Question

18. Consider two countries that are otherwise identical (have the same saving rates and depreciation rates), but the population of Country Large is 100 million, while the population of Country Small is 10 million. There is no technological progress and countries have the same production technology. Country Large will have lower level of GDP per capita in the steady state if

a) its population growth rate is higher

b) its population growth rate is lower

c) its population growth rate is higher and its initial level of GPD per capita was higher

d) both (a) and (c).

19. If the aggregate production function exhibits increasing returns to scale in the Solow model, then factor payments made to labor and capital would

a) exactly exhaust output

b) fall short of total output

c) exceed total output

d) cannot tell

20. If the capital stock equals 180 units in year 1 and the depreciation rate is 10 percent per year, then in year 2, assuming no new or replacement investment, the capital stock would equal units.

a) 170

b) 160

c) 172

d) 162

Answer 1

18)Answer is option D)both a and c........because,large country with 100mn population will have lower level of gdp when its population growth rates should be higher and initial gdp level should be high

19)answer is option B......solow model describes how saving, population growth, and technological change affect output over time

20) option D)162....because, there is a depriciation of 10% every year and there is no new investment in 2nd year. So capital stock would be 180-18 = 162