1. Suppose there are two countries that are identical with the following excepti
ID: 1113318 • Letter: 1
Question
1. Suppose there are two countries that are identical with the following exception. The saving rate in country A is greater than the saving rate in country B. Given this information, we know that in the long run the capital-labor ratio (KN) will be greater in B than in A. the capital-labor ratio (K/N) will be greater in A than in B O the capital-labor ratio (K/N) will be the same in the two countries C C economic growth will be higher in A than in HB 2. Suppose there are two countries that are identical with the following exception. The saving rate in country A is greater than the saving rate in country B. Given this information, we know that in the long run O output per capita will be greater in B than in A o output per capita will be greater in A than in EB C economic growth will be higher in A than in HB O more information is needed to answer this question. 3. Which of the following will not cause an increase in aggregate output (Y) in the long run? increase in N C an C an increase in K C an increase in technology a reduction in the saving rate none of the above 4. Assume that constant returns to scale exists and that N and K both increase by 2%. Given this information, we know that output (Y) will increase by 4%. Y will increase by 2% Y will increase by less than 2%. Y will increase by less than 4% and more than 2%Explanation / Answer
(1) Option (B)
Higher savings rate leads to higher level of capital per effective worker (K/N) in long run steady state.
(2) Option (B)
Since higher savings rate leads to higher level of capital per effective worker (K/N) in long run steady state, the level of Output per effective worker (Y/N) increases in long run.
(3) Option (D)
In long run, lower savings rate does not increase output.
(4) Option (B)
In presence of constant returns to scale, a X% increase in both N and K will lead to an X% increase in output (Y).
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