Question

In the basic Solow model, an economy in a steady state has an economic growth rate equal to

a. The depreciation rate b. The savings rate c. The marginal product of capital d. Zero

2. Long time lags in the implementation of monetary policy a. Reduce the ability of the Fed to manage the economy b. Enhance the ability of the Fed to manage the economy c. Reduce the monetary base d. Increase the monetary base

3. An important principle of classical economics is that a. Workers and firms have rational expectations b. Wage and price stickiness explains business cycles c. The market tends towards instability and high unemployment d. The short-run is more important than the long-run

4. An economy’s capital stock rises when a. Immigration is high b. Interest rates are high c. The savings rate is low d. Investment exceeds depreciation

5. Overall, for the last century, real GDP in the United States has grown a. More rapidly than population growth b. More slowly than population growth c. At the same rate as population growth d. At a negative rate

Answer 1

Ans 1.
In the basic Solow model, an economy in a steady state has an economic growth rate equal to c. The marginal product of capital
The solow model shows that the economy’s productive capacity and potential GDP increase for accumulation of such inputs as capital, labor, and raw materials used in production and technological advancements
Ans 2.
Long time lags in the implementation of monetary policy a. Reduce the ability of the Fed to manage the economy.  
If the impact of the monetary actions is reflected with lot of lag and the benefit of the intervention does not reach in economy it will make the monetary policy ineffective.
Ans 3.
An important principle of classical economics is that a. Workers and firms have rational expectations
Classical economist belive that there is no need for intervention by the government and workers and firms are rational and economy will find equilibrium on its own based on demand and supply.
Ans 4.
An economy’s capital stock rises when d. Investment exceeds depreciation
When investment in the business or the capital investment is higher then the deprecaiotn , the capital stock of the country will increase.
Ans 5.
Overall, for the last century, real GDP in the United States has grown a. More rapidly than population growth. Because the per capita GDP growth has increased from less then 3000 in 1960 to almost 65000 at present.