Rule steady state, (choose one or more) A. the capital stock rises B. consumption immediately rises C. output immediately rises D. investment immediately rises
- Which of the following will NOT lead to a rightward shift of the long-run aggregate supply curve? A) increase in capital B) increase in labor C) increase in labor productivity D) increase in aggregate demand
- Consider the Solow growth model with no technological change and population growth of 2%. The savings rate 20%, and the depreciation rate of capital 3%. a) Rewrite the production function of the econo
- According to the AD/AS model, an increase in the growth of the money supply will: a. Decrease Aggregate Demand b. Increase the Solow growth rate c. Increase Aggregate Demand d. Decrease the Solow grow
- In the combined Solow-Romer model, the total output growth rate is greater than in the Romer model because: a) The saving rate is higher, b) Of population growth, c) Capital depreciation is zero, d) Of capital accumulation, e) Of a greater research share.
- In the Solow growth model, suppose the economy is initially in a steady state. Then some capital is destroyed by a major earthquake. What are the effects in the short run and in the steady state?
- The Solow model, with population growth and labor-augmenting technological progress, predicts balanced growth in the steady-state. Growth rates of which variables are predicted to be balanced (i.e., will be equal) in the steady-state? Explain.
- 1. Suppose we started out at the steady state capital stock in the basic Solow growth model. If there subsequently were an increase in the demand for loanable funds due to more favorable tax treatment
- If a nation devotes a larger share of its current production to consumption goods, then: a. its PPF will shift inward. b. its economic growth will slow down. c. its PPF will shift outward. d. some productive factors will become unemployed.
- If rapid population growth reduces the amount of capital per worker, thereby lowering labor productivity, it is referred to as: a. age dependence. b. capital budgeting. c. investment budgeting. d. cap
- In Neoclassical growth theory, when labor increases for a fixed level of capital, the aggregate production function exhibits A) Diminishing output B) Diminishing marginal returns C) Increasing marginal returns D) Constant marginal returns
- The level of full-employment output in an economy increases as: a. the supply of labor increases. b. the stock of capital increases. c. the natural rate of unemployment decreases. d. All of these.
- In the Solow growth model, what happens in the steady state if total factor productivity declines?
- In the Solow model, population growth determines: a. the rate of economic growth. b. the steady state level of per capita output. c. the rate of technological progress d. the rate of saving. e.
- An increase in labor productivity: a. increases the standard of living. b. decreases the standard of living. c. might be the result of an increase in the quantity of labor. d. generally occurs when physical capital decreases because firms must then hi
- If a population is decreased, then the capital per human capital is increased. Since capital is now increasing faster than population growth, does this mean eventually equilibrium will be reached?
- Consider the Solow growth model with population growth rate n and rate of technological progress g. (a) Assuming that everyone in the population is working, what does the Solow growth model tell us about long-run growth rate of output per worker in the ec
- According to the Solow model, as the population growth rate increases, the level of income in a country would (blank). (a) rise (b) stay the same (c) fall
- Does a reduction in the depreciation rate, effects on steady-state equilibrium, and growth in the Swan-Solow model?
- 1. An increase in capital goods and a decrease in consumer goods will? A) eventually lead to a shift to the right of the production possibilities curve. B) increase a nation's capacity to produce. C) lead to more rapid economic growth. D) do all of the ab
- In the figure below, the economy is initially in equilibrium at full employment at point e. Assume that consumption falls by 100, leading to a shift in aggregate demand from AD_0 to AD_1. A. What is the new short-run equilibrium? B. How large is the simpl
- The Solow growth model features returns to physical capital. A. increasing B. no C. constant D. decreasing
- Per capita economic growth is: a. economic growth per unit of capital. b. economic growth per person. c. economic expansion over the business cycle. d. sustained increase in aggregate output.
- If population increases by 3%, how does the total output in the economy change in the model of production and in the Solow growth model? Why or why not is there a difference?
- A) In the classical model, if there is a decrease in capital stock, what are the effects on labor demand, real wages, and output? (Increase or decrease) B) What are the effects if population decreases?
- Consider a country which starts with a capital stock below its steady-state level in the Solow model (without technological change). Why is growth slowing down over time for this country? a) Population growth is becoming stronger over time since the popul
- What happens in the Solow growth model in the steady state if total factor productivity declines?
- In the Solow growth model, a steady-state equilibrium refers to A) an equilibrium in which the stock of physical capital remains constant over time. B) an equilibrium in which the GDP per capita remains constant over time. C) an equilibrium in which the p
- A. Using the Solow growth model, suppose that the economy is at a steady state. Then the rate of population growth falls from 3% per year to 2 %. Show on a graph, how this changes things (curve shifts
- According to the neoclassical growth model, per capita income of a country cannot be raised by (other things equal): a) increasing in the input of capital b) increasing total factor productivity c) increasing the number of workers d) increasing saving rat
- How would an increase in capital goods, holding the size of the labor force constant, help to make workers more productive and increase economic growth?
- Suppose an economy is characterized by a capital-output ratio of 3 and a rate of capital depreciation of 2%. In the Harrod-Domar growth model, for the outputs of this economy to grow at 4%, what is the necessary savings rate? a. 15% b. 12% c. 1.3% d. 18%
- Which of the following is always true after an economy reaches a balanced growth equilibrium? a. The growth rate of capital is equal to the growth rate of the effective workforce. b. The growth rate of capital is equal to the savings rate. c. The growth r
- Economic growth can be explained as: a. the rate of growth in the productivity of labor. b. the rate of growth in the productivity of capital. c. the per capita rate of growth of labor plus the rate of capital accumulation. d. the rate of growth of labor
- Consider an economy in a steady state with population growth rate n, a rate of capital depreciation Delta, and a rate of technological progress g(growth rate of y* in steady state). 1. At the steady s
- What are the determinants of aggregate output? a. Labor, capital goods, natural resources, and human capital. b. Prices, supply, and demand. c. Inflation, unemployment, and growth. d. Capital goods and consumption goods.
