Question

1Our model assumes that (choose one or more)

A part of income is consumed

B the part of income that is not consumed is saved

C investment equals saving

D the rate of saving is also the fraction of output devoted to investment

2The capital stock can change over time because of

A investment B depreciation C both A and B

3The steady-state level of capital per worker is (choose two)

A above the level of capital stock at which depreciation exceeds investment

B above the level of capital stock at which investment exceeds depreciation

C below the level of capital stock at which depreciation exceeds investment

D below the level of capital stock at which investment exceeds depreciation

4The Solow model explains the “miracle” of Japanese and German growth because (choose two)

A at the lower capital stock, more capital is added by investment than is removed by depreciation

B at the lower capital stock, less capital is added by investment than is removed by depreciation

C their saving rates were higher than in the United States

D their saving rates were lower than in the United States

Answer 1

Solow model is a model of economic growth. We know that income is the earning of an indvidual from his work. Some part of income is consumed, while other part is saved and the saved money is either devoted to investment or kept in cash to meet unforseen events in life.

We know that, the part od income which is not saved in consumed in to meet out day to day requirements.

1). The correct options are (a,b & c).

part of income is consumed

the part of income that is not consumed is saved.

investment equals saving.

2). The correct option is (c).

Both a and c.

We know that, Changes in the capital stock depend on the difference between business investment expenditures and capital depreciation. If investment in new capital exceeds the depreciation of existing capital, then the capital stock expands. If depreciation exceeds investment, then the capital stock contracts.

3). The correct option is (a).

A above the level of capital stock at which depreciation exceeds investment

4). The correct option is (a&c).

A at the lower capital stock, more capital is added by investment than is removed by depreciation

C their saving rates were higher than in the United States.

Hope you got the answer.

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Thanks!