Chapter 5.1

Question 1

The Solow Model is the principal model for understand

Answer 1

long run growth and cross-country income differences.

Question 2

Capital

Answer 2

something which (i) must itself be produced, (il) helps you produce output, and (i) does not get fully used up in the production process.

Question 3

endowment feature of labor input

Answer 3

how many hours you worked in the past doesn’t influence how many hours you can work in the future

Question 4

Capital is different to the endowment feature of labor input in that

Answer 4

how much capital vou had in the past influences how much capital you’ll have in the future

Question 5

stock feature of capital

Answer 5

how much you had in the past influences how much capital you have in the present and future.

Furthermore, you can accumulate capital - you can go to Home Depot and buy another mower if you want to increase your future productive capacity

Question 6

Explain this equation

Answer 6

Question 7

The bigger is A,

Answer 7

the more Yt you get for given amounts of Kt and Nt - ie. you are more efficient at turning inputs into output.

Question 8

The function F() is assumed to have the following properties:

Answer 8

Positive marginal products (more input → more output)

Diminishing marginal products (extra units help, but less and less)

Capital and labor are complements (they boost each other)

Constant returns to scale (scale inputs up → output scales proportionally)

Both inputs are necessary (you need some of each to produce)

Question 9

The “engine” of the Solow model is:

Answer 9

(1) production, (2) saving/investment behavior, and (3) capital accumulation

Question 10

The basic Solow model is reduced to equations describing:

Answer 10

Production/scarcity
Capital accumulation
Economic behavior

Question 11

Equations of Model (the core 4 equations)

Answer 11

Question 12

Which are the endogenous and exogenous variables?

Answer 12

Question 13

Production Function F(K,N) Assumptions

Positive marginal products (more input → more output)

Answer 13

Question 14

Production Function F(K,N) Assumptions

Diminishing marginal products (extra units help, but less and less)

Answer 14

Question 15

Production Function F(K,N) Assumptions

Capital and labor are complements (they boost each other)

Answer 15

Question 16

Production Function F(K,N) Assumptions

Constant returns to scale (scale inputs up → output scales proportionally)

Answer 16

Question 17

Production Function F(K,N) Assumptions

Both inputs are necessary (you need some of each to produce)

Answer 17