**Econ 320 Ch 11 Homework Questions**

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__Please, do not use a calculator or any other devices such as cell phones or computers.__

- An increase in the saving rate will
__not__affect which of the following variables in the long run?

- the growth rate of output per worker. B. capital per worker.
- output per worker. D. the amount of capital in the economy.

- Which of the following variables will
__not__change when the economy reaches steady state equilibrium? Recall that the population is assumed to be constant over time.

- capital per worker. B. capital. C. output. D. all of above

- Suppose that Kt+1/N < Kt/N. The steady-state level of capital per worker (K/N) will be ____ Kt/N.

- greater than. B. less than. C. equal to.

- In question 3, output per worker (Y/N) in period t is ____ period t-1.

A.greater than B. less than C. equal to

- In question 3, the economy will reach or reached a steady-state (long-run equilibrium) in period __ (choose the best one, given the information available).

- t-2. B. t-1. C. t D. t+2

- In question 3, depreciation per worker is _____ saving per worker at time t-1.

- less than. B. greater than. C. equal to.

- If Kt+1/N = Kt/N,

- output per worker grows at a positive rate in period t .
- investment per worker equals depreciation per worker in period t.
- capital per worker grows at a positive rate in period t.

- In the steady state,

- consumption per worker is maximized.
- the growth rate of output per worker equals zero.
- investment per worker exceeds depreciation per worker.
- capital per worker grows.

- Countries X and Y are identical, except that the saving rate in country X is lower than the saving rate in country Y. Then, _____ in the long run.

- the capital-labor ratios (K/N) will be the same in both countries.
- the growth rate of output per capita will be the same in both countries.
- the growth rate of output per capita will be greater in Y than in X.
- the growth rate of output per capita will be greater in X than in Y.

- Countries X and Y are identical, except that the saving rate in country X is lower than the saving rate in country Y. Then, _____ in the long run.

- the capital-labor ratio (K/N) will be greater in X than in Y
- the capital-labor ratio (K/N) will be less in X than in Y
- the capital-labor ratio (K/N) in X will be the same as that in Y

For questions 11-14, suppose that Kt+2/N < Kt+3/N.

- The economy reaches the long-run equilibrium (steady-state) in period __ (choose the best one, given the information available).

A.t-3 B. t C. t+2 D. t+4

- The steady-state level of capital per worker (K/N) will be ____ Kt+1/N.

- greater than. B. less than. C. equal to.

- Output per worker (Y/N) in period t+2 is ____ period t+1.

A.greater than B. less than C. equal to

- At time t+2, depreciation per worker is _____ saving per worker.

- less than. B. greater than. C. equal to.

For questions 15-17, assume that Countries x and y are identical, except that the saving rate in country x is 20% while the saving rate in country y is 10%. Assume further that in the long run, the capital-labor ratio (K/N) in Country x is 5 and the output per worker (Y/N) in Country x is 20.

- In the long run, the capital-labor ratio (K/N) in Country y is ___ (choose the best one, given the information available).

A.3 B. 5 C. 8 D. 20

- In the long run, the growth rate of capital per worker (K/N) in Country x is ___ %.

A.0 B. 2 C. 5 D. 8

- In the long run, output per worker (Y/N) in Country y is ___ (choose the best one, given the information available).

A.15 B. 20 C. 25 D. 30

…………………………………………………………………………………………

- If a rich country’s per capita GDP grows faster than a poor country’s, the two countries will ___ in terms of per capita GDP.

A.converge B. diverge C.have the same outcome.

- Which is an example of the aggregate production function, Y = F(K, N), that exhibits constant returns to scale?

A.Y = KN B. Y= 2K+N C. Y = K/N D. Y= (K+N)K

- Explain your answer to question 3.

- A famous economist, Thomas Malthus, argued in 1798 that population growth would outpace agricultural (food) production, forcing humans to return to subsistence-level conditions. However, his prediction has not been supported by data. Discuss his shortcomings in the context of economic growth.

Answer Key

- A. 2. D 3. B 4. B 5. D
- B. 7. B 8. B 9.B 10.B

11.D 12.A 13.A 14.A 15.A

16.A 17.A 18.B 19.B

- Since Kt+1/N < Kt/N, it must be that at time t, depreciation per worker exceeds saving per worker. As time goes on, K/N continues to fall until depreciation per worker equals saving per worker (this situation is called the steady-state). Thus, K/N at the steady-state should be lower than Kt/N.

- Even with the same amount of land, technologies allow us to produce more agricultural output, helping humans survive.