Solow Model Quiz

According to the Solow Model, _____________________ is a function of capital.

• labor

• output

• technology

In the Solow Model, capital is subject to _____________________. So as you add additional units of capital to other fixed resources, there comes a point where more capital does not increase output as much as it did before.

• increasing returns

• the endowment effect

• diminishing returns

The Solow Model implies that countries with small initial capital stocks should grow rapidly. This implies that:

• poorer countries should eventually 'catch-up' to richer countries (conditional convergence)

• poorer countries are bound to experience explosive growth which will propel their economic output far beyond that of rich countries

• the growth rates between rich and poor countries is bound to diverge

In the Solow Model, when capital is depreciating faster than it is being accumulated we may conclude that the capital stock is _________________________.

• rising

• falling

• remaining the same

In the Solow Model, the point where investment is equal to depreciation is known as the ______________.

• steady state

• bliss point

• growth acceleration point

Japan's and Germany's economic growth after World War II are both examples of

• Catching-up growth.

• Cutting-edge growth.

The Solow model is a simple model to explain

• Economic growth.

• Country differences.

• Income inequality.

For the next two questions, consider the following: Country A has K=10,000 and produces GDP according to the following equation: GDP=5√K. If the country devotes 25% of its GDP to making investment goods, how much is the country investing?

• 12.5

• 25

• 125

• 1,250

• Can not be determined with the given information.

If 1% of all machines become worthless every year (they depreciate, in other words) in Country A, GDP is

• Increasing.

• Decreasing.

• In steady state.

• Can not be determined with the given information.