- Assume that the economy starts in a steady state with capital K. Imagine that at a time to the saving rate in the economy declines to zero. What will be the new steady state level of capital K? What
- If two economies are identical (including having the same saving rates, population growth rates, and efficiency of labor), but one economy has a smaller capital stock, then the steady-state level of i
- Consider the Solow growth model with technological change and no population growth. The savings rate in NeverLand are 1% and the depreciation rate of capital 10%. Let Y be aggregate output, A technolo
- An increase in the general price level: a) Decreases consumption by increasing consumer wealth, b) Decreases the real value of the money fixed assets, c) Shifts the consumption function upward, d) Both, a) and b).
- Based on the Solow growth model, how would tax incentives to increase private saving affect the steady-state level and steady-state growth rate of total output per person?
- Assume that the stock of capital increases by 5% and employment increases by 3%. Given this information, we know that: a) output per capita will increase by less than 3% and more than 2%. b) output per capita will increase by less than 2%. c) output per c
- All other things being equal, a rise in which one of the following would shift an economy's short-run aggregate supply curve to the left? A. Wage rates B. Imports of consumer goods C. The money supply D. Labor productivity
- According to the principle of diminishing returns to labor, if the amount of capital and other inputs are held constant, employing additional workers: a. increases output at a decreasing rate b. increases output at an increasing rate c. decreases outpu
- A rise in physical capital can raise real GDP and lead to a rightward shift in the LRAS curve. Show this relationship diagrammatically.
- The aggregate supply curve will shift to the left if a. the money wage rate increases. b. technology and productivity increase in the economy. c. the capital stock of the economy increases. d. ene
- Economic growth will A. not be affected because the key to economic growth is capital accumulation whether there are diminishing returns or not. B. slow down or stop if more capital per hour is used because of diminishing returns to capital. C. be fast
- Based on the Solow growth model, how would grants to support research and development affect the steady-state level and steady-state growth rate of total output per person?
- When an economy is operating well below its full-employment capacity and the marginal propensity to the consumer is 90%, a $10 billion increase in autonomous investment will cause the equilibrium income to rise by: a. $10 billion, b. $20 billion, c. $7
- Starting from steady state, a permanent increase in the rate of depreciation in the Solow model causes a. the growth rate of output to fall temporarily but leaves the level of GDP unchanged in the lon
- A higher population growth rate can potentially boost the rate of growth in per capita real GDP if: a. it leads to an increase in the amount of dead capital. b. it leads to greater democracy in a nation. c. young workers replace older workers. d. ther
- Following an increase in government spending, the output supply curve shifts right because ____________ increases. A. The capital stock. B. Equilibrium Employment. C. Total factor productivity. D. All the above.
- Because of diminishing returns, an economy can continue to increase real GDP per hour worked only if: a. there is technological change. b. the per-worker production function shifts downward. c. there continue to be decreases in capital per hour worked. d.
- Because of diminishing returns, an economy can continue to increase real GDP per hour worked only if: A) the per-worker production function shifts downward. B) there is technological change. C) there continue to be decreases in capital per hour worked. D)
- Explain what an increase in capital and/or technology does to wages, equilibrium full employment, productivity, and standard of living. Show this shift in a production function graph and labor supply graph drawn together one above the other.
- How does the rate of population growth influence the level of GDP per person? a. It increases the capital stock per worker which raises output per worker and it may increase technological progress whi
- In the Solow model, "steady-state" means ___. a. the economy is growing at a constant rate. b. the value of alpha is constant. c. the value of income is constant. d. depreciation is unchanging.
- Assume a Solow growth model economy with no exogenous technological change is initially at a steady state. Suppose there is a permanent decrease in the population growth rate, say on account of the sp
- Because of the principle of diminishing returns, growth promotion through capital deepening works better in countries that: A) have low capital stock B) have high capital stock C) have low saving rate D) have a high level of real GDP per capita
- If government debt is not changing, then ___. a. the economy is at long-run equilibrium. b. the government's budget must be balanced. c. GDP must equal the natural rate of output. d. capital per worker is constant.
- If labor productivity increases, a. the supply of labor will increase. b. the supply of labor will decrease. c. workers will earn wages higher than their marginal revenue product. d. the demand for labor will increase.
- Use a graph to demonstrate what happens to steady-state capital and income per worker once birth control methods reduce the rate of population growth.
- In the Solow model, if depreciation grows, equilibrium income will ___, and income can return to its original level if gamma then ___. a. increases; increases b. increases; decreases c. decreases; increases d. decreases; decreases
- The long-run aggregate supply curve shifts right if a. the capital stock increases. b. the price level falls. c. the price level rises. d. the capital stock decreases.
- Labor productivity increases when capital (blank) and labor (blank) a) decreases; increases b) increases; remains constant c) remains constant; decreases d) decreases; decreases
- In the Solow model with labor growth and technological progress, consider an economy that begins in steady state with a rate of technological progress, g, of 2 percent. Suppose g permanently rises to
- An increase in the marginal product of labor will result in: A. an increase in the demand for labor. B. a decrease in the MRP of labor. C. an increase in the market supply of labor. D. a lower wage for labor.
- Which of the following will shift the aggregate demand curve to the left? a) An increase in government spending. b) A reduction in labor productivity. c) An increase in personal income taxes. d) An increase in society aggregate wealth.
Explore our homework questions and answers library
Browse
by subject