Chapter 12, Problem 1QAP

a

To determine

To find: Whether the given statement is true or not.

Explanation of Solution

Uncertain

Any change in input affects output but it depends on the stage of returns to scale of production. When there is increase in level of technology, it is not necessary that labor will be as effective as capital to affect output. There can be any possibility of impact on output due to change in inputs.

Economics Concept Introduction

Introduction:

Steady state in solow model is the situation in which capital is equal to depreciation. It means no new investment is done. All investment is used for repairing the existing depreciation.

b)

To determine

To find:

Whether capital per effective worker remains constant due to increase in rate of technological progress.

Explanation of Solution

True

To keep capital per effective worker constant, there is always a need for technological advancement. Firm must invest in their research and development department so that there is always a progress of technology. This is always to be done so that firms remains at steady state level of output.

Economics Concept Introduction

Introduction:

Steady state in solow model is the situation in which capital is equal to depreciation. It means no new investment is done. All investment is used for repairing the existing depreciation.

c)

To determine

To find:

Whether output per worker increases due to population growth.

Explanation of Solution

False

At steady state, output increases with the same rate as increase in population growth rate but output per effective worker remains constant. To remain at steady state, as population increases, output also increases so that economy remains at constant level.

Economics Concept Introduction

Introduction:

Steady state in solow model is the situation in which capital is equal to depreciation. It means no new investment is done. All investment is used for repairing the existing depreciation.

d)

To determine

To find:

Whether output per worker increases due to technological progress.

Explanation of Solution

True

At steady state level of output, capital per worker and out per worker remains constant. So, when there is progress in technology, that is capital, there is also a positive change in output per worker.

Economics Concept Introduction

Introduction:

Steady state in solow model is the situation in which capital is equal to depreciation. It means no new investment is done. All investment is used for repairing the existing depreciation.

e)

To determine

To find: Whether growth of output per effective worker increases due to higher saving rate.

Explanation of Solution

True

An increase in saving rate directly has a positive impact on capital stock and output level. A shift from lower steady state level of output to higher level of output increases leads to increase in the growth rate of output per worker, keeping population rate constant.

Economics Concept Introduction

Introduction:

Steady state in solow model is the situation in which capital is equal to depreciation. It means no new investment is done. All investment is used for repairing the existing depreciation.

f)

To determine

To find: Whether R& D spending is riskier than investing in new machines.

Explanation of Solution

True

It is riskier for firms to invest in research and development compared to new machines as the output generated is guaranteed in new machines. However, research and development outcome is suitable or not at current scenario and its development is questionable, therefore, it becomes risky.

Economics Concept Introduction

Introduction:

Steady state in solow model is the situation in which capital is equal to depreciation. It means no new investment is done. All investment is used for repairing the existing depreciation.

g)

To determine

To find: Whether private firms will engage in basic research or not.

Explanation of Solution

False

The decision to enter into research would also require the amount of money to be spent on component to translate into usable ideas for production. Thus, the feasibility of the research needs to be considered.

Economics Concept Introduction

Introduction:

Steady state in solow model is the situation in which capital is equal to depreciation. It means no new investment is done. All investment is used for repairing the existing depreciation.

h)

To determine

To find: Whether growth will come to an end or not.

Explanation of Solution

False

This statement does not have any adaptability or proof that growth will come to an end. Human being cannot predict the future. Hence, any statement without fact is false.

Economics Concept Introduction

Introduction:

Steady state in solow model is the situation in which capital is equal to depreciation. It means no new investment is done. All investment is used for repairing the existing depreciation.

i)

To determine

To find: Whether technology has played an important role in C’s economic growth or not.A

Explanation of Solution

False

The above statement is false as this is the only country in the world which produces and sells goods at relatively lower rate compared to other countries of the world. The level of technological progress and advancement has led this country to use human and natural resources efficiently.

Economics Concept Introduction

Introduction:

Steady state in solow model is the situation in which capital is equal to depreciation. It means no new investment is done. All investment is used for repairing the existing depreciation.