Chapter 5: The Neoclassical Growth Model
Multiple Choice Questions - Exam 2

1.  

Suppose in the Solow model that instead of diminishing marginal productivity of capital there were constant returns to capital. Suppose in addition that the saving rate is not equal to the population growth rate. In this case
the steady state level of capital per person would move to the right
the steady state level of capital per person would move to the left.
) the steady state level of capital per person would not change, but output per person would increase
there would be no steady state level of capital per person.

2.  

Suppose in the Solow growth model the economy converges to a steady state and the saving rate, the population growth rate, and the level of technology are all constant. Output will grow at a rate equal to
the saving rate
the population growth rate
the investment rate
none of the above

3.  

In the Solow growth model, an increase in the saving rate
increases the growth rate of output permanently
increases the growth rate of output temporarily but not permanently
increases the growth rate of output per person permanently, but the growth rate of output temporarily
none of the above

4.  

The Golden Rule level of capital accumulation is
the level of capital per person where the saving function intersects the balanced growth line
the level of capital per person where the production function intersects the balanced growth line
the level of capital per person that maximizes the distance between income per person and steady state investment per person
the level of capital per person that maximizes the distance between income per person and steady state capital per person

5.  

In the context of the Solow growth model suppose a country increases its rate of immigration. Which of the following would be true?
Its growth rate of output would increase.
Its standard of living would decline.
Steady state saving per worker would decline
All of the above

6.  

In the Solow growth model an improvement in technology (an increase in A) would
increases the growth rate of output permanently
increases the growth rate of output temporarily but not permanently
increases the growth rate of output per person permanently, but the growth rate of output temporarily
none of the above

7.  

Technology in the Solow growth model
is exogenous
can permanently increase the growth rate when it experiences a one-time increase
affects the production function but not the saving function
none of the above

8.  

Adding depreciation at a constant rate d to the Solow model will
reduce the slope of the balanced growth line
decrease the steady state capital per person
increase the golden rule level of capital per person
none of the above

9.  

The Solow framework leads naturally to which of the following policy recommendations:
stimulate demand
encourage technological progress
stimulate investment
increase immigration

10.  

Which of the following did Martin Feldstein not recommend that Mexico do to increase standards of living?
encourage people to buy life insurance
allow money flowing into IRAs to be invested in higher yielding assets
impose capital controls
offer lottery bonds


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