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ECON 402 Combined Multiple Choice Questions || with Errorless Solutions 100%.
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Assume that two countries have production functions given by country 1: Y = AK^(1/3)L^(2/3) and country 2: Y = AK^(1/2)L^(1/2). Then, according to the Solow model, the fraction of total income that goes to labor will be: (a) Larger in the country that is closest to the steady state. (b) Larger ...

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  • August 16, 2024
  • 9
  • 2024/2025
  • Exam (elaborations)
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  • assume that two countries have production function

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  • ECON 402
  • ECON 402

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ECON 402 Combined Multiple Choice Questions || with
Errorless Solutions 100%.
Assume that two countries have production functions given by country 1: Y = AK^(1/3)L^(2/3)
and country 2: Y = AK^(1/2)L^(1/2). Then, according to the Solow model, the fraction of total
income that goes to labor will be:

(a) Larger in the country that is closest to the steady state.
(b) Larger in the country that has higher productivity A.
(c) The same in the two countries.
(d) None of the above correct answers (d) None of the above

Assume two economies are identical in every way except that one has a lower depreciation rate.
According to the Solow growth model, in the steady state the country with the lower depreciation
will have a ______ level of output per person and ______ rate of growth of output per worker
as/than the country with the higher depreciation rate.

(a) higher; the same
(b) higher; a higher
(c) lower; the same
(d) lower; a lower correct answers (a) higher; the same

Assume that two countries both have the per-worker production function y = k^(1/2),neither has
population growth or technological progress, depreciation is 10 percent of capital in both
countries, and country A saves 20 percent of output whereas country B saves 40 percent. If A
starts out with a capital-labor ratio of 5 and B starts out with a capital-labor ratio of 10, in the
long run:

(a) both A and B will have capital-labor ratios of 4.
(b) both A and B will have capital-labor ratios of 16.
(c) A's capital-labor ratio will be 4 whereas B's will be 16.
(d) A's capital-labor ratio will be 16 whereas B's will be 4. correct answers (c) A's capital-labor
ratio will be 4 whereas B's will be 16.

If a war kills a large portion of a country's population but leaves everything else un-changed, the
Solow model predicts that output will shrink and that the new steady state will approach:

(a) a higher level of output per person than before.
(b) the same level of output per person as before.
(c) a lower level of output per person than before.
(d) the Golden Rule level of output per person. correct answers (b) the same level of output per
person as before.

In the Solow growth model with population growth and technological progress, which of the
following sets of variables will grow at the same rate in the steady state?

, (a) output per effective worker, capital per effective worker, real wage
(b) output per worker, capital per worker, real wage
(c) real rental price of capital, real wage, output per worker
(d) capital-output ratio, output per worker, capital per worker correct answers (b) output per
worker, capital per worker, real wage

6. Starting from a steady-state situation, if the savings rate decreases, capital per worker will:

(a) decrease, then increase and continue to increase unabated.
(b) increase until the new steady state is reached.
(c) increase, then decrease until the new steady state is reached.
(d) decrease until the new steady state is reached. correct answers (d) decrease until the new
steady state is reached.

Assume the production function is Yt = At Kt^α Lt^(1−α). If capital grows at 2 percent per year
and labor grows at 1 percent per year, the Solow residual grows at 2/3 percent per year, and
capital's share is 1/3 while labor's share is 2/3, the growth rate of output will be:

(a) 1 1/3 percent per year.
(b) 1 2/3 percent per year.
(c) 2 percent per year.
(d) 2 1/3 percent per year. correct answers (c) 2 percent per year.

Residual: 2/3%
Capital: 1/3 * 2% = 2/3%
Labor: 2/3 * 1% = 2/3%

2/3% + 2/3%+ 2/3% = 2%

The government can promote investments in R&D by granting patents at no cost for society
correct answers F

Capital grows at roughly the same rate as labor over time correct answers F

Permanent increases in the capital gains tax will increase the long run level of the capital stock
correct answers F

The production function F (K, L) = AK^(0.6)L^(0.5) has constant returns to scale. correct
answers F

The US national accounts consider inventories as a part of investment correct answers T

The CPI overstates inflation since it does not take into account that consumers may substitute
goods that become more expensive for goods that become relatively cheaper correct answers T

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