Advanced Macroeconomics
Autumn 2016
Part-time Students
Professor Hartwell
Quiz #2
Instructions
1. Please do NOT forget to put your name on this page.
2. Please do ALL the questions. If no attempt is made, I will not give any partial credit.
3. Do your own work and submit your own answers.
Multiple Choice
1. The per-worker production function relates output per worker
a. to capital per worker.
b. to the participation rate.
c. to production per worker.
d. in different countries.
e. to technology.
2. The Solow model describes:
a. how saving rates are determined
b. the static relationship between capital and output
c. how savings, population growth, and technological change affect output over
time
d. how savings, population growth, and technological change affect output in a single
period
e. what constitutes technological change
3. In the Golden Rule steady state, the marginal product of capital is equal to the
a. savings rate plus the population growth rate.
b. population growth rate plus the depreciation rate.
c. depreciation rate plus the savings rate.
d. savings rate divided by the marginal product of labor.
e. Savings rate divided by the growth rate.
4. Use the simple Solow model, with no population growth. The formula for steady-state
consumption per worker (c*) as a function of output per worker and investment per
worker is:
a. c * = f(k*) - δk*
b. c * = f(k*) + δk *
c. c * = f(k*) ÷ nk*
d. c * = k* - f(k)*
5. Evidence presented in class on the Solow model seems to suggest that output per
worker is
a. positively related to both the rate of investment and to the rate of population growth.
b. positively related to the rate of investment and negatively related to the rate of
population growth.
c. negatively related to the rate of investment and positively related to the rate of
population growth.
d. negatively related to both the rate of investment and to the rate of population
growth.
6. In the Solow growth model, the law of motion of capital takes into account:
a. the residential nature of houses
b. the mobility of capital
c. the depreciation of old capital
d. the cost of shipping and installing capital
e. changes in the labor force
7. The saving rate has the following characteristic in Solow's exogenous growth model
a. it increases with output
b. it first decreases, then increases with output
c. it first increases, then decreases with output
d. it is constant
e. it is endogenously determined
8. In the Solow growth model, an increase in the savings rate
a. raises steady state per capita output
b. raises the growth rate in aggregate output
c. must reduce per capita consumption
d. must reduce the standard of living
e. has no effect
9. In the steady state of Solow's exogenous growth model, an increase in the savings rate
a. increases output per worker and increases capital per worker
b. increases output per worker and decreases capital per worker
c. decreases output per worker and increases capital per worker
d. decreases output per worker and decreases capital per worker
e. decreases output per worker and increases the number of workers
10. In the Solow-Swann model, the principal obstacle to continuous growth in output per
capita is due to
a. declining marginal product of labor
b. declining marginal product of capital
c. limits in the ability of government policymakers
d. too little savings
e. demographic change
Short Answer
11. True or False? The basic version of the Solow model (no population growth, no
technological progress) implies an economy where growth is not possible. Explain your
answer.
FALSE. It implies a world where long-run growth is impossible, due to declining marginal
products of capital, but it shows that growth is possible in the short-run due simply to capital
accumulation.
12. Suppose that an increase in consumer confidence raises consumers’ expectations about
their future income and thus increases the amount they want to consume today. This
might be interpreted as a shift in the consumption function. How does this shift affect
investment and the interest rate?
If consumers increase the amount that they consume today, private saving and therefore national
saving will fall. We know this from the definition of national saving: National Saving = [Private
Saving] + [Public Saving], and also because S = Y – C – G. So an increase in consumption
decreases private saving and thus national saving falls.
The following figure graphs saving and investment as a function of the interest rate. If national
saving decreases, the supply curve for loanable funds shifts to the left, thereby raising the real
interest rate and reducing investment.
BONUS QUESTION
What point did Mancur Olson make about the Solow growth model’s prediction and the case of
Ireland? How is it relevant for Poland?
Discussed in class – the emigration from Ireland, by the Solow model, should have increased per
capita growth but it did not.
